0000912057-95-007748.txt : 19950914 0000912057-95-007748.hdr.sgml : 19950914 ACCESSION NUMBER: 0000912057-95-007748 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950729 FILED AS OF DATE: 19950912 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN TRAFFIC CO CENTRAL INDEX KEY: 0000077155 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 250716800 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09930 FILM NUMBER: 95573209 BUSINESS ADDRESS: STREET 1: 319 WASHINGTON STREET CITY: JOHNSTOWN STATE: PA ZIP: 15901 BUSINESS PHONE: 8145369900 MAIL ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SYRACUSE STATE: NY ZIP: 13221-4737 10-Q 1 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, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission file number 1-9930 THE PENN TRAFFIC COMPANY (Exact name of registrant as specified in its charter) Delaware 25-0716800 (State of incorporation) (IRS Employer Identification No.) 1200 State Fair Blvd., Syracuse, NY 13209 (Address of principal executive offices) (Zip Code) (315) 453-7284 (Telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X . NO . --- --- Common stock, par value $1.25 per share: 10,872,049 shares outstanding as of September 1, 1995 1 of 15 PART I. FINANCIAL INFORMATION Item 1. Financial Statements THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF OPERATIONS UNAUDITED (All dollar amounts in thousands, except per share data)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED July 29, July 30, July 29, July 30, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- TOTAL REVENUES $ 884,229 $ 835,767 $1,744,257 $1,645,728 COST AND OPERATING EXPENSES: Cost of sales (including buying and occupancy costs) 685,857 642,930 1,348,306 1,274,388 Selling and administrative expenses 164,780 150,440 329,002 295,552 Unusual item (Note 6) 65,237 65,237 ---------- ---------- ---------- ---------- OPERATING (LOSS) INCOME (31,645) 42,397 1,712 75,788 Interest expense 32,994 28,767 66,028 57,791 ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (64,639) 13,630 (64,316) 17,997 Benefit (provision) for income taxes 12,935 (6,762) 12,741 (8,873) ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (51,704) 6,868 (51,575) 9,124 Extraordinary item (net of tax benefit) (Note 4) (691) (2,967) ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (51,704) 6,177 (51,575) 6,157 Cumulative effect of change in accounting principle (net of tax benefit) (Note 5) (5,790) ---------- ---------- ---------- ---------- NET (LOSS) INCOME APPLICABLE TO COMMON STOCK $ (51,704) $ 6,177 $ (51,575) $ 367 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE DATA: (Loss) income before extraordinary item and cumulative effect of change in accounting principle $ (4.65) $ .62 $ (4.64) $ .82 Extraordinary item (.07) (.27) Cumulative effect of change in accounting principle (.52) ---------- ---------- ---------- ---------- Net (loss) income $ (4.65) $ .55 $ (4.64) $ .03 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Average number of common shares outstanding 11,118,230 11,167,258 11,127,148 11,165,057
See Notes to Interim Consolidated Financial Statements. -2- THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET (All dollar amounts in thousands)
Unaudited July 29, 1995 January 28, 1995 ------------- ---------------- ASSETS CURRENT ASSETS: Cash and short-term investments $ 44,319 $ 46,519 Accounts and notes receivable (less allowance for doubtful accounts of $2,267 and $1,374, respectively) 71,400 81,967 Inventories (Note 3) 392,907 385,968 Prepaid expenses and other current assets 14,886 10,913 ---------- ----------- Total Current Assets 523,512 525,367 NONCURRENT ASSETS: Capital leases - net 123,190 127,748 Property, plant and equipment - net 608,886 600,797 Intangible assets - net 436,732 451,897 Other assets and deferred charges - net 85,398 88,157 ---------- ----------- $1,777,718 $1,793,966 ---------- ----------- ---------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 3,747 $ 4,118 Current portion of obligations under capital leases 10,604 9,962 Trade accounts and drafts payable 224,551 209,890 Payroll and other accrued liabilities 83,980 79,434 Accrued interest expense 30,662 30,686 Payroll taxes and other taxes payable 19,592 19,582 Deferred income taxes 27,384 27,384 ---------- ----------- Total Current Liabilities 400,520 381,056 NONCURRENT LIABILITIES: Long-term debt 1,166,351 1,136,302 Obligations under capital leases 125,381 126,894 Deferred income taxes 59,784 73,598 Other noncurrent liabilities 44,038 43,189 ---------- ----------- Total Liabilities 1,796,074 1,761,039 ---------- ----------- SHAREHOLDERS' EQUITY: Preferred Stock - authorized 10,000,000 shares at $1.00 par value; none issued Common Stock - authorized 30,000,000 shares at $1.25 par value; 10,871,301 shares and 10,846,701 shares issued and outstanding, respectively 13,588 13,558 Capital in excess of par value 179,427 179,165 Retained deficit (205,118) (149,681) Minimum pension liability adjustment (356) (356) Unearned compensation (5,897) (9,759) ---------- ----------- Total Shareholders' Equity (18,356) 32,927 ---------- ----------- $1,777,718 $1,793,966 ---------- ----------- ---------- -----------
See Notes to Interim Consolidated Financial Statements. -3- THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED (All dollar amounts in thousands)
TWENTY-SIX TWENTY-SIX WEEKS ENDED WEEKS ENDED July 29, 1995 July 30, 1994 ------------- ------------- OPERATING ACTIVITIES: Net (loss) income $ (51,575) $ 367 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Cumulative effect of change in accounting principle 5,790 Depreciation and amortization 37,276 35,894 Amortization of intangibles 8,476 7,350 Write-off of fixed assets 16,416 Write-off of intangible assets 32,809 Deferred tax benefit (13,331) Other - net (8,923) (4,491) Net change in assets and liabilities: Accounts receivable and prepaid expenses 8,309 (7,248) Inventories (6,939) (399) Accounts payable and accrued expenses 17,226 (617) Deferred charges and other assets 964 2,939 ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 40,708 39,585 ------------- ------------- INVESTING ACTIVITIES: Capital expenditures (67,326) (40,312) Proceeds from sale of assets 144 1,634 Other - net (1,010) (415) ------------- ------------- NET CASH (USED IN) INVESTING ACTIVITIES (68,192) (39,093) ------------- ------------- FINANCING ACTIVITIES: Payments to settle long-term debt (1,822) (60,131) Borrowings of revolver debt 281,000 229,100 Payment of revolver debt (249,500) (206,500) Reduction of capital lease obligations (4,591) (3,914) Payment of debt issuance costs (141) (338) Other - net 338 128 ------------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 25,284 (41,655) ------------- ------------- DECREASE IN CASH AND CASH EQUIVALENTS (2,200) (41,163) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 46,519 82,467 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,319 $ 41,304 ------------- ------------- ------------- -------------
See Notes to Interim Consolidated Financial Statements. -4- THE PENN TRAFFIC COMPANY NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The results of operations for the interim periods are not necessarily an indication of results to be expected for the year. In the opinion of management, all adjustments necessary for a fair presentation of the results are included for the interim periods, and all such adjustments are normal and recurring. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended January 28, 1995. Net (loss) income per share of common stock is based on the average number of shares and equivalents of common stock outstanding during each period. Fully diluted income (loss) per share is not presented for each of the periods since conversion of the Company's shares under option would be anti-dilutive or the reduction from primary income (loss) per share is less than three percent. -5- NOTE 2 - SUPPLEMENTAL FINANCIAL INFORMATION (In thousands of dollars) Second Quarter Twenty-six Weeks -------------- ---------------- Fiscal 1996 ----------- Operating Income * $ 33,592 $ 66,949 Unusual Item 65,237 65,237 Depreciation and Amortization 22,607 45,752 LIFO Provision* 858 858 Cash Interest Expense 31,922 63,886 * Excludes the effect of the unusual item. Fiscal 1995 ----------- Operating Income $ 42,397 $ 75,788 Depreciation and Amortization 21,539 43,245 LIFO Provision 425 450 Cash Interest Expense 27,796 55,809 NOTE 3 - INVENTORIES If the first-in, first-out (FIFO) method had been used by the Company, inventories would have been $19,378,000 and $17,145,000 higher than reported at July 29, 1995 and January 28, 1995, respectively. NOTE 4 - EXTRAORDINARY ITEM During the second quarter ended July 30, 1994, the Company had an extraordinary charge of $0.7 million (net of $0.5 million income tax benefit). The extraordinary charge for the twenty-six weeks ended July 30, 1994 was $3.0 million (net of $2.1 million income tax benefit). These extraordinary charges relate to the early retirement of debt. -6- NOTE 5 - CHANGE IN ACCOUNTING PRINCIPLE Effective January 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation to provide postemployment benefits on an accrual basis if certain conditions are met. The Company's postemployment benefits covered by SFAS 112 are primarily disability related claims covering indemnity and medical payments. The obligation for these claims is measured using actuarial techniques and assumptions including appropriate discount rates. The cumulative effect of the change in accounting principle determined as of January 30, 1994 reduced net income by $5.8 million (net of $4.1 million income tax benefit) in the fiscal year ended January 28, 1995. NOTE 6 - UNUSUAL ITEM The Company has decided to commence in January 1996 the closing of 11 of its 15 remaining stand alone general merchandise stores (Harts) in Ohio. This process is expected to be completed by August 1996. These 11 stores currently generate approximately $50 million of revenues or about 1.4% of the Company's annual revenues. The remaining four Harts stores will be converted to the Company's "Big Bear Plus" format. Accordingly, the Company recorded during the second quarter ended July 29, 1995, an unusual item of $53.0 million as a result of this decision. This charge specifically relates to the write-off of goodwill ($32.8 million), the write-off of fixed assets ($8.4 million) and store closing costs consisting principally of inventory markdowns ($11.8 million). The Company expects that this program will generate net cash proceeds of approximately $15 million by the middle of Fiscal 1997. These funds will be used for debt retirement. When the process is completed in July 1996, the Company expects to realize an approximate annual impact of an increase in operating income of $2.0 million, a reduction of interest expense of between $1.2 million to $1.5 million, and an increase in net income of $2.0 million. In addition to the Harts related charges, the unusual item also includes $12.2 million in connection with the noncash write-off of certain fixed assets which the Company determined during the second quarter that it will no longer utilize in its business ($8.0 million), costs incurred in connection with the implementation of the Company's expense reduction programs ($2.0 million), and an increase in the Company's closed store reserve ($2.2 million). The noncash portion of the unusual item is approximately $59.8 million and the cash portion is approximately $5.4 million. All costs related to the unusual item are expected to be incurred by August 1996 with the exception of certain facility carrying costs (primarily lease payments) for stores to be closed of approximately $1.9 million. The last scheduled lease payment will occur in 2001. The accrued expense amount relating to the unusual item was $14.6 million at July 29, 1995. -7- NOTE 7 - INVESTMENT EQUITY INTEREST IN THE GRAND UNION COMPANY In July 1989, Penn Traffic through its limited partnership investment in Grand Acquisition Company, L.P. ("GAC, L.P."), acquired an indirect ownership interest in approximately 24.3% of the outstanding common stock of Grand Union Holdings Corporation (formerly named GND Holdings Corporation) ("Holdings") which was the corporate parent of The Grand Union Company ("Grand Union"). The Company accounted for its investment in Grand Union under the equity method. The investment was recorded originally at a cost of $18,250,000. The carrying value of the investment was reduced to zero as of February 2, 1991. On January 25, 1995, Grand Union filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, District of Delaware (the "Bankruptcy Court"). On February 16, 1995, Holdings filed a voluntary Chapter 11 petition in the Bankruptcy Court. Penn Traffic's equity interest in Holdings became worthless as a result of these bankruptcy proceedings, and, on March 24, 1995 Penn Traffic's limited partnership interest in GAC, L.P. was redeemed for nominal consideration. -8- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THIRTEEN WEEKS ("SECOND QUARTER FISCAL 1996") AND TWENTY-SIX WEEKS ENDED JULY 29, 1995 COMPARED TO THIRTEEN WEEKS ("SECOND QUARTER FISCAL 1995") AND TWENTY- SIX WEEKS ENDED JULY 30, 1994 The following table sets forth statement of operations components expressed as a percentage of total revenues for Second Quarter Fiscal 1996 and Second Quarter Fiscal 1995 and for the twenty-six weeks ended July 29, 1995 and July 30, 1994, respectively:
Second Quarter Ended Twenty-six Weeks Ended JULY 29, July 30, JULY 29, July 30, 1995 1994 1995 1994 -------- -------- -------- -------- Total revenues 100.0% 100.0% 100.0% 100.0% Gross profit (1) 22.4 23.1 22.7 22.6 Selling and administrative expenses 18.6 18.0 18.9 18.0 Unusual item 7.4 3.7 Operating (loss) income (3.6) 5.1 0.1 4.6 Interest expense 3.7 3.5 3.8 3.5 (Loss) income before income taxes, extraordinary item and cumulative effect of change in accounting principle (7.3) 1.6 (3.7) 1.1 Net (loss) income (5.8) 0.7 (3.0) 0.0 (1) Total revenues less cost of sales.
-9- RESULTS OF OPERATIONS (CONTINUED) Total revenues for Second Quarter Fiscal 1996 increased to $884.2 million from $835.8 million in Second Quarter Fiscal 1995. Total revenues for the twenty-six week period ended July 29, 1995 increased to $1.74 billion from $1.65 billion for the twenty-six week period ended July 30, 1994. The increase in total revenues is the result of the increase in retail supermarket sales resulting from the acquisition of 45 former Acme stores in January 1995. Wholesale supermarket sales decreased in Second Quarter Fiscal 1996 to $102.3 million from Second Quarter Fiscal 1995 sales of $111.1 million and decreased to $203.7 million for the twenty-six weeks ended July 29, 1995 from $220.3 million for the twenty-six weeks ended July 30, 1994. Same store sales for Second Quarter Fiscal 1996 declined 0.9%. In Second Quarter Fiscal 1996, gross profit was $198.4 million compared to Second Quarter Fiscal 1995 gross profit of $192.8 million, representing 22.4% and 23.1% of total revenues, respectively. Gross profit as a percentage of total revenues increased to 22.7% for the twenty-six week period ended July 29, 1995 from 22.6% for the twenty-six weeks ended July 30, 1994. The decrease in gross profit as a percentage of total revenues for Second Quarter Fiscal 1996 primarily resulted from increased competitive promotional and price initiatives. Selling and administrative expenses for Second Quarter Fiscal 1996 were $164.8 million compared with $150.4 million in Second Quarter Fiscal 1995. Selling and administrative expenses as a percentage of total revenues increased to 18.6% for Second Quarter Fiscal 1996 from 18.0% in Second Quarter Fiscal 1995. Selling and administrative expenses for the twenty-six week period ended July 29, 1995 were $329.0 million compared to $295.6 million for the twenty-six week period ended July 30, 1994. Selling and administrative expenses as a percentage of total revenues increased to 18.9% for the twenty-six week period ended July 29, 1995 from 18.0% for the twenty-six week period ended July 30, 1994. The increase in selling and administrative expenses as a percentage of total revenues for Second Quarter Fiscal 1996 primarily resulted from the relative increase in retail revenues compared to wholesale revenues, increased promotional expense and an increase in fixed and semi-variable expenses as a percentage of total revenues during a period with a decline in same store sales. Depreciation and amortization of $22.6 million in Second Quarter Fiscal 1996 and $21.5 million in Second Quarter Fiscal 1995 represented 2.6% of total revenues for both periods. Depreciation and amortization of $45.8 million for the twenty-six weeks ended July 29, 1995 and $43.2 million for the twenty-six weeks ended July 30, 1994 represented 2.6% of total revenues in both periods. -10- RESULTS OF OPERATIONS (CONTINUED) During Second Quarter Fiscal 1996, the Company recorded an unusual item (charge) of $65.2 million. This unusual item yielded a tax benefit of $13.3 million. The components of this unusual item are as follows:
($ millions) ------------ Loss from closure of stand alone general merchandise business (Harts) - Write-off of goodwill $32.8 - Write-off of fixed assets 8.4 - Wind-down costs (principally inventory markdowns) 11.8 $53.0 ----- Obsolete equipment write-off, cost of expense reduction program and increase in closed store reserve 12.2 ----- Total $65.2 ----- -----
The Company has decided to commence in January 1996 the closing of 11 of its 15 remaining stand alone general merchandise stores (Harts) in Ohio. This process is expected to be completed by August 1996. These 11 stores currently generate approximately $50 million of revenues or about 1.4% of the Company's annual revenues. The remaining four Harts stores will be converted to the Company's "Big Bear Plus" format. Accordingly, the Company recorded during the second quarter ended July 29, 1995, an unusual item of $53.0 million as a result of this decision. This charge specifically relates to the write-off of goodwill ($32.8 million), the write-off of fixed assets ($8.4 million) and store closing costs consisting principally of inventory markdowns ($11.8 million). The Company expects that this program will generate net cash proceeds of approximately $15 million by the middle of Fiscal 1997. These funds will be used for debt retirement. When the process is completed in July 1996, the Company expects to realize an approximate annual impact of an increase in operating income of $2.0 million, a reduction of interest expense of between $1.2 million to $1.5 million, and an increase in net income of $2.0 million. In addition to the Harts related charges, the unusual item also includes $12.2 million in connection with the noncash write-off of certain fixed assets which the Company determined during the second quarter that it will no longer utilize in its business ($8.0 million), costs incurred in connection with the implementation of the Company's expense reduction programs ($2.0 million), and an increase in the Company's closed store reserve ($2.2 million). The noncash portion of the unusual item is approximately $59.8 million and the cash portion is approximately $5.4 million. All costs related to the unusual item are expected to be incurred by August 1996 with the exception of certain facility carrying costs (primarily lease payments) for stores to be closed of approximately $1.9 million. The last scheduled lease payment will occur in 2001. The accrued expense amount relating to the unusual item was $14.6 million at July 29, 1995. -11- RESULTS OF OPERATIONS (CONTINUED) Operating income (excluding the unusual item) for Second Quarter Fiscal 1996 was $33.6 million or 3.8% of total revenues compared to $42.4 million or 5.1% of total revenues in Second Quarter Fiscal 1995. Operating income (excluding the unusual item) for the twenty-six week period ended July 29, 1995 was $66.9 million or 3.8% of total revenues compared to $75.8 million or 4.6% of total revenues for the twenty-six weeks ended July 30, 1994. Interest expense for Second Quarter Fiscal 1996 and Second Quarter Fiscal 1995 was $33.0 million and $28.8 million, respectively. Interest expense for the twenty-six weeks ended July 29, 1995 and July 30, 1994 was $66.0 million and $57.8 million, respectively. The increase in interest expense is due to the higher debt levels outstanding during the first half of Fiscal 1996, which are primarily the result of the acquisition of 45 stores from American Stores Company in January 1995. Loss before income taxes and extraordinary item was $64.6 million for Second Quarter Fiscal 1996, compared to income of $13.6 million for Second Quarter Fiscal 1995. Loss before income taxes, extraordinary item, and the cumulative effect of a change in accounting principle for the twenty-six weeks ended July 29, 1995 was $64.3 million compared to income of $18.0 million for the twenty-six weeks ended July 30, 1994. The reason for the decline is the decrease in operating income (excluding the unusual item), the unusual item and an increase in interest expense. The income tax benefit was $12.9 million for Second Quarter Fiscal 1996 compared to a provision of $6.8 million in Second Quarter Fiscal 1995. The income tax benefit was $12.7 million for the twenty-six week period ended July 29, 1995 compared to a provision of $8.9 million in the prior year. Excluding the unusual item, the tax provision was $0.4 million for Second Quarter Fiscal 1996 and $0.6 million for the twenty-six week period ended July 29, 1995. The effective tax rates vary from the statutory rates due to differences between income for financial reporting and tax reporting purposes, primarily related to goodwill amortization resulting from prior acquisitions. Excluding the impact of the unusual item, net income was $0.2 million in Second Quarter Fiscal 1996 compared to $6.9 million (before extraordinary item) in Second Quarter Fiscal 1995. Excluding the impact of the unusual item, net income was $0.3 million for the twenty-six weeks ended July 29, 1995 compared to $9.1 million (before extraordinary item and the cumulative effect of a change in accounting principle) for the twenty-six weeks ended July 30, 1994. The $0.7 million extraordinary item (net of $0.5 million income tax benefit) for Second Quarter Fiscal 1995, and the $3.0 million extraordinary item (net of $2.1 million income tax benefit) for the twenty-six week period ended July 30, 1994 related to the early retirement of debt. The Company adopted SFAS 112 in First Quarter Fiscal 1995. The cumulative effect of this change in accounting principle was a charge of $5.8 million (net of $4.1 million income tax benefit) (Note 5). -12- LIQUIDITY AND CAPITAL RESOURCES During Second Quarter Fiscal 1996, operating income (before unusual item) decreased to $33.6 million from $42.4 million for Second Quarter Fiscal 1995. Interest expense for Second Quarter Fiscal 1996 was $33.0 million as compared to $28.8 million during Second Quarter Fiscal 1995. Income before unusual item, extraordinary item and the cumulative effect of a change in accounting principle for Second Quarter Fiscal 1996 was $0.2 million as compared to $6.9 million for Second Quarter Fiscal 1995. Payments of principal and interest on the Company's $1.17 billion of long- term debt (excluding capital leases) will materially restrict Company funds available to finance capital expenditures and working capital. Principal payments of long-term debt of $2.3 million, $2.7 million and $2.2 million are due during the remainder of Fiscal 1996, Fiscal 1997 and Fiscal 1998, respectively. The Company has a revolving credit facility (the "Revolving Credit Facility") which provides for borrowings of up to $250 million, subject to a borrowing base limitation measured by eligible inventory and accounts receivable of the Company. The Revolving Credit Facility matures in April 2000 and is secured by a pledge of the Company's inventory, accounts receivable and related assets. Total availability under the Revolving Credit Facility was $112.0 million at July 29, 1995. During Second Quarter Fiscal 1996, the Company's internally generated funds from operations and amounts available under the Revolving Credit Facility provided sufficient liquidity to meet the Company's operating, capital expenditure and debt service needs. The Company has entered into four interest rate swap agreements, each of which expires within the next three years, that effectively convert $155 million of its fixed rate borrowings into variable rate obligations. Under the terms of these agreements, the Company makes payments at variable rates which are based on LIBOR and receives payments at fixed interest rates. The net amount paid or received is included in interest expense. Cash flows to meet the Company's requirements for operating, investing and financing activities in Second Quarter Fiscal 1996 are reported in the Consolidated Statement of Cash Flows. For the twenty-six week period ended July 29, 1995, the Company experienced a positive cash flow from operating activities of $40.7 million. -13- LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Working capital decreased by $21.4 million from January 28, 1995 to July 29, 1995. The Company is in compliance with all terms and restrictive covenants of its long-term debt agreements. The Company expects to spend approximately $140 to $145 million on capital expenditures, including capital leases, during Fiscal 1996. The Company expects to finance such capital expenditures through internally generated cash flow, borrowings under the Revolving Credit Facility and new capital leases. Capital expenditures will be principally for new stores, replacement stores, remodeled store facilities and a new distribution center in Scranton, Pennsylvania. In Second Quarter Fiscal 1996, the Company acquired two new stores, opened one replacement store and completed two remodels. In addition, six new or replacement stores are under construction and seven remodels are in process. PART II. OTHER INFORMATION All items which are not applicable or to which the answer is negative have been omitted from this report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description -------------- ----------- 10.9K Amendment No. 10, dated as of August 31, 1995, to the Loan and Security Agreement. 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the fiscal quarter ended July 29, 1995. -14- 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 12, 1995 /s/- John T. Dixon --------------------------- By: John T. Dixon (President and Chief Executive Officer, and Director) September 12, 1995 /s/- Eugene R. Sunderhaft --------------------------- By: Eugene R. Sunderhaft (Senior Vice President and Secretary, Principal Financial Officer and Principal Accounting Officer) -15- EX-10.9K 2 EXHIBIT 10.9 K AMENDMENT NO. 10 TO LOAN AND SECURITY AGREEMENT AMENDMENT NO. 10, dated as of August 31, 1995 (this "AMENDMENT") to that certain Loan and Security Agreement dated as of March 5, 1993, as amended by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9 (collectively, the "LOAN AGREEMENT") among THE PENN TRAFFIC COMPANY ("Penn Traffic"), DAIRY DELL, BIG M SUPERMARKETS, INC. and PENNY CURTISS BAKING COMPANY, INC. (individually, each a "BORROWER" and collectively, the "BORROWERS"), the Lenders listed therein (collectively, the "LENDERS") and NATWEST USA CREDIT CORP., as Agent for the Lenders (in such capacity, the "AGENT"), is made by, between and among the Borrowers, the Agent, and the Lenders. Capitalized terms used herein, except as otherwise defined herein, shall have the meanings given to such terms in the Loan Agreement. WHEREAS, the Borrowers have requested that the Agent and the Lenders: (1) agree to amend the definition of "Consolidated Adjusted Net Worth" as set forth in the Loan Agreement in order to "add back" the charge recognized by the Borrowers in the Borrowers' second quarter of fiscal year 1996 arising from the closing of the "Harts" stores of the Borrowers; (2) agree to amend the Loan Agreement to permit Penn Traffic to repurchase up to $10,000,000 of its common stock; (3) agree to amend the Consolidated EBDAIT covenant set forth in Section 10.20 of the Loan Agreement; and (4) make certain other amendments to the Loan Agreement. WHEREAS, the Borrowers, the Agent and the Lenders have agreed to amend the Loan Agreement pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is hereby amended as of the effective date hereof as follows: (i) (a) the definition of "CAPITAL EXPENDITURES" in Section 1 of the Loan Agreement is hereby amended by adding the following sentence thereto at the end of such definition: "Capital Expenditures shall specifically include any consideration paid by Penn Traffic or any other Borrower in connection with a redemption or repurchase of Penn Traffic's capital stock as permitted under Section 10.6 of this Agreement and such consideration shall constitute Cash Capital Expenditures for the purposes of this Agreement.". (b) The definition of "CONSOLIDATED ADJUSTED NET WORTH" in Section 1 of the Loan Agreement is hereby amended (x) by deleting the text of clause (c)(ii) thereof in its entirety and by substituting, in lieu thereof, the words "arising from any cumulative adjustment to net income resulting from a change after March 5, 1993 in income tax rates as required by Statement of Financial Accounting Standards No. 109" and (y) by adding the following clause (i) thereto immediately after the end of clause (h) thereof: "; PLUS (i) the amount by which (x) the charge recognized by the PT Stores Group in the second quarter of fiscal year 1996 arising from the discontinuation of the "Hart's" operations of the PT Stores Group (such charge not to exceed $55,000,000) exceeds (y) the amount of all tax benefits accruing or to be accruing to the PT Stores Group as a result of such charge"; and (ii) Section 2.2(a) of the Loan Agreement is hereby amended by deleting the words "Each Borrowing shall be in the principal amount of not less than $100,000 (or the unused balance of such Borrower's Borrowing Capacity, if less)." and by substituting, in lieu thereof, the words "Each Borrowing of Prime-Based Revolving Loans shall be in the principal amount of not less than $100,000 (or the unused balance of such Borrower's Borrowing Capacity, if less) and each Borrowing of Eurodollar Revolving Loans shall be in the principal amount of not less than $5,000,000." (iii) Section 2.8(c) of the Loan Agreement is hereby amended by deleting the words "four Interest Periods" therein and by substituting, in lieu thereof, the words "six Interest Periods". (iv) Section 10.6 of the Loan Agreement is hereby amended by adding the following sentence to the end thereof: "In addition, if no Event or Event of Default has occurred and is continuing, Penn Traffic may repurchase its capital stock on the open market for a fair market value; PROVIDED, HOWEVER, that the aggregate purchase price for all such repurchases during the term of this Agreement shall not exceed $10,000,000; and PROVIDED, FURTHER, that Penn Traffic shall give the Agent written notice within one (1) Business Day of any such repurchase if the purchase price for such repurchase plus the aggregate purchase price for all prior repurchases of the capital stock of 2 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 indentures and other agreements executed in connection with the Senior Notes and the Subordinated Notes." (v) Section 10.20 of the Loan Agreement is hereby amended by (x) deleting the reference to "January 31, 1993" therein and by substituting a reference to "January 29, 1995" therefor and (y) deleting the table contained therein and substituting the following in lieu thereof: Cumulative "Fiscal Year Consolidated EBDAIT ----------- ------------------- 1996 $ 230,000,000 1997 465,000,000 1998 710,000,000 1999 975,000,000 2000 1,250,000,000" 2. REPRESENTATIONS AND WARRANTIES. As an inducement to the Agent and the Lenders to enter into this Amendment, each of the Borrowers hereby represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders as follows: (a) It has the power and authority to enter into this Amendment and has taken all corporate action required to authorize its execution, delivery, and performance of this Amendment. This Amendment has been duly executed and delivered by it and constitutes its valid and binding obligation, enforceable against it in accordance with its terms. The execution, delivery, and performance of this Amendment will not violate its certificate of incorporation or by-laws or any agreement or legal requirements binding upon it. (b) As of the date hereof and after giving effect to the terms of this Amendment: (i) the Loan Agreement is in full force and effect and constitutes a binding obligation of the Borrowers, enforceable against the Borrowers and owing in accordance with its terms; (ii) the Obligations are due and owing by the Borrowers in accordance with their terms; and (iii) Borrowers have no defense to or setoff, counterclaim, or claim against payment of the Obligations and enforcement of the Loan Documents based upon a fact or circumstance existing or occurring on or prior to the date hereof. 3 (c) The Obligations under the Loan Agreement as amended by this Amendment constitute "Senior Indebtedness" as defined under the indentures relating to the Senior Notes and to the Subordinated Notes. 3. 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. 4. 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. 5. EFFECTIVE DATE. This Agreement shall become effective upon compliance with the conditions set forth immediately below: (i) No Event or Event of Default shall have occurred and there shall have been no material adverse change in the business or financial condition of any of the Borrowers. (ii) The Borrowers shall deliver to the Agent for the benefit of the Lenders an opinion of Borrowers' counsel in form and substance satisfactory to the Agent and its counsel (which opinion shall cover such matters as the Agent may reasonably request, including a statement that the Obligations under the Loan Agreement as amended by this Amendment constitute "Senior Indebtedness" as defined under the indentures relating to the Senior Notes and to the Subordinated Notes). (iii) The Borrowers shall deliver to the Agent a certificate of the Borrowers' Chief Executive or Chief Financial Officer with respect to Section (i) above and such other instruments and documents as the Agent or any Lender shall reasonably request. 4 (iv) The Agent shall have received an original counterpart of this Amendment, duly executed and delivered by the Borrowers and the Required Lenders. 6. 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. 7. GOVERNING LAW. This Amendment is deemed to have been made in the State of New York and is governed by and interpreted in accordance with the laws of such state, provided that no doctrine of choice of law (except as may be applicable under the UCC with respect to the Security Interest) shall be used to apply the laws of any other state or jurisdiction. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. BORROWERS: THE PENN TRAFFIC COMPANY By: /s/ Martin A. Fox _____________________ Title: DAIRY DELL By: /s/ Martin A. Fox _____________________ Title BIG M SUPERMARKETS, INC. By: /s/ Martin A. Fox _____________________ Title 5 PENNY CURTISS BAKING COMPANY, INC. By: /s/ Martin A. Fox _____________________ Title LENDERS: Commitment: $35,000,000 NATWEST USA CREDIT CORP. Pro-Rata Share: 14% Lending Office: 175 Water Street New York, New York 10038 By: /s/ George N. Triebenbacher _____________________________ Title: Vice President Commitment: $20,000,000 NATIONAL BANK OF CANADA Pro-Rata Share: 8% Lending Office: Main Place Tower By: /s/ Michael S. Woodard Suite 2540 ________________________ 350 Main Street Title: Assistant Vice President Buffalo, New York 14202 By: /s/ _____________________ Title Commitment: $20,000,000 FUJI BANK, LTD. Pro-Rata Share: 8% Lending Office: Two World Trade Center 79th Fl. By: /s/ New York, New York 10048 _____________________ Title: Commitment: $30,000,000 SANWA BUSINESS CREDIT Pro-Rata Share: 12% CORPORATION Lending Office: One South Wacker Drive Suite 2800 Chicago, IL 60606 By: /s/ Lawrence J. Placek _______________________ Title: Vice President 6 Commitment: $30,000,000 BANKAMERICA Pro-Rata Share: 12% BUSINESS CREDIT, INC. Lending Office: 40 East 52nd Street Second Fl. New York, New York 10022 By: /s/ Louis Alexander ____________________ Title: Senior Account Executive Commitment: $25,000,000 HELLER FINANCIAL, INC. Pro-Rata Share: 10% Lending Office: 101 Park Avenue, 12th Fl. New York, New York 10178 By: /s/ Thomas W. Bukowski _______________________ Title: Vice President Commitment: $10,000,000 IBJ SCHRODER Pro-Rata Share: 4% BANK & TRUST COMPANY Lending Office: One State Street 9th Fl. New York, New York 10004 By: /s/ J. Christopher Mangin __________________________ Title: Vice President Commitment: $10,000,000 MIDLANTIC BANK N.A. (formerly Pro-Rata Share: 4% known as Midlantic National Lending Office: Bank) 499 Thornalle Street 9th Fl. Edison, New Jersey 08837 By: /s/ Michael A. Richards ________________________ Title: Assistant Vice President Commitment: $30,000,000 MITSUBISHI TRUST AND Pro-Rata Share: 12% BANKING CORPORATION Lending Office: 520 Madison Avenue 25th Fl. By: /s/ Patricia Loret de Mola New York, NY 10022 ___________________________ Title: Senior Vice President 7 Commitment: $15,000,000 INDUSTRIAL BANK OF JAPAN, Pro-Rata Share: 6% LIMITED, New York Branch Lending Office: One State Street 9th Fl. New York, New York 10004 By: /s/ J. Oda _____________________ Title: Senior Vice President & Senior Manager Commitment: $25,000,000 COMPAGNIE FINANCIERE DE CIC ET Pro-Rata Share: 10% DE L'UNION EUROPEENNE Lending Office: 520 Madison Avenue 37th Floor By: /s/ Brian O'Leary New York, New York 10022 __________________________ Title: Vice President By: /s/ Sean Mounier _____________________ Title: First Vice President AGENT NATWEST USA CREDIT CORP., As Agent By: /s/ George N. Triebenbacher _____________________ Title 8 EX-27 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-28-1995 JAN-29-1995 JUL-29-1995 44,319 0 73,667 2,267 392,907 523,512 910,663 301,777 1,777,718 400,520 1,306,083 13,588 0 0 (31,944) 1,777,718 1,713,216 1,744,257 1,348,306 1,348,306 329,002 893 66,028 (64,316) (12,741) (51,575) 0 0 0 (51,575) (4.64) 0 (1) During the second quarter of Fiscal 1996, the Company recorded certain non-recurring expenses totaling $65.2 million classified as an unusual item. (2) Tax Benefit