-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GMtMRL6UKNwVqZpUumUxybF8XvjEr6lmV5PIW0mLwVM0s6gVpxRjIJh/Oe+sh/y2 zlMPmOz2wFnbKj+A6YafVw== 0000912057-95-011020.txt : 19951213 0000912057-95-011020.hdr.sgml : 19951213 ACCESSION NUMBER: 0000912057-95-011020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951028 FILED AS OF DATE: 19951212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN TRAFFIC CO CENTRAL INDEX KEY: 0000077155 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 250716800 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09930 FILM NUMBER: 95601039 BUSINESS ADDRESS: STREET 1: 319 WASHINGTON STREET CITY: JOHNSTOWN STATE: PA ZIP: 15901 BUSINESS PHONE: 8145369900 MAIL ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SYRACUSE STATE: NY ZIP: 13221-4737 10-Q 1 FORM 10-Q 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, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to ---------- ---------- Commission file number 1-9930 THE PENN TRAFFIC COMPANY (Exact name of registrant as specified in its charter) Delaware 25-0716800 (State of incorporation) (IRS Employer Identification No.) 1200 State Fair Blvd., Syracuse, NY 13209 (Address of principal executive offices) (Zip Code) (315) 453-7284 (Telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X . NO . --- --- Common stock, par value $1.25 per share: 10,839,349 shares outstanding as of December 1, 1995 1 of 14 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) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED OCTOBER 28, OCTOBER 29, OCTOBER 28, OCTOBER 29, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- TOTAL REVENUES $ 844,619 $ 828,064 $2,588,876 $2,473,792 COST AND OPERATING EXPENSES: Cost of sales (including buying and occupancy costs) 651,972 639,939 2,000,278 1,914,327 Selling and administrative expenses 163,010 151,854 492,012 447,406 Unusual item (Note 6) 65,237 ---------- ---------- ---------- ---------- OPERATING INCOME 29,637 36,271 31,349 112,059 Interest expense 33,406 28,626 99,434 86,417 ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (3,769) 7,645 (68,085) 25,642 Benefit (provision) for income taxes 3,419 (2,868) 16,160 (11,741) ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (350) 4,777 (51,925) 13,901 Extraordinary item (net of tax benefit) (Note 4) (58) (3,025) ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (350) 4,719 (51,925) 10,876 Cumulative effect of change in accounting principle (net of tax benefit) (Note 5) (5,790) ---------- ---------- ---------- ---------- NET (LOSS) INCOME APPLICABLE TO COMMON STOCK $ (350) $ 4,719 $ (51,925) $ 5,086 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE DATA: (Loss) income before extraordinary item and cumulative effect of change in accounting principle $ (.03) $ .43 $ (4.78) $ 1.25 Extraordinary item (.01) (.27) Cumulative effect of change in accounting principle (.52) ---------- ---------- ---------- ---------- Net (loss) income $ (.03) $ .42 $ (4.78) $ .46 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Average number of common shares outstanding 10,867,977 11,178,910 10,861,394 11,169,814
See Notes to Interim Consolidated Financial Statements. - 2 - THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET (All dollar amounts in thousands)
UNAUDITED OCTOBER 28, 1995 JANUARY 28, 1995 ---------------- ---------------- ASSETS CURRENT ASSETS: Cash and short-term investments $ 41,318 $ 46,519 Accounts and notes receivable (less allowance for doubtful accounts of $2,410 and $1,374, respectively) 76,069 81,967 Inventories (Note 3) 389,791 385,968 Prepaid expenses and other current assets 15,539 10,913 ---------- ---------- Total Current Assets 522,717 525,367 NONCURRENT ASSETS: Capital leases - net 122,410 127,748 Property, plant and equipment - net 639,848 600,797 Intangible assets - net 431,629 451,897 Other assets and deferred charges - net 84,457 88,157 ---------- ---------- $1,801,061 $1,793,966 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 3,855 $ 4,118 Current portion of obligations under capital leases 10,783 9,962 Trade accounts and drafts payable 222,056 209,890 Payroll and other accrued liabilities 83,533 79,434 Accrued interest expense 19,157 30,686 Payroll taxes and other taxes payable 12,501 19,582 Deferred income taxes 27,384 27,384 ---------- ---------- Total Current Liabilities 379,269 381,056 NONCURRENT LIABILITIES: Long-term debt 1,214,903 1,136,302 Obligations under capital leases 122,952 126,894 Deferred income taxes 58,292 73,598 Other noncurrent liabilities 44,771 43,189 ---------- ---------- Total Liabilities 1,820,187 1,761,039 ---------- ---------- SHAREHOLDERS' EQUITY: Preferred Stock - authorized 10,000,000 shares at $1.00 par value; none issued Common Stock - authorized 30,000,000 shares at $1.25 par value; 10,872,049 shares and 10,846,701 shares issued, respectively 13,589 13,558 Capital in excess of par value 179,436 179,165 Retained deficit (208,404) (149,681) Minimum pension liability adjustment (356) (356) Unearned compensation (2,917) (9,759) Treasury stock, at cost (474) ---------- ---------- Total Shareholders' Equity (19,126) 32,927 ---------- ---------- $1,801,061 $1,793,966 ---------- ---------- ---------- ----------
See Notes to Interim Consolidated Financial Statements. - 3 - THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED (All dollar amounts in thousands)
THIRTY-NINE THIRTY-NINE WEEKS ENDED WEEKS ENDED OCTOBER 28, 1995 OCTOBER 29, 1994 ---------------- ---------------- OPERATING ACTIVITIES: Net (loss) income $ (51,925) $ 5,086 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Cumulative effect of change in accounting principle 5,790 Depreciation and amortization 55,610 54,133 Amortization of intangibles 12,489 10,999 Write-off of fixed assets 16,416 Write-off of intangible assets 32,809 Deferred tax benefit (13,313) Other - net (14,148) (9,071) Net change in assets and liabilities: Accounts receivable and prepaid expenses 2,847 (13,449) Inventories (3,823) (37,736) Accounts payable and accrued expenses (12,784) (5,468) Deferred charges and other assets 1,052 3,233 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 25,230 13,517 ---------- ---------- INVESTING ACTIVITIES: Capital expenditures (102,004) (71,342) Other - net 502 1,032 ---------- ---------- NET CASH (USED IN) INVESTING ACTIVITIES (101,502) (70,310) ---------- ---------- FINANCING ACTIVITIES: Increase in long-term debt 100,000 Payments to settle long-term debt (2,462) (60,843) Borrowings of revolver debt 452,200 381,400 Payment of revolver debt (371,400) (381,400) Reduction of capital lease obligations (6,972) (6,400) Payment of debt issuance costs (168) (2,482) Purchase of treasury stock (474) Other - net 347 128 ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 71,071 30,403 ---------- ---------- (DECREASE) IN CASH AND CASH EQUIVALENTS (5,201) (26,390) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 46,519 82,467 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,318 $ 56,077 ---------- ---------- ---------- ----------
See Notes to Interim Consolidated Financial Statements. - 4 - THE PENN TRAFFIC COMPANY NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The results of operations for the interim periods are not necessarily an indication of results to be expected for the year. In the opinion of management, all adjustments necessary for a fair presentation of the results are included for the interim periods, and all such adjustments are normal and recurring. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended January 28, 1995. Net (loss) income per share of common stock is based on the average number of shares and equivalents, as applicable, of common stock outstanding during each period. Fully diluted (loss) income per share is not presented for each of the periods since conversion of the Company's shares under option would be anti- dilutive or the reduction from primary (loss) income per share is less than three percent. In January 1995, the Company acquired 45 supermarkets from American Stores Company formerly operated under the Acme trade name. Results for the quarter and 39 weeks ended October 28, 1995 include the results for 29 of these acquired Acme stores that the Company intends to continue to operate. - 5 - NOTE 2 - SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands of dollars) Third Quarter Thirty-nine Weeks ------------- ----------------- FISCAL 1996 Operating Income $ 29,637 $ 96,586 * Unusual Item 65,237 Depreciation and Amortization 22,347 68,099 LIFO Provision 858 1,717 * Cash Interest Expense 32,334 96,219 * Excludes the effect of the unusual item. FISCAL 1995 Operating Income $ 36,271 $ 112,059 Depreciation and Amortization 21,887 65,132 LIFO Provision 450 Cash Interest Expense 27,554 83,363
NOTE 3 - INVENTORIES If the first-in, first-out (FIFO) method had been used by the Company, inventories would have been $20,237,000 and $17,145,000 higher than reported at October 28, 1995 and January 28, 1995, respectively. NOTE 4 - EXTRAORDINARY ITEM During the third quarter ended October 29, 1994, the Company had an extraordinary charge of $0.1 million (net of income tax benefit). The extraordinary charge for the thirty-nine weeks ended October 29, 1994 was $3.0 million (net of $2.1 million income tax benefit). This extraordinary charge relates to the early retirement of debt. NOTE 5 - CHANGE IN ACCOUNTING PRINCIPLE Effective January 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation to provide postemployment benefits on an accrual basis if certain conditions are met. The Company's postemployment benefits covered by SFAS 112 are primarily disability related claims covering indemnity and medical payments. The obligation for these claims is measured using actuarial techniques and assumptions including appropriate discount rates. The cumulative effect of the change in accounting principle determined as of January 30, 1994 reduced net income by $5.8 million (net of $4.1 million income tax benefit) in the fiscal year ended January 28, 1995. - 6 - NOTE 6 - UNUSUAL ITEM During the second quarter of Fiscal 1996, the Company recorded an unusual item (charge) of $65.2 million. The Company also recorded a tax benefit of $13.3 million in connection with this charge. At October 28, 1995, the components of this unusual item are as follows:
($ millions) ------------ Loss from closure of stand alone general merchandise business (Harts) - Write-off of goodwill $32.8 - Write-off of fixed assets 8.4 - Wind-down costs (principally inventory markdowns) 9.4 $50.6 ----- Obsolete equipment write-off, cost of expense reduction program and increase in closed store reserve 14.6 ----- Total $65.2 ----- -----
CLOSURE OF STAND ALONE GENERAL MERCHANDISE BUSINESS (HARTS) During the second quarter of Fiscal 1996, the Company decided to close 11 of its 15 remaining stand alone general merchandise stores (Harts) in Ohio. These 11 stores generated approximately $50 million of revenues or about 1.4% of the Company's annual revenues. The Company currently expects that the remaining four Harts stores will be converted to the Company's "Big Bear Plus" format. As a result of the decision to close the 11 Harts stores and convert the remaining four stores, during the second quarter ended July 29, 1995, the Company recorded an unusual item (charge). At October 28, 1995, the amount of this charge is $50.6 million. This charge specifically relates to the write-off of goodwill ($32.8 million), the write-off of fixed assets ($8.4 million) and store closing costs consisting principally of inventory markdowns ($9.4 million). These amounts reflect an adjustment made in the third quarter of Fiscal 1996 reducing the charge for store closing costs consisting principally of inventory markdowns by $2.4 million, as a result of the event described below. In October 1995, the Company engaged a third party to liquidate the assets of nine of the 11 Harts stores to be closed. The Company retains ownership of the assets of the 11 Harts stores to be closed until the process of closing those stores is completed (expected to be by the end of the Company's current fiscal year, February 3, 1996.) The Company expects that this program will generate net cash proceeds of approximately $15 million, most of which was received by Penn Traffic in the third quarter of Fiscal 1996. These funds will be used for debt retirement. When the liquidation is completed, the Company expects to realize an approximate annual impact of an increase in operating income of $2.0 million, a reduction of interest expense of between $1.2 million to $1.5 million, and an increase in net income of $2.0 million. - 7 - NOTE 6 - UNUSUAL ITEM (CONTINUED) OTHER CHARGES The unusual item also includes $14.6 million in connection with the noncash write-off of certain fixed assets which the Company determined during the second quarter that it will no longer utilize in its business ($8.0 million), costs incurred in connection with the implementation of the Company's expense reduction programs ($4.0 million), and an increase in the Company's closed store reserve ($2.6 million). These amounts reflect adjustments made in the third quarter of Fiscal 1996 increasing the charge for costs incurred in connection with the implementation of the Company's expense reduction programs by $2.0 million and increasing the Company's closed store reserve by $0.4 million. The noncash portion of the unusual item is approximately $57.5 million and the cash portion is approximately $7.7 million. All costs related to the unusual item are expected to be incurred by February 1996 with the exception of certain facility carrying costs (primarily lease payments) for stores to be closed. The last scheduled lease payment will occur in 2001. The accrued expense amount relating to the unusual item was $14.6 million at October 28, 1995. NOTE 7 - INVESTMENT EQUITY INTEREST IN THE GRAND UNION COMPANY In July 1989, Penn Traffic through its limited partnership investment in Grand Acquisition Company, L.P. ("GAC, L.P."), acquired an indirect ownership interest in approximately 24.3% of the outstanding common stock of Grand Union Holdings Corporation (formerly named GND Holdings Corporation) ("Holdings") which was the corporate parent of The Grand Union Company ("Grand Union"). The Company accounted for its investment in Grand Union under the equity method. The investment was recorded originally at a cost of $18,250,000. The carrying value of the investment was reduced to zero as of February 2, 1991. On January 25, 1995, Grand Union filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, District of Delaware (the "Bankruptcy Court"). On February 16, 1995, Holdings filed a voluntary Chapter 11 petition in the Bankruptcy Court. Penn Traffic's equity interest in Holdings became worthless as a result of these bankruptcy proceedings, and, on March 24, 1995 Penn Traffic's limited partnership interest in GAC, L.P. was redeemed for nominal consideration. - 8 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THIRTEEN WEEKS ("THIRD QUARTER FISCAL 1996") AND THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 COMPARED TO THIRTEEN WEEKS ("THIRD QUARTER FISCAL 1995") AND THIRTY- NINE WEEKS ENDED OCTOBER 29, 1994 The following table sets forth statement of operations components expressed as a percentage of total revenues for Third Quarter Fiscal 1996 and Third Quarter Fiscal 1995 and for the thirty-nine weeks ended October 28, 1995 and October 29, 1994, respectively:
Third Quarter Ended Thirty-nine Weeks Ended OCTOBER 28, October 29, OCTOBER 28, October 29, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Total revenues 100.0% 100.0% 100.0% 100.0% Gross profit (1) 22.8 22.7 22.7 22.6 Selling and administrative expenses 19.3 18.3 19.0 18.1 Unusual item 2.5 Operating income 3.5 4.4 1.2 4.5 Interest expense 4.0 3.5 3.8 3.5 (Loss) income before income taxes, extraordinary item and cumulative effect of change in accounting principle (0.5) 0.9 (2.6) 1.0 Net (loss) income 0.0 0.6 (2.0) 0.2
(1) Total revenues less cost of sales. Total revenues for Third Quarter Fiscal 1996 increased to $844.6 million from $828.1 million in Third Quarter Fiscal 1995. Total revenues for the thirty-nine week period ended October 28, 1995 increased to $2.59 billion from $2.47 billion for the thirty-nine week period ended October 29, 1994. The increase in total revenues is the result of the increase in retail supermarket sales resulting from the acquisition of 45 former Acme stores in January 1995. Wholesale supermarket sales decreased in Third Quarter Fiscal 1996 to $101.1 million from Third Quarter Fiscal 1995 sales of $109.0 million and decreased to $304.8 million for the thirty-nine weeks ended October 28, 1995 from $329.2 million for the thirty-nine weeks ended October 28, 1994. Same store sales for Third Quarter Fiscal 1996 declined 3.9%. The Company's total revenues and same store sales results for the quarter were adversely affected by weak consumer spending and competitive promotional activity. In addition, total revenues and same store sales were negatively impacted by the accelerated closing of 11 of the Company's Harts general merchandise stores, which adversely affected the Company's nonfood business during Third Quarter Fiscal 1996. - 9 - RESULTS OF OPERATIONS (CONTINUED) In Third Quarter Fiscal 1996, gross profit was $192.6 million compared to Third Quarter Fiscal 1995 gross profit of $188.1 million, representing 22.8% and 22.7% of total revenues, respectively. Gross profit as a percentage of total revenues increased to 22.7% for the thirty-nine week period ended October 28, 1995 from 22.6% for the thirty-nine weeks ended October 29, 1994. The increase in gross profit as a percentage of total revenues for Third Quarter Fiscal 1996 resulted from the relative increase in retail revenues compared to wholesale revenues. Selling and administrative expenses for Third Quarter Fiscal 1996 were $652.0 million compared with $640.0 million in Third Quarter Fiscal 1995. Selling and administrative expenses as a percentage of total revenues increased to 19.3% for Third Quarter Fiscal 1996 from 18.3% in Third Quarter Fiscal 1995. Selling and administrative expenses for the thirty-nine week period ended October 28, 1995 were $492.0 million compared to $447.4 million for the thirty- nine week period ended October 28, 1994. Selling and administrative expenses as a percentage of total revenues increased to 19.0% for the thirty-nine week period ended October 28, 1995 from 18.1% for the thirty-nine week period ended October 29, 1994. The increase in selling and administrative expenses as a percentage of total revenues for Third Quarter Fiscal 1996 primarily resulted from the relative increase in retail revenues compared to wholesale revenues, increased promotional expense and an increase in fixed and semi-variable expenses as a percentage of total revenues during a period of low price inflation and a decline in same store sales. Depreciation and amortization of $22.3 million in Third Quarter Fiscal 1996 and $21.9 million in Third Quarter Fiscal 1995 represented 2.6% of total revenues for both periods. Depreciation and amortization of $68.1 million for the thirty-nine weeks ended October 28, 1995 and $65.1 million for the thirty- nine weeks ended October 29, 1994 represented 2.6% of total revenues in both periods. During the second quarter of Fiscal 1996, the Company recorded an unusual item (charge) of $65.2 million. The Company also recorded a tax benefit of $13.3 million in connection with this charge. At October 28, 1995, this unusual item was comprised of $50.6 million related to the future closure of the stand alone general merchandise business (Harts) and $14.6 million related to the noncash write-off of certain fixed assets which the Company determined during the second quarter that it will no longer utilize in its business, costs incurred in connection with the Company's expense reduction programs and an increase in the Company's closed store reserve (Note 6). - 10 - RESULTS OF OPERATIONS (CONTINUED) Operating income for Third Quarter Fiscal 1996 was $29.6 million or 3.5% of total revenues compared to $36.3 million or 4.4% of total revenues in Third Quarter Fiscal 1995. Operating income (excluding the unusual item) for the thirty-nine week period ended October 28, 1995 was $96.6 million or 3.7% of total revenues compared to $112.1 million or 4.5% of total revenues for the thirty-nine weeks ended October 29, 1994. Interest expense for Third Quarter Fiscal 1996 and Third Quarter Fiscal 1995 was $33.4 million and $28.6 million, respectively. Interest expense for the thirty-nine weeks ended October 28, 1995 and October 29, 1994 was $99.4 million and $86.4 million, respectively. The increase in interest expense is due to the higher debt levels outstanding during the first three quarters of Fiscal 1996, which are primarily the result of funding the acquisition of 45 stores from American Stores Company in January 1995 and the Company's capital investment program. Loss before income taxes and extraordinary item was $3.8 million for Third Quarter Fiscal 1996, compared to income of $7.6 million for Third Quarter Fiscal 1995. The reason for the decline is the decrease in operating income combined with an increase in interest expense. Loss before income taxes, extraordinary item, and the cumulative effect of a change in accounting principle for the thirty-nine weeks ended October 28, 1995 was $68.1 million compared to income of $25.6 million for the thirty-nine weeks ended October 29, 1994. The reason for the decline is the decrease in operating income (excluding the unusual item), the unusual item and an increase in interest expense. The income tax benefit was $3.4 million for Third Quarter Fiscal 1996 compared to a provision of $2.9 million in Third Quarter Fiscal 1995. The income tax benefit was $16.2 million for the thirty-nine week period ended October 28, 1995 compared to an income tax provision of $11.7 million in the prior year. Excluding the unusual item, the income tax benefit was $2.9 million for the thirty-nine week period ended October 28, 1995. The effective tax rates vary from the statutory rates due to differences between income for financial reporting and tax reporting purposes, primarily related to goodwill amortization resulting from prior acquisitions. Net loss was $0.4 million in Third Quarter Fiscal 1996 compared to income of $4.8 million (before extraordinary item) in Third Quarter Fiscal 1995. Excluding the impact of the unusual item, net income was $0.0 million for the thirty-nine weeks ended October 28, 1995 compared to $13.9 million (before extraordinary item and the cumulative effect of a change in accounting principle) for the thirty-nine weeks ended October 29, 1994. The $0.1 million extraordinary item (net of tax benefit) for Third Quarter Fiscal 1995, and the $3.0 million extraordinary item (net of $2.1 million income tax benefit) for the thirty-nine week period ended October 29, 1994 related to the early retirement of debt. The Company adopted SFAS 112 in First Quarter Fiscal 1995. The cumulative effect of this change in accounting principle was a charge of $5.8 million (net of $4.1 million income tax benefit) (Note 5). - 11 - LIQUIDITY AND CAPITAL RESOURCES During Third Quarter Fiscal 1996, operating income decreased to $29.6 million from $36.3 million for Third Quarter Fiscal 1995. Interest expense for Third Quarter Fiscal 1996 was $33.4 million as compared to $28.6 million during Third Quarter Fiscal 1995. Loss before unusual item, extraordinary item and the cumulative effect of a change in accounting principle for Third Quarter Fiscal 1996 was $0.4 million as compared to income of $4.8 million for Third Quarter Fiscal 1995. Payments of principal and interest on the Company's $1.22 billion of long- term debt (excluding capital leases) will materially restrict Company funds available to finance capital expenditures and working capital. Principal payments of long-term debt of $1.7 million, $2.7 million and $2.2 million are due during the remainder of Fiscal 1996, Fiscal 1997 and Fiscal 1998, respectively. The Company has a revolving credit facility (the "Revolving Credit Facility") which provides for borrowings of up to $250 million, subject to a borrowing base limitation measured by eligible inventory and accounts receivable of the Company. The Revolving Credit Facility matures in April 2000 and is secured by a pledge of the Company's inventory, accounts receivable and related assets. Total availability under the Revolving Credit Facility was $64.0 million at October 28, 1995. During Third Quarter Fiscal 1996, the Company's internally generated funds from operations and amounts available under the Revolving Credit Facility provided sufficient liquidity to meet the Company's operating, capital expenditure and debt service needs. The Company has entered into three interest rate swap agreements, each of which expires within the next three years, that effectively convert $125 million of its fixed rate borrowings into variable rate obligations. Under the terms of these agreements, the Company makes payments at variable rates which are based on LIBOR and receives payments at fixed interest rates. The net amount paid or received is included in interest expense. Cash flows to meet the Company's requirements for operating, investing and financing activities in Third Quarter Fiscal 1996 are reported in the Consolidated Statement of Cash Flows. For the thirty-nine week period ended October 28, 1995, the Company experienced a positive cash flow from operating activities of $25.2 million. - 12 - LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Working capital decreased by $0.9 million from January 28, 1995 to October 28, 1995. The Company is in compliance with all terms and restrictive covenants of its long-term debt agreements. The Company expects to spend approximately $135 million on capital expenditures, including capital leases, during Fiscal 1996. The Company expects to finance such capital expenditures through internally generated cash flow, borrowings under the Revolving Credit Facility and new capital leases. Capital expenditures will be principally for new stores, replacement stores, remodeled store facilities and a new distribution center in Scranton, Pennsylvania. In Third Quarter Fiscal 1996, the Company opened three replacement stores and completed six remodels. In addition, seven new or replacement stores are under construction and eight remodels are in process. During the quarter, the Company also opened a new warehouse in Columbus, Ohio. The Company currently expects to spend approximately $80 million on capital expenditures in Fiscal 1997. On October 5, 1995, Penn Traffic's Board of Directors authorized the repurchase by the Company of up to 500,000 shares of its outstanding common stock. Penn Traffic's debt agreements contain limitations on the Company's ability to repurchase its common stock. Under the most restrictive limitations contained in the Company's debt agreements, Penn Traffic could spend a total of approximately $6 million on stock repurchases. Between October 5, 1995 and October 28, 1995, the Company acquired 32,700 shares of its outstanding common stock, at a cost of approximately $474,000, which are being held in treasury. 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 -------------- ----------- 10.9 L Amendment No. 11, dated as of October 16, 1995 to the Loan and Security Agreement 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, 1995. - 13 - 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 12, 1995 /s/- John T. Dixon --------------------------------- By: John T. Dixon (President and Chief Executive Officer, and Director) December 12, 1995 /s/- Eugene R. Sunderhaft -------------------------------- By: Eugene R. Sunderhaft (Senior Vice President and Secretary, Principal Financial Officer and Principal Accounting Officer) - 14 - EX-10.9L 2 EXHIBIT 10.9L AMENDMENT NO. 11 TO LOAN AND SECURITY AGREEMENT AMENDMENT NO. 11, dated as of October 16, 1995 (this "AMENDMENT") to that certain Loan and Security Agreement dated as of March 5, 1993, as amended by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 (collectively, the "LOAN AGREEMENT") among THE PENN TRAFFIC COMPANY ("Penn Traffic"), DAIRY DELL, BIG M SUPERMARKETS, INC. and PENNY CURTISS BAKING COMPANY, INC. (individually, each a "BORROWER" and collectively, the "BORROWERS"), the Lenders listed therein (collectively, the "LENDERS") and NATWEST USA CREDIT CORP., as Agent for the Lenders (in such capacity, the "AGENT"), is made by, between and among the Borrowers, the Agent, and the Lenders. Capitalized terms used herein, except as otherwise defined herein, shall have the meanings given to such terms in the Loan Agreement. WHEREAS, the Borrowers have advised the Agent and the Lenders that Penn Traffic intends to enter into an arrangement with Jubilee Limited Partnership ("JUBILEE") whereby Jubilee will advance to Penn Traffic a sum of money against the liquidation of the inventory in nine (9) Harts stores with a book value of approximately $15,000,000 (the "HARTS ASSETS") in connection with the shutdown of the stand-alone Harts general merchandise stores and will then sell such inventory as Penn Traffic's agent (the "HARTS LIQUIDATION TRANSACTION"); WHEREAS, the Borrowers have requested that the Agent and the Lenders amend the Loan Agreement in order (i) to permit Penn Traffic to enter into and perform its obligations under the Harts Liquidation Transaction and (ii) to make certain other amendments to the Loan Agreement; WHEREAS, the Borrowers, the Agent and the Lenders have agreed to amend the Loan Agreement pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is hereby amended as of the effective date hereof as follows: (i) Article One of the Loan Agreement is hereby amended by adding the following definition of "Harts Liquidation Transaction": "'HARTS LIQUIDATION TRANSACTION' means the arrangement between Penn Traffic and Jubilee Limited Partnership ("JUBILEE") whereby Jubilee will advance to Penn Traffic a sum of money against the liquidation of inventory in nine (9) Harts stores with a book value of approximately $15,000,000 (the "HARTS ASSETS") in connection with the shutdown of the stand-alone Harts general merchandise stores and will then sell such inventory as Penn Traffic's agent; PROVIDED, HOWEVER, that such Harts Liquidation Transaction shall be fully consummated in fiscal year 1996 and PROVIDED, FURTHER, that Penn Traffic shall receive an advance (the "Initial Advance") of at least $7,200,000 with respect to such Harts Assets prior to the release by the Agent of any security interest with respect to such Hart Assets; PROVIDED, FURTHER, that Penn Traffic shall have received an aggregate advance of at least $9,000,000 with respect to such Hart Assets within two weeks from the date of the Initial Advance; and PROVIDED, FURTHER, that in no event shall Penn Traffic be required to return any amount to Jubilee or any other person if the effect thereof would be to reduce the aggregate amount of the foregoing aggregate advance to less than $9,000,000." (ii) Section 1 of the Loan Agreement is further amended by (a) deleting the word "and" immediately prior to clause (l) in the definition of "Permitted Liens"; and (b) deleting the period at the end of clause (l) of such definition and substituting therefor the following: "; (m) on and after the date of the receipt by Penn Traffic of the Initial Advance (as defined in the definition of Harts Liquidation Transaction as contained in this Agreement), Liens in the Harts Assets (as defined in the definition of Harts Liquidation Transaction) granted pursuant to the Harts Liquidation Transaction". (iii) Section 10.5 of the Loan Agreement is hereby amended by (x) deleting the words "no longer used or useful in the business of " in clause (e) thereof and by substituting therefor the word "by" and (y) deleting Section 10.5(f) thereof and by substituting, in lieu thereof, the following: "(f) a sale of Qualified Real Property as part of a Sale/Leaseback Transaction, a sale of other Property as part of a Sale/Leaseback Transaction permitted under Section 10.14 of this Agreement, and the Harts Liquidation Transaction;" (iv) Section 10.14 of the Loan Agreement is hereby amended by deleting Section 10.14(b) thereto in its entirety and by substituting, in lieu thereof, the following: 2 "(b) Equipment acquired by a Borrower or a PT Stores Subsidiary after the date hereof in anticipation of entering into a Sale and leaseback Transaction with respect thereto, PROVIDED, HOWEVER, that such Sale and Leaseback Transaction is consummated within 180 days after the subject Equipment is acquired, and that the aggregate amount of the Net Proceeds received by all Borrowers and PT Stores Subsidiaries from such Sale and Leaseback Transactions in any 365-day period does not exceed $20,000,000." 2. RELEASE OF CERTAIN COLLATERAL SECURITY. As of the later of (x) the effective date of this Amendment and (y) the payment to Penn Traffic by Jubilee of an advance of at least $7,200,000 under the Harts Liquidation Transaction, the Agent hereby releases the security interest in the Harts Assets granted by the Borrowers in favor of the Agent for the benefit of the Lenders under the Loan Agreement and the other Loan Documents. 3. DELIVERY OF CERTAIN DOCUMENTS. The Borrowers hereby agree to furnish the Agent with true and correct copies of all material documentation in connection with the Harts Liquidation Transaction promptly upon execution thereof and at such other times as Agent shall reasonably request. 4. REPRESENTATIONS AND WARRANTIES. As an inducement to the Agent and the Lenders to enter into this Amendment, each of the Borrowers hereby represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders as follows: (a) It has the power and authority to enter into this Amendment and has taken all corporate action required to authorize its execution, delivery, and performance of this Amendment. This Amendment has been duly executed and delivered by it and constitutes its valid and binding obligation, enforceable against it in accordance with its terms. The execution, delivery, and performance of this Amendment will not violate its certificate of incorporation or by-laws or any agreement or legal requirements binding upon it. (b) As of the date hereof and after giving effect to the terms of this Amendment: (i) the Loan Agreement is in full force and effect and constitutes a binding obligation of the Borrowers, enforceable against the Borrowers and owing in accordance with its terms; (ii) the Obligations are due and owing by the Borrowers in accordance with their terms; and (iii) Borrowers have no defense to or setoff, counterclaim, or claim against payment of the Obligations and enforcement of the Loan Documents based upon a fact or 3 circumstance existing or occurring on or prior to the date hereof. (c) The Obligations under the Loan Agreement as amended by this Amendment constitute "Senior Indebtedness" as defined under the indentures relating to the Senior Notes and to the Subordinated Notes. 5. NO IMPLIED AMENDMENTS. Except as expressly provided herein, the Loan Agreement and the other Loan Documents are not amended or otherwise affected in any way by this Amendment. 6. ENTIRE AGREEMENT; MODIFICATIONS; BINDING EFFECT. This Amendment constitutes the entire agreement of the parties with respect to its subject matter and supersedes all prior oral or written understandings about such matter. Each of the Borrowers confirms that, in entering into this Amendment, it did not rely upon any agreement, representation, or warranty by the Agent or any Lender except those expressly set forth herein. No modification, rescission, waiver, release, or amendment of any provision of this Amendment may be made except by a written agreement signed by the parties hereto. The provisions of this Amendment are binding upon and inure to the benefit of the representatives, successors, and assigns of the parties hereto; provided, however, that no interest herein or obligation hereunder may be assigned by any Borrower without the prior written consent of the Required Lenders. 7. EFFECTIVE DATE. This Agreement shall become effective upon compliance with the conditions set forth immediately below: (i) No Event or Event of Default shall have occurred and there shall have been no material adverse change in the business or financial condition of any of the Borrowers. (ii) The Borrowers shall deliver to the Agent for the benefit of the Lenders an opinion of Borrowers' counsel in form and substance satisfactory to the Agent and its counsel (which opinion shall cover such matters as the Agent may reasonably request, including a statement that the Obligations under the Loan Agreement as amended by this Amendment constitute "Senior Indebtedness" as defined under the indentures relating to the Senior Notes and to the Subordinated Notes). (iii) The Borrowers shall deliver to the Agent a certificate of the Borrowers' Chief Executive or Chief Financial Officer with respect to Section (i) above and 4 such other instruments and documents as the Agent shall reasonably request. (iv) The Agent shall have received an original counterpart of this Amendment, duly executed and delivered by the Borrowers and the Required Lenders. 8. COUNTERPARTS. This Amendment may be executed in any number of counterparts, and by each party in separate counterparts, each of which is an original, but all of which shall together constitute one and the same agreement. 9. GOVERNING LAW. This Amendment is deemed to have been made in the State of New York and is governed by and interpreted in accordance with the laws of such state, provided that no doctrine of choice of law (except as may be applicable under the UCC with respect to the Security Interest) shall be used to apply the laws of any other state or jurisdiction. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. BORROWERS: THE PENN TRAFFIC COMPANY By:/s/ Matt A. Fox --------------------- Title: Vice Chairman - Finance DAIRY DELL By:/s/ Matt A. Fox --------------------- Title BIG M SUPERMARKETS, INC. By:/s/ Matt A. Fox --------------------- Title PENNY CURTISS BAKING COMPANY, INC. By:/s/ Matt A. Fox --------------------- Title 5 LENDERS: Commitment: $35,000,000 NATWEST USA CREDIT CORP. Pro-Rata Share: 14% Lending Office: 175 Water Street New York, New York 10038 By: --------------------- Title: VP Commitment: $20,000,000 NATIONAL BANK OF CANADA Pro-Rata Share: 8% Lending Office: Main Place Tower By: Suite 2540 --------------------- 350 Main Street Title: VP Buffalo, New York 14202 By: --------------------- Title Commitment: $20,000,000 FUJI BANK, LTD. Pro-Rata Share: 8% Lending Office: Two World Trade Center 79th Fl. By: New York, New York 10048 --------------------- Title: Vice President & Manager Commitment: $30,000,000 SANWA BUSINESS CREDIT Pro-Rata Share: 12% CORPORATION Lending Office: One South Wacker Drive Suite 2800 Chicago, IL 60606 By: --------------------- Title: Vice President Commitment: $30,000,000 BANKAMERICA Pro-Rata Share: 12% BUSINESS CREDIT, INC. Lending Office: 40 East 52nd Street Second Fl. New York, New York 10022 By: --------------------- Title: Senior Account Executive 6 Commitment: $25,000,000 HELLER FINANCIAL, INC. Pro-Rata Share: 10% Lending Office: 101 Park Avenue, 12th Fl. New York, New York 10178 By: --------------------- Title: Vice Pres. Commitment: $10,000,000 IBJ SCHRODER Pro-Rata Share: 4% BANK & TRUST COMPANY Lending Office: One State Street 9th Fl. New York, New York 10004 By: --------------------- Title: Commitment: $10,000,000 MIDLANTIC BANK N.A. (formerly Pro-Rata Share: 4% known as Midlantic National Lending Office: Bank) 499 Thornalle Street 9th Fl. Edison, New Jersey 08837 By: --------------------- Title: Assistant Vice President Commitment: $30,000,000 MITSUBISHI TRUST AND Pro-Rata Share: 12% BANKING CORPORATION Lending Office: 520 Madison Avenue 25th Fl. By: New York, NY 10022 --------------------- Title: Senior Vice President Commitment: $15,000,000 INDUSTRIAL BANK OF JAPAN, Pro-Rata Share: 6% LIMITED, New York Branch Lending Office: One State Street 9th Fl. New York, New York 10004 By: --------------------- Title: Senior Vice President & Senior Manager (BY: Mr. ?) Commitment: $25,000,000 COMPAGNIE FINANCIERE DE CIC ET Pro-Rata Share: 10% DE L'UNION EUROPEENNE Lending Office: 520 Madison Avenue 37th Floor By:/s/ Brian O'Leary New York, New York 10022 --------------------- Title: Vice President By:/s/ Sean Mounier ---------------------- Title: First Vice President 7 AGENT NATWEST USA CREDIT CORP., As Agent By: --------------------- Title: VP 8 EX-27 3 EXHIBIT 27 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-28-1995 JAN-29-1995 OCT-28-1995 41,318 0 76,069 2,410 389,791 522,717 955,669 315,821 1,801,061 379,269 1,352,493 13,589 0 0 (32,715) 1,801,061 2,543,591 2,588,876 2,000,278 2,000,278 492,012 1,036 99,434 (68,085) (16,160) (51,925) 0 0 0 (51,925) (4.78) 0 During the second quarter of fiscal 1996, the Company recorded certain expenses totaling $51.9 million (net of tax) classified as an unusual item. Tax Benefit
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