<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 October 28, 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: 20,053,955 shares outstanding as
of December 8, 2000
Page 1 of 30
<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>
13 WEEKS 13 WEEKS
ENDED ENDED
OCTOBER 28, OCTOBER 30,
2000 1999
---------- ----------
<S> <C> <C>
TOTAL REVENUES $ 611,265 $ 610,563
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy costs) 468,662 466,042
Selling and administrative
expenses 134,458 130,753
Amortization of excess
reorganization value (Note 3) 27,318 28,552
Unusual items (Note 5) 1,900
--------- ---------
OPERATING (LOSS) (19,173) (16,684)
Interest expense 9,507 9,450
--------- ---------
(LOSS) BEFORE INCOME TAXES (28,680) (26,134)
(Benefit) Provision for income
taxes (Note 8) (336) 992
--------- ---------
NET (LOSS) $ (28,344) $ (27,126)
========= =========
PER SHARE (BASIC AND DILUTED):
Net (loss) (Note 10) $ (1.41) $ (1.34)
========= =========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
- 2 -
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
(All dollar amounts in thousands,
except per share data)
SUCCESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY
39 WEEKS 18 WEEKS 21 WEEKS
ENDED ENDED ENDED
OCTOBER 28, OCTOBER 30, JUNE 26,
2000 1999 1999
---------- ----------- -----------
<S> <C> <C> <C>
TOTAL REVENUES $1,833,623 $ 851,529 $1,006,804
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy
costs) (Note 4) 1,396,156 650,803 781,342
Selling and administrative
expenses 400,605 181,203 226,430
Amortization of excess
reorganization value (Note 3) 81,962 39,534
Unusual items (Note 5) 1,259 1,900 (4,631)
---------- ---------- ----------
OPERATING (LOSS) INCOME (46,359) (21,911) 3,663
Interest expense (Note 6) 28,763 12,970 21,794
Reorganization items (Note 7) 167,031
---------- ---------- ----------
(LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS (75,122) (34,881) (185,162)
Provision for income
taxes (Note 8) 3,513 1,007 60
---------- ---------- ----------
(LOSS) BEFORE EXTRAORDINARY ITEMS (78,635) (35,888) (185,222)
Extraordinary items (Note 9) (654,928)
---------- ---------- ----------
NET (LOSS) INCOME $ (78,635) $ (35,888) $ 469,706
========== ========== ==========
PER SHARE (BASIC AND DILUTED):
Net (loss) (Note 10) $ (3.91) $ (1.78)
========== ==========
</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.
- 3 -
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
OCTOBER 28, JANUARY 29,
2000 2000
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 37,764 $ 51,759
Accounts and notes receivable
(less allowance for doubtful
accounts of $5,044 and
$10,561, respectively) 43,672 49,722
Inventories 280,669 268,550
Prepaid expenses and other
current assets 10,500 8,335
Deferred income tax 2,051 8,993
---------- ----------
374,656 387,359
---------- ----------
NONCURRENT ASSETS:
Capital leases - net 54,483 61,067
Property, plant and equipment - net 250,738 226,031
Goodwill - net 9,257 8,506
Beneficial leases - net 52,145 56,594
Excess reorganization value - net 180,724 262,685
Other assets - net 22,299 18,215
---------- ----------
$ 944,302 $1,020,457
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations
under capital leases $ 9,205 $ 9,667
Current maturities of long-term
debt 5,057 2,292
Trade accounts and drafts payable 133,695 124,556
Other accrued liabilities 86,255 88,916
Accrued interest expense 6,954 2,863
Taxes payable 11,688 12,637
---------- ----------
252,854 240,931
---------- ----------
NONCURRENT LIABILITIES:
Obligations under capital leases 75,288 82,537
Long-term debt 228,392 225,678
Deferred income tax 76,639 80,581
Other noncurrent liabilities 26,575 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;
20,053,955 shares outstanding 201 201
Capital in excess of par value 416,207 416,207
Stock warrants 7,249 7,249
Retained deficit (138,728) (60,093)
Treasury stock (Note 11) (375)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 284,554 363,564
---------- ----------
$ 944,302 $1,020,457
========== ==========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
- 4 -
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(All dollar amounts
in thousands)
SUCCESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY
39 WEEKS 18 WEEKS 21 WEEKS
ENDED ENDED ENDED
OCTOBER 28, OCTOBER 30, JUNE 26,
2000 1999 1999
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (78,635) $ (35,888) $ 469,706
Adjustments to reconcile
net (loss) income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 31,427 15,453 25,832
Amortization of excess
reorganization value 81,962 39,534
Gain on sold / closed stores (2,921)
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)
Other - net (353) 328 120
NET CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable and prepaid
expenses 3,885 7,123 15,437
Inventories (12,119) (35,783) 22,321
Payables and accrued expenses 3,410 7,962 16,477
Deferred income taxes 3,000
Other assets - net (4,084) 1,970 1,464
Other noncurrent liabilities (591) (3,071) (4,797)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 27,902 (2,372) 43,633
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (47,964) (14,311) (6,279)
Proceeds from sale of assets 1,545 3,227 17,273
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (46,419) (11,084) 10,994
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in
drafts payable 6,309 (4,397) (2,677)
Payments to settle
long-term debt (1,221) (92) (9,598)
Borrowing of pre-petition
revolver debt 31,100
Repayment of pre-petition
revolver debt (144,000)
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 21,700
Repayment of new revolving debt (15,000)
Reduction of capital lease
obligations (6,891) (3,158) (8,487)
Payment of debt issuance costs (7,906)
Purchase of treasury stock (375)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,522 (7,647) (26,568)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (13,995) (21,103) 28,059
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 51,759 71,533 43,474
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 37,764 $ 50,430 $ 71,533
========= ========= =========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
- 5 -
<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 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 and (2) a $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.
- 6 -
<PAGE>
Proceeds from the New Credit Facility were used to satisfy the Company's
obligations under its debtor-in-possession financing 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") and the Company's Quarterly Reports on Form 10-Q for the 13-week
periods ended April 29, 2000 and July 29, 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
21-week period ended June 26, 1999 and the 18-week period ended October 30, 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. 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.
- 7 -
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
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 Total 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 June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This pronouncement was later amended by
SFAS No. 137. SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. This standard, as amended, is effective
for fiscal years beginning after June 15, 2000. The Company intends to adopt
SFAS 133 in the first quarter of Fiscal 2002. The Company is currently
evaluating the impact this pronouncement will have on its financial statements.
- 8 -
<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 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.
- 9 -
<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, 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 October 28, 2000 and January 29, 2000, the accrued liability
related to these charges was $6.7 million and $9.0 million, respectively. The
reduction in such liability since January 29, 2000 is primarily due to cash
payments for facility costs.
During the 21-week period ended June 26, 1999, the Company decided to
commence a process to refine the scope of the nonfood merchandise carried in its
15 "Big Bear Plus" combination stores to a smaller number of categories with a
greater depth of variety in these categories. 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.
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). 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
the 39-week period ended October 28, 2000 the Company recorded an unusual item
(expense) of $1.3 million related to the implementation of this warehouse
consolidation project.
During the 13-week and 18-week periods ended October 30, 1999, the Company
recorded an unusual item of $1.9 million associated with an early retirement
program for certain eligible employees.
- 10 -
<PAGE>
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 Company's store
rationalization program and (2) a gain on the disposition of certain 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 the
21-week period ended June 26, 1999. Had such interest been accrued, interest
expense for the 21-week period ended June 26, 1999 would have been approximately
$58.8 million.
NOTE 7 - REORGANIZATION ITEMS
Reorganization items (expense) included in the accompanying Consolidated
Statement of Operations consist of the following items (in thousands):
<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.
- 11 -
<PAGE>
NOTE 8 - TAX PROVISION
The tax provisions for the 13-week and 39-week periods ended October 28,
2000 and the 13-week and 18-week periods ended October 30, 1999 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 (1) differences between 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 items recorded for the 21-week period ended June 26,
1999 of $654.9 million are comprised of 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 in connection with the implementation of the Plan. No
corresponding tax benefit has been recorded.
- 12 -
<PAGE>
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. In the calculation
of basic EPS, 20,069,867, 20,094,592, 20,106,955 and 20,106,955 shares were used
for the 13-week and 39-week periods ended October 28, 2000, and the 13-week and
18-week periods ended October 30, 1999, respectively. The calculations of
diluted EPS exclude the effect of incremental common stock equivalents
aggregating 2,228 shares for the 13-week period ended October 28, 2000, since
they would have been antidilutive given the net loss for the quarter.
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.
NOTE 11 - STOCKHOLDERS' EQUITY
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 $5 million of common shares under
these agreements. This amount will change on a quarterly basis based on the
Company's financial results. During the 13-week and 39-week periods ended
October 28, 2000, the Company invested $0.4 million to repurchase 53,000 shares
of Penn Traffic's common stock for an average price of $7.08 per share.
- 13 -
<PAGE>
NOTE 12 - SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands of dollars)
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY
----------- ---------- ----------
39 WEEKS 18 WEEKS
ENDED ENDED
OCTOBER 28, OCTOBER 30
2000 1999
----------- ----------
<S> <C> <C> <C>
EBITDA $19,538 $25,231
Cash Interest Expense 9,290 9,238
<CAPTION>
39 WEEKS 18 WEEKS 21 WEEKS
ENDED ENDED ENDED
OCTOBER 28, OCTOBER 30 JUNE 26,
2000 1999 1999
----------- ---------- ----------
<S> <C> <C> <C>
EBITDA $69,789 $35,842 $29,772
Cash Interest Expense 28,111 12,677 20,393
</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 21-week period ended June 26, 1999 would have been approximately
$58.8 million.
- 14 -
<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 performance
of the stores formerly leased under the New England Operating Agreement (as
defined in "Results of Operations - Gross profit" below) and the cost of
integrating such stores; 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.
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<PAGE>
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." For purposes of the
discussion of Results of Operations for the 39-week period ended October 30,
1999, the results of the Predecessor Company and Successor Company have been
combined since separate discussions of these periods are not meaningful in terms
of their operating results or comparisons to the current year.
- 16 -
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ("THIRD QUARTER FISCAL 2001") AND THIRTY-NINE WEEKS ENDED OCTOBER
28, 2000 COMPARED TO THIRTEEN WEEKS ("THIRD QUARTER FISCAL 2000") AND
THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999.
The following table sets forth Consolidated Statement of Operations
components expressed as percentages of total revenues for Third Quarter Fiscal
2001 and Third Quarter Fiscal 2000, and for the 39-week periods ended October
28, 2000 and October 30, 1999, respectively:
<TABLE>
<CAPTION>
Third Quarter Ended Thirty-nine Weeks Ended
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit (1) 23.3 23.7 23.9 22.9
Gross profit excluding
special charges (2) 23.3 23.7 23.9 23.1
Selling and administrative
expenses 22.0 21.4 21.8 21.9
Amortization of excess
reorganization value 4.5 4.7 4.5 2.1
Unusual items (3) 0.3 0.1 (0.1)
Operating (loss) (3.1) (2.7) (2.5) (1.0)
Operating income
excluding unusual items,
special charges and
amortization of excess
reorganization value (4) 1.3 2.3 2.0 1.2
Interest expense 1.6 1.5 1.6 1.9
Reorganization items 9.0
Net (loss) income (4.6) (4.4) (4.3) 23.3
Net (loss) income excluding
certain non-recurring items
and amortization of excess
reorganization value (5) (0.2) 0.4 0.2 (0.8)
</TABLE>
------------------------------------
See notes below.
- 17 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
(1) Total revenues less cost of sales.
(2) Gross profit excluding a special charge of $3.9 million for the 39-week
period ended October 30, 1999 (see Note 4).
(3) Unusual items (expense) of $1.3 million for the 39-week period ended
October 28, 2000. Unusual items of $1.9 million (expense) and $2.7 million
(income) for Third Quarter Fiscal 2000 and the 39-week period ended
October 30, 1999, respectively (see Note 5).
(4) Operating (loss) for Third Quarter Fiscal 2001 excluding amortization of
excess reorganization value of $27.3 million. Operating (loss) for the
39-week period ended October 28, 2000 excluding an unusual item (expense)
of $1.3 million and amortization of excess reorganization value of $82.0
million. Operating (loss) for Third Quarter Fiscal 2000 excluding an
unusual item (expense) of $1.9 million and amortization of excess
reorganization value of $28.6 million. Operating (loss) for the 39-week
period ended October 30, 1999 excluding a special charge (expense) of $3.9
million, unusual items (income) of $2.7 million, and amortization of
excess reorganization value of $39.5 million (see Notes 4 and 5).
(5) Net (loss) for Third Quarter Fiscal 2001 excluding amortization of excess
reorganization value of $27.3 million. Net income for the 39-week period
ended October 28, 2000 excluding an unusual item (expense) of $1.3 million
($0.7 million, after tax) and amortization of excess reorganization value
of $82.0 million. Net income for Third Quarter Fiscal 2000 excluding
unusual item (expense) of $1.9 million ($1.1 million, after tax) and
amortization of excess reorganization value of $28.6 million. Net (loss)
for the 39-week period ended October 30, 1999 excluding pre-tax unusual
items (income) of $2.7 million, a pre-tax special charge of $3.9 million,
amortization of excess reorganization value of $39.5 million,
reorganization items (expense) of $167.0 million and extraordinary items
(income) of $654.9 million (see Notes 4, 5, 7 and 9).
- 18 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
REVENUES
Total revenues for Third Quarter Fiscal 2001 increased to $611.3 million
from $610.6 million in Third Quarter Fiscal 2000. The increase in revenues for
Third Quarter Fiscal 2001 is primarily attributable to the commencement of the
Company's operation of nine New England stores (see "Liquidity and Capital
Resources") partially offset by the closure of certain stores and a decline in
wholesale revenues.
Total revenues for the 39-week period ended October 28, 2000 decreased to
$1.83 billion from $1.86 billion for the 39-week period ended October 30, 1999.
The decrease in revenues for the 39-week period ended October 28, 2000 is
primarily attributable to (1) a reduction in the number of stores the Company
operated during the 39-week period ended October 28, 2000 as compared to the
39-week period ended October 30, 1999 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. These decreases were partially offset by the increase in
same stores sales for the 39-week period ended October 28, 2000 and the addition
of the nine New England stores in the Third Quarter Fiscal 2001.
Same store sales for Third Quarter Fiscal 2001 decreased 0.1% from the
comparable prior year period; same store sales for the 39-week period ended
October 28, 2000 increased 0.5% from the comparable prior year period.
Wholesale supermarket revenues were $71.1 million in Third Quarter Fiscal
2001 compared to $73.0 million in Third Quarter Fiscal 2000. Wholesale
supermarket revenues were $209.3 million for the 39-week period ended October
28, 2000 compared to $224.4 million for the 39-week period ended October 30,
1999. The decrease in wholesale supermarket revenues in Third Quarter Fiscal
2001 resulted primarily from a reduction in the Company's average shipments per
customer from the comparable prior year period. The decrease in wholesale
supermarket revenues for the 39-week period ended October 28, 2000 is a result
of a reduction in the number of customers of the Company's wholesale/franchise
business and the average shipments per customer.
- 19 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
GROSS PROFIT
Gross profit in Third Quarter Fiscal 2001 was 23.3% of revenues compared
to 23.7% of revenues in Third Quarter Fiscal 2000. The decrease in gross profit
as a percentage of revenues in Third Quarter Fiscal 2001 was primarily a result
of (1) the expiration of the Company's previous operating agreement (the "New
England Operating Agreement") with the Grand Union Company on July 31, 2000
(gross profit for Third Quarter Fiscal 2000 included $3.1 million of income
attributable to the New England Operating Agreement (see "Liquidity and Capital
Resources")) and (2) a gross profit investment associated with the launch of a
loyalty card program in the Company's 70 Big Bear stores.
Gross profit for the 39-week period ended October 28, 2000 was 23.9% of
revenues compared to 22.9% of revenues for the 39-week period ended October 30,
1999. Gross profit excluding special charges for the 39-week period ended
October 30, 1999 was 23.1% of revenues. The increase in gross profit excluding
special charges as a percentage of revenues for the 39-week period ended October
28, 2000 was primarily a result of (1) an increase in allowance income from the
Company's vendors and (2) 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 (as described above).
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses in Third Quarter Fiscal 2001 were
22.0% of revenues compared to 21.4% of revenues in Third Quarter Fiscal 2000.
The increase in selling and administrative expenses as a percentage of revenues
in Third Quarter Fiscal 2001 was primarily due to (1) an increase in promotional
spending 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 (2) the costs
associated with the launch of the loyalty card program in the Company's Big Bear
markets. These increases were partially offset by the benefit of numerous cost
reduction initiatives.
- 20 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Selling and administrative expenses were 21.8% of revenues for the 39-week
period ended October 28, 2000, compared to 21.9% for the 39-week period ended
October 30, 1999. The reduction in selling and administrative expenses as a
percentage of revenues for the 39-week period ended October 30, 1999 was
primarily due to (1) the benefit of numerous cost reduction initiatives, (2) a
reduction in bad debt expense and (3) reductions in depreciation expense and
goodwill amortization (as described below). These reductions of selling and
administrative expense as a percentage of revenues were partially offset by (1)
the costs associated with the launch of a loyalty card program in the Company's
Big Bear markets and (2) an increase in promotional spending to drive sales and
launch a number of remodeled stores.
DEPRECIATION
Depreciation and amortization expense was $10.9 million in Third Quarter
Fiscal 2001 and $10.8 million in Third Quarter Fiscal 2000, each representing
1.8% of revenues. Depreciation and amortization expense was $31.4 million for
the 39-week period ended October 28, 2000 and $41.3 million for the 39-week
period ended October 30, 1999, representing 1.7% and 2.2% of revenues,
respectively. Depreciation and amortization expense decreased in the 39-week
period ended October 28, 2000 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 Third Quarter Fiscal 2001 and the 39-week period ended October 28,
2000, amortization of excess reorganization value was $27.3 million and $82.0
million, respectively. 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 from June 26, 1999 (see Note 3).
UNUSUAL ITEMS
During the 39-week period ended October 28, 2000, the Company recorded an
unusual item (expense) of $1.3 million related to the implementation of a
warehouse consolidation project. During Third Quarter Fiscal 2000 and the
39-week period ended October 30, 1999, the Company recorded an unusual item
(expense) of $1.9 million associated with an early retirement program for
certain eligible employees. In addition, during the 39-week period ended October
30, 1999 the Company recorded unusual items (income) of $4.6 million related to
the Company's store rationalization program (see Note 5).
- 21 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
OPERATING INCOME (LOSS)
Operating (loss) for Third Quarter Fiscal 2001 was $19.2 million or 3.1%
of total revenues compared to an operating (loss) of $16.7 million or 2.7% of
revenues in Third Quarter Fiscal 2000. For Third Quarter Fiscal 2001, operating
income excluding amortization of excess reorganization value was $8.1 million or
1.3% of revenues. For Third Quarter Fiscal 2000 operating income excluding
unusual items, special charges and amortization of excess reorganization value
was $13.8 million or 2.3% of revenues. The decrease in operating income
excluding unusual items, special charges and amortization of excess
reorganization value as a percentage of revenues in Third Quarter Fiscal 2001
was due to a decrease in gross profit excluding special charges as a percentage
of revenues and an increase of selling and administrative expenses as a
percentage of revenues.
Operating (loss) for the 39-week period ended October 28, 2000 was $46.3
million or 2.5% of total revenues compared to an operating (loss) of $18.2
million or 1.0% of total revenues for the 39-week period ended October 30, 1999.
Operating income excluding unusual items, special charges and amortization of
excess reorganization value for the 39-week period ended October 28, 2000 was
$36.9 million or 2.0% of revenues compared to $22.5 million or 1.2% of revenues
for the 39-week period ended October 30, 1999. The increase in operating income
excluding unusual items, special charges and amortization of excess
reorganization value as of percentage of revenues in the 39-week period ended
October 28, 2000 was due to an increase in gross profit excluding special
charges as a percentage of revenues and a decrease in selling and administrative
expenses as a percentage of revenues.
INTEREST EXPENSE
Interest expense for each of the Third Quarter Fiscal 2001 and Third
Quarter Fiscal 2000 was $9.5 million. Interest expense for the 39-week period
ended October 28, 2000 was $28.8 million compared to $34.8 million for the
39-week period ended October 30, 1999. 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.
REORGANIZATION ITEMS
During the 39-week period ended October 30, 1999, the Company recorded
reorganization items (expense) of $167.0 million (see Note 7).
- 22 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES
Income tax benefit was $0.3 million for Third Quarter Fiscal 2001 compared
to a tax provision of $1.0 million in Third Quarter Fiscal 2000. Income tax
provision for the 39-week period ended October 28, 2000 was $3.5 million
compared to a tax provision of $1.1 million for the 39-week period ended October
30, 1999. The effective tax rate for Third Quarter Fiscal 2001 and the 39-week
period ended October 28, 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.
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 the
fiscal year ending February 3, 2001.
EXTRAORDINARY ITEMS
During the 39-week period ended October 30, 1999, the Company recorded
extraordinary items (income) of $654.9 million (see Note 9).
NET INCOME (LOSS)
Net (loss) for Third Quarter Fiscal 2001 was $28.3 million compared to net
(loss) of $27.1 million for Third Quarter Fiscal 2000. Net (loss) excluding
certain non-recurring items and amortization of excess reorganization value was
$1.0 million for Third Quarter Fiscal 2001 compared to net income of $2.5
million for Third Quarter Fiscal 2000.
Net (loss) for the 39-week period ended October 28, 2000 was $78.6 million
compared to the net income of $433.8 million for the 39-week period ended
October 30, 1999. Net income excluding certain non-recurring items and
amortization of excess reorganization value was $4.1 million for the 39-week
period ended October 28, 2000 compared to a net (loss) of $14.2 million for the
39-week period ended October 30, 1999.
- 23 -
<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 which 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 first two semi-annual interest
periods. 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.
- 24 -
<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> <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.
Availability under the New Revolving Credit Facility was approximately $148
million as of October 28, 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 Third Quarter 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.
For the next year, 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.
- 25 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Cash flows to meet the Company's operating requirements during the 39-week
period ended October 28, 2000 are reported in the Consolidated Statement of Cash
Flows. During the 39-week period ended October 28, 2000, the Company's net cash
used in investing activities was $46.4 million. This amount was financed by net
cash provided by operating activities, financing activities and a reduction in
cash and cash equivalents of $27.9 million, $4.5 million and $14.0 million,
respectively, for such period.
In July 1990, the Company entered into 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
"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. On
August 1, 2000, the Company regained operating control of nine stores that were
subject to the New England Operating Agreement. These nine stores were opened
for business on various dates between August 3, 2000 and August 13, 2000.
The Total Revenues account of the Company's Consolidated 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 $5.7 million of
income related to the New England Operating Agreement in the 26-week period
ended July 29, 2000. In contrast, the Company incurred $0.7 million of operating
losses during Third Quarter Fiscal 2001 associated with commencement of
operation of these nine stores. For each of the 13-week periods ended October
30, 1999 and January 29, 2000, Penn Traffic recorded approximately $3.1 million
of income related to the New England Operating Agreement.
The Company expects to continue to invest in promotional activities to
reacquaint customers with the Company's offerings in the startup period for
these nine New England stores, which the Company expects will conclude in the
first half of the 52-week period ending February 2, 2002 ("Fiscal 2002"). While
the Company currently expects these stores to contribute to the Company's
operating income in 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.
- 26 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During Third Quarter Fiscal 2001, the Company commenced implementation of
a loyalty card program in its 70 "Big Bear" stores in Ohio and West Virginia.
Third Quarter Fiscal 2001 operating income was reduced by an estimated $1.5
million in connection with the launch of this loyalty card program. Penn Traffic
expects to introduce a loyalty card program in other markets in the future.
During the fiscal year ending February 3, 2001, the Company expects to
invest approximately $65 million in capital expenditures (including capital
leases). The Company expects to finance such capital expenditures through cash
generated from operations, available cash resources and amounts available under
the New Revolving Credit Facility. During the fiscal year ending February 2,
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.
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 $5 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.
- 27 -
<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 FASB Emerging Issues Task Force ("EITF"), a group
responsible for promulgating changes to accounting policies and procedures, has
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 Total 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 Company's
next fiscal year (the 52-week period ending February 2, 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 expects that the implementation of this new accounting pronouncement
will result in a reduction to the Company's same store sales trends for the
first three quarters of the Company's current fiscal year (13-week periods ended
April 29, 2000, July 29, 2000 and October 28, 2000) 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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This pronouncement was later amended by
SFAS No. 137. SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. This standard, as amended, is effective
for fiscal years beginning after June 15, 2000. The Company intends to adopt
SFAS 133 in the first quarter of Fiscal 2002. The Company is currently
evaluating the impact this pronouncement will have on its financial statements.
- 28 -
<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
-------------- -----------
10.4B Amendment No. 1, dated November 15, 2000, to
Employment Agreement between the Company and
Martin A. Fox.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
October 28, 2000.
- 29 -
<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
December 11, 2000 /S/- JOSEPH V. FISHER
---------------------------------
By: Joseph V. Fisher
President, Chief Executive
Officer and Director
December 11, 2000 /S/- MARTIN A. FOX
---------------------------------
By: Martin A. Fox
Executive Vice President,
Chief Financial Officer and
Director
- 30 -
