<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 1994
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 1-9930
THE PENN TRAFFIC COMPANY
(Exact name of registrant as specified in its charter)
Delaware 25-0716800
(State of incorporation) (IRS Employer Identification No.)
1200 State Fair Boulevard, Syracuse, NY 13209
(Address of principal executive offices) (Zip code)
(315) 453-7284
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X . NO .
--- ---
Common stock, par value $1.25 per share: 10,846,251 shares
outstanding as of June 1, 1994
1 of 13
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(All dollar amounts in thousands,
except per share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
APRIL 30, MAY 1,
1994 1993
---------- ---------
<S> <C> <C>
TOTAL REVENUES $ 809,961 $ 762,040
COST AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy cost) 631,458 593,757
Selling and administrative
expenses 145,112 136,724
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OPERATING INCOME 33,391 31,559
Interest expense 29,024 30,759
---------- ----------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 4,367 800
Provision for income taxes 2,111 381
---------- ----------
INCOME BEFORE
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 2,256 419
Extraordinary item (net of
tax benefit) (Note 4) (2,276) (17,602)
---------- ----------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (20) (17,183)
Cumulative effect of change in
accounting principle
(net of tax benefit) (Note 6) (5,790)
---------- ----------
NET LOSS (5,810) (17,183)
Preferred dividends (159)
---------- ----------
NET LOSS APPLICABLE TO COMMON STOCK $ (5,810) $ (17,342)
---------- ----------
---------- ----------
PER SHARE DATA:
Income before extraordinary item
and cumulative effect of change
in accounting principle (after
preferred dividends) $ .20 $ .03
Extraordinary item (.20) (2.03)
Cumulative effect of change in
accounting principle (.52)
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Net loss $ (.52) $ (2.00)
---------- ----------
---------- ----------
Average number of common shares
outstanding 11,171,258 8,691,177
---------- ----------
---------- ----------
</TABLE>
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(All dollar amounts in thousands) UNAUDITED
ASSETS APRIL 30, 1994 JANUARY 29, 1994
-------------- ----------------
CURRENT ASSETS:
<S> <C> <C>
Cash and short-term investments $ 43,840 $ 82,467
Accounts and notes receivable
(less allowance for doubtful
accounts of $915 and
$740, respectively) 60,952 60,020
Inventories (Note 3) 350,699 348,455
Prepaid expenses and other current assets 10,335 9,939
--------- ---------
Total Current Assets 465,826 500,881
NONCURRENT ASSETS:
Capital leases - net 131,703 134,101
Property, plant and equipment - net 536,348 535,728
Intangible assets - net 374,963 377,450
Other assets and deferred charges - net 88,362 84,741
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Total Assets $1,597,202 $1,632,901
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---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,794 $ 4,208
Current portion of obligations
under capital leases 8,941 8,773
Trade accounts and drafts payable 182,782 183,967
Payroll and other accrued liabilities 66,797 73,579
Accrued interest expense 14,676 28,690
Accrued employee benefit costs 1,421 449
Payroll taxes and other taxes payable 20,214 18,901
Deferred income taxes 20,559 24,669
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Total Current Liabilities 319,184 343,236
NONCURRENT LIABILITIES:
Long-term debt 1,021,818 1,021,896
Obligations under capital leases 129,571 131,148
Deferred income taxes 72,355 72,411
Other noncurrent liabilities 44,987 49,228
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Total Liabilities 1,587,915 1,617,919
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SHAREHOLDERS' EQUITY:
Preferred stock - authorized 10,000,000
shares at $1.00 par value; none issued
Common stock - authorized 30,000,000
shares at $1.25 par value;
10,845,951 shares and 10,840,151 shares
issued and outstanding, respectively 13,559 13,550
Capital in excess of par value 179,193 179,087
Retained deficit (167,952) (162,924)
Minimum pension liability adjustment (4,963) (4,963)
Unearned compensation (10,550) (9,768)
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Total Shareholders' Equity 9,287 14,982
---------- ----------
Total Liabilities and Shareholders'
Equity $1,597,202 $1,632,901
---------- ----------
---------- ----------
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(All dollar amounts in thousands)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
April 30, 1994 May 1, 1993
OPERATING ACTIVITIES: -------------- -----------
<S> <C> <C>
Net loss $ (5,810) $ (17,183)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Cumulative effect of change in
accounting principle 5,790
Depreciation and amortization 17,983 16,942
Amortization of intangibles 3,723 2,929
Other - net (3,954) (12,461)
Net change in assets and liabilities:
Accounts receivable and prepaid expenses (2,015) 829
Inventories (2,244) (17,958)
Accounts payable and accrued expenses (35,820) (17,279)
Deferred charges and other assets 1,915 1,281
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NET CASH (USED IN) OPERATING ACTIVITIES (20,432) (42,900)
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (15,424) (23,394)
Proceeds from sale of assets 74 832
Other - net (300) (55)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (15,650) (22,617)
--------- ---------
FINANCING ACTIVITIES:
Issuance of Penn Traffic common stock - net 74,800
Purchase of subsidiary securities (10,814)
Increase in long-term debt 400,000
Payments to settle long-term debt (39,392) (279,612)
Borrowing of revolver debt 107,400 136,977
Repayment of revolver debt (68,500) (149,777)
Reduction of capital lease obligations (1,904) (2,041)
Payment of debt issuance costs (263) (12,568)
Preferred dividends and other - net 114 (159)
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,545) 156,806
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (38,627) 91,289
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 82,467 54,840
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 43,840 $ 146,129
--------- ---------
--------- ---------
</TABLE>
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The results of operations for the interim periods are not necessarily an
indication of results to be expected for the year. In the opinion of
management, all adjustments necessary for a fair presentation of the results are
included for the interim periods, and all such adjustments are normal and
recurring. These unaudited interim financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Annual Report on Form 10-K for the fiscal year ended
January 29, 1994.
Net income (loss) per share of common stock is based on the average number
of shares of common stock outstanding during each period, after giving effect to
preferred stock dividends. Fully diluted income per share is not presented for
each of the periods since the reduction from primary income per share is less
than three percent.
During the fiscal quarter ended April 30, 1994, the Company adopted
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112") (Note 6).
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NOTE 2 - SUPPLEMENTAL FINANCIAL INFORMATION
(in thousands of dollars)
<TABLE>
<CAPTION>
FIRST QUARTER, FISCAL 1995
<S> <C>
Operating Income $ 33,391
Depreciation and Amortization 21,706
LIFO Provision 25
Cash Interest Expense 28,013
FIRST QUARTER, FISCAL 1994
Operating Income $ 31,559
Depreciation and Amortization 19,871
LIFO Provision 560
Cash Interest Expense 30,266
</TABLE>
NOTE 3 - INVENTORIES
If the first-in, first-out (FIFO) method had been used by the Company,
inventories would have been $14,378,000 and $14,353,000 higher than reported at
April 30, 1994 and January 29, 1994, respectively.
NOTE 4 - EXTRAORDINARY ITEM
During the first quarter of fiscal 1995, the Company had an extraordinary
charge of $2.3 million (net of $1.6 million income tax benefit) and during the
first quarter of fiscal 1994, had an extraordinary charge of $17.6 million (net
of $11.5 million income tax benefit). Both of these extraordinary charges
related to the early retirement of debt.
- 6 -
<PAGE>
NOTE 5 - INVESTMENT
EQUITY INTEREST IN THE GRAND UNION COMPANY
Penn Traffic holds an indirect ownership interest representing
approximately 17.8% of the common stock of Grand Union Holdings Corporation ("GU
Holdings"), the indirect corporate parent of The Grand Union Company ("Grand
Union"), on a fully diluted basis. Penn Traffic's ownership interest in GU
Holdings was acquired in July 1989 (Fiscal 1990) and is held through GAC
Holdings, whose other investors include Miller Tabak Hirsch + Co. ("MTH") and
individuals affiliated with MTH, certain management employees of Penn Traffic
and other investors.
The Company is accounting for its investment in Grand Union under the
equity method. The investment was recorded originally at cost of $18,250,000.
The carrying value of the investment was totally written off as of February 2,
1991.
NOTE 6 - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation
to provide postemployment benefits on an accrual basis if certain conditions are
met. The Company's postemployment benefits covered by SFAS 112 are primarily
disability related claims covering indemnity and medical payments. The
obligation for these claims is measured using actuarial techniques and
assumptions including appropriate discount rates. The cumulative effect of the
change in accounting principle determined as of January 30, 1994 reduced net
income by $5.8 million (net of $4.1 million income tax benefit).
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 30, 1994 ("FIRST QUARTER FISCAL 1995")
COMPARED TO THIRTEEN WEEKS ENDED MAY 1, 1993 ("FIRST QUARTER FISCAL 1994")
Net loss was $5.8 million for First Quarter Fiscal 1995 compared to $17.2
million in First Quarter Fiscal 1994. The improvement was primarily due to a
$15.3 million decrease in extraordinary charges related to debt retirement and a
$1.8 million increase in income before extraordinary item and the cumulative
effect of a change in accounting principle, partially offset by a $5.8 million
charge recorded to reflect the adoption of Statement of Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112").
The following table sets forth statement of operations components expressed
as a percentage of total revenues for First Quarter Fiscal 1995 and First
Quarter Fiscal 1994:
<TABLE>
<CAPTION>
First Quarter Ended
-------------------
April 30, May 1,
1994 1993
--------- --------
<S> <C> <C>
Total revenues 100.0% 100.0%
Gross profit (1) 22.0 22.0
Selling and administrative
expenses 17.9 17.9
Operating income 4.1 4.1
Interest expense 3.6 4.0
Income before income taxes,
extraordinary item and cumulative
effect of change in accounting
principles 0.5 0.1
Net loss (0.7) (2.3)
<FN>
(1) Total revenues less cost of goods sold.
</TABLE>
Total revenues for First Quarter Fiscal 1995 increased to $810.0 million
from $762.0 million in First Quarter Fiscal 1994. The increase in total
revenues is primarily the result of the increase in retail supermarket sales
resulting from the acquisition of the Insalaco stores in September 1993. Retail
operations, wholesale operations and the food processing businesses contributed
82.6%, 13.7% and 3.7%, respectively, to First Quarter Fiscal 1995 total
revenues. Wholesale supermarket sales decreased in First Quarter Fiscal 1995 to
$109.2 million from First Quarter Fiscal 1994 results of $114.9 million. Sales
from retail supermarkets existing in both periods, "same store sales," increased
.9% in First Quarter Fiscal 1995.
In First Quarter Fiscal 1995, gross profit was $178.5 million compared to
First Quarter Fiscal 1994 gross profit of $168.3 million, representing 22.0% of
total revenues in both periods.
Selling and administrative expenses for First Quarter Fiscal 1995 were
$145.1 million compared with $136.7 million in First Quarter Fiscal 1994.
Selling and administrative expenses as a percentage of total revenues were 17.9%
in both periods.
- 8 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization of $21.7 million in First Quarter Fiscal 1995
and $19.9 million in First Quarter Fiscal 1994 represented 2.7% and 2.6% of
total revenues, respectively. This increase is primarily the result of the
Company's capital expenditure program.
Operating income for First Quarter Fiscal 1995 increased by $1.8 million
to $33.4 million from $31.6 million in First Quarter Fiscal 1994. Operating
income as a percentage of total revenues was 4.1% in both periods.
Interest expense for First Quarter Fiscal 1995 and First Quarter Fiscal
1994 was $29.0 million and $30.8 million, respectively. The decrease in
interest expense is attributed to a decline in the average interest rate on the
Company's outstanding debt. This rate decline is the direct result of the
Company's debt refinancing activities in Fiscal 1994.
Income before income taxes, extraordinary item, and the cumulative effect
of a change in accounting principle was $4.4 million for First Quarter Fiscal
1995, compared to $0.8 million for First Quarter Fiscal 1994.
The income tax provision was $2.1 million for First Quarter Fiscal 1995
compared to $0.4 million in First Quarter Fiscal 1994 in both periods. The
effective tax rates vary from the statutory rate due to differences between
income for financial reporting and tax reporting purposes, primarily related to
goodwill amortization resulting from prior acquisitions.
The $2.3 million extraordinary item (net of $1.6 million income tax
benefit) in First Quarter Fiscal 1995 and the $17.6 million extraordinary item
(net of $11.5 million income tax benefit) in First Quarter Fiscal 1994 relate to
the early retirement of debt.
The Company adopted SFAS 112 in First Quarter Fiscal 1995. The cumulative
effect of this change in accounting principle was a charge of $5.8 million (net
of $4.1 million income tax benefit) (Note 6).
- 9 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During First Quarter Fiscal 1995, operating income increased to $33.4
million from $31.6 million for First Quarter Fiscal 1994. Interest expense for
First Quarter Fiscal 1995 was $29.0 million as compared to $30.8 million during
First Quarter Fiscal 1994. Income before extraordinary item and the cumulative
effect of a change in accounting principle for First Quarter Fiscal 1995 was
$2.3 million as compared to $.4 million for First Quarter Fiscal 1994.
Payments of principal and interest on the Company's $1,025.6 million long-
term debt (excluding capital leases) will materially restrict Company funds
available to finance capital expenditures and working capital. Principal
payments of long-term debt of $3.3 million, $4.1 million and $2.7 million are
due during the remainder of Fiscal 1995, Fiscal 1996 and Fiscal 1997,
respectively.
The Company has a revolving credit facility (the "Revolving Credit
Facility") which provides for borrowings of up to $200 million, subject to a
borrowing base limitation measured by eligible inventory and accounts receivable
of the Company. The Revolving Credit Facility matures in April 2000 and is
secured by a pledge of the Company's inventory, accounts receivable and related
assets. Total availability under the Revolving Credit Facility was $130.3
million at April 30, 1994.
During First Quarter Fiscal 1995, the Company's internally generated funds
from operations and amounts available under the Revolving Credit Facility
provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs.
During First Quarter Fiscal 1995, the Company repurchased $32.8 million of
13 3/4% Senior Subordinated Notes due 1999 and $5.8 million of 11 1/2% Senior
Notes due 2001.
The Company has entered into four interest rate swap agreements, each of
which expires within the next four years, that effectively convert $155 million
of its fixed rate borrowings into variable rate obligations. Under the terms of
these agreements, the Company makes payments at variable rates which are based
on LIBOR and receives payments at fixed interest rates. The net amount paid or
received is included in interest expense.
Cash flows to meet the Company's requirements for operating, investing and
financing activities in First Quarter Fiscal 1995 are reported in the
Consolidated Statement of Cash Flows. For the 13-week period ended April 30,
1994, the Company experienced a negative cash flow from operating activities of
$20.4 million.
Working capital decreased by $11.0 million from January 29, 1994 to
April 30, 1994.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company is in compliance with all terms and restrictive covenants of
its long-term debt agreements. The Company's debt agreements provide
restrictive covenants on the payment of dividends to its shareholders. As of
April 30, 1994, no dividend payments to its shareholders could have been made
under the most restrictive of these limitations.
The Company expects to spend approximately $130 million on capital
expenditures, including capital leases, during Fiscal 1995. The Company expects
to finance such capital expenditures through internally generated cash flow,
borrowings under the Revolving Credit Facility and new capital leases. Capital
expenditures will be principally for new stores, replacement stores and
remodels. Eleven new or replacement stores and five remodels were under
construction as of April 30, 1994. Capital expenditures, including capital
leases, were approximately $15.9 million for First Quarter Fiscal 1995.
PART II. OTHER INFORMATION
All items which are not applicable or to which the answer is negative have
been omitted from this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 7, 1994. At
the Annual Meeting, three directors were elected to serve for three-year terms
on the Company's Board of Directors, by the following votes:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Eugene A. DePalma 9,466,766 101,469
Susan E. Engel 9,466,901 101,334
Claude J. Incaudo 9,466,671 101,563
</TABLE>
At the Annual Meeting, the selection of Price Waterhouse as auditors for
the Company for Fiscal 1995 was ratified by a vote of 9,476,395 shares in favor
and 10,862 shares opposed. A total of 80,977 shares abstained from voting.
- 11 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
April 30, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PENN TRAFFIC COMPANY
June 13, 1994 /s/- Claude J. Incaudo
---------------------------
By: Claude J. Incaudo
(President and Chief
Executive Officer -
Director)
June 13, 1994 /s/- Eugene R. Sunderhaft
----------------------------
By: Eugene R. Sunderhaft
(Vice President,
Secretary and Treasurer -
Chief Financial Officer)
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