<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 29, 2000
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 of incorporation) (IRS Employer Identification No.)
1200 State Fair Blvd., Syracuse, New York 13221-4737
(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 ninety (90) days.
YES |X| NO |_|
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 |_|
Common stock, par value $.01 per share: 20,106,955 shares
outstanding as of May 27, 2000
Page 1 of 23
<PAGE>
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>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
13 WEEKS 13 WEEKS
ENDED ENDED
APRIL 29, MAY 1,
2000 1999
---------- ----------
<S> <C> <C>
TOTAL REVENUES $ 592,617 $ 615,045
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy costs) 450,539 478,305
Selling and administrative
expenses 130,754 138,549
Amortization of excess
reorganization value (Note 3) 27,325
Unusual items (Note 5) 358 (3,663)
--------- ---------
OPERATING (LOSS) INCOME (16,359) 1,854
Interest expense (Note 6) 9,651 16,540
Reorganization items (Note 7) 6,860
--------- ---------
(LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (26,010) (21,546)
Provision for income
taxes (Note 8) 717 38
--------- ---------
(LOSS) BEFORE EXTRAORDINARY ITEM (26,727) (21,584)
Extraordinary item (Note 9) 1,507
--------- ---------
NET (LOSS) $ (26,727) $ (23,091)
========= =========
PER SHARE (BASIC AND DILUTED):
Net (loss) (Note 10) $ (1.33)
=========
</TABLE>
See Notes to Interim Consolidated Financial Statements. 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.
- 2 -
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(All dollar amounts in thousands)
SUCCESSOR COMPANY
UNAUDITED AUDITED
APRIL 29, JANUARY 29,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 53,143 $ 51,759
Accounts and notes receivable
(less allowance for doubtful
accounts of $4,092 and
$10,561, respectively) 42,388 49,722
Inventories (Note 12) 267,576 268,550
Prepaid expenses and other
current assets 8,651 8,335
Deferred income tax 4,189 8,993
----------- -----------
375,947 387,359
----------- -----------
NONCURRENT ASSETS:
Capital leases - net 59,112 61,067
Property, plant and equipment - net 240,697 226,031
Goodwill - net 8,800 8,506
Beneficial leases - net 55,111 56,594
Excess reorganization value - net 235,360 262,685
Other assets and deferred
charges - net 18,310 18,215
----------- -----------
$ 993,337 $ 1,020,457
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations
under capital leases $ 9,407 $ 9,667
Current maturities of long-term
debt (Note 13) 3,297 2,292
Trade accounts and drafts payable 127,096 124,556
Payroll and other accrued
liabilities 88,582 88,916
Accrued interest expense 5,774 2,863
Payroll taxes and other
taxes payable 11,453 12,637
----------- -----------
245,609 240,931
----------- -----------
NONCURRENT LIABILITIES:
Obligations under capital leases 80,672 82,537
Long-term debt (Note 13) 224,598 225,678
Deferred income tax 78,779 80,581
Other noncurrent liabilities 26,842 27,166
STOCKHOLDERS' EQUITY:
Preferred stock - authorized
1,000,000 shares, $.01 par value;
none issued
Common Stock - authorized
30,000,000 shares, $.01 par value;
20,106,955 shares outstanding 201 201
Capital in excess of par value 416,207 416,207
Stock warrants 7,249 7,249
Retained deficit (86,820) (60,093)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 336,837 363,564
----------- -----------
$ 993,337 $ 1,020,457
=========== ===========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
- 3 -
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(All dollar amounts in thousands)
SUCCESSOR PREDECESSOR
COMPANY COMPANY
---------- ----------
13 WEEKS 13 WEEKS
ENDED ENDED
APRIL 29, MAY 1,
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (26,727) $ (23,091)
Adjustments to reconcile net
(loss) to net cash provided by
operating activities:
Depreciation and amortization 10,224 16,535
Amortization of excess
reorganization value 27,325
Gain on sold / closed stores (3,663)
Reorganization Items:
Gain from rejected leases (12,830)
Write-off of unamortized
deferred financing fees 16,591
Extraordinary items 1,507
Other - net (116) 2,635
NET CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable and prepaid
expenses 7,018 10,593
Inventories 974 15,606
Payables and accrued expenses 3,582 (5,033)
Deferred income taxes 3,002
Deferred charges and
other assets (95) 832
Other noncurrent liabilities (324)
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 24,863 19,682
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (21,789) (3,314)
Proceeds from sale of assets 117 17,171
--------- ---------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (21,672) 13,857
--------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in
drafts payables 393 (1,667)
Payments to settle long-term debt (75) (9,158)
Borrowing of revolver debt 31,100
Repayment of revolver debt (144,000)
Borrowing of DIP revolver debt 161,451
Repayment of DIP revolver debt (61,451)
Reduction of capital lease
obligations (2,125) (6,318)
Payment of debt issuance costs (2,866)
--------- ---------
NET CASH (USED IN)
FINANCING ACTIVITIES (1,807) (32,909)
--------- ---------
INCREASE IN CASH AND CASH
EQUIVALENTS 1,384 630
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 51,759 43,474
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 53,143 $ 44,104
========= =========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
- 4 -
<PAGE>
THE PENN TRAFFIC COMPANY
Notes To Interim Consolidated Financial Statements
Unaudited
NOTE 1 - REORGANIZATION
On March 1, 1999 (the "Petition Date"), Penn Traffic (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"). The Bankruptcy Cases were commenced in order 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.
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.
- 5 -
<PAGE>
Proceeds from the New Credit Facility were used to satisfy the
Company's obligations under its debtor-in-possession financing (the "DIP
Facility") that had been established in connection with the Bankruptcy Cases,
pay certain costs of the reorganization process and are available to satisfy
the Company's ongoing working capital and capital expenditure requirements.
NOTE 2 - 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 accounting principles generally accepted
in the United States 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 Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 2000 ("Fiscal 2000"). However, 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.
All significant intercompany transactions and accounts have been
eliminated in consolidation.
Certain amounts in the Consolidated Statement of Cash Flows for the
13-week period ended May 1, 1999 have been reclassified for comparative
purposes.
Between March 1, 1999 and June 29, 1999 the Company operated its
business as a debtor-in-possession under the Bankruptcy Code. 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")
provides guidance for financial reporting by entities that have filed petitions
with a bankruptcy court and expect to reorganize under Chapter 11 of the
Bankruptcy Code.
- 6 -
<PAGE>
Under SOP 90-7, the financial statements of an entity in a Chapter 11
reorganization distinguish transactions and events that are directly associated
with the reorganization from those of the operations of the ongoing business as
it evolves. Accordingly, SOP 90-7 requires the following financial reporting or
accounting treatments in respect to the Statement of Operations and Statement of
Cash Flows:
STATEMENT OF OPERATIONS
Pursuant to SOP 90-7, revenues and expenses, realized gains and losses,
and provisions for losses resulting from the reorganization and restructuring of
the business are reported in the statement of operations separately as
reorganization items. Professional fees are expensed as incurred. Interest
expense is reported only to the extent that it will be paid during the
proceeding or that it is probable that it will be an allowed claim.
STATEMENT OF CASH FLOWS
Reorganization items are reported separately within the operating,
investing and financing categories of the statement of cash flows.
- 7 -
<PAGE>
NOTE 3 - FRESH-START REPORTING
As of the Effective Date, the Company adopted fresh-start reporting
pursuant to the guidance provided by SOP 90-7. In connection with the adoption
of fresh-start reporting, a new entity was 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 are 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.
Such amount is being amortized on a straight-line basis over a three-year
period.
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.
- 8 -
<PAGE>
NOTE 4 - SPECIAL CHARGES
As described in the Company's Annual Report on Form 10-K for Fiscal
2000, during the fiscal year ended January 30, 1999 ("Fiscal 1999"), the
Company recorded a special charge of $68.2 million related to Penn Traffic's
store rationalization program (net of a $12.7 million gain on the sale of
assets in connection with this program). On April 29, 2000, and January 29,
2000, the accrued liability related to these charges was $7.4 million and
$9.0 million, respectively. The reduction in such liability since January 29,
2000, is primarily due to cash payments for facility costs.
NOTE 5 - UNUSUAL ITEMS
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 267,000 square foot facility
which had supplied grocery products to certain stores in upstate New York and
northern Pennsylvania until January 2000). When this process is completed, which
is currently anticipated to be in the summer of 2000, Penn Traffic will cancel
its lease on a 205,000 square foot distribution center in Columbus, Ohio. During
the 13-week period ended April 29, 2000 ("First Quarter Fiscal 2001"), the
Company recorded an unusual item of $0.4 million related to the implementation
of this warehouse consolidation project.
During the 13-week period ended May 1, 1999 ("First Quarter Fiscal
2000"), the Company recorded an unusual item (income) of $3.7 million related to
a gain on the disposition of six stores and certain other assets sold in
connection with the Company's store rationalization program.
NOTE 6 - INTEREST EXPENSE
As a result of the Company's Chapter 11 filing on March 1, 1999, no
principal or interest payments were made on or after the Petition Date on the
Company's former senior and senior subordinated notes. Accordingly, no interest
expense for these obligations was accrued on or after such date during First
Quarter Fiscal 2000. Had such interest been accrued, interest expense for First
Quarter Fiscal 2000 would have been approximately $36.1 million.
- 9 -
<PAGE>
NOTE 7 - REORGANIZATION ITEMS
Reorganization items for First Quarter Fiscal 2000 include (1) a gain
relating to the difference between the estimated allowed claim for rejected
leases and liabilities previously recorded for such leases ($12.8 million), (2)
the write-off of unamortized financing fees resulting in a loss from adjustments
of liabilities subject to compromise to reflect allowed claims ($16.6 million)
and (3) professional fees associated with the Company's financial restructuring
and Chapter 11 filing ($3.1 million).
NOTE 8 - TAX PROVISION
The tax provision for First Quarter Fiscal 2001 is 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
First Quarter Fiscal 2000 is not recorded at statutory rates due to (1)
differences between the income calculations for financial reporting and tax
reporting purposes and (2) 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.
NOTE 9 - EXTRAORDINARY ITEMS
The extraordinary item recorded for the First Quarter Fiscal 2000
resulted from the write-off of unamortized financing fees associated with the
early retirement of the Company's pre-petition revolving credit facility (the
"Pre-petition Revolving Credit Facility"). No corresponding tax benefit was
recorded.
NOTE 10 - 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 dilutive potential shares
outstanding (i.e., options and warrants) during the period. 20,106,955 shares
were used in the calculation of basic and diluted EPS; there were no incremental
dilutive potential securities for First Quarter Fiscal 2001 as the exercise
price for outstanding warrants and options (2,454,500 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.
- 10 -
<PAGE>
NOTE 11 - SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
(In thousands of dollars) COMPANY COMPANY
---------- ----------
13 WEEKS 13 WEEKS
ENDED ENDED
APRIL 29, MAY 1,
2000 1999
---------- ----------
<S> <C> <C>
EBITDA $22,048 $15,351
Cash Interest Expense 9,434 15,616
</TABLE>
"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 is reporting 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.
As discussed in Note 6, no interest expense for the Company's $1.132
billion of the Company's former senior and senior subordinated notes was accrued
on or after the Petition Date. Had such interest been accrued, cash interest
expense for the First Quarter Fiscal 2000 would have been approximately $36.1
million.
NOTE 12 - 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 $1.4 million and $0.9 million higher
than reported on April 29, 2000 and January 29, 2000, respectively.
- 11 -
<PAGE>
NOTE 13 - LONG-TERM DEBT
Total debt outstanding on April 29, 2000 was (in thousands):
<TABLE>
<S> <C>
Current Maturities $ 3,297
--------
New Term Loan 112,000
Other Secured Debt 12,598
New Senior Notes 100,000
--------
Total Long-Term Debt 224,598
--------
Total Debt $227,895
========
</TABLE>
The New Senior Notes mature on June 29, 2009, 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
initial interest period ended December 29, 1999. 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 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.
- 12 -
<PAGE>
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 April 29, 2000, there were no borrowings and approximately $43 million of
letters of credit outstanding under the New Revolving Credit Facility.
Availability under the New Revolving Credit Facility was approximately $140
million as of April 29, 2000.
- 13 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements included in this Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Quarterly Report on Form 10-Q 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. Without limiting the foregoing, the words
"believe," "anticipate," "plan," "expect," "estimate," "intend" 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 status of the stores under the New England
Operating Agreement (as defined in "Liquidity and Capital Resources" below);
availability, terms and access to capital; liquidity and other financial
considerations; and the outcome of pending or yet-to-be instituted legal
proceedings.
OVERVIEW
As discussed in Note 1 to the accompanying unaudited Consolidated
Financial Statements, the Company emerged from its Chapter 11 proceedings
effective June 29, 1999 (the "Effective Date"). For financial reporting
purposes, the Company accounted for the consummation of its plan of
reorganization (the "Plan") effective 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 created
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."
- 14 -
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 29, 2000 ("FIRST QUARTER FISCAL 2001") COMPARED TO
THIRTEEN WEEKS ENDED MAY 1, 1999 ("FIRST QUARTER FISCAL 2000")
The following table sets forth Statement of Operations components
expressed as percentages of total revenues for First Quarter Fiscal 2001 and
First Quarter Fiscal 2000:
<TABLE>
<CAPTION>
First Quarter Ended
Successor Predecessor
APRIL 29, May 1,
2000 1999
---------- ----------
<S> <C> <C>
Total revenues 100.0% 100.0%
Gross profit (1) 24.0 22.2
Selling and administrative
expenses 22.1 22.5
Amortization of excess
reorganization value 4.6
Unusual items (2) 0.1 (0.6)
Operating (loss) income (2.8) 0.3
Operating income (loss) excluding
unusual items and amortization
of excess reorganization value (3) 1.9 (0.3)
Interest expense 1.6 2.7
Reorganization items 1.1
Net (loss) (4.5) (3.8)
Net income (loss) excluding
unusual items, amortization of
excess reorganization value and
an extraordinary item (4) 0.1 (3.0)
</TABLE>
-------------------------------------------
(1) Total revenues less cost of sales.
(2) Unusual items of $0.4 million and $3.7 million (income) for First
Quarter Fiscal 2001 and First Quarter Fiscal 2000, respectively (see
Note 5).
- 15 -
<PAGE>
(3) Operating (loss) for First Quarter Fiscal 2001 excluding an unusual
item of $0.4 million and amortization of excess reorganization value of
$27.3 million. Operating income for First Quarter Fiscal 2000 excluding
an unusual item (income) of $3.7 million (see Note 5).
(4) Net (loss) for First Quarter Fiscal 2001 excluding an unusual item of
$0.4 million ($0.2 million, after tax) and amortization of excess
reorganization value of $27.3 million. Net (loss) for First Quarter
Fiscal 2000 excluding an unusual item (income) of $3.7 million,
reorganization items (expense) of $6.9 million and an extraordinary
item (expense) of $1.5 million.
Total revenues for First Quarter Fiscal 2001 decreased to $592.6
million from $615.0 million in First Quarter Fiscal 2000. The decrease in
revenues for First Quarter Fiscal 2001 is primarily attributable to (1) a
reduction in the number of stores the Company operated in First Quarter Fiscal
2001 as compared to First Quarter 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; nineteen of
these stores were sold or closed in First Quarter Fiscal 2000) and (2) a decline
in wholesale revenues. This decrease was partially offset by an increase in same
store sales for First Quarter Fiscal 2001.
Same store sales for First Quarter Fiscal 2001 increased 0.4% from the
comparable prior year period.
Wholesale supermarket revenues were $67.7 million in First Quarter
Fiscal 2001 compared to $75.4 million in First Quarter Fiscal 2000. The decrease
in wholesale revenues resulted primarily from a reduction in the number of
customers of the Company's wholesale/franchise business.
Gross profit in First Quarter Fiscal 2001 was 24.0% of revenues
compared to 22.2% of revenues in First Quarter Fiscal 2000. The increase in
gross profit as a percentage of revenues in First Quarter Fiscal 2001 compared
to First Quarter Fiscal 2000 was primarily due to (1) an increase in allowance
income (the Company's allowance income was reduced in First Quarter Fiscal 2000
when the Company's creditworthiness was an issue with many vendors prior to and
during the Company's financial restructuring process), (2) reduced inventory
shrink expense as a percentage of revenues and (3) a reduction in depreciation
and amortization expense (as described below).
- 16 -
<PAGE>
RESULT OF OPERATIONS (CONTINUED)
Selling and administrative expenses in First Quarter Fiscal 2001 were
22.1% of revenues compared to 22.5% of revenues in First Quarter Fiscal 2000.
The reduction in selling and administrative expenses as a percentage of revenues
in First Quarter Fiscal 2001 was primarily due to reductions in depreciation
expense (as described below) and goodwill amortization. The Company's goodwill
was eliminated on June 26, 1999 in connection with the implementation of
fresh-start reporting. These reductions of selling and administrative expenses
as a percentage of revenues in First Quarter Fiscal 2001 were partially offset
by an increase in promotional expense (Penn Traffic accounts for certain
promotional expenses in the selling and administrative expense line of the
Consolidated Statement of Operations).
Depreciation and amortization expense was $10.2 million in First
Quarter Fiscal 2001 and $16.5 million in First Quarter Fiscal 2000, representing
1.7% and 2.7% of revenues, respectively. Depreciation and amortization expense
decreased in First Quarter 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 First Quarter Fiscal 2001, amortization of excess reorganization
value was $27.3 million. The excess reorganization value asset of $327.8
million, which was established on the Effective Date in connection with the
implementation of fresh-start reporting, is being amortized on a straight-line
basis over a three-year period (see Note 3).
During First Quarter Fiscal 2001, the Company recorded an unusual item
of $0.4 million related to the implementation of a warehouse consolidation
project (see Note 5). The Company expects to record an additional charge of
approximately $1 million in the second quarter of Fiscal 2001 when the project
is completed. During First Quarter Fiscal 2000, the Company recorded an unusual
item (income) of $3.7 million associated with the Company's store
rationalization program (see Note 5).
Operating (loss) for First Quarter Fiscal 2001 was $16.4 million or
2.8% of total revenues compared to operating income of $1.9 million or 0.3% of
total revenues in First Quarter Fiscal 2000. For First Quarter Fiscal 2001,
operating income excluding an unusual item and amortization of excess
reorganization value was $11.3 million or 1.9% of revenues. For First Quarter
Fiscal 2000, operating (loss) excluding an unusual item was $1.8 million or 0.3%
of revenues. Operating income excluding unusual items and amortization of excess
reorganization value as a percentage of revenues increased due to an increase in
gross profit as a percentage of revenues and a reduction in selling and
administrative expenses as a percentage of revenues.
- 17 -
<PAGE>
RESULT OF OPERATIONS (CONTINUED)
Interest expense for First Quarter Fiscal 2001 and First Quarter Fiscal
2000 was $9.7 million and $16.5 million, respectively. Interest expense for
First Quarter Fiscal 2001 declined due to the implementation of the Plan on June
29, 1999, which has substantially reduced the Company's debt. As discussed in
Note 6, the Company discontinued the accrual of interest on the Company's former
senior and senior subordinated notes on March 1, 1999 (the "Petition Date"). Had
such interest been accrued, interest expense for First Quarter Fiscal 2000 would
have been approximately $36.1 million.
During First Quarter Fiscal 2000, the Company recorded reorganization
items (expense) of $6.9 million (see Note 7).
Income tax provision was $0.7 million for First Quarter Fiscal 2001
compared to a tax provision of $0.0 million in First Quarter Fiscal 2000. The
effective tax rate for First Quarter Fiscal 2001 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.
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 vast 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 the fiscal year ending February 3, 2001.
During First Quarter Fiscal 2000, the Company recorded an extraordinary
item of $1.5 million (see Note 9).
Net (loss) for First Quarter Fiscal 2001 was $26.7 million compared to
a net (loss) of $23.1 million for First Quarter Fiscal 2000. Net income
excluding unusual items, amortization of excess reorganization value and an
extraordinary item was $0.8 million for First Quarter Fiscal 2001 compared to a
net (loss) of $18.4 million for First Quarter Fiscal 2000.
- 18 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As a result of the consummation of the Plan, the Company substantially
reduced the amount of its overall indebtedness. In connection with the
consummation of the Plan, approximately $1.13 billion of senior notes and senior
subordinated notes were converted into $100 million of newly issued 11% Senior
Notes due 2009 (the "New Senior Notes"), approximately 99.5% of the shares of
the new common stock of reorganized Penn Traffic (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, 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 as dictated by the Plan.
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 initial interest period ended
December 29, 1999. The Company also currently expects to make all future
interest payments on the New Senior Notes 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 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. The New Credit Facility contains a variety of operational and financial
covenants intended to restrict the Company's operations.
- 19 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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):
<TABLE>
<CAPTION>
Fiscal Year Ending Amount Maturing
------------------ ---------------
<S> <C>
February 3, 2001 $ 2,000
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
--------
$115,000
========
</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 April 29, 2000, there were no borrowings under the New Revolving Credit
Facility. Availability under the New Revolving Credit Facility was approximately
$140 million as of April 29, 2000.
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.
During First Quarter Fiscal 2001, the Company's internally generated
funds from operations provided sufficient liquidity to meet the Company's
operating, capital expenditure and debt service needs, and pay expenditures
related to the Company's financial restructuring. The Company expects to
utilize internally generated funds from operations and amounts available
under the New Credit Facility to satisfy its operating, capital expenditure
and debt service needs, and pay expenditures related to the Company's
financial restructuring for the next year.
Cash flows to meet the Company's operating requirements during First
Quarter Fiscal 2001 are reported in the Consolidated Statement of Cash Flows.
During First Quarter Fiscal 2001, the Company's net cash provided by operating
activities was $24.9 million. These amounts were partially offset by net cash
used in investing activities and financing activities of $21.7 million and $1.8
million, respectively.
- 20 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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. The Company believes that it will regain
operating control of the nine stores that are currently subject to the New
England Operating Agreement on August 1, 2000. The Company plans to begin
operating these stores as P&C supermarkets shortly thereafter. The total
revenues account of the Company's Statement of Operations for Fiscal 2000
includes approximately $13 million of income allocable to payments made by Grand
Union to the Company pursuant to the New England Operating Agreement. The
Company recorded approximately $2.9 million of income related to the New England
Operating Agreement in First Quarter Fiscal 2001, and expects to record an
additional $2.9 million of income related to such agreement in the second
quarter of Fiscal 2001. Based upon the operation of these stores by Grand Union
and other relevant factors, the Company believes that after the Company regains
operating control of these stores on August 1, 2000, the operating income
allocable from such stores will be substantially less, on an annual basis, than
the income received pursuant to the New England Operating Agreement.
During the fiscal year ending February 3, 2001, the Company expects to
invest approximately $70 million in capital expenditures (including capital
leases). The Company expects to finance such capital expenditures through cash
generated from operations and amounts available under the New Credit Facility.
Capital expenditures will be principally for new stores, store remodels and
investments in the Company's distribution infrastructure and technology.
- 21 -
<PAGE>
PART II. OTHER INFORMATION
All items which are not applicable or to which the answer is negative
have been omitted from this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
April 29, 2000.
- 22 -
<PAGE>
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 12, 2000 /s/ - JOSEPH V. FISHER
---------------------------------
By: Joseph V. Fisher
President, Chief Executive
Officer and Director
June 12, 2000 /s/ - MARTIN A. FOX
---------------------------------
By: Martin A. Fox
Executive Vice President,
Chief Financial Officer and
Director
- 23 -
