-----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, QNuBTgie9RoWYmWhS7d+jFdJQXua3rDJeVRwVDVCSzWxmj5WZVDhHfKIsANnnJyY umZz5hsfT4o5sd787NjNDw== 0000912057-97-020354.txt : 19970617 0000912057-97-020354.hdr.sgml : 19970617 ACCESSION NUMBER: 0000912057-97-020354 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970503 FILED AS OF DATE: 19970616 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN TRAFFIC CO CENTRAL INDEX KEY: 0000077155 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 250716800 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09930 FILM NUMBER: 97624138 BUSINESS ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SRYACUSE STATE: NY ZIP: 13221-4737 BUSINESS PHONE: 8145369900 MAIL ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SYRACUSE STATE: NY ZIP: 13221-4737 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended May 3, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to ------------ ---------- Commission file number 1-9930 THE PENN TRAFFIC COMPANY (Exact name of registrant as specified in its charter) Delaware 25-0716800 (State of incorporation) (IRS Employer Identification No.) 1200 State Fair Blvd., Syracuse, NY 13209 (Address of principal executive offices) (Zip Code) (315) 453-7284 (Telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X . NO . --- --- Common stock, par value $1.25 per share: 10,867,941 shares outstanding as of May 29, 1997 Page 1 of 14 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF OPERATIONS UNAUDITED (All dollar amounts in thousands, except per share data) THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED MAY 3, 1997 MAY 4, 1996 ----------- ------------ TOTAL REVENUES $759,388 $827,658 COST AND OPERATING EXPENSES: Cost of sales (including buying and occupancy costs) 581,617 635,996 Selling and administrative expenses 168,232 170,845 Restructuring charges 9,304 -------- -------- OPERATING INCOME 235 20,817 Interest expense 37,371 34,560 -------- -------- (LOSS) BEFORE INCOME TAXES (37,136) (13,743) Benefit for income taxes 14,312 4,714 -------- -------- NET (LOSS) $(22,824) $ (9,029) -------- -------- -------- -------- PER SHARE DATA: Net (loss) $ (2.10) $ (.83) -------- -------- -------- -------- Average number of common shares outstanding 10,868,133 10,896,286 See Notes to Interim Consolidated Financial Statements. - 2 - THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET (All dollar amounts in thousands) UNAUDITED MAY 3, 1997 FEBRUARY 1, 1997 ----------- ---------------- ASSETS CURRENT ASSETS: Cash and short-term investments $ 55,636 $ 53,240 Accounts and notes receivable (less allowance for doubtful accounts of $3,570 and $2,867 respectively) 68,348 71,874 Inventories (Note 3) 323,319 340,009 Prepaid expenses and other current assets 16,551 17,266 ---------- ---------- Total Current Assets 463,854 482,389 NONCURRENT ASSETS: Capital leases - net 128,567 132,071 Property, plant and equipment - net 558,221 571,306 Intangible assets - net 419,516 422,816 Other assets and deferred charges - net 95,364 95,537 ---------- ---------- $1,665,522 $1,704,119 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 4,023 $ 3,736 Current portion of obligations under capital leases 13,672 13,541 Trade accounts and drafts payable 159,178 159,579 Payroll and other accrued liabilities 92,764 82,654 Accrued interest expense 15,910 35,664 Payroll taxes and other taxes payable 22,342 13,476 Deferred income taxes 31,029 31,029 ---------- ---------- Total Current Liabilities 338,918 339,679 NONCURRENT LIABILITIES: Long-term debt 1,252,120 1,246,738 Obligations under capital leases 131,597 134,976 Deferred income taxes 9,528 23,876 Other noncurrent liabilities 52,975 55,605 ---------- ---------- Total Liabilities 1,785,138 1,800,874 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred Stock - authorized 10,000,000 shares at $1.00 par value; none issued Common Stock - authorized 30,000,000 shares at $1.25 par value; 10,869,411 shares and 10,867,941 shares issued, respectively 13,641 13,641 Capital in excess of par value 180,412 180,412 Retained deficit (302,566) (280,668) Minimum pension liability adjustment (8,767) (8,730) Unearned compensation (1,711) (785) Treasury stock, at cost (625) (625) ---------- ---------- Total Stockholders' Equity (119,616) (96,755) ---------- ---------- $1,665,522 $1,704,119 ---------- ---------- ---------- ---------- See Notes to Interim Consolidated Financial Statements. - 3 - THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED (All dollar amounts in thousands) THIRTEEN THIRTEEN WEEKS ENDED WEEKS ENDED MAY 3, 1997 MAY 4, 1996 ----------- ----------- OPERATING ACTIVITIES: Net (loss) $ (22,824) $ (9,029) Adjustments to reconcile net (loss)to net cash provided by (used in)operating activities: Depreciation and amortization 18,809 18,745 Amortization of intangibles 4,072 4,077 (Decrease)in deferred taxes (14,386) Other - net (1,789) (2,305) Net change in assets and liabilities: Accounts receivable and prepaid expenses 3,537 (2,598) Inventories 16,691 2,366 Accounts payable and accrued expenses ( 1,179) (36,967) Deferred charges and other assets (561) (1,152) --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,370 (26,863) --------- --------- INVESTING ACTIVITIES: Capital expenditures (4,876) (20,143) Other - net 2,480 1,148 --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES (2,396) (18,995) --------- --------- FINANCING ACTIVITIES: Increase in long-term debt 104,840 Payments to settle long-term debt (631) (876) Borrowings of revolver debt 91,800 143,000 Payment of revolver debt (85,500) (205,000) Proceeds from sale-and-leaseback transactions 9,087 Reduction of capital lease obligations (3,247) (2,801) Payment of debt issuance costs (2,315) Other - net 45 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,422 45,980 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 2,396 122 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53,240 58,585 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 55,636 $ 58,707 --------- --------- --------- --------- See Notes to Interim Consolidated Financial Statements. - 4 - THE PENN TRAFFIC COMPANY NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The results of operations for the interim periods are not necessarily an indication of results to be expected for the year. In the opinion of management, all adjustments necessary for a fair presentation of the results are included for the interim periods, and all such adjustments are normal and recurring. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended February 1, 1997. 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. - 5 - NOTE 2 - SUPPLEMENTAL FINANCIAL INFORMATION (In thousands of dollars) FIRST QUARTER, FISCAL 1998 - -------------------------- Operating Income $ 235 Operating Income before special charges 15,277 Depreciation and Amortization 22,881 LIFO Provision 500 Cash Interest Expense 36,187 FIRST QUARTER, FISCAL 1997 - -------------------------- Operating Income $20,817 Depreciation and Amortization 22,822 LIFO Provision 1,000 Cash Interest Expense 33,485 NOTE 3 - INVENTORIES If the first-in, first-out (FIFO) method had been used by the Company, inventories would have been $20,723,000 and $20,223,000 higher than reported at May 3, 1997 and February 1, 1997, respectively. NOTE 4 - SPECIAL CHARGES During the quarter ending May 3, 1997 ( "First Quarter Fiscal 1998"), the Company recorded a pre-tax charge totaling approximately $11.1 million associated with a management reorganization and related corporate actions. In addition, during First Quarter Fiscal 1998 the Company recorded a pre-tax charge of approximately $3.9 million associated with the retention of recently hired corporate executives. These charges are included in the restructuring charges and selling and administrative expenses lines of the Consolidated Statement of Operations as described below. The management reorganization includes the centralization of management in the Company's Syracuse, New York headquarters and other actions to streamline the Company's organizational structure. The management reorganization will be implemented during the second and third quarters of Fiscal 1998. It will result in the layoff of approximately 325 employees, with most of the layoffs coming in the Company's Columbus, Ohio and DuBois, Pennsylvania divisional headquarters. - 6 - The restructuring charges of $9.3 million for First Quarter Fiscal 1998 includes $8.5 million of severance costs associated with the management reorganization and $0.8 of miscellaneous other costs recorded in connection with the management reorganization. Selling and administrative expenses for First Quarter Fiscal 1998 include pre-tax special charges of (1) $3.9 million incurred in connection with the retention of recently hired corporate executives (consisting of $2.7 million paid to the newly hired executives to reimburse them for loss of benefits under arrangements with their prior employers and $1.2 million of relocation and other miscellaneous expenses associated with their retention) and (2) $1.8 million of other costs recorded in connection with the management reorganization and related corporate actions. The accrued liability related to the special charges was $11.8 million at May 3, 1997. - 7 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements included in this Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q which are not statements of historical fact are intended to be, and are hereby identified as, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, the words "believe," "anticipate," "plan," "expect," "estimate," "intend" and other similar expressions are intended to identify forward-looking statements. The Company cautions readers that forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; competition; the success or failure of the Company in implementing its current business strategy; changes in the Company's business strategy; availability, location and terms of sites for store development; availability, terms and development of capital; labor relations; and labor and employee benefit costs. RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED MAY 3, 1997 ("FIRST QUARTER FISCAL 1998") COMPARED TO THIRTEEN WEEKS ENDED MAY 4, 1996 ("FIRST QUARTER FISCAL 1997") The following table sets forth statement of operations components expressed as a percentage of total revenues for First Quarter Fiscal 1998 and First Quarter Fiscal 1997: FIRST QUARTER ENDED MAY 3, MAY 4, 1997 1996 ------ ------ Total revenues 100.0% 100.0% Gross profit (1) 23.4 23.2 Selling and administrative expenses excluding special charges(2) 21.4 20.6 Selling and administrative expenses 22.2 20.6 Restructuring charges 1.2 Operating income excluding special charges (3) 2.0 2.5 Operating income 0.0 2.5 Interest expense 4.9 4.2 (Loss)before income taxes (4.9) (1.7) Net (loss) (3.0) (1.1) (See notes on next page) - 8 - RESULTS OF OPERATIONS (CONTINUED) (1) Total revenues less cost of sales. (2) Selling and administrative expenses include pre-tax special charges of (1) $3.9 million associated with the retention of recently hired corporate executives and (2) $1.8 million of other costs associated with a management reorganization and related corporate actions (see Note 4). (3) Operating income excluding pre-tax special charges of $15.0 million (see Note 4). Total revenues for First Quarter Fiscal 1998 decreased to $759.4 million from $827.7 million in First Quarter Fiscal 1997. Wholesale supermarket revenues were $90.4 million in First Quarter Fiscal 1998 and $103.7 million in First Quarter Fiscal 1997. Same store sales for First Quarter Fiscal 1998 declined 8.1%. In First Quarter Fiscal 1998 gross profit was $177.8 million compared to First Quarter Fiscal 1997 gross profit of $191.7 million, representing 23.4% and 23.2% of total revenues, respectively. The increase in gross profit as a percentage of total revenues primarily resulted from the positive impact of the Company's merchandising initiatives. This improvement in gross profit as a percentage of revenues was partially offset by (1) the impact of programs to lower grocery prices in selected markets to increase consumer value satisfaction and (2) an increase in buying and occupancy costs as a percentage of revenues during a period of low price inflation and a decrease in same store sales. Selling and administrative expenses in First Quarter Fiscal 1998 were $168.2 million or 22.2% of revenues compared to $170.8 million or 20.6% of revenues in First Quarter Fiscal 1997. In First Quarter Fiscal 1998, selling and administrative expenses, excluding pre-tax special charges of $5.7 million (see Note 4), were $162.5 million or 21.4% of revenues. The decrease in selling and administrative expenses in First Quarter Fiscal 1998 is primarily the result of (1) the Company's cost reduction programs and (2) the elimination of certain costs incurred in First Quarter Fiscal 1997 in connection with the introduction of the Company's customer service initiatives. Selling and administrative expenses, excluding special charges, increased as a percentage of revenues due to an increase in fixed and semi-fixed expenses as a percentage of revenues during a period of low price inflation and a decrease in same store sales. During First Quarter Fiscal 1998, the Company recorded restructuring charges of $9.3 million in connection with the management reorganization (see Note 4). Depreciation and amortization expense was $22.8 million in First Quarter Fiscal 1998 and $22.8 million in First Quarter Fiscal 1997, representing 3.0% and 2.8% of total revenues, respectively. Operating income for First Quarter Fiscal 1998 was $0.2 million or 0.0% of total revenues compared to $20.8 million or 2.5% of total revenues in First Quarter Fiscal 1997. In First Quarter Fiscal 1998 operating income, excluding pre-tax special charges of $15.0 million, was $15.3 million or 2.0% of total revenues. - 9 - RESULTS OF OPERATIONS (CONTINUED) Interest expense for First Quarter Fiscal 1998 and First Quarter Fiscal 1997 was $37.4 million and $34.6 million, respectively. The increase in interest expense is a result of higher debt levels outstanding during First Quarter Fiscal 1998 and a higher average interest rate on outstanding debt in First Quarter Fiscal 1998. Loss before income taxes was $37.1 million for First Quarter Fiscal 1998 compared to a loss of $13.7 million for First Quarter Fiscal 1997. The loss before income taxes, excluding the pre-tax special charges of $15.0 million, was $22.1 million for First Quarter Fiscal 1998. The reason for the increase in the loss before income taxes is the decrease in operating income and an increase in interest expense. The income tax benefit was $14.3 million for First Quarter Fiscal 1998 compared to a benefit of $4.7 million in First Quarter Fiscal 1997. The income tax benefit, excluding the effect of the pre-tax special charges of $15.0 million, was $8.2 million for First Quarter Fiscal 1998. The effective tax rates vary from the statutory rates due to differences between income for financial reporting and tax reporting purposes, primarily related to goodwill amortization resulting from prior acquisitions. Net loss was $22.8 million in First Quarter Fiscal 1998 compared to net loss of $9.0 million in First Quarter Fiscal 1997. Net loss excluding the after-tax impact of special charges was $13.9 million in First Quarter Fiscal 1998. - 10 - LIQUIDITY AND CAPITAL RESOURCES Payments of principal and interest on the Company's $1.26 billion of long-term debt (excluding capital leases) will materially restrict Company funds available to finance capital expenditures and working capital. Principal payments of long-term debt of $3.7 million, $3.0 million and $2.5 million are due during Fiscal 1998, Fiscal 1999 and Fiscal 2000, respectively. The Company has a revolving credit facility (the "Revolving Credit Facility") which provides for borrowings of up to $250 million, subject to a borrowing base limitation measured by eligible inventory and accounts receivable of the Company. The Revolving Credit Facility matures in April 2000 and is secured by a pledge of the Company's inventory, accounts receivable and related assets. As of May 3, 1997, additional availability under the Revolving Credit Facility was $89.5 million. During First Quarter Fiscal 1998, the Company's internally generated funds from operations and amounts available under the Revolving Credit Facility provided sufficient liquidity to meet the Company's operating, capital expenditure and debt service needs. The Company has entered into two interest rate swap agreements, each of which expires within the next two years, that effectively convert $75 million of its fixed rate borrowings into variable rate obligations. Under the terms of these agreements, the Company makes payments at variable rates which are based on LIBOR and receives payments at fixed interest rates. The net amount paid or received is included in interest expense. Cash flows to meet the Company's requirements for operating, investing and financing activities in First Quarter Fiscal 1998 are reported in the Consolidated Statement of Cash Flows. For the thirteen week period ended May 3, 1997, the Company experienced a positive cash flow from operating activities of $2.4 million. Working capital decreased by $17.8 million from February 1, 1997 to May 3, 1997. The Company is in compliance with all terms and restrictive covenants of its long-term debt agreements. The Company expects to spend approximately $40 million on capital expenditures, including capital leases, during Fiscal 1998. The Company expects to finance such capital expenditures through internally generated cash flow, borrowings under the Revolving Credit Facility and new capital leases. Capital expenditures will be principally for new stores, remodeled store facilities and investments in technology. - 11 - PART II. OTHER INFORMATION All items which are not applicable or to which the answer is negative have been omitted from this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Penn Traffic's Annual Meeting of Stockholders was held on June 3, 1997. At the Annual Meeting, the holders of Penn Traffic common stock considered and voted upon a proposal to approve and adopt the Company's 1997 Performance Incentive Plan (the "Plan"). Approval and adoption of the Plan required the affirmative vote of a majority of the votes cast. There were 4,966,659 votes cast in favor of the Plan and 906,138 votes cast against the Plan. There were 35,282 abstentions and 3,991,911 nonvotes. At the Annual Meeting, three directors were elected to serve for three-year terms on the Company's Board of Directors by the following votes: FOR WITHHELD --- -------- Eugene A. DePalma 9,593,873 306,118 Susan E. Engel 9,598,441 301,550 Claude J. Incaudo 9,587,892 312,099 At the Annual Meeting, the selection of Price Waterhouse LLP as auditors for the Company for Fiscal 1998 was ratified by a vote of 9,706,663 shares in favor and 182,348 shares opposed. There were 10,304 abstentions and 675 nonvotes. - 12 - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the fiscal quarter ended May 3, 1997. On June 2, 1997, the Company filed a report on Form 8-K relating to an amendment of the Revolving Credit Facility, effective as of May 27, 1997, which modified certain covenants. - 13 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE PENN TRAFFIC COMPANY June 16, 1997 /s/ Phillip E. Hawkins -------------------------------- By: Phillip E. Hawkins President, Chief Executive Officer and Director June 16, 1997 /s/ Robert J. Davis -------------------------------- By: Robert J. Davis Senior Vice President and Secretary, Principal Financial Officer and Principal Accounting Officer - 14 - EX-27.1 2 FDS
5 3-MOS JAN-31-1998 MAY-03-1997 55,636 0 68,348 3,570 323,319 463,854 941,360 383,139 1,665,522 338,918 1,383,717 0 0 13,641 (133,257) 1,665,522 746,137 759,388 581,617 581,617 177,536 703 37,371 37,136 14,312 (22,824) 0 0 0 (22,824) (2.10) 0
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