-----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, S/L4sFWwAWDwPkvTrOugFpDWgY96zmXXnpHxteAYYrlb0maYmhclqP6VahU+QKax Q2u1OfaEmt3O6ZlaJ8VaXg== 0000912057-96-006291.txt : 19960412 0000912057-96-006291.hdr.sgml : 19960412 ACCESSION NUMBER: 0000912057-96-006291 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960203 FILED AS OF DATE: 19960411 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09930 FILM NUMBER: 96546170 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-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 3, 1996 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 or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1200 State Fair Boulevard, Syracuse, New York 13221-4737 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (315) 453-7284 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ----------------------------- ----------------------- Common Stock, $1.25 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of voting stock held by non-affiliates of the Registrant was $135,778,655 as of March 27, 1996. Common Stock $1.25 par value - Shares outstanding - 10,842,645 as of March 27, 1996 ---------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement dated May 1, 1996 provided to Registrant's stockholders in connection with the 1996 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K. FORM 10-K INDEX PAGE - -------------------------------------------------------------------------------- PART I - -------------------------------------------------------------------------------- Item 1. Business 3 Item 2. Properties 13 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Supplemental Item. Executive Officers of Registrant 14 - -------------------------------------------------------------------------------- PART II - -------------------------------------------------------------------------------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17 Item 6. Selected Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 - -------------------------------------------------------------------------------- PART III - -------------------------------------------------------------------------------- Item 10. Directors and Executive Officers of the Registrant 56 Item 11. Executive Compensation 56 Item 12. Security Ownership of Certain Beneficial Owners and Management 56 Item 13. Certain Relationships and Related Transactions 56 - -------------------------------------------------------------------------------- PART IV - -------------------------------------------------------------------------------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 57 - -------------------------------------------------------------------------------- -2- PART I ITEM 1. BUSINESS (as of February 3, 1996 unless otherwise noted) GENERAL The Penn Traffic Company ("Penn Traffic" or the "Company") is one of the leading food retailers in the eastern United States. Penn Traffic operates 265 supermarkets in Pennsylvania, upstate New York, Ohio and northern West Virginia under the names "Big Bear" and "Big Bear Plus" (76 stores), "Bi-Lo Foods" (42 stores), "Insalaco's" (29 stores), "P&C" (67 stores), "Quality Markets" (42 stores) and "Riverside" (9 stores). Penn Traffic also operates a wholesale food distribution business which serves 124 licensed franchisees and 116 independent operators. Total revenues for the fiscal year (53 weeks) ended February 3, 1996 ("Fiscal 1996") aggregated approximately $3.5 billion. Approximately 65% of Penn Traffic's supermarket sales are in smaller communities where Penn Traffic believes it virtually always holds the number one or number two market position. The balance of Penn Traffic's sales are in Columbus, Ohio, Buffalo and Syracuse, New York, and Scranton/Wilkes-Barre, Pennsylvania. Penn Traffic's retail and wholesale operations stretch from Ohio to upstate New York. The Company operates in communities with diverse economies based primarily on manufacturing, natural resources, retailing, health care services, education and government services. No supermarket company competes against Penn Traffic supermarkets representing 25% or more of the Company's retail supermarket revenues, with the exception of The Kroger Co. and Wegman's Food Markets, Inc., which compete against supermarkets representing approximately 35% and 25% of Penn Traffic's retail supermarket revenues, respectively. In addition, Penn Traffic operates a full-service dairy business in Johnstown, Pennsylvania under the name "Sani-Dairy" and a bakery business in Syracuse, New York under the name "Penny Curtiss". Penn Traffic pursues an aggressive capital program that seeks to match store size and format to local demographics and competitive conditions. During the five fiscal years ended February 3, 1996, Penn Traffic opened or remodeled approximately 65% of its retail supermarket square footage. These larger, more modern facilities strengthen Penn Traffic's competitive position and enable it to offer its customers a broader variety of specialty departments, including pharmacies, bakeries, delicatessens, floral products, greeting cards and other general merchandise. The principal executive offices of Penn Traffic are located at 1200 State Fair Boulevard, Syracuse, New York 13221-4737. The Company's telephone number is (315) 453-7284. -3- RETAIL FOOD DISTRIBUTION BUSINESS Penn Traffic is one of the leading supermarket retailers in its primary operating areas in New York, Pennsylvania and Ohio. Penn Traffic's supermarkets are primarily located in towns and small cities. In many of these communities, Penn Traffic operates or licenses one or more of a small number of total supermarkets or the only supermarket in town. Penn Traffic's store sizes and formats vary widely, depending upon the demographic and competitive conditions in each location. For example, "conventional" store formats are generally more appropriate in areas of low population density, while larger or more affluent areas are better served by full service supermarkets of up to 65,000 square feet, which contain numerous specialty service departments such as bakeries, delicatessens, floral departments and fresh seafood departments. Penn Traffic's "Plus" format stores range in size from 65,000 to 140,000 square feet. These full service supermarkets carry an expanded variety of nonfood merchandise. Penn Traffic's supermarkets offer a broad selection of grocery, meat, poultry, seafood, dairy, fresh produce and frozen food products. The stores also offer nonfood products and services such as health and beauty products, housewares, general merchandise, floral items, video rental departments and banking services. In general, Penn Traffic's larger stores carry broader selections of merchandise and feature a larger variety of service departments. Most of the Company's supermarkets are located in shopping centers. During Fiscal 1996, the Company commenced the implementation of several expense reduction programs. Certain of these expense reduction initiatives are designed to take advantage of the combined purchasing power of the Company's business units and the Company's ability to consolidate certain previously decentralized functions. The Company currently expects that the implementation of these initiatives will result in cost savings of at least $10 million per year. -4-
SELECTED STATISTICS ON PENN TRAFFIC'S RETAIL FOOD STORES ARE PRESENTED BELOW. FISCAL YEAR ENDED - ------------------------------------------------------------------------------------------------------------------------------------ FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1, 1996 1995 1994 1993 1992 (53 weeks)(1) - ------------------------------------------------------------------------------------------------------------------------------------ Average annual revenues per store $11,060,000 $11,823,000 $11,583,000 $11,620,000 $11,645,000 Total store area in square feet 10,424,538 9,927,633 8,803,297 7,868,411 6,347,453 Total store selling area in square feet 7,527,665 7,140,390 6,333,023 5,684,179 4,561,199 Average total square feet per store 39,338 37,182 37,945 36,260 33,584 Average square feet of selling area per store 28,406 26,743 27,298 26,194 24,133 Annual revenues per square foot of selling area $402.98 $429.80 $433.49 $460.05 $494.99 Number of stores: Remodels/expansions (over $100,000) 15 9 39 12 18 New stores opened 11 12 12 10 6 Stores acquired 2 31(2) 19(3) 29(3) 1 Stores closed 15 8 16 11 8 Size of stores (total store area): Up to 19,999 square feet 37 39 29 33 33 20,000 - 29,999 square feet 56 67 60 63 65 30,000 - 44,999 square feet 95 96 86 73 61 45,000 - 60,000 square feet 53 48 43 36 21 Greater than 60,000 square feet 24 17 14 12 9 Total stores open at fiscal year-end 265 267 232 217 189
(1) Average annual revenues per store and annual revenues per square foot of selling area are calculated on a 52-week basis. (2) Includes the addition of 30 of the 45 former Acme stores acquired by the Company in January 1995 which the Company initially expected to operate. (3) Includes the addition of 12 Insalaco's stores acquired by the Company in September 1993 and the addition of 23 stores acquired from the Peter J. Schmitt Co., Inc. in January 1993 which the Company initially operated. -5- WHOLESALE FOOD DISTRIBUTION BUSINESS Penn Traffic licenses the use of its "Riverside", "Bi-Lo Foods" and "Big M" names to 124 independently-owned supermarkets that are required to maintain certain quality and other standards and 116 independent operators. The majority of these independent stores use Penn Traffic as their primary wholesaler and also receive advertising, accounting, merchandising, consulting and retail counseling services from Penn Traffic. Penn Traffic receives rent from 70 of the licensed independent operators which lease or sublease the supermarket buildings. In Fiscal 1996, Penn Traffic's wholesale operations accounted for $429.4 million or 12.1% of total revenues. The incremental volume provided by wholesale operations enhances Penn Traffic's purchasing power and the efficiency of its distribution system. At February 3, 1996, Penn Traffic had guaranteed obligations of $2.0 million of indebtedness of certain of such licensed independent operators. Riverside receives an initial fee but no annual fee for the license of its Riverside and Bi-Lo Foods names. P&C receives neither an initial fee nor an annual fee for the use of the Big M name. FOOD PROCESSING OPERATIONS The Company owns and operates Johnstown Sanitary Dairy ("Sani-Dairy"), a dairy processing plant in Johnstown, Pennsylvania, which is one of the largest dairies in Pennsylvania. Sani-Dairy sells its products to certain Penn Traffic-owned and licensed supermarkets and to other retail outlets located in Pennsylvania and adjoining states. Penn Traffic owns and operates Penny Curtiss Bakery, a bakery processing plant in Syracuse, New York. This operation primarily supplies P&C's stores and its affiliated accounts with private label fresh and frozen bakery products. In addition, Riverside and Quality Markets procure certain fresh and frozen bakery products from Penny Curtiss. MASS MERCHANDISING BUSINESS During the second quarter of Fiscal 1996, Penn Traffic decided to close 11 of its 15 remaining stand-alone general merchandise stores (Harts) in Ohio. The remaining four stores are now operated under the Company's "Plus" trade name. -6- PURCHASING AND DISTRIBUTION Penn Traffic is a large volume purchaser of products. Penn Traffic's purchases are of sufficient volume to qualify for minimum price brackets for most items. Penn Traffic purchases brand name grocery merchandise directly from national manufacturers. The Company purchases private label and generic products and certain other grocery items from TOPCO Associates, Inc., a national products purchasing cooperative comprising 46 regional supermarket chains. In Fiscal 1996, purchases from TOPCO Associates accounted for approximately 16% of product purchases. Penn Traffic's principal Pennsylvania distribution facilities are a Company-owned 390,000-square foot distribution center in DuBois, Pennsylvania and a Company-owned 248,000-square foot distribution center in Scranton, Pennsylvania. Penn Traffic also operates 196,000-square foot and 86,000-square foot distribution centers for perishable products in DuBois and Scranton, Pennsylvania, respectively. In addition, Penn Traffic leases a 70,000-square foot warehouse in New Bethlehem, Pennsylvania, which Penn Traffic uses to supplement its forward buy program, under which the Company purchases and stores for later sale certain products which, from time to time, are available for purchase at reduced prices. Penn Traffic also leases a 37,000-square foot warehouse in Punxsutawney, Pennsylvania, which houses certain store supplies and aerosol products and a 44,000-square foot warehouse in DuBois, Pennsylvania, which houses high-bulk grocery products. The principal New York distribution facilities are a Company-owned 498,000-square foot distribution center in Syracuse, New York and a Company-owned 267,000-square foot distribution center in Jamestown, New York. The Company also owns a 217,000-square foot distribution center for perishable products in Syracuse, New York. The primary Ohio distribution center is a leased 484,000-square foot dry grocery facility in Columbus, Ohio. Penn Traffic also owns a 208,000-square foot distribution facility for perishable goods in Columbus, Ohio. The Company also leases three additional warehouses totalling 603,000 square feet, in Columbus, Ohio for distribution of general merchandise and health and beauty care items to all Penn Traffic stores (including a 204,000-square foot leased warehouse which the Company began utilizing in August 1995). From September 1993 through September 1995, Penn Traffic's health and beauty care products and general merchandise were distributed to Insalaco's, P&C, Quality Markets and Riverside stores from a general merchandise warehouse operated by The Grand Union Company ("Grand Union") and located in Montgomery, New York. This arrangement was part of a joint health and beauty care and general merchandise purchasing and distribution program with Grand Union. All of Penn Traffic's retail stores are currently supplied with health and beauty care products and general merchandise from the Columbus, Ohio warehouses. Approximately 75% of the merchandise offered in Penn Traffic's retail stores is distributed from its warehouses by its fleet of 346 tractors, 442 refrigerated trailers and 582 dry trailers. Merchandise not delivered from Penn Traffic's warehouses is delivered directly to the stores by distributors, vendor drivers and salesmen for such products as beverages, snack foods and bakery items. -7- COMPETITION The food retailing business is highly competitive and may be affected by general economic conditions. The number of competitors and the degree of competition experienced by Penn Traffic's supermarkets vary by location. Penn Traffic competes with several regional and local supermarket chains, convenience stores, stores owned and operated and otherwise affiliated with large food wholesalers, unaffiliated independent food stores, warehouse clubs, discount drug store chains, discount general merchandise chains, and "supercenters" (combination supermarket and general merchandise stores). No supermarket company competes against Penn Traffic supermarkets representing 25% or more of the Company's retail supermarket revenues, with the exception of The Kroger Co. and Wegmans Food Markets, Inc., which compete against supermarkets representing approximately 35% and 25% of Penn Traffic's retail supermarket revenues, respectively. -8- EMPLOYEES Labor costs and their impact on product prices are important competitive factors in the supermarket industry. At February 3, 1996, Penn Traffic had approximately 25,700 hourly employees and 1,800 salaried employees. Approximately 57% of Penn Traffic's hourly employees belong to the United Food and Commercial Workers union. An additional 7% of Penn Traffic's hourly employees (principally employed in the distribution function and in the Company's dairy and bakery plants) belong to five other unions. The Company competes with certain independently-owned and chain-owned supermarkets, discount drug stores, warehouse clubs, general merchandise stores, convenience stores and supercenters, whose employees are not union affiliated. During Penn Traffic's fiscal year ending February 1, 1997, labor contracts covering approximately 11,000 of the Company's employees will expire. While the Company believes that relations with its employees are good, and has not encountered any significant work stoppages in recent years, a prolonged labor dispute could have an adverse effect on the Company. GOVERNMENT REGULATION The United States Department of Agriculture and the Pennsylvania Milk Marketing Board each regulate and inspect all aspects of fluid milk and dairy product production, enforcing strict standards of sanitation, product composition, packaging and labelling, as well as regulating milk and dairy product pricing. All dairy goods producers and distributors must comply with substantially similar standards, and compliance by Penn Traffic with these standards has not had and is not expected to have a significant effect on its earnings or competitive position. SEASONALITY, CUSTOMERS AND SUPPLIERS The supermarket business of Penn Traffic is generally not seasonal in nature. During the past three fiscal years, no single customer or group of customers under common control accounted for 10% or more of Penn Traffic's consolidated revenues. Groceries, general merchandise and raw materials are available from many different sources. During the past three fiscal years, no single supplier accounted for 10% or more of Penn Traffic's cost of sales except TOPCO Associates, Inc. which accounted for approximately 16% of product purchases in Fiscal 1996. -9- HISTORY Penn Traffic is the successor to a retail business which dates back to 1854. Penn Traffic, then a publicly held corporation, was acquired in March 1987 by Riverside Acquisition Company, Limited Partnership ("RAC"), a Delaware limited partnership and an affiliate of Miller Tabak Hirsch + Co. ("MTH"). At the time of the acquisition, Penn Traffic was the largest retail and wholesale food distribution company in its principal operating area, comprising 19 counties in central and northwestern Pennsylvania and southwestern New York. In 1988, Penn Traffic again became a publicly held corporation and stated that it intended to acquire retail and wholesale food distribution companies contiguous to its operating area. In August 1988, Penn Traffic acquired P&C Food Markets, Inc. ("P&C"), which operates in a contiguous market to the east of Penn Traffic's historical marketplace. In October 1991, P&C became a wholly-owned subsidiary of the Company, and in April 1993, P&C was merged into the Company. P&C currently operates as a division of the Company. P&C is headquartered in Syracuse, New York and operates 67 "P&C" retail supermarkets, franchises 68 "Big M" stores and provides wholesaling services to 76 independent supermarkets. In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big Bear"), a leading food retailer in Columbus and eastern Ohio, which is to the west of Penn Traffic's traditional market area. In April 1993, Big Bear was merged into the Company. Big Bear currently operates as a division of the Company. Big Bear is headquartered in Columbus, Ohio and operates 76 retail supermarkets under the names "Big Bear" and "Big Bear Plus". In January 1993, Penn Traffic acquired 28 supermarkets located in western New York and northwestern Pennsylvania from Peter J. Schmitt Co., Inc. Seventeen of the stores are currently being operated by Penn Traffic. In September 1993, Penn Traffic acquired the operating assets of Insalaco Supermarkets, Inc. ("Insalaco's"), which consisted of 12 supermarkets with approximately 400,000 total square feet. In January 1995, Penn Traffic acquired 45 supermarkets owned by American Stores Company which had operated under the Acme trade name. Fourteen of these acquired stores have been closed and two are being held for sale. The Company is operating the remaining 29 stores under the Bi-Lo Foods, Insalaco's and P&C trade names. -10- RELATIONSHIP WITH GRAND UNION Until March 1995, Penn Traffic held an indirect ownership interest in the common stock of Grand Union Holdings Corporation ("Grand Union Holdings"), which was the indirect corporate parent of Grand Union. Grand Union is engaged in the food retailing business. As of February 2, 1991, Penn Traffic had recorded losses which reduced the carrying value of its investment to zero. 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, Grand Union Holdings filed a voluntary Chapter 11 petition with the Bankruptcy Court. As a result of these bankruptcy proceedings, Penn Traffic's equity ownership interest in Grand Union Holdings, which as of the dates of the filings of the Chapter 11 petitions was approximately 17.8% on a fully diluted basis, became worthless. In July 1990, P&C (then a subsidiary and now a division of Penn Traffic) and Grand Union entered into an operating agreement (the "New England Operating Agreement") whereby Grand Union acquired the right to operate 13 P&C stores located in New England under the Grand Union name until July 2000. Pursuant to the New England Operating Agreement, Grand Union agreed to pay Penn Traffic (as the successor to P&C, which was merged into the Company in April 1993) a minimum annual fee averaging $10.7 million per year during the ten-year term and, beginning with the year commencing July 31, 1992, to pay Penn Traffic additional contingent fees of up to $700,000 per year based upon sales performance of the stores operated by Grand Union. Under the terms of the New England Operating Agreement, the recapitalization of Grand Union in July 1992 triggered a $15 million prepayment of the operating fee. This prepayment reduced the future payments that Grand Union will make to Penn Traffic pursuant to the terms of the New England Operating Agreement by approximately $3.2 million per year. At the expiration of the ten-year term of the New England Operating Agreement, Grand Union has the right to extend the term of the New England Operating Agreement for an additional five years. In the event of such extension of the lease term, Grand Union will pay to Penn Traffic an annual fee of $13.6 million in the first year of the extended term, $14.0 million in the second year, $14.4 million in the third year, $14.9 million in the fourth year and $15.3 million in the fifth year, plus contingent fees based upon the sales performance of the stores of up to $700,000 in each year. -11- Penn Traffic also granted Grand Union an option (the "Purchase Option") to purchase the stores operated by Grand Union under the New England Operating Agreement. Grand Union paid Penn Traffic $7.5 million for the Purchase Option, which provides that (i) prior to July 30, 1998, Grand Union may purchase the stores operated under the New England Operating Agreement from Penn Traffic for a purchase price equal to $95 million and (ii) from July 30, 1998 and until the expiration of the term (or the extended term) of the New England Operating Agreement, Grand Union may purchase the stores operated under the New England Operating Agreement from Penn Traffic for a purchase price equal to the greater of $55 million or the amount produced under a formula based upon the stores' cash flow, provided that the purchase price shall not exceed $95 million. If Grand Union does not extend the initial term of the New England Operating Agreement at its expiration in July 2000 or does not exercise the Purchase Option prior to the expiration of the term (or the extended term), or in the event of a default by Grand Union in the performance of its obligations pursuant to the New England Operating Agreement, the stores operated by Grand Union pursuant to the New England Operating Agreement will be returned to operation by Penn Traffic. Based on current conditions, management does not believe that the return of operation of the stores to Penn Traffic would have a significant impact on the financial condition of the Company. From September 1993 until September 1995, Penn Traffic and Grand Union participated in a consolidated health and beauty care and general merchandise purchasing and distribution program. -12- ITEM 2. PROPERTIES Penn Traffic follows the general industry practice of leasing the majority of its retail supermarket locations. Penn Traffic presently owns 37 and leases 228 of the supermarkets that it operates. The owned supermarkets range in size from 4,300 to 123,000 square feet. The leased supermarkets range in size from 8,000 to 140,000 square feet and are held under leases expiring from 1996 to 2015, excluding option periods. Penn Traffic also owns two supermarkets and leases 70 supermarkets which are leased or subleased to independent operators. Penn Traffic also owns 10 shopping centers, eight of which contain one of the Company-owned or licensed supermarkets. Penn Traffic also operates major distribution centers in DuBois and Scranton, Pennsylvania; Syracuse and Jamestown, New York; and Columbus, Ohio; a dairy plant in Johnstown, Pennsylvania; and a bakery plant in Syracuse, New York. Penn Traffic also owns a fleet of trucks and trailers, fixtures and equipment utilized in its business and other miscellaneous real estate. Penn Traffic believes that all of its properties, fixtures and equipment are well maintained and in good condition. ITEM 3. LEGAL PROCEEDINGS Penn Traffic and its subsidiaries are involved in various legal actions, some of which involve claims for substantial sums. However, any ultimate liability with respect to these contingencies is not considered by management to be material in relation to the consolidated financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended February 3, 1996. -13- SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT Certain information regarding the executive officers of Penn Traffic is set forth as follows: Name Age Position with Penn Traffic - --------------------- --- -------------------------------------- Gary D. Hirsch 46 Chairman and Director Martin A. Fox 42 Director, Vice Chairman - Finance and Assistant Secretary John T. Dixon 56 Director, President and Chief Executive Officer Stephen V. Breech 54 Senior Vice President and President of Big Bear Division Roy M. Flood 55 Senior Vice President and President of P&C Foods Division Raymond J. Heath 57 Senior Vice President and President of Riverside Markets Division Eugene R. Sunderhaft 48 Senior Vice President - Finance and Secretary (Chief Financial Officer) David A. Adamsen 44 Vice President - Manufacturing William G. Berryman 52 Vice President and Chief Information Officer Michael T. Del Viscio 47 Vice President - Nonfood Merchandising Glenn L. Goldberg 44 Vice President and Assistant Secretary Francis D. Price, Jr. 46 Vice President, General Counsel and Assistant Secretary Randall J. Sweeney 44 Vice President and General Manager of Quality Markets Division Each of the executive officers is a citizen of the United States. -14- Mr. Hirsch has been a Director and Chairman of Penn Traffic since 1987. Mr. Hirsch has been a general partner and the managing partner of MTH (broker-dealer) since March 1982 and a Managing Director of MTH Holdings, Inc. ("MTH Holdings") since November 1983. He is Chairman, President and a Director of RAC Partners, Inc. ("RAC Partners"), the sole general partner of Riverside Acquisition Company, Limited Partnership ("RAC"). Mr. Hirsch was Chairman and a Director of Grand Union Holdings (food distribution holding company) between 1989 and March 1996 and of certain of its subsidiaries for certain periods between 1992 and March 1996. Mr. Fox has been Director and Vice Chairman - Finance since February 1993. Mr. Fox was a Vice President of the Company from 1989 until February 1993. Mr. Fox has been Assistant Secretary of Penn Traffic since 1989. Mr. Fox has been Executive Vice President of MTH since 1988. Mr. Fox was a Vice President of Grand Union Holdings between 1989 and March 1996, a Director of Grand Union Holdings between 1992 and March 1996 and a Director and Vice President of certain of its subsidiaries for certain periods between 1989 and March 1996. Mr. Dixon has been a Director since December 1994 and President and Chief Executive Officer of Penn Traffic since January 1995. Mr. Dixon was a Vice President of Penn Traffic and the President of the P&C division from 1993 until January 1995. He served as President of the Quality Markets division from January 1992 until August 1993 and served in various other positions at Big Bear between 1957 and 1992. Mr. Breech has been Vice President of Penn Traffic and President of the Big Bear division since September 1995. Mr. Breech was Senior Vice President of Store Operations at Big Bear until September 1995. He was Vice President of Construction and Real Estate at Big Bear from 1989 until 1995. Mr. Breech served in various other positions at Big Bear between 1958 and 1989. Mr. Flood has been Senior Vice President of Penn Traffic and President of the P&C division since January 1995. Mr. Flood was Executive Vice President of Merchandising of the Big Bear division from 1990 until January 1995. He was Vice President of Sales and Merchandising at P&C from 1986 until 1990 and served in various other positions at P&C between 1977 and 1986. Mr. Heath has been Senior Vice President of Penn Traffic since January 1995 and has been President of the Riverside division since 1979. Mr. Heath had been a Vice President of Penn Traffic since 1979. Mr. Heath served in various other positions at Riverside between 1967 and 1979. Mr. Sunderhaft has been Senior Vice President - Finance of Penn Traffic since January 1995 and has been Chief Financial Officer and Secretary of Penn Traffic since May 1993. Mr. Sunderhaft had been a Vice President of Penn Traffic since May 1993 and was Treasurer of Penn Traffic from May 1993 until April 1995. He became Vice President - Finance and Chief Financial Officer of the P&C division in 1989 and served in various other positions at P&C between 1972 and 1989. -15- Mr. Adamsen has been Vice President of Manufacturing of Penn Traffic since September 1994 and President of Penny Curtiss Baking Company ("Penny Curtiss") since 1986. Mr. Adamsen served in various other positions at Penny Curtiss between 1974 and 1986. Mr. Berryman has been Vice President and Chief Information Officer of Penn Traffic since April 1995. Mr. Berryman was a consultant for Technology Solutions Company from 1994 until April 1995. From 1989 until 1994, Mr. Berryman was Vice President of Management Information Services for Dominick's Finer Foods, Inc. Mr. Del Viscio has been Vice President of Nonfood Merchandising since July 1995. Mr. Del Viscio was Senior Vice President of General Merchandise for Montgomery Ward from September 1994 until July 1995. From June 1991 until September 1994, Mr. Del Viscio was Senior Vice President and General Merchandise Manager for Hess Department Stores. Mr. Goldberg has been a Vice President and Assistant Secretary of Penn Traffic since 1989. Mr. Goldberg has been Executive Vice President of MTH since 1988. From 1982 until 1988, Mr. Goldberg was Senior Vice President of MTH. Mr. Goldberg was a Vice President of Grand Union Holdings and of certain of its subsidiaries for certain periods between 1989 and March 1996. Mr. Price has been Vice President and General Counsel and Assistant Secretary of Penn Traffic since February 1993. He was Vice President and General Counsel of the P&C division from 1985 until April 1993 and Secretary of P&C from 1991 until April 1993. Mr. Price served in various other positions at P&C between 1978 and 1985. Mr. Sweeney has been Vice President of Penn Traffic since January 1995 and General Manager of the Quality Markets division since 1993. Mr. Sweeney served in various other positions at Quality between 1974 and 1993. On January 25, 1995, Grand Union filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court. Grand Union emerged from Chapter 11 reorganization on June 15, 1995. On February 6, 1995, an involuntary Chapter 11 petition was filed in the Bankruptcy Court against Grand Union Capital Corporation ("Grand Union Capital"), of which Grand Union was a wholly owned subsidiary. On February 16, 1995, Grand Union Capital consented to the entry of an order for relief on the involuntary Chapter 11 petition and Grand Union Holdings filed a voluntary Chapter 11 petition in the Bankruptcy Court. Grand Union Capital and Grand Union Holdings' Bankruptcy Court proceedings were completed on March 27, 1996. Following completion of these proceedings, Grand Union Capital and Grand Union Holdings were dissolved. At the time the Chapter 11 petitions were filed, Messrs. Hirsch and Fox were directors and executive officers of Grand Union, Grand Union Capital and Grand Union Holdings, and Mr. Goldberg was an executive officer of Grand Union Capital and Grand Union Holdings. Messrs. Hirsch and Fox resigned as directors and officers of Grand Union on June 15, 1995, and Messrs. Hirsch, Fox and Goldberg ceased to be directors and executive officers of Grand Union Capital and Grand Union Holdings upon the dissolutions of these companies on March 27, 1996 and March 28, 1996, respectively. There are no family relationships between the executive officers of Penn Traffic. The term of office of executive officers is for a one-year period beginning on the date of the annual meeting of stockholders, which is normally held in June of each year. -16- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Penn Traffic's common stock is listed on the New York Stock Exchange and was held by approximately 370 shareholders of record on February 3, 1996. Common stock information is provided on Page 18 of this Form 10-K. ITEM 6. SELECTED FINANCIAL DATA The comparative summary of selected financial data of Penn Traffic for the five years ended February 3, 1996 appears on Pages 19 through 21 of this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations appears on Pages 22 through 28 of this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page Report of Independent Accountants 29 Consolidated Financial Statements: Statement of Operations for each of the three fiscal years ended February 3, 1996 30 Balance Sheet as of February 3, 1996 and January 28, 1995 31 Statement of Shareholders' Equity for each of the three fiscal years ended February 3, 1996 33 Statement of Cash Flows for each of the three fiscal years ended February 3, 1996 34 Notes to Consolidated Financial Statements 36 Financial Statement Schedule for the three years ended February 3, 1996: Schedule VIII - Valuation and Qualifying Accounts 66 -17- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized below are quarterly financial data for the fiscal years ended February 3, 1996 and January 28, 1995.
Fiscal 1996 Fiscal 1995 --------------------------------------------- ------------------------------------------------ 1st 2nd 3rd 4th 1st 2nd 3rd 4th (14 weeks) -------- -------- -------- --------- -------- -------- -------- -------- (In thousands of dollars, except per share data) Total revenues $860,028 $884,229 $844,619 $947,766 $809,961 $835,767 $828,064 $859,433 Gross margin $197,579 $198,372 $192,647 $223,405 $178,503 $192,837 $188,125 $203,052 (Loss) income before extraordinary item and cumulative effect of change in accounting principle (1) (2) $ 129 $(51,704) $ (350) $(27,700) $ 2,256 $ 6,868 $ 4,777 $ 8,124 Extraordinary item (net of tax benefit) (2,276) (691) (58) Cumulative effect of change in accounting principle (net of tax benefit) (5,790) Net (loss) income applicable to common stock (1) (2) $ 129 $(51,704) $ (350) $(27,700) $ (5,810) $ 6,177 $ 4,719 $ 8,124 Per share data: (Loss) income before extraordinary item and cumulative effect of change in accounting principle $ 0.01 $ (4.76) $ (0.03) $ (2.55) $ 0.20 $ 0.62 $ 0.43 $ 0.73 Extraordinary item (0.20) (0.07) (0.01) Cumulative effect of change in accounting principle (0.52) Net (loss) income $ 0.01 $ (4.76) $ (0.03) $ (2.55) $ (0.52) $ 0.55 $ 0.42 $ 0.73 No dividends on common stock were paid during Fiscal 1996 and Fiscal 1995 Other data: Depreciation and amortization $ 23,145 $ 22,607 $ 22,347 $ 24,380 $ 21,706 $ 21,539 $ 21,887 $ 22,679 LIFO provision (benefit) $ 858 859 $ (2,389) $ 25 $ 425 $ 2,342 Market value per common share: High $ 37 3/4 $ 35 1/2 $ 23 1/4 $ 17 3/8 $ 44 5/8 $ 41 $ 43 1/2 $ 41 1/4 Low $ 30 1/2 $ 22 1/2 $ 11 1/8 $ 10 7/8 $ 37 1/2 $ 34 3/8 $ 35 1/4 $ 36
(1) During the second quarter of Fiscal 1996, the Company recorded certain expenses totalling $65.2 million ($51.9 million net of tax benefit) associated with the closure of the stand-alone general merchandise business (Harts), a write-down of assets that the Company will no longer utilize in its business and the Company's expense reduction program. (2) As of the beginning of the fourth quarter of Fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which resulted in a noncash charge of $46.8 million ($27.7 million net of tax benefit) primarily related to the write-down of a portion of the recorded asset values (including allocable goodwill) of 18 of the Company's supermarkets. -18- CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY Set forth below is selected historical consolidated financial data of Penn Traffic for the five fiscal years ended February 3, 1996. Due to the adoption of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" during the fiscal year ended February 3, 1996 ("Fiscal 1996"), and the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" at the beginning of the fiscal year ended January 28, 1995, comparisons of the consolidated financial results among years are not necessarily meaningful. Furthermore, the historical consolidated financial data for the fiscal years ended January 30, 1993 and February 1, 1992 have been restated for the retroactive adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The selected historical consolidated financial data for the five fiscal years ended February 3, 1996 are derived from the consolidated financial statements of Penn Traffic which have been audited by Price Waterhouse LLP, independent accountants. The selected historical consolidated financial data should be read in conjunction with the Penn Traffic consolidated financial statements and related notes included elsewhere herein.
STATEMENT OF OPERATIONS As of and for the Fiscal Year Ended (In thousands of dollars, February 3, January 28, January 29, January 30, February 1, except per share data) 1996 1995 1994 1993 1992 (53 weeks) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total revenues $3,536,642 $3,333,225 $3,171,600 $2,832,949 $2,772,104 Cost of sales 2,724,639 2,570,708 2,464,853 2,230,493 2,195,773 Selling and administrative expenses 670,387 606,782 559,729 475,839 460,684 Unusual item (1) 65,237 6,400 Write-down of long-lived assets (2) 46,847 ---------- ---------- ---------- ---------- ---------- Operating income 29,532 155,735 140,618 126,617 115,647 Interest expense 136,359 117,859 117,423 115,814 116,782 ---------- ---------- ---------- ---------- ---------- (Loss) income before income taxes, extraordinary item and cumulative effect of change in accounting principle (106,827) 37,876 23,195 10,803 (1,135) (Benefit) provision for income taxes (1) (2) (27,202) 15,851 15,019 6,812 4,217 ---------- ---------- ---------- ---------- ---------- (Loss) income before extra- ordinary item and cumulative effect of change in accounting principle (79,625) 22,025 8,176 3,991 (5,352) Extraordinary item (net of tax benefit)(3) (3,025) (25,843) (10,823) (3,718) ---------- ---------- ---------- ---------- ---------- (Loss) income before cumulative effect of change in accounting principle (79,625) 19,000 (17,667) (6,832) (9,070) Cumulative effect of change in accounting principle (net of tax benefit)(4) (5,790) (58,330) ---------- ---------- ---------- ---------- ---------- Net (loss) income (79,625) 13,210 (17,667) (6,832) (67,400) Preferred dividends (159) (968) (2,768) ---------- ---------- ---------- ---------- ---------- Net (loss) income applicable to common stock $ (79,625) $ 13,210 $ (17,826) $ (7,800) $ (70,168) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -19- PER SHARE DATA: (Loss) income before extraordinary item and cumulative effect of change in accounting principle (after preferred dividends) $ (7.32) $ 1.97 $ 0.76 $ 0.37 $ (1.19) Extraordinary item (0.27) (2.45) (1.31) (0.54) Cumulative effect of change in accounting principle (0.52) (8.52) ---------- ---------- ---------- ---------- ---------- Net (loss) income (5) $ (7.32) $ 1.18 $ (1.69) $ (0.94) $ (10.25) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- No dividends on common stock have been paid during the past five fiscal years. BALANCE SHEET DATA: Total assets $1,760,146 $1,793,966 $1,632,901 $1,417,230 $1,291,691 Total funded indebtedness 1,341,657 1,277,276 1,166,025 1,005,136 912,070 Redeemable preferred stock 11,477 13,846 Shareholders' equity (53,271) 32,927 14,982 (40,488) (31,459) OTHER DATA: Depreciation and amortization 92,479 87,811 82,869 72,787 68,581 LIFO (benefit) provision (672) 2,792 103 479 1,617 Capital expenditures, including capital leases and acquisitions 136,139 202,357 182,730 144,718 82,061 Cash interest expense 132,062 113,664 113,270 111,478 112,228
-20- (1) During Fiscal 1996, the Company recorded an unusual item of $65.2 million, which was related primarily to the closure of its stand-alone general merchandise business (Harts), a write-down of assets that the Company will no longer utilize in its business and the Company's expense reduction program. During the fiscal year ended January 29, 1994 ("Fiscal 1994"), the Company recorded certain expenses totalling $6.4 million classified as an unusual item. This unusual item was comprised of $4.0 million related to a voluntary employee separation program at the Company's P&C division and $2.4 million related to the realignment of certain operations. (2) As of the beginning of the fourth quarter of Fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Accordingly, the Company recorded a noncash charge of $46.8 million related primarily to the write-down of a portion of the recorded asset values (including allocable goodwill) of 18 of the Company's supermarkets. (3) The extraordinary items (net of income tax benefit) resulted from the early retirement of debt. (4) 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 cumulative effect of the change in accounting principle determined as of January 30, 1994 reduced net income by $5.8 million, net of a $4.1 million income tax benefit, for the 52-week period ended January 28, 1995. During the first quarter of Fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The cumulative effect of adopting SFAS 109 was reported as a change in accounting principle applied retroactively to the beginning of Fiscal 1992. Retained earnings were reduced at the beginning of Fiscal 1992 by approximately $58.3 million for the cumulative effect of the adoption. (5) Net (loss) income per share of common stock is based on the average number of shares and equivalents, as applicable, of common stock outstanding during each period. Fully diluted (loss) income per share is not presented for each of the periods since conversion of the Company's shares under option would be anti-dilutive or the reduction from primary (loss) income per share is less than three percent. -21- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL YEAR ENDED FEBRUARY 3, 1996 ("FISCAL 1996") COMPARED TO FISCAL YEAR ENDED JANUARY 28, 1995 ("FISCAL 1995") Fiscal 1996 was a 53-week year and Fiscal 1995 was a 52-week year. The following table sets forth Statement of Operations components expressed as percentages of total revenues for Fiscal 1996 and Fiscal 1995: PERCENTAGE OF TOTAL REVENUES FISCAL YEAR ---------------------------- 1996 1995 ---- ---- Total revenues 100.0% 100.0% Gross profit (1) 23.0 22.9 Selling and administrative expenses 19.0 18.2 Unusual item 1.9 Write-down of long-lived assets 1.3 Operating income 0.8 4.7 Interest expense 3.8 3.6 (Loss) income before income taxes, extraordinary item and cumulative effect of change in accounting principle (3.0) 1.1 (1) Total revenues less cost of goods sold. Total revenues for Fiscal 1996 increased 6.1% to $3.54 billion (53 weeks) from $3.33 billion in Fiscal 1995 (52 weeks). The change in total revenues is the result of the increase in retail supermarket sales resulting from the acquisition of 45 former Acme stores (29 of which the Company is currently operating) in January 1995 and the fact that Fiscal 1996 was a 53-week year. Wholesale revenues decreased in Fiscal 1996 to $429.4 million from Fiscal 1995 revenues of $442.6 million. Same store sales for Fiscal 1996 decreased by 1.8% from Fiscal 1995 (calculated on a comparable week basis). The Company's total revenues and same store sales results for Fiscal 1996 were adversely affected by weak consumer spending and competitive promotional activity. -22- In Fiscal 1996, gross profit as a percentage of total revenues was 23.0% compared to 22.9% in Fiscal 1995. The increase in gross profit as a percentage of total revenues resulted from a reduced LIFO provision and the relative increase in retail revenues compared to wholesale revenues, which were partially offset by the cost of the Company's response to increased competitor promotional and price initiatives. Selling and administrative expenses as a percentage of total revenues increased to 19.0% for Fiscal 1996 from 18.2% in Fiscal 1995. The increase in selling and administrative expenses as a percentage of total revenues resulted primarily from the relative increase in retail revenues compared to wholesale revenues, increased promotional expenses and increases in fixed and semi-variable expenses as a percentage of total revenues during a period with low food price inflation and a decline in same store sales. During the second quarter of Fiscal 1996, the Company recorded an unusual item (charge) of $65.2 million. This unusual item was comprised of $50.6 million related to the closure of the stand-alone general merchandise business (Harts) and $14.6 million related to the noncash write-off of certain fixed assets which the Company determined during the second quarter that it will no longer utilize in its business, costs incurred in connection with the Company's expense reduction programs and an increase in the Company's closed store reserve (Note 6). As of the beginning of the fourth quarter of Fiscal 1996, the Company adopted 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 121"). As a result of this adoption, the Company recorded a noncash charge of $46.8 million. This charge primarily related to the write-down of a portion of the recorded asset values (including allocable goodwill) of 18 of the Company's 265 supermarkets. The adoption of SFAS 121 will result in reduced depreciation and amortization expense in future years. The resulting reduction in depreciation and amortization expense for Fiscal 1997 will be approximately $3.0 million (Note 7). Depreciation and amortization of $92.5 million in Fiscal 1996 and $87.8 million in Fiscal 1995 represented 2.6% of total revenues in both years. The increase in depreciation and amortization expense is the result of the Company's capital investment program and the acquisition of 45 former Acme stores. -23- Operating income for Fiscal 1996 was $29.5 million or 0.8% of total revenues compared to $155.7 million or 4.7% of total revenues in Fiscal 1995. Excluding the effect of the unusual item and write-down of long-lived assets, operating income for Fiscal 1996 was $141.6 million or 4.0% of total revenues, compared to $155.7 million or 4.7% of total revenues in Fiscal 1995. The decrease in operating income (excluding the effect of the unusual item and the write-down of certain impaired long-lived assets) as a percentage of total revenues in Fiscal 1996 was the result of increased selling and administrative expenses as a percentage of total revenues, partially offset by increased gross profit as a percentage of total revenues. Interest expense for Fiscal 1996 and Fiscal 1995 was $136.4 million and $117.9 million, respectively. The increase in interest expense was due to the higher debt levels outstanding during Fiscal 1996, which were the result of funding the acquisition of 45 stores from American Stores Company in January 1995 and the Company's capital investment program. Loss before income taxes, extraordinary item and the cumulative effect of change in accounting principle was $106.8 million for Fiscal 1996 compared to income of $37.9 million for Fiscal 1995. The reason for the decline is the decrease in operating income (excluding the unusual item and the write-down of certain long-lived assets), the unusual item, the write-down of certain long-lived assets and the increase in interest expense. The income tax benefit for Fiscal 1996 was $27.2 million compared to a provision of $15.9 million in Fiscal 1995. The income tax benefit for Fiscal 1996 included a $32.4 million benefit associated with the unusual item and the write-down of certain long-lived assets. The effective tax rates vary from the statutory rates due to differences between income for financial reporting and tax reporting purposes that result primarily from the amortization of non-deductible goodwill (Note 4). The extraordinary item for Fiscal 1995 was a $3.0 million charge (net of $2.0 million income tax benefit) related to the early retirement of debt. During the first quarter of Fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits". 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 3). -24- FISCAL YEAR ENDED JANUARY 28, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR ENDED JANUARY 29, 1994 ("FISCAL 1994") The following table sets forth Statement of Operations components expressed as percentages of total revenues for Fiscal 1995 and Fiscal 1994: PERCENTAGE OF TOTAL REVENUES FISCAL YEAR ---------------------------- 1995 1994 ---- ---- Total revenues 100.0% 100.0% Gross profit (1) 22.9 22.3 Selling and administrative expenses 18.2 17.7 Unusual item 0.2 Operating income 4.7 4.4 Interest expense 3.6 3.7 Income before income taxes and extraordinary item and cumulative effect of change in accounting principle 1.1 0.7 (1) Total revenues less cost of goods sold. Total revenues for Fiscal 1995 increased 5.1% to $3.33 billion from $3.17 billion in Fiscal 1994. Same store sales increased 0.9% in Fiscal 1995. The increase in total revenues is primarily the result of the increase in retail supermarket sales from the acquisition of the Insalaco's stores in September 1993, the increase in same store sales, and revenues from incremental stores that the Company has recently opened. Wholesale revenues decreased in Fiscal 1995 to $442.6 million from Fiscal 1994 revenues of $462.4 million. In Fiscal 1995, gross profit as a percentage of total revenues increased to 22.9% from 22.3% in Fiscal 1994. The increase in gross profit as a percentage of total revenues resulted primarily from a combination of reduced product procurement costs and the relative increase in retail revenues compared to wholesale revenues. Selling and administrative expenses as a percentage of total revenues increased to 18.2% for Fiscal 1995 from 17.7% in Fiscal 1994. The increase in selling and administrative expenses as a percentage of total revenues resulted primarily from the relative increase in retail revenues compared to wholesale revenues and increases in fixed and semi-variable expenses as a percentage of total revenues during a period with low food price inflation and continued consumer preferences for lower-priced products. -25- During the second quarter of Fiscal 1994, the Company recorded certain expenses totalling $6.4 million classified as an unusual item. This unusual item was comprised of $4.0 million related to a voluntary employee separation program at the Company's P&C division and $2.4 million related to the realignment of certain operations. Depreciation and amortization of $87.8 million in Fiscal 1995 and $82.9 million in Fiscal 1994 represented 2.6% of total revenues in both years. Operating income for Fiscal 1995 was $155.7 million or 4.7% of total revenues compared to $140.6 million or 4.4% of total revenues in Fiscal 1994. Excluding the effect of the unusual item, operating income for Fiscal 1994 was $147.0 million or 4.6% of total revenues. Interest expense for Fiscal 1995 and Fiscal 1994 was $117.9 million and $117.4 million, respectively. Income before income taxes, extraordinary item and the cumulative effect of change in accounting principle was $37.9 million for Fiscal 1995 compared to $23.2 million for Fiscal 1994. The income tax provision for Fiscal 1995 was $15.9 million compared to $15.0 million in Fiscal 1994. The Fiscal 1995 income tax provision includes a $1.0 million decrease in income tax expense and the Fiscal 1994 income tax provision includes a $2.4 million charge. These adjustments are the result of changes in the statutory tax rates applicable to deferred taxes in accordance with the requirements of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The effective tax rates vary from the statutory rates due to differences between income for financial reporting and tax reporting purposes that result primarily from the amortization of nondeductible goodwill (Note 4). The extraordinary item for Fiscal 1995 was a $3.0 million charge (net of $2.0 million income tax benefit) compared to a $25.8 million charge (net of $17.8 million income tax benefit) in Fiscal 1994. These extraordinary items relate to the early retirement of debt. During the first quarter of Fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits". 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 3). This accounting change did not have a material impact on Fiscal 1995 results. -26- LIQUIDITY AND CAPITAL RESOURCES Payments of interest and principal on the Company's $1.2 billion of long-term debt (excluding capital leases) will restrict funds available to the Company to finance capital expenditures and working capital. Principal payments of long-term debt due during Fiscal 1997, 1998 and 1999 total $2.7 million, $2.2 million and $3.3 million, respectively. During Fiscal 1996, the Company's internally generated funds from operations and amounts available under the revolving credit facility described below, provided sufficient liquidity to meet the Company's operating, capital expenditure and debt service needs. 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. The interest rate on borrowings as to which the Company elects a LIBOR-based rate option is LIBOR plus 2.25%, and the interest rate on borrowings as to which the Company elects a prime-based rate option is prime plus 1.0%. As of February 3, 1996, additional availability under the Penn Traffic Revolving Credit Facility was $75.7 million. The Company has three interest rate swap agreements outstanding, each of which expires within the next three years, that effectively convert $125 million of its fixed rate borrowings into variable rate obligations. Under the terms of these agreements, the Company makes payments at variable rates which are based on LIBOR and receives payments at fixed interest rates. The net amount paid or received is included in interest expense. For Fiscal 1996, the Company recorded a $0.1 million increase of interest expense related to these agreements. -27- Cash flows to meet the Company's requirements for operating, investing and financing activities during Fiscal 1996 are reported in the Consolidated Statement of Cash Flows. During the fiscal year ended February 3, 1996, the Company's net cash used in investing activities was $121.5 million and the Company had a $12.1 million increase in cash. These amounts were financed by net cash provided by operating activities of $80.7 million and net cash provided by financing activities of $52.9 million. During the fiscal year ended January 28, 1995, the Company's net cash used in investing activities was $194.8 million. These amounts were financed by net cash provided by operating activities of $56.2 million, net cash provided by financing activities of $102.6 million and the Company had a decrease in cash of $35.9 million. During the fiscal year ended January 29, 1994, the Company's net cash used in investing activities was $173.8 million and the Company had an increase in cash of $27.6 million. These amounts were financed by net cash provided by operating activities of $7.7 million and net cash provided by financing activities of $193.7 million. Working capital decreased by $16.8 million from January 28, 1995 to February 3, 1996. The Company is in compliance with all terms and restrictive covenants of its long-term debt agreements for the fiscal year ended and as of February 3, 1996. The Company's debt agreements provide restrictive covenants on the payment of dividends to its shareholders. As of February 3, 1996, no dividend payments to the Company's shareholders could have been made under the most restrictive of these limitations. During Fiscal 1996, the Company acquired two new stores, opened 11 replacement stores and completed 15 remodels/expansions. Capital expenditures (including capitalized leases) were approximately $136.1 million for Fiscal 1996. During the fiscal year ending February 1, 1997, the Company expects to invest approximately $80 million on capital expenditures (including capital leases). Penn Traffic expects to finance such capital expenditures (including capital leases) through cash generated from operations, as well as amounts available under the Revolving Credit Facility, additional capital lease obligations and mortgages. Capital expenditures will be principally for new stores, replacement stores and remodels. -28- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of The Penn Traffic Company In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Penn Traffic Company and its subsidiaries (the "Company") at February 3, 1996 and January 28, 1995, and the results of their operations and their cash flows for each of the three years in the period ended February 3, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, the Company changed its method for measuring the impairment of long-lived assets to adopt the provisions of Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, effective October 29, 1995 and as discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for postemployment benefits to adopt the provisions of Statement of Financial Accounting Standards No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS, effective January 30, 1994. PRICE WATERHOUSE LLP Syracuse, New York March 16, 1996 -29-
THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF OPERATIONS 53 Weeks Ended 52 Weeks Ended 52 Weeks Ended February 3, 1996 January 28, 1995 January 29, 1994 ---------------- ---------------- ---------------- (All dollar amounts in thousands, except per share data) TOTAL REVENUES $ 3,536,642 $ 3,333,225 $ 3,171,600 COSTS AND OPERATING EXPENSES: Cost of sales (including buying and occupancy cost) 2,724,639 2,570,708 2,464,853 Selling and administrative expenses 670,387 606,782 559,729 Unusual item (Note 6) 65,237 6,400 Write-down of long-lived assets (Note 7) 46,847 ----------- ----------- ----------- OPERATING INCOME 29,532 155,735 140,618 Interest expense 136,359 117,859 117,423 ----------- ----------- ----------- (LOSS) INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (106,827) 37,876 23,195 (Benefit) provision for income taxes (Note 4) (27,202) 15,851 15,019 ----------- ----------- ----------- (LOSS) INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (79,625) 22,025 8,176 Extraordinary item (net of tax benefit) (Note 12) (3,025) (25,843) ----------- ----------- ----------- (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (79,625) 19,000 (17,667) Cumulative effect of change in accounting principle (net of tax benefit) (Note 3) (5,790) ----------- ----------- ----------- NET (LOSS) INCOME (79,625) 13,210 (17,667) Preferred dividends (Note 14) (159) ----------- ----------- ----------- NET (LOSS) INCOME APPLICABLE TO COMMON STOCK $ (79,625) $ 13,210 $ (17,826) ----------- ----------- ----------- ----------- ----------- ----------- PER SHARE DATA: (Loss) Income before extraordinary item and cumulative effect of change in accounting principle (after preferred dividends) $ (7.32) $ 1.97 $ 0.76 Extraordinary item (0.27) (2.45) Cumulative effect of change in accounting principle (0.52) ----------- ----------- ----------- Net (loss) income $ (7.32) $ 1.18 $ (1.69) ----------- ----------- ----------- ----------- ----------- ----------- Dividends per preferred share: Big Bear $ 0.46 ----------- ----------- Average number of common shares and equivalents outstanding 10,870,418 11,169,337 10,561,256 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these statements. -30-
THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET February 3, January 28, 1996 1995 ----------- ----------- (In thousands of dollars) ASSETS CURRENT ASSETS: Cash and short-term investments (Note 1) $ 58,585 $ 46,519 Accounts and notes receivable (less allowance for doubtful accounts of $1,483 and $1,374, respectively) 83,519 81,967 Inventories (Note 1) 356,309 385,968 Prepaid expenses and other current assets 15,717 10,913 ----------- ----------- 514,130 525,367 ----------- ----------- FACILITIES UNDER CAPITAL LEASES (NOTE 5): Capital leases 183,654 178,198 Less: Accumulated amortization (61,125) (50,450) ----------- ----------- 122,529 127,748 ----------- ----------- FIXED ASSETS (NOTE 1): Land 29,306 26,212 Buildings 195,042 180,568 Furniture and fixtures 448,206 439,544 Vehicles 18,262 19,452 Leaseholds and improvements 222,133 207,634 ----------- ----------- 912,949 873,410 Less: Accumulated depreciation (310,509) (272,613) ----------- ----------- 602,440 600,797 ----------- ----------- OTHER ASSETS: Intangible assets resulting from acquisitions, net (Note 1) 431,394 451,897 Other assets and deferred charges, net 89,653 88,157 ----------- ----------- 521,047 540,054 ----------- ----------- TOTAL ASSETS $1,760,146 $1,793,966 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these statements. -31-
THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET February 3, January 28, 1996 1995 ----------- ----------- (In thousands of dollars) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of obligations under capital leases (Note 5) $ 11,735 $ 9,962 Current maturities of long-term debt (Note 2) 2,728 4,118 Trade accounts and drafts payable 208,880 209,890 Payroll and other accrued liabilities 82,154 79,434 Accrued interest expense 33,812 30,686 Payroll taxes and other taxes payable 16,880 19,582 Deferred income taxes (Note 4) 30,385 27,384 ----------- ----------- 386,574 381,056 ----------- ----------- NONCURRENT LIABILITIES: Obligations under capital leases (Note 5) 126,197 126,894 Long-term debt (Note 2) 1,200,997 1,136,302 Deferred income taxes (Note 4) 38,789 73,598 Other noncurrent liabilities 60,860 43,189 ----------- ----------- 1,426,843 1,379,983 ----------- ----------- TOTAL LIABILITIES 1,813,417 1,761,039 ----------- ----------- SHAREHOLDERS' EQUITY (NOTE 8): Preferred Stock--Authorized 10,000,000 shares, $1.00 par value; none issued Common Stock--Authorized 30,000,000 shares, $1.25 par value; 10,840,849 shares and 10,846,701 shares issued and outstanding, respectively 13,606 13,558 Capital in excess of par value 180,029 179,165 Retained deficit (235,223) (149,681) Minimum pension liability adjustment (Note 3) (6,606) (356) Unearned compensation (Note 8) (4,452) (9,759) Treasury Stock, at cost (Note 8) (625) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY (53,271) 32,927 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,760,146 $1,793,966 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these statements. -32-
THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Minimum Capital in Pension Total Common Excess of Retained Liability Unearned Treasury Shareholders' Stock Par Value Deficit Adjustment Compensation Stock Equity ------ ---------- -------- ---------- ------------ ------- ------------- (In thousands of dollars) January 30, 1993 $10,322 $ 94,288 $(145,098) $(40,488) Net loss (17,667) (17,667) Cash dividends-- preferred stock (159) (159) Issuance of 2,000,000 shares of common stock, net (Note 8) 2,500 71,888 74,388 Issuance of 307,836 shares of common stock, net (Note 8) 385 3,276 3,661 Exercise of 11,105 common stock option shares (Note 8) 14 196 210 Issuance of 263,100 restricted stock shares (Note 8) 329 9,439 $(9,768) Minimum pension liability adjustment (Note 3) $(4,963) (4,963) ------- -------- --------- ------- ------- ----- -------- January 29, 1994 13,550 179,087 (162,924) (4,963) (9,768) 14,982 Net income 13,210 13,210 Exercise of 7,550 common stock option shares (Note 8) 9 119 128 Cancellation of 1,000 restricted stock shares (Note 8) (1) (41) 42 Minimum pension liability adjustment (Note 3) 4,607 4,607 Unearned compensation adjustment (Note 8) (9) 9 ------- -------- --------- ------- ------- ----- -------- January 28, 1995 13,558 179,165 (149,681) (356) (9,759) 32,927 Net loss (79,625) (79,625) Exercise of 24,348 common stock option shares (Note 8) 31 271 302 Issuance of 23,500 restricted stock shares (Note 8) 29 849 (878) Cancellation of 9,500 restricted stock shares (Note 8) (12) (256) 268 Minimum pension liability adjustment (Note 3) (6,250) (6,250) Unearned compensation adjustment (Note 8) (6,185) 6,185 Treasury stock, at cost (Note 8) $(625) (625) ------- -------- --------- ------- ------- ----- -------- February 3, 1996 $13,606 $180,029 $(235,223) $(6,606) $(4,452) $(625) $(53,271) ------- -------- --------- ------- ------- ----- -------- ------- -------- --------- ------- ------- ----- --------
The accompanying notes are an integral part of these statements. -33-
THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS 53 Weeks Ended 52 Weeks Ended 52 Weeks Ended February 3, 1996 January 28, 1995 January 29, 1994 ---------------- ---------------- ---------------- (In thousands of dollars) OPERATING ACTIVITIES: Net (loss) income $ (79,625) $ 13,210 $ (17,667) 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 75,375 72,853 68,556 Amortization of intangibles 17,104 14,958 14,313 Write-off of fixed assets 16,416 Write-off of intangible assets 32,809 Write-down of long-lived assets 46,847 (Decrease) increase in deferred taxes (31,808) 3,902 (8,066) Other--net (13,888) (8,147) (3,311) Net change in assets and liabilities: Accounts receivable and prepaid expenses (3,894) (24,031) 276 Inventories 29,659 (37,513) (65,635) Accounts payable and accrued expenses (6,653) 11,637 3,054 Deferred charges and other assets (1,649) 3,577 16,181 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 80,693 56,236 7,701 --------- --------- --------- INVESTING ACTIVITIES: Capital expenditures (124,963) (121,324) (130,117) Acquisition of Insalaco's stores (45,000) Acquisition of Acme stores (75,500) Other--net 3,423 2,018 1,330 --------- --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES (121,540) (194,806) (173,787) --------- --------- --------- (continued) -34- THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) 53 Weeks Ended 52 Weeks Ended 52 Weeks Ended February 3, 1996 January 28, 1995 January 29, 1994 ---------------- ---------------- ---------------- (In thousands of dollars) FINANCING ACTIVITIES: Issuance of Penn Traffic common stock--net 74,388 Purchase of subsidiary securities (10,814) Increase in long-term debt 100,000 617,145 Payments to settle long-term debt (4,095) (62,384) (443,342) Borrowing of revolver debt 588,300 476,000 587,976 Repayment of revolver debt (520,900) (399,300) (600,776) Reduction of capital lease obligations (9,889) (8,598) (7,727) Payment of debt issuance costs (225) (3,224) (23,188) Purchase of treasury stock (625) Preferred dividends and other-- net 347 128 51 --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 52,913 102,622 193,713 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,066 (35,948) 27,627 Cash and cash equivalents at beginning of year 46,519 82,467 54,840 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 58,585 $ 46,519 $ 82,467 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these statements. -35- THE PENN TRAFFIC COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Penn Traffic Company ("Penn Traffic" or the "Company") is primarily engaged in retail and wholesale food distribution. As of February 3, 1996, the Company operated 265 supermarkets in Pennsylvania, New York, Ohio and West Virginia and supplied 124 franchise supermarkets and 116 independent wholesale accounts. The Company operated 15 modern distribution centers with approximately 3.3 million square feet of combined space, a bakery and a dairy. BASIS OF PRESENTATION All significant intercompany transactions and accounts have been eliminated in consolidation. The Company is principally involved in the distribution and retail sale of food and related products, which constitutes a single significant business segment. Certain prior year amounts have been reclassified on the Consolidated Statement of Cash Flows for comparative purposes. FISCAL YEAR The fiscal year of the Company ends on the Saturday nearest to January 31. CASH AND SHORT-TERM INVESTMENTS Short-term investments are classified as cash and are stated at cost, which approximates market value. For the purpose of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost or market. The Company's inventories, representing grocery and certain general merchandise and manufactured inventories, are stated at cost using the last-in, first-out (LIFO) method of valuation. Inventories stated on the LIFO basis were $17,848,000 and $17,145,000 below replacement cost at February 3, 1996 and January 28, 1995, respectively. During Fiscal 1996, inventory quantities were reduced, which resulted in a liquidation of certain LIFO inventory layers carried at lower costs which prevailed in prior years. The effect for Fiscal 1996 was to decrease cost of goods sold by $1,474,000 and to decrease net loss by $869,000 or $.08 per share. -36- FIXED ASSETS AND CAPITAL LEASES Major renewals and betterments are capitalized, whereas maintenance and repairs are charged to operations as incurred. Depreciation and amortization for financial accounting purposes are provided on the straight-line method. For income tax purposes, the Company principally uses accelerated methods. For financial accounting purposes, depreciation and amortization are provided over the following useful lives or lease term: Buildings 16 to 40 years Furniture and fixtures 4 to 15 years Vehicles 3 to 8 years Leaseholds and improvements 5 to 30 years Capital leases lease term INTANGIBLE ASSETS RESULTING FROM ACQUISITIONS The excess of the costs over the amounts attributed to tangible net assets is primarily being amortized over 40 years using the straight-line method. In addition, certain nonfinancing costs resulting from acquisitions have been capitalized as other assets and deferred charges. For Fiscal 1996, 1995 and 1994, amortization of intangibles was $17,104,000, $14,958,000 and $14,313,000, respectively. IMPAIRMENT OF LONG-LIVED ASSETS At each year-end, the Company reviews its long-lived assets (including goodwill) for impairment based on estimated future nondiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written-down to their estimated fair values. Previously, this evaluation was based on cash flows and assets aggregated principally by the operating divisions of the Company. As of the beginning of the fourth quarter of Fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, commencing with the fourth quarter of Fiscal 1996, assets are generally evaluated at the retail store level in making a determination as to whether such assets are impaired. As a result of this change, a pretax $46.8 million write-down of long-lived assets was recorded in Fiscal 1996, which is further described in Note 7. INVESTMENT IN AFFILIATED COMPANY Until March 1995, the Company had a minority interest investment in The Grand Union Company which was carried on the equity basis (Note 9). DEFERRED CHARGES Deferred charges consist of debt issuance costs, prepaid pension expense and the value of leasehold interests that were recorded in conjunction with acquisitions. These deferred charges are being amortized primarily on a straight-line basis over the life of the related debt, the remaining service lives of employees and the lives of the related leases, respectively. -37- STORE PRE-OPENING COSTS Store pre-opening costs are generally charged to expense as incurred. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INCOME TAXES Income taxes are provided based on the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end. NET INCOME (LOSS) PER SHARE Net income (loss) per share of common stock is based on the average number of shares and equivalents, as applicable, of common stock outstanding during each period, after giving effect to preferred stock dividends. 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. -38- NOTE 2 -- LONG-TERM DEBT The long-term debt of Penn Traffic consists of the obligations described below:
FEBRUARY 3, JANUARY 28, 1996 1995 ----------- ----------- (IN THOUSANDS OF DOLLARS) Secured Revolving Credit Facility $ 144,100 $ 76,700 Other Secured Debt 27,385 31,480 11 1/2% Senior Notes due October 15, 2001 107,240 107,240 10 1/4% Senior Notes due February 15, 2002 125,000 125,000 8 5/8% Senior Notes due December 15, 2003 200,000 200,000 10 3/8% Senior Notes due October 1, 2004 100,000 100,000 10.65% Senior Notes due November 1, 2004 100,000 100,000 9 5/8% Senior Subordinated Notes due April 15, 2005 400,000 400,000 ---------- ---------- TOTAL DEBT 1,203,725 1,140,420 Less: Amounts due within one year 2,728 4,118 ---------- ---------- TOTAL LONG-TERM DEBT $1,200,997 $1,136,302 ---------- ---------- ---------- ----------
Amounts maturing within the next five years are: $2,728,000, $2,168,000, $3,271,000, $2,646,000 and $152,864,000 (includes $144,100,000 outstanding as of February 3, 1996 under the Company's secured revolving credit facility which matures in April 2000). The Company incurred interest expense of $136,359,000, $117,859,000 and $117,423,000, including noncash amortization of deferred financing costs of $4,297,000, $4,195,000 and $4,153,000 for Fiscal 1996, 1995 and 1994, respectively. Interest paid amounted to $128,936,000, $111,669,000 and $110,070,000 for Fiscal 1996, 1995 and 1994, respectively. The estimated fair value of the Company's long-term debt, including current maturities, was $1.11 billion at February 3, 1996 and $1.07 billion at January 28, 1995. The estimated fair value of the Company's long-term debt has been determined by the Company using market information provided by an investment banking firm as to the market value of such debt amounts. The Company's secured revolving credit facility (the "Revolving Credit Facility") 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. Additional availability under the Revolving Credit Facility was $75.7 million at February 3, 1996. The interest rate on borrowings as to which the Company elects a LIBOR-based rate option is LIBOR plus 2.25%, and the interest rate on borrowings as to which the Company elects a prime-based rate option is prime plus 1.0%. At February 3, 1996, the weighted average rate of interest on the Revolving Credit Facility was 8.0%. -39- The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due 2002, the 8 5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004 and the 10.65% Senior Notes due 2004 are unsecured obligations of Penn Traffic which rank pari passu with each other and with indebtedness under the Revolving Credit Facility. However, indebtedness under the Revolving Credit Facility is secured by certain assets of the Company. The 9 5/8% Senior Subordinated Notes due 2005 are subordinated to all existing and future senior indebtedness. The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due 2002, the 8 5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004, the 10.65% Senior Notes due 2004, the 9 5/8% Senior Subordinated Notes due 2005 and the Revolving Credit Facility contain certain covenants, including restrictions on incurrence of indebtedness by Penn Traffic and limitations on the payment of dividends to Penn Traffic's common shareholders. The Company is in compliance with all terms and covenants of its long-term debt agreements as of and for the fiscal year ended February 3, 1996. The Company has three interest rate swap agreements outstanding, each of which expires within the next three years, that effectively convert $125 million of its fixed rate borrowings into variable rate obligations. Under the terms of these agreements, the Company makes payments at variable rates which are based on LIBOR and receives payments at fixed interest rates. The net amount paid or received is included in interest expense. The estimated fair value of the Company's interest rate swap agreements at February 3, 1996 was a $1.2 million asset and a $4.3 million liability at January 28, 1995, neither of which has been recorded on the books of the Company. The estimated fair value of these interest rate agreements has been determined by the Company using market information available to the Company, based on information provided by the counterparty to each interest rate agreement. -40- NOTE 3 -- EMPLOYEE BENEFIT PLANS: Substantially all of the Company's employees are covered by either defined benefit plans or defined contribution plans. The following sets forth the net pension expense recognized for the defined benefit pension plans and the status of the Company's defined benefit plans:
FISCAL YEAR ENDED FEBRUARY 3, JANUARY 28, JANUARY 29, 1996 1995 1994 ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS) Service cost -- benefits earned during the period. . . . . . . . . $ 4,572 $ 4,617 $ 4,345 Interest cost on projected benefit obligation . . . . . . . . . . . . 9,671 9,207 8,281 Actual return on plan assets . . . . (22,634) (2,117) (11,163) Net amortization and deferral. . . . 9,990 (9,365) 482 -------- -------- -------- Net pension expense. . . . . . . . . $ 1,599 $ 2,342 $ 1,945 -------- -------- -------- -------- -------- --------
February 3, 1996 January 28, 1995 Plans in Which Plans in Which ------------------------------- ------------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets ----------- ----------- ----------- ----------- (In thousands of dollars) Actuarial present value of vested benefit obligation . . . . . . . $(54,802) $(73,562) $(52,803) $(39,608) -------- -------- -------- -------- Accumulated benefit obligation . . . . . $(58,104) $(78,762) $(56,849) $(43,467) -------- -------- -------- -------- Projected benefit obligation . . . . . . $(68,799) $(83,840) $(67,363) $(43,467) Plan assets at fair value. . . . . . . . 81,001 66,344 88,964 39,159 -------- -------- -------- -------- Plan assets in excess of (less than) projected benefit obligation . . . . . . . . . . . . . . 12,202 (17,496) 21,601 (4,308) Unrecognized net transition (asset) liability. . . . . . . . . . . (1,654) 108 (1,774) 119 Unrecognized net (gain) loss . . . . . . 239 16,280 (10,235) 82 Unrecognized prior service cost. . . . . 1,632 9,783 4,478 6,822 Minimum liability. . . . . . . . . . . . (21,093) (7,023) -------- -------- -------- -------- Net pension asset (liability). . . . . . $ 12,419 $(12,418) $ 14,070 $ (4,308) -------- -------- -------- -------- -------- -------- -------- --------
In calculating benefit obligations and plan assets for Fiscal 1996, the Company assumed a weighted average discount rate of 7.5%, compensation increase rates ranging from 2.0% to 3.5% and expected long-term rates of return on plan assets ranging from 10.5% to 10.75%. For Fiscal 1995, the Company assumed a weighted average discount rate of 9.0%, compensation increase rates ranging from 3.0% to 3.5% and expected long-term rates of return on plan assets ranging from 8.5% to 9.5%. -41- The Company's defined benefit plans generally provide a retirement benefit to employees based on specified percentages applied to final average compensation, as defined, coupled with years of service earned to the date of retirement. All pension plans comply with the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Generally, the Company funds accrued pension costs as incurred. Penn Traffic's defined benefit plans' assets are maintained in separate trusts and are managed by independent investment managers. The assets were invested primarily in equity, debt and short-term cash securities. The Company also contributes to multi-employer pension funds, which cover certain union employees under collective bargaining agreements. Such contributions aggregated $4,521,000, $4,297,000 and $4,759,000 in Fiscal 1996, 1995 and 1994, respectively. The applicable portion of the total plan benefits and net assets of these plans is not separately identifiable. The Company contributed to a separate profit-sharing retirement plan for certain eligible employees not covered by a union pension fund for Fiscal 1994 and also contributes to a profit-sharing arrangement for certain union employees. There was no expense for these profit-sharing plans for Fiscal 1996 and Fiscal 1995 and $279,000 for Fiscal 1994. In addition, the Company sponsors a deferred profit-sharing plan for certain salaried employees. Contributions and costs totalled $998,000, $845,000 and $1,053,000 with respect to Fiscal 1996, 1995 and 1994, respectively. Pursuant to the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), the Company recorded in other noncurrent liabilities an additional minimum pension liability adjustment of $21,093,000 as of February 3, 1996 and $7,023,000 as of January 28, 1995, representing the amount by which the accumulated benefit obligation exceeded the fair value of plan assets plus accrued amounts previously recorded. The additional liability has been offset by an intangible asset to the extent of previously unrecognized prior service cost. The amount in excess of previously unrecognized prior service cost (after tax) is recorded as a reduction of shareholders' equity in the amount of $6,606,000 as of February 3, 1996 and $356,000 as of January 28, 1995 and $4,963,000 as of January 29, 1994. 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 cumulative effect of the change in accounting principle determined as of January 30, 1994 reduced net income $5.8 million, net of a $4.1 million income tax benefit, for the fiscal year ended January 28, 1995. -42- NOTE 4 -- INCOME TAXES: The provision for income taxes charged to continuing operations was provided as follows:
FISCAL YEAR ENDED ----------------- FEBRUARY 3, JANUARY 28, JANUARY 29, 1996 1995 1994 ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS) Current Tax (Benefit) Expense: Federal income $ (2,126) $10,330 $ 7,728 State income 2,682 1,690 -------- ------- ------- (2,126) 13,012 9,418 -------- ------- ------- Deferred Tax (Benefit) Expense: Federal income (18,922) 2,895 4,454 State income (6,154) (56) 1,147 -------- ------- ------- (25,076) 2,839 5,601 -------- ------- ------- (Benefit) provision for income taxes $(27,202) $15,851 $15,019 -------- ------- ------- -------- ------- -------
The differences between income taxes computed using the statutory federal income tax rate and those shown in the Consolidated Statement of Operations are summarized as follows:
FISCAL YEAR ENDED ----------------- FEBRUARY 3, JANUARY 28, JANUARY 29, 1996 1995 1994 ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS) Federal (benefit) tax at statutory rates $(37,389) $13,254 $ 8,118 State income taxes net of federal income tax effect (3,850) 2,722 1,844 Nondeductible goodwill amortization and write-off 14,724 3,343 3,284 Capital loss carryforward (992) Miscellaneous items 331 639 (167) Increase in deferred income taxes due to change in federal income tax rate 2,439 Decrease in deferred income taxes due to changes in state income tax rates (232) (997) State net operating loss carryforwards (726) Tax credits (786) (1,392) (499) -------- ------- ------- (Benefit) provision for income taxes $(27,202) $15,851 $15,019 -------- ------- ------- -------- ------- -------
-43- Components of deferred income taxes at February 3, 1996 and January 28, 1995 were as follows:
FEBRUARY 3, JANUARY 28, 1996 1995 ----------- ----------- (IN THOUSANDS OF DOLLARS) Deferred Tax Liabilities: Fixed assets $ 85,038 $103,673 Inventory 30,132 30,237 Prepaid expenses and other current assets 668 955 Goodwill amortization 2,539 956 Pensions 4,202 2,142 Deferred charges and other assets 9,228 6,209 -------- -------- $131,807 $144,172 -------- -------- -------- -------- Deferred Tax Assets: Nondeductible accruals $ 15,784 $ 7,604 Prepaid operating fee 4,160 4,170 Capital leases 4,887 3,791 Net operating loss carryforward 5,553 3,863 Capital loss carryforward 1,500 1,500 Tax credit carryforwards 30,749 22,262 -------- -------- $ 62,633 $ 43,190 -------- -------- -------- -------- Net Deferred Tax Liability $ 69,174 $100,982 -------- -------- -------- --------
At February 3, 1996, Penn Traffic had alternative minimum tax credit carryforwards of $25,560,000, general business tax credit carryforwards of $3,104,000, targeted jobs credits of $685,000 and various state tax credits, tax-effected for federal income tax purposes, of $1,400,000 available to offset the Company's regular income tax liability in future years. The general business tax credit carryforwards begin to expire in 2005 and the alternative minimum tax credit carryforwards have no expiration date. In addition, the Company has various state net operating loss carryforwards, tax-effected for federal income tax purposes, of approximately $5,553,000. The Company has recorded a deferred tax asset of approximately $7,074,000 subject to a valuation allowance of $5,574,000 for the capital loss realized on the investment in the capital stock of Grand Union (Note 9). -44- NOTE 5 -- LEASES: The following is a schedule by year of future gross minimum rental payments for all leases with terms greater than one year reconciled to the present value of net minimum capital lease payments as of February 3, 1996:
FISCAL YEARS ENDING IN TOTAL OPERATING CAPITAL ---------------------- ----- --------- ------- (IN THOUSANDS OF DOLLARS) 1997 $ 66,340 $ 40,222 $ 26,118 1998 61,473 37,601 23,872 1999 57,834 35,182 22,652 2000 53,743 32,867 20,876 2001 49,848 31,052 18,796 Later years 419,545 271,875 147,670 -------- -------- -------- Total minimum lease payments $708,783 $448,799 259,984 -------- -------- -------- -------- Less: Executory costs (1,201) ------- Net minimum capital lease payments 258,783 Less: Estimated amount representing interest (120,851) ------- Present value of net minimum capital lease payments 137,932 Less: Current portion (11,735) ------- Long-term obligations under capital lease at February 3, 1996 $126,197 ------- -------
The Company principally operates in leased store facilities with terms of up to 20 years and renewable options for additional periods. The Company follows the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13"), in determining the criteria for capital leases. Leases that do not meet such criteria are classified as operating leases, and related rentals are charged to expense in the year incurred. During Fiscal 1996, 1995 and 1994, the Company incurred capital lease obligations of $11,176,000, $5,533,000 and $7,613,000, respectively, in connection with lease agreements for buildings and equipment. For Fiscal 1996, 1995 and 1994, capital lease amortization expense was $12,485,000, $11,887,000 and $11,758,000, respectively. Future minimum rentals have not been reduced by minimum sublease rentals of $49,649,000 due in the future under noncancelable subleases. In addition to minimum rentals, some leases provide for the Company to pay real estate taxes and other expenses and, in many cases, contingent rentals based on sales. -45- Minimum rental payments and related executory costs for operating leases were as follows:
FISCAL YEAR ENDED ----------------- FEBRUARY 3, JANUARY 28, JANUARY 29, 1996 1995 1994 ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS) Minimum rentals and executory costs $ 40,806 $ 35,863 $ 30,393 Contingent rentals 2,264 1,874 1,437 Less: Sublease payments (9,946) (9,607) (8,226) ----------- ----------- ----------- Net rental payments $ 33,124 $ 28,130 $ 23,604 ----------- ----------- ----------- ----------- ----------- -----------
-46- NOTE 6 -- UNUSUAL ITEM: During Fiscal 1996, the Company recorded an unusual item (charge) of $65.2 million. The Company also recorded a tax benefit of $13.3 million in connection with this charge. During the second quarter of Fiscal 1996, the Company decided to close 11 of its 15 remaining stand-alone general merchandise stores (Harts) in Ohio. During Fiscal 1996, Fiscal 1995 and Fiscal 1994, these 11 stores generated 1.1%, 1.8% and 2.1%, respectively, of the total revenues of the Company. The impact of these stores on the operating income of the Company was immaterial in each of the past three fiscal years. The Company currently is operating the remaining four general merchandise stores under the Company's "Plus" trade name. As a result of the decision to close the 11 Harts stores and convert the remaining four stores, during the second quarter ended July 29, 1995, the Company recorded an unusual item (charge). For the year ended February 3, 1996, the amount of this charge is $50.6 million. This charge specifically relates to the write-off of goodwill ($32.8 million), the write-off of fixed assets ($8.4 million) and store closing costs consisting principally of inventory markdowns ($9.4 million). The unusual item also includes $14.6 million in connection with the noncash write-off of certain fixed assets which the Company determined during the second quarter that it will no longer utilize in its business ($8.0 million), costs incurred in connection with the implementation of the Company's expense reduction programs ($4.0 million), and an increase in the Company's closed store reserve ($2.6 million). The noncash portion of the unusual item is approximately $57.5 million and the cash portion is approximately $7.7 million. All costs related to the unusual item were incurred during Fiscal 1996 with the exception of certain facility carrying costs (primarily lease payments) for stores that have been closed, and inventory markdowns and the write-down of fixed assets for the remaining four stores to be converted to the Company's "Big Bear Plus" supermarkets format. The last scheduled lease payment will occur in 2001. The accrued liability relating to the unusual item was $10.5 million at February 3, 1996. During Fiscal 1994, the Company recorded certain expenses totalling $6.4 million classified as an unusual item. This unusual item is comprised of $4.0 million related to a voluntary employee separation program at the Company's P&C division and $2.4 million related to the realignment of certain operations. -47- NOTE 7 -- ACCOUNTING FOR CERTAIN LONG-LIVED ASSETS As of the beginning of the fourth quarter of Fiscal 1996, the Company adopted 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 121"). Accordingly, the Company will periodically review the recorded value of its stores and other assets to determine if the future nondiscounted cash flows from these properties are expected to be sufficient to recover the remaining recorded asset values. Based upon a comprehensive review of the Company's long-lived assets, the Company has recorded a noncash charge of $46.8 million. This charge primarily related to the write-down of a portion of the recorded asset values (including allocable goodwill) of 18 of the Company's 265 retail supermarkets. These 18 supermarkets are located throughout the Company's trading area and generate approximately 5% of the Company's total revenues. The Company does not currently expect to close any of these stores. The adoption of SFAS 121 will result in reduced depreciation and amortization expense in future years. -48- NOTE 8 -- SHAREHOLDERS' EQUITY: The Company has a Long-term Incentive Plan (the "1993 Plan") which provides for long-term incentives based upon objective, quantifiable measures of the Company's performance over time through the payment of incentive compensation of the types commonly known as stock options, restricted stock, performance shares, other forms of stock-based incentives such as phantom stock and cash awards. A maximum of 350,000 shares of common stock may be paid to participants under the 1993 Plan and/or purchased pursuant to stock options granted under the 1993 Plan, subject to antidilution and other adjustments specified in the 1993 Plan. As of February 3, 1996, a total of 276,100 shares of restricted stock and 3,000 options to purchase shares of the Company's common stock have been awarded under the Company's 1993 Plan to 68 officers and employees of Penn Traffic (including one independent contractor). At February 3, 1996, an additional 70,900 shares of common stock were reserved for future grants under the 1993 Plan. For all awards of restricted stock made prior to January 29, 1995, vesting of the shares granted pursuant to such awards is contingent upon attainment, subsequent to the date of grant, of EBITDA (as defined) levels of $265 million in any four consecutive fiscal quarter period, or $500 million in any eight consecutive fiscal quarter period. Such shares will be forfeited if such levels are not achieved by the fifth anniversary of the date of grant. Vesting of awards of restricted stock that have been made subsequent to the end of Fiscal 1995 is also conditioned upon the recipient's remaining in the employ of the Company for an additional two years following the last fiscal quarter in which the required EBITDA performance level was attained. To encourage retention of such shares by the participants, upon vesting of the restricted stock, the Company will make a cash payment to each participant equal to the amount of income tax payable by such participant in respect of the award and the cash payment, if such participant agrees not to sell his shares for at least two years beyond vesting and to refund the payment if he resigns within such two-year period. As of February 3, 1996, unearned compensation was recorded at $4,452,000 to reflect the impact of the restricted shares. Unearned compensation, which is shown as a separate component of shareholders' equity, will be expensed as the compensation is earned. -49- The 1993 Plan was adopted in Fiscal 1994 as the successor to the Company's 1988 Stock Option Plan (the "1988 Plan"). The Company also has a stock option plan for directors (the "Directors' Plan") pursuant to which each director of the Company who is not an employee of the Company receives as of the date of appointment to the Board of Directors, and thereafter annually, as of the first business day after the conclusion of each Annual Meeting of Shareholders of the Company, an option to purchase 1,500 shares of common stock (subject to antidilution adjustments) at a price equal to the fair market value (as defined in the Directors' Plan) of such shares on the date of grant. As of February 3, 1996, options for 223,094 shares, 3,000 shares and 42,000 shares are outstanding under the 1988 Plan, the 1993 Plan and the Directors' Plan, respectively. An additional 5,000 shares of common stock are reserved for issuance under the Directors' Plan at February 3, 1996. Under the terms of the Directors' Plan, option prices are 100% of the "fair market value" of the shares on the date granted and the options are immediately exercisable. The 1988 Plan options generally vest 20% on the date of grant and 20% on each of the next four anniversary dates. The exercise price for the options granted under the 1993 Plan is 100% of the "fair market value" of the shares on the date granted. These options are currently exercisable for 20% of the total number of shares and will be exercisable for an additional 20% on each of the next four anniversary dates of the grant. The options granted under each of these plans expire ten years after the date of grant. Changes during the three years ended February 3, 1996 in options outstanding under the 1988 Plan, the 1993 Plan and the Directors' Plan are as follows:
PENN TRAFFIC STOCK OPTIONS OPTION PRICE SHARES PER SHARE UNDER OPTION ------------ ------------ 1988 PLAN Balance, January 30, 1993 $12.50 - 28.13 265,187 Granted 0 Canceled $12.50 - 26.75 (12,935) --------- Balance, January 29, 1994 $12.50 - 28.13 252,252 Granted 0 Canceled $12.50 - 26.75 (7,810) --------- Balance, January 28, 1995 $12.50 - 28.13 244,442 Granted 0 Canceled $12.50 - 26.75 (21,348) --------- Balance, February 3, 1996 $12.50 - 28.13 223,094 --------- --------- 1993 PLAN Granted and outstanding at February 3, 1996 $18.19 3,000 --------- --------- DIRECTORS' PLAN Granted and outstanding at February 3, 1996 $18.44 - 42.00 42,000 --------- ---------
-50- At February 3, 1996, all of the 1988 Plan options were exercisable. At February 3, 1996, certain persons affiliated with Miller Tabak Hirsch + Co. ("MTH") held warrants to purchase 289,000 shares at $14.00 per share. In October 1995, the Company's Board of Directors authorized the repurchase by the Company of up to 500,000 shares of its outstanding common stock, either in the open market or in private transactions. Shares which are repurchased will be available for issuance upon exercise of outstanding options which have been granted under the Company's equity incentive programs as well as for other corporate purposes. During Fiscal 1996, the Company purchased 45,200 shares at a cost of $625,000, which shares are being held in treasury. Penn Traffic's debt agreements contain limitations on the Company's ability to repurchase its common stock based upon certain financial tests. NOTE 9 -- EQUITY INVESTMENT: In July 1989, Penn Traffic acquired an indirect ownership interest in the common stock of Grand Union Holdings Corporation ("Grand Union 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, Grand Union Holdings filed a voluntary Chapter 11 petition with the Bankruptcy Court. As a result of these bankruptcy proceedings, Penn Traffic's equity ownership interest in Grand Union Holdings, which as of the dates of filing of the Chapter 11 petitions was approximately 17.8% on a fully diluted basis, became worthless. See Note 10 - Related Parties for a description of certain relationships between Penn Traffic and Grand Union. -51- NOTE 10 -- RELATED PARTIES: During Fiscal 1996, the Company had an agreement for financial consulting and business management services to be provided by MTH. Under this agreement, the Company paid MTH an annual fee of $1,395,100. The annual fee payable to MTH for Fiscal 1997 will increase to $1,437,000 on November 1, 1996. During Fiscal 1995, the amount of the annual fee paid to MTH under the financial consulting and business management services agreement was $1,357,100. During Fiscal 1995, the Company paid MTH an additional fee of $500,000 for its services in connection with assisting the Company with the acquisition of 45 former Acme stores and the public offering of $100 million in principal amount of Penn Traffic 10.65% Senior Notes due 2004. During Fiscal 1994, the amount of the annual fee paid to MTH under the financial consulting and business management services agreement was $1,324,000 and the Company paid MTH additional fees totalling $1,500,000 for its services in connection with public offerings of debt and equity securities and with the mergers of P&C and Big Bear into the Company. On July 30, 1990, P&C (then a subsidiary and now a division of Penn Traffic) and Grand Union entered into an agreement (the "New England Operating Agreement") whereby Grand Union acquired the right to operate 13 P&C stores located in New England under the Grand Union name until July 2000. Pursuant to the New England Operating Agreement, Grand Union agreed to pay Penn Traffic (as the successor of P&C, which was merged into the Company in April 1993) a minimum annual fee averaging $10.7 million per year during the 10-year term and, beginning with the year commencing July 31, 1992, to pay Penn Traffic additional contingent fees of up to $700,000 per year based on sales performance of the stores operated by Grand Union. As a result of the recapitalization of Grand Union in July 1992, Penn Traffic received a $15 million prepayment of an operating fee from Grand Union pursuant to the terms of the New England Operating Agreement. This prepayment reduced the future payments that Grand Union will make to Penn Traffic pursuant to the terms of the New England Operating Agreement by approximately $3.2 million per year. The Total Revenues line of the Consolidated Statement of Operations includes pretax operating fees of $11.4 million for the fiscal year ended February 3, 1996 and $11.2 million for the fiscal years ended January 28, 1995 and January 29, 1994. -52- At the expiration of the 10-year term of the New England Operating Agreement, Grand Union has the right to extend the term of the New England Operating Agreement for an additional five years. In the event of such extension of the lease term, Grand Union will pay to Penn Traffic an annual fee of $13.6 million in the first year of the extended term, $14.0 million in the second year, $14.4 million in the third year, $14.9 million in the fourth year and $15.3 million in the fifth year, plus contingent fees based on the sales performance of the stores of up to $700,000 each year. Penn Traffic also granted Grand Union an option (the "Purchase Option") to purchase the stores operated by Grand Union under the New England Operating Agreement. Grand Union paid Penn Traffic $7.5 million for the Purchase Option. If Grand Union does not extend the initial term of the New England Operating Agreement at its expiration in July 2000 or does not exercise the Purchase Option prior to the expiration of the term (or the extended term), or in the event of a default by Grand Union in the performance of its obligations pursuant to the New England Operating Agreement, the stores operated by Grand Union pursuant to the New England Operating Agreement will be returned to operation by Penn Traffic. Based on current conditions, management does not believe that the return of operation of the stores to Penn Traffic would have a significant impact on the financial condition of the Company. From September 1993 until September 1995, Penn Traffic and Grand Union participated in a consolidated health and beauty care and general merchandise purchasing and distribution program. NOTE 11 -- COMMITMENTS AND CONTINGENCIES: The Company enters into various purchase commitments in the normal course of business. No losses are expected to result from these purchase commitments. At February 3, 1996, Penn Traffic had guaranteed obligations of $2.0 million of indebtedness of certain licensed independent operators. The Company, its subsidiaries and divisions also are involved in various legal actions, some of which involve claims for substantial sums. However, any ultimate liability with respect to these contingencies is not considered to be material in relation to the consolidated financial position or results of operations of the Company. NOTE 12 -- EXTRAORDINARY ITEM: During Fiscal 1995 and Fiscal 1994, the Company had extraordinary items of $3,025,000 (net of $2,045,000 income tax benefit) and $25,843,000 (net of $17,848,000 income tax benefit), respectively, relating to the early retirement of debt. -53- NOTE 13 -- ACQUISITIONS: On January 19, 1995, the Company acquired 45 food stores from American Stores Company. The stores are located in north central and northeastern Pennsylvania and in south central New York. The acquisition cost of $91,570,000 was attributed to major categories of assets obtained and obligations assumed as follows: inventories $15,502,000; property, plant and equipment $9,638,000; other assets (goodwill) $81,217,000; cash $566,000 and other noncurrent liabilities $15,353,000. The unaudited consolidated results of operations on a pro forma basis as though the American Stores Company stores had been acquired on January 31, 1993 are as follows:
FOR THE 52 WEEKS ENDED ---------------------- JANUARY 28, JANUARY 29, 1995 1994 ----------- ----------- (UNAUDITED) (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Total revenues $ 3,599,513 $ 3,534,710 Net income (loss) applicable to common stock $ 13,303 $ (17,978) Net income (loss) per common share $ 1.19 $ (1.71)
The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the purchase been made at the beginning of the period or of the future results of the combined operations. NOTE 14 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK: In April 1993, Big Bear was merged into Penn Traffic. At the effective date of the merger, holders of Big Bear redeemable convertible 8% preferred stock and Big Bear common stock received aggregate merger consideration for the merger equal to 307,836 shares of Penn Traffic common stock and approximately $10.8 million in cash. As a result of the merger, the Big Bear redeemable convertible 8% preferred stock was retired. -54- REPORT OF MANAGEMENT Penn Traffic's management has prepared the financial statements presented in this annual report and is responsible for the integrity of all information contained herein. The financial statements presented in this report have been audited by the independent accountants appointed by the Board of Directors on the recommendation of its Audit Committee and management. The Company maintains an effective system of internal accounting controls. The independent accountants obtain and maintain an understanding of the Company's internal accounting controls and conduct such tests and related procedures as they deem necessary to express an opinion on the fairness of the presentation of the financial statements. The Audit Committee, composed solely of outside directors, meets periodically with management and independent accountants to review auditing and financial reporting matters and to ensure that each group is properly discharging its responsibilities. We rely on our internal and external auditors to assist us in fulfilling our responsibility for the fairness of the Company's financial reporting and monitoring the effectiveness of our system of internal accounting controls. -55- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT As permitted by General Instruction G(3), information concerning the executive officers of Penn Traffic is set forth as a supplemental item included in Part I of the Form 10-K Report under the caption "Executive Officers of Registrant." The information required by this Item is incorporated herein by reference to the caption "Election of Directors" in the Company's Proxy Statement dated May 1, 1996, filed or to be filed in connection with the Company's 1996 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the caption "Executive Compensation" in the Company's Proxy Statement dated May 1, 1996 filed or to be filed in connection with the Company's 1996 Annual Meeting of Stockholders. The information set forth in "Compensation Committee Report" and "Performance Graph" of the Company's Proxy Statement dated May 1, 1996, filed or to be filed in connection with the Company's 1996 Annual Meeting of Stockholders, is not "filed" as a part hereof. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement dated May 1, 1996, filed or to be filed in connection with the Company's 1996 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION The information required by this Item is incorporated herein by reference to the caption "Certain Transactions" in the Company's Proxy Statement dated May 1, 1996 filed or to be filed in connection with the Company's 1996 Annual Meeting of Stockholders. -56- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The index for Financial Statements and Supplementary Data is on page 17 under Item 8 of this Form 10-K. EXHIBITS: The following are filed as Exhibits to this Report: Exhibit No. Description - ----------- ----------- 2.1 Certificate of Merger for merger of Penn Traffic Acquisition Corporation into Penn Traffic dated April 14, 1993 (incorporated by reference to Exhibit No. 2.5 to Penn Traffic's Registration Statement on Form S-3 (Reg. No. 33-51213) filed on December 8, 1993 with the Securities and Exchange Commission (the "SEC") and referred to herein as the "December 1993 Registration Statement"). 2.2 Plan of Merger dated as of February 25, 1993 for the merger of P&C Food Markets, Inc. ("P&C") into Penn Traffic (incorporated by reference to Exhibit No. 2.6 to Penn Traffic's Registration Statement on Form S-3 (Reg. No. 33-58918) filed on April 7, 1993 with the SEC and referred to herein as the "April 1993 Registration Statement"). 2.3 Certificates of Merger for merger of P&C into Penn Traffic dated April 14, 1993 (incorporated by reference to Exhibit No. 2.7 to the December 1993 Registration Statement). 2.4 Agreement and Plan of Merger dated as of February 25, 1993 by and among Penn Traffic, Penn Traffic Acquisition Corporation and Big Bear Stores Company ("Big Bear") (incorporated by reference to Exhibit No. 2.8 to the April 1993 Registration Statement). 2.5 Certificate of Merger for merger of Big Bear into Penn Traffic Acquisition Corporation dated April 14, 1993 (incorporated by reference to Exhibit No. 2.9 to the December 1993 Registration Statement). 2.6 Asset Purchase Agreement dated as of December 9, 1992 between Penn Traffic and Peter J. Schmitt Co., Inc. (the "December 9, 1992 Asset Purchase Agreement") (incorporated by reference to Exhibit No. 2.1 to Penn Traffic's Current Report on Form 8-K filed on January 18, 1993 with the SEC and referred to herein as the "Penn Traffic 1993 8-K"). 2.6A Letter Agreement dated December 31, 1992 with respect to the December 9, 1992 Asset Purchase Agreement (incorporated by reference to Exhibit No. 2.1A to the Penn Traffic 1993 8-K). -57- EXHIBITS (CONTINUED): Exhibit No. Description - ----------- ----------- 2.7 Asset Purchase Agreement dated as of December 29, 1992 between Penn Traffic and Peter J. Schmitt Co., Inc. (the "December 29, 1992 Asset Purchase Agreement") (incorporated by reference to Exhibit No. 2.2 to the Penn Traffic 1993 8-K). 2.7A Letter Agreement dated December 30, 1992 with respect to the December 29, 1992 Asset Purchase Agreement (incorporated by reference to Exhibit No. 2.2A to the Penn Traffic 1993 8-K). 2.8 Agreement of Purchase and Sale, dated as of August 27, 1993, by and between Insalaco Markets, Inc., Insalaco's Old Forge, Inc., Insalaco's Clarks Green, Inc., Insalaco's Supermarkets Warehouse, Insalaco Enterprises, Insalaco's Real Estate, Insalaco's Foodliner, Eagle Valley Realty, Tannersville Realty Company and Penn Traffic (incorporated by reference to Exhibit No. 10.23 to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1993 and referred to herein as the "Penn Traffic July 1993 10-Q"). 2.9 Asset Purchase Agreement by and among Acme Markets, Inc., American Stores Properties, Inc., American Stores Realty Corp. and The Penn Traffic Company, dated as of September 30, 1994 (incorporated by reference to Exhibit 2.13 to Penn Traffic's Report on Form 8-K dated October 12, 1994 and referred to herein as the "1994 8-K"). 3.1 Certificate of Incorporation of Penn Traffic (incorporated by reference to Exhibit No. 3.1 to Penn Traffic's Registration Statement on Form S-3 (Reg. No. 33-51824) filed on October 2, 1992 with the SEC and referred to herein as the "October 1992 Registration Statement"). 3.2 By-Laws of Penn Traffic as amended through April 2, 1996. 4.1 Certificate of Incorporation of Penn Traffic (filed as Exhibit No. 3.1). 4.2 By-Laws of Penn Traffic (filed as Exhibit No. 3.2). 4.3 Form of Common Stock Certificate (incorporated by reference to Exhibit No. 4.2 to Penn Traffic's Annual Report on Form 10-K for the fiscal year ended January 28, 1995 and referred to herein as the "1995 10-K"). 4.4 Indenture, including form of 11 1/2% Senior Note Due 2001, dated as of October 16, 1991 between P&C and Bankers Trust Company ("Bankers Trust"), as Trustee (incorporated by reference to Exhibit No. 10.25 to P&C's quarterly report on Form 10-Q for the fiscal quarter ended November 2, 1991 and referred to herein as the "P&C November 1991 10-Q"). -58- EXHIBITS (CONTINUED): Exhibit No. Description - ----------- ----------- 4.4A First Supplemental Indenture dated as of April 15, 1993 between the Company and Bankers Trust, as Trustee, relating to the 11 1/2% Senior Notes Due 2001 (incorporated by reference to Exhibit No. 4.10A to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 1993 and referred to herein as the "Penn Traffic May 1993 10-Q"). 4.5 Indenture, including form of 10 1/4% Senior Note Due February 15, 2002, dated as of February 18, 1992 between Penn Traffic and Marine Midland Bank, N.A., Trustee (incorporated by reference to Exhibit No. 4.13 to Penn Traffic's Annual Report on Form 10-K for the fiscal year ended February 1, 1992 and referred to herein as the "Penn Traffic 1992 10-K"). 4.5A First Supplemental Indenture dated as of June 10, 1992 to the Indenture dated as of February 18, 1992, relating to the 10 1/4% Senior Notes Due 2002, between Penn Traffic and Marine Midland Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.15A to the October 1992 Registration Statement). 4.5B Second Supplemental Indenture dated as of September 18, 1992 to the Indenture dated as of February 18, 1992, relating to the 10 1/4% Senior Notes Due 2002, between Penn Traffic and Marine Midland Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.15B to the October 1992 Registration Statement). 4.6 Indenture, including form of 10 3/8% Senior Note Due October 1, 2004, dated as of October 1, 1992, between Penn Traffic and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit No. 4.16 to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1992). 4.7 Indenture, including form of 9 5/8% Senior Subordinated Note Due April 15, 2005, dated as of April 15, 1993, between Penn Traffic and First Trust of California, National Association, as Trustee (incorporated by reference to Exhibit No. 4.14 to the Penn Traffic May 1993 10-Q). 4.8 Indenture dated as of December 15, 1993, between Penn Traffic and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit No. 4.9 to Penn Traffic's Form 10-K for the fiscal year ended January 29, 1994, and referred to herein as the "1994 10-K"). 4.8A Officer's Certificate pursuant to the Indenture filed as Exhibit 4.8, dated December 21, 1993, establishing the terms of the 8 5/8% Senior Notes due December 15, 2003 (incorporated by reference to Exhibit 4.8A to the 1995 10-K). -59- EXHIBITS (CONTINUED): Exhibit No. Description - ----------- ----------- 4.8B Officer's Certificate pursuant to the Indenture filed as Exhibit 4.8, dated October 20, 1994, establishing the terms of the 10.65% Senior Notes due November 1, 2004 (incorporated by reference to Exhibit 4.8B to the 1995 10-K). 10.1 Membership and Licensing Agreement dated April 18, 1982 among TOPCO Associates, Inc. (Cooperative), Kingston Marketing Co. and Penn Traffic (incorporated by reference to Exhibit No. 10.2 to Penn Traffic's Registration Statement on Form S-1 (Reg. No. 33- 12926) filed on March 27, 1987 with the SEC and referred to herein as the "1987 Registration Statement"). *10.2 The Penn Traffic Company Incentive Compensation Plan (incorporated by reference to Exhibit No. 10.3 to the 1987 Registration Statement). *10.3 The Penn Traffic Company Severance Pay Plan (incorporated by reference to Exhibit No. 10.5 to the 1987 Registration Statement). *10.4 Quality Markets, Inc. ("Quality") Profit Sharing Plan (incorporated by reference to Exhibit No. 10.11 to the 1987 Registration Statement). 10.5 Loan and Security Agreement (the "Loan and Security Agreement") among Penn Traffic, Quality, Dairy Dell, Big M Supermarkets, Inc. ("Big M"), Penny Curtiss Baking Company Inc. ("Penny Curtiss"), and Hart Stores, Inc. ("Hart"), the lenders party thereto and NatWest USA Credit Corp., as Agent, dated March 5, 1993 (incorporated by reference to Exhibit No. 10.2 to the April 1993 Registration Statement). 10.5A Amendment No. 1, dated March 12, 1993, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.2A to the April 1993 Registration Statement). - ---------------------- * Management contract, compensatory plan or arrangement. -60- EXHIBITS (CONTINUED): Exhibit No. Description - ----------- ----------- 10.5B Amendment No. 2, dated as of March 24, 1993, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.2B to the April 1993 Registration Statement). 10.5C Waiver Letter dated as of April 14, 1993, among the lenders under the Loan and Security Agreement, Penn Traffic, Quality, Dairy Dell, Big M, Penny Curtiss and Hart (incorporated by reference to Exhibit No. 10.22C to the Penn Traffic May 1993 10-Q). 10.5D Amendment No. 3, dated as of April 15, 1993, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.22D to the Penn Traffic May 1993 10-Q). 10.5E Amendment No.4, dated as of August 20, 1993, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.22E to the Penn Traffic July 1993 10-Q). 10.5F Amendment No. 5, dated as of August 24, 1994, to the Loan and Security Agreement (incorporated by reference to Exhibit 10.9F to Penn Traffic's Report on Form 10-Q for the fiscal quarter ended July 30, 1994 and referred to herein as the "July 1994 10-Q"). 10.5G Amendment No. 6, dated as of August 24, 1994, to the Loan and Security Agreement (incorporated by reference to Exhibit 10.9G to the July 1994 10-Q). 10.5H Consent and Amendment to the Loan and Security Agreement, dated as of September 29, 1994 (incorporated by reference to Exhibit 10.9H to the 1994 Form 8-K). 10.5I Amendment No. 8, dated as of November 4, 1994, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.9I to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 1995 and referred to herein as the "April 1995 10-Q"). 10.5J Amendment No. 9, dated as of May 10, 1995, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.9J to the April 1995 10-Q). 10.5K Amendment No. 10, dated as of August 31, 1995, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.9K to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 1995). 10.5L Amendment No. 11, dated as of October 16, 1995, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.9L to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended October 28, 1995). 10.5M Amendment No. 12, dated as of March 7, 1996, to the Loan and Security Agreement. -61- EXHIBITS (CONTINUED): Exhibit No. Description - ----------- ----------- 10.6 Engagement Letter dated as of January 30, 1994 by and among Penn Traffic and Miller Tabak Hirsch + Co. (incorporated by reference to Exhibit 10.10 to the 1994 10-K). *10.7 The Penn Traffic Company Directors' Stock Option Plan (incorporated by reference to Exhibit No. 10.20 to Penn Traffic's Annual Report on Form 10-K for the fiscal year ended February 3, 1990 (Securities and Exchange Commission File No. 1-9930) and referred to herein as the "Penn Traffic 1990 10-K"). 10.8 Agreement and Master Sublease dated as of July 30, 1990, by and between The Grand Union Company and P&C (incorporated by reference to Exhibit No. 10.24 to Penn Traffic's Quarterly Report on Form 10-Q for the Fiscal Quarter ended August 4, 1990 (Securities and Exchange Commission File No. 1-9930) and referred to herein as the "Penn Traffic August 1990 10-Q"). 10.9 Interest Rate and Currency Exchange Agreement dated as of October 16, 1991 between Salomon Brothers Holding Company, Inc. ("SBHC") and P&C (incorporated by reference to Exhibit No. 10.27 to the P&C November 1991 10-Q). 10.9A Letter Agreement dated October 16, 1991 from SBHC to P&C, setting forth the terms and conditions of the swap transaction and interest rate transaction entered into between SBHC and P&C on October 16, 1991 (incorporated by reference to Exhibit No. 10.27A to the P&C November 1991 10-Q). *10.10 Employment Agreement, dated as of February 2, 1992, among Penn Traffic, P & C and Claude J. Incaudo (incorporated by reference to Exhibit No. 10.37 to the Penn Traffic 1992 10-K). *10.11 The Penn Traffic Company's 1993 Long Term Incentive Plan (filed as Exhibit "A" to Penn Traffic's Proxy Statement filed with the SEC on May 1, 1993 and incorporated herein by reference). 10.12 First Mortgage, Security Agreement, Financing Statement and Assignment of Leases and Rents dated as of October 25, 1993 by and among Penn Traffic and Onondaga County Industrial Development Agency, as mortgagor and NatWest USA Credit Corp., as mortgagee (incorporated by reference to Exhibit No. 10.24 to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1993). - ---------------------- * Management contract, compensatory plan or arrangement. -62- EXHIBITS (CONTINUED): Exhibit No. Description - ----------- ----------- 10.13 Underwriting Agreement relating to Debt Securities, dated December 14, 1993, between Penn Traffic and Goldman, Sachs & Co. and BT Securities Corporation (incorporated by reference to Exhibit 10.24 to Penn Traffic's 1994 10-K). 10.14 Agreement Containing Consent Order dated January 9, 1995 by and between Penn Traffic and the Federal Trade Commission entered into in the matter of The Penn Traffic Company (incorporated by reference to Exhibit 10.25 to Penn Traffic's Report on Form 8-K dated January 19, 1995). 10.15 Agreement, dated November 18, 1994, between Penn Traffic and Grand Union relating to the Grand Union warehouse in Montgomery, New York (incorporated by reference to Exhibit No. 10.21 to the 1995 10-K). *10.16 Employment Agreement, dated as of January 29, 1995, between John T. Dixon and Penn Traffic (incorporated by reference to Exhibit No. 10.22 to the 1995 10-K). 21.1 Subsidiaries of Penn Traffic (incorporated by reference to Exhibit 21.1 to Penn Traffic's 1994 10-K). 23.1 Consent of Price Waterhouse LLP. 27.1 Financial Data Schedule. - ---------------------- * Management contract, compensatory plan or arrangement. -63- Copies of the above exhibits will be furnished without charge to any shareholder by writing to Treasurer, The Penn Traffic Company, 1200 State Fair Boulevard, Syracuse, New York 13221. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fiscal quarter ended February 3, 1996. -64- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 April 11, 1996 By: /s/ John T. Dixon ------------- ---------------------------- DATE John T. Dixon, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Gary D. Hirsch /s/ Eugene R. Sunderhaft - ------------------------------------- ----------------------------- Gary D. Hirsch, Chairman of the Board Eugene R. Sunderhaft, and Director Senior Vice President and Secretary April 11, 1996 (Principal Financial Officer and ------------- Principal Accounting Officer) DATE April 11, 1996 ------------- DATE /s/ Susan E. Engel /s/ Eugene A. DePalma - ------------------------------------- ----------------------------- Susan E. Engel, Director Eugene A. DePalma, Director April 11, 1996 April 11, 1996 ------------- ------------- DATE DATE /s/ Martin A. Fox /s/ Harold S. Poster - ------------------------------------- ----------------------------- Martin A. Fox, Director Harold S. Poster, Director April 11, 1996 April 11, 1996 ------------- ------------- DATE DATE /s/ Richard D. Segal /s/ Claude J. Incaudo - ------------------------------------- ----------------------------- Richard D. Segal, Director Claude J. Incaudo, Director April 11, 1996 April 11, 1996 ------------- ------------- DATE DATE -65- THE PENN TRAFFIC COMPANY SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- -------- ADDITIONS BALANCE CHARGED DEDUCTIONS BALANCE AT BEGINNING TO COSTS FROM AT END DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS OF PERIOD - ----------- ------------ ------------ ---------- --------- Reserve deducted from asset to which it applies: FOR THE 53 WEEKS ENDED FEBRUARY 3, 1996 Provision for doubtful accounts $ 1,374 $ 3,926 $ 3,817(a) $ 1,483 ------- ------- ------- ------- ------- ------- ------- ------- FOR THE 52 WEEKS ENDED JANUARY 28, 1995 Provision for doubtful accounts $ 740 $ 2,782 $ 2,148(a) $ 1,374 ------- ------- ------- ------- ------- ------- ------- ------- FOR THE 52 WEEKS ENDED JANUARY 29, 1994 Provision for doubtful accounts $ 661 $ 1,806 $ 1,727(a) $ 740 ------- ------- ------- ------- ------- ------- ------- -------
(a) Uncollectible receivables written off net of recoveries. -66- EX-3.2 2 EX-3.2 BY-LAWS OF THE PENN TRAFFIC COMPANY ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETING The annual meeting of stockholders for the election of directors and for the transaction of any other business that may properly come before the meeting shall be held not later than the last day of June in each calendar year on such date at such hour and at such place or places within or without the State of Delaware as may from time to time be determined by the Board of Directors. Any previously scheduled annual meeting of the stockholders may be postponed by action of the Board of Directors taken prior to the time previously scheduled for such annual meeting. SECTION 2. SPECIAL MEETINGS At any time in the interval between regular meetings, special meetings of stockholders may be called by the Chairman, or by a majority of the Board of Directors, to be held at such times and at such places within or without the State of Delaware as may be specified in the notices of such meetings. The notice of any special meeting shall state the purpose of the meeting and specify the action to be taken at said meeting and no business shall be transacted thereat except that specifically named in the notice. SECTION 3. NOTICE OF MEETING Notice of the time and place of every meeting of stockholders shall be delivered personally or mailed at least ten days and not more than sixty days prior thereto to each stockholder of record entitled to vote at his address as it appears on the records of the Corporation. Such further notice shall be given as may be required by law. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Business transacted at any special meeting shall be confined to the purpose or purposes stated in the notice of such special meeting. Meetings may be held without notice if all stockholders entitled to vote are present or if notice is waived by those not present. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting. SECTION 4. VOTING At all meetings of stockholders any stockholder entitled to vote may vote in person or by proxy. Such proxy or any revocation or amendment thereof, shall be in writing, but need not be sealed, witnessed or acknowledged, and shall be filed with the Secretary at or before the meeting. SECTION 5. QUORUM Unless otherwise required by statute or the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), at any annual or special meeting of the stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting shall constitute a quorum for the transaction of business, but if at any meeting of the stockholders there be less than a quorum present, the stockholders present at such meeting may, without further notice, adjourn the same from time to time until a quorum shall attend, but no business shall be transacted at any such adjournment except such as might have been lawfully transacted had the meeting not been adjourned. SECTION 6. ACTION AT MEETINGS Except as otherwise required by law, the Certificate of Incorporation or these By-laws, a majority of the votes cast at a meeting at which a quorum is present shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, and the stockholders shall not be entitled to cumulate their votes upon the election of directors, or upon any other matter. Any action required or permitted to be taken by the -2- stockholders must be effected at an annual or special meeting of stockholders and may not be effected by any consent in writing by such stockholders. SECTION 7. PROCEDURE AT MEETINGS At each meeting of stockholders, the Chairman of the Board or, in the absence of the Chairman of the Board, such other person as shall be selected by the Board of Directors shall act as Chairman of the meeting. The Chairman of the meeting shall determine the order of business and shall establish rules for the conduct of the meeting. The Board of Directors may appoint two or more persons to serve as inspectors of election at any meeting of stockholders. In the absence of such appointment, the Chairman of the meeting may make such appointment. The inspectors of election shall receive, examine and tabulate all ballots and proxies, including proxies filed with the Secretary, shall determine the presence or absence of a quorum and shall report to the Chairman of the meeting the result of all voting taken at the meeting by ballot. SECTION 8. BUSINESS OF THE MEETING At any annual meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 8 of Article I. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than thirty (30) days prior to the date of the annual meeting; PROVIDED, HOWEVER, that in the event that less than forty (40) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth in writing as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address, as they appear on the -3- Corporation's books, of the stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made; (iii) a representation that the stockholder is a holder of record of shares of the Corporation's capital stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business; (iv) the class and the number of shares of the Corporation's capital stock that are owned beneficially and of record by the stockholder proposing such business and by the beneficial owner, if any, on whose behalf the proposal is made; and (v) any material interest of such stockholder in such business and any material interest of the beneficial owner, if any, on whose behalf the proposal is made in such business. Notwithstanding anything in the By-laws to the contrary, no business shall be brought before or conducted at the annual meeting except in accordance with the provisions of this Section 8 of Article I. If the facts so warrant, the Chairman of the meeting shall determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 8 of Article I and, if he shall so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be so transacted. At any special meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. SECTION 9. NOMINATION OF DIRECTORS Only persons who are nominated in accordance with the procedures set forth in these By-laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is (a) a stockholder of record at the time of giving of the notice of the nomination, (b) entitled to vote for the election of directors at the meeting and (c) complies with the notice procedures set forth in this Section 9 of Article I. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the Corporation not less than thirty (30) days prior to the date -4- of the meeting; PROVIDED, HOWEVER, that in the event that less than forty (40) days' notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth: (i) the name and address, as they appear on the Corporation's books, of the stockholder giving the notice and of the beneficial owner, if any, on whose behalf the nomination is made; (ii) a representation that the stockholder proposing to make the nomination is a holder of record of shares of the Corporation's capital stock entitled to vote at such meeting for the election of directors and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) the class and number of shares of the Corporation's capital stock that are owned beneficially and of record by the stockholder giving the notice and by the beneficial owner, if any, on whose behalf the nomination is made; (iv) a description of all arrangements or understandings between or among any of the stockholders giving notice, the beneficial owner on whose behalf the notice is given, each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder giving the notice; and (v) as to each person whom such stockholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director of the Corporation if elected). At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 9 of Article I. The Chairman of the meeting shall, if the facts so warrant, determine and declare to the meeting that a nomination was not made in accordance with this Section 9 of Article I and, if he shall so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. -5- SECTION 10. ADJOURNMENTS Any meeting of stockholders may be adjourned from time to time, whether or not a quorum is present, by the affirmative vote of a majority of the votes present and entitled to be cast at the meeting, or by the Chairman of the meeting, or by the Board of Directors. ARTICLE II DIRECTORS SECTION 1. GENERAL POWERS The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. NUMBER, QUALIFICATION AND ELECTION Directors (other than such directors, if any, as are elected by holders of a series of Preferred Stock of the Corporation voting as a separate class) shall be divided into three classes, which shall be as nearly equal in number as practicable. Unless changed by the Board of Directors pursuant hereto the number of directors shall be six and each class shall consist of two directors. The number of directors and the number of which each class is to consist may be increased or decreased from time to time by a resolution adopted by at least a majority of the Whole Board (as defined in the Certificate of Incorporation); provided that the number of directors may not be less than three; and provided that no decrease in the number of directors shall affect the tenure of office of any existing director. The term of office of the first class shall expire at the 1993 annual meeting of stockholders, the term of office of the second class shall expire at the 1994 annual meeting of stockholders and the term of office of the third class shall expire at the 1995 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the 1993 annual meeting, the successors of the class of directors whose term expires at the meeting -6- shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. SECTION 3. VACANCIES Subject to the rights of the holders of any series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by the affirmative vote of a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director, and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which such director has been elected expires and until such director's successor shall have been duly elected and qualified. SECTION 4. REGULAR MEETINGS Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors may from time to time determine. SECTION 5. SPECIAL MEETINGS Special meetings of the Board of Directors may be called at any time, at any place and for any purpose by the Chairman of the Board or by any three directors. SECTION 6. NOTICE OF MEETING Notice of regular meetings of the Board of Directors need not be given. Notice of every special meeting of the Board of Directors shall be given to each director, by (a) deposit of such notice in the United States mail at least seventy-two hours before the meeting, or (b) telephone communication directly with such person, the dispatch of a telegraphic communication to his address, or actual delivery to his address, at least forty-eight hours before the meeting. If given to a director by mail, telegraph or actual delivery to his address, such notice shall be sent or delivered to his business -7- or residential address as shown on the records of the Secretary or an Assistant Secretary of the Corporation, or to such other address as shall have been furnished to the Secretary or an Assistant Secretary of the Corporation by him for the purpose. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. SECTION 7. QUORUM; ACTION AT MEETINGS A majority of the Board of Directors shall constitute a quorum for the transaction of business, but if, at any meeting of the Board, there be less than a quorum present, the members at the meeting may, without further notice, adjourn the same from time to time until a quorum shall attend. Except as provided herein or in the Certificate of Incorporation or as required by law, a majority of such quorum shall decide any questions that may come before the meeting. SECTION 8. PARTICIPATING IN MEETING BY CONFERENCE TELEPHONE Members of the Board of Directors, or any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar equipment by means of which all persons participating in the meeting can hear each other at the same time and such participation shall constitute presence in person at such meeting. SECTION 9. ACTION WITHOUT MEETING Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all of the members of the Board of Directors or of any such committee consent thereto in writing and the writing or writings are filed with the minutes or proceedings of the Board of Directors or of such committee. SECTION 10. RESIGNATIONS Any director of the Corporation may at any time resign by giving written notice to the Board, the Chairman, the President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified therein, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. -8- SECTION 11. REMOVAL OF DIRECTORS Directors may be removed only as provided in Section 4 of Article V of the Certificate of Incorporation. ARTICLE III COMMITTEES OF THE BOARD OF DIRECTORS SECTION 1. ELECTION The Board of Directors may appoint an Executive Committee and other committees composed of two or more of its members, and may appoint one of the members of each such committee to the office of chairman thereof. Members of the committees of the Board of Directors shall hold office for a term of one year and until their successors are appointed and qualify or until they shall cease to be directors. SECTION 2. POWERS Subject to such limitations as may from time to time be established by resolution of the Board of Directors, the Executive Committee shall have any and may exercise all of the powers of the Board of Directors when the Board of Directors is not in session except that it shall have no power to (a) declare dividends, (b) issue stock of the Corporation, (c) recommend to the stockholders any action which requires stockholder approval, (d) alter, amend or repeal any resolution of the Board of Directors relating to the Executive Committee, or (e) take any other action which legally may be taken only by the Board of Directors. Other committees of the Board of Directors shall have such powers as shall be properly delegated to them by the Board of Directors. SECTION 3. VACANCIES If the office of any member of any committee becomes vacant by death, resignation, or otherwise, such vacancy may be filled from the members of the Board by the Board of Directors. SECTION 4. SUBSTITUTE MEMBERS In the event that a member of any committee is absent from a meeting of the committee, the members of the -9- committee present at the meeting, whether or not they constitute a quorum, may unanimously appoint another director to act in place of the absent member. SECTION 5. MEETINGS AND NOTICE OF MEETINGS The Executive Committee shall meet from time to time on call of the Chairman of the Board, or on call of any three or more members of the Executive Committee, for the transaction of any business. Notice of every meeting of the Executive Committee shall be given to each member, by (a) deposit in the mail at least seventy-two hours before the meeting, or (b) telephonic communication directly with such person, the dispatch of a telegraphic communication to his address, or actual delivery to his address, at least forty-eight hours before the meeting. If given to a member by mail, telegraph or actual delivery to his address, such notice shall be sent or delivered to his business or residential address as shown on the records of the Secretary or an Assistant Secretary of the Corporation, or to such other address as shall have been furnished to the Secretary or an Assistant Secretary of the Corporation by him for this purpose. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. All other committees of the Board of Directors shall meet at such times and upon such notice as they may determine. SECTION 6. QUORUM; ACTION AT MEETINGS At any meeting of any committee, however called, a majority of the members shall constitute a quorum for the transaction of business. A majority of such quorum shall decide any question that may come before the meeting. ARTICLE IV OFFICERS SECTION 1. ELECTION AND NUMBER The Board of Directors may appoint one of its members as Chairman of the Board and may also appoint one of its members as Vice Chairman-Finance. The Board of Directors -10- shall appoint a President from among the directors, and a Secretary and a Treasurer, who need not be directors. The Board of Directors may also appoint one or more Senior Vice Presidents and/or Vice Presidents, who need not be directors. All officers of the Corporation shall hold office at the pleasure of the Board of Directors. Any two or more offices, except those of Chairman and Vice Chairman-Finance and those of President and Vice President, may, at the discretion of the Board of Directors, be held by the same person. The Board of Directors may from time to time appoint such other officers and agents with such powers and duties as the Board of Directors may prescribe. SECTION 2. CHAIRMAN OF THE BOARD The Chairman of the Board shall preside at all meetings of the Board of Directors. Subject to the control of the Board of Directors, he shall have supervisory power and authority over the business and affairs of the Corporation and over all of its officers. He shall perform such other duties and exercise such other powers as may be assigned to him from time to time by the Board of Directors. If the Chairman of the Board is designated by the Board of Directors as the Chief Executive Officer of the Corporation, he shall direct the conduct of the business of the Corporation, subject to the control of the Board of Directors. SECTION 3. VICE CHAIRMAN-FINANCE In the absence of the Chairman of the Board, the Vice Chairman-Finance shall preside at all meetings of the Board of Directors, and in case no Chairman of the Board shall have been appointed, the Vice Chairman-Finance shall assume the duties and have the powers conferred as above upon the Chairman of the Board. Subject to the control of the Board of Directors, he shall have supervisory power and authority over the financial business and affairs of the Corporation. The Vice Chairman-Finance shall perform such other duties and exercise such other powers as may be assigned to him from time to time by the Board of Directors. SECTION 4. PRESIDENT Subject to the control of the Board of Directors, the President shall have direct power and authority over the business and affairs of the Corporation. The President shall perform such other duties and exercise such other powers as are usually incident to such office and such other duties and powers as may be assigned to him from time to time by the Board of Directors or the Chairman of the Board or Vice Chairman-Finance. In the absence of both the Chairman of the Board and the Vice Chairman-Finance, the President shall preside at all -11- meetings of the Board of Directors. In case neither a Chairman of the Board nor a Vice Chairman-Finance shall have been appointed, the President shall assume the duties and have the powers conferred as above upon the Chairman of the Board. If the Board of Directors designates the President as Chief Executive Officer of the Corporation, he shall direct the conduct of the business of the Corporation, subject to the control of the Board of Directors. SECTION 5. SENIOR VICE PRESIDENTS The Senior Vice President or Senior Vice Presidents shall perform the duties of the President in his absence or during his disability to act. In addition, the Senior Vice President or Senior Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, or the President. SECTION 6. VICE PRESIDENTS The Vice President or Vice Presidents shall perform the duties of the Senior Vice President or Senior Vice Presidents in his or their absence or disability to act. In addition, the Vice President or Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, or any Senior Vice President having supervisory authority over them. SECTION 7. SECRETARY The Secretary shall issue notices of meetings, keep minutes of meetings of the Board of Directors and its committees, have charge of the corporate seal, and perform -12- such other duties and exercise such other powers as are usually incident to such office or are properly assigned thereto by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President or any Senior Vice President or Vice President having supervisory authority over him. SECTION 8. TREASURER The Treasurer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation which has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Treasurer with such banks or trust companies as the Board of Directors or the Executive Committee from time to time shall designate. He shall sign or countersign such instruments as require his signature, shall perform all such duties and have all such powers as are usually incident to such office or are properly assigned to him by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, or any Senior Vice President or Vice President having supervisory authority over him, and may be required to give bond for the faithful performance of his duties in such sum and with such surety as may be required by the Board of Directors. SECTION 9. CONTROLLER The Controller shall be responsible for the accounting policies and practices of the Corporation, maintain its financial records, collect and consolidate the financial results of its subsidiaries and other operating units, prepare its financial reports, determine the amount and source of the funds required to meet its financial obligations, and perform such other duties and exercise such other powers as are usually incident to such office or are properly assigned thereto by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, the Treasurer, or any Senior Vice President or Vice President having supervisory authority over him. SECTION 10. ASSISTANT SECRETARY; ASSISTANT TREASURER The Board of Directors may appoint one or more assistant secretaries and one or more assistant treasurers, or one appointee to both such positions, which officers shall -13- have such powers and shall perform such duties as are provided in these By-laws to the Secretary or Treasurer, as the case may be, or as are properly assigned thereto by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, the Secretary or Treasurer as the case may be, or any other officer having supervisory authority over them. ARTICLE V FISCAL YEAR The fiscal year of the Corporation shall be a 52 or 53 week year ending the Saturday nearest January 31, or on such other day as may be fixed from time to time by the Board of Directors. ARTICLE VI SEAL The Board of Directors shall provide a suitable seal, containing the full name of the Corporation, which seal shall be in the charge of the Secretary or an Assistant Secretary. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE VII STOCK SECTION 1. CERTIFICATES OF STOCK Certificates of stock shall be issued in such form as may be approved by the Board of Directors and shall be signed, by the Chairman of the Board, Vice Chairman-Finance, President, a Senior Vice President or a Vice President, and by the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary, and sealed with the seal of the Corporation or a facsimile thereof. Any or all such signatures may be facsimiles if countersigned by a transfer agent or registrar. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or -14- registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue. SECTION 2. TRANSFERS The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates of stock. The Board of Directors may appoint transfer agents and registrars thereof. SECTION 3. RECORD DATE; CLOSING OF TRANSFER BOOKS The Board of Directors may fix a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to stockholders, including which stockholders are entitled to notice of or to vote at a meeting or any adjournment thereof, receive payment of any dividend or other distribution, or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock. The record date may not be more than sixty (60) nor less than ten (10) days before the date on which the action requiring the determination will be taken; the transfer books may not be closed for a period longer than twenty (20) days; and, in the case of a meeting of stockholders, the closing of the transfer books shall be at least ten (10) days before the date of the meeting. SECTION 4. LOST CERTIFICATES The Board of Directors may determine the conditions upon which a new certificate of stock will be issued to replace a certificate which is alleged to have been lost, stolen, mutilated or destroyed, and the Board of Directors may delegate to any officer of the Corporation the power to make such determinations and to cause such replacement certificates to be issued. SECTION 5. WARRANTS The foregoing provisions relative to certificates of stock shall also apply to allotment certificates or other certificates or warrants representing rights with respect to stock in the Corporation, which certificates or warrants may -15- be issued from time to time by a vote of the Board of Directors in such form as they may approve. SECTION 6. STOCK LEDGER The Corporation shall maintain a stock ledger which contains the name and address of each stockholder and the number of shares of stock of each class which the stockholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original stock ledger shall be kept at the office of the Corporation's Transfer Agent. ARTICLE VIII SIGNATURES SECTION 1. NEGOTIABLE INSTRUMENTS All checks, drafts, notes, or other obligations of the Corporation shall be signed (a) by any two officers of the Corporation of the rank of Chairman of the Board, Vice Chairman-Finance, President, Senior Vice President or Vice President, (b) by the Chairman of the Board, Vice Chairman-Finance, President, any Senior Vice President or any Vice President and by the Treasurer or Assistant Treasurer or Secretary or Assistant Secretary, or (c) as otherwise authorized by the Board of Directors or the Executive Committee; PROVIDED, HOWEVER, that bonds, debentures or notes issued under a mortgage indenture or trust agreement with a bank or trust company as trustee and coupons attached or pertaining to any such bonds, debentures or notes may be executed manually or by facsimile. SECTION 2. STOCK TRANSFERS All endorsements, assignments, transfers, stock powers or other instruments of transfer of securities standing in the name of the Corporation shall be executed for and in the name of the Corporation (a) by any two officers of the Corporation of the rank of Chairman of the Board, Vice Chairman-Finance, President, Senior Vice President or Vice President, or (b) by the Chairman of the Board, Vice Chairman-Finance, President, any Senior Vice President or any -16- Vice President, and by the Secretary or an Assistant Secretary, or (c) as otherwise authorized by the Board of Directors. ARTICLE IX WAIVER OF NOTICE OF MEETINGS SECTION 1. STOCKHOLDERS Notice of the time, place and/or purpose of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy; and if any stockholder shall, in a writing filed with the records of the meeting, either before or after the holding thereof, waive notice of any stockholders' meeting, notice thereof need not be given to him. SECTION 2. DIRECTORS Notice of any meeting of the Board of Directors or of any committee thereof need not be given to any director if he shall attend such meeting in person, or shall in a writing filed with the records of the meeting, either before or after the holding thereof, waive such notice; and any meeting of the Board of Directors or of any committee thereof shall be a legal meeting without any notice thereof having been given if all such directors shall be present at such meeting. ARTICLE X VOTING OF STOCKS Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, any Senior Vice President or any Vice President of the Corporation shall have full power and authority, on behalf of the Corporation, to attend, act and vote at any meeting of the stockholders of any corporation in which this Corporation may hold stock and at such meeting may exercise any or all rights and powers incident to the ownership of such stock and which as owner thereof the Corporation might exercise if present, and to execute on behalf of the Corporation a proxy or proxies empowering others to act as aforesaid. The Board of Directors by resolution from time to time may confer like powers upon any other person or persons. -17- ARTICLE XI CHECKS, NOTES, ETC. All checks on the Corporation's bank accounts and all drafts, bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such person or persons as shall be authorized to do so from time to time by the Board of Directors or by the committee or officer or officers of the Corporation to whom the Board shall have delegated the power to authorize such signing; PROVIDED, HOWEVER, that the signature of any person so authorized on checks and drafts drawn on the Corporation's dividend and special accounts may be in facsimile if the Board of Directors or such committee or officer or officers, whichever shall have authorized such person to sign such checks or drafts, shall have authorized such person to sign in facsimile, and provided further that in case notes or other instruments for the payment of money (other than notes, bonds or debentures issued under a trust instrument of the Corporation) are required to be signed by two persons, the signature thereon of only one of the persons signing any such note or other instrument may be in facsimile, and that in the case of notes, bonds or debentures issued under a trust instrument of the Corporation and required to be signed by two officers of the Corporation, the signatures of both such officers may be in facsimile if specifically authorized and directed by the Board of Directors of the Corporation and if such notes, bonds or debentures are required to be authenticated by a corporate trustee which is a party to the trust instrument and provided further that in case any person or persons who shall have signed any such note or other instrument, either manually or in facsimile, shall have ceased to be a person or persons so authorized to sign any such note or other instrument, whether because of death or by reason of any other fact or circumstance, before such note or other instrument shall have been delivered by the Corporation, such note or other instrument may, nevertheless, be adopted by the Corporation and be issued and delivered as though the person or persons who so signed such note or other instrument had not ceased to be such a person or persons. -18- ARTICLE XII OFFICES The Corporation may have offices in addition to the registered office specified in the Certificate of Incorporation within or without the State of Delaware at such places as shall be determined from time to time by the Board of Directors. ARTICLE XIII AMENDMENTS Any By-law may be adopted, repealed, altered or amended by the affirmative vote of a majority of the Whole Board (as defined in the Certificate of Incorporation) at any meeting thereof. The stockholders of the Corporation shall also have the power to amend, alter or repeal any provision of these By-laws but only to the extent and in the manner provided in the Certificate of Incorporation. As amended April 2, 1996 -19- EX-10.5M 3 EX-10.5M AMENDMENT NO. 12 TO LOAN AND SECURITY AGREEMENT AMENDMENT NO. 12, dated as of March 7, 1996 (this "AMENDMENT") to that certain Loan and Security Agreement dated as of March 5, 1993, as amended by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11 (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 amend the Loan Agreement to, among other things, (i) modify the existing Interest Coverage ratio set forth in Section 10.18 of the Loan Agreement; (ii) replace the Consolidated EBDAIT covenant set forth in Section 10.20 of the Loan Agreement with a new Consolidated EBDAIT covenant; (iii) modify the Sale and Leaseback Transactions covenant set forth in Section 10.14; (iv) modify the existing definition of "Change of Control" as set forth in the Loan Agreement; and (v) add a Net Cash Flow covenant to the Loan Agreement. WHEREAS, the Borrowers, the Agent and the Lenders have agreed to amend the Loan Agreement pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is hereby amended as of the effective date hereof as follows: (i) Article One of the Loan Agreement is hereby amended by: (a) deleting paragraphs (d) and (e) of the definition of "Change of Control" in their entirety and by substituting, in lieu thereof, the words "or (d) neither Gary D. Hirsch nor Martin A. Fox holds the position of either Chairman or Vice Chairman of Penn Traffic." (b) deleting the amount "$10,000,000" in the definition of "Interest Coverage Ratio" and substituting therefor the amount "$20,000,000." (c) adding the following definitions of "AVAILABILITY", "FINANCING PROCEEDS" and "NET CASH FLOW": "AVAILABILITY" shall mean, at any time of determination, the amount by which the Combined Borrowing Capacity exceeds the aggregate principal amount of all Revolving Loans of all Lenders to all Borrowers as of such time of determination. "FINANCING PROCEEDS" shall mean, with respect to any fiscal period of the PT Stores Group, the proceeds of Debt (other than Revolving Loans) incurred during such fiscal period relating to the financing of Qualified Real Property or Equipment acquired during a prior fiscal period, but only to the extent that the proceeds of such Debt are not applied to the repayment of Debt previously incurred in connection with the acquisition of, or otherwise relating to, such Qualified Real Property or Equipment. "NET CASH FLOW" shall mean, with respect to any fiscal period of the PT Stores Group: (i) Consolidated EBDAIT for such fiscal period; MINUS (ii) Interest Expense for such fiscal period; MINUS (iii) principal repayments made during such fiscal period on outstanding Debt (other than Revolving Loans), but only to the extent that such principal repayments are not made out of the proceeds of new Debt (other than Revolving Loans) incurred during such fiscal period in order to refinance such repaid Debt; MINUS (iv) Cash Capital Expenditures made during such fiscal period; MINUS (v) income and franchise taxes paid during such fiscal period; PLUS (vi) Financing Proceeds for such fiscal period, each of the foregoing for the PT Stores Group. (ii) Section 8.2(e) of the Loan Agreement is hereby amended by adding the words "and Section 10.23" immediately after the words "Sections 10.17 through 10.20." (iii) Section 10.11 of the Loan Agreement is hereby amended by (x) adding the words "(with regard to persons who were at January 1, 1996 or at any time thereafter -2- officers of MTH or J.A. Lash & Co. ("JAL"), subject to the limitation set forth in clause (c) hereof)" immediately after the words "who are Affiliates" in clause (a) of such Section 10.11; (y) deleting Section 10.11(c) in its entirety and substituting therefor the following: "(c) if no Event or Event of Default has occurred and is continuing, Penn Traffic may pay annual fees to MTH and to JAL for financial management, investment, and consulting services as follows: (i) in Fiscal Year 1994, fees of $1,500,000 in the aggregate, increased retroactively by the Consumer Price Index Increases (as defined below) with respect to Fiscal Year 1994, when the information necessary to calculate such increase becomes available; and (ii) in each Fiscal Year thereafter, fees to MTH and JAL in an aggregate amount equal to the aggregate amount permitted to be paid to MTH and JAL in the immediately preceding Fiscal Year increased by the Consumer Price Index Increase (as defined below), if any: PROVIDED, HOWEVER, that the aggregate amount of fees permitted to be paid to MTH and JAL pursuant to this clause (c) in any Fiscal Year shall be reduced by the amount of cash compensation paid in respect of such Fiscal Year to any person who was an officer of MTH or JAL as of January 1, 1996 or at any time thereafter; AND PROVIDED FURTHER that the amount of cash compensation paid in the aggregate in respect of any Fiscal Year to all persons who as of January 1, 1996 or at any time thereafter were officers of MTH or JAL shall not exceed the aggregate amount of fees which could have been paid to MTH and JAL (before deduction of such cash compensation) in respect of such Fiscal Year pursuant to this clause (c);" and (z) deleting Section 10.11(e) in its entirety and by substituting therefor the following: "(e) employees of MTH and employees of Penn Traffic who as of January 1, 1996 or at any time thereafter were officers of MTH or JAL may receive awards of restricted stock, -3- stock options or other forms of stock-based incentives pursuant to the terms and conditions of any stockholder-approved stock-based compensation plan;" (iv) Section 10.14 of the Loan Agreement is hereby amended by deleting Section 10.14(b) thereto in its entirety and by substituting, in lieu thereof, the following: "(b) Equipment owned by a Borrower or a PT Stores Subsidiary, PROVIDED, HOWEVER, that such Sale and Leaseback Transaction is consummated within 365 days after the latter of (x) the date that the subject Equipment is acquired and (y) the date of completion of the store or warehouse project for which the subject Equipment is being acquired, and PROVIDED, FURTHER, that the aggregate amount of the Net Proceeds received by all Borrowers and PT Stores subsidiaries from such Sale and Leaseback Transactions in any 365-day period does not exceed $35,000,000." (v) The table set forth in Section 10.18 of the Loan Agreement is hereby amended by deleting such table in its entirety and by substituting therefor the following: "Each Coverage Period Ending In Ratio ----------------- ----- Fiscal Year 1996 1.65:1 Fiscal Year 1997 1.60:1 Fiscal Year 1998 1.60:1 Fiscal Year 1999 1.65:1 Fiscal Year 2000 1.75:1 Fiscal Year 2001 1.80:1" (vi) Section 10.20 of the Loan Agreement is hereby amended by deleting such Section 10.20 in its entirety and by substituting therefor the following: "10.20 CONSOLIDATED EBDAIT. The Borrowers will not permit Consolidated EBDAIT at the end of each Fiscal Quarter for the four most recent consecutive Fiscal Quarters of the Borrower ending on or prior to the date of determination to be less than: -4- Fiscal Quarter/Fiscal Year Amount -------------------------- ------ Fourth 1996 $225,000,000 First 1997 $220,000,000 Second 1997 $220,000,000 Third 1997 $220,000,000 Fourth 1997 $220,000,000 First 1998 $221,250,000 Second 1998 $222,500,000 Third 1998 $223,750,000 Fourth 1998 $225,000,000 First 1999 $227,500,000 Second 1999 $230,000,000 Third 1999 $232,500,000 Fourth 1999 $235,000,000 First 2000 $237,500,000 Second 2000 $240,000,000 Third 2000 $242,500,000 Fourth 2000 $245,000,000 (vii) Article 10 of the Loan Agreement is hereby amended by adding the following Section 10.23 thereto: "Section 10.23 NET CASH FLOW. The Borrowers will not permit (i) Net Cash Flow to be less than zero (0) for the Fiscal Year ending February 1, 1997 taken as a whole; (ii) Net Cash Flow to be less than zero (0) for the entire two Fiscal Quarter period taken as a whole immediately succeeding any Fiscal Quarter (subsequent to the Fiscal Quarter ended February 1, 1997) during which Availability at any time is less than $50,000,000; or (iii) Net Cash Flow to be less than negative five million dollars (-$5,000,000) for either of the two Fiscal Quarter periods immediately succeeding any Fiscal Quarter (subsequent to the Fiscal Quarter ended February 1, 1997) during which Availability at any time is less than $50,000,000." 3. 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: -5- (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. (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. 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 -6- 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 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 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. (v) The Agent shall have received payment of an amendment fee for the benefit of the Lenders, such fee to be distributed as set forth on Schedule A hereto. 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. -7- 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 (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: -8- 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 Triebenbacher -------------------------- Title: Commitment: $20,000,000 NATIONAL BANK OF CANADA Pro-Rata Share: 8% Lending Office: Main Place Tower By:/s/ Suite 2540 ------------------------ 350 Main Street Title: Vice President Buffalo, New York 14202 By:/s/ Michael S. Woodward ------------------------ Title: Assistant Vice President Commitment: $20,000,000 FUJI BANK, LTD. Pro-Rata Share: 8% Lending Office: Two World Trade Center 79th Fl. New York, New York 10048 By:/s/ Katsunori Nozama ------------------------ Title:Vice President & Manager -9- Commitment: $30,000,000 SANWA BUSINESS CREDIT Pro-Rata Share: 12% CORPORATION Lending Office: One South Wacker Drive Suite 2800 Chicago, IL 60606 By: ------------------------ Title: 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/ Ira Mermelstein ------------------------ Title: Vice President 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 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: ------------------------ Title: Commitment: $10,000,000 MIDLANTIC BANK N.A. (formerly Pro-Rata Share: 4% known as Midlantic National Lending Office: Bank) 499 Thornalle Street 9th Fl. Edison, New Jersey 08837 By:/s/ Michael A. Richards ------------------------ Title: Assistant Vice President -10- Commitment: $30,000,000 MITSUBISHI TRUST AND Pro-Rata Share: 12% BANKING CORPORATION Lending Office: 520 Madison Avenue 25th Fl. New York, New York 10022 By:/s/ ------------------------ Title: Senior Vice President Commitment: $15,000,000 INDUSTRIAL BANK OF JAPAN Pro-Rata Share: 6% LIMITED, New York Branch Lending Office: 245 Park Avenue New York, New York 10167 By:/s/ Junri Oda New York, New York 10004 ------------------------ Title: Senior Vice President and 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 Fl. New York, New York 10022 By:/s/ Sean Manier ------------------------ Title: First Vice President By:/s/ Brian O'Leary ------------------------ Title: Vice President AGENT NATWEST USA CREDIT CORP., As Agent By:/s/ George Triebenbacher ------------------------ Title: Vice President -11- EX-23.1 4 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-51213) of The Penn Traffic Company of our report dated March 16, 1996 appearing on page 29 of this Form 10-K. /s/ PRICE WATERHOUSE LLP - ------------------------ PRICE WATERHOUSE LLP Syracuse, New York April 8, 1996 EX-27 5 EXHIBIT 27 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS FEB-3-1996 JAN-29-1995 FEB-3-1996 58,585 0 83,519 1,483 356,309 514,130 912,949 310,509 1,760,146 386,574 1,341,657 0 0 13,606 (66,877) 1,760,146 3,476,294 3,536,642 2,724,639 2,724,639 670,387 109 136,359 (106,827) (27,202) (79,625) 0 0 0 (79,625) (7.32) 0 DURING THE SECOND QUARTER, THE COMPANY RECORDED AN EXPENSE OF $51.9 MILLION (NET OF TAX) CLASSIFIED AS AN UNUSUAL ITEM. DURING THE FOURTH QUARTER, THE COMPANY RECORDED AN EXPENSE OF $27.7 MILLION (NET OF TAX) DUE TO THE ADOPTION OF FASB #121. TAX BENEFIT
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