<Page>
================================================================================
UNITED STATES
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 FISCAL QUARTER ENDED COMMISSION FILE NUMBER
NOVEMBER 3, 2001 1-5287
------------------------
PATHMARK STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2879612
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 MILIK STREET
CARTERET, NEW JERSEY 07008
(Address of principal executive offices) (Zip Code)
(732) 499-3000
(Registrant's telephone number, including area code)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $0.01 per share
Warrants to purchase Common Stock
------------------------
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
------ ------
As of December 3, 2001, 30,098,760 shares of the Common Stock 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
------------------------------------------ ---------------------------
13 WEEKS 39 WEEKS 6 WEEKS 7 WEEKS 33 WEEKS
ENDED ENDED ENDED ENDED ENDED
NOVEMBER 3, NOVEMBER 3, OCTOBER 28, SEPTEMBER 16, SEPTEMBER 16,
2001 2001 2000 2000 2000
----------- ----------- ----------- ------------ ------------
Sales ........................................ $ 985,960 $ 2,960,847 $ 437,727 $ 499,393 $ 2,348,186
----------- ----------- ----------- ------------ ------------
Cost of sales (exclusive of depreciation and
amortization shown separately below) ...... (711,334) (2,136,413) (315,050) (359,734) (1,688,506)
----------- ----------- ----------- ------------ ------------
Gross profit ................................. 274,626 824,434 122,677 139,659 659,680
Selling, general and administrative expenses . (231,016) (691,314) (99,510) (121,509) (549,656)
Depreciation and amortization ................ (18,473) (57,050) (8,815) (9,133) (48,006)
Reorganization income (expense) .............. -- -- -- 9,037 (850)
Amortization of excess reorganization value .. (66,379) (199,135) (32,069) -- --
----------- ----------- ----------- ------------ ------------
Operating earnings (loss) .................... (41,242) (123,065) (17,717) 18,054 61,168
Interest expense, net ........................ (15,981) (49,804) (8,817) (11,298) (99,131)
----------- ----------- ----------- ------------ ------------
Earnings (loss) before income taxes and
extraordinary items ....................... (57,223) (172,869) (26,534) 6,756 (37,963)
Income tax provision ......................... (3,689) (10,593) (2,466) (23) (88)
----------- ----------- ----------- ------------ ------------
Net earnings (loss) before extraordinary items (60,912) (183,462) (29,000) 6,733 (38,051)
Extraordinary items, net of tax provisions
of $46,557 ................................ -- -- -- 313,702 313,702
----------- ----------- ----------- ------------ ------------
Net earnings (loss) .......................... (60,912) (183,462) (29,000) 320,435 275,651
Less: noncash preferred stock accretion
and dividend requirements ................. -- -- -- -- (14,570)
----------- ----------- ----------- ------------ ------------
Net earnings (loss) attributable to
common stock .............................. $ (60,912) $ (183,462) $ (29,000) $ 320,435 $ 261,081
=========== =========== =========== =========== ============
Weighted average shares outstanding -
basic and diluted ......................... 30,000 30,000 30,000
=========== =========== ===========
Net loss per share - basic and diluted ....... $ (2.03) $ (6.12) $ (0.97)
=========== =========== ===========
</Table>
See notes to consolidated financial statements (unaudited)
2
<Page>
PATHMARK STORES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
NOVEMBER 3, FEBRUARY 3,
2001 2001
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents ................................................. $ 31,889 $ 84,601
Accounts receivable, net .................................................. 20,765 18,466
Merchandise inventories ................................................... 208,684 176,284
Prepaid expenses .......................................................... 22,981 21,539
Due from suppliers ........................................................ 61,276 58,413
Other current assets ...................................................... 8,807 7,379
----------- -----------
Total current assets .................................................. 354,402 366,682
Property and equipment, net .................................................. 550,744 532,141
Excess reorganization value, net ............................................. 500,379 699,514
Other noncurrent assets ...................................................... 133,281 127,104
----------- -----------
$ 1,538,806 $ 1,725,441
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .......................................................... $ 104,169 $ 79,499
Accrued payroll and payroll taxes ......................................... 50,196 48,203
Current maturities of long-term debt ...................................... 16,084 11,174
Current portion of lease obligations ...................................... 18,054 18,337
Accrued interest payable .................................................. 5,566 10,464
Accrued expenses and other current liabilities ............................ 95,661 101,124
----------- -----------
Total current liabilities ............................................. 289,730 268,801
----------- -----------
Long-term debt ............................................................... 429,073 441,162
----------- -----------
Long-term lease obligations .................................................. 166,999 177,192
----------- -----------
Deferred income taxes ........................................................ 81,171 74,948
----------- -----------
Other noncurrent liabilities ................................................. 168,726 174,365
----------- -----------
Commitments and contingencies
Stockholders' equity
Preferred stock ........................................................... -- --
Authorized: 5,000,000 shares; issued and outstanding: none issued
Common stock $0.01 par value .............................................. 301 301
Authorized: 100,000,000 shares; issued and outstanding: 30,098,510 shares
Common stock warrants ..................................................... 59,982 59,982
Paid-in capital ........................................................... 606,987 606,987
Accumulated deficit ....................................................... (260,953) (77,491)
Accumulated comprehensive net loss ........................................ (3,129) --
Unamortized value of restricted common stock grants ....................... (81) (806)
----------- -----------
Total stockholders' equity ............................................ 403,107 588,973
----------- -----------
$ 1,538,806 $ 1,725,441
=========== ===========
</Table>
See notes to consolidated financial statements (unaudited).
3
<Page>
PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<Table>
<Caption>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
---------------------------- --------------
39 WEEKS 6 WEEKS 33 WEEKS
ENDED ENDED ENDED
NOVEMBER 3, OCTOBER 28, SEPTEMBER 16,
2001 2000 2000
----------- ----------- ------------
Operating Activities
Net earnings (loss) ................................................. $ (183,462) $ (29,000) $ 275,651
Adjustments to reconcile net earnings (loss) to net cash provided by:
Depreciation and amortization ..................................... 57,050 9,086 49,975
Amortization of excess reorganization value ....................... 199,135 32,069 --
Amortization of deferred financing costs .......................... 1,688 241 2,568
Deferred income taxes ............................................. 6,339 2,238 --
Gain on sale or disposal of property and equipment ................ -- -- (1,926)
Extraordinary gain ................................................ -- -- (313,702)
Cash provided by (used for) operating assets and liabilities:
Accounts receivable, net ........................................ (2,299) (412) (2,061)
Merchandise inventories ......................................... (32,400) (19,908) (5,716)
Due from suppliers .............................................. (2,863) 50 56
Other current assets ............................................ (3,546) (2,443) (909)
Noncurrent assets ............................................... (2,597) (3,457) (15,379)
Accounts payable ................................................ 24,670 (1,605) 12,232
Accrued interest payable ........................................ (4,935) 1,578 51,932
Accrued expenses and other current liabilities .................. (3,491) 3,988 4,440
Noncurrent liabilities .......................................... (7,786) (1,365) (31,090)
----------- ----------- ------------
Cash provided by (used for) operating activities .............. 45,503 (8,940) 26,071
----------- ----------- ------------
Investing Activities
Property and equipment expenditures, including technology investments (80,087) (4,591) (25,252)
Proceeds from sale or disposal of property and equipment ............ -- 2,718 9,800
----------- ----------- ------------
Cash used for investing activities ............................ (80,087) (1,873) (15,452)
----------- ----------- ------------
Financing Activities
Borrowings under the new term loan .................................. -- -- 425,000
Repayments of the new term loan ..................................... (7,000) (1,862) --
Repayments of the former term loan .................................. -- -- (241,442)
Repayments under the former working capital facility ................ -- -- (109,800)
Borrowings under the DIP facility ................................... -- -- 28,500
Repayments of the DIP facility ...................................... -- -- (28,500)
Increase in other debt .............................................. 690 -- 606
Repayments of other debt ............................................ (869) (165) (1,511)
Decrease in lease obligations ....................................... (10,949) (2,107) (11,591)
Deferred financing costs ............................................ -- -- (12,747)
Expenses related to common stock issuance ........................... -- -- (822)
----------- ----------- ------------
Cash provided by (used for) financing activities .............. (18,128) (4,134) 47,693
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents ....................... (52,712) (14,947) 58,312
Cash and cash equivalents at beginning of period ....................... 84,601 74,508 16,196
----------- ----------- ------------
Cash and cash equivalents at end of period ............................. $ 31,889 $ 59,561 $ 74,508
=========== =========== ============
Supplemental Disclosures of Cash Flow Information
Interest paid ....................................................... $ 55,040 $ 8,205 $ 40,910
=========== =========== ============
Income taxes paid ................................................... $ 802 $ -- $ 155
=========== =========== ============
Noncash Investing and Financing Activities
Capital lease obligations ........................................... $ 3,414 $ -- $ 19,181
=========== =========== ============
Cancellation of bond indebtedness ................................... $ -- $ -- $ 1,034,629
=========== =========== ============
Issuance of common stock and warrants ............................... $ -- $ -- $ 666,882
=========== =========== ============
Issuance of restricted common stock ................................. $ -- $ -- $ 1,210
=========== =========== ============
</Table>
See notes to consolidated financial statements (unaudited).
4
<Page>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. PLAN OF REORGANIZATION
Pathmark Stores, Inc. (the "Company") completed its plan of reorganization
(the "Plan of Reorganization") and formally exited Chapter 11 on September 19,
2000 (the "Effective Date"). As a result, 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"). In connection with the
adoption of Fresh-Start Reporting, a new entity was deemed created for financial
reporting purposes. The periods presented prior to the Effective Date have been
designed "Predecessor Company" and the periods subsequent to the Effective Date
have been designated "Successor Company' with September 16, 2000, the Saturday
nearest the Effective Date, 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 from the completion
of the Plan of Reorganization, the results of operations of the Predecessor
Company and Successor Company are not comparable.
NOTE 2. BUSINESS AND BASIS OF PRESENTATION
BUSINESS:
The Company operated 141 supermarkets as of November 3, 2001, primarily in
the New York-New Jersey and Philadelphia metropolitan areas. During fiscal 2001,
the Company opened five stores and, on August 4, 2001, closed two
under-performing stores.
BASIS OF PRESENTATION:
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 Annual Report on Form 10-K dated February 3, 2001.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All intercompany
transactions have been eliminated in consolidation.
RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the fiscal 2001 presentation.
NET LOSS PER SHARE:
Weighted average outstanding shares, for net loss per share - basic and
diluted, were 30.0 million shares for the 13 weeks and the 39 weeks ended
November 3, 2001 and for the 6 weeks ended October 28, 2000. Excluded from
the calculation of net loss per share - basic were 98,510 shares of
restricted common stock as such shares have not vested. All stock options,
warrants and restricted common stock were excluded from the computation of
the Company's net loss per share - diluted because their effect would have
been anti-dilutive. Net loss per share data is not presented for the
Predecessor Company due to the significant change in the Company's capital
structure.
NOTE 3. INCOME TAXES
The income tax provision of $3.7 million and $10.6 million in the third
quarter and the nine-month period of fiscal 2001, respectively, was based on an
effective income tax rate of 40.3% expected to be applicable for the full fiscal
year, excluding the non-deductible amortization of excess reorganization value.
No income tax benefit was recognized in the 7 weeks and the 33 weeks ended
September 16, 2000, since the Company recorded a valuation allowance related to
such income tax benefit. The tax provision for the 6 weeks ended October 28,
2000 was based on statutory rates, excluding the non-deductible amortization of
excess reorganization value.
5
<Page>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following (in thousands):
<Table>
<Caption>
NOVEMBER 3, FEBRUARY 3,
2001 2001
----------- -----------
Cash ....................................... $ 10,624 $ 17,559
Cash equivalents ........................... 21,265 67,042
----------- -----------
Cash and cash equivalents .................. $ 31,889 $ 84,601
=========== ===========
</Table>
NOTE 5. LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
<Table>
<Caption>
NOVEMBER 3, FEBRUARY 3,
2001 2001
----------- -----------
Term loan ................................. $ 414,375 $ 421,375
Industrial revenue bonds .................. 8,056 8,128
Other debt (primarily mortgages) .......... 22,726 22,833
----------- -----------
Total debt ................................ 445,157 452,336
Less: current maturities .................. (16,084) (11,174)
----------- -----------
Long-term portion ......................... $ 429,073 $ 441,162
=========== ===========
</Table>
In September 2000, the Company entered into a credit agreement with a group
of lenders led by The Chase Manhattan Bank. The credit agreement includes a
$425.0 million term loan consisting of $125.0 million of Term Loan A and $300
million of Term Loan B and a $175.0 million working capital facility. The credit
agreement bears interest at floating rates, ranging from LIBOR plus 3% on Term
Loan A and the working capital facility to LIBOR plus 4% on Term Loan B. The
weighted average interest rate for the term loan was 8.4% during the 39 weeks
ended November 3, 2001. The Company is required to repay a portion of its
borrowing under the term loan each year, so as to retire such indebtedness in
its entirety by July 15, 2007. Under the working capital facility, which expires
on July 15, 2005, the Company can borrow an amount up to $175.0 million,
including a maximum of $125.0 million in letters of credit. As of November 3,
2001, no borrowings were made under the working capital facility and $41.1
million in letters of credit were outstanding.
Borrowings under the credit agreement are secured by substantially all of
the Company's assets, other than certain specific assets secured by mortgages.
The credit agreement restricts, among other things, the payment of cash
dividends and the redemption of common stock. Other provisions of the credit
agreement 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 minimum interest and rental coverage and minimum
cash flow. The Company was in compliance with such covenants as of November 3,
2001 and, based on management's operating projections for the remainder of
fiscal 2001, the Company believes that it will continue to be in compliance with
such covenants.
NOTE 6. DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND COMPREHENSIVE LOSS
On February 4, 2001, the Company adopted the Financial Accounting Standards
Board (the "FASB") Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133, as amended, establishes accounting and reporting standards for
derivative instruments. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at fair
value. SFAS No. 133 defines requirements for designation and documentation of
hedging relationships, as well as ongoing effectiveness assessments, which must
be met in order to qualify for hedge accounting. For a derivative that does not
qualify as a hedge, changes in fair value are recorded in earnings immediately.
If the derivative is designated in a fair-value hedge, the changes in the fair
value of the derivative and the hedged item are recorded in earnings. If the
derivative is designated in a cash-flow hedge, effective changes in the fair
value of the derivative are recorded in other comprehensive loss currently and
in the income statement when the hedged item affects earnings. Changes in the
fair value of the derivative attributable to hedge ineffectiveness are recorded
in earnings immediately.
6
<Page>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 6. DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND COMPREHENSIVE
LOSS - (CONTINUED)
As part of its overall strategy to manage the level of exposure to interest
rate risk, in July 2001, the Company entered into a three-year interest rate
hedging arrangement on $150 million (the "Hedged Amount") of its Term Loan B.
Under this hedging arrangement, interest rates on the Hedged Amount float within
a range between a minimum of 8.39% and a maximum of 10%. This derivative is
recognized on the balance sheet at fair value and at inception was designated,
and continues to qualify, as a cash-flow hedge of the Company's forecasted
variable interest rate payments. The Company has formally documented its
risk-management objectives and strategy for undertaking any hedge transaction.
The impact of this cash-flow hedge during the 13 weeks and 39 weeks ended
November 3, 2001 on "Comprehensive Loss" is as follows (in thousands):
<Table>
<Caption>
SUCCESSOR COMPANY PREDECESSOR COMPANY
--------------------------------------- -----------------------------
13 WEEKS 39 WEEKS 6 WEEKS 7 WEEKS 33 WEEKS
ENDED ENDED ENDED ENDED ENDED
NOVEMBER 3, NOVEMBER 3, OCTOBER 28, SEPTEMBER 16, SEPTEMBER 16,
2001 2001 2000 2000 2000
----------- ------------ ----------- ------------- -------------
Net earnings (loss) .......................... $ (60,912) $ (183,462) $ (29,000) $ 320,435 $ 275,651
Other comprehensive loss
Change in derivative fair value, net of tax (2,691) (3,129) -- -- --
----------- ------------ ----------- ------------- -------------
Comprehensive net earnings (loss) ............ $ (63,603) $ (186,591) $ (29,000) $ 320,435 $ 275,651
=========== ============ =========== ============= =============
</Table>
NOTE 7. INTEREST EXPENSE, NET
Interest expense, net is comprised of the following (in thousands):
<Table>
<Caption>
SUCCESSOR COMPANY PREDECESSOR COMPANY
--------------------------------------- -----------------------------
13 WEEKS 39 WEEKS 6 WEEKS 7 WEEKS 33 WEEKS
ENDED ENDED ENDED ENDED ENDED
NOVEMBER 3, NOVEMBER 3, OCTOBER 28, SEPTEMBER 16, SEPTEMBER 16,
2001 2001 2000 2000 2000
----------- ------------ ----------- ------------- -------------
Term loan....................................... $ 8,031 $ 26,495 $ 4,925 $ 3,314 $ 14,043
Working capital facility........................ -- -- -- 1,155 6,031
DIP facility.................................... -- -- -- 2,183 2,539
Subordinated debt............................... -- -- -- -- 53,842
Amortization of deferred financing costs........ 563 1,688 241 336 2,568
Lease obligations............................... 5,120 15,471 2,209 2,644 13,748
Interest income................................. (430) (1,882) (390) (26) (283)
Other........................................... 2,697 8,032 1,832 1,692 6,643
----------- ------------ ----------- ------------- -------------
Interest expense, net........................... $ 15,981 $ 49,804 $ 8,817 $ 11,298 $ 99,131
=========== ============ =========== ============= =============
</Table>
NOTE 8. GRAND UNION STORES
On March 3, 2001, the Company purchased six former Grand Union stores in New
York and New Jersey for $15.2 million, excluding merchandise inventory. Five
stores opened as Pathmark supermarkets in March 2001 and the sixth store will
open as a Pathmark supermarket early in fiscal 2002.
NOTE 9. OUTSOURCING AGREEMENT
In April 2001, the Company entered into a new five-year outsourcing
agreement with International Business Machines Corporation to continue to
provide a wide range of information systems services.
7
<Page>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
NOTE 10. REORGANIZATION INCOME (EXPENSE)
Reorganization income of $9.0 million for the 7 weeks ended September 16,
2000 was comprised of a gain related to the difference between the settled
lessor claims for rejected leases and the liability previously recorded for such
claims. Reorganization expense of $0.9 million for the 33 weeks ended September
16, 2000 was comprised of $19.1 million of fees directly attributable to the
Plan of Reorganization, net of a gain of $18.2 million related to the difference
between the estimated lessor claims for rejected leases and the liabilities
previously recorded for such leases.
NOTE 11. EXTRAORDINARY ITEMS, NET
The extraordinary items of $313.7 million, net of a tax provision of $46.6
million, for the 33 weeks ended September 16, 2000 were comprised of income from
the cancellation of debt related to the exchange of bond indebtedness and
accrued interest for common stock and warrants; such income was reduced by the
write-off of deferred financing costs related to the former bank credit facility
and bond indebtedness subject to exchange. Since the realization of such income
occurred under the Bankruptcy Code, the Company did not recognize income from
the cancellation of debt for tax purposes, but elected to reduce, at the
beginning of fiscal 2001, the basis of its depreciable property and, with the
remaining income from the cancellation of debt, to reduce its net operating loss
tax carryforwards. The tax provision related to the extraordinary items was
based on the deferred tax impact of the tax attribute reductions, net of the
valuation allowance reversal related to certain deferred tax assets.
8
<Page>
PATHMARK STORES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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, the Saturday nearest
the Effective Date. Fresh-Start Reporting 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
was deemed created for financial reporting purposes. The periods prior to the
Effective Date have been designated "Predecessor Company" and the periods
subsequent to the Effective Date have been designated "Successor Company". The
results of the Predecessor Company and Successor Company have been combined for
the 13 weeks and for the 39 weeks ended October 28, 2000 since separate
discussions of the 7 weeks and the 33 weeks ended September 16, 2000 and of the
6 weeks ended October 28, 2000 are not meaningful in terms of their operating
results or comparisons to fiscal 2001.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated statements of
operations data (in millions):
<Table>
<Caption>
SUCCESSOR SUCCESSOR PREDECESSOR COMBINED SUCCESSOR SUCCESSOR PREDECESSOR COMBINED
COMPANY COMPANY COMPANY RESULTS COMPANY COMPANY COMPANY RESULTS
----------- ----------- ------------- ----------- ----------- ----------- ------------- -----------
13 WEEKS 6 WEEKS 7 WEEKS 13 WEEKS 39 WEEKS 6 WEEKS 33 WEEKS 39 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
NOVEMBER 3, OCTOBER 28, SEPTEMBER 16, OCTOBER 28, NOVEMBER 3, OCTOBER 28, SEPTEMBER 16, OCTOBER 28,
2001 2000 2000 2000 2001 2000 2000 2000
----------- ----------- ------------- ----------- ----------- ----------- ------------- -----------
Sales ................... $ 985.9 $ 437.7 $ 499.4 $ 937.1 $ 2,960.8 $ 437.7 $ 2,348.2 $ 2,785.9
=========== =========== =========== =========== =========== =========== ============= =========
Gross profit ............ $ 274.6 $ 122.7 $ 139.7 262.4 $ 824.4 $ 122.7 $ 659.7 $ 782.4
Selling, general and
administrative expenses (231.0) (99.5) (121.5) (221.0) (691.3) (99.5) (549.7) (649.2)
Depreciation and
amortization .......... (18.4) (8.8) (9.2) (18.0) (57.0) (8.8) (48.0) (56.8)
Reorganization income
(expense) ............. -- -- 9.0 9.0 -- -- (0.9) (0.9)
Amortization of excess
reorganization value .. (66.4) (32.1) -- (32.1) (199.1) (32.1) -- (32.1)
----------- ----------- ------------- ----------- ----------- ----------- ------------- -----------
Operating earnings (loss) (41.2) (17.7) 18.0 0.3 (123.0) (17.7) 61.1 43.4
Interest expense, net ... (16.0) (8.8) (11.3) (20.1) (49.8) (8.8) (99.1) (107.9)
----------- ----------- ------------- ----------- ----------- ----------- ------------- -----------
Earnings (loss) before
income taxes and
extraordinary items ... (57.2) (26.5) 6.7 (19.8) (172.8) (26.5) (38.0) (64.5)
Income tax provision .... (3.7) (2.5) -- (2.5) (10.6) (2.5) (0.1) (2.6)
----------- ----------- ------------- ----------- ----------- ----------- ------------- -----------
Earnings (loss) before
extraordinary items ... (60.9) (29.0) 6.7 (22.3) (183.4) (29.0) (38.1) (67.1)
Extraordinary items, net -- -- 313.7 313.7 -- -- 313.7 313.7
----------- ----------- ------------- ----------- ----------- ----------- ------------- -----------
Net earnings (loss) ..... $ (60.9) $ (29.0) $ 320.4 $ 291.4 $ (183.4) $ (29.0) $ 275.6 $ 246.6
=========== ========== =========== ========== =========== =========== ============= =========
EBITDA-FIFO ............. $ 44.1 $ 42.0 $ 134.6 $ 135.1
=========== ========= =========== =========
</Table>
9
<Page>
SALES:
Sales in the third quarter of fiscal 2001 were $985.9 million compared to
$937.1 million in fiscal 2000, an increase of 5.2%. For the nine-month period of
fiscal 2001, sales were $3.0 billion compared to $2.8 billion in fiscal 2000, an
increase of 6.3%. The sales increases in the third quarter and the nine-month
period of fiscal 2001 were primarily due to higher same store sales of 3.3%, in
each period, and new stores. Sales benefited from the Company's various
post-restructuring initiatives and increased promotional spending, such as
double coupons. The Company operated 141 and 138 supermarkets at the end of
the third quarters of fiscal 2001 and fiscal 2000, respectively.
GROSS PROFIT:
Gross profit in the third quarter of fiscal 2001 was $274.6 million or
27.9% of sales compared to $262.4 million or 28.0% of sales in fiscal 2000. For
the nine-month period of fiscal 2001, gross profit was $824.4 million or 27.8%
of sales compared to $782.4 million or 28.1% in fiscal 2000. The increase in
gross profit dollars in the third quarter and the nine-month period of fiscal
2001 was primarily due to higher sales, partially offset by higher promotional
expenses and shrink. The decrease in gross profit percentages in the third
quarter and the nine-month period of fiscal 2001 was primarily due to the impact
of our promotional initiatives to generate sales and higher shrink as a
percentage of sales. The cost of goods sold comparisons were affected by pretax
LIFO charges of $0.5 million and $0.6 million in the third quarters of fiscal
2001 and fiscal 2000, respectively, and by pretax LIFO charges of $1.5 million
and $1.4 million in the nine-month periods of fiscal 2001 and fiscal 2000,
respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
SG&A in the third quarter of fiscal 2001 increased $10.0 million compared
to fiscal 2000 and $42.1 million in the nine-month period of fiscal 2001
compared to fiscal 2000. The increase in SG&A in the third quarter of fiscal
2001 was primarily due to higher expenses related to store labor and related
benefits and incentive accruals, partially offset by lower utilities. The
increase in SG&A in the nine-month period of fiscal 2001 was primarily due to
higher expenses related to store labor and related benefits, incentive accruals,
utilities and advertising as well as a charge of $1.8 million related to the
closing of two under-performing stores on August 4, 2001 and pre-opening
expenses of $1.4 million related to the six former Grand Union stores, partially
offset by income of $3.3 million resulting from the partial settlement of a
lawsuit related to price fixing of prescription drugs. The nine-month period of
fiscal 2000 included a gain on the sale of certain real estate of $1.8 million.
As a percentage of sales, SG&A was 23.4% in the third quarter and 23.3% in the
nine-month period of fiscal 2001 compared to 23.6% in the third quarter and
23.3% in the nine-month period of fiscal 2000. Excluding the above mentioned
pre-opening expenses, the store closing charge, the prescription drug
settlements and the real estate gain, SG&A as a percentage of sales was 23.4% in
the third quarter and 23.3% in the nine-month period of fiscal 2001 compared to
23.6% in the third quarter and 23.4% in the nine-month period of fiscal 2000.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization was $18.4 million in the third quarter of
fiscal 2001 compared to $18.0 million in fiscal 2000. For the nine-month period
of fiscal 2001, depreciation and amortization was $57.0 million compared to
$56.8 million in fiscal 2000, primarily due to the impact of lower capital
expenditures in fiscal 2000. Depreciation and amortization excludes video tape
amortization, which is recorded in cost of goods sold, of $0.1 million in the
third quarter and $2.2 million in the nine-month period of fiscal 2000. There is
no video tape amortization in fiscal 2001 since the Company is no longer in the
video tape rental business.
REORGANIZATION INCOME (EXPENSE):
Reorganization income of $9.0 million for the 7 weeks ended September 16,
2000 was comprised of a gain related to the difference between the settled
lessor claims for rejected leases and the liability previously recorded for such
claims. Reorganization expense of $0.9 million for the 33 weeks ended September
16, 2000 was comprised of $19.1 million of fees directly attributable to the
Plan of Reorganization, net of a gain of $18.2 million related to the difference
between the estimated lessor claims for rejected leases and the liabilities
previously recorded for such leases.
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AMORTIZATION OF EXCESS REORGANIZATION VALUE:
Excess reorganization value of $798.0 million is being amortized over
three years. Amortization expense in the third quarter and the nine-month period
of fiscal 2001 was $66.4 million and $199.1 million, respectively. Amortization
expense for the third quarter and the nine-month period of fiscal 2000 was $32.1
million and represented six weeks of amortization. The Company will no longer
amortize excess reorganization value subsequent to fiscal year 2001. See SFAS
No. 142 under New Accounting Pronouncements.
OPERATING EARNINGS (LOSS):
The operating loss in the third quarter of fiscal 2001 was $41.2 million
compared to operating earnings of $0.3 million in fiscal 2000. For the
nine-month period of fiscal 2001, the operating loss was $123.0 million compared
to operating earnings of $43.4 million in fiscal 2000. The decrease in operating
earnings in the third quarter of fiscal 2001 compared to fiscal 2000 was due
to the amortization of the excess reorganization value in fiscal 2001, partially
offset by the reorganization income in fiscal 2000. The decrease in operating
earnings in the nine-month period of fiscal 2001 compared to fiscal 2000 was
primarily due to the amortization of the excess reorganization value in fiscal
2001.
INTEREST EXPENSE, NET:
Interest expense was $16.0 million in the third quarter of fiscal 2001
compared to $20.1 million in fiscal 2000 and $49.8 million for the nine-month
period of fiscal 2001 compared to $107.9 million in fiscal 2000. The decrease in
interest expense in the third quarter and the nine-month period of fiscal 2001
compared to fiscal 2000 was primarily due to the cancellation of subordinated
debt under the Plan of Reorganization.
INCOME TAX PROVISION:
Refer to Note 3 for information related to income taxes. During the
nine-month period of fiscal 2001, the Company made income tax payments of $0.8
million and received income tax refunds of $15,000. 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.
EXTRAORDINARY ITEMS, NET:
The extraordinary items of $313.7 million, net of a tax provision of $46.6
million, for the 33 weeks ended September 16, 2000 were comprised of income from
the cancellation of debt related to the exchange of bond indebtedness and
accrued interest for common stock and warrants; such income was reduced by the
write-off of deferred financing costs related to the former bank credit facility
and bond indebtedness subject to exchange. Since the realization of such income
occurred under the Bankruptcy Code, the Company did not recognize income from
the cancellation of debt for tax purposes, but elected to reduce, at the
beginning of fiscal 2001, the basis of its depreciable property and, with the
remaining income from the cancellation of debt, to reduce its net operating loss
tax carryforwards. The tax provision related to the extraordinary items was
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 loss in the third quarter of fiscal 2001 was $60.9
million compared to net earnings of $291.4 million in fiscal 2000. For the
nine-month period of fiscal 2001, the net loss was $183.4 million compared to
net earnings of $246.6 million in fiscal 2000. The increase in the net loss in
the third quarter and the nine-month period of fiscal 2001 compared to fiscal
2000 was primarily due to the amortization of excess reorganization value of
$66.4 million in the third quarter of fiscal 2001 and $199.1 million in the
nine-month period of fiscal 2001, respectively, and extraordinary items of
$313.7 million in the third quarter and in the nine-month period of fiscal 2000.
Excluding the amortization of excess reorganization value, the Company's net
earnings were $5.5 million in the third quarter and $15.7 million in the
nine-month period of fiscal 2001.
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EBITDA-FIFO:
EBITDA-FIFO was $44.1 million and $42.0 million in the third quarters of
fiscal 2001 and fiscal 2000, respectively, and $134.6 million and $135.1 million
in the nine-month periods of fiscal 2001 and fiscal 2000, respectively.
EBITDA-FIFO represents net earnings before interest, income taxes, depreciation,
amortization, the gain on the 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 Plan of
Reorganization, the Company's debt service and liquidity have improved
significantly compared to the Predecessor Company's financial condition.
On the Effective Date, the Company entered into a credit agreement with
a group of lenders led by The Chase Manhattan Bank. The credit agreement
includes a $425.0 million term loan consisting of $125.0 million of Term Loan
A and $300.0 million of Term Loan B and a $175.0 million working capital
facility. The credit agreement bears interest at floating rates, ranging from
LIBOR plus 3% on Term Loan A and the working capital facility to LIBOR plus
4% on Term Loan B. As part of its overall strategy to manage the level of
exposure to interest rate risk, in July 2001, the Company entered into a
three-year interest rate hedging arrangement on $150 million of Term Loan B.
Under this hedging arrangement, interest rates on the Hedged Amount float
within a range between a minimum of 8.39% and a maximum of 10%. This
derivative is recognized on the balance sheet at fair value and at inception
was designated, and continues to qualify, as a cash-flow hedge of the
Company's forecasted variable interest rate payments. The Company is
continuously evaluating the risk to its remaining long-term debt and will
implement additional interest rate hedging arrangements when deemed
appropriate. The weighted average interest rate for the term loan was 8.4%
during the 39 weeks ended November 3, 2001. The Company is required to repay
a portion of its borrowing under the term loan each year, so as to retire
such indebtedness in its entirety by July 15, 2007. Under the working capital
facility, which expires on July 15, 2005, the Company can borrow an amount up
to $175.0 million, including a maximum of $125.0 million in letters of
credit. As of November 3, 2001, no borrowings were made under the working
capital facility and $41.1 million in letters of credit were outstanding.
CREDIT AGREEMENT AND COVENANTS:
Borrowings under the credit agreement are secured by substantially all of
the Company's assets, other than certain specific assets secured by mortgages.
The credit agreement restricts, among other things, the payment of cash
dividends and the redemption of common stock. Other provisions of the credit
agreement 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 minimum interest and rental coverage and minimum
cash flow. The Company was in compliance with all covenants as of November 3,
2001 and, based on management's operating projections for the remainder of
fiscal 2001, the Company believes that it will continue to be in compliance with
such covenants. The Company's liquidity also included cash equivalents of $21.3
million as of November 3, 2001.
CAPITAL EXPENDITURES:
Capital expenditures in the third quarter of fiscal 2001, including
property acquired under capital leases and technology investments, were $34.7
million compared to $11.2 million in fiscal 2000 and $83.5 million for the
nine-month period of fiscal 2001 compared to $49.0 million in fiscal 2000.
During the nine-month period of fiscal 2001, the Company purchased six former
Grand Union stores and opened five of them as Pathmark supermarkets; in
addition, the Company renovated 19 stores and closed two under-performing
stores. During the remainder of fiscal 2001, the Company expects to open one
additional store and complete 14 additional store renovations.
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Capital expenditures for the remainder of fiscal 2001, including property to
be acquired under capital leases and technology investments, are projected to
be approximately $40 million. Management believes that cash flows generated
from operations, supplemented by the unused borrowing capacity under the
working capital facility, its cash equivalents and the availability of
capital lease financing, will be sufficient to provide for the Company's
capital expenditure program.
CASH FLOWS:
Cash provided by operating activities was $45.5 million in the nine-month
period of fiscal 2001 compared to $17.2 million in fiscal 2000. The increase in
cash provided by operating activities was primarily due to the change in owned
inventory and in other assets and liabilities. Cash used for investing
activities was $80.1 million in the nine-month period of fiscal 2001 compared to
$17.4 million in fiscal 2000. The increase in cash used for investing activities
was primarily due to an increase in expenditures for property and equipment.
Cash used for financing activities was $18.1 million in the nine-month period of
fiscal 2001 compared to cash provided by financing activities of $43.6 million
in fiscal 2000. The change in financing activities in fiscal 2001 compared to
fiscal 2000 was primarily due to the impact of the Plan of Reorganization.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, "BUSINESS COMBINATIONS",
which addresses financial accounting and reporting for business combinations
and supersedes Accounting Principles Board (the "APB") Opinion No. 16, "BUSINESS
COMBINATIONS", and SFAS No. 38, "ACCOUNTING FOR PREACQUISITION CONTINGENCIES OF
PURCHASED ENTERPRISES". All business combinations initiated after June 30, 2001
are now accounted for using the purchase method. The adoption of SFAS No. 141
did not have any effect on the Company's consolidated financial statements, but
will impact the accounting for future business combinations.
In June 2001, the FASB issued SFAS No. 142, "GOODWILL AND OTHER
INTANGIBLE ASSETS", which addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, "INTANGIBLE ASSETS". It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon
their acquisition. This statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. The provisions of SFAS No. 142 are
required to be adopted effective with the Company's first quarter of fiscal
year 2002. The Company's Excess Reorganization Value will no longer be
amortized subsequent to fiscal 2001 but rather will be evaluated for
impairment. The Company is evaluating the impact that the adoption of this
statement will have on its financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS", which addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS No. 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can
be made. Such associated asset retirement costs are to be capitalized as part
of the carrying amount of the long-lived asset and depreciated over the
useful life of the related asset. The provisions of SFAS No. 143 are required
to be adopted effective with the Company's first quarter of fiscal year 2003.
The Company has not determined the impact, if any, that the adoption of this
statement will have on its financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS", which supersedes SFAS No. 121,
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF", and APB Opinion No. 30, "REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS".
SFAS No. 144 addresses the financial accounting and reporting for the
impairment of long-lived assets and also broadens the presentation of
discontinued operations to include more disposal transactions. The provisions
of SFAS No. 144 are required to be adopted effective with the Company's first
quarter of fiscal year 2002. The Company has not determined the impact, if
any, that the adoption of this statement will have on its financial position
or results of operations.
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FORWARD-LOOKING INFORMATION
This report and documents incorporated herein by reference contain
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 renovations, and
pricing and promotional activity in the food industry generally and
particularly in the Company's principal markets; the Company's relationships
with its associates 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 generally or in the markets
served by the Company, which affect the spending patterns of the Company's
customers. Such forward-looking statements can be identified by the use of
words like "anticipates", "believes", "estimates", "expects", "may", "plans",
"projects", "should", "will", or similar expressions, as well as discussions
of strategy. A more detailed description of some of the risk factors is set
forth in the Company's Annual Report on Form 10-K dated February 3, 2001.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: None.
(b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the
fiscal quarter ended November 3, 2001.
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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 G. VITRANO
-------------------------------------------------
(FRANK G. VITRANO)
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
BY /s/ JOSEPH W. ADELHARDT
-------------------------------------------------
(JOSEPH W. ADELHARDT)
SENIOR VICE PRESIDENT AND CONTROLLER,
CHIEF ACCOUNTING OFFICER
DATE: December 17, 2001
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