-----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, JV0YcUE3GalWUP2WE7kmVP9gHPq5e1dm9bA4a6OkuZk5IER/f/93rfByRBy9xPry 2JdezETLdzDbe6GWNRXSpQ== 0000912057-02-024534.txt : 20020618 0000912057-02-024534.hdr.sgml : 20020618 20020618083641 ACCESSION NUMBER: 0000912057-02-024534 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020504 FILED AS OF DATE: 20020618 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: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09930 FILM NUMBER: 02681070 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 a2082483z10-q.txt 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 May 4, 2002 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: 20,064,264 shares outstanding as of June 7, 2002 ================================================================================ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) UNAUDITED
13 WEEKS 13 WEEKS ENDED ENDED MAY 4, MAY 5, 2002 2001 ------------- ------------- REVENUES $ 576,372 $ 579,055 COST AND OPERATING EXPENSES: Cost of sales 416,009 422,412 Selling and administrative expenses 149,743 146,371 Amortization of excess reorganization value 27,318 --------- --------- OPERATING INCOME (LOSS) 10,620 (17,046) Interest expense 8,511 9,530 --------- --------- INCOME (LOSS) BEFORE INCOME TAXES 2,109 (26,576) Provision for income taxes (Note 2) 970 559 --------- --------- NET INCOME (LOSS) $ 1,139 $ (27,135) ========= ========= PER SHARE (BASIC AND DILUTED): Net Income (Loss) (Note 3) $ 0.06 $ (1.35) ========= =========
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS. -2- THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED AUDITED MAY 4, FEBRUARY 2, 2002 2002 ------------ ------------ ASSETS CURRENT ASSETS: Cash and short-term investments $ 38,021 $ 39,562 Accounts and notes receivable (less allowance for doubtful accounts of $2,412 and $2,107, respectively) 41,533 49,710 Inventories 278,802 284,221 Prepaid expenses and other current assets 11,224 9,697 -------- -------- 369,580 383,190 -------- -------- NONCURRENT ASSETS: Capital leases 43,135 44,747 Property, plant and equipment 281,267 273,436 Goodwill 8,990 8,990 Beneficial leases 45,368 46,920 Excess reorganization value 42,032 42,032 Other assets 19,315 16,414 -------- -------- $809,687 $815,729 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 8,058 $ 7,066 Current portion of obligations under capital leases 8,107 8,329 Trade accounts and drafts payable 121,863 128,872 Other accrued liabilities 79,783 77,590 Accrued interest expense 5,138 2,514 Taxes payable 17,622 18,179 -------- -------- 240,571 242,550 -------- -------- NONCURRENT LIABILITIES: Long-term debt 241,273 245,646 Obligations under capital leases 65,417 67,075 Deferred income taxes 65,273 63,770 Other noncurrent liabilities 49,676 51,471 STOCKHOLDERS' EQUITY: Preferred stock - authorized 1,000 shares; $.01 par value; none issued Common Stock - authorized 30,000 shares; $.01 par value; 20,058 and 20,056 shares issued and outstanding, respectively 201 201 Capital in excess of par value (Note 4) 417,395 416,597 Stock warrants 7,249 7,249 Retained deficit (254,572) (255,711) Accumulated other comprehensive loss (Note 4) (22,421) (22,744) Treasury stock, at cost (Note 4) (375) (375) -------- -------- TOTAL STOCKHOLDERS' EQUITY 147,477 145,217 -------- -------- $809,687 $815,729 ======== ========
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS. -3- THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) UNAUDITED
13 WEEKS 13 WEEKS ENDED ENDED MAY 4, MAY 5, 2002 2001 ------------- ------------ OPERATING ACTIVITIES: Net income (loss) $ 1,139 $(27,135) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 10,557 10,454 Amortization of excess reorganization value 27,318 Other - net 640 127 NET CHANGE IN ASSETS AND LIABILITIES: Accounts receivable and prepaid expenses 6,650 3,732 Inventories 5,419 (2,189) Payables and accrued expenses 1,726 10,544 Deferred income taxes 1,536 133 Other assets (2,590) (844) Other noncurrent liabilities (1,614) (34) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 23,463 22,106 -------- -------- INVESTING ACTIVITIES: Capital expenditures (15,189) (9,116) Proceeds from sale of assets 168 20 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (15,021) (9,096) -------- -------- FINANCING ACTIVITIES: Net decrease in drafts payables (4,722) (2,115) Payments to settle long-term debt (1,081) (1,076) Borrowing of revolving debt 45,100 55,300 Repayment of revolving debt (47,400) (63,700) Reduction of capital lease obligations (1,880) (2,213) -------- -------- NET CASH USED IN FINANCING ACTIVITIES (9,983) (13,804) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (1,541) (794) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 39,562 42,529 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,021 $ 41,735 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid 5,667 7,234 Income taxes paid 1,422 53
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 accounting principles generally accepted in the United States of America 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 statement 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 February 2, 2002. All significant intercompany transactions and accounts have been eliminated in consolidation. During the third quarter of the fiscal year ended February 2, 2002, the Company implemented EITF Issue Number 00-14, "Accounting for Certain Sales Incentives" as codified by EITF Issue Number 01-9, "Accounting for Consideration Given by a Vendor to a Customer" and made certain other income statement reclassifications. Accordingly, certain amounts in the Consolidated Statement of Operations for the 13-week period ended May 5, 2001 have been reclassified for comparability purposes. -5- NEW ACCOUNTING STANDARDS Penn Traffic adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") in the 13-week period ending May 4, 2002 ("First Quarter Fiscal 2003"). SFAS 142 provides that intangible assets with finite useful lives be amortized, and that goodwill and intangible assets with indefinite useful lives not be amortized but tested at least annually for impairment. Accordingly, the Company no longer records amortization of excess reorganization value or goodwill in its Consolidated Statement of Operations. In conjunction with the adoption of SFAS 142, Penn Traffic performed a comprehensive test of the carrying value of the excess reorganization value and goodwill assets for impairment. As a result of this review, no assets were deemed impaired. Excess reorganization value and goodwill have a carrying value of approximately $51 million at the date of adoption of this standard. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supercedes Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principle Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The Company adopted this standard in First Quarter Fiscal 2003. The adoption of this standard did not have a material effect on the Company's financial statements. NOTE 2 - INCOME TAXES The tax provisions for First Quarter Fiscal 2003 and the 13-week period ended May 5, 2001 ("First Quarter Fiscal 2002") are not recorded at statutory rates due to differences between income calculations for financial reporting and tax reporting purposes. The effective tax rate for First Quarter Fiscal 2003 reflects the recognition of tax expense based on the estimated effective annual tax rate for the fiscal year ending February 1, 2003. The effective tax rate for First Quarter Fiscal 2002 has not been annualized due to the net loss reported for the fiscal year ended February 2, 2002. -6- NOTE 3 - NET INCOME (LOSS) PER SHARE The calculation of Basic Earnings Per Share utilized 20,058,264 and 20,054,112 shares for First Quarter Fiscal 2003 and First Quarter Fiscal 2002, respectively. The calculation of Diluted Earnings Per Share utilized 20,383,567 and 20,054,112 shares for First Quarter Fiscal 2003 and First Quarter Fiscal 2002, respectively. The calculation of Diluted Earnings Per Share for First Quarter Fiscal 2002 excludes the effect of incremental common stock equivalents aggregating 42,191 shares, since they would have been antidilutive given the net loss for the quarter. NOTE 4 - STOCKHOLDERS' EQUITY Comprehensive income (loss) for First Quarter Fiscal 2003 and First Quarter Fiscal 2002 consists of net income (loss), the effects of accounting for hedges under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," and unrealized gains or losses on marketable securities. Total comprehensive income for First Quarter Fiscal 2003 was $1.5 million. Total comprehensive loss for First Quarter Fiscal 2002 was $27.4 million. Capital in excess of par value includes accumulated compensation expense with respect to certain stock options subject to variable accounting of $1.2 million and $0.4 million as of May 4, 2002 and February 2, 2002, respectively. On June 29, 2000, the Company announced that its Board of Directors had 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. To date, the Company has repurchased 53,000 shares of common stock at an average price of $7.08 per share. -7- NOTE 5 - SUPPLEMENTAL FINANCIAL INFORMATION
13 WEEKS 13 WEEKS ENDED ENDED MAY 4, MAY 5, 2002 2001 ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) EBITDA (1) $ 21,677 $ 21,351 Cash interest expense 8,291 9,311 Adjusted net income (2) 1,139 183 Adjusted Earnings Per Share (Basic and Diluted) (3) $ 0.06 $ 0.01
- ------------------------------ See notes below (1) "EBITDA" is earnings before interest, taxes, depreciation, amortization, amortization of excess reorganization value and LIFO provision. 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. (2) "Adjusted net income" for First Quarter Fiscal 2003 is net income and for First Quarter Fiscal 2002 is net loss excluding amortization of excess reorganization value of $27.3 million. (3) The calculation of Basic Adjusted Earnings Per Share utilized 20,058,264 and 20,054,112 shares for First Quarter Fiscal 2003 and First Quarter Fiscal 2002, respectively. The calculation of Diluted Adjusted Earnings Per Share utilized 20,383,567 and 20,096,303 shares for First Quarter Fiscal 2003 and First Quarter Fiscal 2002, respectively. -8- NOTE 6 - AMORTIZATION OF EXCESS REORGANIZATION VALUE AND GOODWILL Penn Traffic's adoption of SFAS 142 eliminates the amortization of excess reorganization value and goodwill beginning in First Quarter Fiscal 2003. The following table presents a comparison of First Quarter Fiscal 2003 net income to the reported net loss for First Quarter Fiscal 2002 adjusted to exclude the amortization of excess reorganization value and goodwill ("Pro forma net income"):
13 WEEKS 13 WEEKS ENDED ENDED MAY 4, MAY 5, 2002 2001 ----------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Reported net income (loss) $ 1,139 $(27,135) Amortization of excess reorganization value 27,318 Goodwill amortization, net of tax 35 -------- -------- Pro forma net income $ 1,139 $ 218 ======== ======== Basic and diluted earnings per share Reported net income (loss) $ 0.06 $ (1.35) Amortization of excess reorganization value 1.36 Goodwill amortization, net of tax -------- -------- Pro forma net income $ 0.06 $ 0.01 ======== ========
-9- NOTE 7 - SEGMENT INFORMATION The table below presents Revenues and EBITDA by reportable segment:
WHOLESALE RETAIL FOOD FOOD DISTRIBUTION TOTAL ------------- ------------- -------------- (IN THOUSANDS) FIRST QUARTER FISCAL 2003 Revenues $506,905 $ 64,739 $571,644 EBITDA 32,257 4,481 36,738 FIRST QUARTER FISCAL 2002 Revenues $508,736 $ 66,351 $575,087 EBITDA 32,527 4,115 36,642
The table below reconciles (a) Total segment revenues to Consolidated revenues and (b) Total EBITDA for reportable segments to Income (loss) before income taxes:
13 WEEKS 13 WEEKS ENDED ENDED MAY 4, MAY 5, 2002 2001 ------------- ------------- (IN THOUSANDS) REVENUES: Total segment revenues $571,644 $575,087 Other revenues 4,728 3,968 -------- -------- Consolidated revenues $576,372 $579,055 ======== ======== EBITDA (1): Total EBITDA for reportable segments $ 36,738 $ 36,642 Unallocated expenses/income (15,061) (15,291) Depreciation and amortization (10,557) (10,454) Amortization of excess reorganization value (27,318) LIFO provision (500) (625) Interest expense (8,511) (9,530) -------- -------- Income (loss) before income taxes $ 2,109 $(26,576) ======== ========
- ------------------------------ See notes below (1) EBITDA is earnings before interest, taxes, depreciation, amortization, amortization of excess reorganization value and LIFO provision. -10- 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, as amended. Without limiting the foregoing, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," "project" 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 and investments in the Company's technology infrastructure including point-of-sale systems); labor relations; labor and employee benefit costs including increases in health care and pension costs; the impact of the Company's loyalty card program on its results of operations; availability and terms of and access to capital; the Company's liquidity and other financial considerations; 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; and the outcome of pending or yet-to-be instituted legal proceedings. Penn Traffic cautions that the foregoing list of important factors is not exhaustive. -11- RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED MAY 4, 2002 ("FIRST QUARTER FISCAL 2003") COMPARED TO THIRTEEN WEEKS ENDED MAY 5, 2001 ("FIRST QUARTER FISCAL 2002") The following table sets forth Consolidated Statement of Operations components expressed as percentages of revenues for First Quarter Fiscal 2003 and First Quarter Fiscal 2002:
FIRST QUARTER ENDED MAY 4, MAY 5, 2002 2001 ------------- ------------- Revenues 100.0% 100.0% Gross profit (1) 27.8 27.1 Selling and administrative expenses 26.0 25.3 Amortization of excess reorganization value 4.7 Operating income (loss) 1.8 (2.9) Adjusted operating income (2) 1.8 1.8 Interest expense 1.5 1.6 Net income (loss) 0.2 (4.7) Adjusted net income (3) 0.2 0.0
- ------------------------------ See notes below (1) Revenues less cost of sales. (2) Operating income for First Quarter Fiscal 2003. Operating loss for First Quarter Fiscal 2002 excluding amortization of excess reorganization value of $27.3 million. (3) Net income for First Quarter Fiscal 2003. Net loss for First Quarter Fiscal 2002 excluding amortization of excess reorganization value of $27.3 million. -12- RESULTS OF OPERATIONS (CONTINUED) REVENUES Total revenues for First Quarter Fiscal 2003 were $576.4 million, a decrease of 0.5% from $579.1 million in First Quarter Fiscal 2002. The decrease in revenues in First Quarter Fiscal 2003 is primarily attributable to (1) the reduction in the number of stores the Company operated in First Quarter Fiscal 2003 as compared to First Quarter Fiscal 2002 and (2) a decline in wholesale food distribution revenues. These decreases were partially offset by an increase in same store sales. Same store sales for First Quarter Fiscal 2003 increased 0.6% from the comparable prior year period. Wholesale food distribution revenues were $64.7 million in First Quarter Fiscal 2003 compared to $66.4 million in First Quarter Fiscal 2002. GROSS PROFIT Gross profit for First Quarter Fiscal 2003 was 27.8% of revenues compared to 27.1% of revenues in First Quarter Fiscal 2002. The Company's ability to more effectively promote its offerings with its new loyalty card, an increase in private label sales, a reduction in inventory shrink expense and a reduction in the LIFO provision from the prior year contributed to the improvement in gross profit as a percentage of revenues in First Quarter Fiscal 2003. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses for First Quarter Fiscal 2003 were 26.0% of revenues compared to 25.3% of revenues in First Quarter Fiscal 2002. The increase in selling and administrative expenses as a percentage of revenues for First Quarter Fiscal 2003 is primarily due to increases in wage, pension and health insurance costs during a period of little or no food inflation. These increases were partially offset by the benefit of the Company's cost reduction initiatives. -13- RESULTS OF OPERATIONS (CONTINUED) DEPRECIATION AND AMORTIZATION Depreciation and amortization expense was $10.6 million in First Quarter Fiscal 2003 and $10.5 million in First Quarter Fiscal 2002, representing 1.8% of revenues for both periods. Amortization of excess reorganization value for First Quarter Fiscal 2002 was $27.3 million. The excess reorganization value asset, which was established in June 1999 in connection with the implementation of fresh-start reporting, was being amortized on a straight-line basis over a three-year period. The Company is no longer amortizing the excess reorganization value asset in accordance with SFAS 142 (see "Impact of New Accounting Standards" below). OPERATING INCOME (LOSS); ADJUSTED OPERATING INCOME Operating income for First Quarter Fiscal 2003 was $10.6 million or 1.8% of revenues compared to an operating loss of $17.0 million or 2.9% of revenues in First Quarter Fiscal 2002. Adjusted operating income for First Quarter Fiscal 2003 was $10.6 million or 1.8% of revenues compared to $10.3 million or 1.8% of revenues in First Quarter Fiscal 2002. INTEREST EXPENSE Interest expense for First Quarter Fiscal 2003 was $8.5 million compared to $9.5 million in First Quarter Fiscal 2002. The decrease in interest expense in First Quarter Fiscal 2003 is due to a decrease in the interest rate on the Company's variable rate debt from the prior year. -14- RESULTS OF OPERATIONS (CONTINUED) INCOME TAXES Income tax provision was $1.0 million for First Quarter Fiscal 2003 compared to $0.6 million in First Quarter Fiscal 2002. The tax provisions for the First Quarter Fiscal 2003 and First Quarter Fiscal 2002 are not recorded at statutory rates due to differences between income calculations for financial reporting and tax reporting purposes. The effective tax rate for First Quarter Fiscal 2003 reflects the recognition of tax expense based on the estimated effective annual tax rate for the fiscal year ending February 1, 2003. The effective tax rate for First Quarter Fiscal 2002 has not been annualized due to the net loss reported for Fiscal 2002. NET INCOME (LOSS); ADJUSTED NET INCOME Net income for First Quarter Fiscal 2003 was $1.1 million compared to a net loss of $27.1 million for First Quarter Fiscal 2002. Adjusted net income for First Quarter Fiscal 2003 was $1.1 million compared to $0.2 million in First Quarter Fiscal 2002. CRITICAL ACCOUNTING POLICIES Critical accounting policies are those accounting policies that are very important to the portrayal of the Company's financial condition and results which require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes that estimates for reserve for store closures, impairment of long-lived assets, liabilities for employee benefit plans and self-insurance liabilities are critical accounting policies. Materially different amounts could be reported under different conditions or using different assumptions for these items. These estimates and assumptions are evaluated on an ongoing basis, based on historical experience and on various other factors that are believed to be reasonable. There are no significant changes to these estimates and assumptions since the issuance of the Company's Form 10-K for the fiscal year ended February 2, 2002. -15- LIQUIDITY AND CAPITAL RESOURCES The Company's debt (excluding capital leases) consists primarily of $100 million of 11% Senior Notes due June 29, 2009 (the "Senior Notes") and amounts outstanding under a $320 million secured credit facility (the "Credit Facility") as shown below.
MAY 4, FEBRUARY 2, 2002 2002 -------------- -------------- (IN THOUSANDS) Secured Term Loan $ 107,250 $ 108,250 Secured Revolving Credit Facility 29,800 32,100 Other Secured Debt 12,281 12,362 11% Senior Notes due June 29, 2009 100,000 100,000 --------- --------- Total Debt $ 249,331 $ 252,712 Less: Current maturities of long-term debt (8,058) (7,066) --------- --------- Total Long-Term Debt $ 241,273 $ 245,646 ========= =========
The Credit Facility includes (1) a $205 million revolving credit facility (the "Revolving Credit Facility") and (2) a $115 million term loan (the "Term Loan"). The lenders under the Credit Facility have a first priority perfected security interest in substantially all of the Company's assets. The Credit Facility contains a variety of operational and financial covenants intended to restrict the Company's operations. These include, among other things, restrictions on the Company's ability to incur debt, make capital expenditures and restricted payments, as well as, requirements that the Company achieve required levels for Consolidated EBITDA, interest coverage, fixed charge coverage and funded debt ratio (all as defined in the Credit Facility). Availability under the Revolving Credit Facility is calculated based on a specified percentage of eligible inventory and accounts receivable of the Company. The Revolving Credit Facility will mature on June 30, 2005. Availability under the Revolving Credit Facility was approximately $126 million as of May 4, 2002. -16- LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Term Loan will mature on June 30, 2006. Amounts of the Term Loan maturing in each fiscal year are outlined in the following table (in thousands):
FISCAL YEAR ENDING AMOUNT MATURING ------------------ --------------- 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 --------- $ 108,250 =========
The indenture for the Senior Notes 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. Cash flows used to meet the Company's operating requirements during First Quarter Fiscal 2003 are reported in the Consolidated Statement of Cash Flows. During First Quarter Fiscal 2003, the Company's net cash used in investing activities was $15.0 million and net cash used in financing activities was $10.0 million. This amount was financed by net cash provided by operating activities of $23.5 million and a reduction in cash and cash equivalents of $1.5 million. During First Quarter Fiscal 2003, 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. For the next year, the Company expects to utilize internally generated funds from operations, amounts available under the Revolving Credit Facility and new mortgages and capital leases to satisfy its operating, capital expenditure and debt service needs and to fund any repurchase of shares of its common stock under its stock repurchase program. -17- LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Company competes with several supermarket chains, independent grocery stores, supercenters (combination supermarket and general merchandise stores) and other retailers, many of which have greater resources than Penn Traffic. The number of competitors and the degree of competition encountered by the Company's supermarkets vary by location. Any significant change in the number of the Company's competitors, the number or size of competitors' stores, or in the pricing and promotion practices of the Company's competitors could have an impact on the Company's results of operations. Penn Traffic will incur significant increases in employee benefit costs in the 52-week period ended February 1, 2003 ("Fiscal 2003"). These are comprised of (1) increases in health care costs which the Company believes are, on a percentage basis, generally consistent with overall increasing costs in the health care industry and (2) an increase in pension expense that the Company will record in Fiscal 2003 as a result of the declining returns in the equity markets over the past two years. Penn Traffic competes against some companies which do not provide the same levels of employee benefits as the Company. It is not certain what portion of these cost increases Penn Traffic will be able to offset through its cost reduction programs, merchandising enhancements or market pricing adjustments. During 2000, the Company entered into interest rate swap agreements, which expire in April 2005, 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% per annum and receives payments at variable interest rates based on the London InterBank Offered Rate. During Fiscal 2003, Penn Traffic expects to invest approximately $65 million in capital expenditures (including capital leases). Capital expenditures will be principally for new stores, store remodels and investments in the Company's distribution system and technology infrastructure (including new point-of-sale systems in several of the Company's stores). The Company expects to finance such expenditures through cash generated from operations, amounts available under the Revolving Credit Facility and new mortgages and capital leases. On June 29, 2000, the Company announced that its Board of Directors has authorized the Company to repurchase up to an aggregate value of $10 million of Penn Traffic's common stock from time to time in the open market or privately negotiated transactions. The timing and amounts of purchases will be governed by prevailing market conditions and other considerations. To date, the Company has repurchased 53,000 shares of common stock at an average price of $7.08 per share. -18- LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) During First Quarter Fiscal 2003, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, the Company does not engage in trading activities involving non-exchange traded contracts. As such, the Company is not materially exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in such relationships. Penn Traffic does not have relationships or transactions with persons or entities that derive benefits from their non-independent relationship with the Company or its related parties other than what is disclosed in Note 15 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended February 2, 2002. -19- IMPACT OF NEW ACCOUNTING STANDARDS The Company's Consolidated Statement of Operations and same store sales results for the First Quarter Fiscal 2003 reflect the Company's implementation of EITF Issue Number 00-14, "Accounting for Certain Sales Incentives" as codified by EITF Issue Number 01-9, "Accounting for Consideration Given by Vendors to a Customer" ("EITF 00-14") and certain other income statement classifications the Company made during the fiscal year ended February 2, 2002. The Consolidated Statement of Operations for First Quarter Fiscal 2002 has been reclassified for comparability purposes. The implementation of EITF 00-14 and these other reclassifications do not have any effect on Penn Traffic's reported Operating Income (Loss), EBITDA or Net Income (Loss). Penn Traffic adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") in First Quarter Fiscal 2003. SFAS 142 provides that intangible assets with finite useful lives be amortized, and that goodwill and intangible assets with indefinite useful lives not be amortized but tested at least annually for impairment. The Company no longer records amortization of excess reorganization value or goodwill in its Consolidated Statement of Operations. In conjunction with the adoption of SFAS 142, Penn Traffic performed a comprehensive test of the carrying value of the excess reorganization value and goodwill assets for impairment. As a result of this review, no assets were deemed impaired. Excess reorganization value and goodwill have a carrying value of approximately $51 million at the date of adoption of this standard. In October 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supercedes Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principle Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The Company adopted this standard in First Quarter Fiscal 2003. The adoption of this standard did not have a material effect on the Company's financial statements. -20- 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 No reports on Form 8-K were filed during the fiscal quarter ended May 4, 2002. -21- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE PENN TRAFFIC COMPANY June 18, 2002 /s/ Joseph V. Fisher -------------------------------------- By: Joseph V. Fisher President, Chief Executive Officer and Director June 18, 2002 /s/ Martin A. Fox -------------------------------------- By: Martin A. Fox Executive Vice President, Chief Financial Officer and Director -22- -----END PRIVACY-ENHANCED MESSAGE-----