-----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, Hkv1oMS12/KMmjDGh5oyJjaSTX8rBLGEqpI9u7+x8p7nhzi9PI5PoX8U3eW7ax3L EkR78n/n0RnoLaqLaPRAtQ== /in/edgar/work/20000912/0000912057-00-040916/0000912057-00-040916.txt : 20000922 0000912057-00-040916.hdr.sgml : 20000922 ACCESSION NUMBER: 0000912057-00-040916 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000729 FILED AS OF DATE: 20000912 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN TRAFFIC CO CENTRAL INDEX KEY: 0000077155 STANDARD INDUSTRIAL CLASSIFICATION: [5411 ] IRS NUMBER: 250716800 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09930 FILM NUMBER: 720918 BUSINESS ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SRYACUSE STATE: NY ZIP: 13221-4737 BUSINESS PHONE: 8145369900 MAIL ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SYRACUSE STATE: NY ZIP: 13221-4737 10-Q 1 a2025356z10-q.txt 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 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 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. -2- 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. -3- 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. -4- 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. -5- 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. -6- 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. -7- 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. -8- NOTE 3 - FRESH-START REPORTING As of the Effective Date, the Company adopted fresh-start reporting pursuant to the guidance provided by SOP 90-7. In connection with the adoption of fresh-start reporting, a new entity was created for financial reporting purposes. The Effective Date is considered to be the close of business on June 26, 1999, for financial reporting purposes. The periods presented prior to June 26, 1999, have been designated "Predecessor Company" and the periods subsequent to June 26, 1999, have been designated "Successor Company." As a result of the implementation of fresh-start reporting, the financial statements of the Company after the Effective Date are not comparable to the Company's financial statements for prior periods. In accordance with fresh-start reporting, all assets and liabilities are recorded at their respective fair values. The fair value of the Company's long-lived assets was determined, in part, using information provided by third-party appraisers. The reorganization value of the Company is reflected as the debt and equity value of the new company, as of the Effective Date. To facilitate the calculation of the reorganization value, the Company developed a set of financial projections. Based on these financial projections, the reorganization value was determined by the Company, with the assistance of a financial advisor using various valuation methods, including (1) a comparison of the Company and its projected performance to how the market values comparable companies, (2) a calculation of the present value of the free cash flows under the projections, including an assumption for a terminal value and (3) negotiations with an informal committee of the Company's noteholders. The estimated enterprise value is highly dependent upon achieving the future financial results set forth in the projections, as well as the realization of certain other assumptions, which are not guaranteed. The total reorganization value as of the Effective Date was approximately $750 million, which was approximately $327.8 million in excess of the aggregate fair value of the Company's tangible and identifiable intangible assets less non-interest bearing liabilities. Such excess is classified as "Excess reorganization value" in the accompanying Consolidated Balance Sheet. Such amount is being amortized on a straight-line basis over a three-year period from June 26, 1999. The total outstanding indebtedness (including capital leases) as of the Effective Date was approximately $326.3 million. The Stockholders' Equity on the Effective Date of approximately $423.7 million was established by deducting such total outstanding indebtedness of $326.3 million from the reorganization value of $750 million. Stockholders' Equity includes $7.2 million representing the fair value of the warrants to purchase shares of New Common Stock distributed in conjunction with the consummation of the Plan. -9- 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. -10- 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. -11- 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. -12- 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. -13- 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. -14- 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. -15- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- EX-10.10A 2 a2025356zex-10_10a.txt EXHIBIT 10.10A Exhibit 10.10A AMENDMENT NO. 1 TO REVOLVING CREDIT AND TERM LOAN AGREEMENT AMENDMENT NO. 1, dated as of June 26, 2000 (this "AMENDMENT") to that certain Revolving Credit and Term Loan Agreement dated as of June 29, 1999, as may be amended, modified, restated or supplemented from time to time (the "LOAN AGREEMENT") among THE PENN TRAFFIC COMPANY ("Penn Traffic"), DAIRY DELL, INC., 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"), FLEET CAPITAL CORPORATION, as Administrative Agent for the Lenders (in such capacity, the "AGENT"), GMAC BUSINESS CREDIT, LLC, as documentation agent, and AMSOUTH BANK and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as co-agents is made by, between and among the Borrowers, the Lenders and the Agent. 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 requested that the Lenders: (1) agree to amend the Loan Agreement to permit Penn Traffic to repurchase up to $10,000,000 of its common stock; and (2) 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. WHEREAS, the Agent and the Lenders wish to confirm the Commitments of the Lenders as of the date hereof. 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 June 26, 2000 (the "Effective Date"), subject to the fulfillment of the conditions under Section 6 hereof, as follows: (i) Clause "(i)" of the definition of "Commitment" is amended to read as f"(i) set forth on Annex A hereto (with respect to Revolving Loans and Term Loans), subject to Section 11.13 hereof". (ii) The reference to "the signature pages hereof" in clause (1) of the fifth sentence of Section 11.13(b) is amended to read "Annex A hereto". (iii) The definition of "Pricing Grid" in Section 1.1 is hereby amended and restated in its entirety to read: "PRICING GRID" means the pricing grid (and subjoined text) attached hereto as Annex B. (iv) The first sentence of Section 6.21 of the Loan Agreement is hereby amended and restated in its entirety to read: "None of the Borrowers and their subsidiaries owns any "margin stock" as such term is defined in Regulation U, as amended, of the Federal Reserve Board, other than capital stock of Penn Traffic repurchased pursuant to Section 8.2 hereunder." (v) Section 7.3 of the Loan Agreement is amended to add the following subsection: "(o) Within 10 days thereof, any amendment or modification to the Senior Notes Indenture." (vi) Section 8.2 of the Loan Agreement is hereby amended by adding the following sentence to the end thereof: "Notwithstanding the foregoing, if no Event or Event of Default has occurred and is continuing, Penn Traffic may repurchase its Capital Stock on the open market or in privately negotiated arm's-length transactions; PROVIDED, HOWEVER, that the aggregate purchase price for all such repurchases shall not exceed $10,000,000; and PROVIDED, FURTHER, that Penn Traffic shall give the Agent written notice within five (5) Business Days following any such repurchase if the purchase price for such repurchase plus the aggregate purchase price for all prior repurchases of the capital stock of Penn Traffic not previously reported shall exceed an aggregate of $1,000,000; and PROVIDED, FURTHER, that no such repurchase may be made in the event that such repurchase would not be permitted under the Senior Notes Indenture." (vii) Annex B is replaced in its entirety with the revised Annex B attached hereto. 2. REPRESENTATIONS AND WARRANTIES. As an inducement to the Lenders to enter into this Amendment, each of the Borrowers hereby represents and warrants to the Lenders and agrees with 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 2 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 circumstance existing or occurring on or prior to the date hereof. 3. COMMITMENTS OF LENDERS. Each Lender party hereto, and the Agent, confirms that Annex A annexed hereto sets forth the Commitment of such Lender as of the date hereof. The Swing Line Lender confirms that the Commitment of the Swing Line Lender is as set forth in Section 2.12 of the Loan Agreement. 4. 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. 5. 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. 6. EFFECTIVE DATE. This Agreement shall become effective on the Effective Date subject to the fulfillment of the following conditions: (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. 3 (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 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. 7. 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. 8. 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 shall be used to apply the laws of any other state or jurisdiction. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first above written. BORROWERS: ---------- THE PENN TRAFFIC COMPANY By: ------------------------------- Title: DAIRY DELL, INC. By: ------------------------------- Title: BIG M SUPERMARKETS, INC. By: ------------------------------- Title: PENNY CURTISS BAKING COMPANY INC. By: ------------------------------- Title: ADMINISTRATIVE AGENT: --------------------- FLEET CAPITAL CORPORATION By: ------------------------------- Title: SWING LINE LENDER: ------------------ FLEET CAPITAL CORPORATION By: ------------------------------- Title: 5 LENDERS: -------- FLEET CAPITAL CORPORATION By: ------------------------------- Title: GMAC BUSINESS CREDIT, LLC By: ------------------------------- Title: AMSOUTH BANK By: ------------------------------- Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ------------------------------- Title: HELLER FINANCIAL, INC. By: ------------------------------- Title: LASALLE BUSINESS CREDIT, INC. By: ------------------------------- Title: CITIZENS BUSINESS CREDIT COMPANY By: ------------------------------- Title: 6 THE CIT GROUP/BUSINESS CREDIT, INC. By: ------------------------------- Title: IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: ------------------------------- Title: FOOTHILL CAPITAL CORPORATION By: ------------------------------- Title: TRANSAMERICA BUSINESS CREDIT CORPORATION By: ------------------------------- Title: 7 DIME COMMERCIAL CORP. By: ------------------------------- Title: SOVEREIGN BANK By: ------------------------------- Title: THE PROVIDENT BANK By: ------------------------------- Title: 8 Annex A COMMITMENTS
REVOLVING A TERM B TERM TOTAL LENDER COMMITMENT COMMITMENT COMMITMENT COMMITMENT ------ ---------- ---------- ---------- ---------- Fleet Capital Corporation $ 26,640,625 $ 8,125,000 $15,234,375 $ 50,000,000 GMAC Business Credit, LLC $ 19,218,750 $ 3,750,000 $ 7,031,250 $ 30,000,000 AmSouth Bank $ 14,053,980 $ 2,742,880 $ 8,203,125 $ 24,999,985 Bank of America National Trust and Savings Association $ 22,421,875 $ 4,375,000 $ 8,203,125 $ 35,000,000 Foothill Capital Corporation $ 19,218,750 $ 3,750,000 $ 7,031,250 $ 30,000,000 Heller Financial, Inc. $ 16,015,625 $ 3,125,000 $ 5,859,375 $ 25,000,000 LaSalle Business Credit, Inc $ 16,015,625 $ 3,125,000 $ 5,859,375 $ 25,000,000 CIT Group/Business Credit, Inc. $ 16,015,625 $ 3,125,000 $ 5,859,375 $ 25,000,000 Citizens Business Credit $ 9,609,375 $ 1,875,000 $ 3,515,625 $ 15,000,000 IBJ Whitehall Business Credit Corporation $ 9,609,375 $ 1,875,000 $ 3,515,625 $ 15,000,000 Transamerica Business Credit Corporation $ 15,000,000 -0- -0- $ 15,000,000 Dime Commercial Corp. $ 8,367,895 $ 1,632,120 -0- $ 10,000,015 Sovereign Bank $ 6,406,250 $ 1,250,000 $ 2,343,750 $ 10,000,000 The Provident Bank $ 6,406,250 $ 1,250,000 $ 2,343,750 $ 10,000,000 Total $205,000,000 $40,000,000 $75,000,000 $320,000,000
9 ANNEX B PRICING GRID (Rates and fees in basis points)
Revolving/Swing Line Loan Term Loans A Term Loans B Consolidated --------------------- --------------------- ------------------- Funded Debt Prime Rate Prime Rate Prime Rate Unused Ratio Libor + + Libor + + Libor + + Line Fee ----- ------- ---------- ------- ---------- ------- ---------- -------- Tier I: 4.75+ 237.5 137.5 237.5 137.5 300 200 50 Tier II: 4.26 - 4.75 212.5 112.5 212.5 112.5 300 200 50 Tier III: 3.76 - 4.25 187.5 87.5 187.5 87.5 275 175 37.5 Tier IV: 3.26 - 3.75 162.5 62.5 162.5 62.5 275 175 25 Tier V: Less than 3.25 150 50 150 50 275 175 25
There will be no pricing adjustment prior to May 1, 2000 (the "Adjustment Date"). The initial review for pricing adjustment will occur following receipt of the Borrowers' financial statements delivered pursuant to Section 7.2(a) for Fiscal Year 2000. Thereafter, rate adjustments based on the Pricing Grid will be made following receipt from the Borrowers of the financial statements delivered pursuant to Section 7.2(a) or 7.2(b), and of a request for a rate adjustment accompanied by a schedule reflecting the appropriate calculation. Quarterly adjustments based on the Pricing Grid shall occur 45 and 90 days after the end of the quarter or year-end, as appropriate, based on the financial statements for the corresponding periods respectively. Solely for the purposes of calculating Consolidated Funded Debt Ratio under this Pricing Grid for the first Fiscal Quarter of Fiscal Year 2001 and any subsequent Fiscal Quarter or Fiscal Year, Consolidated Funded Debt shall include the Undrawn Amount of all Letters of Credit outstanding on the date of determination. EX-27.1 3 a2025356zex-27_1.txt EXHIBIT 27.1
5 1,000 6-MOS FEB-03-2001 JAN-30-2000 JUL-29-2000 53,194 0 43,931 4,611 269,130 374,277 276,608 30,797 967,271 250,427 299,753 0 0 201 313,072 967,271 1,199,803 1,222,358 927,494 927,494 0 0 19,256 (46,442) 3,849 (50,291) 0 0 0 (50,291) (2.50) (2.50)
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