PATHMARK STORES INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
FEBRUARY 2, 2002 1-5287

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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 07008
CARTERET, NEW JERSEY (Zip Code)
(Address of principal executive office)

(732) 499-3000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.01 per share
Warrants to purchase Common Stock
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes /X/ No /_/

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/

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 /_/

As of April 19, 2002, 30,067,407 shares of the Common Stock were
outstanding. The aggregate market value of the Common Stock as of April 19, 2002
(based upon the last reported sale price of the Common Stock by the Nasdaq
National Market), excluding outstanding shares deemed beneficially owned by
directors and officers, was $690,429,707.

Documents incorporated by reference: Part III of this Annual Report on
Form 10-K incorporates by reference information to the extent specific sections
are referred to herein from the Proxy Statement for its Annual Meeting to be
held on June 13, 2002 (the "2002 Proxy Statement").

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FORWARD-LOOKING INFORMATION

This report and the documents incorporated by reference into this report
contain both historical and "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These
statements appear in a number of places in this report and include statements
regarding our intent, belief and current expectations with respect to, among
other things, capital expenditures and technology initiates, the ability to
borrow funds under our credit facilities, the ability to successfully implement
our operating strategies, including trends affecting our business, financial
condition and results of operations. The words "may", "will", "believe",
"expect", "anticipate", "intend", project" and other similar expressions
generally identify forward-looking statements. While these forward-looking
statements and the related assumptions are made in good faith and reflect our
current judgment regarding the direction of our business, actual results will
almost always vary, sometimes materially, from any estimates, predictions,
projections, assumptions or other future performance suggested herein. These
statements are based upon a number of assumptions and estimates which are
inherently subject to significant uncertainties and contingencies, many of which
are beyond our control and reflect future business decisions which are subject
to change. Some of these assumptions inevitably will not materialize, and
unanticipated events will occur which will affect our results. Some important
factors (but not necessarily all factors) that could affect our revenues, growth
strategies, future profitability and operating results, or that otherwise could
cause actual results to differ materially from those expressed in or implied by
any forward-looking statement, include the following:

o changes in business and economic conditions and other adverse conditions
in our markets;
o unanticipated environmental damages; o increased competition;
o increased labor costs and labor disruptions; o reliance on third-party
suppliers;
o our ability to successfully implement our renovation and expansion
strategies; and
o natural disasters.

For a discussion of these factors, see "Item 1 - Business - Factors
Affecting Our Business and Prospects."

2

PART I

ITEM 1. BUSINESS*

GENERAL

Pathmark Stores, Inc. was incorporated in Delaware in 1987 and is the
successor by merger to a business established in 1966. In October 1987, our
predecessor companies were acquired in a leveraged buyout pursuant to which
substantial indebtedness was incurred. While our core supermarkets operations
remained sound following this leveraged buyout, the additional indebtedness and
associated interest expense ultimately led us and our then parent companies to
file a prepackaged plan of reorganization in the U.S. Bankruptcy Court in
Delaware on July 12, 2000. On September 7, 2000, the Court entered an order
confirming our plan of reorganization, which became effective on September 19,
2000, at which time we formally exited Chapter 11. As part of the plan of
reorganization, approximately $1 billion of our subordinated debt was cancelled,
with the holders receiving 100% of our common stock. Our principal executive
office is located at 200 Milik Street, Carteret, NJ 07008 (telephone: (732)
499-3000). Unless the context indicates otherwise, the terms "Company",
"Pathmark", "we" and "our" as used in this report, mean Pathmark Stores, Inc.
and its consolidated subsidiaries.

We are a leading full-service supermarket chain in the Northeast, operating
141 stores in the densely populated New York-New Jersey and Philadelphia
metropolitan areas. We pioneered the development of the large
supermarket/drugstore format in the Northeast, opening our first store of this
kind in 1977. Today, our stores average approximately 52,100 square feet in size
and are approximately 17% larger than the average U.S. supermarket. In addition,
our stores continue to be among the most productive in our industry. During
fiscal 2001, we generated sales per store and sales per selling square foot of
$28.8 million and $738, respectively, compared to industry averages of
approximately $17.4 million and $535, respectively. During fiscal 2001, we
opened five new stores, closed two stores and completed 34 renovations.

Our stores provide "one-stop" shopping with a wide assortment of foods and
general merchandise and typically provide a variety of conveniences including a
customer service center, a pharmacy, expanded produce and health and beauty care
departments, service seafood and delicatessen departments and an in-store bank.
Our stores are generally well situated in high traffic urban and suburban
locations where we have established a loyal customer base and where we believe
we are well positioned against new competitive entrants. We provide value to our
customers through strong customer service, a convenient shopping experience,
modern stores, a wide assortment of merchandise that caters to our diverse
customer base, competitive prices, a strong private label program and effective
in-store execution.

We believe we are the largest supermarket chain operating under a single
banner ("Pathmark") in our market area in terms of annual sales, which provides
us with economies of scale with respect to branding and advertising. We focus
our operations on this market area, where we believe we can maintain and build
upon our strong market presence and achieve additional operating economies. All
of our stores are located within 100 miles of our corporate office in Carteret,
New Jersey and of our company-operated and outsourced distribution facilities.
The proximity of these distribution facilities to our stores enables us to
maintain better in-stock conditions, short lead times and lower distribution
costs. We intend to further strengthen our position within our market area by
selectively expanding our store base. During fiscal 2002, we expect to open six
new stores and have identified an additional 40 potential locations for our
future stores within a 100 mile radius of our corporate office.

OUR STRENGTHS

STRONG REGIONAL FRANCHISE. Operating in the New York-New Jersey and
Philadelphia metropolitan areas for over 35 years, we have successfully
developed a leading supermarket franchise with strong brand name recognition and
customer loyalty. We believe we are the largest supermarket chain operating
under a single banner in our market area in terms of annual sales. Our market
area includes some of the most densely populated regions of the United States,
representing approximately 10% of the U.S. population and encompassing two of
the five largest U.S. metropolitan areas by population, namely New York and
Philadelphia. We believe that the high population density in our markets coupled
with the geographic concentration of our stores provide substantial
opportunities for economies of scale.

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* Unless otherwise indicated, all information in Item 1 is given as of February
2, 2002.

3

HIGHLY PRODUCTIVE, MODERN-FORMAT STORE BASE. Our stores are among the most
productive in the industry. During fiscal 2001, we generated sales per store and
sales per selling square foot of $28.8 million and $738, respectively, compared
to industry averages of approximately $17.4 million and $535, respectively. Our
stores average approximately 52,100 square feet in size and are approximately
17% larger than the average U.S. supermarket. We design our stores to provide
customers with "one-stop" shopping with a wide assortment of foods and general
merchandise, as well as a host of additional conveniences, including 130
in-store full service pharmacies and, in approximately 67% of our stores, a wide
array of financial services offered by in-store banks. We are a leading filler
of prescriptions among our supermarket competitors in the New York-New Jersey
and Philadelphia metropolitan areas and, through our agreements with Fleet Bank
and New York Community Bank, we believe we are also the leading provider of
in-store banking services in our market area.

PRIME REAL ESTATE LOCATIONS. Our many years of operation in our market area
have allowed us to establish a store presence in high traffic urban and suburban
locations. We believe that this gives us a strong position against new
competitive entrants as our store portfolio would be difficult to replicate.

STRONG AND DIFFERENTIATED MERCHANDISING. We believe that our merchandising
and marketing programs allow us to differentiate our product and service
offering to our customers. We also believe that our large stores and the
experience of our category managers and store operators allow us to respond to
the varying product demands of our customers with effective merchandising, which
is important given the diverse ethnic makeup of the communities in which we
operate. In addition, we offer over 3,000 private label products under the
"Pathmark" name, which we believe provides substantial value to our customers
and increases overall customer loyalty. Given our leading position in our market
area, our high customer count and our established marketing expertise, we are
also able to offer vendors significant opportunities to market their products
effectively in a desirable market area. As a result, we believe we are
well-positioned to realize purchasing and cooperative marketing benefits from
vendors.

EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. Our senior management team has
significant experience, with our top five executives having worked in the
industry for an average of 30 years. The current management team is led by our
Chairman and CEO, James Donald, who joined us in October 1996 from Safeway where
he previously was President of Safeway's Eastern division. Through Mr. Donald's
leadership, management has successfully implemented numerous operational
initiatives which have served to increase our overall competitiveness and market
share. Our management team and associates also own and hold options to purchase
our common stock, with stock-based incentives reaching down to the assistant
store manager level. In addition, a significant portion of management's total
compensation is incentive-based.

OUR STRATEGY

Our goals are to increase sales, market penetration, profitability and
return on investment in our existing markets. To achieve these goals, we intend
to:

CONTINUE TO RENOVATE OUR STORES AND EXPAND OUR STORE BASE. We believe that
keeping stores fresh and up-to-date is critically important, and our goal is to
renovate each store at least every five years. The store renovation program for
fiscal 2001 included 34 renovations, the largest number we have renovated in any
one year. At the end of fiscal 2001, approximately 80% of our stores were either
new or have been renovated over the last five years. In addition to continually
renovating our stores, we intend to further strengthen our position in our
market area by selectively expanding our store base. During fiscal 2002, we
expect to open six new stores, two of which will replace existing stores and
complete 19 renovations. In addition, we have identified an additional 40
potential locations for our future stores within a 100 mile radius of our
corporate office. By opening stores in our current market area, we believe we
can increase our existing strong market presence and achieve additional
operating economies.

PROVIDE SUPERIOR CUSTOMER SERVICE AND STORE-LEVEL EXECUTION. We believe we
differentiate ourselves by, among other things, our focus on customer service.
To ensure the implementation of our high customer service standards, we rely on
a store evaluation program whereby "mystery shoppers" visit our stores and rate
them based on a variety of customer service attributes. One of our top
priorities is to continue our strong execution in the area of food safety,
which, through our surveys, we have found to be a top criterion by which
customers choose a supermarket. We intend to continue to develop and improve
store-level execution through programs that emphasize proactive, interpersonal
communication between store associates and customers.

4

EXPAND PROFIT THROUGH IMPROVED GROSS PROFIT. We intend to continue to focus
on improving our profitability by capitalizing on our large store format, which
affords us the flexibility to more effectively merchandise a broader array of
products and services, as well as higher margin products. An integral part of
our merchandising and marketing effort is to promote increased customer traffic
for our stores through our various convenience service departments, such as
in-store pharmacies and banks. Furthermore, we plan to leverage the Pathmark
Advantage Card loyalty program, which facilitates more effective category
management and offers us the opportunity to more efficiently target sales
promotions while strengthening our customer base. We also intend to increase our
focus on, and merchandising of, our private label products as they generally
provide higher margins than comparable branded products. Gross profit
improvement initiatives will also include a focus on inventory control,
disciplined ordering and shrink reduction.

REDUCE OPERATING EXPENSES. We consistently evaluate our business in an
effort to reduce operating expenses without affecting our overall objective of
providing a high level of customer service. Currently, we have a number of
initiatives in place to accomplish this goal. For example, our labor initiative
is intended to increase associate productivity through increased uses of
technology, such as more efficient point-of-sale equipment. We also have a
program called "Best Ball," which is designed to identify the best operating
practices in use by certain stores and implement these best practices throughout
our chain. These operating practices include maximizing efficient use of
supplies and minimizing workers' compensation and customer accident claims.

UPGRADE AND ENHANCE TECHNOLOGY. We believe in upgrading and improving our
technology to enhance operating efficiency and customer service. We implemented
a new financial system in the fourth quarter of fiscal 2001, which we expect
will enhance our operational reporting and analytical tools. Similarly, our Wide
Area Network was recently upgraded to take advantage of more reliable and faster
frame relay technology, which we expect will improve communications with stores.
Beginning in early 2002, we will begin to roll out IBM's latest point-of-sale
technology, which we believe will improve cashier productivity and customer
service. In addition, after testing "self-checkout" equipment in five of our
stores and realizing strong customer acceptance and repeat usage, we expanded
this feature to 21 stores and plan to expand self-checkout to a significant
number of additional stores, with the intent of both improving our customer
shopping experience and lowering store-level operating costs. We are also
planning to implement a new time and attendance system, which will enable us to
more effectively track store-level labor costs. We plan to continue evaluating a
new category management system, which should assist in maximizing SKU level
profitability and improve in-store merchandising. Many of our various systems
initiatives were incorporated as part of a five-year extension of our existing
IBM outsourcing agreement, which provides our data center and information
systems functions, as well as business applications and systems development.

STORES

We operate 141 full-service supermarkets in the New York-New Jersey and
Philadelphia metropolitan areas. Our market area includes some of the most
densely populated regions of the United States, representing approximately 10%
of the U.S. population. We pioneered the development of the large
supermarket/drugstore format in the Northeast, opening our first such store in
1977. Today, our stores average approximately 52,100 square feet in size and are
approximately 17% larger than the average U.S. supermarket.

Below is a summary of the range of our store sizes as of February 2, 2002:

5

Our stores provide "one-stop" shopping with a wide assortment of foods and
general merchandise and typically provide a variety of conveniences including a
customer service center, a pharmacy, expanded produce and health and beauty care
departments and service seafood and delicatessen departments. In addition,
approximately 67% of our stores also include in-store banks offering a wide
array of financial services, which are principally operated by Fleet Bank or New
York Community Bank.

Our stores are generally well situated in high traffic urban and suburban
locations where we have established a loyal customer base and where we believe
we are well positioned against new competitive entrants. Given the valuable
locations of our stores coupled with a format that offers our customers a
convenient, "one-stop" shopping experience, our stores are among the most
productive in our industry. For fiscal 2001, we generated sales per store and
sales per selling square foot of $28.8 million and $738, respectively, compared
to industry averages of approximately $17.4 million and $535, respectively.

112 of our stores are in the greater New York-New Jersey metropolitan area
and 29 of our stores are in the greater Philadelphia metropolitan area.

STORE RENOVATION AND EXPANSION

We believe that keeping stores fresh and up-to-date is critically important,
and our goal is to renovate each store at least every five years. The store
renovation program for fiscal 2001 included 34 renovations, the largest number
we have renovated in any one year. By the end of fiscal 2001, approximately 80%
of our stores were either new or renovated over the last five years. In addition
to continually renovating our stores, we intend to further strengthen our
position in our market area by selectively expanding our store base. During
fiscal 2002, we expect to open six new stores, two of which will replace
existing stores, and complete 19 renovations. In addition, we have identified an
additional 40 potential locations for our future stores within a 100 mile radius
of our corporate office.

In March 2001, we purchased six former Grand Union stores for $15.2 million,
excluding merchandise inventory. We have re-opened five of these stores as
Pathmark stores and expect the sixth to be re-opened in the first half of fiscal
2002 after an extensive renovation and enlargement of the store.

We continuously evaluate our stores for necessary renovations. Renovations,
which we define as requiring capital expenditures in excess of $350,000, are
completed to increase customer traffic and sales, respond to existing customer
demand, compete effectively against new competitors in close proximity to a
particular store and update a particular format to our current prototype. In
certain circumstances, we may decide to replace a store instead of conducting a
major renovation due to population shifts, availability of a more attractive
site or cost considerations.

We spent $131 million on capital expenditures, including property acquired
under capital leases and technology investments, in fiscal 2001. We expect to
spend $135 million on capital expenditures in fiscal 2002.

The following table sets forth, for the periods indicated, our store
development and renovation activities:

On March 1, 2002, we signed a joinder agreement with The Stop & Shop
Supermarket Company ("Stop and Shop") to acquire nine Big V Shop-Rite
supermarkets ("Big V") in conjunction with Stop & Shop's proposal to acquire
substantially all of the Big V supermarkets pursuant to a plan of reorganization
to be filed by Stop & Shop and certain creditors of Big V with the Bankruptcy
Court in the Big V bankruptcy case. Big V is already the subject of a competing
plan previously filed by Wakefern Food Corp. and Big V.

6

Our acquisition of these stores is subject to a number of conditions,
including the satisfaction of the closing conditions of Stop & Shop's asset
purchase and sale agreement, the confirmation of the Stop & Shop plan of
reorganization by the Bankruptcy Court and the approval of the applicable
antitrust authorities. Because of the nature of the bankruptcy process and the
existence of a competing plan of reorganization for Big V, there can be no
assurances that we will be successful in acquiring the nine stores.

MERCHANDISING

Our merchandising strategy is designed to offer a "one-stop" shopping
experience that leverages our large store format and strong category management
to provide a differentiated product and service offering for our customers,
while allowing us to merchandise our higher margin products more effectively. In
addition, we believe our focus on perishables, ethnic merchandising and private
label has allowed increased customer loyalty, while providing higher margins and
profitability.

PERISHABLES. We believe that the quality of perishable items, particularly
produce, is an important factor for consumers when choosing where to shop. This
past year we brought our focus on produce to the "next level." Produce managers,
general and assistant store managers and even members of senior management
underwent produce training designed to educate them on all aspects of running a
high quality and profitable produce department. Also, in fiscal 2001, we
introduced into our advertisements "Produce Pete," a local television
personality who has a television show on weekend mornings devoted to tips on
shopping for fresh fruits and vegetables. We also continue to focus on our fresh
seafood department which has shown steady growth. In addition, we have
redesigned our bakery departments and our bakery offerings in a manner we
believe is designed to improve profitability by reducing shrink, lowering
operating costs and improving the departmental product mix.

ETHNIC MERCHANDISING. Being located in the New York-New Jersey and
Philadelphia metropolitan areas, we serve a highly diverse customer base, very
often within the neighborhood of a given store. We effectively vary our product
offerings across our store base in order to satisfy the various food preferences
of our customers. We have a Director of Ethnic Merchandising whose sole focus is
to more fully develop and refine our strategy of catering to our diverse
customer base. We believe that our large stores and the experience of our
category managers and store operators allow us to respond to the varying product
demands of our customers with effective merchandising, which is especially
important given the diversity of the communities in which we operate.

PRIVATE LABEL. We have a large variety of private label products under the
"Pathmark" name. Over 3,000 Pathmark private label products are currently
available, which we believe provide substantial value to our customers. New,
updated packaging for our entire line of private label products was
substantially completed in fiscal 2000, which has helped to strengthen our brand
positioning. As a result, private label product sales have increased.

ADVERTISING AND PROMOTION

As part of our marketing strategy, we emphasize value through competitive
pricing and weekly sales and promotions, supported by extensive advertising. Our
advertising expenditures are concentrated on print advertising, including
advertisements and circulars in local and area newspapers, with a particular
emphasis on ethnic media, ad flyers distributed in stores and on radio.

We also plan to continue to increase our focus on the Pathmark Advantage
Card program to enhance our understanding of customer purchasing patterns and
develop targeted sales promotions to our customer base. In addition, we have a
website (www.pathmark.com) which offers promotional discounts and assorted
on-line services.

Given our leading position in our market area, our large customer count and
our established marketing expertise, we also are able to offer vendors
significant opportunities to market their products effectively in a desirable
market area. As a result, we believe we are well-positioned to realize
purchasing and cooperative marketing benefits from our vendors.

7

PURCHASING AND DISTRIBUTION

We have outsourced a major portion of our distribution and trucking
functions. This approach allows us to focus on our customers and stores. We have
a long-term agreement expiring in February 2013 with C&S Wholesale Grocers, Inc.
("C&S"), the nation's third largest grocery wholesale company in terms of sales,
to supply us with substantially all of our products other than general
merchandise, pharmacy, health and beauty care and tobacco products. This
agreement may be terminated for cause or certain events of bankruptcy by either
party. Under our arrangement with C&S, we negotiate prices, discounts and
promotions directly with vendors.

AmeriSource-Bergen Corp., one of the nation's leading pharmaceutical
wholesalers, supplies all of our pharmacy products. In addition, we have an
agreement with a third-party trucking company to transport our products from our
outsourced and internally operated warehouse and distribution facilities to our
stores. While we have an excellent relationship with our current distribution
partners, should we need to find alternative distribution partners for any
reason, we believe that alternative sources of supply would be available to us
at market terms.

Our general merchandise, health and beauty care and tobacco products are
internally supplied from our 290,000 square foot leased distribution center in
Edison, New Jersey. We believe that our outsourced and internally provided
warehouse and distribution facilities contain sufficient capacity for the
continued expansion of our store base for the foreseeable future. All of our
stores are within 100 miles of these distribution facilities.

MANAGEMENT INFORMATION SYSTEMS

We implemented a new financial system in the fourth quarter of fiscal 2001
which we expect will enhance our operational reporting and analytical tools.
Similarly, our Wide Area Network was recently upgraded to take advantage of more
reliable and faster frame relay technology which we expect will improve
communications with stores. Beginning in early 2002, we will begin to roll out
IBM's latest point-of-sale technology, which we believe will improve cashier
productivity and customer service.

In addition, after testing "self-checkout" equipment in five of our stores
and realizing strong customer acceptance and repeat usage, we expanded this
feature to 21 stores and plan to expand self-checkout to a significant number of
additional stores, with the intent of both improving our customer experience and
lowering store-level operating costs. We are also planning to implement a new
time and attendance system, with a view to allowing us to more effectively track
store-level labor costs. We plan to continue evaluating a new category
management system for installation in 2003, which should assist in maximizing
SKU level profitability and improve in-store merchandising.

Many of our various systems initiatives were incorporated as part of a
five-year extension of our existing IBM outsourcing agreement in April 2001.
Pursuant to this agreement, IBM operates our data center operations and
mainframe processing and information system functions and is providing business
applications and systems designed to enhance our efficiency and customer
service. The charges under this agreement are based upon the services requested
at predetermined rates. We believe that this arrangement allows us to focus our
management resources on our customers and stores.

COMPETITION

The supermarket business is highly competitive. Our earnings are primarily
dependent on the maintenance of relatively high sales volume per supermarket,
efficient product acquisition and distribution and cost-effective store
operations. Principal competitive factors include price, store location,
advertising and promotion, product mix, quality and service. We compete against
national, regional and local supermarkets, club stores, drug stores, convenience
stores, discount merchandisers and other local retailers in our market area. Our
principal competitors include ShopRite, A&P/Waldbaum's, Stop & Shop and Acme.

TRADE NAMES, SERVICE MARKS AND TRADEMARKS

We have registered a variety of trade names, service marks and trademarks
with the United States Patent and Trademark Office, including "Pathmark." We
consider our Pathmark service marks to be of material importance to our business
and actively defend and enforce such service marks.

8

REGULATION

Our business requires us to hold various licenses and to register certain of
our facilities with state and federal health, drug and alcoholic beverage
regulatory agencies. By virtue of these licenses and registration requirements,
we are obligated to observe certain rules and regulations, and a violation of
such rules and regulations could result in a suspension or revocation of our
licenses or registrations. In addition, most of our licenses require periodic
renewals. We have experienced no material difficulties with respect to
obtaining, effecting or retaining our licenses and registrations.

PATHMARK IN THE COMMUNITY

We are recognized as a long-standing, valuable member of the communities
which we serve. This recognition is based upon our associates' involvement in
important community outreach efforts, as well as our support, both financial and
in kind, of numerous nonprofit charitable organizations. Our participation in
providing assistance to those affected by the tragic events of September 11th is
an example of this commitment.

ASSOCIATES

As of February 2, 2002, we employed approximately 27,000 people, of whom
approximately 19,000 were employed on a part-time basis. Approximately 90% of
our associates are covered by 15 collective bargaining agreements (typically
having three or four year terms) negotiated with 13 different local unions.
During fiscal 2002, six contracts, covering approximately 9,700 associates, will
expire. We do not anticipate any difficulty in renegotiating these contracts. We
believe that our relationship with our associates is generally satisfactory.

FACTORS AFFECTING OUR BUSINESS AND PROSPECTS

OUR INDUSTRY IS INTENSELY COMPETITIVE AND THE COMPETITION WE ENCOUNTER MAY
HAVE A NEGATIVE IMPACT ON THE PRICES WE MAY CHARGE FOR OUR PRODUCTS, OUR
REVENUES AND PROFITABILITY. The supermarket business is highly competitive and
is characterized by high inventory turnover and narrow profit margins. As a
result, our results of operations are sensitive to, and may be materially
adversely impacted by, among other things, competitive pricing, promotional
pressures and additional store openings. We compete with national and regional
supermarkets, club stores, drug stores, convenience stores, discount
merchandisers and other local retailers in the market areas we serve.
Competition with these outlets is based on price, store location, advertising
and promotion, product mix, quality and service. Some of these competitors may
have greater financial resources, lower merchandise acquisition cost and lower
operating expenses than we do, and we may be unable to compete successfully in
the future.

We are mainly concentrated in the metropolitan areas of New York-New Jersey
and Philadelphia. As a result, we are vulnerable to economic downturns in that
region, in addition to those that may affect the country as a whole, as well as
natural and other catastrophic events that may impact that region. These events
may adversely affect our sales which may lead to lower earnings, or even losses,
and may also adversely affect our future growth and expansion. For example, the
economic recession in 2001, combined with the terrorist events of September 11,
2001, have adversely affected the New York region and the regional economy.
Further, since we are concentrated in densely populated metropolitan areas,
opportunities for future store expansion may be limited, which may adversely
affect our business and results of operations.

OUR RENOVATION AND EXPANSION PLANS MAY NOT BE SUCCESSFUL, WHICH MAY
ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION. A key to our business
strategy has been, and will continue to be, the renovation and expansion of
total selling square footage. Although we expect cash flows generated from
operations, supplemented by the unused borrowing capacity under our bank credit
facility and the availability of capital lease financing, will be sufficient to
fund our capital renovation and expansion programs, sufficient funds may not be
available. In addition, the greater financial resources of some of our
competitors for real estate sites could adversely affect our ability to open new
stores. The inability to renovate our existing stores, add new stores or
increase the selling area of existing stores could adversely affect our
business, our results of operations and our ability to compete successfully.

9

WE RELY ON C&S FOR SUPPLY OF A MAJORITY OF OUR PRODUCTS. Pursuant to the
terms of a long-term supply agreement, we have outsourced to C&S, supply of
substantially all of the products we sell other than general merchandise,
pharmacy, health and beauty care and tobacco products. During fiscal 2001, the
products supplied from C&S accounted for approximately 61% of all of our
supermarket inventory purchases. Although we have not experienced difficulty in
supply of these products to date, supply interruptions by C&S may occur in the
future. Any significant interruption in this supply stream, including as a
result of disruptions at C&S or if the C&S agreement were terminated for any
reason, could have a material adverse effect on our business and results of
operations.

WE ARE AFFECTED BY INCREASING LABOR COSTS AND A COMPETITIVE LABOR MARKET AND
ARE SUBJECT TO THE RISK OF UNIONIZED LABOR DISRUPTIONS. Our continued success
depends on our ability to attract and retain qualified personnel. We compete
with other businesses in our markets with respect to attracting and retaining
qualified employees. A shortage of qualified employees may require us to enhance
our wage and benefits package in order to compete effectively in the hiring and
retention of qualified employees. Our labor costs may continue to increase, and
such increases may not be recovered. If we fail to attract and retain qualified
employees, to control our labor costs or to recover any increased labor costs
through increased prices, our business and results of operations may be
materially adversely affected. In addition, approximately 90% of our associates
are covered by collective bargaining agreements with local labor unions.
Although we do not anticipate any difficulty renegotiating these contracts as
they expire, a labor-related work stoppage by these unionized employees could
adversely affect our business and results of operations.

WE FACE THE RISK OF BEING HELD LIABLE FOR ENVIRONMENTAL DAMAGES THAT MAY
OCCUR. Our operations subject us to various laws and regulations relating to the
protection of the environment, including those governing the management and
disposal of hazardous materials and the cleanup of contaminated sites. Under
some environmental laws, such as the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund
law, and similar state statutes, responsibility for the entire cost of cleanup
of a contaminated site can be imposed upon any current or former site owners or
operators, or upon any party who sent waste to the site, regardless of the
lawfulness of the original activities that led to the contamination. From time
to time we have been named as one of many potentially responsible parties at
Superfund sites, although our share of liability has typically been DE MINIMIS.
We believe we are currently in substantial compliance with applicable
environmental requirements. However, future developments such as more aggressive
enforcement policies, new laws or discovery of unknown conditions may require
expenditures that may have a material adverse effect on our business and
financial condition.

ITEM 2. PROPERTIES*

As of February 2, 2002, we operated 141 supermarkets located in New York,
New Jersey, Pennsylvania and Delaware as follows:

Our 141 supermarkets have total square footage of approximately 7.3 million
square feet with an aggregate selling area of approximately 5.4 million square
feet. Fifteen of these stores are owned and the remaining 126 are leased. These
supermarkets are either freestanding stores or are located in shopping centers.
Thirty-eight leases will expire through fiscal 2006 and there are options to
renew 37 of them. A new store is under construction to replace the 38th store.

We lease our corporate headquarters in Carteret, New Jersey in premises
totaling approximately 150,000 square feet in size.

- --------------

* Unless otherwise indicated, all information in Item 2 is given as of February
2, 2002.

10

All of the facilities owned by us are subject to mortgages. We plan to
acquire leasehold or fee interests in any property on which new stores or other
facilities are opened and will consider entering into sale/leaseback or mortgage
transactions with respect to owned properties if we believe such transactions
are financially advantageous.

We continue to operate a 290,000 square foot leased general merchandise,
health and beauty care products and tobacco distribution center in Edison, New
Jersey, which opened in 1980.

ITEM 3. LEGAL PROCEEDINGS*

AHOLD LITIGATION. On December 16, 1999, Koninkljke Ahold N.V. ("Ahold")
filed a complaint in the Supreme Court, State of New York, County of New York
(the "Supreme Court"), against us seeking a declaratory judgment that Ahold had
used its "best efforts" under a merger agreement pursuant to which Ahold was
going to acquire us (the "Merger Agreement"). On January 18, 2000, we filed our
answer and counterclaims, denying Ahold's assertion that it used its best
efforts to consummate the Merger Agreement. Additionally, we 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. We have requested compensatory damages in an unspecified
amount.

On February 7, 2000, Ahold answered our 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 Merger Agreement.
Additionally, Ahold alleged that we breached the "best efforts" clause of the
Merger Agreement and has requested compensatory damages in an unspecified
amount. We filed our amended answer, amended complaint and amended counterclaims
on February 27, 2000.

In April 2000, we 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. In December 2000, the
Supreme Court entered an order granting Ahold's motion for partial summary
judgment regarding our counterclaim alleging that Ahold had failed to comply
with the "best efforts" provision of the Merger Agreement, which order was
affirmed on appeal in January 2002. Notwithstanding this appellate decision, we
have two viable counterclaims against Ahold that we intend to pursue.

OTHER. We are subject to claims and suits against us in the ordinary course
of our business. While the outcome of these claims cannot be predicted with
certainty, we do not believe that the outcome of any of these legal matters will
have a material adverse effect on our consolidated results of operations,
financial position or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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* Unless otherwise indicated, all information in Item 3 is given as of February
2, 2002.

11

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age as of April 15, 2002, principal
occupation or employment at the present time and during the last five years, and
the name of any corporation or other organization in which such occupation or
employment is or was conducted, of our executive officers, all of whom are
citizens of the United States and serve at the discretion of our Board of
Directors. Our executive officers listed below were elected to office for an
indefinite period of time. No family relationship exists between any of our
executive officer and any of our other executive officer or director.

- ---------------
(1) Member of the Board of Directors.

12

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET FOR COMMON STOCK. The common stock and warrants are currently trading
on the Nasdaq National Market under the ticker symbols "PTMK" and "PTMKW",
respectively. The following table represents the high and low closing sales
prices for the common stock for each quarter since the common stock began to be
publicly traded, as reported by the Nasdaq National Market.

HOLDERS OF RECORD. As of April 19, 2002, there were 38 holders of record of
our common stock.

DIVIDENDS. We paid no cash dividends to our stockholders and do not
currently anticipate paying cash dividends during fiscal 2002. We are prohibited
from paying cash dividends to holders of our common stock under our credit
agreement dated as of September 19, 2000 with JPMorgan Chase Bank, as agent and
the lenders party thereto. We are restricted from paying cash dividends to
holders of our common stock under the indenture governing our $200 million 8.75%
senior subordinated notes due 2012.

13

ITEM 6. SELECTED FINANCIAL DATA

SUMMARY OF HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present selected historical consolidated financial and
other data. The periods prior to our exit from Chapter 11 have been designated
"Predecessor Company" and the periods subsequent to that date have been
designated "Successor Company." The statement of operations data for the 52
weeks ended February 2, 2002, the 20 weeks ended February 3, 2001, the 33 weeks
ended September 16, 2000 and the 52 weeks ended January 29, 2000 and the balance
sheet data as of February 2, 2002 and February 3, 2001 are derived from our
audited consolidated financial statements included elsewhere in this report. The
statement of operations data for the fiscal years ended January 30, 1999 and
January 31, 1998 and the balance sheet data as of January 29, 2000, January 30,
1999 and January 31, 1998 are derived from our audited consolidated financial
statements, not included in this report. Certain data of the Successor Company
and Predecessor Company have been combined for the 53 weeks ended February 3,
2001 for comparative purposes with the other fiscal years presented.

The following table (dollars in millions, except per share amounts) should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
included elsewhere in this report:

See notes on the following pages.

14

NOTES TO SUMMARY OF HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

(a) We completed our plan of reorganization and formally exited Chapter 11 on
September 19, 2000, the "Plan Effective Date." As a result, we 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 had been deemed created for financial reporting purposes. The periods
presented prior to the Plan Effective Date have been designated "Predecessor
Company" and the periods subsequent to the Plan Effective Date have been
designated "Successor Company" with September 16, 2000, the Saturday nearest
the Plan 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
and balance sheets of the Successor Company and the Predecessor Company are
not comparable.

Pursuant to the plan of reorganization, our direct and indirect parent
companies merged with us and we became the surviving entity. These mergers
are being accounted for at historical cost in a manner similar to
pooling-of-interests accounting. Accordingly the historical financial
information of the Predecessor Company presented herein reflects the
financial position and results of operations of the combined entity.

(b) Reorganization income of $7.4 million for the 20 weeks ended February 3,
2001 is 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 expenses of $0.9 million for the 33 weeks ended
September 16, 2000 are 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.

See notes on the following pages.

15

NOTES TO SUMMARY OF HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA -
(CONTINUED)

(c) The excess reorganization value of $798.0 million, resulting from
Fresh-Start Reporting, is being amortized over three years. With the
adoption of SFAS No. 142 in fiscal 2002, our excess reorganization value
account will no longer be amortized subsequent to fiscal 2001 but rather
will be evaluated for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired.

(d) As a result of our Chapter 11 filing on July 12, 2000, the "Petition Date,"
no principal or interest payments were made on or after the Petition Date on
our subordinated debt. Accordingly, no interest expense for such
subordinated debt has been accrued on or after the Petition Date.

(e) In fiscal 2001, the extraordinary item of $3.3 million, net of an income tax
benefit of $2.3 million, represents costs incurred resulting from the early
extinguishment of debt, including the write-off of deferred financing costs,
related to the pay down of a portion of our credit agreement from certain of
the proceeds of the $200 million senior subordinated notes issued on January
29, 2002. In the 33 weeks ended September 16, 2000, the extraordinary item
of $313.7 million, net of an income tax provision of $46.6 million,
represents 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, we 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 our
depreciable property and, with the remaining income from the cancellation of
debt, to reduce our net operating loss tax carryforwards. The tax provision
related to the extraordinary item in fiscal 2000 was based on the deferred
tax impact of the tax attribute reductions, net of the valuation allowance
reversal related to certain deferred tax assets. In fiscal 1997, the
extraordinary item of $7.5 million, net of an income tax benefit of $5.5
million, represents early extinguishment of debt.

(f) The weighted average shares outstanding for net loss per share - basic and
diluted of the Successor Company for all periods presented were 30.0 million
shares. All stock options, warrants and restricted stock were excluded from
the computation of our net loss per share - diluted because their effect
would have been anti-dilutive. Net earnings (loss) per share data is not
presented for the Predecessor Company due to the significant change in our
capital structure.

(g) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and extraordinary items, plus
fixed charges. Fixed charges consist of interest expense, including
capitalized interest, amortization of debt issuance costs and a portion of
operating lease rental expense deemed to be representative of the interest
factor. Deficiency in earnings available to cover fixed charges for fiscal
2001, the 20 week period ended February 3, 2001, the 33 week period ended
September 16, 2000, fiscal 1999, fiscal 1998 and fiscal 1997 was $220.2
million, $62.8 million, $38.0 million, $29.8 million, $28.0 million and
$47.3 million, respectively.

16

NOTES TO SUMMARY OF HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA -
(CONTINUED)

(h) EBITDA represents earnings from operations before interest, income taxes,
depreciation, amortization, the gain (loss) on sale of real estate,
reorganization income and the LIFO charge (credit). While EBITDA 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. Our
measurement of EBITDA, as presented below (in millions), may not be
comparable to similarly titled measures reported by other companies:

(1) Includes amortization of video tapes of $2.2 million, $3.3 million,
$3.1 million and $3.4 million in fiscal 2000, fiscal 1999, fiscal 1998
and fiscal 1997, respectively; in fiscal 2000, we discontinued our
video tape rental business.

(i) Total debt used is as of period end.

(j) Ratio is not meaningful due to the reorganization.

17

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED FEBRUARY 2, 2002
("FISCAL 2001"), FEBRUARY 3, 2001 ("FISCAL 2000") AND JANUARY 29, 2000 ("FISCAL
1999"), WHICH ARE INCLUDED ELSEWHERE IN THIS REPORT. THE RESULTS OF THE
PREDECESSOR COMPANY AND SUCCESSOR COMPANY HAVE BEEN COMBINED FOR THE 53 WEEKS
ENDED FEBRUARY 3, 2001 SINCE SEPARATE DISCUSSIONS ARE NOT MEANINGFUL IN TERMS OF
THEIR OPERATING RESULTS OR COMPARISONS TO THE OTHER PERIODS.

GENERAL

We are a leading supermarket chain in the Northeast, operating 141
supermarkets in the densely populated New York-New Jersey and Philadelphia
metropolitan areas. These metropolitan areas contain over 10% of the population
in the United States. All of our supermarkets are located within 100 miles of
our corporate office in Carteret, New Jersey.

We formally exited from Chapter 11 effective September 19, 2000, which we
refer to as the "Plan Effective Date". For financial reporting purposes, we
accounted for the consummation of the plan of reorganization effective September
16, 2000, the Saturday nearest the Plan Effective Date. Fresh-Start Reporting
resulted in significant changes to the valuation of certain of our assets and
liabilities, and to our stockholders' equity. With the adoption of Fresh-Start
Reporting, a new entity was deemed created for financial reporting purposes. The
periods prior to the Plan Effective Date have been designated "Predecessor
Company" and the periods subsequent to the Plan Effective Date have been
designated "Successor Company". For separate presentations of the results of the
Predecessor Company and Successor Company for these periods, see our
consolidated financial statements included elsewhere in this report.

RESULTS OF OPERATIONS

The following table sets forth selected consolidated statements of
operations data (in millions):

FISCAL 2001 COMPARED TO FISCAL 2000

SALES. Sales in fiscal 2001 were $3.96 billion compared to $3.84 billion in
fiscal 2000, an increase of 3.2%. Total sales, excluding the extra week in
fiscal 2000, increased 5.1% in fiscal 2001. The sales increase in fiscal 2001
was primarily due to higher same store sales (stores opened the entire year in
both fiscal 2001 and fiscal 2000, including replacement stores and enlargements
and excluding the extra week in fiscal 2000) of 2.5% and new stores. Sales also
benefited from our various post-restructuring initiatives and increased
promotional spending, such as double coupons. During fiscal 2001, we opened five
new stores, closed two stores and renovated 34 stores. We operated 141 and 138
stores at the end of fiscal 2001 and fiscal 2000, respectively.

18

GROSS PROFIT. Gross profit represents the remaining amount of sales after
deducting cost of goods, which includes the costs of inventory sold and the
related purchase and distribution costs, net of vendor allowances and rebates.
Gross profit in fiscal 2001 was $1.11 billion or 27.9% of sales compared to
$1.08 billion or 28.1% of sales for fiscal 2000. The increase in gross profit of
$26.9 million for fiscal 2001 compared to fiscal 2000 was due to higher sales,
partially offset by higher promotional expenses and shrink. The decrease in
gross profit percentage in fiscal 2001 was primarily due to the impact of our
promotional initiatives to generate sales and higher shrink.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). SG&A in fiscal 2001
increased $31.4 million or 3.5% compared to fiscal 2000. This increase in SG&A
was primarily due to higher expenses related to store labor and related benefits
and occupancy as well as preopening expenses of $2.5 million related to the six
former Grand Union stores and a charge of $1.8 million related to the closing of
two under-performing stores on August 4, 2001, partially offset by income of
$3.3 million resulting from the partial settlement of a lawsuit related to price
fixing of prescription drugs. Included in fiscal 2000 were gains on the sale of
certain real estate of $1.8 million. As a percentage of sales, SG&A was 23.2%
and 23.1% in fiscal 2001 and fiscal 2000, respectively.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $76.7
million in fiscal 2001 was $2.9 million higher than the $73.8 million in fiscal
2000. The increase in depreciation and amortization expense in fiscal 2001
compared to fiscal 2000 was primarily due to the impact of our stepped up
capital program and technology initiatives. Depreciation and amortization
includes video tape amortization of $2.2 million in fiscal 2000. There is no
video tape amortization in fiscal 2001 since we discontinued our video tape
rental business in fiscal 2000.

REORGANIZATION INCOME. Reorganization income of $6.5 million in fiscal 2000
was comprised of a gain of $25.6 million related to the difference between the
estimated lessor claims for rejected leases and the liabilities previously
recorded for such leases, net of $19.1 million of fees directly attributable to
the plan of reorganization.

AMORTIZATION OF EXCESS REORGANIZATION VALUE. Excess reorganization value of
$798.0 million is being amortized over three years. Amortization expense was
$265.5 million and $98.5 million for fiscal 2001 and for fiscal 2000,
respectively. The increase in amortization expense in fiscal 2001 compared to
fiscal 2000 was due to a full year of amortization in fiscal 2001. With the
adoption of SFAS No. 142, our excess reorganization value will no longer be
amortized subsequent to fiscal 2001 but rather will be evaluated for impairment
annually, or more frequently if events or change in circumstances indicate that
the asset might be impaired.

OPERATING EARNINGS (LOSS). Fiscal 2001 operating loss was $154.9 million
compared to fiscal 2000 operating earnings of $26.0 million. The decrease in
operating earnings in 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 $65.3 million in fiscal 2001
compared to $126.8 million in fiscal 2000. The decrease in interest expense in
fiscal 2001 compared to fiscal 2000 was primarily due to the cancellation of
$1.0 billion in subordinated debt under the plan of reorganization and favorable
LIBOR borrowing rates under our credit agreement.

INCOME TAX PROVISION. The income tax provision was $18.5 million and $14.8
million in fiscal 2001 and fiscal 2000, respectively. Refer to Note 18 of the
consolidated financial statements for information related to our income taxes.
During fiscal 2001, we made income tax payments of $1.0 million and received
income tax refunds of $15,000. During fiscal 2000, we made income tax payments
of $0.2 million and received income tax refunds of $0.5 million.

EXTRAORDINARY ITEM. In fiscal 2001, the extraordinary item of $3.3 million,
net of an income tax benefit of $2.3 million, represents costs incurred
resulting from the early extinguishment of debt, including the write-off of
deferred financing costs, related to the pay down of a portion of the credit
agreement from certain of the proceeds of the $200 million senior subordinated
notes issued on January 29, 2002. In fiscal 2000, the extraordinary item of
$313.7 million, net of an income tax provision of $46.6 million, represents
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.

19

SUMMARY OF OPERATIONS. Net loss in fiscal 2001 was $242.0 million compared
to net earnings of $198.1 million for fiscal 2000. This increase in net loss was
primarily due to the increase in the amortization of excess reorganization value
in fiscal 2001 and the extraordinary item of $313.7 million in fiscal 2000.
Excluding the amortization of excess reorganization value and the extraordinary
item, net earnings were $26.8 million in fiscal 2001. Excluding the
extraordinary item, the reorganization income and the amortization of excess
reorganization value, net loss was $20.5 million in fiscal 2000.

FISCAL 2000 COMPARED TO FISCAL 1999

SALES. Sales in fiscal 2000 were $3.84 billion compared to $3.70 billion in
fiscal 1999, an increase of 3.9%. Same store sales (stores opened the entire
year in both fiscal 2000 and fiscal 1999, including replacement stores and
enlargements and excluding the extra week in fiscal 2000) increased 0.3% in
fiscal 2000. Total sales, excluding the extra week, increased 1.9% in fiscal
2000. Sales in fiscal 2000 compared to fiscal 1999 were also impacted by new
store openings in fiscal 2000. During fiscal 2000, we opened four new stores,
including one replacement store, and renovated 19 stores. We operated 138 and
135 stores at the end of fiscal 2000 and fiscal 1999, respectively.

GROSS PROFIT. Gross profit in fiscal 2000 was $1.08 billion or 28.1% of
sales compared to $1.06 billion or 28.6% of sales for fiscal 1999. The increase
in gross profit of $22.1 million for fiscal 2000 compared to fiscal 1999 was due
to higher sales, partially offset by higher promotional expenses and shrink.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A in fiscal 2000 increased
$38.7 million or 4.6% compared to fiscal 1999. The increase in SG&A for fiscal
2000 compared to fiscal 1999 was primarily due to higher expenses related to
store labor and related benefits and higher operating costs in general,
primarily due to the additional week in fiscal 2000. Included in fiscal 2000 and
fiscal 1999 were gains on the sale of certain real estate of $1.8 million and
$0.4 million, respectively. As a percentage of sales, SG&A was 23.1% in fiscal
2000, up from 23.0% in fiscal 1999.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $73.8
million in fiscal 2000 was $1.3 million lower than the $75.1 million in fiscal
1999. The decrease in depreciation and amortization expense in fiscal 2000
compared to fiscal 1999 was 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 $2.2 million and $3.3
million in fiscal 2000 and fiscal 1999, respectively.

REORGANIZATION INCOME. Reorganization income of $6.5 million for fiscal 2000
was comprised of a gain of $25.6 million related to the difference between the
estimated lessor claims for rejected leases and the liabilities previously
recorded for such leases, net of $19.1 million of fees directly attributable to
the plan of reorganization.

AMORTIZATION OF EXCESS REORGANIZATION VALUE: Excess reorganization value of
$798.0 million is being amortized over three years. Amortization expense for
fiscal 2000 commenced on the Plan Effective Date and was $98.5 million.

OPERATING EARNINGS. Operating earnings were $26.0 million in fiscal year
2000 compared to $133.3 million in fiscal 1999. The decrease in operating
earnings in fiscal 2000 compared to fiscal 1999 was primarily due to the
amortization of the excess reorganization value.

INTEREST EXPENSE, NET. Interest expense was $126.8 million in fiscal 2000
compared to $163.1 million in fiscal 1999. The decrease in interest expense in
fiscal 2000 compared to fiscal 1999 was primarily due to the cancellation of
subordinated debt under the plan of reorganization.

INCOME TAX PROVISION. The income tax provision was $14.8 million and $2.1
million in fiscal 2000 and fiscal 1999, respectively. Refer to Note 18 of the
consolidated financial statements for information related to our income taxes.
During fiscal 2000, we made income tax payments of $0.2 million and received
income tax refunds of $0.5 million. During fiscal 1999, we made income tax
payments of $0.5 million and received income tax refunds of $1.9 million.

20

EXTRAORDINARY ITEM. In fiscal 2000, the extraordinary item of $313.7
million, net of an income tax provision of $46.6 million, represents 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, we 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 our depreciable property and, with the remaining
income from the cancellation of debt, to reduce our net operating loss tax
carryforwards. The income tax provision related to the extraordinary item 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. Our net earnings was $198.1 million in fiscal 2000
compared to a net loss of $31.9 million in fiscal 1999. The increase in net
earnings in fiscal 2000 compared to fiscal 1999 was primarily due to the
extraordinary item and the reorganization income, partially offset by the
amortization of the excess reorganization value. Excluding the extraordinary
item, the reorganization income and the amortization of excess reorganization
value, net loss was $20.5 million in fiscal 2000.

EBITDA

EBITDA represents earnings from operations before interest, income taxes,
depreciation, amortization, the gain (loss) on sale of real estate,
reorganization income and the LIFO charge (credit). While EBITDA 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. Our measurement of
EBITDA, as presented below (in millions), may not be comparable to similarly
titled measures reported by other companies:

- --------
(1) Includes amortization of video tapes of $2.2 million and $3.3 million in
fiscal 2000 and fiscal 1999, respectively; in fiscal 2000, we discontinued
our video tape rental business.

LIQUIDITY AND CAPITAL RESOURCES

As a result of the substantial debt reduction resulting from the plan of
reorganization in fiscal 2000, our debt service and liquidity have improved
significantly compared to the Predecessor Company's financial condition.

CASH FLOWS. The following table sets forth certain consolidated statements
of cash flow data (in millions):

21

The increase in cash provided by operating activities in fiscal 2001
compared to fiscal 2000 was primarily due to the reduction in cash interest paid
and the increase in cash provided by operating assets and liabilities. The
increase in cash flow from operating activities in fiscal 2000 compared to
fiscal 1999 was primarily due to the reduction in cash interest paid due to the
impact of the plan of reorganization. The increase in cash used for investing
activities in fiscal 2001 compared to fiscal 2000 was primarily due to our
planned increase in capital expenditures, including technology investments. The
decrease in cash flow from investing activities in fiscal 2000 compared to
fiscal 1999 was primarily due to a decrease in expenditures for property and
equipment and an increase in proceeds from property sales or disposals. The
increase in cash used for financing activities in fiscal 2001 compared to fiscal
2000 was primarily due to debt and lease paydown in fiscal 2001 compared to the
impact of the plan of reorganization in fiscal 2000. The increase in cash flow
from financing activities in fiscal 2000 compared to fiscal 1999 was primarily
due to the impact of the plan of reorganization.

DEBT SERVICE AND LIQUIDITY. On January 29, 2002, we issued $200.0 million
aggregate principal amount of unregistered 8 3/4% Senior Subordinated Notes due
2012 ("Senior Subordinated Notes"), which pay cash interest on a semiannual
basis. The Senior Subordinated Notes are unconditionally guaranteed as to
payment of principal and interest by the subsidiary guarantors and contain
customary covenants. The proceeds from the issuance of the Senior Subordinated
Notes were used to repay a portion of our outstanding loans under our bank
credit facility and to repay in the first quarter of fiscal 2002 a portion of
our outstanding industrial revenue bonds. We recently completed an exchange
offer pursuant to which all of the Senior Subordinated Notes were exchanged for
$200 million aggregate principal amount of our registered 8 3/4% Senior
Subordinated Notes, due 2012, (referred to as the exchange notes). The exchange
notes will be governed by the indenture and supplemental indenture relating to
the Senior Subordinated Notes. The form and terms of the exchange notes are
identical in all material respects to the form and terms of the Senior
Subordinated Notes, except that the exchange notes have been registered under
the Securities Act, and therefore contain no restrictive legends.

On the Plan Effective Date, we entered into a credit agreement, which
included 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"). Amounts borrowed under the Credit Agreement bear
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 8.0% during fiscal 2001. We are required to
repay a portion of our 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, we can borrow an amount up to $175.0
million, including a maximum of $125.0 million in letters of credit. We used a
portion of the net proceeds of the offering of the Senior Subordinated Notes to
prepay all of our outstanding indebtedness under Term Loan A which, at January
29, 2002, amounted to $112.5 million, and to prepay $80.5 million of our
indebtedness under Term Loan B.

As of February 2, 2002 and April 16, 2002, no borrowings have been made
under the working capital facility. Letters of credit of $41.6 million and $40.2
million were outstanding as of February 2, 2002 and April 16, 2002,
respectively. Our liquidity also included cash equivalents of $12.9 million and
$8.1 million as of February 2, 2002 and April 16, 2002, respectively.

Borrowings under the Credit Agreement are secured by substantially all of
our assets, other than certain specific assets secured by third-party mortgages.
The Credit Agreement contains customary covenants and other terms. We were in
compliance with all of these covenants as of February 2, 2002 and, based on
management's operating projections for fiscal 2002, we believe that we will
continue to be in compliance with such covenants. We were also in compliance
with all provisions of the indentures relating to the terms of the Senior
Subordinated Notes and of our mortgage indebtedness.

22

The following table presents significant contractual obligations as of
February 2, 2002 (in millions):

The $41.6 million in letters of credit outstanding as of February 2, 2002
expire in fiscal 2002.

In addition, we outsourced a major portion of our distribution, trucking and
information system functions through long-term agreements as follows:

o In April 2001, we entered into a new five-year outsourcing agreement
with International Business Machines Corporation ("IBM") to continue to
provide a wide range of information systems services. Under the
agreement, IBM provides data center operations, mainframe processing,
business applications and systems development to enhance our customer
service and efficiency. The charges under this agreement are based upon
the services requested at predetermined rates. We may terminate the
agreement upon 90 days notice with a payment of a specified termination
charge.

o We have a 15-year supply agreement with C&S, expiring in 2013, pursuant
to which C&S supplies substantially all of our grocery, frozen and
perishable merchandise requirements. Under our arrangement with C&S, we
negotiate prices, discounts and promotions with vendors. During fiscal
2001, the products supplied from C&S accounted for approximately 61% of
all of our supermarket inventory purchases. This agreement may be
terminated for cause or certain events of bankruptcy by either party.

o We also have a ten-year agreement, expiring in 2007, with a local
trucking company to provide us with trucking services We may terminate
the agreement with a payment of a specified termination charge.

CAPITAL EXPENDITURES. Capital expenditures, including property acquired
under capital leases and technology investments, were $130.5 million for fiscal
2001 compared to $66.9 million for fiscal 2000 and $87.6 million for fiscal
1999. During fiscal 2001, we purchased six former Grand Union stores and opened
five of them as Pathmark stores; in addition, we renovated 34 stores and closed
two under-performing stores. During fiscal 2000, we opened four new stores,
including one replacement store and renovated 19 stores. In 2002, our capital
expenditure plan is to invest $135.0 million in new stores and major renovations
and technology investments. During fiscal 2002, we expect to open six additional
stores, including the sixth former Grand Union store, and complete 19 store
renovations.

We believe that cash flows generated from operations, supplemented by the
unused borrowing capacity under the working capital facility, our cash
equivalents and the availability of capital lease financing will be sufficient
to provide for our debt service requirements, working capital needs and capital
expenditure program for the foreseeable future. There can be no assurance,
however, that our business will continue to generate cash flow at or above
current levels or that we will maintain our ability to borrow under the Credit
Agreement.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions. The following accounting policies are considered critical because
changes to certain judgments and assumptions inherent in these policies could
affect our financial statements.

23

SELF-INSURED CLAIMS LIABILITIES. We are self insured for claims relating to
customer, associate and vehicle accidents, as well as associate medical and
disability benefits, and we maintain third-party excess insurance coverage for
such claims. It is our accounting policy to record a self-insured liability, as
determined actuarially on a consistent basis, based on the facts and
circumstances of each individual claim filed and an estimate of claims incurred
but not yet reported. All claims and their related liabilities are reviewed and
monitored on an ongoing basis. Any actuarial projection of losses concerning
such claims is subject to variability primarily due to external factors
affecting future inflation rates, litigation trends, benefit levels and claim
settlement patterns. The total self-insured liabilities for such claims and
benefits approximates $94.6 million at February 2, 2002.

IMPAIRMENT OF INTANGIBLES AND LONG-LIVED ASSETS. It is our accounting policy
to assess the carrying value of our intangibles and long-lived assets for
possible impairment based on groups of assets to determine if the carrying value
of such assets are recoverable from their related undiscounted cash flows. We
estimated future cash flows based on several economic and business assumptions
and have concluded that there is no impairment of such assets at February 2,
2002. However, our estimates project cash flow several years into the future and
could be affected by variable factors such as inflation and economic conditions.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("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 our
consolidated financial statements.

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 our fiscal year 2002. Our excess reorganization value account will no
longer be amortized subsequent to fiscal 2001 but rather will be evaluated for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. We do not expect that the adoption of
this statement will have an effect on the impairment of our excess
reorganization value account but will eliminate the amortization of excess
reorganization value in fiscal 2002, which was $265.5 million in fiscal 2001.

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 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 our first
quarter of fiscal year 2003. We have not determined the impact, if any, that the
adoption of this statement will have on our 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 our first fiscal quarter of fiscal 2002. We have not determined
the impact, if any, that the adoption of this statement will have on our
financial position or results of operations.

24

In November 2001, the FASB's Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 01-09, "Accounting for Consideration Given by a
Vendor to a Customer or a Reseller of the Vendor's Products." EITF Issue No.
01-09 codifies and reconciles the consensuses on all or specific issues of EITF
Issues No. 00-14, "Accounting for Certain Sales Incentives," No. 00-22,
"Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales
Incentives Offers, and Offers for Free Products or Services to be Delivered in
the Future," and No. 00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products," which address
various aspects of the accounting for consideration given by a vendor to a
customer or a reseller of the vendor's products. We don't expect that the
adoption of the EITF Issue No. 01-09 will have a material impact on our
financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks from changes in interest rates. Our exposure
to interest rate movements results from our use of floating rate debt to fund
our working capital, capital expenditures, and other operational and investment
requirements. At February 2, 2002, we had fixed-rate debt outstanding of $230.5
million and floating rate debt of $218.0 million. Such floating rate debt was
incurred under our bank credit facility, bearing interest at LIBOR + 4.00% per
annum at February 2, 2002.

To manage our interest rate risk, in July 2001, we entered into a three-year
interest rate zero-cost collar, consisting of a cap with a strike of 10% and a
floor with a strike of 8.39%, with a major international financial institution,
on a notional amount of $150 million of our term loan. We do not hold or issue
derivative financial instruments for speculative or trading purposes but rather
to hedge against the risk of rising interest rates. This derivative is recorded
on the balance sheet at fair value and at inception was designated, and
continues to qualify, as a cash-flow hedge of our forecasted variable interest
rate payments due on the term loan. We have formally documented our
risk-management objectives and strategy for undertaking any hedge transaction.
We are continuously evaluating the risk to our remaining long-term debt and will
implement additional interest rate hedging arrangements when deemed appropriate.
A hypothetical one percentage point increase in interest rates at February 2,
2002 would increase interest expense incurred under the bank credit facility for
fiscal 2002 by approximately $0.7 million.

25

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS

PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)

See notes to consolidated financial statements.

26

PATHMARK STORES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See notes to consolidated financial statements.

27

PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

See notes to consolidated financial statements.

28

PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN MILLIONS)

See notes to consolidated financial statements.

29

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. PLAN OF REORGANIZATION

Pathmark Stores, Inc. (the "Company" or "Pathmark") completed its plan of
reorganization (the "Plan of Reorganization") and formally exited Chapter 11 on
September 19, 2000 (the "Effective Date"). Pursuant to the Plan of
Reorganization, the Company's direct and indirect parent companies merged with
the Company, which became the surviving entity. Such mergers are being accounted
for in the historical financial statements at historical cost in a manner
similar to pooling-of-interests accounting.

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. SIGNIFICANT ACCOUNTING POLICIES

BUSINESS. The Company operated 141 supermarkets as of February 2, 2002,
primarily in the New York-New Jersey and Philadelphia metropolitan areas.

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. The Company
owns 331/3% of the common stock of Restoration Supermarket Corporation ("RSC")
and Community Supermarket Corporation ("CSC"). RSC and CSC are each tenants
under a lease for a supermarket, in Brooklyn, NY and Newark, NJ, respectively.
Both RSC and CSC have retained the Company to manage its respective supermarket
facility for a management fee. Each supermarket is operated under the Pathmark
name pursuant to a license. The Company also owns 50% interests in two joint
ventures which own real property. Each joint venture has leased a supermarket to
the Company. All of the above investments, which are not material to the
Company's consolidated financial statements, are accounted for under the equity
method. No debt incurred by any of these entities is recourse to the Company as
of February 2, 2002.

SEGMENT REPORTING. The Company has one reportable retail grocery segment,
operates in one geographical area in the United States, and has no major
customers representing 10% or more of sales.

USE OF ESTIMATES. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions. These estimates affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

RECLASSIFICATIONS. Certain reclassifications have been made to the prior
years' consolidated financial statements to conform to the fiscal 2001
presentation.

FISCAL YEAR. The Company adopted the Predecessor Company's fiscal year,
which ends on the Saturday nearest to January 31 of the following calendar year.
Fiscal 2001 consisted of the 52-week period ended February 2, 2002 and fiscal
2000 consisted of the 20-week period from September 17, 2000 through February 3,
2001. The Predecessor Company's fiscal 2000 consisted of the 33-week period from
January 30, 2000 to September 16, 2000, the Saturday nearest the Effective Date.
Normally, each fiscal year consists of 52 weeks, but every five or six years the
fiscal year consists of 53 weeks.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of cash and
temporary investments with maturities of three months or less when purchased.

30

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

MERCHANDISE INVENTORIES. Merchandise inventories are valued at the lower of
cost or market. Cost for substantially all merchandise inventories is determined
on a last-in, first-out ("LIFO") basis. On the Effective Date, the Company
recorded the Predecessor Company's merchandise inventories at fair value.

PROPERTY AND EQUIPMENT. Property and equipment are stated at cost, which
includes the recording of the Predecessor Company's property and equipment at
fair value as of the Effective Date. Depreciation and amortization expense on
owned property and equipment is computed on the straight-line method over the
following useful lives: buildings, 40 years; fixtures and equipment, 3-10 years;
and leasehold improvements, 8-15 years or lease term, whichever is shorter.
Capital leases are recorded at the present value of minimum lease payments or
fair market value of the related property, whichever is less. Amortization of
property under capital leases is computed on the straight-line method over the
term of the lease or the leased property's estimated useful life, whichever is
shorter.

EXCESS REORGANIZATION VALUE. Excess reorganization value of $798.0 million,
resulting from Fresh-Start Reporting, is being amortized over three years. In
accordance with the Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets", the Company's excess reorganization value account will no longer be
amortized subsequent to fiscal 2001 but rather will be evaluated for impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset might be impaired.

INTANGIBLES AND LONG-LIVED ASSETS. The Company assesses the carrying value
of its intangibles and long-lived assets for possible impairment based upon
groups of assets to determine if the carrying value of such assets are
recoverable from their related undiscounted cash flows. If the estimated future
cash flows are less than the carrying value of the asset, an impairment loss is
recognized based on the fair value of the asset less any cost of disposition.
The Company did not record any impairment losses in the 52 weeks ended February
2, 2002, 20 weeks ended February 3, 2001, 33 weeks ended September 16, 2000 and
52 weeks ended January 29, 2000.

SOFTWARE. Internally developed software, which creates a new system or adds
identifiable functionality to an existing system, and externally purchased
software are capitalized and amortized on a straight-line method over 3 - 5
years; such amortization is classified in depreciation and amortization.

SELF-INSURED CLAIMS LIABILITIES. The Company is self insured for claims
relating to customer, associate and vehicle accidents, as well as associate
medical and disability benefits, and maintains third-party excess insurance
coverage for such claims. It is the Company's accounting policy to record a
self-insured liability, as determined actuarially on a consistent basis,
based on the facts and circumstances of each individual claim filed and an
estimate of claims incurred but not yet reported. All claims and their
related liabilities are reviewed and monitored on an ongoing basis. Any
actuarial projection of losses concerning such claims is subject to
variability primarily due to external factors affecting future inflation
rates, litigation trends, benefit levels and claim settlement patterns. Such
self-insured liabilities are recorded at present value utilizing a 4%
discount rate based on the projected payout of these claims.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of the term loan as of
February 2, 2002 and February 3, 2001 approximated its carrying value due to its
floating interest rates. The fair value of the senior subordinated notes was
based on the market value of such notes. The Company has evaluated its mortgages
and industrial revenue bonds and believes, based on interest rates, related
terms and maturities, that the fair value of such instruments approximates their
respective carrying amounts. As of February 2, 2002 and February 3, 2001, the
carrying values of cash and cash equivalents, accounts receivable, due from
suppliers, accounts payable, and accrued expenses and other current liabilities
approximated their fair values due to the short-term maturities of these
accounts. The fair value of the interest rate derivative is based on its market
value as determined by an independent party. However, considerable judgment is
required in developing estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could settle in a current market exchange. The use of different market
assumptions or methodologies could affect the estimated fair value.

31

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

INCOME TAXES. The Company recognized deferred tax assets and liabilities
based on differences between the financial reporting and tax basis of assets and
liabilities, applying enacted statutory rates in effect for the year in which
differences are expected to reverse. The effect on deferred taxes for a change
in tax rates is recognized in income in the period that includes the enactment
date. The Company provides a valuation allowance against deferred tax assets for
which it does not consider the realization of such assets to be more likely than
not.

REVENUE RECOGNITION. Revenue is recognized at the point of sale to the
customer. Discounts provided to customers through Pathmark coupons are recorded
as a reduction of sales.

COST OF GOODS SOLD. Cost of goods sold includes the costs of inventory sold
and the related purchase and distribution costs. Vendor allowances and rebates
are recorded as a reduction of cost of goods sold when the required performance
is completed. Unearned vendor allowances and rebates are classified as deferred
income on the consolidated balance sheets. Cost of goods sold excludes
depreciation and amortization shown separately in the consolidated statements of
operations.

ADVERTISING COSTS. Advertising costs, included in selling, general and
administrative expenses, are expensed as incurred and were $24.2 million for the
52 weeks ended February 2, 2002, $8.7 million for the 20 weeks ended February 3,
2001 (Successor Company), $12.8 million for the 33 weeks ended September 16,
2000 (Predecessor Company) and $18.8 million for the 52 weeks ended January 29,
2000 (Predecessor Company).

STORE PREOPENING AND CLOSING COSTS. Store preopening costs are expensed as
incurred. Store closing costs, such as future rent and real estate taxes
subsequent to the actual store closing, net of expected sublease recovery, are
recorded at present value when management makes a decision to close a store.

STOCK-BASED COMPENSATION. The Company adopted FASB SFAS No. 123 "Accounting
for Stock-Based Compensation". SFAS No. 123 establishes a fair value based
method of accounting for stock-based employee compensation plans; however, it
also allows an entity to continue to measure compensation expense for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees". Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value based
method, compensation expense is the excess, if any, of the quoted market price
of the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock. The Company has elected to account for
its stock-based employee compensation plans under APB Opinion No. 25 with pro
forma disclosures of net earnings and earnings per share, as if the fair value
based method of accounting defined in SFAS No. 123 had been applied.

NET LOSS PER SHARE. The weighted average shares outstanding for net loss per
share - basic and diluted of the Successor Company for all periods presented
were 30.0 million shares. All stock options, warrants and restricted stock were
excluded from the computation of the Company's net loss per share - diluted
because their effect would have been anti-dilutive. Net earnings per share is
not presented for the Predecessor Company due to the significant change in the
Company's capital structure.

COMPREHENSIVE LOSS. To manage its interest rate risk, in July 2001, the
Company entered into a three-year interest rate zero-cost collar, consisting
of a cap with a strike of 10% and a floor with a strike of 8.39% on a
notional amount of $150 million of the Company's term loan. This derivative
is recorded 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 related unrealized loss on
this cash-flow hedge, net of tax, is included in accumulated other
comprehensive loss in stockholders' equity on the consolidated balance sheets.

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 APB Opinion No. 16, "Business
Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of
Purchased

32

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

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.

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 fiscal year 2002. The Company's excess reorganization value
account will no longer be amortized subsequent to fiscal 2001 but rather will be
evaluated annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The Company does not expect that the
adoption of this statement will have an effect on the impairment of the excess
reorganization value account but will eliminate the amortization of excess
reorganization value in fiscal 2002, which was $265.5 million in fiscal 2001.

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 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 does not expect that
the adoption of this statement will have an impact 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 fiscal quarter of fiscal 2002. The Company
does not expect that the adoption of this statement will have an impact on its
financial position or results of operations.

In November 2001, the FASB's Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 01-09, "Accounting for Consideration Given by a
Vendor to a Customer or a Reseller of the Vendor's Products." EITF Issue No.
01-09 codifies and reconciles the consensuses on all or specific issues of EITF
Issues No. 00-14, "Accounting for Certain Sales Incentives," No. 00-22,
"Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales
Incentives Offers, and Offers for Free Products or Services to be Delivered in
the Future," and No. 00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products," which address
various aspects of the accounting for consideration given by a vendor to a
customer or a reseller of the vendor's products. The Company does not expect
that the adoption of the EITF Issue No. 01-09 will have a material impact on the
Company's financial position or results of operations.

NOTE 3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents are comprised of the following (in millions):

33

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 4. ACCOUNTS RECEIVABLE

Accounts receivable are comprised of the following (in millions):

- ------
(a) Includes accumulated amortization of property and equipment under capital
leases of $19.1 million and $4.5 million as of February 2, 2002 and February
3, 2001, respectively.

34

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 8. EXCESS REORGANIZATION VALUE

35

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 11. LONG-TERM DEBT - (CONTINUED)

SCHEDULED MATURITIES OF DEBT. The amount of principal payments required each
year on outstanding debt as of February 2, 2002 are as follows (in millions):

SENIOR SUBORDINATED NOTES. On January 29, 2002, the Company issued $200.0
million aggregate principal amount of unregistered 8 3/4% Senior Subordinated
Notes due 2012 ("Senior Subordinated Notes"), which pay cash interest on a
semiannual basis. The Senior Subordinated Notes are unconditionally guaranteed
as to payment of principal and interest by the subsidiary guarantors and contain
customary covenants. The proceeds from the issuance of the Senior Subordinated
Notes were used to repay a portion of the Company's outstanding loans under the
Company's bank credit facility and to repay in the first quarter of fiscal 2002
a portion of the Company's outstanding industrial revenue bonds. The Company
recently completed an exchange offer pursuant to which all of the Senior
Subordinated Notes were exchanged for $200 million aggregate principal amount of
the Company's registered 8 3/4% Senior Subordinated Notes, due 2012, (referred
to as the exchange notes). The exchange notes will be governed by the indenture
and supplemental indenture relating to the Senior Subordinated Notes. The form
and terms of the exchange notes are identical in all material respects to the
form and terms of the Senior Subordinated Notes, except that the exchange notes
have been registered under the Securities Act, and therefore contain no
restrictive legends.

CREDIT FACILITY. On September 19, 2000, the Company entered into a credit
agreement with a group of lenders led by JPMorgan Chase Bank. The bank credit
facility initially consisted of (a) term loans in an aggregate principal amount
of $425.0 million (consisting of $125.0 million in Term Loan A and $300.0
million in Term Loan B) and (b) a $175.0 million revolving working capital
facility (including a maximum of $125.0 million in letters of credit). After
giving effect to the prepayment of indebtedness with the proceeds of the
offering of the Senior Subordinated Notes, the Company had no indebtedness under
Term Loan A and $218.0 million under Term Loan B. The weighted average interest
rate for the term loan was 8.0% during fiscal 2001.

Borrowings under the bank credit facility bear interest at floating rates
equal to LIBOR plus an applicable margin, depending on the total debt to
consolidated EBITDA ratio. The Company is required to repay a portion of the
borrowing under the term loan each year, so as to retire such indebtedness in
its entirety by July 15, 2007. The working capital facility expires on July 15,
2005. As of February 2, 2002, no borrowings were made under the working capital
facility and $41.6 million in letters of credit were outstanding.

All of the obligations under the bank credit facility are guaranteed by
the Company's domestic subsidiaries that are not special purpose vehicles
organized for the purpose and engaged solely in the business of owning or
leasing real property or equipment. The obligations under the bank credit
facility and those of the subsidiaries guaranteeing the bank credit facility
are secured by substantially all of the Company's tangible and intangible
assets including, without limitation, intellectual property, real property,
including leasehold interests, and the capital stock in each of these
subsidiaries.

The bank credit facility requires the Company to meet certain financial
tests including, without limitation, a maximum total debt to consolidated EBITDA
ratio, a minimum interest and rental expense coverage ratio and a minimum
consolidated EBITDA. In addition, the bank credit facility contains certain
covenants which, among other things, limit the incurrence of additional
indebtedness, issuance of cash-pay preferred stock, incurrence of liens,
sale-leaseback transactions, hedging activities, sale or discount of
receivables, investments, loans, advances, guarantees,

36

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 11. LONG-TERM DEBT - (CONTINUED)

transactions with affiliates, asset sales, acquisitions, capital expenditures,
mergers and consolidations, changing lines of business, dividends or prepayments
of other indebtedness, amendments to the organizational documents and other
matters customarily restricted in such agreements.

The bank credit facility contains customary events of default, including
without limitation, payment defaults, material breaches of representations and
warranties, material covenant defaults, certain events of bankruptcy and
insolvency, and a change of control.

The Senior Subordinated Notes restricts and the credit agreement prohibits
the payment of cash dividends.

INDUSTRIAL REVENUE BONDS. The interest rates for the revenue bonds range
from 5% to 10.9%. Proceeds of $6.4 million from the issuance of the Senior
Subordinated Notes were used towards repayment of two industrial revenue bonds
in the first quarter of fiscal 2002. The balance of the industrial revenue bonds
of $1.6 million after giving effect to the repayment will be payable in
installments ending fiscal 2008 and fiscal 2018 and have interest rates ranging
from 5% to 7%.

MORTGAGES. These borrowings, whose interest rates average 7.3%, are payable
in installments ending in fiscal 2008, including a scheduled final payment of
$18.9 million and are secured by property and equipment having a net book value
of $31.3 million as of February 2, 2002.

NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Company's financial instruments
are as follows (in millions):

NOTE 13. DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND COMPREHENSIVE LOSS

On February 4, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". 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 the ongoing assessment of effectiveness, 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 attributable to the risk being hedged, 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
accumulated other comprehensive loss ("AOCL"). Amounts recorded to AOCL will be
reclassified to the statement of operations when the hedged item affects
earnings. Ineffective changes in fair value are recorded immediately in
earnings. There was no cumulative effect of adopting SFAS No. 133 as of February
4, 2001 since the Company did not have any derivatives outstanding.

37

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 13. DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND COMPREHENSIVE LOSS -
(CONTINUED)

The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk management objectives and strategies for
undertaking various hedging transactions. The Company also assesses, both at the
inception of the hedge and on an on-going basis, whether the derivative
designated as a hedge is highly effective in offsetting changes in fair value of
the item being hedged. Should it be determined that a derivative is not highly
effective as a hedge, the Company will discontinue hedge accounting
prospectively.

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
zero-cost collar, consisting of a cap with a strike of 10% and a floor with a
strike of 8.39%, on a notional amount of $150 million of its term loan. At
inception, the derivative was designated, and continues to qualify, as a
highly-effective cash-flow hedge of the Company's forecasted variable interest
rate payments due on the term loan. The Company does not hold or issue
derivative financial instruments for speculative or trading purposes but rather
to hedge against the risk of rising interest rates. This derivative is recorded
on the balance sheet at fair value, included in accrued expenses and other
current liabilities, with the related unrealized loss on this cash-flow hedge,
net of tax, recorded in AOCL. The fair value of the derivative is based on its
market value as determined by an independent party. However, considerable
judgment is required in developing estimates of fair values. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
the Company could settle in a current market exchange. The use of different
market assumptions or methodologies could affect the estimated fair value.

The Company does not expect any amount currently recorded in AOCL to be
recognized in the statement of operations over the next fiscal year.

The impact of this cash-flow hedge during fiscal 2001 is as follows (in
millions):

38

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 15. LEASE OBLIGATIONS

As of February 2, 2002, the Company was liable under terms of noncancellable
leases for the following minimum lease commitments (in millions):

- --------

(a) Net of sublease income of $0.1 million and $66.6 million for capital and
operating leases, respectively.
(b) Includes $23.9 million related to a sale and leaseback accounted for as a
financing.

Rent expense, under all operating leases having noncancellable terms of more
than one year, is summarized as follows (in millions):

39

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 17. PENSION AND OTHER BENEFIT PLANS

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS. The Company maintains a
defined benefit pension plan, which covers substantially all non-union and
certain union associates. The Company also maintains an unfunded supplemental
retirement plan for participants in the defined benefit pension plan to provide
benefits in excess of amounts permitted to be paid under the provisions of the
tax law. Additionally, the Company has entered into individual retirement
agreements with certain current and retired executives providing for unfunded
supplemental pension benefits upon their retirement after attainment of age 60.

In addition, the Company provides its associates other postretirement
benefits, principally health care for non-union associates who retired prior to
January 1, 1998 and certain associates for whom benefits are a subject of
collective bargaining and life insurance benefits.

The following tables provide a reconciliation of the benefit obligations,
the funded plan assets and the funded status of the plans, along with the
amounts recognized in the consolidated balance sheets and the weighted average
assumptions used (in millions):

40

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 17. PENSION AND OTHER BENEFIT PLANS - (CONTINUED)

Pension benefits include the following cost (cost reduction) components (in
millions):

Assets of the Company's defined benefit pension plan are invested in
equities of domestic corporations, U.S. Government instruments and money market
investments. The projected benefit obligation and the accrued benefit costs for
the unfunded supplemental retirement plans were $26.5 million and $23.5 million,
respectively, as of February 2, 2002 and $23.2 million and $21.6 million,
respectively, as of February 3, 2001.

The health-care cost trend rate at February 2, 2002 was 10% and is expected
to remain at this level. A 1% change in the assumed health care cost trend rate
would have the following effects as of February 2, 2002 (in millions):

The Company also contributes to several multi-employer plans, which provide
defined benefits to certain union associates. The expenses related to these
multi-employer plans were $16.4 million for the 52 weeks ended February 2, 2002
(Successor Company), $5.6 million for the 20 weeks ended February 3, 2001
(Successor Company), $9.3 million for the 33 weeks ended September 16, 2000
(Predecessor Company) and $15.6 million for the 52 weeks ended January 29, 2000
(Predecessor Company).

SAVINGS PLAN. The Company sponsors a savings plan for certain eligible
associates. Contributions under the plan are based on specified percentages of
associate contributions. The expenses related to the savings plan were $2.9
million for the 52 weeks ended February 2, 2002 (Successor Company), $1.0
million for the 20 weeks ended February 3, 2001 (Successor Company), $1.7
million for the 33 weeks ended September 16, 2000 (Predecessor Company) and $3.0
million for the 52 weeks ended January 29, 2000 (Predecessor Company).

41

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 17. PENSION AND OTHER BENEFIT PLANS - (CONTINUED)

OTHER POSTEMPLOYMENT BENEFITS. The Company also provides its associates
postemployment benefits, primarily long-term disability and salary continuation.
The obligation for these benefits was determined by application of the
provisions of the Company's long-term disability plan and includes the age of
active claimants at disability and at valuation, the length of time on
disability and the probability of the claimant remaining on disability to
maximum duration. These liabilities are recorded at their present value
utilizing a discount rate of 4%.

At February 2, 2002 and February 3, 2001, the liability for accumulated
postemployment benefits was $6.0 million and $6.9 million, respectively, of
which $5.2 million and $6.4 million, respectively, was classified in other
noncurrent liabilities.

NOTE 18. INCOME TAXES

As a result of the exchange of the Predecessor Company's subordinated debt
and accrued interest for the Successor Company's equity in fiscal 2001, 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 did not recognize income from cancellation of debt for tax purposes, but
has elected to reduce the basis of its depreciable property and, with the
remaining income from the cancellation of debt, reduce its tax loss
carryforwards. The Company's remaining federal tax loss carryforwards expire
from fiscal 2008 through fiscal 2020 and are subject to an annual limitation of
approximately $38.6 million due to the change of control resulting from the Plan
of Reorganization.

The income tax provision is comprised of the following (in millions):

42

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 18. INCOME TAXES - (CONTINUED)

Deferred income tax assets and liabilities consist of the following (in
millions):

The Company's net deferred income tax liability at February 2, 2002 was
$87.3 million, and included a valuation allowance of $5.9 million primarily
related to state net operating losses that may not be utilized in the
carryforward period. The Company's net deferred income tax liability as of
February 3, 2001 was $76.9 million and included a valuation allowance of $25.4
million, primarily related to capital loss carryforwards which expired in fiscal
2001 and certain state net operating loss tax carryforwards. General business
credits consist of federal work incentive credits and expire in fiscal 2004
through fiscal 2016. The net decrease in the valuation allowance from $25.4
million at February 3, 2001 to $5.9 million at February 2, 2002 was primarily
due to the applicable write-off of the deferred income tax asset related to the
expired capital loss carryforward.

The balance sheet classification of the deferred income tax assets and
liabilities is as follows (in millions):

Income tax payments were $1.0 million for the 52 weeks ended February 2,
2002 (Successor Company), $0.1 million for the 20 weeks ended February 3, 2001
(Successor Company), $0.1 million for the 33 weeks ended September 16, 2000
(Predecessor Company) and $0.5 million for the 52 weeks ended January 29, 2000
(Predecessor Company). Income tax refunds were $15,000 for the 52 weeks ended
February 2, 2002, $0.1 million for the 20 weeks ended February 3, 2001
(Successor Company), $0.4 million for the 33 weeks ended September 16, 2000
(Predecessor Company) and $1.9 million for the 52 weeks ended January 29, 2000
(Predecessor Company).

The Internal Revenue Service has closed its audits of the Company's tax
returns through fiscal 1997.

43

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 19. EXTRAORDINARY ITEMS

In fiscal 2001, the extraordinary item of $3.3 million, net of an income tax
benefit of $2.3 million, represents costs incurred resulting from the early
extinguishment of debt, including the write-off of deferred financing costs,
related to the pay down of the term loan from certain of the proceeds of the
Senior Subordinated Notes.

In the 33 weeks ended September 16, 2000, the extraordinary item of $313.7
million, net of an income tax provision of $46.6 million, represents income from
the cancellation of debt related to the exchange of bond indebtedness and
accrued interest for common stock and warrants; such income is reduced by the
write-off of deferred financing costs related to the former bank credit facility
and bond indebtedness subject to exchange. The income tax provision related to
the extraordinary item 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 20. CAPITAL STOCK

PREFERRED STOCK. As of February 2, 2002 and February 3, 2001, there were
5,000,000 shares of preferred stock authorized of which none are issued or
outstanding.

COMMON STOCK. As of February 2, 2002 and February 3, 2001, there were
100,000,000 shares authorized of $0.01 par value common stock. The following
table summarizes the change in the number of shares of common stock subsequent
to the Effective Date.

As part of the Plan of Reorganization, the Predecessor Company's
subordinated debt and accrued interest of approximately $1.0 billion was
canceled and the holders of such subordinated debt received 30,000,000 shares,
representing 100% of the outstanding common stock of the reorganized Company and
holders of certain subordinated debt also received warrants to purchase up to
5,294,118 shares of common stock at $22.31 per share. Such warrants have a term
of ten years from the Plan Effective Date. On October 3, 2000, 98,510 shares of
restricted common stock were issued to the Chief Executive Officer and vested on
January 2, 2002. Upon vesting, 46,053 shares were surrendered to the Company by
the Chief Executive Officer to satisfy his tax withholding requirements; such
shares were recorded as treasury stock at a cost of $1.2 million.

Shares of common stock issued pursuant to the Plan of Reorganization are
subject to dilution from (1) the exercise of the warrants, and (2) the exercise
of any options to purchase common stock issued pursuant to the Company's
Employee Plan and Directors' Plan (see Note 21). The Company's common stock and
warrants trade on the Nasdaq Stock Market under the ticker symbols "PTMK" and
"PTMKW", respectively.

NOTE 21. STOCK OPTION PLANS

The 2000 Employee Equity Plan (the "Employee Plan") and the 2000
Non-Employee Directors' Equity Plan (the "Directors' Plan"), which were
implemented as of the Plan Effective Date, make available the granting of
options aggregating 5,294,118 shares of common stock, of which 5,164,118 shares
are available under the Employee Plan and 130,000 shares are available under the
Directors' Plan. All of the Company's officers and certain employees are
eligible to receive options under the Employee Plan. Options for additional
shares may be granted by the Board

44

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 21. STOCK OPTION PLANS - (CONTINUED)

of Directors' Compensation Committee. The Directors' Plan is available to the
Company's directors, who are not employees of the Company. As of February 2,
2002, the number of options outstanding for the Company's Employee Plan and
Directors' Plan were 3,741,345 with a weighted average exercise price of $16.32
and a weighted average contractual life of 8.9 years of which 520,300 were
exercisable. There were 1,551,023 shares of common stock available for future
grant under the Company's Employee Plan and Directors' Plan.

As of February 2, 2002, options to purchase 3,741,345 shares vest at various
dates extending through fiscal 2005. The change in the number of options was as
follows:

Significant option groups outstanding as of February 2, 2002 and related
weighted average price and remaining contractual life information were as
follows:

Options which are designated as "incentive stock options" under the Employee
Plan may be granted with an exercise price not less than the fair market value
of the underlying shares at the date of grant, as defined in the plan document,
and are subject to certain quantity and other limitations specified in Section
422 of the Internal Revenue Code. Options which are not intended to qualify as
incentive stock options may be granted at any price, but not less than the par
value of the underlying shares and without restriction as to amount. The options
and the underlying shares are subject to adjustment in accordance with the terms
of each plan in the event of stock dividends, recapitalization and similar
transactions. The options granted under the Employee Plan and the Directors'
Plan expire ten years and five years after the date of grant, respectively,
unless terminated earlier by the Company's Board of Directors. The right to
exercise the options granted vests in annual increments over four years under
the Employee Plan and over three years under the Directors' Plan from the date
of the grant.

45

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 21. STOCK OPTION PLANS - (CONTINUED)

The Company has elected APB Opinion No. 25 and selected interpretations in
accounting for each of its stock option plans. Accordingly, as all options have
been granted at exercise prices equal to the fair market value on the date of
grant, as defined in each stock option plan document, no compensation expense
has been recognized by the Company in connection with its stock-based
compensation plan. The proforma disclosure of net loss and net loss per share as
if the fair value based method of accounting defined in the SFAS No. 123 had
been applied is $245.9 million (compared to a reported net loss of $242.0
million) or $8.20 per share (compared to a reported net loss per share of $8.07
per share), respectively, for fiscal 2001 and $78.1 million (compared to a
reported net loss of $77.5 million) or $2.60 per share (compared to a reported
net loss per share of $2.58), respectively, for fiscal 2000. For purposes of the
proforma disclosures, the estimated fair value of the options issued is assumed
to be amortized to expense over the options' vesting period.

The weighted average fair value of the stock options granted during fiscal
2001 and fiscal 2000 were $5.83 and $4.56, respectively. The fair value of each
option grant was established using the Black-Sholes option-pricing model based
on the date of the grant and the following weighted average assumptions for
fiscal 2001 and fiscal 2000, respectively: risk free interest rates of 4.2% and
5.7%, expected lives of 4 years for each year, expected volatility of 30.5% and
30.0% and an expected dividend yield of zero for each year.

NOTE 22. REORGANIZATION INCOME (EXPENSES)

Reorganization income of $7.4 million for the 20 weeks ended February 3,
2001 represented a gain related to the difference between the settled lessor
claims for rejected leases and the liability previously recorded for such
claims. Reorganization expenses of $0.9 million for the 33 weeks ended September
16, 2000 were comprised of $19.1 million of employee retention bonuses and
professional fees related to legal, accounting and consulting services 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.

46

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 23. CONSOLIDATING FINANCIAL INFORMATION

The following represents the consolidating financial statements of Pathmark
and its wholly owned guarantor and nonguarantor subsidiaries. The guarantor
subsidiaries are comprised of six wholly owned entities, including Pathmark's
distribution subsidiary, and guarantee on a full and unconditional and joint and
several basis, the Senior Subordinated Notes. The nonguarantor subsidiaries are
comprised of four special purpose wholly owned entities, which own four
supermarkets that are leased to Pathmark.

47

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 23. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

48

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 23. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

49

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 23. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

50

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 23. CONSOLIDATING FINANCIAL INFORMATION - (CONTINUED)

51

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 24. COMMITMENTS AND CONTINGENCIES

AHOLD LITIGATION. On December 16, 1999, Koninkljke Ahold N.V. ("Ahold")
filed a complaint in the Supreme Court, State of New York, County of New York
(the "Supreme Court"), against the Company seeking a declaratory judgment that
Ahold had used its "best efforts" under a merger agreement pursuant to which
Ahold was going to acquire the Company (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, 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. In December 2000, the
Supreme Court entered 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, which order
was affirmed on appeal in January 2002. Notwithstanding this appellate decision,
the Company has two viable counterclaims against Ahold that it intends to
pursue.

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.

OUTSOURCING AGREEMENTS. In April 2001, the Company entered into a new
five-year outsourcing agreement with International Business Machines
Corporation ("IBM") to continue to provide a wide range of information
systems services. Under the agreement, IBM provides data center operations,
mainframe processing, business applications and systems development 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 a payment of a
specified termination charge.

The Company has a 15-year supply agreement with C&S Wholesalers, Inc.
("C&S"), pursuant to which C&S supplies substantially all of the Company's
grocery, frozen and perishable merchandise requirements. Under this arrangement
with C&S, the Company negotiate prices, discounts and promotions with vendors.
During fiscal 2001, the products supplied from C&S accounted for approximately
61% of all the Company's supermarket inventory purchases. This agreement may be
terminated for cause or certain events of bankruptcy by either party.

The Company also has a ten-year agreement, expiring in 2007, with a local
trucking company to provide trucking services for the Company. The Company may
terminate the agreement with a payment of a specified termination charge.

NOTE 25. SUBSEQUENT EVENT

On March 1, 2002, the Company signed a joinder agreement with The Stop &
Shop Supermarket company to acquire nine Big V Shop-Rite supermarkets ("Big V")
for $71 million, plus an amount for inventory, in conjunction with Stop & Shop's
proposal to acquire substantially all of the Big V Shop-Rite supermarkets
pursuant to a Plan of Reorganization to be filed by Shop & Stop and certain
creditors of Big V with the Bankruptcy Court in the Big V bankruptcy case. Big V
is already the subject of a competing plan previously filed by Wakefern Food
Corp. and Big V.

52

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 25. SUBSEQUENT EVENT - (CONTINUED)

Pathmark's acquisition of these stores is subject to a number of
conditions, the satisfaction of the closing conditions of Stop & Shop's asset
purchase and sale agreement, the confirmation of the Stop & Shop Plan of
Reorganization by the Bankruptcy Court and the approval of the applicable
antitrust authorities. Because of the nature of the bankruptcy process and
the existence of a competing Plan of Reorganization for Big V, there can be
no assurances that the Company will be successful in acquiring the nine
stores.

NOTE 26. QUARTERLY FINANCIAL DATA (UNAUDITED)

- -----------
(a) Refer to Note 19 of the consolidated financial statements.
(b) Refer to Note 22 of the consolidated financial statements.

53

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders of
Pathmark Stores, Inc.

We have audited the accompanying consolidated balance sheets of Pathmark Stores,
Inc. and subsidiaries (the "Company") as of February 2, 2002 and February 3,
2001 (Successor Company) and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for the 52 weeks ended February
2, 2002, the 20 weeks ended February 3, 2001 (Successor Company), the 33 weeks
ended September 16, 2000, and for the 52 weeks ended January 29, 2000
(Predecessor Company). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, the Company completed its
plan of reorganization and formally exited Chapter 11 on September 19, 2000.
Accordingly, the accompanying financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "FINANCIAL REPORTING FOR
ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE," for the Successor Company
as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 1.

In our opinion, the Successor Company consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company as of February 2, 2002 and February 3, 2001, and the results of its
consolidated operations and its consolidated cash flows for the 52 weeks ended
February 2, 2002 and the 20 weeks ended February 3, 2001, in conformity with
accounting principles generally accepted in the United States of America.
Further, in our opinion, the Predecessor Company consolidated financial
statements present fairly, in all material respects, the results of its
consolidated operations and its consolidated cash flows for the 33 weeks ended
September 16, 2000, and the 52 weeks ended January 29, 2000, in conformity with
accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
New York, New York

March 26, 2002

54

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Directors of the Registrant

Information concerning this item will be included in the registrant's
2002 Proxy Statement which will be filed with the Securities and
Exchange Commission ("SEC") within 120 days after February 2, 2002, and
is incorporated herein by reference.

(b) Executive Officers of the Registrant

Information concerning this item is included in this report under Item 4A,
"Executive Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

Information concerning this item will be included in the registrant's 2002
Proxy Statement which will be filed with the SEC within 120 days after February
2, 2002, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning this item will be included in the registrant's 2002
Proxy Statement which will be filed with the SEC within 120 days after February
2, 2002, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning this item will be included in the registrant's 2002
Proxy Statement which will be filed with the SEC within 120 days after February
2, 2002, and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Exhibits

Incorporated herein by reference is a list of the exhibits contained in
the Exhibit Index on pages 57, 58 and 59 of this report.

(b) Financial Statement Schedules

None required.

(c) Reports on Form 8-K

On January 15, 2002, we filed a report on Form 8-K with the SEC
announcing our intention to sell $200 million of senior subordinated
notes due 2012 with the proceeds to be used to repay indebtedness. Our
press release, dated January 11, 2002, was attached thereto as Exhibit
99.1

55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: May 1, 2002 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

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ James L. Donald Director, Chairman, President and May 1, 2002
------------------- Chief Executive Officer
(James L. Donald) (Principal Executive Officer)

/s/ Frank G. Vitrano Director, Executive Vice President and May 1, 2002
-------------------- Chief Financial Officer
(Frank G. Vitrano) (Principal Financial Officer)

/s/ Joseph W. Adelhardt Senior Vice President and Controller May 1, 2002
- ----------------------- (Principal Accounting Officer)
(Joseph W. Adelhardt

/s/ William J. Begley Director* May 1, 2002
- ----------------------
(William J. Begley)

/s/ Daniel H. Fitzgerald Director* May 1, 2002
- ------------------------
(Daniel H. Fitzgerald)

/s/ Eugene M. Freedman Director* May 1, 2002
- -----------------------
(Eugene M. Freedman)

/s/ Robert G. Miller Director* May 1, 2002
--------------------
(Robert G. Miller)

/s/ Steven L. Volla Director* May 1, 2002
-------------------
(Steven L. Volla)

*By: /s/ Marc A. Strassler
---------------------
Marc A. Strassler
Attorney-in-Fact

56

EXHIBIT INDEX

EXHIBIT
NUMBER DOCUMENT NAME
------ -------------

2.1 Plan of Reorganization (incorporated by reference from the
Registration Statement on Form S-1 of Pathmark Stores, Inc. (the
"Company") as filed with the SEC on October 19, 2000, File No.
333-46882 (the "2000 Registration Statement")).

3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference from the 2000 Registration
Statement).

3.2 Amended and Restated Bylaws of the Company (incorporated by
reference from the 2000 Registration Statement).

4.1 Indenture, dated as of January 29, 2002, among the Company, the
subsidiary guarantors named therein and Wells Fargo Bank
Minnesota, National Association, Trustee (incorporated by
reference from the Registration Statement of the Company as
filed with the SEC on March 11, 2002, File No. 333-84102 (the
"2002 S-4").

4.2 First Supplemental Indenture, dated as of January 30, 2002
(incorporated by reference from the 2002 S-4).

4.3 Registration Rights Agreement, dated as of January 29, 2002,
among the Company the subsidiary guarantors named therein,
Dresdner Kleinwort Wasserstein-Grantchester, Inc., Credit Suisse
First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities Inc. (incorporated by
reference from the 2002 S-4).

4.4 Form of exchange notes (incorporated by reference from the 2002
S-4).

10.1 Pathmark Stores, Inc. 2001 Executive Incentive Plan for
Executive Officers, effective June 14, 2001 (incorporated by
reference from the Company's Proxy Statement as filed with the
SEC on May 4, 2001).

10.2 Supermarkets General Corporation Savings Plan as amended through
January 1, 1987 (incorporated by reference from the Registration
Statement on Form S-1 of Holdings as filed with the SEC on
September 2, 1987, File No. 33-16963).

10.3 First Amended and Restated Supply Agreement among the Company,
Plainbridge and C&S dated as of January 29, 1998 (incorporated
by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1998).

10.4 Restated and Amended Employment Agreement dated as of March 29,
2001, between the Company and James Donald (incorporated by
reference from the Company's Quarterly Report on Form 10-Q for
the period ended May 5, 2001).

10.5 Employment Agreement between the Company and Robert Joyce dated
February 1, 1999 (incorporated by reference from the
Solicitation/Recommendation Statement of Holdings on Form 14D-9
filed with the SEC on March 16, 1999).

10.6 Employment Agreement between the Company and Eileen Scott dated
February 1, 1999 (incorporated by reference from the
Solicitation/Recommendation Statement of Holdings on Form 14D-9
filed with the SEC on March 16, 1999).

57

EXHIBIT
NUMBER DOCUMENT NAME
------ -------------

10.7 Employment Agreement between the Company and Frank Vitrano dated
February 1, 1999 (incorporated by reference from the Holdings
Solicitation/Recommendation Statement on Form 14D-9 filed with
the SEC on March 16, 1999).

10.8 Sale and Retention Bonus Agreement dated as of February 1, 2000
between the Company and James L. Donald (incorporated by
reference from the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 2000 (the "1999 Annual Report")).

10.9 Sale and Retention Bonus Agreement dated as of February 1, 2000
between the Company and Robert Joyce (incorporated by reference
from the 1999 Annual Report).

10.10 Sale and Retention Bonus Agreement dated as of February 1, 2000
between the Company and Eileen Scott (incorporated by reference
from the 1999 Annual Report).

10.11 Sale and Retention Bonus Agreement dated as of February 1, 2000
between the Company and Frank Vitrano (incorporated by reference
from the 1999 Annual Report).

10.12 Supplemental Retirement Agreement dated March 1, 2000 between
the Company and James Donald (incorporated by reference from the
1999 Annual Report).

10.13 Supplemental Retirement Agreement dated March 1, 2000 between
the Company and Eileen Scott (incorporated by reference from the
1999 Annual Report).

10.14 Supplemental Retirement Agreement dated March 1, 2000 between
the Company and Frank Vitrano (incorporated by reference from
the 1999 Annual Report).

10.15 Supplemental Retirement Agreement dated June 1,1994 between the
Company and Robert Joyce (incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1995 (the "1994 Annual Report")).

10.16 Side Letter to the Sale and Retention Bonus Agreement, the Stock
Award Agreement and the Employment Agreement dated as of July 1,
2000 between the Company and James L. Donald (incorporated by
reference from the 2000 Registration Statement).

10.17 Side Letter to the Sale and Retention Bonus Agreement, the Stock
Award Agreement and the Employment Agreement dated as of July 1,
2000 between the Company and Robert Joyce (incorporated by
reference from the 2000 Registration Statement).

10.18 Side Letter to the Sale and Retention Bonus Agreement, the Stock
Award Agreement and the Employment Agreement dated as of July 1,
2000 between the Company and Eileen Scott (incorporated by
reference from the 2000 Registration Statement).

10.19 Side Letter to the Sale and Retention Bonus Agreement, the Stock
Award Agreement and the Employment Agreement dated as of July 1,
2000 between the Company and Frank Vitrano (incorporated by
reference from the 2000 Registration Statement).

10.20 2000 Employee Equity Plan, as amended and restated as of March
29, 2001 (incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the period ended May 5, 2001 (the
"10-Q")).

58

EXHIBIT
NUMBER DOCUMENT NAME
------ -------------

10.21 2000 Non-Employee Directors Equity Plan, as amended and restated
as of March 29, 2001 (incorporated by reference from the 10-Q).

10.22 Supplemental Retirement Agreement dated June 1, 1994 between the
Company and Harvey Gutman (incorporated by reference from the
1994 Annual Report).

10.23 Employment Agreement dated February 1, 1999 between the Company
and Harvey Gutman (incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended February 3,
2001 (the "2000 Annual Report")).

10.24 Sale and Retention Bonus Agreement dated as of February 1, 2000
between the Company and Harvey Gutman (incorporated by reference
from the 2000 Annual Report).

10.25 Side Letter to the Sale and Retention Bonus Agreement, the Stock
Award Agreement and the Employment Agreement dated as of July 1,
2001 between the Company and Harvey Gutman (incorporated by
reference from the 2000 Annual Report).

10.26 Registration Rights Agreement (incorporated by reference from
the 2000 Registration Statement).

10.27 Warrant Agreement (incorporated by reference from the 2000
Registration Statement).

10.28 Credit Agreement among the Company, Lenders party thereto and
the Chase Manhattan Bank as Administrative Agent dated September
19, 2000 (incorporated by reference from the 2000 Registration
Statement)

10.29 Amendment No. 1 to the Credit Agreement among the Company,
Lenders party thereto and JPMorgan Chase Bank (formerly known
as the Chase Manhattan Bank) as Administrative Agent, dated
January 17, 2002 (incorporated by reference from the 2002 S-4).

*12.1 Computation of Ratio of Earnings to Fixed Charges.

*21 List of Subsidiaries

*23.1 Consent of Deloitte & Touche LLP, independent auditors.

24.1 Power of Attorney.

- ------------
* Filed herewith

59