<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended February 3, 2001
                                       OR
              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

           For the transition period from____________ to _____________

                          Commission file number 0-8858

                            THE PENN TRAFFIC COMPANY
                            ------------------------
             (Exact name of registrant as specified in its charter)

                    DELAWARE                           25-0716800
         ------------------------------      -----------------------------
          (State or other jurisdiction              (I.R.S. Employer
        of incorporation or organization)          Identification No.)

           1200 STATE FAIR BOULEVARD, SYRACUSE, NEW YORK   13221-4737
         -----------------------------------------------------------------
              (Address of principal executive offices)     (Zip Code)

       Registrant's telephone number, including area code: (315) 453-7284

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
                                                            par value Warrants
                                                            to purchase Common
                                                            Stock

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (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. [ ]

         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 |_|

         The aggregate market value of voting stock held by non-affiliates of
the registrant was $73,933,497 as of April 27, 2001.

COMMON STOCK, PAR VALUE $.01 PER SHARE: 20,054,112 SHARES OUTSTANDING AS OF
APRIL 27, 2001
<PAGE>

                                 FORM 10-K INDEX

                                                                            PAGE

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PART I
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Item  1.  Business                                                             4

Item  2.  Properties                                                          17

Item  3.  Legal Proceedings                                                   17

Item  4.  Submission of Matters to a Vote of
          Security Holders                                                    17

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PART II.
--------------------------------------------------------------------------------

Item  5.  Market for Registrant's Common Equity
          and Related Stockholder Matters                                     18

Item  6.  Selected Financial Data                                             18

Item  7.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations                       24

Item 7A.  Quantitative and Qualitative Disclosures about
          Market Risk                                                         42

Item  8.  Financial Statements and Supplementary Data                         43

Item  9.  Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure                              77

--------------------------------------------------------------------------------
PART III.
--------------------------------------------------------------------------------

Item 10.  Directors and Executive Officers of Registrants                     78

Item 11.  Executive Compensation                                              78

Item 12.  Security Ownership of Certain Beneficial Owners
          and Management                                                      78

Item 13.  Certain Relationships and Related Transactions                      78

--------------------------------------------------------------------------------
PART IV.
--------------------------------------------------------------------------------

Item 14.  Exhibits, Financial Statement Schedules and
          Reports on Form 8-K                                                 79


                                      -2-
<PAGE>

         Certain statements included in this Form 10-K which are not statements
of historical fact are intended to be, and are hereby identified as,
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. Without limiting the foregoing, the
words "anticipate," "believe," "estimate," "expect," "intend," "plan," "project"
and other similar expressions are intended to identify forward-looking
statements. Penn Traffic (the "Company") cautions readers that forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward-looking statements. Such factors include,
among other things, the success or failure of the Company in implementing its
current business and operational strategies; general economic and business
conditions; competition; availability, location and terms of sites for store
development; the successful implementation of the Company's capital expenditure
program (including store remodeling); labor relations; labor and employee
benefit costs; the performance of the stores formerly leased under the New
England Operating Agreement (as defined in Item 1 - "Business -- New England
Stores" below) and the cost of integrating such stores into the Company's
operations; the impact of EITF Issue Number 00-14, "Accounting for Certain Sales
Incentives" ("EITF 00-14") on the Company's financial statements and financial
results (as discussed in Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of New Accounting
Standards"); the impact of the introduction of loyalty card programs on the
Company's operating results; the ability of the Company to repurchase its common
stock in open market purchases and the prices at which it repurchases its common
stock; restrictions on the Company's ability to repurchase its shares under its
debt instruments; availability, terms and access to capital; the Company's
liquidity and other financial considerations; and the outcome of pending or
yet-to-be instituted legal proceedings.


                                      -3-
<PAGE>

                                     PART I


ITEM 1. BUSINESS (AS OF FEBRUARY 3, 2001 UNLESS OTHERWISE NOTED)

GENERAL

         Penn Traffic is one of the leading food retailers in the eastern United
States. The Company operates 220 supermarkets in Ohio, West Virginia,
Pennsylvania, upstate New York, Vermont and New Hampshire under the "Big Bear"
and "Big Bear Plus" (70 stores), "Bi-Lo" (43 stores), "P&C" (73 stores) and
"Quality" (34 stores) trade names. Penn Traffic also operates wholesale food
distribution businesses serving 83 licensed franchises and 77 independent
operators. Revenues for the 53-week period ended February 3, 2001 were
approximately $2.5 billion.

         The Company operates supermarkets in larger metropolitan areas such as
Columbus, Ohio and Syracuse and Buffalo, New York as well as a number of smaller
communities throughout the Company's six-state trade area. Penn Traffic's stores
are clustered geographically within these markets providing economies of scale
in advertising, distribution and operations management.

         Penn Traffic's stores generally have long-standing brand equity and
leading market positions. More than 75% of Penn Traffic's retail revenues are
derived in markets where the Company believes that it has the number one or two
market position.

         The Company's supermarkets, which average 41,500 square feet, are
conveniently located and generally modern. Penn Traffic tailors the size and
product assortment of each store to local demographics.

         Prior to 1997, Penn Traffic pursued an aggressive capital expenditure
program. This program was curtailed in 1997, 1998 and the first half of 1999
because of financial constraints. After the completion of the Company's
financial restructuring in June 1999, the Company reestablished a strong capital
investment program. From August 1999 to February 2001 the Company upgraded or
replaced approximately 50 stores representing 27% of the Company's total retail
square footage. When these expenditures are combined with the Company's capital
plan for the fiscal year ending February 2, 2002, the Company expects to have
invested approximately $145 million in its store base and infrastructure in the
2-1/2 year period between August 1999 and February 2002, resulting in the
remodeling or replacement of a total of approximately 45% of the Company's
retail square footage.


                                      -4-
<PAGE>

         On March 1, 1999 (the "Petition Date"), Penn Traffic and certain of its
subsidiaries filed petitions for relief (the "Bankruptcy Cases") under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
The Bankruptcy Cases were commenced to implement a prenegotiated financial
restructuring of the Company. On May 27, 1999, the Bankruptcy Court confirmed
the Company's Chapter 11 plan of reorganization (the "Plan") and on June 29,
1999 (the "Effective Date"), the Plan became effective in accordance with its
terms. See "Reorganization" and Item 7 - "Management's Discussion and Analysis
of Financial Condition and Results of Operations."


                                      -5-
<PAGE>

BUSINESS STRATEGY

         Since the second half of 1998, Penn Traffic has been implementing a
strategy designed to generate sales and operating income growth in an evolving
competitive environment. This strategy builds on the Company's objective of
operating conveniently located modern supermarkets with a strong emphasis on
quality perishables and customer service. The major components of the Company's
strategy are to:

         o        Reestablish a strong capital investment program

         o        Enhance the Company's merchandising

         o        Improve store operations

         o        Reduce and contain costs

         The following is a description of each major component of the Company's
business strategy:

         1.       Reestablish a strong capital investment program

         The Company believes that its stores are conveniently located and
generally modern. Nevertheless, management believes that Penn Traffic has a
significant number of opportunities to invest in the Company's core markets
where it already has strong market positions, and thereby increase sales and
operating income or, in some circumstances, mitigate the potential adverse
effect of new competition. Additionally, the Company believes that it has
opportunities to build new stores in communities contiguous to existing markets,
particularly in the growing central Ohio marketplace.

         As the initial phase of reestablishing a strong capital investment
program after Penn Traffic's financial restructuring, the Company developed an
18-month capital expenditure program for the period from August 1999 to February
2001. During this period, the Company upgraded or replaced approximately 50
stores representing 27% of the Company's total retail square footage. The
Company invested $86 million in this program.

         During the fiscal year ending February 2, 2002, Penn Traffic plans to
invest approximately $60 million in its capital expenditure program, which is
expected to result in the remodeling or replacement of an additional 15-20% of
the Company's square footage. During this period, the Company expects to open
two replacement stores, complete approximately 25 store remodels and continue to
invest in the Company's distribution, manufacturing and technology
infrastructure. In addition, Penn Traffic expects to commence construction of
approximately five new or replacement stores that will open in the subsequent
year.


                                      -6-
<PAGE>

         2.       Enhance the Company's merchandising

         Penn Traffic has implemented or plans to implement programs designed to
(1) refine the assortment and enhance the quality and presentation of products
offered in each of its stores, (2) improve the return from promotional
expenditures, (3) more effectively respond to regional differences and (4)
introduce products and services to address the evolving lifestyles of the
Company's customers. Key components of these programs include:

                  a.       Category management and regional marketing

         During 2000, Penn Traffic continued the roll out of a category
management program designed to establish more efficient product assortment,
analyze individual product movement and evaluate the impact of promotional
decisions. With this process, category managers develop category business plans
that improve assortment and pricing decisions. By the end of 2000, Penn Traffic
had developed category plans for products constituting approximately one-half of
the Company's total retail sales of grocery, dairy and frozen food products.
During 2001, the Company plans to apply this process to the majority of the
remaining categories.

         In 1997, Penn Traffic centralized its merchandising and procurement
activities. While this organizational change has benefited Penn Traffic in many
respects, the Company believes that for a period of time it did not sufficiently
tailor its product offerings and marketing programs to address regional
differences across its marketing areas. The Company has adjusted its
organizational structure and management practices to more effectively address
differing consumer preferences and competitive environments in its various
markets.

                  b.       Loyalty card marketing

         In September 2000, Penn Traffic launched its "Wild Card" loyalty card
program in its 70 Big Bear stores. During 2001, the Company expects to roll out
this program in other markets.

         The Company believes that the "Wild Card" increases customer loyalty
and sales. In addition, by targeting more of the Company's promotions on its
best customers, Penn Traffic believes that the loyalty card program enables the
Company to more efficiently promote its offerings, thereby improving its gross
profit.

                  c.       Enhanced perishable departments

         Penn Traffic plans to continue to enhance presentation, quality and
variety in its perishable departments. During 1999, Penn Traffic introduced its
"Gold Label" meat program, which features a broader assortment of high quality
branded meat products. During 2000, the Company introduced its "Garden Fresh"
produce program. During 2001, Penn Traffic plans to launch new branded
perishable programs in the deli and bakery departments.


                                      -7-
<PAGE>

                  d.       New products and services

         Penn Traffic will continue to introduce new merchandising concepts into
its stores to respond to evolving customer lifestyles. For example, to provide
more of a one-stop shopping experience for today's busy customers, Penn Traffic
has been adding more in-store pharmacies and health and wellness departments to
its stores. The pharmacy and health and beauty care business is an important and
growing part of the Company's business. Penn Traffic currently operates 88
in-store pharmacies.

                  e.       New Big Bear Plus format

         Penn Traffic operates 15 Big Bear Plus stores (combination supermarket
and general merchandise stores) in Ohio and West Virginia, which range in size
from 70,000 to 140,000 square feet. During 1999, Penn Traffic began to develop a
new format for these stores which includes (1) the refinement of the scope of
the nonfood merchandise offered to a smaller number of key growth categories
with a greater depth of variety in each category; and (2) the utilization of the
space no longer required for the merchandising of nonfood products in the new
format to improve the presentation and assortment of both perishable and
nonperishable food products.

         In connection with this program, which is expected to be completed
during 2001, the Company has been making significant investments in the
remodeling of most of its Big Bear Plus facilities. As of February 3, 2001, 11
of the 15 Big Bear Plus stores have been converted to the new format. Certain
merchandising concepts developed for these stores have been and are expected to
be utilized in Penn Traffic's other stores to generate additional general
merchandise sales.

         3.       Improve store operations

         The Company is continuing to focus on providing the consumer with high
quality products and excellent customer service in a pleasant shopping
environment. Management believes that efficient store-level execution of the
Company's operating standards and merchandising programs is a critical factor in
achieving future sales and profit improvements.

         4.       Reduce and contain costs

         Penn Traffic has been working on reducing costs throughout the
Company's operations, while maintaining the Company's quality and service goals.
For example, over the past two years, the Company has successfully implemented
programs to reduce both perishable and nonperishable shrink expense. In
addition, during 2000, the Company completed a warehouse consolidation project
which has resulted in annual savings of $2 million.


                                      -8-
<PAGE>

         The Company is developing plans for a number of other cost reduction
and cost containment programs. For example, during 2001, Penn Traffic plans to
implement new logistics software which will help improve truck routing and
trailer utilization, which, in turn is expected to reduce transportation costs.
In addition, the Company has recently commenced the use of electronic commerce
to reduce the cost of certain non-resaleable products.


                                      -9-
<PAGE>

RETAIL FOOD BUSINESS

         Penn Traffic is one of the leading supermarket retailers in its
operating areas, which include Ohio, West Virginia, Pennsylvania, upstate New
York, Vermont and New Hampshire. The Company operates in communities with
diverse economies and demographics.

         Penn Traffic's stores are conveniently located in close proximity to
the Company's customers. Most of the Company's stores are located in shopping
centers. The Company believes that its store base is generally modern and
provides a pleasant shopping experience for Penn Traffic customers.

         Penn Traffic's supermarkets offer a broad selection of grocery, meat,
poultry, seafood, dairy, fresh produce, delicatessen, bakery and frozen food
products. The stores also offer nonfood products and services such as health and
beauty care products, housewares, general merchandise, and in many cases,
pharmacies, floral items and banking services. In general, Penn Traffic's larger
stores carry broader selections of merchandise and feature a larger variety of
service departments than its other stores.

         Penn Traffic's store sizes and formats vary widely, depending upon the
demographic conditions in each location. For example, "conventional" store
formats are generally more appropriate in areas of low population density;
larger populations are better served by full-service supermarkets of up to
75,000 square feet, which offer an increased variety of merchandise and numerous
expanded service departments such as bakeries, delicatessens, floral departments
and fresh seafood departments.

         Penn Traffic's 15 Big Bear Plus stores range in size from 70,000 to
140,000 square feet. These full service supermarkets carry an expanded variety
of nonfood merchandise. During 1999, Penn Traffic developed a new format for
these stores to refine the scope of this nonfood merchandise to a smaller number
of key growth categories with a greater depth of variety in each category. This
process is expected to be completed in 2001.

         Between the middle of 1998 and May 1999, Penn Traffic implemented a
store rationalization program (the "Store Rationalization Program") to divest
itself of certain marketing areas, principally in northeastern Pennsylvania,
where performance and market position were the weakest relative to Penn
Traffic's other retail stores, and to close other underperforming stores. In
total, Penn Traffic sold 21 stores and closed 29 stores. The sale of the 21
stores generated net cash proceeds of approximately $40 million (after the
payment of transaction costs and other costs of sale such as inventory
markdowns).


                                      -10-
<PAGE>

Selected statistics on Penn Traffic's retail food stores are presented below.

<TABLE>
<CAPTION>
                                       FISCAL YEAR ENDED
-------------------------------------------------------------------------------
                    February 3, January 29, January 30, January 31, February 1,
                      2001        2000        1999        1998        1997
                    (53 WEEKS)(2)  (1)         (1)         (1)         (1)
-------------------------------------------------------------------------------
<S>                <C>         <C>         <C>         <C>         <C>
Average annual
  revenues per
  store            $10,062,000 $ 9,965,000 $ 9,594,000 $ 9,811,000 $10,598,000

Total store area
  in square feet     9,134,778   8,910,898   9,796,604  10,787,686  10,737,891

Total store
  selling area in
  square feet        6,621,450   6,455,352   7,086,099   7,812,114   7,780,811

Average total
  square feet per
  store                 41,522      42,433      42,046      40,862      40,520

Average square
  feet of selling
  area per store        30,097      30,740      30,412      29,591      29,362

Annual revenues per
  square foot of
  selling area            $330        $327        $321        $333        $368

Number of stores:

  Remodels/expansions
   (over $100,000)          39          16           5           4           7
  New stores opened          0           1           1           1           5
  Stores acquired           11           2           0           1           2
  Stores closed/sold         1          26          32           3           7

Size of stores (total store area):
  Up to 19,999
   square feet              34          28          29          36          37
  20,000 - 29,999
   square feet              36          36          42          50          52
  30,000 - 44,999
   square feet              75          72          81          92          93
  45,000 - 60,000
   square feet              46          45          50          55          55
  Greater than
   60,000 square
   feet                     29          29          31          31          28

Total stores open
  at fiscal year-end       220         210         233         264         265
</TABLE>

(1)      Includes revenues and square footage amounts from stores disposed of as
         part of the Store Rationalization Program.

(2)      Average annual revenues per store and annual revenues per square foot
         of selling area are calculated on a 52-week basis. Data for stores
         acquired during the fiscal year ended February 3, 2001, includes 10
         stores in Vermont and New Hampshire formerly leased to another
         supermarket company which the Company commenced operating in August
         2000 (see "New England Stores").


                                      -11-
<PAGE>

WHOLESALE FOOD DISTRIBUTION BUSINESS

         Penn Traffic licenses, royalty-free, the use of its "Riverside,"
"Bi-Lo" and "Big M" names to 83 independently-owned supermarkets that are
required to maintain certain quality and other standards. The majority of these
independent stores use Penn Traffic as their primary wholesaler and also receive
advertising, accounting, merchandising and retail counseling services from Penn
Traffic. In addition, Penn Traffic receives rent from 43 of the licensed
independent operators which lease or sublease their supermarkets from Penn
Traffic. The Company also acts as a food distributor to 77 other independent
supermarkets. In addition to contributing to the Company's operating income, the
wholesale food distribution business enables the Company to spread fixed and
semi-fixed procurement and distribution costs over additional revenues.

BAKERY OPERATION

         Penn Traffic owns and operates Penny Curtiss, a bakery processing plant
in Syracuse, New York. Penny Curtiss manufactures and distributes fresh and
frozen bakery products to Penn Traffic's stores and third parties, including
customers of Penn Traffic's wholesale food distribution business.

PURCHASING AND DISTRIBUTION

         Penn Traffic is a large volume purchaser of products. Penn Traffic's
purchases are generally of sufficient volume to qualify for minimum price
brackets for most items. Penn Traffic purchases brand name grocery merchandise
directly from national manufacturers. The Company also purchases private label
products and certain other food products from TOPCO Associates, Inc., a national
products purchasing cooperative comprising 22 regional supermarket chains. For
the fiscal year ended February 3, 2001, purchases from TOPCO Associates
accounted for approximately 19% of Penn Traffic product purchases.

         In the later part of calendar year 1998 and the early portion of
calendar year 1999, as the Company's need to restructure its capital structure
became apparent, certain of Penn Traffic's suppliers lowered credit limits to
Penn Traffic which reduced Penn Traffic's ability to supply its stores with a
full variety of products or earn promotional discounts or allowances on certain
products. Since the completion of the Company's financial restructuring in the
middle of 1999, however, the Company believes that its vendors have been
offering Penn Traffic promotional allowance opportunities that are generally
consistent with industry norms for a company of its size and geographic scope.


                                      -12-
<PAGE>

         Penn Traffic's principal New York distribution facility is a
company-owned 514,000 square foot distribution center in Syracuse, New York. The
Company also owns a 241,000 square foot distribution center for perishable
products in Syracuse.

         The Company's primary Ohio distribution center is a leased 492,000
square foot dry grocery facility in Columbus, Ohio. Penn Traffic also owns a
208,000 square foot distribution facility for perishable goods in Columbus and
leases a 233,000 square foot warehouse in Columbus for distribution of certain
general merchandise.

         Penn Traffic's principal Pennsylvania distribution facility is a
company-owned 390,000 square foot distribution center in DuBois, Pennsylvania.
Penn Traffic also owns and operates a 195,000 square foot distribution center
for perishable products in DuBois.

         In January 2000, Penn Traffic began a process to (1) reduce the number
of distribution centers the Company utilizes for nonperishable grocery products
from four to three and (2) transfer the distribution of general merchandise and
health and beauty care items from a leased facility in Columbus, Ohio to the
Company's Jamestown, New York facility (an owned 274,000 square foot facility
which had supplied grocery products to certain stores in upstate New York and
northern Pennsylvania until January 2000). This process was completed in June
2000. In connection with the completion of this project, Penn Traffic canceled
its lease on a 205,000 square foot distribution center in Columbus, Ohio.

         Approximately two-thirds of the merchandise offered in Penn Traffic's
retail stores is distributed from its warehouses by its fleet of tractors,
refrigerated trailers and dry trailers. Merchandise not delivered from Penn
Traffic's warehouses is delivered directly to the stores by manufacturers,
distributors, vendor drivers and sales representatives for such products as
beverages, snack foods and bakery items.

COMPETITION

         The food retailing business is highly competitive and may be affected
by general economic conditions. The number of competitors and the degree of
competition encountered by Penn Traffic's supermarkets vary by location. Penn
Traffic competes with several multi-regional, regional and local supermarket
chains, convenience stores, stores owned and operated and otherwise affiliated
with large food wholesalers, unaffiliated independent food stores, warehouse
clubs, discount drug store chains, discount general merchandise chains,
"supercenters" (combination supermarket and general merchandise stores) and
other retailers. Many of these competitors are significantly larger than Penn
Traffic, have vastly greater resources and purchasing power than Penn Traffic,
in some cases can obtain more favorable terms from landlords, are better
capitalized than Penn Traffic and do not have employees affiliated with unions.


                                      -13-
<PAGE>

EMPLOYEES

         Labor costs and their impact on product prices are important
competitive factors in the supermarket industry. Penn Traffic has approximately
15,700 hourly employees and 1,400 salaried employees.

         Approximately 52% of Penn Traffic's hourly employees belong to the
United Food and Commercial Workers Union. An additional 7% of Penn Traffic's
hourly employees (principally employed in the distribution function and in the
Company's bakery plant) belong to four other unions.

GOVERNMENT REGULATION

         Penn Traffic's food and drug business requires it to hold various
licenses and to register certain of its facilities with state and federal
health, drug and alcoholic beverage regulatory agencies. By virtue of these
licenses and registration requirements, Penn Traffic is obligated to observe
certain rules and regulations; and a violation of such rules and regulations
could result in a suspension or revocation of licenses or registrations. Most of
Penn Traffic's licenses require periodic renewals. Penn Traffic has experienced
no material difficulties with respect to obtaining, retaining or renewing its
licenses and registrations.

SEASONALITY, CUSTOMERS AND SUPPLIERS

         The supermarket business of Penn Traffic is generally not seasonal in
nature. During the past three fiscal years, no single customer or group of
customers under common control accounted for 10% or more of Penn Traffic's
consolidated revenues. Groceries, general merchandise and raw materials are
available from many different sources. During the past three fiscal years, no
single supplier accounted for 10% or more of Penn Traffic's cost of sales except
TOPCO Associates, Inc. which accounted for approximately 19%, 21% and 21% of
product purchases in the fiscal years ended February 3, 2001, January 29, 2000
and January 30, 1999, respectively.


                                      -14-
<PAGE>

HISTORY

         Penn Traffic is the successor to a retail business which dates back to
1854. In August 1988, Penn Traffic acquired P&C Food Markets, Inc. ("P&C"),
which operated a retail and wholesale grocery business in a contiguous market to
the east of Penn Traffic's historical marketplace. In April 1993, P&C was merged
into the Company.

         In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big
Bear"), a leading food retailer in Ohio and northern West Virginia. In April
1993, Big Bear was merged into the Company.

         In January 1998, Penn Traffic sold Sani-Dairy, its former dairy
manufacturing operation. Concurrent with the completion of the transaction, the
Company entered into a 10-year supply agreement with the acquirer for the
purchase of products that were supplied by Sani-Diary and two other dairies.

         Between the middle of 1998 and May 1999, Penn Traffic implemented the
Store Rationalization Program which involved the sale or closure of 50 stores
(see "Retail Food Business").

         As described above, on the Petition Date, Penn Traffic and certain of
its subsidiaries commenced the Bankruptcy Cases in the Bankruptcy Court for the
District of Delaware to implement a prenegotiated financial restructuring of the
Company. On June 29, 1999, the Plan became effective in accordance with its
terms.

NEW ENGLAND STORES

         In July 1990, the Company entered into a 10-year operating agreement
(the "New England Operating Agreement") with The Grand Union Company ("Grand
Union") pursuant to which Grand Union acquired the right to operate 13 stores in
Vermont and New Hampshire under the "Grand Union" trade name until July 31,
2000. Prior to July 1990, these stores had been operated by Penn Traffic under
the Company's "P&C" trade name.

         Grand Union had the right to extend the term of the New England
Operating Agreement for an additional five years after the 10 year term, at set
operating fees. Penn Traffic had also granted Grand Union the option to purchase
such stores based on a formula set forth in the New England Operating Agreement.
As Grand Union did not exercise either of these options, by August 1, 2000, the
Company regained operating control of the remaining 10 stores that had been
subject to the New England Operating Agreement. Nine of these stores were opened
for business on various dates during August 2000.


                                      -15-
<PAGE>

         The Revenues account of the Company's Consolidated Statement of
Operations for the 53-week period ended February 3, 2001, and the 52-week period
ended January 29, 2000, includes income from the New England Operating Agreement
of approximately $5.7 million and $12.5 million, respectively. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

REORGANIZATION

         As described above, on the Petition Date, Penn Traffic and certain of
its subsidiaries commenced the Bankruptcy Cases in the Bankruptcy Court to
implement a prenegotiated financial restructuring of the Company. On June 29,
1999, the Plan became effective in accordance with its terms.

         Consummation of the Plan has resulted in (1) the former $732.2 million
principal amount of the Company's senior notes being exchanged for $100 million
of new senior notes (the "New Senior Notes") and 19,000,000 shares of newly
issued common stock (the "New Common Stock"), (2) the former $400 million
principal amount of senior subordinated notes being exchanged for 1,000,000
shares of New Common Stock and six-year warrants to purchase 1,000,000 shares of
New Common Stock having an exercise price of $18.30 per share, (3) holders of
Penn Traffic's formerly issued common stock receiving one share of New Common
Stock for each 100 shares of common stock held immediately prior to the Petition
Date, for a total of 106,955 new shares and (4) the cancellation of all
outstanding options and warrants to purchase shares of the Company's former
common stock. The Plan also provides for the issuance to officers and key
employees of options to purchase up to 2,297,000 shares of New Common Stock. The
Company's New Common Stock and warrants to purchase common stock are currently
trading on the Nasdaq National Market under the symbols "PNFT" and "PNFTW,"
respectively.

         The Plan also provided for payment in full of all of the Company's
obligations to its other creditors.

         On the Effective Date, in connection with the consummation of the Plan,
the Company entered into a new $320 million secured credit facility (the "New
Credit Facility"). The New Credit Facility includes (1) a $205 million revolving
credit facility (the "New Revolving Credit Facility") and (2) a $115 million
term loan (the "Term Loan"). The lenders under the New Credit Facility have a
first priority perfected security interest in substantially all of the Company's
assets. Proceeds from the New Credit Facility were used to satisfy the Company's
obligations under its debtor-in-possession financing (the "DIP Facility"), pay
certain costs of the reorganization process and are available to satisfy the
Company's ongoing working capital and capital expenditure requirements. See Item
7 - "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."


                                      -16-
<PAGE>

ITEM 2. PROPERTIES

         Penn Traffic follows the general industry practice of leasing the
majority of its retail supermarket locations. Penn Traffic presently owns 25 and
leases 195 of the supermarkets that it operates. The leased supermarkets are
held under leases expiring from 2001 to 2024, excluding option periods. Penn
Traffic owns or leases 43 supermarkets which are leased or subleased to
independent operators.

         Penn Traffic also owns five shopping centers that contain company-owned
or licensed supermarkets. Penn Traffic also operates distribution centers in
Syracuse and Jamestown, New York; Columbus, Ohio; and DuBois, Pennsylvania; and
a bakery plant in Syracuse, New York. Penn Traffic also owns a fleet of trucks
and trailers, fixtures and equipment utilized in its business and certain
miscellaneous real estate.

ITEM 3. LEGAL PROCEEDINGS

         The Company and its subsidiaries are involved in several lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
Estimates of future liability are based on an evaluation of currently available
facts regarding each matter. Liabilities are recorded when it is probable that
costs will be incurred and can be reasonably estimated.

         Based on management's evaluation, the resolution of these matters is
not expected to materially affect the financial position, results of operations
or liquidity of the Company.

         Also see Item 1 - "Business -- Reorganization" for a description of the
consummation of the Plan.

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

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended February 3, 2001.


                                      -17-
<PAGE>

                                     PART II

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

         Since September 15, 1999, Penn Traffic's New Common Stock and warrants
are listed on the Nasdaq National Market under the symbols "PNFT" and "PNFTW,"
respectively, and were held by approximately 2,649 stockholders and 94 warrant
holders, respectively, of record on February 3, 2001.

         Common stock information is provided on Pages 85 and 86 of this Form
10-K.

ITEM 6. SELECTED FINANCIAL DATA

CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY

         Set forth below is selected historical consolidated financial data of
Penn Traffic for the five fiscal years ended February 3, 2001. As a result of
the consummation of the Plan, Penn Traffic adopted "fresh-start reporting" as of
June 26, 1999. The accounting periods ended on or prior to June 26, 1999, have
been designated "Predecessor Company" and the periods subsequent to June 26,
1999, have been designated "Successor Company."

         In accordance with the implementation of fresh-start reporting, the
Company's assets, liabilities and stockholders' (deficit) equity have been
revalued as of June 26, 1999. In addition, as a result of the consummation of
the Plan, the amount of the Company's indebtedness has been substantially
reduced. Accordingly, the financial statements of the Company for periods after
June 26, 1999 are not comparable to the Company's financial statements for
periods ended on or prior to such date.

         The selected historical consolidated financial data for the 53-week
period ended February 3, 2001, the 31-week period ended January 29, 2000, the
21-week period ended June 26, 1999, and the three fiscal years ended January 30,
1999 are derived from the consolidated financial statements of Penn Traffic,
which have been audited by PricewaterhouseCoopers LLP, independent accountants.
The selected historical consolidated financial data should be read in
conjunction with the Penn Traffic consolidated financial statements and related
notes included elsewhere herein.


                                      -18-
<PAGE>

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        Predecessor
                                            Successor Company             Company
                                        --------------------------      ----------
                                         For the         For the         For the
                                         53 Weeks        31 Weeks        21 Weeks
                                          Ended           Ended           Ended
(In thousands of dollars,               February 3,     January 29,      June 26,
  except per share data)                   2001            2000            1999
                                        ----------      ----------      ----------
<S>                                     <C>             <C>             <C>
REVENUES (1)                            $2,525,305      $1,477,219      $1,006,804

COSTS AND OPERATING EXPENSES:
  Cost of sales (including
   buying and occupancy costs)(2)        1,917,851       1,124,755         781,342
  Selling and administrative
   expenses                                548,959         312,154         226,430
  Amortization of excess
   reorganization value                    111,381          65,132
  Unusual items (3)                         (1,741)          7,408          (4,631)
                                        ----------     -----------      ----------

OPERATING (LOSS) INCOME                    (51,145)        (32,230)          3,663
  Interest expense (4)                      39,164          22,923          21,794
  Reorganization items (5)                                                 167,031
                                        ----------      ----------      ----------

(LOSS) BEFORE INCOME TAXES AND
 EXTRAORDINARY ITEMS                       (90,309)        (55,153)       (185,162)
  Provision for income taxes (6)             9,593           4,940              60
                                        ----------      ----------      ----------

(LOSS) BEFORE EXTRAORDINARY ITEMS          (99,902)        (60,093)       (185,222)
  Extraordinary items (7)                                                 (654,928)
                                        ----------      ----------      ----------

NET (LOSS) INCOME                       $  (99,902)     $  (60,093)     $  469,706
                                        ==========      ==========      ==========

NET (LOSS) PER SHARE (BASIC
 AND DILUTED)                           $    (4.97)     $    (2.99)
                                        ==========      ==========
</TABLE>

No dividends on common stock have been paid during the past five fiscal years.
Per share data is not presented for periods prior to June 26, 1999, because of
the general lack of comparability as a result of the revised capital structure
of the Company.

<TABLE>
<S>                                     <C>             <C>                <C>
BALANCE SHEET DATA:
  Total assets                          $  909,570      $1,020,457
  Total debt (including
   capital leases)                         324,448         320,174
  Stockholders' equity                     263,287         363,564

OTHER DATA:

  EBITDA (8)                               101,884          67,378          29,773
  Depreciation and
   amortization                             41,870          26,176          25,832
  LIFO provision                             1,519             892           1,009
  Capital expenditures,
   including capital
   leases and acquisitions                  57,982          31,468           6,279
  Cash interest expense                     38,275          22,405          20,393
</TABLE>


                                      -19-
<PAGE>

FOOTNOTES:

(1)      In May 2000, the Financial Accounting Standards Board Emerging Issues
         Task Force ("EITF") issued a new accounting pronouncement, EITF Issue
         Number 00-14, "Accounting for Certain Sales Incentives" ("EITF 00-14"),
         which addresses the recognition, measurement and income statement
         classification for certain sales incentives offered by companies in the
         form of discounts, coupons or rebates. The implementation of this new
         accounting pronouncement will require Penn Traffic to make certain
         reclassifications between Revenues and Costs and Operating Expenses in
         the Company's Consolidated Statement of Operations. Penn Traffic
         currently expects to implement EITF 00-14 in the second quarter of the
         fiscal year ending February 2, 2002 ("Fiscal 2002"). Penn Traffic
         expects that the implementation of EITF 00-14 will result in an equal
         decrease to the Company's reported Revenues and Costs and Operating
         Expenses. In accordance with such implementation, Penn Traffic will
         also reclassify certain prior period financial statements for
         comparability purposes.

(2)      During the 21-week period ended June 26, 1999, the Company recorded a
         special charge of $3.9 million associated with the repositioning of its
         15 Big Bear Plus stores. This charge, which consists of estimated
         inventory markdowns for discontinued product lines, is included in cost
         of sales.

(3)      During the 53-week period ended February 3, 2001 ("Fiscal 2001"), the
         Company recorded an unusual item (income) of $3.0 million associated
         with a reduction in the estimate of the remaining liability associated
         with the Store Rationalization Program and an unusual item (expense) of
         $1.3 million related to the implementation of a warehouse consolidation
         project.

         During the 31-week period ended January 29, 2000, the Company recorded
         unusual items (expense) of $5.5 million associated with the
         restructuring of certain executive compensation agreements and $1.9
         million associated with an early retirement program for certain
         eligible employees. During the 21-week period ended June 26, 1999, the
         Company recorded an unusual item (income) of $4.6 million related to
         the Store Rationalization Program.

(4)      As a result of the Company's Chapter 11 filing on the Petition Date, no
         principal or interest payments were made on or after the Petition Date
         on the Company's formerly outstanding senior and senior subordinated
         notes. Accordingly, no interest expense for these obligations has been
         accrued on or after the Petition Date. Had such interest been accrued,
         interest expense for the 21-week period ended June 26, 1999, would have
         been approximately $58.8 million.

(5)      The reorganization items for the 21-week period ended June 26, 1999,
         include (a) adjustments associated with the implementation of
         fresh-start reporting, (b) professional fees associated with the
         implementation of the Plan, (c) the write-off of unamortized deferred
         financing fees for the Company's former notes and (d) a gain related to
         the difference between the estimated allowed claims for rejected leases
         and the liabilities previously recorded for such leases.


                                      -20-
<PAGE>

(6)      The tax provisions for Fiscal 2001 and the 31-week period ended January
         29, 2000, are not recorded at statutory rates due to differences
         between income calculations for financial reporting and tax reporting
         purposes that result primarily from the nondeductible amortization of
         excess reorganization value. The tax provision for the 21-week period
         ended June 26, 1999, is not recorded at statutory rates due to the
         recording of a valuation allowance for all income tax benefits
         generated. A valuation allowance is required when it is more likely
         than not that the recorded value of a deferred tax asset will not be
         realized.

(7)      The extraordinary items for the 21-week period ended June 26, 1999,
         include (a) a gain on debt discharge recorded in connection with the
         consummation of the Plan and (b) the write-off of unamortized deferred
         financing fees associated with the repayment of the Company's
         pre-petition revolving credit facility.

(8)      "EBITDA" is earnings before interest, depreciation, amortization,
         amortization of excess reorganization value, LIFO provision, special
         charges, unusual items, reorganization items, extraordinary items, the
         cumulative effect of change in accounting principle and taxes. EBITDA
         should not be interpreted as a measure of operating results, cash flow
         provided by operating activities, a measure of liquidity, or as an
         alternative to any generally accepted accounting principle measure of
         performance. The Company reports EBITDA because it is a widely used
         financial measure of the potential capacity of a company to incur and
         service debt. Penn Traffic's reported EBITDA may not be comparable to
         similarly titled measures used by other companies.


                                      -21-
<PAGE>

                CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                   PREDECESSOR COMPANY
                                        ------------------------------------------
                                           As of and for the Fiscal Year Ended
 (In thousands of dollars)              January 30,     January 31,     February 1,
                                           1999            1998            1997
                                        ----------      ----------      ----------
<S>                                     <C>             <C>             <C>
REVENUES                                $2,828,109      $3,010,065      $3,296,462

COSTS AND OPERATING EXPENSES:
  Cost of sales (including
   buying and occupancy costs) (1)       2,213,801       2,317,847       2,531,381
  Selling and administrative
   expenses (2)                            602,382         625,731         684,558
  Restructuring charges (2)                                 10,704
  Gain on sale of Sani-Dairy (3)                           (24,218)
  Unusual items (1)                         61,355
  Write-down of long-lived
   assets (4)                              143,842          26,982
                                         ---------      ----------      ----------

OPERATING (LOSS) INCOME                   (193,271)         53,019          80,523
  Interest expense                         147,737         149,981         144,854
                                        ----------      ----------      ----------

(LOSS) BEFORE INCOME TAXES                (341,008)        (96,962)        (64,331)
  (Benefit) for income taxes               (23,914)        (35,836)        (22,901)
                                        ----------      ----------      ----------

NET (LOSS)                              $ (317,094)     $  (61,126)     $  (41,430)
                                        ==========      ==========      ==========
</TABLE>

No dividends on common stock have been paid during the past five fiscal years.
Per share data is not presented for periods prior to June 26, 1999, because of
the general lack of comparability as a result of the revised capital structure
of the Company.

<TABLE>
<S>                                     <C>             <C>             <C>
BALANCE SHEET DATA:

  Total assets                          $1,228,061      $1,563,586      $1,704,119
  Total debt (including
   capital leases)                       1,377,358       1,373,607       1,398,991
  Stockholders' (deficit)                 (469,706)       (159,809)        (96,755)

OTHER DATA:

  EBITDA (5)                                99,450         165,283         175,603
  Depreciation and
   amortization                             77,179          88,966          92,705
  LIFO provision                             2,376           2,343           2,375
  Capital expenditures,
   including capital
   leases and acquisitions                  14,368          22,272          69,785
  Cash interest expense                    143,411         145,177         140,289
</TABLE>


                                      -22-
<PAGE>

FOOTNOTES:

(1)      During the 52-week period ended January 30, 1999 ("Fiscal 1999"), the
         Company recorded a special charge of $68.2 million related to the Store
         Rationalization Program ($60.2 million of this charge is included in
         the unusual item account; $8.0 million of this charge, representing
         inventory markdowns, is included in cost of sales). The unusual item
         account for Fiscal 1999 also includes $1.1 million of professional fees
         and other miscellaneous costs associated with the Company's financial
         restructuring.

(2)      For the 52-week period ended January 31, 1998 ("Fiscal 1998"), the
         Company recorded pretax special charges totaling $18.2 million ($10.7
         million, net of tax). These special charges consist of (1) $12.6
         million associated with a management reorganization and related
         corporate actions ($10.7 million of this charge is included in
         restructuring charges and $1.9 million is included in selling and
         administrative expenses) and (2) $5.6 million associated with the
         retention of certain corporate executives, which is included in selling
         and administrative expenses.

(3)      During Fiscal 1998, the Company recorded a gain totaling $24.2 million
         ($14.3 million, net of tax) related to the sale of Sani-Dairy, the
         Company's dairy manufacturing operation, for cash consideration of
         approximately $37 million.

(4)      The Company periodically reviews the recorded value of its long-lived
         assets to determine if the future cash flows to be derived from these
         properties will be sufficient to recover the remaining recorded asset
         values. In accordance with Statement of Financial Accounting Standards
         No. 121, "Accounting for the Impairment of Long-Lived Assets and for
         Long-Lived Assets to be Disposed Of" ("SFAS 121"), during Fiscal 1999
         the Company recorded noncash charges of (1) $52.3 million primarily
         related to the write-down of the recorded asset values of 14 of the
         Company's stores (including allocable goodwill) to estimated realizable
         value and (2) $91.5 million to write down the carrying amounts
         (including allocable goodwill) of property held for sale in connection
         with the Store Rationalization Program to estimated realizable value.

         In accordance with SFAS 121, during Fiscal 1998 the Company recorded a
         noncash charge of $27.0 million primarily related to the write-down of
         a portion of the recorded asset values of 12 of the Company's stores
         (including allocable goodwill), as well as miscellaneous real estate,
         to estimated realizable values.

(5)      "EBITDA" is earnings before interest, depreciation, amortization, LIFO
         provision, special charges, unusual items, restructuring charges, the
         write-down of impaired long-lived assets, extraordinary items, the
         cumulative effect of change in accounting principle and taxes. EBITDA
         should not be interpreted as a measure of operating results, cash flow
         provided by operating activities, a measure of liquidity, or as an
         alternative to any generally accepted accounting principle measure of
         performance. The Company reports EBITDA because it is a widely used
         financial measure of the potential capacity of a company to incur and
         service debt. Penn Traffic's reported EBITDA may not be comparable to
         similarly titled measures used by other companies.


                                      -23-
<PAGE>

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

         Certain statements included in this Part II, Item 7 -"Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K which are not statements of historical fact are
intended to be, and are hereby identified as, "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Without limiting the foregoing, the words "anticipate," "believe,"
"estimate," "expect," "intend," "plan," "project" and other similar expressions
are intended to identify forward-looking statements. The Company cautions
readers that forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievement expressed or implied by such forward-looking
statements. Such factors include, among other things, the success or failure of
the Company in implementing its current business and operational strategies;
general economic and business conditions; competition; availability, location
and terms of sites for store development; the successful implementation of the
Company's capital expenditure program (including store remodeling); labor
relations; labor and employee benefit costs; the performance of the stores
formerly leased under the New England Operating Agreement (as defined in Item 1
- "Business -- New England Stores" above) and the cost of integrating such
stores into the Company's operations; the impact of EITF 00-14 on the Company's
financial statements and financial results (as discussed in "Impact of New
Accounting Standards" below); the impact of the introduction of loyalty card
programs on the Company's operating results; the ability of the Company to
repurchase its common stock in open market purchases and the prices at which it
repurchases its common stock; restrictions on the Company's ability to
repurchase its shares under its debt instruments; availability, terms and access
to capital; the Company's liquidity and other financial considerations; and the
outcome of pending or yet-to-be instituted legal proceedings.


                                      -24-
<PAGE>

OVERVIEW

         As discussed in Note 2 to the accompanying Consolidated Financial
Statements, the Company emerged from its Chapter 11 proceedings on the Effective
Date. For financial reporting purposes, the Company accounted for the
consummation of the Plan as of June 26, 1999. In accordance with the American
Institute of Certified Public Accountant's Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), the Company has applied fresh-start reporting as of June 26, 1999,
which has resulted in significant changes to the valuation of certain of the
Company's assets and liabilities, and to its stockholders' equity. In connection
with the adoption of fresh-start reporting, a new entity has been deemed to be
created for financial reporting purposes. The periods ended on or prior to June
26, 1999, have been designated "Predecessor Company" and the periods subsequent
to June 26, 1999, have been designated "Successor Company." For purposes of the
discussion of Results of Operations for the 52-week period ended January 29,
2000 ("Fiscal 2000"), the results of the 21-week period ended June 26, 1999
(Predecessor Company) and the 31-week period ended January 29, 2000 (Successor
Company) have been combined since separate discussions of these periods are not
meaningful in terms of their operating results or comparisons to the prior year.


                                      -25-
<PAGE>

RESULTS OF OPERATIONS

         FISCAL YEAR ENDED FEBRUARY 3, 2001 ("FISCAL 2001") COMPARED TO FISCAL
YEAR ENDED JANUARY 29, 2000 ("FISCAL 2000")

         FISCAL 2001 WAS A 53-WEEK YEAR AND FISCAL 2000 WAS A 52-WEEK YEAR.

         The following table sets forth certain Statement of Operations
components expressed as percentages of revenues for Fiscal 2001 and Fiscal 2000:

<TABLE>
<CAPTION>
                                               PERCENTAGE OF REVENUES
                                                     FISCAL YEAR
                                              ------------------------
                                              2001               2000
                                              -----              -----
<S>                                           <C>                <C>
Revenues                                      100.0%             100.0%

Gross profit (1)                               24.1               23.3

Gross profit excluding
 special charges (2)                           24.1               23.4

Selling and administrative
 expenses                                      21.7               21.7

Unusual items (3)                              (0.1)               0.1

Amortization of excess
 reorganization value                           4.4                2.6

Operating (loss)                               (2.0)              (1.2)

Operating income excluding
 unusual items, special charges
 and amortization of  excess
 reorganization value (4)                       2.3                1.7

Interest expense                                1.6                1.8

Reorganization items                                               6.7

Net (loss) income                              (4.0)              16.5

Net income (loss) excluding unusual
 items, special charges, amortization
 of excess reorganization value,
 reorganization items and
 extraordinary items (5)                        0.4               (0.4)
</TABLE>


                                      -26-
<PAGE>

(1)      Revenues less cost of sales.

(2)      Gross profit excluding a special charge of $3.9 million for Fiscal 2000
         (see Note 4). Unusual items (income) of $1.7 million and unusual items
         (expense) of $2.8 million for Fiscal 2001 and Fiscal 2000, respectively
         (see Note 5).

(3)      Operating (loss) for Fiscal 2001 excluding unusual items (income) of
         $1.7 million and amortization of excess reorganization value of $111.4
         million. Operating (loss) for Fiscal 2000 excluding unusual items
         (expense) of $2.8 million, a special charge of $3.9 million and
         amortization of excess reorganization value of $65.1 million (see Notes
         3, 4, 5 and 6).

(4)      Net income for Fiscal 2001 excluding unusual items (income) of $1.7
         million and amortization of excess reorganization value of $111.4
         million. Net income for Fiscal 2000, excluding unusual items (expense)
         of $2.8 million, a pre-tax special charge of $3.9 million, amortization
         of excess reorganization value of $65.1 million, reorganization items
         (expense) of $167.0 million and extraordinary items (income) of $654.9
         million. (see Notes 3, 4, 5, 6, 8 and 10).

REVENUES

         Revenues for Fiscal 2001 increased 1.7% to $2.53 billion from $2.48
billion in Fiscal 2000. The increase in revenues for Fiscal 2001 is primarily
attributable to (1) an increase in same store sales, (2) the commencement of the
Company's operation of 10 New England stores formerly leased to another
supermarket chain (see "Liquidity and Capital Resources" below) and (3) the fact
that Fiscal 2001 was a 53-week fiscal year and Fiscal 2000 was a 52-week fiscal
year. These increases in revenues were partially offset by (1) a reduction in
the number of stores the Company operated during Fiscal 2001, as compared to
Fiscal 2000, resulting from the Company's decision to close or sell certain
stores as part of the Company's store rationalization program (during the fiscal
year ended January 29, 2000, Penn Traffic sold or closed 21 stores in connection
with this program; 19 of these stores were sold or closed in the 13-week period
ended May 1, 1999) and (2) a decline in wholesale revenues. On a 52-week basis,
revenues for Fiscal 2001 were approximately $2.48 billion.

         Same store sales for Fiscal 2001 increased 1.0% from the prior year
(calculated on a comparable week basis).

         Wholesale supermarket revenues were $287.4 million in Fiscal 2001
compared to $295.0 million in Fiscal 2000. The decrease in wholesale supermarket
revenues in Fiscal 2001 is a result of a reduction in the average number of
customers of the Company's wholesale/franchise business and the average
shipments per customer.


                                      -27-
<PAGE>

GROSS PROFIT

         Gross profit for Fiscal 2001 was 24.1% of revenues compared to 23.3% of
revenues in Fiscal 2000. Gross profit excluding special charges for Fiscal 2000
was 23.4% of revenues in Fiscal 2000.

         The increase in gross profit excluding special charges as a percentage
of revenues for Fiscal 2001 was primarily a result of (1) an increase in
allowance income from the Company's vendors, (2) a reduction in inventory shrink
expense and (3) a reduction in depreciation and amortization expense (as
described below). These increases in gross profit excluding special charges were
partially offset by the reduction in revenues associated with the expiration of
the New England Operating Agreement (see "Liquidity and Capital Resources"
below).

SELLING AND ADMINISTRATIVE EXPENSES

         Selling and administrative expenses for Fiscal 2001 were 21.7% of
revenues compared to 21.7% of revenues in Fiscal 2000. During Fiscal 2001 the
Company increased promotional spending as a percentage of revenues to drive
sales and launch a number of remodeled stores (the Company accounts for certain
promotional expenses in the "Selling and administrative expenses" line of the
Consolidated Statement of Operations) and incurred costs in connection with the
launch of the loyalty card program in the Company's Big Bear markets. These
increases in selling and administrative expenses were offset by (1) the benefit
of the Company's cost reduction initiatives, (2) a reduction in bad debt expense
and (3) reductions in depreciation expense and goodwill amortization (as
described below).

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization expense was $41.9 million in Fiscal 2001
and $52.0 million in Fiscal 2000, representing 1.7% and 2.1% of revenues,
respectively. Depreciation and amortization expense decreased in Fiscal 2001
primarily due to (1) a reduction in the carrying value of property, plant and
equipment associated with the implementation of fresh-start reporting (see Note
3) and (2) the elimination of goodwill associated with the implementation of
fresh-start reporting.

         During Fiscal 2001, amortization of excess reorganization value was
$111.4 million. The excess reorganization value asset of $327.8 million is being
amortized on a straight-line basis over a three-year period (see Note 3).


                                      -28-
<PAGE>

UNUSUAL ITEMS

         During Fiscal 2001 the Company recorded unusual items of (1) $3.0
million (income) associated with a reduction in the estimate of the remaining
liability associated with the Company's store rationalization program (the
"Store Rationalization Program") and (2) $1.3 million (expense) related to the
implementation of a warehouse consolidation project.

         During Fiscal 2000 the Company recorded unusual items of (1) $5.5
million (expense) associated with the restructuring of certain executive
compensation agreements, (2) $1.9 million (expense) associated with an early
retirement program for certain eligible employees and (3) $4.6 million (income)
related to the Store Rationalization Program (see Note 5).

OPERATING (LOSS) INCOME

         Operating (loss) for Fiscal 2001 was $51.1 million or 2.0% of revenues
compared to an operating (loss) of $28.6 million or 1.2% of revenues for Fiscal
2000. The Company had an operating (loss) in Fiscal 2001 and Fiscal 2000 due to
noncash charges for amortization of excess reorganization value of $111.4
million and $65.1 million, respectively. Amortization of excess reorganization
value is a noncash charge which will end in the middle of the fiscal year ending
February 1, 2003.

         Operating income excluding unusual items, special charges and
amortization of excess reorganization value for Fiscal 2001 was $58.5 million or
2.3% of revenues compared to $43.2 million or 1.7% of revenues for Fiscal 2000.
Operating income excluding unusual items, special charges and amortization of
excess reorganization value as a percentage of revenues increased in Fiscal 2001
due to an increase in gross profit as a percentage of revenues.

INTEREST EXPENSE

         Interest expense for Fiscal 2001 and Fiscal 2000 was $39.2 million and
$44.7 million, respectively. As discussed in Note 7, the Company discontinued
the accrual of interest on the Company's former senior and senior subordinated
notes on March 1, 1999.

REORGANIZATION ITEMS

         During Fiscal 2000, the Company recorded reorganization items (expense)
of $167.0 million (see Note 8).


                                      -29-
<PAGE>

INCOME TAXES

         Income tax provision for Fiscal 2001 was $9.6 million compared to an
income tax provision of $5.0 million for Fiscal 2000. The effective tax rate for
Fiscal 2001 and the 31-week period ended January 29, 2000 varies from statutory
rates due to differences between income for financial reporting and tax
reporting purposes that result primarily from the nondeductible amortization of
excess reorganization value. The effective tax rate for the 21-week period ended
June 26, 1999 varies from statutory rates due to the recording of a valuation
allowance for all income tax benefits generated. A valuation allowance is
required when it is more likely than not that the recorded value of a deferred
tax asset will not be realized (see Note 9).

         At January 30, 1999, the Company had approximately $300 million of
federal net operating loss carryforwards as well as certain state net operating
loss carryforwards and various tax credits. On January 30, 2000, all such net
operating loss and tax credit carryforwards were eliminated due to the
implementation of the Plan. In addition, as a result of the implementation of
the Plan, on January 30, 2000, the Company lost the majority of the tax basis of
its long-lived assets (which was approximately $350 million as of January 29,
2000), significantly reducing the amount of tax depreciation and amortization
that the Company will be able to utilize on its tax returns starting in Fiscal
2001.

EXTRAORDINARY ITEM

         During Fiscal 2000, the Company recorded an extraordinary gain of
$654.9 million associated with the Company's financial restructuring (see Note
10).

NET (LOSS) INCOME

         Net (loss) for Fiscal 2001 was $99.9 million compared to a net income
of $409.6 million for Fiscal 2000. Net income excluding unusual items, special
charges, amortization of excess reorganization value, reorganization items and
extraordinary items was $10.5 million for Fiscal 2001 compared to a net (loss)
of $9.3 million for Fiscal 2000.


                                      -30-
<PAGE>

         FISCAL YEAR ENDED JANUARY 29, 2000 ("FISCAL 2000") COMPARED TO FISCAL
YEAR ENDED JANUARY 30, 1999 ("FISCAL 1999")

         The following table sets forth certain Statement of Operations
components expressed as percentages of revenues for Fiscal 2000 and Fiscal 1999:

<TABLE>
<CAPTION>
                                             PERCENTAGE OF REVENUES
                                                   FISCAL YEAR
                                            ------------------------
                                            2000               1999
                                            -----              -----
<S>                                         <C>                <C>
Revenues                                    100.0%             100.0%

Gross profit (1)                             23.3               21.7

Gross profit excluding
 special charges (2)                         23.4               22.0

Selling and administrative
 expenses                                    21.7               21.3

Unusual items (3)                             0.1                2.2

Write-down of long-lived assets                                  5.1

Amortization of excess
 reorganization value                         2.6

Operating (loss)                             (1.2)              (6.8)

Operating income excluding
 unusual items, special charges
 and amortization of  excess
 reorganization value (4)                     1.7                0.7

Interest expense                              1.8                5.2

Reorganization items                          6.7

Net income (loss)                            16.5              (11.2)

Net (loss) excluding unusual items,
 special charges, amortization of
 excess reorganization value,
 reorganization items and
 extraordinary items (5)                     (0.4)              (3.7)
</TABLE>


                                      -31-
<PAGE>

(1)      Revenues less cost of sales.

(2)      Gross profit excluding special charges of $3.9 million and $8.0 million
         for Fiscal 2000 and Fiscal 1999, respectively (see Notes 4 and 5).

(3)      Unusual items (expense) of $2.8 million and $61.4 million for Fiscal
         2000 and Fiscal 1999, respectively (see Note 5).

(4)      Operating (loss) for Fiscal 2000 excluding unusual items (expense) of
         $2.8 million, a special charge of $3.9 million and amortization of
         excess reorganization value of $65.1 million. Operating (loss) for
         Fiscal 1999, excluding special charges of $69.3 million and the
         write-down of long-lived assets of $143.8 million (see Notes 3, 4, 5
         and 6).

(5)      Net income for Fiscal 2000, excluding unusual items (expense) of $2.8
         million, a special charge of $3.9 million, amortization of excess
         reorganization value of $65.1 million, reorganization items (expense)
         of $167.0 million and extraordinary items (income) of $654.9 million.
         Net (loss) for Fiscal 1999 excluding special charges of $69.3 million
         and the write-down of long-lived assets of $143.8 million (see Notes 3,
         4, 5, 6, 8 and 10).

REVENUES

         Revenues for Fiscal 2000 decreased 12.2% to $2.48 billion from $2.83
billion in Fiscal 1999. The decrease in revenues for Fiscal 2000 is primarily
attributable to (1) a reduction in the number of stores the Company operated in
Fiscal 2000 as compared to Fiscal 1999 resulting from the Company's decision to
close or sell certain stores, most of which were underperforming, as part of the
Store Rationalization Program, (2) a decline in same store sales and (3) a
decline in wholesale revenues.

         For Fiscal 2000, same store sales decreased 1.5% compared to the prior
year. Wholesale supermarket revenues were $295.0 million in Fiscal 2000 compared
to $328.7 million in Fiscal 1999. The decrease in wholesale revenues resulted
primarily from a reduction in the number of customers of the Company's
wholesale/franchise business.

GROSS PROFIT

         Gross profit for Fiscal 2000 was 23.3% of revenues compared to 21.7% of
revenues in Fiscal 1999. Gross profit excluding special charges in Fiscal 2000
was 23.4% of revenues compared to 22.0% of revenues in Fiscal 1999.


                                      -32-
<PAGE>

         The increase in gross profit excluding special charges as a percentage
of revenues for Fiscal 2000 was primarily due to (1) the positive effect of
re-establishing the Company's traditional high/low pricing strategy in the
second half of Fiscal 1999, (2) reduced inventory shrink expense as a percentage
of revenues, (3) the positive effect of the sale or closure of 50 stores which
generally had lower gross margins than the average for the Company as part of
the Store Rationalization Program and (4) a reduction in depreciation and
amortization expense (as described below). These improvements in gross profit as
a percentage of revenues were partially offset by an increase in distribution
expenses as a percentage of revenues.

SELLING AND ADMINISTRATIVE EXPENSES

         Selling and administrative expenses for Fiscal 2000 were 21.7% of
revenues compared to 21.3% of revenues in Fiscal 1999. The increase in selling
and administrative expenses as a percentage of revenues for Fiscal 2000 was
primarily due to (1) the Company's investment in store labor as part of its plan
to improve operations and focus on customer service and (2) the spreading of
certain fixed and semi-fixed costs over reduced revenues. These increases in
selling and administrative expenses were partially offset by (1) a reduction in
bad debt expense, (2) a reduction in depreciation expense (as described below)
and (3) a reduction in goodwill amortization resulting from (1) the Store
Rationalization Program, which involved the sale or closure of stores and the
write-off of related goodwill and (2) the elimination of Goodwill on June 26,
1999 in connection with the implementation of fresh-start reporting (see Note
3).

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization expense was $52.0 million in Fiscal 2000
and $77.2 million in Fiscal 1999, representing 2.1% and 2.7% of revenues,
respectively. Depreciation and amortization expense decreased in Fiscal 2000
primarily due to (1) a reduction in the Company's capital expenditure program in
Fiscal 1998 and Fiscal 1999 from the recent previous fiscal years, (2) the Store
Rationalization Program, which involved the sale or closure of certain stores,
(3) the write-down of long-lived assets recorded in Fiscal 1999 in accordance
with SFAS 121, (4) a reduction in the carrying value of property, plant and
equipment associated with the implementation of fresh-start reporting and (5)
the elimination of Goodwill on June 26, 1999 associated with the implementation
of fresh-start reporting.

         During Fiscal 2000, amortization of excess reorganization value was
$65.1 million. The Excess reorganization value asset of $327.8 million is being
amortized on a straight-line basis over a three-year period (see Note 3).


                                      -33-
<PAGE>

UNUSUAL ITEMS

         During Fiscal 2000, the Company recorded unusual items of (1) $5.5
million (expense) associated with the restructuring of certain executive
compensation agreements, (2) $1.9 million (expense) associated with an early
retirement program for certain eligible employees and (3) $4.6 million (income)
related to the Store Rationalization Program (see Note 5).

         During Fiscal 1999, the Company recorded special charges of $68.2
million associated with the Store Rationalization Program and $1.1 million
associated with the Company's financial restructuring. Of these charges, $61.3
million is included in the unusual items account and $8.0 million (inventory
markdowns) is included in the cost of sales account (see Note 5).

         In accordance with SFAS 121, during Fiscal 1999, the Company recorded
noncash charges of (1) $52.3 million primarily related to the write-down of a
portion of the recorded asset values of 14 of the Company's stores (including
allocable goodwill) to estimated realizable values and (2) $91.5 million to
write down the carrying amounts (including allocable goodwill) of property held
for sale in connection with the Store Rationalization Program to estimated
realizable value (see Note 6).

OPERATING INCOME (LOSS)

         Operating (loss) for Fiscal 2000 was $28.6 million or 1.2% of revenues
compared to an operating (loss) of $193.3 million or 6.8% of revenues for Fiscal
1999. The Company had an operating (loss) in Fiscal 2000 due to the amortization
of excess reorganization value of $65.1 million which is a noncash charge which
will end in the middle of the fiscal year ending February 1, 2003.

         Operating income excluding unusual items, special charges and
amortization of excess reorganization value for Fiscal 2000 was $43.2 million or
1.7% of revenues. Operating income excluding special charges and a write-down of
long-lived assets for Fiscal 1999 was $19.9 million or 0.7% of revenues.
Operating income excluding unusual items, special charges and amortization of
excess reorganization value as a percentage of revenues increased in Fiscal 2000
due to an increase in gross profit excluding special charges as a percentage of
revenues partially offset by an increase in selling and administrative expenses
as a percentage of revenues.


                                      -34-
<PAGE>

INTEREST EXPENSE

         Interest expense for Fiscal 2000 and Fiscal 1999 was $44.7 million and
$147.7 million, respectively. Interest expense for Fiscal 2000 decreased
primarily due to (1) the discontinuance of the accrual of interest on the
Company's former senior and senior subordinated notes on the Petition Date and
(2) the implementation of the Plan on June 29, 1999, which has substantially
reduced the Company's debt.

REORGANIZATION ITEMS

         During Fiscal 2000, the Company recorded reorganization items (expense)
of $167.0 million (see Note 8).

INCOME TAXES

         Income tax provision for Fiscal 2000 was $5.0 million compared to a tax
benefit of $23.9 million for Fiscal 1999. The effective tax rate for Fiscal 2000
varies from statutory rates due to (1) differences in income for financial
reporting and tax reporting purposes for the 31-week period ended January 29,
2000 that result primarily from the nondeductible amortization of excess
reorganization value and (2) the fact the Company recorded a valuation allowance
for all income tax benefits generated in the 21-week period ended June 26, 1999.
Although the Company recorded an income tax provision for the 31-week period
ended January 30, 2000, the Company did not pay any income taxes for the fiscal
year ended January 29, 2000 (other than $0.2 million of franchise taxes) due to
the utilization of net operating loss carryforwards (see Note 9).

         At January 30, 1999, the Company had approximately $300 million of
federal net operating loss carryforwards as well as certain state net operating
loss carryforwards and various tax credits. On January 30, 2000, all such net
operating loss and tax credit carryforwards were eliminated due to the
implementation of the Plan. In addition, as a result of the implementation of
the Plan, on January 30, 2000, the Company lost the majority of the tax basis of
its long-lived assets (which was approximately $350 million as of January 29,
2000), significantly reducing the amount of tax depreciation and amortization
that the Company will be able to utilize on its tax returns starting in Fiscal
2001.

EXTRAORDINARY ITEMS

         During Fiscal 2000, the Company recorded an extraordinary gain of
$654.9 million associated with the Company's financial restructuring (see Note
10).


                                      -35-
<PAGE>

NET INCOME (LOSS)

         Net income for Fiscal 2000 was $409.6 million compared to a net (loss)
of $317.1 million for Fiscal 1999. Net (loss) excluding unusual items, special
charges, amortization of excess reorganization value, reorganization items and
extraordinary items was $9.3 million for Fiscal 2000. Net (loss) excluding
special charges and a write-down of long-lived assets was $103.9 million for
Fiscal 1999. These amounts are not comparable due to the consummation of the
Plan and the implementation of fresh-start reporting in Fiscal 2000.


                                      -36-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         As a result of the consummation of the Plan, the Company substantially
reduced the amount of its total indebtedness. In connection with the Plan,
approximately $1.13 billion of senior notes and senior subordinated notes were
converted into $100 million of New Senior Notes due 2009, approximately 99.5% of
the shares of the New Common Stock outstanding on the Effective Date and
warrants to purchase additional shares of New Common Stock. Upon consummation of
the Plan on June 29, 1999, the Company had approximately $326 million of
outstanding indebtedness (including capital leases).

         The New Senior Notes mature on June 29, 2009, and do not contain any
mandatory redemption or sinking fund requirement provisions (other than pursuant
to certain customary exceptions including, without limitation, requiring the
Company to make an offer to repurchase the New Senior Notes upon the occurrence
of a change of control), and are optionally redeemable at prices at 106% of par
beginning in the year 2004 and declining annually thereafter to par in 2008, and
at 111% of par under other specified circumstances.

         Pursuant to the terms of the indenture for the New Senior Notes (the
"Indenture"), the Company, at its election, can choose to pay interest on the
New Senior Notes at the rate of 11% per annum for the first two years (i.e., the
first four semi-annual interest payments) through the issuance of additional
notes; thereafter, interest on the New Senior Notes will be payable at the rate
of 11% per annum, in cash. Any notes issued in lieu of interest would also
mature on June 29, 2009, and bear interest at 11% per annum. The Company paid
the interest on the New Senior Notes in cash for the first three semi-annual
interest periods. The Company also currently expects to make the fourth
semi-annual interest payment on June 29, 2001, in cash instead of through the
issuance of any additional notes. The Indenture contains certain negative
covenants that, among other things, restrict the Company's ability to incur
additional indebtedness, permit additional liens and make certain restricted
payments.

         On June 29, 1999, in connection with the consummation of the Plan, the
Company entered into the $320 million New Credit Facility. The New Credit
Facility includes (1) the $205 million New Revolving Credit Facility and (2) the
$115 million Term Loan. The lenders under the New Credit Facility have a first
priority perfected security interest in substantially all of the Company's
assets. The New Credit Facility contains a variety of operational and financial
covenants intended to restrict the Company's operations. These include, among
other things, restrictions on the Company's ability to incur debt, make capital
expenditures and make restricted payments as well as requirements that the
Company achieve required levels for Consolidated EBITDA, interest coverage,
fixed charge coverage and funded debt ratio (all as defined in the New Credit
Facility).


                                      -37-
<PAGE>

         The Term Loan will mature on June 30, 2006. Amounts of the Term Loan
maturing in future fiscal years are outlined in the following table (in
thousands of dollars):

<TABLE>
<CAPTION>
                 FISCAL YEAR ENDING                   AMOUNT MATURING
                 ------------------                   ---------------

<S>                                                       <C>
                  February 2, 2002                        $  4,750
                  February 1, 2003                           6,750
                  January 31, 2004                           9,750
                  January 29, 2005                          12,750
                  January 28, 2006                           7,750
                  February 3, 2007                          71,250
                                                          --------

                                                          $113,000
                                                          ========
</TABLE>

         Availability under the New Revolving Credit Facility is calculated
based on a specified percentage of eligible inventory and accounts receivable of
the Company. The New Revolving Credit Facility will mature on June 30, 2005.
Availability under the New Revolving Credit Facility was approximately $132
million as of February 3, 2001 (see Note 13).

         During April 2000, the Company entered into interest rate swap
agreements, which expire in five years, that effectively convert $50 million of
its variable rate borrowings into fixed rate obligations. Under the terms of
these agreements, the Company makes payments at a weighted average fixed
interest rate of 7.08% per annum and receives payments at variable interest
rates based on the London InterBank Offered Rate ("LIBOR").

         During Fiscal 2001, the Company's internally generated funds from
operations, available cash resources and amounts available under the New
Revolving Credit Facility provided sufficient liquidity to meet the Company's
operating, capital expenditure and debt service needs, and fund expenditures
related to the Company's financial restructuring and stock repurchase program.
During the 52-week period ending February 2, 2002 ("Fiscal 2002"), the Company
expects to utilize internally generated funds from operations, amounts available
under the New Revolving Credit Facility and new capital leases to satisfy its
operating, capital expenditure and debt service needs, to fund any repurchase of
shares of its common stock under its stock repurchase program and to pay
expenditures related to the Company's financial restructuring.

         Cash flows used to meet the Company's operating requirements during
Fiscal 2001 are reported in the Consolidated Statement of Cash Flows. During
Fiscal 2001, the Company's net cash used in investing activities was $56.4
million. This amount was financed by net cash provided by operating activities,
net cash provided by financing activities and a reduction in cash and cash
equivalents of $37.2 million, $10.0 million and $9.2 million, respectively.


                                      -38-
<PAGE>

         As described above in Item 1 - "Business -- New England Stores," in
July 1990, the Company entered into the New England Operating Agreement with
Grand Union pursuant to which Grand Union acquired the right to operate 13
stores in Vermont and New Hampshire under the "Grand Union" trade name until
July 31, 2000. Prior to July 1990, these stores had been operated by Penn
Traffic under the Company's "P&C" trade name. By August 1, 2000, the Company had
regained operating control of the remaining 10 stores that had been subject to
the New England Operating Agreement. Nine of these stores were opened for
business in August 2000.

         The Revenues account of the Company's Consolidated Statement of
Operations for Fiscal 2000 includes approximately $12.5 million of income from
the New England Operating Agreement. The Company also recorded approximately
$5.7 million of income from the New England Operating Agreement in the Revenues
account in the first half of Fiscal 2001. In contrast, the Company incurred
approximately $1 million of operating losses during the second half of Fiscal
2001 in connection with commencement of operation of these 10 stores.

         The Company expects to continue to invest in promotional activities to
reacquaint customers with the Company's offerings in the startup period for
these 10 New England stores, which the Company expects will conclude in the
first half of Fiscal 2002. While the Company currently expects these stores to
contribute to the Company's operating income in the second half of Fiscal 2002,
Penn Traffic believes that the operating income allocable to such stores will be
significantly less on an annual basis than the income received pursuant to the
New England Operating Agreement.

         During Fiscal 2001, the Company commenced implementation of a loyalty
card program in its 70 Big Bear stores in Ohio and West Virginia. Fiscal 2001
operating income was reduced by an estimated $1.5 million in connection with the
launch of this loyalty card program. Penn Traffic currently expects to roll out
the program to other markets in the second half of Fiscal 2002. Such
introduction will result in additional costs of an, as yet, undetermined amount.

         During Fiscal 2001, the Company invested approximately $58 million in
capital expenditures. The Company financed such capital expenditures through
cash generated from operations, available cash resources and amounts available
under the New Revolving Credit Facility. During Fiscal 2002 Penn Traffic expects
to invest approximately $60 million (including capital leases). Capital
expenditures will be principally for new stores, store remodels and investments
in the Company's distribution infrastructure and technology. The Company expects
to finance such expenditures through cash generated from operations, amounts
available under the New Revolving Credit Facility and new capital leases.


                                      -39-
<PAGE>

         On June 29, 2000, the Company announced that its Board of Directors has
authorized the Company to repurchase up to an aggregate value of $10 million of
Penn Traffic's common stock from time to time in the open market or privately
negotiated transactions. The timing and amounts of purchases will be governed by
prevailing market conditions and other considerations. Penn Traffic's ability to
repurchase its common stock is subject to limitations contained in the Company's
debt instruments. The Company is currently allowed to repurchase approximately
$8 million of common shares under these agreements. This amount will change on a
quarterly basis based on the Company's financial results. To date, the Company
has repurchased 53,000 shares of common stock at an average price of $7.08 per
share.


                                      -40-
<PAGE>

IMPACT OF NEW ACCOUNTING STANDARDS

         Existing generally accepted accounting principles do not provide
specific guidance on the accounting for sales incentives that many companies
offer to their customers. The Financial Accounting Standards Board Emerging
Issues Task Force has issued EITF 00-14, which addresses the recognition,
measurement and income statement classification for certain sales incentives
offered by companies in the form of discounts, coupons or rebates. The
implementation of this new accounting pronouncement will require Penn Traffic to
make certain reclassifications between Revenues and Costs and Operating Expenses
in the Company's Consolidated Statement of Operations. Penn Traffic currently
expects to implement EITF 00-14 in the second quarter of Fiscal 2002. In
accordance with such implementation, Penn Traffic will also reclassify certain
prior period financial statements for comparability purposes.

         Penn Traffic expects that the implementation of EITF 00-14 will result
in an equal decrease to the Company's reported Revenues and Costs and Operating
Expenses. Accordingly, Penn Traffic is currently reviewing this pronouncement
with its auditors and therefore cannot quantify the precise effect on reported
Revenues, Costs and Operating Expenses or same store sales results. The Company
believes that the implementation of EITF 00-14 will not have an effect on Penn
Traffic's reported Operating Income, EBITDA or Net Income (Loss). The Company
currently estimates that had EITF 00-14 been implemented in Fiscal 2001, same
store sales for Fiscal 2001 would have been reduced by no more than 1% of sales
from that reported under the Company's existing income statement classifications
due, in part, to the increased promotional allowance opportunities which the
Company's vendors have made available to the Company in the current fiscal year
as compared to the prior year.

         Penn Traffic will adopt the Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"("SFAS
133") at the beginning of Fiscal 2002. This statement requires all derivative
financial instruments to be carried on the balance sheet at fair value, with
changes in fair value recorded in either comprehensive income and/or net income,
depending on the nature of the instrument. The Company currently holds interest
rate swaps for the purpose of hedging interest rate risk associated with a
portion of the Company's variable rate debt. The Company believes these
instruments qualify as hedges under SFAS 133. Adoption of this pronouncement is
not expected to have a significant effect on the Company's financial statements.
See Note 13 for further information regarding the Company's variable rate debt
and interest rate swaps.


                                      -41-
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         See information set forth above in Item 7 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 13 to the Consolidated Financial Statements.


                                      -42-
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements                                  Page
------------------------------------------                                  ----


  Reports of Independent Accountants                                         44


  Consolidated Financial Statements:

    Statement of Operations                                                  46
    Balance Sheet                                                            47
    Statement of Stockholders' Equity (Deficit)                              49
    Statement of Cash Flows                                                  50
    Notes to Consolidated Financial Statements                               51


  Financial Statement Schedule

    Schedule II -- Valuation and Qualifying Accounts                         84

  Supplementary Data - Quarterly Financial Data (Unaudited)                  85


                                      -43-
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS
                                (Post-Emergence)

To the Stockholders and the Board of Directors of The Penn Traffic Company


In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of The Penn
Traffic Company and its subsidiaries at February 3, 2001, and January 29, 2000,
and the results of their operations and their cash flows for the year ended
February 3, 2001, and the 31-weeks ended January 29, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index present fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, on May 27,
1999, the United States Bankruptcy Court for the District of Delaware confirmed
the Company's Plan of Reorganization (the "Plan"). The Plan became effective on
June 29, 1999 and the Company emerged from Chapter 11. In connection with its
emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of June
26, 1999 as further described in Note 3 to the consolidated financial
statements.


PricewaterhouseCoopers LLP
Syracuse, New York
March 16, 2001


                                      -44-
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS
                                 (Pre-Emergence)

To the Stockholders and the Board of Directors of The Penn Traffic Company


In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects the consolidated statements of
operations, stockholders' equity (deficit) and cash flows present fairly, in all
material respects, the results of operations and cash flows of The Penn Traffic
Company and its subsidiaries for the 21-weeks ended June 26, 1999, and for the
year in the period ended January 30, 1999, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth herein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with standards generally
accepted in the United States of America which require that we plan and perform
an 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 significant estimates made by management and evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for the opinion expressed above.

As discussed in Note 2 to the consolidated financial statements, on May 27,
1999, the United States Bankruptcy Court for the District of Delaware confirmed
the Company's Plan of Reorganization (the "Plan"). The Plan became effective on
June 29, 1999 and the Company emerged from Chapter 11. In connection with its
emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of June
26, 1999 as further described in Note 3 to the consolidated financial
statements.

PricewaterhouseCoopers LLP
Syracuse, New York
March 10, 2000


                                      -45-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                        SUCCESSOR COMPANY        PREDECESSOR COMPANY
                                     -----------------------   -----------------------
                                      53 Weeks     31 Weeks     21 Weeks     52 Weeks
                                       Ended        Ended        Ended        Ended
                                     February 3,  January 29,   June 26,    January 30,
                                        2001         2000         1999         1999
                                     ----------   ----------   ----------   ----------
                                  (All dollar amounts in thousands, except per share data)
<S>                                  <C>          <C>          <C>          <C>
REVENUES                             $2,525,305   $1,477,219   $1,006,804   $2,828,109

COSTS AND OPERATING EXPENSES:
  Cost of sales (including
   buying and occupancy costs)
   (Notes 4 and 5)                    1,917,851    1,124,755      781,342    2,213,801
  Selling and administrative
   expenses                             548,959      312,154      226,430      602,382
  Amortization of excess
   reorganization value (Note 3)        111,381       65,132
  Unusual items (Note 5)                 (1,741)       7,408       (4,631)      61,355
  Write-down of long-lived
   assets (Note 6)                                                             143,842
                                     ----------   ----------   ----------   ----------

OPERATING (LOSS) INCOME                 (51,145)     (32,230)       3,663     (193,271)

  Interest expense (Note 7)              39,164       22,923       21,794      147,737
  Reorganization items (Note 8)                                   167,031
                                     ----------   ----------   ----------   ----------

(LOSS) BEFORE INCOME TAXES AND
 EXTRAORDINARY ITEMS                    (90,309)     (55,153)    (185,162)    (341,008)

  Provision (benefit) for income
   taxes (Note 9)                         9,593        4,940           60      (23,914)
                                     ----------   ----------   ----------   ----------

(LOSS) BEFORE EXTRAORDINARY ITEMS       (99,902)     (60,093)    (185,222)    (317,094)

  Extraordinary items (Note 10)                                  (654,928)
                                     ----------   ----------   ----------   ----------

NET (LOSS) INCOME                    $  (99,902)  $  (60,093)  $  469,706   $ (317,094)
                                     ==========   ==========   ==========   ==========


PER SHARE DATA (BASIC AND DILUTED):

  Net (loss) (Note 11)               $    (4.97)  $    (2.99)
                                     ==========   ==========
</TABLE>

The accompanying notes are an integral part of these statements. Per share data
is not presented for periods prior to June 26, 1999, because of the general lack
of comparability as a result of the revised capital structure of the Company.


                                      -46-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                     February 3,     January 29,
                                                        2001            2000
                                                     ----------      ----------
                                                      (In thousands of dollars)
<S>                                                  <C>             <C>
                                     ASSETS

CURRENT ASSETS:
  Cash and short-term investments (Note 1)           $   42,529      $   51,759
  Accounts and notes receivable (less
   allowance for doubtful accounts of
   $4,634 and $10,561, respectively)                     46,113          49,722
  Inventories (Note 1)                                  271,704         268,550
  Prepaid expenses and other current assets               9,338           8,335
  Deferred income taxes (Note 9)                                          8,993
                                                     ----------      ----------
                                                        369,684         387,359
                                                     ----------      ----------

CAPITAL LEASES (NOTES 1 AND 12):
  Capital leases                                         60,405          66,119
  Less:  Accumulated amortization                        (9,593)         (5,052)
                                                     ----------      ----------
                                                         50,812          61,067
                                                     ----------      ----------

FIXED ASSETS (NOTE 1):
  Land                                                   39,733          39,978
  Buildings                                              84,425          84,171
  Furniture and fixtures                                138,572         110,298
  Vehicles                                                4,764           2,394
  Leaseholds and improvements                            32,662           6,649
                                                     ----------      ----------
                                                        300,156         243,490
  Less:  Accumulated depreciation                       (44,649)        (17,459)
                                                     ----------      ----------
                                                        255,507         226,031
                                                     ----------      ----------

OTHER ASSETS (NOTES 1 AND 3):
  Goodwill, net                                           9,197           8,506
  Beneficial leases, net                                 50,549          56,594
  Excess reorganization value, net                      151,304         262,685
  Other assets - net                                     22,517          18,215
                                                     ----------      ----------

                                                     $  909,570      $1,020,457
                                                     ==========      ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      -47-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                     February 3,     January 29,
                                                        2001            2000
                                                     ----------      ----------
                                                     (In thousands of dollars)
<S>                                                  <C>             <C>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of obligations under
   capital leases (Note 12)                          $    7,878      $    9,667
  Current maturities of long-term debt (Note 13)          5,062           2,292
  Trade accounts and drafts payable (Note 1)            119,905         124,556
  Other accrued liabilities                              76,857          88,916
  Accrued interest expense                                3,478           2,863
  Taxes payable                                          16,971          12,637
                                                     ----------      ----------
                                                        230,151         240,931
                                                     ----------      ----------

NONCURRENT LIABILITIES:
  Obligations under capital leases (Note 12)             73,396          82,537
  Long-term debt (Note 13)                              238,112         225,678
  Deferred income taxes                                  76,141          80,581
  Other noncurrent liabilities                           28,483          27,166

STOCKHOLDERS' EQUITY (NOTE 15):
  Preferred stock - authorized
   1,000,000 shares,
   $.01 par value; none issued
  Common stock authorized 30,000,000
   shares, $.01 par value; 20,054,022
   shares and 20,106,955 shares issued
   and outstanding, respectively                            201             201
  Capital in excess of par value                        416,207         416,207
  Stock warrants                                          7,249           7,249
  Retained deficit                                     (159,995)        (60,093)
  Treasury stock, at cost                                  (375)
                                                     ----------     -----------
   TOTAL STOCKHOLDERS' EQUITY                           263,287         363,564
                                                     ----------      ----------

                                                     $  909,570      $1,020,457
                                                     ==========      ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      -48-
<PAGE>

                            THE PENN TRAFFIC COMPANY

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                              Minimum
                                            Capital in                        Pension                              Total
                                  Common    Excess of    Stock    Retained   Liability    Unearned    Treasury  Stockholders'
                                   Stock    Par Value   Warrants  Deficit   Adjustment  Compensation   Stock    Equity(Deficit)
                                  -------  -----------  --------  --------  ----------  ------------  -------- ----------------
                                                                    (In thousands of dollars)
<S>                               <C>       <C>         <C>      <C>         <C>        <C>           <C>        <C>
PREDECESSOR COMPANY:

JANUARY 31, 1998                   13,586     180,060         0   (340,470)   (10,667)     (1,693)       (625)    (159,809)

  Comprehensive (loss):
    Net (loss)                                                    (317,094)
    Minimum pension liability
     adjustment                                                                 7,197
  Total comprehensive (loss)                                                                                      (309,897)

  Cancellation of 129,100
   restricted stock shares           (161)       (178)                 339
  Unearned compensation
   adjustment                                                       (1,595)                 1,595
                                  -------   ---------   -------  ---------   --------    --------     -------    ---------

JANUARY 30, 1999                   13,425     179,882         0   (658,820)    (3,470)        (98)       (625)    (469,706)

  Comprehensive income:
    Net income for the 21-week
     period ended June 26, 1999                                    469,706
  Total comprehensive income                                                                                       469,706

  Adjustments to Stockholders'
   Equity in connection with
    reorganization
    (Notes 2 and 3)               (13,425)   (179,882)             189,114      3,470          98         625
  Issuance of Common Stock
   and Stock Warrants in
   connection with reorganization
   (Notes 2 and 3)                    201     416,207     7,249                                                    423,657
                                  -------   ---------   -------  ---------   --------   ---------     -------    ---------

JUNE 26, 1999                         201     416,207     7,249          0          0           0          0       423,657

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

SUCCESSOR COMPANY:

  Comprehensive (loss):
    Net (loss) for the 31-week
     period ended January 29, 2000                                 (60,093)
  Total comprehensive (loss)                                                                                       (60,093)
                                  -------   ---------   -------  ---------   --------   ---------     -------    ---------

JANUARY 29, 2000                  $   201   $ 416,207   $ 7,249  $ (60,093)  $      0   $       0     $     0    $ 363,564

  Comprehensive (loss):
    Net (loss)                                                     (99,902)
  Total comprehensive (loss)                                                                                       (99,902)
  Treasury stock, at cost                                                                                (375)        (375)
                                  -------   ---------   -------  ---------   --------   ---------     -------    ---------

FEBRUARY 3, 2001                  $   201   $ 416,207   $ 7,249  $(159,995)  $      0   $       0     $  (375)   $ 263,287
                                  =======   =========   =======  =========   ========   =========     =======    =========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      -49-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                          SUCCESSOR COMPANY        PREDECESSOR COMPANY
                                       -----------------------   -----------------------
                                        53 Weeks     31 Weeks     21 Weeks     52 Weeks
                                         Ended        Ended        Ended        Ended
                                       February 3,  January 29,   June 26,    January 30,
                                          2001         2000         1999         1999
                                       ----------   ----------   ----------   ----------
                                                    (In thousands of dollars)
<S>                                    <C>          <C>          <C>          <C>
OPERATING ACTIVITIES:
  Net (loss) income                    $  (99,902)  $  (60,093)  $  469,706   $ (317,094)
  Adjustments to reconcile net (loss)
   income to net cash provided by
   (used in) operating activities:
    Depreciation and amortization          41,870       26,176       25,832       77,179
    Amortization of excess
     reorganization value                 111,381       65,132
    (Gain) loss on sold/closed stores                                (2,921)      23,285
    Write-down of long-lived assets                                              143,842
    Reorganization Items:
      Gain from rejected leases                                     (12,830)
      Write-off of unamortized
       deferred financing fees                                       16,591
      Fresh-start adjustments                                       151,161
    Extraordinary items                                            (654,928)
    Adjustment to excess
     reorganization value                               14,811
    Other-net                                (238)        (941)         120        9,559
NET CHANGE IN ASSETS AND
 LIABILITIES:
  Accounts receivable and prepaid
   expenses                                 2,606        2,445       15,437        7,356
  Inventories                              (3,154)     (11,423)      22,321       43,758
  Payables and accrued expenses           (16,980)      (9,754)      16,477        2,569
  Deferred income taxes                     4,553       (9,979)                  (16,671)
  Other assets                             (4,302)       2,403        1,464        3,218
  Other noncurrent liabilities              1,317       (3,067)      (4,797)         612
                                       ----------   ----------   ----------   ----------

NET CASH PROVIDED BY (USED IN)
 OPERATING ACTIVITIES                      37,151       15,710       43,633      (22,387)
                                       ----------   ----------   ----------   ----------

INVESTING ACTIVITIES:
  Capital expenditures                    (57,982)     (31,468)      (6,279)     (14,368)
  Proceeds from sale of assets              1,551        5,251       17,273       39,145
                                       ----------   ----------   ----------   ----------

NET CASH (USED IN) PROVIDED BY
 INVESTING ACTIVITIES                     (56,431)     (26,217)      10,994       24,777
                                       ----------   ----------   ----------   ----------

FINANCING ACTIVITIES:
  Net increase (decrease) in
   drafts payable                           5,321       (3,332)      (2,677)     (11,762)
  Payments to settle long-term debt        (2,296)        (162)      (9,598)      (6,157)
  Borrowing of revolver debt                            33,100       31,100      122,200
  Repayment of revolver debt                           (33,100)    (144,000)     (86,883)
  Borrowing of DIP revolver debt                                    166,751
  Repayment of DIP revolver debt                                   (166,751)
  Borrowing of new term loan                                        115,000
  Borrowing of new revolving debt          95,900
  Repayment of new revolving debt         (78,400)
  Reduction of capital lease
   obligations                            (10,100)      (5,773)      (8,487)     (25,409)
  Payment of debt issuance costs                                     (7,906)
  Purchase of treasury stock                 (375)
                                       ----------   ----------   ----------   ----------

NET CASH PROVIDED BY (USED IN)
 FINANCING ACTIVITIES                      10,050       (9,267)     (26,568)      (8,011)
                                       ----------   ----------   ----------   -----------

(DECREASE) INCREASE IN CASH AND
 CASH EQUIVALENTS                          (9,230)     (19,774)      28,059       (5,621)

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                       51,759       71,533       43,474       49,095
                                       ----------   ----------   ----------   ----------

CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                         $   42,529   $   51,759   $   71,533   $   43,474
                                       ==========   ==========   ==========   ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      -50-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT
          ACCOUNTING POLICIES:

The Penn Traffic Company ("Penn Traffic" or the "Company") is primarily engaged
in retail and wholesale food distribution. As of February 3, 2001, the Company
operated 220 supermarkets in Ohio, West Virginia, Pennsylvania, upstate New
York, Vermont and New Hampshire, and supplied 83 franchise supermarkets and 77
independent wholesale accounts. The Company also operated eight distribution
centers and a bakery.

BASIS OF PRESENTATION All significant intercompany transactions and accounts
have been eliminated in consolidation.

Effective June 26, 1999, the Company adopted fresh-start reporting (see Notes 2
and 3).

The Company is principally involved in the distribution and retail sale of food
and related products, which constitutes a single significant business segment.

FISCAL YEAR The fiscal year of the Company ends on the Saturday nearest to
January 31.

CASH AND SHORT-TERM INVESTMENTS Short-term investments are classified as cash
and are stated at cost, which approximates market value. For the purpose of the
Consolidated Statement of Cash Flows, the Company considers all highly liquid
debt instruments with a maturity of three months or less at the date of purchase
to be cash equivalents.

INVENTORIES Inventories are stated at the lower of cost or market using the
last-in, first-out ("LIFO") method of valuation for the vast majority of the
Company's inventories. If the first-in, first-out ("FIFO") method had been used
by the Company, inventories would have been $2.4 million and $0.9 million higher
than reported at February 3, 2001, and January 29, 2000, respectively. In
connection with the implementation of fresh-start reporting, the Company
adjusted the value of its inventories on June 26, 1999, to be equal to fair
value which approximates the FIFO value of inventories.


                                      -51-
<PAGE>

For the 52-week period ended January 30, 1999 ("Fiscal 1999"), inventory
quantities were reduced, which resulted in a liquidation of certain LIFO
inventory layers carried at lower costs prevailing in prior years. The effect
for Fiscal 1999 was to decrease cost of goods sold by approximately $1.6 million
and net loss by $1.6 million.

FIXED ASSETS AND CAPITAL LEASES Major renewals and betterments are capitalized,
whereas maintenance and repairs are charged to operations as incurred. Interest
costs on major capital projects constructed for the Company's own use are
capitalized as part of the costs of the newly constructed facilities.
Depreciation and amortization for financial accounting purposes are provided on
the straight-line method. For income tax purposes, the Company principally uses
accelerated methods. For financial accounting purposes, depreciation and
amortization are provided over the following useful lives or lease term:

<TABLE>
<S>                                             <C>
                  Buildings                     10 to 40 years
                  Furniture and fixtures         3 to 10 years
                  Vehicles                       3 to  8 years
                  Leasehold improvements        10 to 40 years
                  Capital leases                    lease term
</TABLE>

INTANGIBLES The excess of the costs over the amounts attributed to the fair
value of net assets acquired (Goodwill) is being amortized primarily over 40
years using the straight-line method. In addition, as of January 30, 1999,
certain other nonfinancing costs resulting from acquisitions have been
capitalized as other assets. As a result of the adoption of fresh-start
reporting, Goodwill and other intangible acquisition costs existing at June 26,
1999, have been eliminated (see Note 3).

Beneficial leases represent the present value of the difference between market
value rent and contract rent over the remaining term of a lease. Such amounts
are being amortized over the remaining lease term (ranging from 4 to 19 years
from June 26, 1999) using the straight-line method.

Excess reorganization value represents the total reorganization value in excess
of the aggregate fair value of the Company's tangible and identifiable
intangible assets less non-interest bearing liabilities (see Note 3). This
amount is being amortized on a straight-line basis over a three-year period from
June 26, 1999.

For the 53-week period ended February 3, 2001 ("Fiscal 2001"), the 31-week
period ended January 29, 2000, the 21-week period ended June 26, 1999, and
Fiscal 1999, amortization of intangibles was $117.6 million, $68.8 million, $3.9
million and $14.1 million, respectively.


                                      -52-
<PAGE>

OTHER ASSETS Other assets primarily consist of investments, notes receivable,
debt issuance costs and prepaid pension expense. The debt issuance costs are
being amortized primarily on a straight-line basis over the life of the related
debt.

IMPAIRMENT OF LONG-LIVED ASSETS In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), assets are
generally evaluated on a market-by-market basis in making a determination as to
whether such assets are impaired. At each fiscal year-end, the Company reviews
its long-lived assets (including goodwill) for impairment based on estimated
future nondiscounted cash flows attributable to the assets. In the event such
cash flows are not expected to be sufficient to recover the recorded value of
the assets, the assets are written down to their net realizable values (see Note
6).

TRADE ACCOUNTS AND DRAFTS PAYABLE Trade accounts and drafts payable include
drafts payable of $34.0 million and $32.5 million at February 3, 2001, and
January 29, 2000, respectively.

STORE PRE-OPENING COSTS Store pre-opening costs are charged to expense as
incurred.

ADVERTISING COSTS The Company's advertising costs are expensed as incurred and
included in Selling and administrative expenses in the Consolidated Statement of
Operations. Advertising expenses were $37.3 million in Fiscal 2001, $19.7
million for the 31-weeks ended January 29, 2000, $15.3 million for the 21-weeks
ended June 26, 1999, and $36.6 million in Fiscal 1999.

INTEREST RATE HEDGING AGREEMENTS The Company uses interest rate swaps to hedge a
portion of its variable rate borrowings against changes in interest rates. The
interest differential to be paid or received is accrued as interest expense.

INCOME TAXES Income taxes are provided based on the liability method of
accounting. Deferred income taxes are recorded to reflect the tax consequences
in future years of temporary differences between the tax basis of assets and
liabilities and their corresponding financial reporting amounts at each
year-end.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that 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.


                                      -53-
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS Penn Traffic will adopt Statement of
Financial Accounting Standards No. 133, ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), in the first quarter of the
52-week period ending February 2, 2002 ("Fiscal 2002"). This statement requires
all derivative financial instruments to be carried on the balance sheet at fair
value, with changes in fair value recorded in comprehensive income and/or net
income, depending on the nature of the instrument. The Company currently holds
interest rate swaps for the purpose of hedging interest rate risk associated
with variable rate debt. The Company believes these instruments qualify as
hedges under SFAS 133. Adoption of this pronouncement is not expected to have a
significant effect on the Company's financial statements. See Note 13 for
further information regarding the Company's variable rate debt and interest rate
swaps.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No.
101 provides guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB No. 101 outlines basic criteria that must be met to
recognize revenue and proves guidance for disclosure related to revenue
recognition policies. The provision of SAB No. 101 did not have a material
impact on the Company's financial statements.

In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation." This standard became effective July 1, 2000. The adoption of the
standard did not have a material impact on the Company's financial statements.

In May 2000, the FASB Emerging Issues Task Force ("EITF") issued a new
accounting pronouncement, EITF Issue Number 00-14, "Accounting for Certain Sales
Incentives" ("EITF 00-14"), which addresses the recognition, measurement and
income statement classification for certain sales incentives offered by
companies in the form of discounts, coupons or rebates. The implementation of
this new accounting pronouncement will require Penn Traffic to make certain
reclassifications between Revenues and Costs and Operating Expenses in the
Company's Consolidated Statement of Operations. Penn Traffic currently expects
to implement EITF 00-14 in the second quarter of Fiscal 2002. Penn Traffic
expects that the implementation of EITF 00-14 will result in an equal decrease
to the Company's reported Revenues and Costs and Operating Expenses. In
accordance with such implementation, Penn Traffic will also reclassify certain
prior period financial statements for comparability purposes.


                                      -54-
<PAGE>

NOTE 2 -- REORGANIZATION:

         On March 1, 1999 (the "Petition Date"), the Company and certain of its
subsidiaries filed petitions for relief (the "Bankruptcy Cases") under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
On June 29, 1999 (the "Effective Date"), the Company's Chapter 11 plan of
reorganization (the "Plan") became effective in accordance with its terms.

         Consummation of the Plan has resulted in (1) the former $732.2 million
principal amount of the Company's senior notes being exchanged for $100 million
of new senior notes (the "New Senior Notes") and 19,000,000 shares of newly
issued common stock (the "New Common Stock"), (2) the former $400 million
principal amount of senior subordinated notes being exchanged for 1,000,000
shares of New Common Stock and six-year warrants to purchase 1,000,000 shares of
New Common Stock having an exercise price of $18.30 per share, (3) holders of
Penn Traffic's formerly issued common stock receiving one share of New Common
Stock for each 100 shares of common stock held immediately prior to the Petition
Date, for a total of 106,955 new shares and (4) the cancellation of all
outstanding options and warrants to purchase shares of the Company's former
common stock. The Plan also provides for issuance to officers and key employees
options to purchase up to 2,297,000 shares of New Common Stock. The Company's
New Common Stock and warrants to purchase common stock are currently trading on
the Nasdaq National Market under the symbols "PNFT" and "PNFTW," respectively.

         The Plan also provided for payment in full of all of the Company's
obligations to its other creditors.

         On the Effective Date, in connection with the consummation of the Plan,
the Company entered into a new $320 million secured credit facility (the "New
Credit Facility"). The New Credit Facility includes (1) a $205 million revolving
credit facility (the "New Revolving Credit Facility") and (2) a $115 million
term loan (the "Term Loan"). The lenders under the New Credit Facility have a
first priority perfected security interest in substantially all of the Company's
assets. Proceeds from the New Credit Facility were used to satisfy the Company's
obligations under its debtor-in-possession financing (the "DIP Facility"), pay
certain costs of the reorganization process and are available to satisfy the
Company's ongoing working capital and capital expenditure requirements.


                                      -55-
<PAGE>

NOTE 3 -- FRESH-START REPORTING:

         As of the Effective Date, the Company adopted fresh-start reporting
pursuant to the guidance provided by the American Institute of Certified Public
Accountant's Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). In connection with the
adoption of fresh-start reporting, a new entity has been created for financial
reporting purposes. The Effective Date is considered to be the close of business
on June 26, 1999, for financial reporting purposes. The periods presented prior
to June 26, 1999, have been designated "Predecessor Company" and the periods
subsequent to June 26, 1999, have been designated "Successor Company." As a
result of the implementation of fresh-start reporting, the financial statements
of the Company after the Effective Date are not comparable to the Company's
financial statements for prior periods. In accordance with fresh-start
reporting, all assets and liabilities were recorded at their respective fair
values. The fair value of the Company's long-lived assets was determined, in
part, using information provided by third-party appraisers.

         The reorganization value of the Company is reflected as the debt and
equity value of the new company, as of the Effective Date. To facilitate the
calculation of the reorganization value, the Company developed a set of
financial projections. Based on these financial projections, the reorganization
value was determined by the Company with the assistance of a financial advisor
using various valuation methods, including (1) a comparison of the Company and
its projected performance to how the market values comparable companies, (2) a
calculation of the present value of the free cash flows under the projections,
including an assumption for a terminal value and (3) negotiations with an
informal committee of the Company's noteholders. The estimated enterprise value
is highly dependent upon achieving the future financial results set forth in the
projections, as well as the realization of certain other assumptions which are
not guaranteed.

         The total reorganization value as of the Effective Date was
approximately $750 million, which was approximately $327.8 million in excess of
the aggregate fair value of the Company's tangible and identifiable intangible
assets less non-interest bearing liabilities. Such excess is classified as
"Excess reorganization value" in the accompanying Consolidated Balance Sheet.
This amount is being amortized on a straight-line basis over a three-year period
from June 26, 1999.

         The total outstanding indebtedness (including capital leases) as of the
Effective Date was approximately $326.3 million. The Stockholders' Equity on the
Effective Date of approximately $423.7 million was established by deducting such
total outstanding indebtedness of $326.3 million from the reorganization value
of $750 million. Stockholders' Equity includes $7.2 million representing the
fair value of the warrants to purchase shares of New Common Stock distributed in
conjunction with the consummation of the Plan.


                                      -56-
<PAGE>

NOTE 4 -- SPECIAL CHARGES:

         During the 21-week period ended June 26, 1999, the Company decided to
begin a process to refine the scope of the nonfood merchandise carried in its 15
Big Bear Plus combination stores to a smaller number of key growth categories
with a greater depth of variety in each category. Accordingly, during the
21-week period ended June 26, 1999, the Company recorded a special charge of
$3.9 million associated with this repositioning of these 15 Big Bear Plus
combination stores. This charge, which consists of estimated inventory markdowns
for discontinued product lines, is included in cost of sales.

         As described in Note 5 below, during Fiscal 1999 the Company recorded a
special charge of $68.2 million related to the Company's store rationalization
program (the "Store Rationalization Program"), net of a $12.7 million gain on
the sale of assets in connection with this program. Of this charge, $60.2
million is included in the unusual item account; $8.0 million of this charge,
representing inventory markdowns, is included in cost of sales. At February 3,
2001 and January 29, 2000, the accrued liability related to these charges was
$3.5 million and $9.0 million, respectively. The reduction in such liability
since January 29, 2000, is primarily due to cash payments for facility costs and
a reduction in the Company's estimate of a pension withdrawal liability
resulting from the Store Rationalization Program (see Note 5).

NOTE 5 -- UNUSUAL ITEMS:

         During Fiscal 2001 the Company recorded an unusual item (income) of
$3.0 million associated with a reduction in the estimate of a pension withdrawal
liability associated with the Store Rationalization Program.

         In January 2000, Penn Traffic began a process to (1) reduce the number
of distribution centers the Company utilizes for nonperishable grocery products
from four to three and (2) transfer the distribution of general merchandise and
health and beauty care items from a leased facility in Columbus, Ohio to the
Company's Jamestown, New York facility (an owned 274,000 square foot facility
which had supplied grocery products to certain stores in upstate New York and
northern Pennsylvania until January 2000). This process was completed in June
2000. In connection with the completion of this project, Penn Traffic canceled
its lease on a 205,000 square foot distribution center in Columbus, Ohio. During
Fiscal 2001, the Company recorded an unusual item (expense) of $1.3 million
related to the implementation of this warehouse consolidation project.


                                      -57-
<PAGE>

         During the 31-week period ended January 29, 2000, the Company recorded
unusual items of (1) $5.5 million (expense) associated with the restructuring of
certain executive compensation agreements and (2) $1.9 million (expense)
associated with an early retirement program for certain eligible employees.
During the 21-week period ended June 26, 1999, the Company recorded unusual
items (income) of $4.6 million related to (1) a reduction of closed store
reserves previously accrued in connection with the Store Rationalization Program
and (2) a gain on the disposition of certain assets sold in connection with the
Store Rationalization Program, as described below.

         Between the middle of 1998 and May 1999, Penn Traffic implemented the
Store Rationalization Program to divest itself of certain marketing areas,
principally in northeastern Pennsylvania where performance and market position
were the weakest relative to Penn Traffic's other retail stores, and to close
other underperforming stores. In connection with the Store Rationalization
Program, Penn Traffic sold 21 stores and closed 29 stores.

         During Fiscal 1999, the Company recorded a special charge of $68.2
million related to the Store Rationalization Program ($60.2 million of this
charge is included in the unusual item account; $8.0 million of this charge,
representing inventory markdowns, is included in cost of sales). The unusual
item account for Fiscal 1999 also includes $1.1 million of professional fees and
other miscellaneous costs associated with the Company's financial restructuring.

NOTE 6 -- ACCOUNTING FOR CERTAIN LONG-LIVED ASSETS:

         The Company periodically reviews the recorded value of its long-lived
assets to determine if the future cash flows to be derived from these properties
will be sufficient to recover the remaining recorded asset values. In accordance
with SFAS 121, the Company performed a comprehensive review of its long-lived
assets during Fiscal 2001 and the 31-week period ended January 29, 2000. Based
on this review, no assets were deemed to be impaired.

         In accordance with SFAS 121, during Fiscal 1999 the Company recorded
noncash charges of (1) $52.3 million primarily related to the write-down of the
recorded asset values of 14 of the Company's stores (including allocable
goodwill) to estimated realizable value and (2) $91.5 million to write down the
carrying amounts (including allocable goodwill) of property held for sale in
connection with the Store Rationalization Program to estimated realizable
values.


                                      -58-
<PAGE>

NOTE 7 -- INTEREST EXPENSE:

         As a result of the Bankruptcy Cases, on and after the Petition Date no
principal or interest payments were made on the $1.132 billion of the Company's
former senior and senior subordinated notes. Accordingly, no interest expense
for these obligations has been accrued on or after the Petition Date. Had such
interest been accrued, interest expense for the 21-week period ended June 26,
1999 would have been approximately $58.8 million.

NOTE 8 -- REORGANIZATION ITEMS:

         Reorganization items (expense) consist of the following items (in
thousands of dollars):

<TABLE>
<CAPTION>
                                                        PREDECESSOR
                                                          COMPANY
                                                       --------------
                                                       21 WEEKS ENDED
                                                       JUNE 26, 1999
                                                       --------------
<S>                                                       <C>
              Fresh-start adjustments                     $ 151,161
              Gain from rejected leases                     (12,830)
              Write-off of unamortized
               deferred financing fees                       16,591
              Professional fees                              12,109
                                                          ---------

                Total Expense                             $ 167,031
                                                          =========
</TABLE>

         The gain from rejected leases listed above is the difference between
the estimated allowed claims for rejected leases and liabilities previously
recorded for such leases. The professional fees listed above include accounting,
legal, consulting and other miscellaneous services associated with the
implementation of the Plan.


                                      -59-
<PAGE>

NOTE 9 -- INCOME TAXES:

         The provision (benefit) for income taxes was as follows:

<TABLE>
<CAPTION>
                                  SUCCESSOR COMPANY           PREDECESSOR COMPANY
                               ------------------------    ------------------------
                                53 WEEKS      31 WEEKS      21 WEEKS      52 WEEKS
                                 ENDED         ENDED         ENDED         ENDED
                               FEBRUARY 3,   JANUARY 29,     JUNE 26,    JANUARY 30,
                                  2001          2000          1999          1999
                               ----------    ----------    ----------    ----------
                                             (IN THOUSANDS OF DOLLARS)
<S>                            <C>           <C>           <C>           <C>
Current Tax Provision:
  Federal income               $     307     $     (44)    $             $
  State income                       829            90            60           150
                               ---------     ---------     ---------     ---------
                                   1,136            46            60           150
                               ---------     ---------     ---------     ---------

Deferred Tax Provision (Benefit):
  Federal income                   6,877         3,787                     (18,642)
  State income                     1,580         1,107                      (5,422)
                               ---------     ---------     ---------     ---------
                                   8,457         4,894                     (24,064)
                               ---------     ---------     ---------     ---------
Provision (benefit) for
  income taxes                 $   9,593     $   4,940     $      60     $ (23,914)
                               =========     =========     =========     =========
</TABLE>

         The differences between income taxes computed using the statutory
federal income tax rate and those shown in the Consolidated Statement of
Operations are summarized as follows:

<TABLE>
<CAPTION>
                                  SUCCESSOR COMPANY           PREDECESSOR COMPANY
                               ------------------------    ------------------------
                                53 WEEKS      31 WEEKS      21 WEEKS      52 WEEKS
                                 ENDED         ENDED         ENDED         ENDED
                               FEBRUARY 3,   JANUARY 29,     JUNE 26,    JANUARY 30,
                                  2001          2000          1999          1999
                               ----------    ----------    ----------    ----------
                                             (IN THOUSANDS OF DOLLARS)
<S>                            <C>           <C>           <C>           <C>
Federal (benefit) at
  statutory rates              $ (31,608)    $ (19,304)    $ (64,807)    $(119,353)
State income taxes net of
  federal income tax effect        1,566           778       (10,870)       (3,427)
Nondeductible amortization
  of excess reorganization
  value and goodwill              38,983        22,796         1,303         9,771
Miscellaneous items                  727           714                          62
Tax credits                          (75)          (44)
Valuation allowance                                           74,434        89,033
                               ---------     ---------     ---------      --------

Provision (benefit) for
  income taxes                 $   9,593     $   4,940     $      60     $ (23,914)
                               =========     =========     =========     =========
</TABLE>


                                      -60-
<PAGE>

         Components of deferred income taxes at February 3, 2001, and January
29, 2000, were as follows:

<TABLE>
<CAPTION>
                                                     FISCAL YEAR ENDED
                                               ----------------------------
                                               FEBRUARY 3,       JANUARY 29,
                                                  2001              2000
                                               ----------        ----------
                                                 (IN THOUSANDS OF DOLLARS)
<S>                                            <C>               <C>
Deferred Tax Liabilities:
  Fixed assets                                 $  68,797         $  73,370
  Inventory                                       28,038            27,735
  Beneficial leases and goodwill
   amortization                                   21,776            22,901
  Pensions                                         6,512             4,449
                                               ---------         ---------

                                               $ 125,123         $ 128,455
                                               =========         =========
Deferred Tax Assets:
  Nondeductible accruals                       $  32,336         $  44,097
  Capital leases                                  12,493            12,770
  Tax credit carryforwards                           249
                                               ---------         ---------

                                               $  45,078         $  56,867
                                               =========         =========

Net Deferred Tax Liability                     $  80,045         $  71,588
                                               =========         =========
</TABLE>

         The Company recorded a provision for income taxes of approximately $9.6
million for Fiscal 2001.

         The Company recorded a provision for income taxes of approximately $4.9
million for the 31-week period ended January 29, 2000. The Company recorded no
income tax benefit relating to the net operating loss generated during the
21-week period ended June 26, 1999, as such loss was offset by a valuation
allowance. A valuation allowance is required when it is more likely than not
that the recorded value of a deferred tax asset will not be realized. Due to the
operating loss carryforward described below, the Company has not and will not
pay any income taxes for the 52-week period ended January 29, 2000 (other than
$0.2 million of franchise taxes).

         At January 30, 1999, the Company had approximately $300 million of
federal net operating loss carryforwards, certain state net operating loss
carryforwards and various tax credits. These amounts were available to reduce
taxes payable otherwise arising through January 29, 2000. On January 30, 2000,
all such net operating loss and tax credit carryforwards were eliminated due to
the implementation of the Plan. In addition, as a result of the implementation
of the Plan, on January 30, 2000, the Company lost the majority of the tax basis
of its long-lived assets (which was approximately $350 million as of January 29,
2000), significantly reducing the amount of tax depreciation and amortization
that the Company will be able to utilize on its tax returns starting in Fiscal
2001.


                                      -61-
<PAGE>

NOTE 10 -- EXTRAORDINARY ITEMS:

         The extraordinary items recorded for the 21-week period ended June 26,
1999 includes the write-off of unamortized deferred financing fees associated
with the early retirement of the Company's revolving credit facility prior to
the Petition Date and the extraordinary gain on debt discharge recognized as a
result of the consummation of the Plan. No corresponding tax provision has been
recorded.

NOTE 11 -- NET (LOSS) PER SHARE

         Net (loss) per share is computed based on the requirements of Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
This standard requires presentation of basic earnings per share ("EPS") computed
based on the weighted average number of common shares outstanding for the
period, and diluted EPS, which gives effect to all potentially dilutive shares
outstanding (i.e., options and warrants) during the period. Income used in the
EPS calculation is net (loss) for Fiscal 2001. Shares used in the calculation of
basic and diluted EPS were (in thousands):

<TABLE>
<CAPTION>
                                                  53 WEEKS        31 WEEKS
                                                   ENDED           ENDED
                                                 FEBRUARY 3,     JANUARY 29,
                                                    2001            2000
                                                 -----------     -----------
<S>                                                 <C>            <C>
     Shares used in the calculation of
       Basic EPS (weighted average
       shares outstanding)                          20,084         20,107

     Effect of potentially dilutive securities           0              0
                                                    ------         ------
     Shares used in the calculation of
       Diluted EPS                                  20,084         20,107
                                                    ======         ======
</TABLE>

         The Fiscal 2001 calculation of diluted EPS excludes the effect of
incremental common stock equivalents aggregating 1,677 shares, since they would
have been antidilutive given the net loss for the year. The number of shares
used in the calculation of diluted EPS for Fiscal 2001 also excludes additional
options (1,540,323 shares) and warrants (1,000,000 shares) for which the
exercise price was greater than the average market price of common shares for
the year.

         There were no incremental potentially dilutive securities for the
31-week period ended January 29, 2000, as the exercise price for outstanding
warrants (1,000,000 shares) and options (1,459,500 shares) was greater than the
average market price of the New Common Stock.

         Net (loss) per share data is not presented for periods prior to June
26, 1999, because of the general lack of comparability as a result of the
revised capital structure of the Company.


                                      -62-
<PAGE>

NOTE 12 -- LEASES:

         The Company principally operates in leased store facilities with terms
of up to 20 years with renewable options for additional periods. The Company
follows the provisions of Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" ("SFAS 13"), in determining the criteria for capital
leases. Leases that do not meet such criteria are classified as operating leases
and related rentals are charged to expense in the year incurred. In addition to
minimum rentals, substantially all store leases provide for the Company to pay
real estate taxes and other expenses. The majority of store leases also provide
for the Company to pay contingent rentals based on a percentage of the store's
sales in excess of stipulated amounts.

         For Fiscal 2001, the 31-week period ended January 29, 2000, the 21-week
period ended June 26, 1999, and Fiscal 1999, capital lease amortization expense
was $7.6 million, $5.1 million, $3.9 million and $11.8 million, respectively.
The following is an analysis of the leased property under capital leases by
major classes:

<TABLE>
<CAPTION>
                                                   ASSET BALANCES AT:
                                                   ------------------
                                              FEBRUARY 3,      JANUARY 29,
                                                 2001             2000
                                              ----------       ----------
                                               (IN THOUSANDS OF DOLLARS)
<S>                                           <C>              <C>
 Store facilities                             $  51,943        $  56,099
 Warehousing and distribution                     8,033            9,372
 Other                                              429              648
                                              ---------        ---------

 Total                                        $  60,405        $  66,119
 Less: Accumulated amortization                  (9,593)          (5,052)
                                              ---------        ---------

 Capital lease assets, net                    $  50,812        $  61,067
                                              =========        =========
</TABLE>

         The following is a summary by year of future minimum rental payments
for capitalized leases and for operating leases that have initial or remaining
noncancelable terms in excess of one year as of February 3, 2001:

<TABLE>
<CAPTION>
 FISCAL YEARS ENDING:                      TOTAL       OPERATING      CAPITAL
 --------------------                      -----       ---------      -------
                                               (IN THOUSANDS OF DOLLARS)
<S>                                      <C>           <C>           <C>
 February 2, 2002                        $ 50,392      $ 33,460      $ 16,932
 February 1, 2003                          47,866        32,092        15,774
 January 31, 2004                          42,818        29,279        13,539
 January 29, 2005                          40,443        27,237        13,206
 January 28, 2006                          38,381        25,509        12,872
 Later years                              243,463       179,614        63,849
                                         --------      --------      --------
 Total minimum lease payments            $463,363      $327,191       136,172
                                         ========      ========

 Less: Estimated amount
   representing interest                                              (54,898)
                                                                     --------

 Present value of net minimum capital
   lease payments                                                      81,274
 Less: Current portion                                                 (7,878)
                                                                     --------

 Long-term obligations under capital
  leases at February 3, 2001                                         $ 73,396
                                                                     ========
</TABLE>


                                      -63-
<PAGE>

         Future minimum rentals have not been reduced by minimum sublease rental
income of $31.6 million due in the future under noncancelable subleases.

         The Company incurred no new capital lease obligations during Fiscal
2001, the 31-week period ended January 29, 2000, the 21-week period ended June
26, 1999, and Fiscal 1999. Minimum rental payments for operating leases were as
follows:

<TABLE>
<CAPTION>
                            SUCCESSOR COMPANY         PREDECESSOR COMPANY
                         ------------------------   ------------------------
                          53 WEEKS      31 WEEKS     21 WEEKS      52 WEEKS
                           ENDED         ENDED        ENDED         ENDED
                         FEBRUARY 3,   JANUARY 29,    JUNE 26,    JANUARY 30,
                            2001          2000         1999          1999
                         ----------    ----------   ----------    ----------
                                       (IN THOUSANDS OF DOLLARS)
<S>                       <C>           <C>          <C>           <C>
Minimum rentals           $ 39,573      $ 23,175     $ 17,453      $ 46,250
Contingent rentals             564           305          334           447
Less: Sublease payments     (9,533)       (6,443)      (4,788)      (10,865)
                          --------      --------     --------      --------

Net rental payments       $ 30,604      $ 17,037     $ 12,999      $ 35,832
                          ========      ========     ========      ========
</TABLE>


                                      -64-
<PAGE>

NOTE 13 -- LONG-TERM DEBT:

         The long-term debt of Penn Traffic consisted of the obligations
described below as of the dates set forth:

<TABLE>
<CAPTION>
                                                  FEBRUARY 3,      JANUARY 29,
                                                     2001             2000
                                                  ----------       ----------
                                                   (IN THOUSANDS OF DOLLARS)
<S>                                               <C>               <C>
Secured Term Loan                                 $  113,000        $ 115,000
Secured Revolving Credit Facility                     17,500
Other Secured Debt                                    12,674           12,970
11% Senior Notes due June 28, 2009                   100,000          100,000
                                                  ----------       ----------

TOTAL DEBT                                           243,174          227,970
 Less: Amounts due within one year                    (5,062)          (2,292)
                                                  ----------       ----------

TOTAL LONG-TERM DEBT                              $  238,112       $  225,678
                                                  ==========       ==========
</TABLE>

         Amounts maturing during each of the next five fiscal years (including
amounts maturing under the New Credit Facility) are: $5.1 million (Fiscal 2002);
$7.1 million (Fiscal 2003); $10.0 million (Fiscal 2004); $13.0 million (Fiscal
2005); and $25.5 million (Fiscal 2006, including amounts outstanding under the
Secured Revolving Credit Facility at February 3, 2001).

         The Company incurred interest expense of $39.2 million, $22.9 million,
$21.8 million and $147.7 million, including noncash amortization of deferred
financing costs of $0.9 million, $0.5 million, $1.4 million and $4.3 million for
Fiscal 2001, the 31-week period ended January 29, 2000, the 21-week period ended
June 26, 1999, and Fiscal 1999, respectively. Interest paid was $37.7 million,
$21.0 million, $11.7 million and $136.0 million for Fiscal 2001, the 31-week
period ended January 29, 2000, the 21-week period ended June 26, 1999, and
Fiscal 1999, respectively.

         The estimated fair value of the Company's debt, including current
maturities, was $221 million at February 3, 2001, and $215 million at January
29, 2000. The estimated fair value of the Company's long-term debt has been
determined by the Company using market information provided by an investment
banking firm as to the fair market value of such debt amounts. The estimated
fair market value of the Company's long-term debt does not necessarily reflect
the amount at which the debt would be settled.


                                      -65-
<PAGE>

         Prior to the Petition Date, the Company had a revolving credit facility
(the "Pre-petition Revolving Credit Facility") which provided for borrowings of
up to $250 million, subject to a borrowing base limitation measured by eligible
inventory and accounts receivable of the Company. After the Petition Date, the
Bankruptcy Court approved the DIP Facility. A portion of the proceeds of the DIP
Facility was used to repay, in full, the Company's Pre-petition Revolving Credit
Facility and a mortgage on one of the Company's distribution facilities and to
finance its working capital and capital expenditure requirements. The DIP
Facility matured on June 29, 1999, the Effective Date.

         The consummation of the Plan has resulted in the holders of Penn
Traffic's former senior and senior subordinated notes exchanging their notes in
the following manner: (1) the holders of the former outstanding $732.2 million
of senior notes received their pro rata share of $100 million of New Senior
Notes and 19,000,000 shares of New Common Stock and (2) the holders of the
former outstanding $400 million of senior subordinated notes received their pro
rata share of 1,000,000 shares of New Common Stock and six-year warrants to
purchase 1,000,000 shares of New Common Stock having an exercise price of $18.30
per share.

         The New Senior Notes mature on June 29, 2009, and do not contain any
mandatory redemption or sinking fund requirement provisions (other than pursuant
to certain customary exceptions including, without limitation, requiring the
Company to make an offer to repurchase the New Senior Notes upon the occurrence
of a change of control), and are optionally redeemable at prices beginning at
106% of par in 2004 and declining annually thereafter to par in 2008, and at
111% of par under other specified circumstances. Pursuant to the terms of the
indenture for the New Senior Notes (the "Indenture"), the Company, at its
election, can choose to pay interest on the New Senior Notes, at the rate of 11%
per annum, for the first two years (i.e., the first four interest payments)
through the issuance of additional notes; thereafter, interest on the New Senior
Notes will be payable at the rate of 11% per annum, in cash. Any notes issued in
lieu of interest would also mature on June 29, 2009, and bear interest at 11%
per annum. The Company paid the interest on the New Senior Notes in cash for the
first three semi-annual interest periods. The Indenture contains certain
negative covenants that, among other things, restrict the Company's ability to
incur additional indebtedness, permit additional liens and make certain
restricted payments.


                                      -66-
<PAGE>

         On the Effective Date, the Company entered into the New Credit
Facility. The New Credit Facility includes (1) the $205 million New Revolving
Credit Facility and (2) the $115 million Term Loan. The lenders under the New
Credit Facility have a first priority perfected security interest in
substantially all of the Company's assets. The New Credit Facility contains a
variety of operational and financial covenants intended to restrict the
Company's operations. These include, among other things, restrictions on the
Company's ability to incur debt, make capital expenditures and make restricted
payments as well as requirements that the Company achieve required levels for
Consolidated EBITDA, interest coverage, fixed charge coverage and funded debt
ratio (all as defined in the New Credit Facility).

         The remaining outstanding balance of the Term Loan will mature on June
30, 2006. The Term Loan consists of a $40 million Tranche A Term Loan and a $75
million Tranche B Term Loan. Amounts of the Term Loan maturing in future fiscal
years are outlined in the following table (in thousands of dollars):

<TABLE>
<CAPTION>
                 FISCAL YEAR ENDING                   AMOUNT MATURING
                 ------------------                   ---------------
<S>                                                       <C>
                  February 2, 2002                        $  4,750
                  February 1, 2003                           6,750
                  January 31, 2004                           9,750
                  January 29, 2005                          12,750
                  January 28, 2006                           7,750
                  February 3, 2007                          71,250
                                                          --------

                                                          $113,000
                                                          ========
</TABLE>

         Availability under the New Revolving Credit Facility is calculated
based on a specified percentage of eligible inventory and accounts receivable of
the Company. The New Revolving Credit Facility will mature on June 30, 2005. As
of February 3, 2001, there were approximately $17.5 million of borrowings and
$37.5 million of letters of credit outstanding under the New Revolving Credit
Facility. Availability under the New Revolving Credit Facility was approximately
$132 million as of February 3, 2001.


                                      -67-
<PAGE>

         The interest rate on borrowings under the New Credit Facility is
determined, at the Company's option, as a spread over the London InterBank
Offered Rate ("LIBOR") or the prime rate (as defined). The spreads used in such
calculations are adjusted on a quarterly basis depending upon the ratio of the
Company's total debt (including capital leases) plus outstanding letters of
credit to Consolidated EBITDA. The spread over LIBOR or prime utilized in such
calculation for each component of the New Credit Facility is between the amounts
shown below:

<TABLE>
<CAPTION>
                             LIBOR-based          Prime-based
                             Borrowings           Borrowings
                             ------------         ------------
<S>                          <C>                  <C>
Revolving Credit             1.5% - 2.375%        0.5% - 1.375%

Term Loan A                  1.5% - 2.375%        0.5% - 1.375%

Term Loan B                  2.75% - 3.0%         1.75% - 2.0%
</TABLE>

         During April 2000, the Company entered into interest rate swap
agreements, which expire in five years, that effectively convert $50 million of
its variable rate borrowings into fixed rate obligations. Under the terms of
these agreements, the Company makes payments at a weighted average fixed
interest rate of 7.08% and receives payments at variable interest rates based on
LIBOR.

         The weighted average interest rate on borrowings under the New Credit
Facility was 9.2% and 8.9% at February 3, 2001, and January 29, 2000,
respectively.


                                      -68-
<PAGE>

NOTE 14 -- EMPLOYEE BENEFIT PLANS:

         The majority of the Company's employees are covered by either defined
benefit plans or defined contribution plans. The financial statements and
related disclosures reflect Statement of Financial Accounting Standards No. 132
"Employers' Disclosure About Pensions and Other Postretirement Benefits" and
Statement of Financial Accounting Standards No. 87, "Employers' Accounting for
Pensions" ("SFAS 87") for defined benefit pension plans.

         The following sets forth the net pension expense (income) recognized
for the defined benefit pension plans and the status of the Company's defined
benefit plans:

<TABLE>
<CAPTION>
                              SUCCESSOR COMPANY         PREDECESSOR COMPANY
                           ------------------------   -----------------------
                            53 WEEKS      31 WEEKS     21 WEEKS     52 WEEKS
                             ENDED         ENDED        ENDED        ENDED
                           FEBRUARY 3,   JANUARY 29,    JUNE 26,   JANUARY 30,
                              2001          2000         1999         1999
                           ----------    ----------   ----------   ----------
                                        (IN THOUSANDS OF DOLLARS)
<S>                         <C>          <C>          <C>          <C>
Service cost -- benefits
  earned during the period  $    4,142   $    3,171   $    2,230   $   6,430
Interest cost on projected
  benefit obligation            13,578        7,608        5,385      12,434
Expected return on plan
  assets                       (20,113)     (12,139)      (8,714)    (19,556)
Net amortization                  (232)         (46)         484         596
                            ----------   ----------   ----------   ---------
Net pension income          $   (2,625)  $   (1,406)  $     (615)  $     (96)
                            ==========   ==========   ==========   =========
</TABLE>

<TABLE>
<CAPTION>
                                               PENSION BENEFITS
                                           FISCAL 2001  FISCAL 2000
                                           -----------  -----------
                                           (IN THOUSANDS OF DOLLARS)
<S>                                        <C>          <C>
Change in benefit obligation:
Benefit obligation at
  beginning of year                        $  175,843   $  185,364
Service cost                                    4,142        5,401
Interest cost                                  13,578       12,993
Actuarial (gain) loss                          11,131      (13,681)
Benefits paid                                 (11,900)     (15,780)
Special termination benefits                                 2,371
Settlements                                                   (465)
Curtailments                                                  (360)
                                           ----------   ----------
Benefit obligation at
  end of year                              $  192,794   $  175,843
                                           ==========   ==========


Change in plan assets:
Fair value of plan assets at
  beginning of year                        $  201,553   $  200,553
Actual return on plan assets                    3,279       16,101
Company contributions                           2,455        1,144
Benefits paid                                 (11,900)     (15,780)
Settlements                                                   (465)
                                           ----------   ----------
Fair value of plan assets at
  end of year                              $  195,387   $  201,553
                                           ==========   ==========

Funded status of the plans                 $    2,593   $   25,710
Unrecognized actuarial (gain) loss             13,289      (14,908)
                                           ----------   ----------
Net prepaid benefit cost                   $   15,882   $   10,802
                                           ==========   ==========
</TABLE>


                                      -69-
<PAGE>

         Amounts included in the Other assets account of the Consolidated
Balance Sheet consist of:

<TABLE>
<CAPTION>
                                                    PENSION BENEFITS
                                                FISCAL 2001   FISCAL 2000
                                                -----------   -----------
                                                (IN THOUSANDS OF DOLLARS)
<S>                                             <C>           <C>
    Prepaid benefit cost                        $   20,375    $   16,573
    Accrued benefit liability                       (4,493)       (5,771)
                                                ----------    ----------

    Net amount recognized                       $   15,882    $   10,802
                                                ==========    ==========
</TABLE>

         The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $26.6 million, $26.6 million and $23.5
million, respectively, as of February 3, 2001. The projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for the pension
plans with accumulated benefit obligations in excess of plan assets were $1.6
million, $1.6 million and $0 million, respectively, as of January 29, 2000.

         Pursuant to the provisions of SFAS 87, the Company recorded in other
noncurrent liabilities an additional minimum pension liability adjustment of
$7.9 million as of January 30, 1999, representing the amount by which the
accumulated benefit obligation exceeded the fair value of plan assets plus
accrued amounts previously recorded. The additional liability has been offset by
an intangible asset to the extent of previously unrecognized prior service cost.
The amount in excess of previously unrecognized prior service cost (after tax)
is recorded as a reduction of stockholders' equity in the amount of $3.5 million
as of January 30, 1999. There was no additional minimum pension liability
adjustment as of February 3, 2001, or January 29, 2000.

         In calculating benefit obligations and plan assets for Fiscal 2001, the
Company assumed a weighted average discount rate of 7.5%, compensation increase
rate of 3.5% and an expected long-term rate of return on plan assets of 10.5%.
In calculating benefit obligations and plan assets for the 31-week period ended
January 29, 2000, and the 21-week period ended June 26, 1999, the Company
assumed a weighted average discount rate of 8.0%, compensation increase rate of
3.5% and an expected long-term rate of return on plan assets of 10.5%. In
calculating benefit obligations and plan assets for Fiscal 1999, the Company
assumed a weighted average discount rate of 6.75%, compensation increase rates
ranging from 3.0% to 3.5% and an expected long-term rate of return on plan
assets of 10.5%.


                                      -70-
<PAGE>

         The Company's defined benefit plans, other than the Penn Traffic Cash
Balance Plan (the "Cash Balance Plan"), generally provides a retirement benefit
to employees based on specified percentages applied to final average
compensation, as defined, coupled with years of service earned to the date of
retirement. Penn Traffic's defined benefit plans' assets are maintained in
separate trusts and are managed by independent investment managers. The assets
are invested primarily in equity and long-term and short-term debt securities.

         In Fiscal 1999, the Company merged several of its defined benefit plans
together to form the Cash Balance Plan. The Cash Balance Plan is a defined
benefit plan, which assigns account balances to the individual participants.
Account balances are credited based on a fixed percentage of each participant's
compensation paid for the year, plus interest at a rate comparable to the yield
on long-term treasury securities. Upon retirement, employees are permitted to
take a lump-sum distribution equal to their account balance, or receive an
annuity benefit based on formulas set forth in the Plan. The net impact of
merging several of the defined benefit plans into the Cash Balance Plan was to
reduce the minimum pension liability previously reported by those plans by $19.6
million and the related pretax charge to equity by $14.7 million.

         In connection with the implementation of the new Cash Balance Plan, the
Company began contributing to its 401(k) Plan in Fiscal 1999. Contributions by
the Company totaled approximately $1.1 million, $0.4 million, $0.7 million and
$0.4 million in Fiscal 2001, the 31-week period ended January 29, 2000, the
21-week period ended June 26, 1999, and Fiscal 1999, respectively.

         The Company also contributes to multi-employer pension funds, which
cover certain union employees under collective bargaining agreements. Such
contributions aggregated $3.8 million, $1.6 million, $2.1 million and $4.5
million in Fiscal 2001, the 31-week period ended January 29, 2000, the 21-week
period ended June 26, 1999, and Fiscal 1999, respectively. The applicable
portion of the total plan benefits and net assets of these plans is not
separately identifiable. The Company is currently the majority contributor to a
multi-employer plan covering substantially all of its employees in eastern
Pennsylvania. Due to the Company's decision to exit certain markets (see Notes 4
and 5), the Company has accrued a withdrawal liability to cover its pro rata
portion of the unfunded vested benefit obligations in this plan.

         The Company sponsors a deferred profit-sharing plan for certain
salaried employees. There were no contributions by the Company in Fiscal 2001,
the 52-week period ended January 29, 2000 ("Fiscal 2000"), and Fiscal 1999. This
plan will be terminated as of May 1, 2001.


                                      -71-
<PAGE>

NOTE 15 -- STOCKHOLDERS' EQUITY:

         The 1999 Equity Incentive Plan (the "Equity Plan") was adopted on the
Effective Date. The Equity Plan provides for long-term incentives based upon
objective, quantifiable measures of the Company's performance over time through
the payment of incentive compensation of the types commonly known as stock
options. The Equity Plan makes available the granting of options to acquire an
aggregate of 2,297,000 shares of New Common Stock. All of the Company's officers
and employees are eligible to receive options under the Equity Plan. The options
expire 10 years after the date of grant and generally vest 20% on the date of
grant and 20% on each of the next four anniversary dates. As of February 3,
2001, options to acquire an additional 922,000 shares may be granted by the
Compensation Committee of the Company's Board of Directors.

         In July 1999, the Company adopted the 1999 Directors' Stock Option Plan
(the "Directors Plan"). The Directors Plan makes available to the Company's
directors, who are not employees of the Company, options to acquire in the
aggregate up to 250,000 shares of New Common Stock. Under the terms of the
Directors Plan, each eligible director receives as of the date of appointment to
the Board of Directors, an option to purchase 20,000 shares of New Common Stock
(subject to antidilution adjustments) at a price equal to the fair market value
(as defined in the Directors Plan) of such shares on the date of grant. The
Directors Plan also provides for the issuance of additional options annually
thereafter as of the first business day after the conclusion of each Annual
Meeting of Stockholders of the Company. The options expire 10 years after the
date of grant and vest immediately upon issuance. As of February 3, 2001,
options to acquire an additional 83,000 shares may be granted under the
Directors Plan.

         A summary of the status of the Company's Equity Plan as of February 3,
2001, and January 29, 2000, and the changes during Fiscal 2001 and the 31-week
period ended January 29, 2000, are presented below:

<TABLE>
<CAPTION>
                                                           31 WEEKS ENDED
                                  FISCAL 2001            JANUARY 29, 2000
                              -------------------       -------------------
                                        Weighted-                 Weighted-
                                         Average                   Average
                                        Exercise                  Exercise
   Plan Options                Shares     Price          Shares     Price
-----------------             --------- --------        --------- --------
<S>                           <C>         <C>           <C>         <C>
   Outstanding at
     beginning of year        1,319,500   $13.87
   Granted                      129,000   $ 3.94        2,164,500   $14.53
   Exercised
   Forfeited                    (73,500)  $12.13         (845,000)  $15.55
                              ---------                 ---------

   Outstanding at
     end of year              1,375,000   $13.03        1,319,500   $13.87
                              =========                 =========

   Options exercisable
     at end of year             700,600   $15.17          557,100   $16.50
                              =========                 =========
</TABLE>


                                      -72-
<PAGE>

         A summary of the status of the Company's Directors Plan as of February
3, 2001, and January 29, 2000, and the changes during Fiscal 2001 and the
31-week period ended January 29, 2000, are presented below:

<TABLE>
<CAPTION>
                                                           31 WEEKS ENDED
                                  FISCAL 2001            JANUARY 29, 2000
                              -------------------       -------------------
                                        Weighted-                 Weighted-
                                         Average                   Average
                                        Exercise                  Exercise
   Plan Options                Shares     Price          Shares     Price
-----------------             --------- --------        --------- --------
<S>                             <C>       <C>           <C>        <C>
   Outstanding at
     beginning of year          140,000   $12.13
   Granted                       27,000   $ 5.96          140,000   $12.13
   Exercised
   Forfeited
                              ---------                 ---------

   Outstanding at
     end of year                167,000   $11.13          140,000   $12.13
                              =========                 =========

   Options exercisable
     at end of year             167,000   $11.13          140,000   $12.13
                              =========                 =========
</TABLE>

         As of February 3, 2001, the 1,375,000 options outstanding under the
Equity Plan have exercise prices between $3.94 and $18.30 and a weighted-average
remaining contractual life of 8.6 years. As of February 3, 2001, the 167,000
options outstanding under the Directors Plan have exercise prices between $5.89
and $12.13 and a weighted-average remaining contractual life of 8.6 years.

         The options outstanding at January 29, 2000, under the Equity Plan in
the table above exclude 840,000 shares which were canceled or repurchased in
February 2000 in connection with the restructuring of certain executive
compensation agreements (see Note 5).

         The options granted under the Equity Plan include 1,097,000 options
which were granted at a price in excess of the market price at the date of grant
and have a weighted average exercise price of $18.30 per share (600,000 of such
shares have been forfeited).

         The following table summarizes information about stock options
outstanding at February 3, 2001:

<TABLE>
<CAPTION>
                      OPTIONS OUTSTANDING        OPTIONS EXERCISABLE
                      -------------------        -------------------

         Exercise                Remaining
           Price       Shares      Life                Shares
         ---------    --------   ---------            --------
<S>                    <C>           <C>              <C>
          $ 3.94       129,000       9.8               25,800
            5.89        20,000       9.3               20,000
            6.16         7,000       9.4                7,000
            8.75       227,000       8.6               56,000
           12.13       662,000       8.4              348,800
           18.30       497,000       8.4              410,000
</TABLE>


                                      -73-
<PAGE>

         Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), defines a fair value based method of
accounting for an employee stock option by which compensation cost is measured
at the grant date based on the fair value of the award and is recognized over
the service period. A company may elect to adopt SFAS 123 or elect to continue
accounting for its stock option or similar equity awards using the method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), by which compensation cost is
measured at the date of grant based on the excess of the market value of the
underlying stock over the exercise price. The Company has elected to continue to
account for its stock-based compensation plans under the provisions of APB 25.
No compensation expense has been recognized in the accompanying financial
statements relative to the Company's Equity Plan or Directors Plan.

         Prior to the Effective Date, the Company had a 1988 Stock Option plan,
a Performance Incentive Plan and a stock option plan for directors. Prior to the
Effective Date, there were stock options outstanding under each of these plans.
In addition, certain persons previously affiliated with Miller Tabak Hirsch +
Co. ("MTH") held warrants to purchase 289,000 shares of common stock ("Old
Warrants"). On the Effective Date, pursuant to the Plan the Company's former
common stock was canceled. As a result, all stock options and warrants
outstanding as of the Effective Date were canceled.

         Pro forma information regarding Net (loss) and Net (loss) per share is
required by SFAS 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
weighted average fair value of options granted during Fiscal 2001 with an
exercise price equal to market price was $1.98. The weighted average fair value
of options granted during Fiscal 2001 with an exercise price less than market
price was $3.18. The weighted average fair value of options granted during
Fiscal 2001 with an exercise price in excess of market price was $2.21. The fair
value of these options was estimated at the date of grant using the
Black-Scholes options pricing model with the following weighted-average
assumptions: Risk-free interest rate of 5.81%; volatility factor of the expected
market price of the Company's common stock of 50%; a weighted-average expected
life of the options of 4.65 years; and no payment of dividends on common stock.


                                      -74-
<PAGE>

         For purpose of the pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting periods. This pro
forma information is as follows (in thousands of dollars, except for Net (loss)
per share information):

<TABLE>
<CAPTION>
                                           53 WEEKS     31 WEEKS
                                            ENDED        ENDED
                                          FEBRUARY 3,  JANUARY 29,
                                             2001         2000
                                          -----------  -----------
<S>                                       <C>          <C>
    Net (loss) - as reported              $ (99,902)   $ (60,093)

    Net (loss) - pro forma                 (100,823)     (61,246)

    Net (loss) per share - as reported:
     Basic and diluted                        (4.97)       (2.99)

    Net (loss) per share - pro forma:
     Basic and diluted                        (5.02)       (3.05)
</TABLE>


         On June 29, 2000, the Company announced that its Board of Directors has
authorized the Company to repurchase up to an aggregate value of $10 million of
Penn Traffic's common stock from time to time in the open market or privately
negotiated transactions. The timing and amounts of purchases will be governed by
prevailing market conditions and other considerations. Penn Traffic's ability to
repurchase its common stock is subject to limitations contained in the Company's
debt instruments. The Company is currently allowed to repurchase approximately
$8 million of common shares under these agreements. This amount will change on a
quarterly basis based on the Company's financial results. To date, the Company
has repurchased 53,000 shares of common stock at an average price of $7.08 per
share.


                                      -75-
<PAGE>

NOTE 16 -- RELATED PARTIES:

         During Fiscal 1999 and the first month of Fiscal 2000, the Company's
former Chairman and current Chief Financial Officer served as general partner of
the managing partner of MTH and Executive Vice President of MTH, respectively.
During Fiscal 1999 and the first month of Fiscal 2000, MTH provided financial
consulting and business management services to the Company. During Fiscal 1999
the Company paid MTH fees of $1.44 million for such services.

         On February 28, 1999, the Company terminated its agreement with MTH. On
March 1, 1999, the Company engaged the services of Hirsch & Fox LLC (an entity
formed by the Company's former Chairman and current Chief Financial Officer) to
provide financial consulting and business management services during the
pendency of the Bankruptcy Cases, for which the Company agreed to pay Hirsch &
Fox LLC a management fee at an annual rate of $1.45 million. On the Effective
Date, the Company and Hirsch & Fox LLC entered into a new two-year management
agreement pursuant to which Hirsch & Fox LLC provided the services of the
principals of Hirsch & Fox LLC as Chairman and Vice Chairman, respectively, of
the Executive Committee of the Company. In return for these services, Hirsch &
Fox LLC received management fees at an annual rate of $1.45 million. As a result
of the foregoing, during Fiscal 2000 the Company paid Hirsch & Fox LLC fees of
$1.33 million.

         At the end of Fiscal 2000, the Company and Hirsch & Fox LLC agreed to
terminate the management agreement prior to its expiration and the Company made
a payment of $4.9 million to Hirsch & Fox LLC in full satisfaction of all
amounts payable under such agreement and in return for the cancellation of
options to purchase 840,000 shares of New Common Stock held by one of the
members of Hirsch & Fox LLC. Such agreement was executed on February 1, 2000.
Simultaneous with the termination of the management agreement, the Company
entered into an employment agreement with Martin A. Fox, one of the members of
Hirsch & Fox LLC, pursuant to which the Company agreed to employ Mr. Fox as the
Company's Executive Vice President and Chief Financial Officer.

NOTE 17 -- COMMITMENTS AND CONTINGENCIES:

         The Company enters into various purchase commitments in the normal
course of business. No losses are expected to result from these purchase
commitments.

         The Company and its subsidiaries are involved in several lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
Estimates of future liability of these matters are based on an evaluation of
currently available facts regarding each matter. Liabilities are recorded when
it is probable that costs will be incurred and can be reasonably estimated.

         Based on management's evaluation, the resolution of these matters will
not materially affect the financial position, results of operations or liquidity
of the Company.


                                      -76-
<PAGE>

REPORT OF MANAGEMENT

         Penn Traffic's management has prepared the financial statements
presented in this Annual Report on Form 10-K and is responsible for the
integrity of all information contained herein. The financial statements
presented in this report have been audited by the independent accountants
appointed by the Board of Directors on the recommendation of its Audit Committee
and management. The Company maintains an effective system of internal accounting
controls. The independent accountants, with respect to financial reporting,
obtain an understanding of the Company's internal accounting controls and
conduct such tests and related procedures as they deem necessary to express an
opinion on the fairness of the presentation of the financial statements. The
Audit Committee, composed solely of outside directors, meets periodically with
management and independent accountants to review auditing and financial
reporting matters and to ensure that each group is properly discharging its
responsibilities.

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

         None


                                      -77-
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         The information required by this Item is incorporated herein by
reference to the captions "Election of Directors" and "Executive Officers" in
the Company's Proxy Statement to be filed in connection with the Company's
Annual Meeting of Stockholders to be held on or about July 11, 2001.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this Item is incorporated herein by
reference to the caption "Executive Compensation" in the Company's Proxy
Statement to be filed in connection with the Company's Annual Meeting of
Stockholders to be held on or about July 11, 2001. The information set forth
in "Compensation and Stock Option Committee" and "Performance Graph" in the
Company's Proxy Statement to be filed in connection with the Company's Annual
Meeting of Stockholders to be held on or about July 11, 2001, is not deemed
"filed" as a part hereof.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item is incorporated herein by
reference to the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement to be filed in connection with the
Company's Annual Meeting of Stockholders to be held on or about July 11, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item is incorporated herein by
reference to the caption "Compensation of Directors" in the Company's Proxy
Statement to be filed in connection with the Company's Annual Meeting of
Stockholders to be held on or about July 11, 2001.

                                      -78-
<PAGE>

                                     PART IV

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

         The index for Financial Statements and Supplementary Data is on page 43
under Item 8 of this Form 10-K.

EXHIBITS:

The following are filed as Exhibits to this Report:

Exhibit No.                           Description
-----------                           -----------

2.1      Joint Plan of Reorganization of Penn Traffic and certain of its
         subsidiaries under Chapter 11 of The U.S. Bankruptcy Code (the "Joint
         Plan") (incorporated by reference to Exhibit 2.1 to Form 8-K filed on
         June 11, 1999).

3.1      Amended and Restated Certificate of Incorporation of Penn Traffic
         (incorporated by reference to Exhibit 1 to Form 8-A12G/A filed on June
         29, 1999).

3.2      Amended and Restated By-Laws of Penn Traffic (incorporated by reference
         to Exhibit 2 to Form 8-A12G/A filed on June 29, 1999).

4.1      Indenture, including form of 11% Senior Note due June 29, 2009, dated
         as of June 29, 1999, between Penn Traffic and IBJ Whitehall Bank and
         Trust Company, as Trustee (incorporated by reference to Exhibit 3 to
         Form 8-A12G/A filed on June 29, 1999).

4.2      Warrant Agreement, dated June 29, 1999, between Penn Traffic and Harris
         Trust and Savings Bank (incorporated by reference to Exhibit 1 to Form
         8-A12G filed on June 29, 1999).

4.3      Form of Common Stock Certificate (incorporated by reference to Exhibit
         4.2 to Form 10-K filed on January 28, 1995).

4.4      Form of Warrant Certificate adopted as part of Joint Plan (incorporated
         by reference to Exhibit 1 to Form 8-A12G filed on June 29, 1999).


                                      -79-
<PAGE>

EXHIBITS (CONTINUED):

Exhibits No.
------------

10.1     Agreement and Master Sublease dated as of July 30, 1990, by and between
         The Grand Union Company and P&C (incorporated by reference to Exhibit
         No. 10.24 to Penn Traffic's Quarterly Report on Form 10-Q for the
         Fiscal Quarter ended August 4, 1990) (Securities and Exchange
         Commission File No. 1-9930).

10.2     Employment Agreement, dated as of October 30, 1998, between Joseph V.
         Fisher and Penn Traffic (incorporated by reference to Exhibit 10.21 to
         Form 10-K filed on April 30, 1999).

10.2A    Amendment to Employment Agreement of Joseph V. Fisher, dated June 29,
         1999 (incorporated by reference to Exhibit 10.21A to Form 10-Q filed on
         September 14, 1999).

10.2B    Amendment No. 2 to Employment Agreement of Joseph V. Fisher, dated
         December 2, 1999 (incorporated by reference to Exhibit 10.21B to Form
         10-Q filed on December 14, 1999).

10.2C    Amended and Restated Employment Agreement of Joseph V. Fisher, dated
         January 31, 2000 (incorporated by reference to Exhibit 10.2C to Form
         10-K filed on April 28, 2000).

10.3     Management Agreement of Hirsch & Fox LLC, dated June 29, 1999
         (incorporated by reference to Exhibit 10.23 to Form 10-Q filed on
         September 14, 1999).

10.3A    Amended and Restated Management Agreement of Hirsch & Fox LLC, dated
         December 2, 1999 (incorporated by reference to Exhibit 10.23A to Form
         10-Q filed on December 14, 1999).

10.3B    Termination of Management Agreement dated January 31, 2000 among Hirsch
         & Fox LLC, Gary D. Hirsch, Martin A. Fox and Penn Traffic (incorporated
         by reference to Exhibit 10.3B to Form 10-K filed on April 28, 2000).

10.4     Employment Agreement dated January 31, 2000 between Martin A. Fox and
         Penn Traffic (incorporated by reference to Exhibit 10.4 to Form 10-K
         filed on April 28, 2000).


                                      -80-
<PAGE>

EXHIBITS (CONTINUED):

Exhibits No.
------------

10.4B    Amendment No. 1, dated November 15, 2000, to Employment Agreement
         between the Company and Martin A. Fox (incorporated by reference to
         Exhibit 10.4B to Form 10-Q filed on December 12, 2000).

10.5     Employment Agreement of Leslie Knox, dated August 14, 1999
         (incorporated by reference to Exhibit 10.22 to Form 10-Q filed on
         September 14, 1999).

10.6     1999 Equity Incentive Plan (incorporated by reference to Exhibit 10.24
         to Form 10-Q filed on September 14, 1999).

10.7     1999 Directors' Stock Option Plan (incorporated by reference to Exhibit
         10.25 to Form 10-Q filed on September 14, 1999).

10.8     Supplemental Retirement Plan for Non-Employee Executives (incorporated
         by reference to Exhibit 10.26 to Form 10-Q filed on September 14,
         1999).

10.9     Registration Rights Agreement (incorporated by reference to Exhibit
         10.27 to Form 10-Q filed on September 14, 1999).

10.10    Revolving Credit and Term Loan Agreement dated as of June 29, 1999, by
         and among Penn Traffic, certain of its subsidiaries, Fleet Capital
         Corporation and the Lenders party thereto (incorporated by reference to
         Exhibit 10.1 to Form 8-K filed on July 14, 1999).

10.10A   Amendment No. 1 to the Revolving Credit and Term Loan Agreement by and
         among Penn Traffic, certain of its subsidiaries, Fleet Capital
         Corporation and the Lenders party thereto (incorporated by reference to
         Exhibit 10.10A to Form 10-Q filed on September 12, 2000).

10.11    Collateral and Security Agreement, dated as of June 29, 1999, made by
         Penn Traffic and certain of its subsidiaries in favor of Fleet Capital
         Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K
         filed on July 14, 1999).

21.1     Subsidiaries of Penn Traffic (incorporated by reference to Exhibit 21.1
         to Penn Traffic's 1994 10-K).


                                      -81-
<PAGE>

EXHIBITS (CONTINUED):

Exhibits No.
------------

   *23.1                Consent of Independent Accountants.


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

         Copies of the above exhibits will be furnished without charge to any
shareholder by writing to Vice President - Finance and Chief Accounting Officer,
The Penn Traffic Company, 1200 State Fair Boulevard, Syracuse, New York
13221-4737.

REPORTS ON FORM 8-K

         No reports on Form 8-K were filed during fiscal quarter ended February
3, 2001.


                                      -82-
<PAGE>

                                   SIGNATURES

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

                                THE PENN TRAFFIC COMPANY


         MAY 1, 2001            By: /s/ JOSEPH V. FISHER
         -----------               ------------------------------
            DATE                   Joseph V. Fisher,
                                   President, Chief Executive
                                   Officer and Director

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.


/s/ MARTIN A. FOX                  /s/ RANDY P. MARTIN
-------------------------------    ------------------------------
Martin A. Fox,                     Randy P. Martin,
Executive Vice President, Chief    Vice President - Finance and
Financial Officer and Director     Chief Accounting Officer

         MAY 1, 2001                         MAY 1, 2001
         -----------                         -----------
            DATE                                DATE


/s/ BYRON E. ALLUMBAUGH            /s/ KEVIN P. COLLINS
-------------------------------    ------------------------------
Byron E. Allumbaugh, Director      Kevin P. Collins, Director

         MAY 1, 2001                         MAY 1, 2001
         -----------                         -----------
            DATE                                DATE


/s/ DAVID B. JENKINS               /s/ GABRIEL S. NECHAMKIN
-------------------------------    ------------------------------
David B. Jenkins, Director         Gabriel S. Nechamkin, Director

         MAY 1, 2001                         MAY 1, 2001
         -----------                         -----------
            DATE                                DATE


/s/ LIEF D. ROSENBLATT             /s/ MARK D. SONNINO
-------------------------------    ------------------------------
Lief D. Rosenblatt, Director       Mark D. Sonnino, Director

         MAY 1, 2001                         MAY 1, 2001
         -----------                         -----------
            DATE                                DATE


/s/ PETER L. ZURKOW
--------------------------------
Peter L. Zurkow, Chairman of
the Board of Directors

         MAY 1, 2001
         -----------
            DATE


                                      -83-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                            (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
COLUMN A                     COLUMN B      COLUMN C       COLUMN D    COLUMN E
--------                     --------      --------       --------    --------

                                          ADDITIONS
                              BALANCE      CHARGED      DEDUCTIONS   BALANCE
                           AT BEGINNING    TO COSTS        FROM      AT END
DESCRIPTION                 OF PERIOD    AND EXPENSES    ACCOUNTS    OF PERIOD
-----------                 ---------    ------------    --------    ---------
<S>                          <C>           <C>           <C>           <C>
Reserve deducted from asset
  to which it applies:

SUCCESSOR COMPANY:

FOR THE 53 WEEKS ENDED
 FEBRUARY 3, 2001

  Provision for doubtful
   accounts                  $ 10,561      $  2,048      $  7,975(a)   $  4,634
                             ========      ========      ========      ========

  Tax valuation allowance    $      0      $      0      $      0      $      0
                             ========      ========      ========      ========

FOR THE 31 WEEKS ENDED
 JANUARY 29, 2000

  Provision for doubtful
   accounts                  $  8,650      $  1,965      $     54(a)   $ 10,561
                             ========      ========      ========      ========

  Tax valuation allowance    $104,321      $      0      $104,321(c)   $      0
                             ========      ========      ========      ========

PREDECESSOR COMPANY:

FOR THE 21 WEEKS ENDED
 JUNE 26, 1999

  Provision for doubtful
   accounts                  $  5,731      $  3,598      $    679(a)   $  8,650
                             ========      ========      ========      ========

  Tax valuation allowance    $104,321      $      0      $      0      $104,321
                             ========      ========      ========      ========

FOR THE 52 WEEKS ENDED
 JANUARY 30, 1999

  Provision for doubtful
   accounts                  $  3,597      $  7,055      $  4,921(a)   $  5,731
                             ========      ========      ========      ========

  Tax valuation allowance    $      0      $104,321(b)   $      0      $104,321
                             ========      ========      ========      ========
</TABLE>

(a)      Uncollectible receivables written off, net of recoveries.

(b)      Valuation allowance established for tax benefit generated by net
         operating loss carryforward.

(c)      Valuation allowance eliminated due to the implementation of fresh-start
         reporting.


                                      -84-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                               SUPPLEMENTARY DATA

QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized below is quarterly financial data for the fiscal years ended February
3, 2001 ("Fiscal 2001"), and January 29, 2000 ("Fiscal 2000"):

<TABLE>
<CAPTION>
                                             FISCAL 2001
                           -------------------------------------------------
                              1ST          2ND          3RD          4TH
                           ----------   ----------   ----------   ----------
                            13 weeks     13 weeks     13 weeks     14 weeks
                             Ended        Ended        Ended        Ended
                            April 29,    July 29,    October 28,  February 3,
                              2000         2000         2000         2001 (1)
                           ----------   ----------   ----------   -----------
                            (In thousands of dollars, except per share data)
<S>                        <C>          <C>          <C>          <C>
Revenues                   $ 592,617    $ 629,741    $ 611,265    $ 691,682
Gross Margin                 142,078      152,786      142,603      169,987
Net (loss) (2)(3)            (26,727)     (23,564)     (28,344)     (21,267)
Per common share data
  (Basic and Diluted):
  Net (loss) (2)(3)        $   (1.33)   $   (1.17)   $   (1.41)   $   (1.06)


No dividends were paid on common stock during Fiscal 2001.


OTHER DATA:
  EBITDA (4)               $  22,048    $  28,203    $  19,538    $  32,095
  Depreciation and
   amortization               10,224       10,310       10,893       10,443
  LIFO provision                 500          500          500           19
  Capital expenditures,
   including capital leases
   and acquisitions           21,789       13,145       13,030       10,018

MARKET VALUE PER COMMON
 SHARE (5):
  High                     $   8.750    $   8.800    $   8.000    $   4.875
  Low                          6.125        4.688        4.625        3.250
</TABLE>


                                      -85-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                               SUPPLEMENTARY DATA

QUARTERLY FINANCIAL DATA (UNAUDITED) CONTINUED:

<TABLE>
<CAPTION>
                                 Predecessor Company           Successor Company
                                   Fiscal 2000 (6)              Fiscal 2000 (6)
                             -----------------------   --------------------------------
                                1ST               2ND               3RD         4TH
                             ----------  ----------------------  ----------  ----------
                              13 weeks    8 weeks     5 weeks     13 weeks    13 weeks
                               Ended       Ended       Ended       Ended       Ended
                               May 1,     June 26,    July 31,   October 30, January 29,
                                1999        1999        1999        1999        2000
                             ----------  ----------  ----------  ----------  ----------
                                   (In thousands of dollars, except per share data)
<S>                           <C>        <C>         <C>         <C>         <C>
Revenues                      $ 615,045  $ 391,759   $ 240,966   $ 610,563   $ 625,690
Gross margin (7)                136,740     88,722      56,205     144,521     151,738
(Loss) before extra-
 ordinary items (2)(3)(7)(8)    (21,584)  (163,638)     (8,762)    (27,126)    (24,205)
Net income (loss) (2)(3)
 (7)(8)(9)                      (23,091)   492,797      (8,762)    (27,126)    (24,205)
Per common share data
  (Basic and Diluted):
  Net (loss) (2)(3)(5)(7)(8)(9)                      $   (0.44)  $   (1.34)  $   (1.21)

<CAPTION>
No dividends on common stock were paid during Fiscal 2000. Per share data is not
presented for periods prior to June 26, 1999 due to the general lack of
comparability as a result of the revised capital structure of the Company.

<S>                           <C>        <C>         <C>         <C>         <C>
OTHER DATA:
  EBITDA (4)                  $  15,351  $  14,422   $  10,611   $  25,231   $  31,536
  Depreciation and
   amortization                  16,535      9,297       4,615      10,838      10,723
  LIFO provision                    625        384         241         625          26
  Capital expenditures,
   including capital leases
   and acquisitions               3,314      2,965       3,296      11,015      17,157

MARKET VALUE PER COMMON
 SHARE (5):
  High                        $   0.813  $   0.360   $  13.000   $   9.938   $   9.625
  Low                             0.220      0.160       9.500       6.250       6.375
</TABLE>


                                      -86-
<PAGE>

FOOTNOTES:

(1)      Comparisons of financial data for the fourth quarter Fiscal 2001 to the
         prior year are affected by the additional week in the current fiscal
         year.

(2)      During Fiscal 2001, the Company recorded an unusual item (expense) of
         $1.3 million related to the implementation of a warehouse consolidation
         project. The Company recorded $0.4 million of this unusual item during
         first quarter Fiscal 2001 and $0.9 million of this unusual item during
         the second quarter of Fiscal 2001. During the 14-week period ended
         February 3, 2001, the Company recorded an unusual item (income) of $3.0
         million associated with a reduction in the estimate of the remaining
         liability associated with the Store Rationalization Program.

         During Fiscal 2000, the Company recorded unusual items (income) of $4.6
         million related to the Store Rationalization Program. The Company
         recorded $3.6 million of this unusual item (income) during the first
         quarter of Fiscal 2000 and $1.0 million of this unusual (income) during
         the 8-week period ended June 26, 1999. During the third quarter of
         Fiscal 2000, the Company recorded an unusual item (expense) of $1.9
         million associated with an early retirement program for certain
         eligible employees. During the fourth quarter of Fiscal 2000, the
         Company recorded an unusual item (expense) of $5.5 million associated
         with the restructuring of certain executive compensation agreements.

(3)      The tax provisions for each quarter of Fiscal 2001, the 5-week period
         ended July 31, 1999, and for the third and fourth quarters of Fiscal
         2000 are not recorded at statutory rates due to differences between
         income calculations for financial reporting and tax reporting purposes
         that result primarily from the nondeductible amortization of excess
         reorganization value. The tax provisions (benefit) for the first
         quarter of Fiscal 2000 and the 8-week period ended June 26, 1999, are
         not recorded at statutory rates due to the recording of a valuation
         allowance. A valuation allowance is required when it is more likely
         than not that the recorded value of a deferred tax asset will not be
         realized.

(4)      "EBITDA" is earnings before interest, depreciation, amortization,
         amortization of excess reorganization value, LIFO provision, special
         charges, unusual items, reorganization items, extraordinary items, the
         cumulative effect of change in accounting principle and taxes. EBITDA
         should not be interpreted as a measure of operating results, cash flow
         provided by operating activities, a measure of liquidity, or as an
         alternative to any generally accepted accounting principle measure of
         performance. The Company reports EBITDA because it is a widely used
         financial measure of the potential capacity of a company to incur and
         service debt. Penn Traffic's reported EBITDA may not be comparable to
         similarly titled measures used by other companies.

(5)      As a result of the issuance of the New Common Stock in connection with
         the implementation of the Plan on June 29, 1999, the market value of
         the common stock for periods on or prior to June 26, 1999, is not
         comparable to the market value for periods subsequent to such date. Per
         share data is not presented for periods prior to June 26, 1999, because
         of the general lack of comparability as a result of the revised capital
         structure of the Company.


                                      -87-
<PAGE>

(6)      As a result of the completion of the Company's plan of reorganization,
         Penn Traffic adopted "fresh-start reporting" on June 26, 1999. The
         accounting periods ended on or prior to June 26, 1999, have been
         designated "Predecessor Company" and the periods subsequent to June 26,
         1999, have been designated "Successor Company."

         In accordance with the implementation of fresh-start reporting, the
         Company's assets, liabilities and stockholders' (deficit) equity have
         been revalued as of June 26, 1999. In addition, as a result of the
         consummation of the Plan, the amount of the Company's indebtedness has
         been substantially reduced. Accordingly, the Consolidated Statements of
         Operations for periods ended on or prior to June 26, 1999, are not
         comparable to those subsequent to June 26, 1999.

(7)      During the 8-week period ended June 26, 1999, the Company recorded a
         special charge of $3.9 million associated with the repositioning of its
         15 Big Bear Plus stores.

(8)      The Company recorded reorganization items during Fiscal 2000 that
         include (1) adjustments associated with the implementation of
         fresh-start reporting, (2) professional fees associated with the
         implementation of the Plan, (3) the write-off of unamortized deferred
         financing fees for the Company's former notes and (4) a gain related to
         the difference between the estimated allowed claims for rejected leases
         and the liabilities previously recorded for such leases. The Company
         recorded $6.9 million of this charge during the first quarter of Fiscal
         2000 and $160.1 million of this charge during the 8-week period ended
         June 26, 1999.

(9)      During the first quarter of Fiscal 2000, the Company recorded an
         extraordinary item (expense) of $1.5 million resulting from the
         write-off of unamortized deferred financing fees associated with the
         repayment of the Company's pre-petition revolving credit facility. The
         Company recorded an extraordinary item (income) of $656.4 million for
         the 8-week period ended June 26, 1999 resulting from a gain on debt
         discharge recorded in connection with the consummation of the Plan.


                                      -88-