10-Q 1 a10-q.txt FORM 10-Q ============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------- FOR THE QUARTER ENDED COMMISSION FILE NUMBER APRIL 29, 2000 0-16404 SUPERMARKETS GENERAL HOLDINGS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3408704 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 MILIK STREET 07008 CARTERET, NEW JERSEY (Zip Code) (Address of principal executive offices) (732) 499-3000 (Registrant's telephone number, including area code) ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: $3.52 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- As of June 1, 2000, there were outstanding 650,675 shares of $0.01 par value Class A Common Stock (voting) and 320,000 shares of $0.01 par value Class B Common Stock (non-voting), all of which are privately owned and not traded on a public market. ============================================================================== See notes to consolidated financial statements (unaudited). PART 1. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands) 13 WEEKS ENDED ----------------------- APRIL 29, MAY 1, 2000 1999 -------- -------- Sales $ 919,196 $ 894,457 Cost of sales (exclusive of depreciation and amortization shown separately below) 661,544 639,510 --------- --------- Gross profit 257,652 254,947 Selling, general and administrative expenses 217,849 206,519 Depreciation and amortization 18,928 18,227 --------- --------- Operating earnings 20,875 30,201 Interest expense (42,136) (39,475) --------- --------- Loss before income taxes (21,261) (9,274) Income tax provision (24) (25) --------- --------- Net loss (21,285) (9,299) Less: non-cash preferred stock accretion and dividend requirements (4,810) (4,788) --------- --------- Net loss attributable to common stockholder $ (26,095) $ (14,087) ========= ========= See notes to consolidated financial statements (unaudited). SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands except per share amounts) APRIL 29, JANUARY 29, 2000 2000 -------- --------- ASSETS Current assets Cash $ 12,948 $ 16,034 Accounts receivable, net 14,197 15,787 Income taxes receivable 401 709 Merchandise inventories 151,691 141,559 Deferred income taxes, net 2,452 2,598 Prepaid expenses 21,738 21,183 Due from suppliers 47,858 53,975 Other current assets 17,101 18,134 ----------- ----------- Total current assets 268,386 269,979 Property and equipment, net 466,019 472,157 Deferred financing costs, net 11,657 11,805 Deferred income taxes, net 45,336 45,190 Other noncurrent assets 48,856 45,436 ----------- ----------- $ 840,254 $ 844,567 =========== =========== LIABILITIES AND STOCKHOLDER'S DEFICIENCY Current liabilities Accounts payable and book overdrafts $ 80,759 $ 89,434 Current maturities of long-term debt 1,343,670 78,982 Accrued payroll and payroll taxes 45,463 50,766 Current portion of lease obligations 24,286 25,192 Accrued interest payable 53,830 26,850 Accrued expenses and other current liabilities 84,973 80,058 ----------- ----------- Total current liabilities 1,632,981 351,282 ----------- ----------- Long-term debt -- 1,264,103 ----------- ----------- Lease obligations, long-term 181,488 173,289 ----------- ----------- Other noncurrent liabilities 373,221 377,852 ----------- ----------- Redeemable securities Exchangeable preferred stock, $0.01 par value 111,544 111,041 ----------- ----------- Authorized: 9,000,000 shares Issued and outstanding: 4,890,671 shares Liquidation preference, $25 per share: $122,267 Commitments and contingencies Stockholder's deficiency Class A common stock, $0.01 par value 7 7 Authorized: 1,075,000 shares Issued and outstanding: 650,675 shares Class B common stock, $0.01 par value 3 3 Authorized: 1,000,000 shares Issued and outstanding: 320,000 shares Paid-in capital 194,286 194,677 Accumulated deficit (1,653,276) (1,627,687) ----------- ----------- Total stockholder's deficiency (1,458,980) (1,433,000) ----------- ----------- $ 840,254 $ 844,567 =========== =========== See notes to consolidated financial statements (unaudited). SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY (UNAUDITED) (in thousands except per share amounts)

See notes to consolidated financial statements (unaudited). SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)

See notes to consolidated financial statements (unaudited). SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--MANAGEMENT'S FINANCIAL RESTRUCTURING PLAN The consolidated financial statements of Supermarkets General Holdings Corporation (the "Company") indicated that, at April 29, 2000, current liabilities exceeded current assets by $1.4 billion and the stockholder's deficiency was $1.5 billion. Historically, cash flows generated from operations, supplemented by the unused borrowing capacity under the Company's working capital facility and the availability of capital lease financing were sufficient to pay the Company's debts as they came due, provide for its capital expenditure program and meet its other cash requirements. Management evaluated its Fiscal 2000 cash flow projections and debt service requirements and based upon this evaluation, the Company does not anticipate making all of its scheduled debt payments. The Company's Fiscal 2000 debt requirements increase substantially over the prior year due primarily to the semi-annual interest payments of $12.1 million on the 10.75% Pathmark Stores, Inc. ("Pathmark") Junior Subordinated Deferred Coupon Notes (the "Pathmark Junior Subordinated Notes") which, for the first time, were required to be paid in cash on May 1, 2000 and the sinking fund payment of $50.0 million on the 11.625% Pathmark Subordinated Notes due 2002 ("Pathmark Subordinated Notes") on June 15, 2000. On May 1, 2000, the Company elected not to make interest payments of $21.2 million on its $440 million of 9.625% Pathmark Senior Subordinated Notes due 2003 (the "Pathmark Senior Subordinated Notes") and $12.1 million on its Pathmark Junior Subordinated Notes. On May 31, 2000, the grace period under each of the Indentures governing the Pathmark Senior Subordinated Notes and Pathmark Junior Subordinated Notes expired. The failure to make these scheduled interest payments constitutes an Event of Default under the Indentures governing the applicable bonds and also constitutes an Event of Default pursuant to the Credit Agreement. In addition, the Company was not in compliance with several of its financial covenants under the Credit Agreement at April 29, 2000 and based on management's projections, the Company believes that it most likely will not comply with such covenants throughout Fiscal 2000. However, the Company and its lenders under the Credit Agreement have entered into a Waiver Agreement pursuant to which said lenders have agreed to waive compliance by the Company with certain provisions of the Credit Agreement through July 29, 2000, including financial covenants and any Event of Default to the extent arising out of a failure to pay any material indebtedness. As a result of such defaults, the Company's long-term debt in the amount of $1.3 billion became due currently and has been classified as current at April 29, 2000. On March 22, 2000, the Company disclosed that it had retained Wasserstein Perella & Co. to assist it in developing a financial restructuring plan and that an ad hoc committee of its bondholders (the "Bondholder Committee") had been formed. The Company commenced discussions with the Bondholder Committee towards developing a consensual financial restructuring plan. The Company announced on June 2, 2000 that it had reached an agreement with the Bondholder Committee regarding a financial restructuring plan of the Company. Members of the Bondholder Committee hold or control $445.7 million principal amount, or approximately 46% of the Company's total bond indebtedness outstanding, including over 37% of the outstanding principal amount of the Pathmark Senior Subordinated Notes, 48% of the outstanding principal amount of the Pathmark Subordinated Notes, 65% of the outstanding principal amount of the 12.625% Pathmark Subordinated Debentures due 2002 (the "Pathmark Subordinated Debentures") and 49% of the outstanding principal amount of the Pathmark Junior Subordinated Notes. Solicitation of acceptances of the financial restructuring plan, to be accomplished through a prepackaged plan of reorganization (the "Prepackaged Plan"), commenced on June 8, 2000. The Prepackaged Plan provides that, upon consummation of the reorganization, current holders of the Company's bond indebtedness will receive 100% of the opening common stock of the reorganized Pathmark ("New Common Stock"). Such ownership is subject to dilution from (1) the exercise of ten-year warrants to purchase 15% of the diluted New Common Stock of the reorganized Pathmark (the "New Warrants"), (2) the exercise of any options to purchase New Common Stock issued pursuant to the Company's long-term management incentive plan, and (3) the grant to the Chief Executive Officer of restricted New Common Stock. In addition to New Common Stock, holders of the Pathmark Subordinated Notes, the Pathmark Subordinated Debentures and the Pathmark Junior Subordinated Notes will receive New Warrants. The New Warrants will be exercisable at the opening reorganization equity value established in connection with the Prepackaged Plan. SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 1--MANAGEMENT'S FINANCIAL RESTRUCTURING PLAN--(CONTINUED) Pursuant to the Prepackaged Plan and in full satisfaction of their claims, (1) holders of Pathmark Senior Subordinated Notes will receive 77.57% of the New Common Stock (2) holders of Pathmark Subordinated Notes and Pathmark Subordinated Debentures will receive their ratable share of 19.29% of the New Common Stock and 75% of the New Warrants, (3) holders of Pathmark Junior Subordinated Notes will receive 2.97% of the New Common Stock and 25% of the New Warrants, and (4) holders of approximately $0.98 million of the Company's 11.625% Subordinated Notes due 2002, which Subordinated Notes are guaranteed by Pathmark, will receive 0.17% of the New Common Stock, subject to dilution as described in the preceding paragraph. The Prepackaged Plan provides that holders of the Company's Cumulative Exchangeable Redeemable Preferred Stock ("Exchangeable Preferred Stock") are to receive their ratable portions of cash of $0.5 million payable upon the effective date of the Prepackaged Plan. As part of the Prepackaged Plan, trade creditors will not be affected and there will be no employee layoffs. The Company is seeking to obtain acceptances from a majority in number of holders and at least 66-2/3% of the dollar amount of each class of bonds voting on the Prepackaged Plan. Unless extended by the Company, the voting deadline with respect to the Prepackaged Plan is July 7, 2000. Upon the requisite acceptances being obtained, it is the Company's intention to promptly file the Prepackaged Plan under Chapter 11 of the U.S. Bankruptcy Code and to exit from Bankruptcy in the third quarter of this year. In connection with its financial restructuring plan, the Company received a commitment from The Chase Manhattan Bank for a $75 million debtor-in-possession ("DIP") financing facility in support of the Prepackaged Plan and a $600 million senior secured credit facility (the "Exit Financing"). The DIP financing, which is subject to approval by the Bankruptcy Court, will enable the Company to continue normal business operations during the restructuring proceedings. The Exit Financing will be used to repay in full the existing Credit Agreement and the DIP financing facility, pay expenses of the Prepackaged Plan and will provide approximately $200 million of liquidity for its post-reorganization operations. The consolidated financial statements of the Company presented herein reflect $5.1 million of professional fees related to the financial reorganization, of which $4.2 million is included in accrued expenses. NOTE 2--ORGANIZATION AND BASIS OF PRESENTATION The Company, through its indirect wholly owned subsidiary, Pathmark, operated 135 supermarkets as of April 29, 2000, primarily in the New York, New Jersey and Philadelphia metropolitan areas, and is a wholly owned subsidiary of SMG-II Holdings Corporation ("SMG-II"). The unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the same accounting principles followed in the presentation of the Company's annual financial statements for the year ended January 29, 2000, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements included herein reflect all adjustments, which are of a normal and recurring nature and are necessary to present fairly the results of operations and financial position of the Company. This report should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K Annual Report for the year ended January 29, 2000. Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The Company has recorded a valuation allowance related to the income tax benefit for the first quarters of Fiscal 2000 and Fiscal 1999, therefore, no income tax benefit has been recognized. SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 3--LONG-TERM DEBT Long-term debt is comprised of the following (dollars in thousands):

------- (a) Current maturities would have been $125.8 million without the Event of Default (see Note 1). SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 4--INTEREST EXPENSE Interest expense is comprised of the following (dollars in thousands): 13 WEEKS ENDED ------------------ APRIL 29, MAY 1, 2000 1999 ------ ------ Pathmark Term Loan $ 5,180 $ 4,837 Pathmark Working Capital Facility 2,268 1,101 Pathmark Senior Subordinated Notes Amortization of original issue discount 89 89 Currently payable(a) 10,587 10,587 Pathmark Subordinated Notes 5,813 5,813 Pathmark Subordinated Debentures 3,022 3,022 Pathmark Junior Subordinated Notes Accrued but not payable 8 5,597 Currently payable(a) 6,053 -- Amortization of debt issuance costs 1,108 1,084 Lease obligations 5,367 5,107 Other, net 2,641 2,238 ------- ------- Interest expense $42,136 $39,475 ======= ======= ------- (a) See Note 1. NOTE 5--COMMITMENTS AND CONTINGENCIES RICKEL: In connection with the sale of its home centers segment in Fiscal 1994, the Company, as lessor, entered into ten leases for certain of the Company's owned real estate properties, including a distribution center, with Rickel as tenant. In addition, the Company assigned 25 third-party leases to Rickel. In 1996, Rickel filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Subsequent to the bankruptcy filing, of the 35 locations leased to Rickel, 16 leases were assigned by Rickel in 1998 to Staples, Inc., 13 leases have either been terminated, sold or assigned to third parties, including Rickel's distribution center which was sold by the Company during Fiscal 1998, and six leases, which were rejected, are being actively marketed by the Company to other prospective tenants. Management has assessed its exposure with respect to this matter and has concluded that it has sufficient reserves to cover any resulting liability which may occur, including the future rent and real estate taxes, net of expected recoveries. INFORMATION SERVICES OUTSOURCING: In August 1991, the Company entered into a ten-year agreement with IBM to provide a wide range of information systems services. Under the agreement, IBM has taken over the Company's data center operations and mainframe processing and information system functions and is providing business applications and systems designed to enhance the Company's customer service and efficiency. The charges under this agreement are based upon the services requested at predetermined rates. The Company may terminate the agreement upon 90 days notice with payment of a specified termination charge. The Company is in discussions with IBM for an extension of the agreement. OTHER: SUPERMARKETS GENERAL HOLDINGS CORPORATION 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. SUPERMARKETS GENERAL HOLDINGS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SALES: Sales in the first quarter of Fiscal 2000 were $919.2 million compared to $894.5 million in the prior year, an increase of 2.8%. The sales increase was primarily due to new stores opened in Fiscal 2000. In addition, same store sales increased 0.7% in the first quarter of Fiscal 2000. The Company operated 135 and 133 supermarkets at the end of the first quarters of Fiscal 2000 and Fiscal 1999, respectively. GROSS PROFIT: Gross profit in the first quarter of Fiscal 2000 was $257.7 million or 28.0% of sales compared with $254.9 million or 28.5% of sales in the prior year. The increase in gross profit dollars for the first quarter of Fiscal 2000 compared to the prior year was primarily due to higher sales partially offset by higher shrink and promotional expenses. The cost of goods sold comparisons were affected by a pretax LIFO charge of $0.4 million in each of the first quarters of Fiscal 2000 and Fiscal 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"): SG&A in the first quarter of Fiscal 2000 increased $11.3 million or 5.5% compared to the prior year primarily due to higher store labor and labor-related expenses and nonrecurring expenses of $5.1 million related to the financial restructuring plan, partially offset by a gain on the sale of certain real estate of $1.8 million. As a percentage of sales, SG&A was 23.7% in the first quarter of Fiscal 2000, compared to 23.1% in the prior year. Excluding the nonrecurring expenses related to the financial restructuring plan, SG&A as a percentage to sales was 23.1% in the first quarter of Fiscal 2000. DEPRECIATION AND AMORTIZATION: Depreciation and amortization of $18.9 million in the first quarter of Fiscal 2000 was $0.7 million higher than the prior year of $18.2 million primarily due to property and equipment additions. Depreciation and amortization excludes video tape amortization, which is recorded in cost of goods sold, of $2.0 million in the first quarter of Fiscal 2000, compared to $0.8 million in the prior year. OPERATING EARNINGS: Operating earnings in the first quarter of Fiscal 2000 were $20.9 million compared with the prior year of $30.2 million. The decrease in operating earnings in the first quarter of Fiscal 2000 compared to the prior year was due to higher SG&A and depreciation and amortization expense, partially offset by higher gross profit. INTEREST EXPENSE: Interest expense was $42.1 million in the first quarter of Fiscal 2000 compared to $39.5 million in the prior year. The increase in interest expense in the first quarter of Fiscal 2000 compared to the prior year was primarily due to higher levels of borrowings and higher rates under the Pathmark Working Capital Facility and the debt accretion on the Pathmark Junior Subordinated Notes. INCOME TAXES: Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The Company has recorded a valuation allowance related to the income tax benefit for the first quarters of Fiscal 2000 and Fiscal 1999; therefore, no income tax benefit has been recognized. The Company believes that it is more likely than not that the net deferred income tax asset of $47.8 million at April 29, 2000 will be realized through the implementation of tax strategies which could generate taxable income. SUPERMARKETS GENERAL HOLDINGS CORPORATION During the first quarter of Fiscal 2000, the Company made income tax payments of $0.02 million and received income tax refunds of $0.3 million. During the first quarter of Fiscal 1999, the Company made income tax payments of $0.4 million and received income tax refunds of $0.03 million. SUMMARY OF OPERATIONS: The Company's net loss in the first quarter of Fiscal 2000 was $21.3 million compared to a net loss of $9.3 million for the prior year. The increase in net loss in the first quarter of Fiscal 2000 compared to the prior year was primarily due to lower operating earnings and higher interest expense. COMPREHENSIVE INCOME: The Company has no items of comprehensive income other than net income and, accordingly, the total comprehensive loss is the same as the reported net loss for all periods presented. EBITDA-FIFO: EBITDA-FIFO was $45.7 million and $49.3 million in the first quarters of Fiscal 2000 and Fiscal 1999, respectively. EBITDA-FIFO represents net earnings before interest expense, income taxes, depreciation and amortization, expenses related to the financial reorganization plan, the gain on sale of certain real estate and the LIFO charge. EBITDA-FIFO is a widely accepted financial indicator of a company's ability to service and/or incur debt. EBITDA-FIFO should not be construed as an alternative to, or a better indicator of, operating earnings or to cash flows from operating activities, as determined in accordance with generally accepted accounting principles. FINANCIAL CONDITION DEBT SERVICE: During the first quarter of Fiscal 2000, total debt increased $0.6 million from Fiscal 1999 year end due to increased borrowings under the Pathmark Working Capital Facility, partially offset by reductions in the Pathmark Term Loan and a decrease in certain mortgages. Borrowings under the Pathmark Working Capital Facility were $116.5 million at April 29, 2000 and $103.3 million at June 7, 2000. In addition, during the first quarter of Fiscal 2000, total lease obligations increased $7.3 million from Fiscal 1999 year end. The indebtedness under the Pathmark Working Capital Facility and the Pathmark Term Loan bear interest at floating rates and, therefore, cash interest payments on that indebtedness may vary in future years. The Company does not currently maintain any interest rate hedging arrangements due to the reasonable risk that near term interest rates will not rise significantly. The Company is continuously evaluating this risk and will implement interest rate hedging arrangements if deemed appropriate. LIQUIDITY: The consolidated financial statements of the Company indicated that, at April 29, 2000, current liabilities exceeded current assets by $1.4 billion and the stockholder's deficiency was $1.5 billion. Historically, cash flows generated from operations, supplemented by the unused borrowing capacity under the Company's working capital facility and the availability of capital lease financing were sufficient to pay the Company's debts as they came due, provide for its capital expenditure program and meet its other cash requirements. SUPERMARKETS GENERAL HOLDINGS CORPORATION Management evaluated its Fiscal 2000 cash flow projections and debt service requirements and based upon this evaluation, the Company does not anticipate making all of its scheduled debt payments. The Company's Fiscal 2000 debt requirements increase substantially over the prior year due primarily to the semi-annual interest payments of $12.1 million on the Pathmark Junior Subordinated Notes which, for the first time, were required to be paid in cash on May 1, 2000 and the sinking fund payment of $50.0 million on the Pathmark Subordinated Notes on June 15, 2000. On May 1, 2000, the Company elected not to make interest payments of $21.2 million on its $440 million of Pathmark Senior Subordinated Notes and $12.1 million on its Pathmark Junior Subordinated Notes. On May 31, 2000, the grace period under each of the Indentures governing the Pathmark Senior Subordinated Notes and Pathmark Junior Subordinated Notes expired. The failure to make these scheduled interest payments constitutes an Event of Default under the Indentures governing the applicable bonds and also constitutes an Event of Default pursuant to the Credit Agreement. In addition, the Company was not in compliance with several of its financial covenants under the Credit Agreement at April 29, 2000 and based on management's projections, the Company believes that it most likely will not comply with such covenants throughout Fiscal 2000. However, the Company and its lenders under the Credit Agreement have entered into a Waiver Agreement pursuant to which said lenders have agreed to waive compliance by the Company with certain provisions of the Credit Agreement through July 29, 2000, including financial covenants and any Event of Default to the extent arising out of a failure to pay any material indebtedness. As a result of such defaults, the Company's long-term debt in the amount of $1.3 billion became due currently and has been classified as current at April 29, 2000. On March 22, 2000, the Company disclosed that it had retained Wasserstein Perella & Co. to assist it in developing a financial restructuring plan and that the Bondholder Committee had been formed. The Company commenced discussions with the Bondholder Committee towards developing a consensual financial restructuring plan. The Company announced on June 2, 2000 that it had reached an agreement with the Bondholder Committee regarding a financial restructuring plan of the Company. Members of the Bondholder Committee hold or control $445.7 million principal amount, or approximately 46% of the Company's total bond indebtedness outstanding, including over 37% of the outstanding principal amount of the Pathmark Senior Subordinated Notes, 48% of the outstanding principal amount of the Pathmark Subordinated Notes, 65% of the outstanding principal amount of the Pathmark Subordinated Debentures and 49% of the outstanding principal amount of the Pathmark Junior Subordinated Notes. Solicitation of acceptances of the financial restructuring plan, to be accomplished through the Prepackaged Plan, commenced on June 8, 2000. The Prepackaged Plan provides that, upon consummation of the reorganization, current holders of the Company's bond indebtedness will receive 100% of the New Common Stock. Such ownership is subject to dilution from (1) the exercise of the New Warrants, (2) the exercise of any options to purchase New Common Stock issued pursuant to the Company's long-term management incentive plan, and (3) the grant to the Chief Executive Officer of restricted New Common Stock. In addition to New Common Stock, holders of the Pathmark Subordinated Notes, the Pathmark Subordinated Debentures and the Pathmark Junior Subordinated Notes will receive New Warrants. The New Warrants will be exercisable at the opening reorganization equity value established in connection with the Prepackaged Plan. Pursuant to the Prepackaged Plan and in full satisfaction of their claims, (1) holders of Pathmark Senior Subordinated Notes will receive 77.57% of the New Common Stock (2) holders of Pathmark Subordinated Notes and Pathmark Subordinated Debentures will receive their ratable share of 19.29% of the New Common Stock and 75% of the New Warrants, (3) holders of Pathmark Junior Subordinated Notes will receive 2.97% of the New Common Stock and 25% of the New Warrants, and (4) holders of approximately $0.98 million of the Company's 11.625% Subordinated Notes due 2002, which Subordinated Notes are guaranteed by Pathmark, will receive 0.17% of the New Common Stock, subject to dilution as described in the preceding paragraph. SUPERMARKETS GENERAL HOLDINGS CORPORATION The Prepackaged Plan provides that holders of the Company's Exchangeable Preferred Stock are to receive their ratable portions of cash of $0.5 million payable upon the effective date of the Prepackaged Plan. As part of the Prepackaged Plan, trade creditors will not be affected and there will be no employee layoffs. The Company is seeking to obtain acceptances from a majority in number of holders and at least 66-2/3% of the dollar amount of each class of bonds voting on the Prepackaged Plan. Unless extended by the Company, the voting deadline with respect to the Prepackaged Plan is July 7, 2000. Upon the requisite acceptances being obtained, it is the Company's intention to promptly file the Prepackaged Plan under Chapter 11 of the U.S. Bankruptcy Code and to exit from Bankruptcy in the third quarter of this year. In connection with its financial restructuring plan, the Company received a commitment from The Chase Manhattan Bank for a $75 million DIP financing facility in support of the Prepackaged Plan and $600 million Exit Financing. The DIP financing, which is subject to approval by the Bankruptcy Court, will enable the Company to continue normal business operations during the restructuring proceedings. The Exit Financing will be used to repay in full the existing Credit Agreement and the DIP financing facility, pay expenses of the Prepackaged Plan and will provide approximately $200 million of liquidity for its post-reorganization operations. The consolidated financial statements of the Company presented herein reflect $5.1 million of professional fees, of which $4.2 million is included in accrued expenses. PREFERRED STOCK DIVIDENDS: The terms of the Company's Exchangeable Preferred Stock provide for cumulative quarterly dividends at an annual rate of $3.52 per share, when, and if declared by the Board of Directors of the Company. Dividends for the first 20 quarterly dividend periods (through October 15, 1992) were paid at the Company's option in additional shares of Exchangeable Preferred Stock. Since January 15, 1993, all dividends not paid in cash will cumulate at the rate of $3.52 per share per annum, without interest, until declared and paid. As such, at April 29, 2000, the unpaid dividends of $129.1 million are accrued and included in other noncurrent liabilities. CAPITAL EXPENDITURES: Capital expenditures for the first quarter of Fiscal 2000, including property acquired under capital leases, were $21.8 million compared to $26.0 million for the prior year. During the first quarter of Fiscal 2000, the Company opened one new store as a replacement for one store closed during the quarter and completed one enlargement to an existing supermarket. Subsequent to April 29, 2000, the Company opened one new store and during the remainder of Fiscal 2000 expects to open two additional stores and complete up to an aggregate of 28 renovations and enlargements. Capital expenditures for Fiscal 2000, including property to be acquired under capital leases, are estimated to be $101.7 million. Management believes that cash flows generated from operations, supplemented by the unused borrowing capacity under the Pathmark Working Capital Facility and the availability of capital lease financing, will be sufficient to provide for the Company's capital expenditure program. CASH FLOWS: Cash used for operating activities was $1.7 million in the first quarter of Fiscal 2000 compared to cash provided by operating activities of $1.4 million in the prior year. The change in cash flow from operating activities was primarily due to the increase in the net loss, the decrease in noncash interest expense and the decrease in cash used for operating assets and liabilities. Cash provided by investing activities was $0.5 million in the first quarter of Fiscal 2000 compared to cash used for investing activities of $11.3 million in the prior year. The change in cash flow from investing activities was primarily due to a decrease in expenditures for property and equipment and an increase in proceeds from property sales or disposals. Cash used for financing activities was $1.9 million in the first quarter of Fiscal 2000 compared to cash provided by financing activities of $10.8 million in the prior year. The change in cash flow from financing activities was primarily due to a decrease in borrowings under the Pathmark Working Capital Facility, an increase in repayments of the Pathmark Term Loan and a decrease in book overdrafts. SUPERMARKETS GENERAL HOLDINGS CORPORATION NEW ACCOUNTING STANDARDS NOT YET ADOPTED In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 represents a comprehensive framework of accounting rules that standardizes the accounting for all derivatives. SFAS No. 133 applies to all entities and to all types of derivatives. In June 1999, the FASB issued SFAS No.137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", which delayed the effective date of SFAS No. 133 for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company has not determined the impact, if any, that the adoption of SFAS No. 133 will have on its financial position or results of operations. FORWARD-LOOKING INFORMATION The matters discussed herein, with the exception of historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. For additional information about the Company and its various risk factors, see the Company's most recent Form 10-K dated January 29, 2000, as filed with the Securities and Exchange Commission on April 28, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company due to adverse changes in financial rates. The Company is exposed to market risk in the area of interest rates. This exposure is directly related to its Pathmark Term Loan and borrowing activities under the Pathmark Working Capital Facility. The Company does not currently maintain any interest rate hedging arrangements due to the reasonable risk that near-term interest rates will not rise significantly. The Company is continuously evaluating this risk and will implement interest rate hedging arrangements when deemed appropriate. SUPERMARKETS GENERAL HOLDINGS CORPORATION PART II. OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES The terms of the Company's Exchangeable Preferred Stock provide for cumulative quarterly dividends at an annual rate of $3.52 per share, when, and if declared by the Board of Directors of the Company. Dividends for the first 20 quarterly dividend periods (through October 15, 1992) were paid at the Company's option in additional shares of Exchangeable Preferred Stock. Since January 15, 1993, all dividends not paid in cash will cumulate at the rate of $3.52 per share per annum, without interest, until declared and paid. As such, at April 29, 2000, the unpaid dividends of $129.1 million are accrued and included in other noncurrent liabilities. On May 1, 2000, the Company elected not to make interest payments of $21.2 million on its $440 million of 9.625% Pathmark Senior Subordinated Notes due 2003 ("Pathmark Senior Subordinated Notes") and $12.1 million on its $225 million of 10.75% Pathmark Junior Deferred Coupon Notes due 2003 ("Pathmark Junior Subordinated Notes"). On May 31, 2000, the grace period under each of the Indentures governing the Pathmark Senior Subordinated Notes and Pathmark Junior Subordinated Notes, respectively, expired constituting an Event of Default under each such Indenture. As of the date of the filing of this report, the Company is in arrears with respect to interest on the Pathmark Senior Subordinated Notes in the amount of $26.2 million and $14.9 million with respect to the Pathmark Junior Subordinated Notes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBIT: Exhibit 27 Financial Data Schedule (b) REPORTS ON FORM 8-K: The registrant did not file a report on Form 8-K during the quarter for which this report is filed. SUPERMARKETS GENERAL HOLDINGS CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the Undersigned thereunto duly authorized. SUPERMARKETS GENERAL HOLDINGS CORPORATION BY /s/ FRANK VITRANO ----------------------------------- (FRANK VITRANO) EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER BY /s/ JOSEPH ADELHARDT ----------------------------------- (JOSEPH ADELHARDT) SENIOR VICE PRESIDENT AND CONTROLLER, CHIEF ACCOUNTING OFFICER DATE: June 13, 2000

SUPERMARKETS GENERAL HOLDINGS CORP 10-Q