<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 July 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: 20,058,955 shares
outstanding as of September 8, 2000
Page 1 of 29
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(All dollar amounts in thousands,
except per share data)
SUCCESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY
----------- ----------- ------------
13 WEEKS 5 WEEKS 8 WEEKS
ENDED ENDED ENDED
JULY 29, JULY 31, JUNE 26,
2000 1999 1999
----------- ----------- ------------
TOTAL REVENUES $ 629,741 $ 240,966 $ 391,759
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy
costs) (Note 4) 476,955 184,761 303,037
Selling and administrative
expenses 135,393 50,450 87,881
Amortization of excess
reorganization value (Note 3) 27,319 10,982
Unusual items (Note 5) 901 (968)
--------- --------- ---------
OPERATING (LOSS) INCOME (10,827) (5,227) 1,809
Interest expense (Note 6) 9,605 3,520 5,254
Reorganization items (Note 7) 160,171
--------- --------- ---------
(LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (20,432) (8,747) (163,616)
Provision for income
taxes (Note 8) 3,132 15 22
--------- --------- ---------
(LOSS) BEFORE EXTRAORDINARY ITEM (23,564) (8,762) (163,638)
Extraordinary item (Note 9) (656,435)
--------- --------- ---------
NET (LOSS) INCOME $ (23,564) $ (8,762) $ 492,797
========= ========= =========
PER SHARE (BASIC AND DILUTED):
Net (loss) (Note 10) $ (1.17) $ (0.44)
========= =========
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.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(All dollar amounts in thousands,
except per share data)
SUCCESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY
----------- ----------- -----------
26 WEEKS 5 WEEKS 21 WEEKS
ENDED ENDED ENDED
JULY 29, JULY 31, JUNE 26,
2000 1999 1999
----------- ----------- -----------
TOTAL REVENUES $ 1,222,358 $ 240,966 $ 1,006,804
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy
costs) (Note 4) 927,494 184,761 781,342
Selling and administrative
expenses 266,147 50,450 226,430
Amortization of excess
reorganization value (Note 3) 54,644 10,982
Unusual items (Note 5) 1,259 (4,631)
----------- ----------- -----------
OPERATING (LOSS) INCOME (27,186) (5,227) 3,663
Interest expense (Note 6) 19,256 3,520 21,794
Reorganization items (Note 7) 167,031
----------- ----------- -----------
(LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS (46,442) (8,747) (185,162)
Provision for income
taxes (Note 8) 3,849 15 60
----------- ----------- -----------
(LOSS) BEFORE EXTRAORDINARY ITEMS (50,291) (8,762) (185,222)
Extraordinary items (Note 9) (654,928)
----------- ----------- -----------
NET (LOSS) INCOME $ (50,291) $ (8,762) $ 469,706
=========== =========== ===========
PER SHARE (BASIC AND DILUTED):
Net (loss) (Note 10) $ (2.50) $ (0.44)
=========== ===========
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.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands)
SUCCESSOR COMPANY
UNAUDITED AUDITED
JULY 29, JANUARY 29,
2000 2000
--------- -----------
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 53,194 $ 51,759
Accounts and notes receivable
(less allowance for doubtful
accounts of $4,611 and
$10,561, respectively) 39,320 49,722
Inventories 269,130 268,550
Prepaid expenses and other
current assets 10,114 8,335
Deferred income tax 2,519 8,993
----------- -----------
374,277 387,359
----------- -----------
NONCURRENT ASSETS:
Capital leases - net 56,318 61,067
Property, plant and equipment - net 245,811 226,031
Goodwill - net 8,746 8,506
Beneficial leases - net 53,628 56,594
Excess reorganization value - net 208,042 262,685
Other assets and deferred
charges - net 20,449 18,215
----------- -----------
$ 967,271 $ 1,020,457
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations
under capital leases $ 9,631 $ 9,667
Current maturities of long-term
debt 5,052 2,292
Trade accounts and drafts payable 131,997 124,556
Payroll and other accrued
liabilities 86,043 88,916
Accrued interest expense 3,571 2,863
Payroll taxes and other
taxes payable 14,133 12,637
----------- -----------
250,427 240,931
----------- -----------
NONCURRENT LIABILITIES:
Obligations under capital leases 76,982 82,537
Long-term debt 222,771 225,678
Deferred income tax 77,464 80,581
Other noncurrent liabilities 26,354 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 (110,384) (60,093)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 313,273 363,564
----------- -----------
$ 967,271 $ 1,020,457
=========== ===========
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(All dollar amounts
in thousands)
SUCCESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY
--------- --------- -----------
26 WEEKS 5 WEEKS 21 WEEKS
ENDED ENDED ENDED
JULY 29, JULY 31, JUNE 26,
2000 1999 1999
--------- --------- -----------
OPERATING ACTIVITIES:
Net (loss) income $ (50,291) $ (8,762) $ 469,706
Adjustments to reconcile
net (loss) income to net
cash provided by
operating activities:
Depreciation and amortization 20,533 4,615 25,832
Amortization of excess
reorganization value 54,644 10,982
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 (349) 120
NET CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable and prepaid
expenses 8,623 5,753 15,437
Inventories (580) 1,387 22,321
Payables and accrued expenses 273 (2,914) 16,477
Deferred income taxes 3,357
Other assets and
deferred charges (2,234) (12) 1,464
Other noncurrent liabilities (812) (207) (4,797)
--------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 33,164 10,842 43,633
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (34,934) (3,296) (6,279)
Proceeds from sale of assets 1,539 17,273
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (33,395) (3,296) 10,994
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease)
in drafts payable 6,584 (1,131) (2,677)
Payments to settle
long-term debt (147) (22) (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
Reduction of capital lease
obligations (4,771) (746) (8,487)
Payment of debt issuance costs (7,906)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,666 (1,899) (26,568)
--------- --------- ---------
INCREASE IN CASH AND CASH
EQUIVALENTS 1,435 5,647 28,059
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 51,759 71,533 43,474
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 53,194 $ 77,180 $ 71,533
========= ========= =========
See Notes to Interim Consolidated Financial Statements.
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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.
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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") and the Company's Quarterly Report on Form 10-Q for the 13-week
period ended April 29, 2000 ("First Quarter Fiscal 2001"). 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 5-week period ended July 31, 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.
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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 will implement EITF 00-14 in the fourth quarter of the Company's
current fiscal year (the 53-week period ending February 3, 2001). 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 52-week period ending February 2, 2002). The Company is currently
evaluating the impact this pronouncement will have on its financial
statements.
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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.
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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 July 29, 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 8-week and 21-week periods 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 13-week period ended July 29, 2000 ("Second Quarter Fiscal 2001") and the
26-week period ended July 29, 2000, the Company recorded an unusual item
(expense) of $0.9 million and $1.3 million, respectively, related to the
implementation of this warehouse consolidation project.
During the 8-week period ended June 26, 1999, the Company recorded unusual
items (income) of $1.0 million related to (1) a reduction of closed store
reserves previously accrued in connection with the Company's store
rationalization program, (2) a gain on the disposition of certain assets sold in
connection with the Company's store rationalization program and (3) an
adjustment to a gain on the disposition of certain assets sold in connection
with the Company's store rationalization program previously recorded in the
13-week period ended May 1, 1999.
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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
8-week and 21-week periods ended June 26, 1999. Had such interest been accrued,
interest expense for the 8-week and 21-week periods ended June 26, 1999 would
have been approximately $22.7 million and $58.8 million, respectively.
NOTE 7 - REORGANIZATION ITEMS
Reorganization items (expense) included in the accompanying Consolidated
Statement of Operations consist of the following items (in thousands):
PREDECESSOR COMPANY
------------------------------
8 WEEKS ENDED 21 WEEKS ENDED
JUNE 26, 1999 JUNE 26, 1999
------------- -------------
Fresh-start adjustments $ 151,161 $ 151,161
Gain from rejected leases (12,830)
Write-off of unamortized
deferred financing fees 16,591
Professional fees 9,010 12,109
--------- ---------
Total Expense $ 160,171 $ 167,031
========= =========
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.
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NOTE 8 - TAX PROVISION
The tax provisions for the 13-week and 26-week periods ended July 29, 2000
are not recorded at statutory rates due to differences between income
calculations for financial reporting and tax reporting purposes that result
primarily from the nondeductible amortization of excess reorganization value.
The tax provision for the 5-week period ended July 31, 1999 is not
recorded at statutory rates primarily due to differences between income for
financial reporting and tax reporting purposes that result primarily from the
amortization of nondeductible excess reorganization value.
The tax provisions for the 8-week and 21-week periods ended June 26, 1999
are 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 extraordinary gain on debt discharge
recognized in the 8-week period ended June 26, 1999 and 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 (the
"Pre-petition Revolving Credit Facility") which was recorded during the 13-week
period ended May 1, 1999. No corresponding tax benefit has been recorded.
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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, 20,106,955 shares were used. The calculations of
diluted EPS exclude the effect of incremental common stock equivalents
aggregating 439 shares for Second Quarter Fiscal 2001, 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.
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NOTE 11 - SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands of dollars)
SUCCESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY
13 WEEKS 5 WEEKS 8 WEEKS
ENDED ENDED ENDED
JULY 29, JULY 31, JUNE 26,
2000 1999 1999
----------- ---------- -----------
EBITDA $28,203 $10,611 $14,421
Cash Interest Expense 9,387 3,439 4,777
26 WEEKS 5 WEEKS 21 WEEKS
ENDED ENDED ENDED
JULY 29, JULY 31, JUNE 26,
2000 1999 1999
----------- ---------- ----------
EBITDA $50,251 $10,611 $29,772
Cash Interest Expense 18,821 3,439 20,393
"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 8-week and 21-week periods ended June 26, 1999 would have been
approximately $22.2 million and $58.8 million, respectively.
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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 "Liquidity and Capital Resources" 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 a loyalty card program 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 13-week and 26-week periods ended
July 31, 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 comparision to the current year.
-16-
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ("SECOND QUARTER FISCAL 2001") AND TWENTY-SIX WEEKS
ENDED JULY 29, 2000 COMPARED TO THIRTEEN WEEKS ("SECOND QUARTER FISCAL
2000") AND TWENTY-SIX WEEKS ENDED JULY 31, 1999.
The following table sets forth Consolidated Statement of Operations
components expressed as percentages of total revenues for Second Quarter
Fiscal 2001 and Second Quarter Fiscal 2000, and for the 26-week periods ended
July 29, 2000 and July 31, 1999, respectively:
Second Quarter Ended Twenty-six Weeks Ended
JULY 29, July 31, JULY 29, July 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit (1) 24.3 22.9 24.1 22.6
Gross profit excluding
special charges (2) 24.3 23.5 24.1 22.9
Selling and administrative
expenses 21.5 21.9 21.8 22.2
Amortization of excess
reorganization value 4.3 1.7 4.5 0.9
Unusual items (3) 0.1 (0.2) 0.1 (0.4)
Operating (loss) (1.7) (0.5) (2.2) (0.1)
Operating income
excluding unusual items,
special charges and
amortization of excess
reorganization value (4) 2.8 1.7 2.3 0.7
Interest expense 1.5 1.4 1.6 2.0
Reorganization items 25.3 13.4
Net (loss) income (3.7) 76.5 (4.1) 36.9
Net income (loss) excluding
certain non-recurring items
and amortization of excess
reorganization value (5) 0.7 0.3 0.4 (1.3)
-----------
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 in Second Quarter
Fiscal 2000 and the 26-week period ended July 31, 1999 (see Note 4).
(3) Unusual items (expense) of $0.9 million and $1.3 million for Second
Quarter Fiscal 2001 and the 26-week period ended July 29, 2000,
respectively. Unusual items (income) of $1.0 million and $4.6 million for
Second Quarter Fiscal 2000 and the 26-week period ended July 31, 1999,
respectively (see Note 5).
(4) Operating (loss) for Second Quarter Fiscal 2001 excluding an unusual item
(expense) of $0.9 million and amortization of excess reorganization value
of $27.3 million. Operating (loss) for the 26-week period ended July 29,
2000 excluding an unusual item (expense) of $1.3 million and amortization
of excess reorganization value of $54.6 million. Operating (loss) for
Second Quarter Fiscal 2000 excluding an unusual item (income) of $1.0
million, a special charge of $3.9 million, and amortization of excess
reorganization value of $11.0 million. Operating (loss) for the 26-week
period ended July 31, 1999 excluding a special charge of $3.9 million,
unusual items (income) of $4.6 million, and amortization of excess
reorganization value of $11.0 million (see Notes 4 and 5).
(5) Net (loss) for Second Quarter Fiscal 2001 excluding an unusual item
(expense) of $0.9 million ($0.5 million, after tax) and amortization of
excess reorganization value of $27.3 million. Net (loss) for the 26-week
period ended July 29, 2000 excluding and an unusual item (expense) of $1.3
million ($0.7 million, after tax) and amortization of excess
reorganization value of $54.6 million. Net income for Second Quarter
Fiscal 2000 excluding unusual items (income) of $1.0 million, a special
charge of $3.9 million, amortization of excess reorganization value of
$11.0 million, reorganization items (expense) of $160.2 million and
extraordinary items (income) of $656.4 million. Net income for the
26-week period ended July 31, 1999 excluding unusual items (income) of
$4.6 million, a special charge of $3.9 million, amortization of excess
reorganization value of $11.0 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)
Total revenues for Second Quarter Fiscal 2001 decreased to $629.7 million
from $632.7 million in Second Quarter Fiscal 2000. Total revenues for the
26-week period ended July 29, 2000 decreased to $1.222 billion from $1.248
billion for the 26-week period ended July 31, 1999. The decrease in revenues for
Second Quarter Fiscal 2001 and the 26-week period ended July 29, 2000 is
primarily attributable to (1) a reduction in the number of stores the Company
operated during Second Quarter Fiscal 2001 and the 26-week period ended July 29,
2000 as compared to the comparable prior year periods 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 an
increase in same store sales for Second Quarter Fiscal 2001 and the 26-week
period ended July 29, 2000.
Same store sales for Second Quarter Fiscal 2001 and the 26-week period
ended July 29, 2000 increased 1.3% and 0.9%, respectively, from the comparable
prior year period.
Wholesale supermarket revenues were $70.5 million in Second Quarter Fiscal
2001 compared to $76.0 million in Second Quarter Fiscal 2000. Wholesale
supermarket revenues were $138.2 million for the 26-week period ended July 29,
2000 compared to $151.4 million for the 26-week period ended July 31, 1999. The
decrease in wholesale revenues resulted primarily from a reduction in the number
of customers of the Company's wholesale/franchise business.
Gross profit in Second Quarter Fiscal 2001 was 24.3% of revenues compared
to 22.9% of revenues in Second Quarter Fiscal 2000. Gross profit for the 26-week
period ended July 29, 2000 was 24.1% of revenues compared to 22.6% of revenues
for the 26-week period ended July 31, 1999. Gross profit excluding a special
charge of $3.9 million for Second Quarter Fiscal 2000 and the 26-week period
ended July 31, 1999 was 23.5% and 22.9% of revenues, respectively. The increase
in gross profit excluding special charges as a percentage of revenues in Second
Quarter Fiscal 2001 and the 26-week period ended July 29, 2000 was primarily a
result of (1) reduced inventory shrink expense as a percentage of revenues (2)
an increase in allowance income from the Company's vendors and (3) a reduction
in depreciation and amortization expense (as described below). These increases
in gross profit excluding special charges were partially offset by increased
promotional spending recorded in selling and administrative expenses (as
described below).
-19-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Selling and administrative expenses in Second Quarter Fiscal 2001 were
21.5% of revenues compared to 21.9% of revenues in Second Quarter Fiscal 2000.
For the 26-week period ended July 29, 2000, selling and administrative expenses
were 21.8% of revenues compared to 22.2% for the 26-week period ended July 31,
1999. The reduction in selling and administrative expenses as a percentage of
revenues in Second Quarter Fiscal 2001 and the 26-week period ended July 29,
2000 was primarily due to (1) the benefit of numerous cost reduction
initiatives, (2) a reduction in bad debt expense and (3) reductions in
depreciation expenses and goodwill amortization (as described below). Included
in selling and administrative expenses in Second Quarter Fiscal 2000 was a $1.9
million increase to the allowance for doubtful accounts primarily related to
certain receivables from the Company's pharmacy operations. These reductions of
selling and administrative expenses as a percentage of revenues in Second
Quarter Fiscal 2001 and the 26-week period ended July 29, 2000 were partially
offset by an increase in promotional spending to drive increased traffic and
launch a number of new capital projects. (The Company accounts for certain
promotional expenses in the Selling and administrative expenses line of the
Consolidated Statement of Operations.)
Depreciation and amortization expense was $10.3 million in Second Quarter
Fiscal 2001 and $13.9 million in Second Quarter Fiscal 2000, representing 1.6%
and 2.2% of revenues, respectively. Depreciation and amortization expense was
$20.5 million for the 26-week period ended July 29, 2000 and $30.4 million for
the 26-week period ended July 31, 1999, representing 1.7% and 2.4% of revenues,
respectively. Depreciation and amortization expense decreased in Second Quarter
Fiscal 2001 and the 26-week period ended July 29, 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 Second Quarter Fiscal 2001 and the 26-week period ended July 29,
2000, amortization of excess reorganization value was $27.3 million and $54.6
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).
During Second Quarter Fiscal 2001 and the 26-week period ended July 29,
2000, the Company recorded unusual items (expense) of $0.9 million and $1.3
million, respectively, related to the implementation of a warehouse
consolidation project (see Note 5). During the 8-week and 21-week periods ended
June 26, 1999 , the Company recorded unusual items (income) of $1.0 million and
$4.6 million, respectively, associated with the Company's store rationalization
program (see Note 5).
-20-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Operating (loss) for Second Quarter Fiscal 2001 was $10.8 million or
1.7% of total revenues compared to an operating (loss) of $3.4 million or
0.5% of total revenues in Second Quarter Fiscal 2000. For Second Quarter
Fiscal 2001, operating income excluding unusual items, special charges and
amortization of excess reorganization value was $17.4 million or 2.8% of
revenues. For Second Quarter Fiscal 2000 operating income excluding unusual
items, special charges and amortization of excess reorganization value was
$10.5 million or 1.7% of revenues. Operating income excluding unusual items,
special charges and amortization of excess reorganization value as a
percentage of revenues increased in Second Quarter Fiscal 2001 due to an
increase in gross profit excluding special charges as a percentage of
revenues and a reduction of selling and administrative expenses as a
percentage of revenues.
Operating (loss) for the 26-week period ended July 29, 2000 was $27.2
million or 2.2% of total revenues compared to an operating (loss) of $1.6
million or 0.1% of total revenues for the 26-week period ended July 31, 1999.
Operating income excluding unusual items and amortization of excess
reorganization value for the 26-week period ended July 29, 2000 was $28.7
million or 2.3% of revenues. Operating income excluding unusual items,
special charges and amortization of excess reorganization value for the
26-week period ended July 31, 1999 was $8.7 million or 0.7% of revenues.
Operating income excluding unusual items, special charges and amortization of
excess reorganization value as of percentage of revenues increased in the
26-week period ended July 29, 2000 primarily due to an increase in gross
profit excluding special charges as a percentage of revenues and a reduction
in selling and administrative expenses as a percentage of revenues.
Interest expense for Second Quarter Fiscal 2001 and Second Quarter Fiscal
2000 was $9.6 million and $8.8 million, respectively. Interest expense for the
26-week period ended July 29, 2000 was $19.3 million compared to $25.3 million
for the 26-week period ended July 31, 1999. Interest expense for Second 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").
During Second Quarter Fiscal 2000 and the 26-week period ended July 31,
1999, the Company recorded reorganization items (expense) of $160.2 million and
$167.0 million, respectively (see Note 7).
-21-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Income tax provision was $3.1 million for Second Quarter Fiscal 2001
compared to a tax provision of $0.0 million in Second Quarter Fiscal 2000.
Income tax provision for the 26-week period ended July 29, 2000 was $3.8 million
compared to a tax provision of $0.0 million for the 26-week period ended July
31, 1999. The effective tax rate for Second Quarter Fiscal 2001 and the 26-week
period ended July 29, 2000 varies from statutory rates due to differences
between income for financial reporting and tax reporting purposes that result
primarily from the nondeductible amortization of excess reorganization value.
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 Second Quarter Fiscal 2000 and the 26-week period ended July 31,
1999, the Company recorded extraordinary items (income) of $656.4 million and
$654.9 million, respectively (see Note 9).
Net (loss) for Second Quarter Fiscal 2001 was $23.6 million compared to
net income of $484.0 million for Second Quarter Fiscal 2000. Net income
excluding certain non-recurring items and amortization of excess reorganization
value was $4.3 million for Second Quarter Fiscal 2001 compared to net income of
$1.7 million for Second Quarter Fiscal 2000.
Net (loss) for the 26-week period ended July 29, 2000 was $50.3 million
compared to the net income of $460.9 million for the 26-week period ended
July 31, 1999. Net income excluding certain non-recurring items and
amortization of excess reorganization value was $5.1 million for the 26-week
period ended July 29, 2000 compared to a net (loss) of $16.7 million for the
26-week period ended July 31, 1999.
-22-
<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.
-23-
<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):
FISCAL YEAR ENDING AMOUNT MATURING
------------------ ---------------
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
========
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
July 29, 2000, there were no borrowings under the New Revolving Credit Facility.
Availability under the New Revolving Credit Facility was approximately $145
million as of July 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 Second 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. For the next year, the Company
expects to utilize internally generated funds from operations, available cash
resources and amounts available under the New Revolving Credit Facility to
satisfy its operating, capital expenditure and debt service needs, to finance
the repurchase of shares of its common stock under its stock repurchase program
and to pay expenditures related to the Company's financial restructuring.
Cash flows to meet the Company's operating requirements during the 26-week
period ended July 29, 2000 are reported in the Consolidated Statement of Cash
Flows. During the 26-week period ended July 29, 2000, the Company's net cash
used in investing activities was $33.4 million. This amount was financed by net
cash provided by operating activities of $33.2 million and net cash provided by
financing activities of $1.7 million for such period.
-24-
<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. 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 $2.8 million
and $5.7 million of income related to the New England Operating Agreement in
Second Quarter Fiscal 2001 and the 26-week period ended July 29, 2000,
respectively. Based upon the operation of these stores by Grand Union and
other relevant factors, the Company believes the operating income allocable
from such stores after August 1, 2000 will be substantially less, on an
annual basis, than the income received pursuant to the New England Operating
Agreement. The Company expects that such stores will not make a contribution
to the Company's EBITDA in the 13-week period ending October 28, 2000 ("Third
Quarter Fiscal 2001") after taking into consideration start-up costs and the
fact that the stores will not have been in operation for an entire quarter.
In the 13-week period ended October 30, 1999, Penn Traffic recorded
approximately $3.1 million of income related to the New England Operating
Agreement.
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.
The Company expects the rollout of this loyalty card program to reduce Third
Quarter Fiscal 2001 income as a result of the start-up costs associated with
this program. Depending upon the success of the loyalty card program in the
Company's 70 Big Bear Stores, Penn Traffic will consider introducing a loyalty
card program in other markets in the future.
During the fiscal year ending February 3, 2001, the Company expects to
invest approximately $70 million in capital expenditures (including capital
leases) as part of its $100 million 18-month capital expenditure program. 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. Capital expenditures will be principally for new
stores, store remodels and investments in the Company's distribution
infrastructure and technology.
-25-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 $5.5 million of common shares
under these agreements. This amount will change on a quarterly basis based on
the Company's financial results. Between July 31, 2000 and September 1, 2000,
the Company repurchased 48,000 shares of common stock at an average price of
$7.15 per share.
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 will implement EITF 00-14 in the fourth
quarter of the Company's current fiscal year (the 53-week period ending
February 3, 2001). In accordance with such implementation, Penn Traffic will
also reclassify certain prior period financial statements for comparability
purposes.
-26-
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS (CONTINUED)
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 two quarters of the Company's current fiscal year (13-week periods ended
April 29, 2000 and July 29, 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. Based on current information and Penn Traffic's current interpretation of
EITF 00-14, the Company expects that its second quarter same store sales will
still be greater than the comparable prior year period after taking into account
the reclassifications described above.
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 52-week period ending February 2, 2002). The Company is currently
evaluating the impact this pronouncement will have on its financial
statements.
-27-
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Penn Traffic's Annual Meeting of stockholders was held on July 12, 2000.
At the meeting nine directors were elected to serve for a term of one year on
the Company's Board of Directors by the following votes:
FOR WITHHELD
--- --------
Byron E. Allumbaugh 19,744,099 28,895
Kevin P. Collins 19,744,552 28,442
Joseph V. Fisher 19,739,724 33,270
Martin A. Fox 19,741,925 31,069
David B. Jenkins 19,743,593 29,401
Gabriel S. Nechamkin 19,744,541 28,453
Lief D. Rosenblatt 19,737,068 35,926
Mark D. Sonnino 19,744,578 28,416
Peter L. Zurkow 19,744,665 28,329
At the Annual Meeting, the selection of PricewaterhouseCoopers LLP as
auditors for the Company for Fiscal 2001 was ratified by a vote of 19,760,852
shares in favor, 6,543 shares opposed and 5,599 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27.1 Financial Data Schedule
10.10A Amendment No. 1 to the Revolving
Credit and Term Loan Agreement by
and among Penn Traffic, certain of
its subsidiaries, Fleet Capital
Corporation and the Lenders party
thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
July 29, 2000.
-28-
<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
September 11, 2000 /s/- Joseph V. Fisher
---------------------------------
By: Joseph V. Fisher
President, Chief Executive
Officer and Director
September 11, 2000 /s/- Martin A. Fox
---------------------------------
By: Martin A. Fox
Executive Vice President,
Chief Financial Officer and
Director
-29-
