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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 November 3, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission file number 0-8858
THE PENN TRAFFIC COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 25-0716800
(State of incorporation) (IRS Employer Identification No.)
1200 STATE FAIR BLVD., SYRACUSE, NEW YORK 13221-4737
(Address of principal executive offices) (Zip Code)
(315) 453-7284
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES |X| NO |_|
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES |X| NO |_|
Common stock, par value $.01 per share: 20,056,264 shares outstanding as of
December 7, 2001
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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)
<Table>
<Caption>
13 WEEKS 13 WEEKS
ENDED ENDED
NOVEMBER 3, OCTOBER 28,
2001 2000
--------- ---------
REVENUES $ 598,766 $ 585,366
COST AND OPERATING EXPENSES:
Cost of sales 436,672 429,595
Selling and administrative expenses 151,006 147,626
Amortization of excess reorganization value 27,318 27,318
--------- ---------
OPERATING LOSS (16,230) (19,173)
Interest expense 8,886 9,507
--------- ---------
LOSS BEFORE INCOME TAXES (25,116) (28,680)
Provision (benefit) for income taxes (Note 3) 1,286 (336)
--------- ---------
NET LOSS $ (26,402) $ (28,344)
========= =========
PER SHARE (BASIC AND DILUTED):
Net loss (Note 4) $ (1.32) $ (1.41)
========= =========
</Table>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(All dollar amounts in thousands,
except per share data)
<Table>
<Caption>
39 WEEKS 39 WEEKS
ENDED ENDED
NOVEMBER 3, OCTOBER 28,
2001 2000
----------- -----------
REVENUES $ 1,789,325 $ 1,753,576
COST AND OPERATING EXPENSES:
Cost of sales 1,304,142 1,281,688
Selling and administrative expenses 445,443 435,026
Amortization of excess reorganization value 81,954 81,962
Unusual item (Note 2) 1,259
----------- -----------
OPERATING LOSS (42,214) (46,359)
Interest expense 27,458 28,763
----------- -----------
LOSS BEFORE INCOME TAXES (69,672) (75,122)
Provision for income taxes (Note 3) 5,867 3,513
----------- -----------
NET LOSS $ (75,539) $ (78,635)
=========== ===========
PER SHARE (BASIC AND DILUTED):
Net loss (Note 4) $ (3.77) $ (3.91)
=========== ===========
</Table>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands)
<Table>
<Caption>
UNAUDITED AUDITED
NOVEMBER 3, FEBRUARY 3,
2001 2001
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 39,015 $ 42,529
Accounts and notes receivable (less allowance for
doubtful accounts of $3,717 and $4,634, respectively) 44,643 46,113
Inventories 303,232 271,704
Prepaid expenses and other current assets 10,123 9,338
--------- ---------
397,013 369,684
--------- ---------
NONCURRENT ASSETS:
Capital leases - net 46,358 50,812
Property, plant and equipment - net 265,797 255,507
Goodwill - net 9,049 9,197
Beneficial leases - net 48,472 50,549
Excess reorganization value - net 69,350 151,304
Other assets - net 24,649 22,517
--------- ---------
$ 860,688 $ 909,570
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases 8,416 7,878
Current maturities of long-term debt 6,074 5,062
Trade accounts and drafts payable 133,367 119,905
Other accrued liabilities 78,981 76,857
Accrued interest expense 5,145 3,478
Taxes payable 15,184 16,971
--------- ---------
247,167 230,151
--------- ---------
NONCURRENT LIABILITIES:
Obligations under capital leases 68,883 73,396
Long-term debt 250,818 238,112
Deferred income taxes 75,746 76,141
Other noncurrent liabilities 33,690 28,483
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 1,000,000
shares; $.01 par value; none issued
Common Stock - authorized 30,000,000 shares; $.01
par value; 20,056,264 and 20,054,022 shares issued
and outstanding, respectively 201 201
Capital in excess of par value 416,215 416,207
Stock warrants 7,249 7,249
Retained deficit (235,534) (159,995)
Accumulated other comprehensive loss (3,372)
Treasury stock, at cost (Note 5) (375) (375)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 184,384 263,287
--------- ---------
$ 860,688 $ 909,570
========= =========
</Table>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(All dollar amounts in thousands)
<Table>
<Caption>
39 WEEKS 39 WEEKS
ENDED ENDED
NOVEMBER 3, OCTOBER 28,
2001 2000
--------- ---------
OPERATING ACTIVITIES:
Net loss $ (75,539) $ (78,635)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 31,428 31,427
Amortization of excess reorganization value 81,954 81,962
Other - net (153) (353)
NET CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable and prepaid expenses 685 3,885
Inventories (31,528) (12,119)
Payables and accrued expenses 10,805 3,410
Deferred income taxes 1,950 3,000
Other assets (1,807) (4,084)
Other noncurrent liabilities (510) (591)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,285 27,902
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (30,730) (47,964)
Proceeds from sale of assets 294 1,545
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (30,436) (46,419)
--------- ---------
FINANCING ACTIVITIES:
Net increase in drafts payables 2,236 6,309
Payments to settle long-term debt (3,982) (1,221)
Borrowing of revolver debt 140,800 21,700
Repayment of revolver debt (123,100) (15,000)
Reduction of capital lease obligations (6,325) (6,891)
Net Sale (Purchase) of common stock 8 (375)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,637 4,522
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (3,514) (13,995)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 42,529 51,759
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 39,015 $ 37,764
========= =========
Interest paid 25,135 24,020
Income taxes paid 2,840 273
</Table>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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THE PENN TRAFFIC COMPANY
Notes To Interim Consolidated Financial Statements
Unaudited
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements.
The results of operations for the interim periods are not necessarily
an indication of results to be expected for the year. In the opinion of
management, all adjustments necessary for a fair statement of the results are
included for the interim periods, and all such adjustments are normal and
recurring. These unaudited interim financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 2001 and the Company's Quarterly Reports on Form 10-Q for each of
the 13-week periods ended May 5, 2001 and August 4, 2001.
All significant intercompany transactions and accounts have been
eliminated in consolidation.
IMPLEMENTATION OF EITF 00-14 AND OTHER RECLASSIFICATIONS
The Company's Consolidated Statement of Operations for the 13-week and
39-week periods ended November 3, 2001 reflects the Company's implementation of
EITF Issue Number 00-14, "Accounting for Certain Sales Incentives" ("EITF
00-14") in the 13-week period ended November 3, 2001. EITF 00-14 addresses the
recognition, measurement and income statement classification of certain sales
incentives offered by companies in the form of discounts, coupons or rebates. In
connection with the implementation of this new accounting pronouncement, Penn
Traffic has made certain reclassifications between "Revenues" and "Costs and
Operating Expenses" in the Company's Consolidated Statement of Operations for
the 13-week and 39-week periods ended November 3, 2001. These reclassifications
result in an equal decrease to the Company's reported Revenues and Costs and
Operating Expenses for these periods. Penn Traffic has also reclassified the
Company's financial statements for each quarter of the prior year (the 53-week
period ended February 3, 2001) for comparability purposes.
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In addition, in the 13-week period ended November 3, 2001, the
Company made certain other reclassifications of expenses in the Consolidated
Statement of Operations between "Cost of sales" and "Selling and
administrative expenses" for all of the quarterly and year-to-date periods in
the current year and the prior year. After such reclassifications, the "Cost
of sales" caption includes cost of goods sold including the cost of
distributing such products to the Company's retail stores and
wholesale/franchise accounts. In contrast, in the Company's historic income
statement classifications, the Cost of sales caption also included buying and
occupancy costs. These costs are now included under the caption, "Selling and
administrative expenses." The Company believes that after these
reclassifications, Penn Traffic's income statement presentation is more
consistent with the majority of public companies in the supermarket industry
than its historic presentation. The implementation of EITF 00-14 and these
other reclassifications do not have any effect on Penn Traffic's reported
Operating Loss, EBITDA or Net Loss.
The table below presents the Revenues, Cost of sales and Selling and
administrative expenses captions of the Company's Consolidated Statement of
Operations for the four quarters of the fiscal year ended February 3, 2001 and
the 13-week periods ended May 5, 2001 and August 4, 2001 after taking into
account the reclassifications described above and as previously reported
utilizing the Company's historic income statement presentation.
<Table>
<Caption>
SELECTED CONSOLIDATED STATEMENT OF OPERATIONS DATA - AFTER RECLASSIFICATIONS
13 WEEKS 13 WEEKS 13 WEEKS 14 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED ENDED
APRIL 29, JULY 29, OCTOBER 28, FEBRUARY 3, FEBRUARY 3,
2000 2000 2000 2001 2001
-------------- --------------- -------------- --------------- ---------------
Revenues $ 566,087 $ 602,123 $ 585,366 $ 659,719 $ 2,413,295
Cost of sales 412,158 439,935 429,595 479,355 1,761,043
Selling and
administrative
expenses 142,605 144,795 147,626 158,730 593,756
<Caption>
13 WEEKS 13 WEEKS 26 WEEKS
ENDED ENDED ENDED
MAY 5, AUGUST 4, AUGUST 4,
2001 2001 2001
-------------- -------------- --------------
Revenues $ 579,055 $ 611,504 $ 1,190,559
Cost of sales 422,412 445,058 867,470
Selling and administrative
expenses 146,370 148,067 294,437
</Table>
-7-
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<Table>
<Caption>
SELECTED CONSOLIDATED STATEMENT OF OPERATING DATA - HISTORICAL PRESENTATION
13 WEEKS 13 WEEKS 13 WEEKS 14 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED ENDED
APRIL 29, JULY 29, OCTOBER 28, FEBRUARY 3, FEBRUARY 3,
2000 2000 2000 2001 2001
-------------- --------------- -------------- --------------- ---------------
Revenues $ 592,617 $ 629,741 $ 611,265 $ 691,682 $ 2,525,305
Cost of sales 450,539 476,955 468,662 521,695 1,917,851
Selling and
administrative
expenses 130,754 135,393 134,458 148,354 548,959
<Caption>
13 WEEKS 13 WEEKS 26 WEEKS
ENDED ENDED ENDED
MAY 5, AUGUST 4, AUGUST 4,
2001 2001 2001
-------------- -------------- --------------
Revenues $ 608,422 $ 644,333 $ 1,252,755
Cost of sales 464,295 486,996 951,291
Selling and administrative
expenses 133,855 138,957 272,812
</Table>
NOTE 2 - UNUSUAL ITEM
In January 2000, Penn Traffic began a process to (1) reduce the number
of distribution centers the Company utilizes for nonperishable grocery products
from four to three and (2) transfer the distribution of general merchandise and
health and beauty care items from a leased facility in Columbus, Ohio to the
Company's Jamestown, New York facility (an owned 267,000 square foot facility
which had supplied grocery products to certain stores in upstate New York and
northern Pennsylvania until January 2000). This process was completed in June
2000. During the 39-week period ended October 28, 2000, the Company recorded an
unusual item of $1.3 million associated with the implementation of this
warehouse consolidation project.
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NOTE 3 - INCOME TAXES
The tax provisions for the 13-week and 39-week periods ended November
3, 2001 and October 28, 2000 are not recorded at statutory rates due to
differences between income calculations for financial reporting and tax
reporting purposes that result primarily from the nondeductible amortization of
excess reorganization value.
NOTE 4 - NET LOSS PER SHARE
Net loss per share is computed based on the requirements of Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("EPS"). This
standard requires presentation of Basic EPS, computed based on the weighted
average number of common shares outstanding for the period, and Diluted EPS,
which gives effect to all dilutive potential shares outstanding (i.e., options
and warrants) during the period. In the calculation of Basic EPS, 20,056,264 and
20,055,298 shares were used for the 13-week and 39-week periods ended November
3, 2001, respectively, and 20,069,867 and 20,094,592 shares were used for the
13-week and 39-week periods ended October 28, 2000, respectively. The
calculations of Diluted EPS exclude the effect of incremental common stock
equivalents aggregating 28,811 shares and 34,153 shares for the 13-week and
39-week periods ended November 3, 2001, respectively, and 2,228 shares and 889
shares for the 13-week and 39-week periods ended October 28, 2000, respectively,
since they would have been antidilutive given the net loss for the periods.
NOTE 5 - STOCKHOLDERS' EQUITY
Total comprehensive loss for the 13-week period ended November 3,
2001 was $27.6 million. Total comprehensive loss for the 39-week period ended
November 3, 2001 was $77.1 million (excluding a $1.8 million loss associated
with the adoption of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
as amended by Statement of Accounting Standards No. 138 at the beginning of
the 39-week period ended November 3, 2001). The Company currently holds
interest rate swap contracts for the purpose of hedging interest rate risk
associated with variable rate debt. These contracts have been designated as
cash flow hedges under SFAS 133 and, accordingly, changes in the fair value
of the contracts net of income tax are recorded in other comprehensive income.
On June 29, 2000, the Company announced that its Board of Directors had
authorized the Company to repurchase up to an aggregate value of $10 million of
Penn Traffic's common stock from time to time in the open market or privately
negotiated transactions. The timing and amounts of purchases will be governed by
prevailing market conditions and other considerations. To date, the Company has
repurchased 53,000 shares of common stock at an average price of $7.08 per
share.
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NOTE 6 - SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands of dollars, except per share data)
<Table>
<Caption>
13 WEEKS 13 WEEKS
ENDED ENDED
NOVEMBER 3, OCTOBER 28,
2001 2000
------------------- ------------------
EBITDA (1) $ 22,156 $ 19,538
Adjusted EBITDA (2) 24,524 21,712
Cash interest expense 8,667 9,290
Adjusted net income (3) 2,313 256
Adjusted Earnings per Share
(Basic and Diluted) (4) $ 0.12 $ 0.01
<Caption>
39 WEEKS 39 WEEKS
ENDED ENDED
NOVEMBER 3, OCTOBER 28,
2001 2000
------------------- ------------------
EBITDA (1) $ 73,044 $ 69,789
Adjusted EBITDA (2) 75,412 66,241
Cash interest expense 26,801 28,111
Adjusted net income (3) 7,812 1,975
Adjusted Earnings per Share
(Basic and Diluted) (4) $ 0.39 $ 0.10
</Table>
- ------------------------------
See notes below
-10-
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NOTE 6 - SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
(1) "EBITDA" is earnings before interest, taxes, depreciation,
amortization, amortization of excess reorganization value, LIFO
provision and unusual items. EBITDA should not be interpreted as a
measure of operating results, cash flow provided by operating
activities, a measure of liquidity or as an alternative to any
generally accepted accounting principle measure of performance. The
Company is reporting EBITDA because it is a widely used financial
measure of the potential capacity of a company to incur and service
debt. Penn Traffic's reported EBITDA may not be comparable to similarly
titled measures used by other companies.
(2) "Adjusted EBITDA" for the 13-week and 39-week periods ended November 3,
2001 is EBITDA excluding loyalty card startup costs of $2.4 million.
Adjusted EBITDA for the 13-week period ended October 28, 2000 is EBITDA
excluding loyalty card startup costs of $1.5 million and startup costs
and losses associated with the commencement of operation of the
Company's New England stores of $0.7 million. Adjusted EBITDA for the
39-week period ended October 28, 2000 is EBITDA excluding loyalty card
startup costs of $1.5 million, startup costs and operating losses
associated with the commencement of operation of the Company's New
England stores of $0.7 million and income attributable to the Company's
prior agreement with another supermarket company for the lease of 10
stores in New England (the "New England Lease") of $5.7 million.
(3) "Adjusted net income" for the 13-week period ended November 3, 2001 is
net loss excluding loyalty card startup costs of $1.4 million (after
tax) and amortization of excess reorganization value of $27.3 million.
Adjusted net income for the 39-week period ended November 3, 2001 is
net loss excluding loyalty card startup costs of $1.4 million (after
tax) and amortization of excess reorganization value of $82.0 million.
Adjusted net income for the 13-week period ended October 28, 2000 is
net loss excluding loyalty card startup costs of $0.9 million (after
tax), startup costs and losses associated with the commencement of
operation of the Company's New England stores of $0.4 million (after
tax) and amortization of excess reorganization value of $27.3 million.
Adjusted net income for the 39-week period ended October 28, 2000 is
net loss excluding New England lease income of $3.4 million (after
tax), loyalty card startup costs of $0.9 million (after tax), startup
costs and losses associated with the commencement of operation of the
Company's New England stores of $0.4 million (after tax), an unusual
item (expense) of $0.7 million (after tax) and amortization of excess
reorganization value of $82.0 million.
(4) "Adjusted Earnings per Share" is computed on adjusted net income based
on the requirements of Statement of Financial Accounting Standards No.
128, "Earnings Per Share." In the calculation of Basic Adjusted
Earnings per Share, 20,056,264 and 20,055,298 shares were used for the
13-week and 39-week periods ended November 3, 2001, respectively, and
20,069,867 and 20,094,592 shares were used for the 13-week and 39-week
periods ended October 28, 2000. In the calculation of Diluted Adjusted
Earnings per Share 20,085,075 and 20,089,451 shares were used for the
13-week and 39-week periods ended November 3, 2001, respectively, and
20,072,095 and 20,095,481 were used for the 13-week and 39-week periods
ended October 28, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements included in this Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Quarterly Report on Form 10-Q which are not statements of
historical fact are intended to be, and are hereby identified as,
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. Without limiting the foregoing, the
words "anticipate," "believe," "estimate," "expect," "intend," "plan," "project"
and other similar expressions are intended to identify forward-looking
statements. The Company cautions readers that forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievement expressed or
implied by such forward-looking statements. Such factors include, among other
things, the success or failure of the Company in implementing its current
business and operational strategies; general economic and business conditions;
competition; availability, location and terms of sites for store development;
the successful implementation of the Company's capital expenditure program
(including store remodeling and investments in the Company's technology
infrastructure including point-of sale systems); labor relations; labor and
employee benefit costs including increases in health care and pension costs; the
impact of the Company's loyalty card program on its results of operations; the
impact of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" on the Company's financial statements and financial
results (as discussed in "Impact of New Accounting Standards" below);
availability, terms and access to capital; the Company's liquidity and other
financial considerations; the ability of the Company to repurchase its common
stock in open market purchases and the prices at which it repurchases its common
stock; restrictions on the Company's ability to repurchase its shares under its
debt instruments; and the outcome of pending or yet-to-be instituted legal
proceedings.
The following discussion utilizes the Company's Consolidated
Statement of Operations for the periods noted after taking into account the
reclassifications described below under "Impact of New Accounting Standards."
-12-
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RESULTS OF OPERATIONS
THIRTEEN WEEKS ("THIRD QUARTER FISCAL 2002") AND THIRTY-NINE WEEKS ENDED
NOVEMBER 3, 2001 COMPARED TO THIRTEEN WEEKS ("THIRD QUARTER FISCAL 2001") AND
THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000.
The following table sets forth Consolidated Statement of Operations
components expressed as percentages of revenues for Third Quarter Fiscal 2002
and Third Quarter Fiscal 2001, and for the 39-week periods ended November 3,
2001 and October 28, 2000, respectively:
<Table>
<Caption>
Third Quarter Ended Thirty-nine Weeks Ended
NOVEMBER 3, October 28, NOVEMBER 3, October 28,
2001 2000 2001 2000
------------------ ------------------------------------ -----------------
Revenues 100.0% 100.0% 100.0% 100.0%
Gross profit (1) 27.1 26.6 27.1 26.9
Adjusted gross profit (2) 27.1 26.7 27.1 26.7
Selling and administrative
expenses 25.2 25.2 24.9 24.8
Adjusted selling and administrative
expenses (3) 24.9 25.0 24.8 24.8
Amortization of excess
reorganization value 4.6 4.7 4.6 4.7
Unusual item 0.1
Operating loss (2.7) (3.3) (2.4) (2.6)
Adjusted operating income (4) 2.2 1.8 2.4 1.9
Interest expense 1.5 1.6 1.5 1.6
Net loss (4.4) (4.8) (4.2) (4.5)
Adjusted net income (5) 0.4 0.0 0.4 0.1
</Table>
- ---------------------------------
See notes below
-13-
<Page>
RESULTS OF OPERATIONS (CONTINUED)
(1) Revenues less cost of sales.
(2) "Adjusted gross profit" for Third Quarter Fiscal 2002 and the 39-week
period ended November 3, 2001 is gross profit excluding loyalty card
startup costs of $0.4 million. Adjusted gross profit for Third Quarter
Fiscal 2001 is gross profit excluding loyalty card startup costs of
$0.4 million and startup costs and operating losses associated with the
commencement of operation of the Company's New England stores of $0.3
million. Adjusted gross profit for the 39-week period ended October 28,
2000 is gross profit excluding income associated with the Company's
prior lease of 10 stores in New England to another supermarket chain
which expired in August 2000 (the "New England Lease") of $5.7 million,
loyalty card startup costs of $0.4 million and startup costs and
operating losses associated with the commencement of the Company's New
England stores of $0.3 million.
(3) "Adjusted selling and administrative expenses" for Third Quarter Fiscal
2002 and the 39-week period ended November 3, 2001 is selling and
administrative expenses excluding loyalty card startup costs of $2.0
million. Adjusted selling and administrative expenses for Third Quarter
Fiscal 2001 and the 39-week period ended October 28, 2000, is selling
and administrative expenses excluding loyalty card startup costs of
$1.1 million, startup costs and operating losses associated with the
commencement of operation of the Company's New England stores of $0.4
million.
(4) "Adjusted operating income" for Third Quarter Fiscal 2002 is operating
loss excluding loyalty card startup costs of $2.4 million and
amortization of excess reorganization value of $27.3 million. Adjusted
operating income for the 39-week period ended November 3, 2001 is
operating loss excluding loyalty card startup costs of $2.4 million and
amortization of excess reorganization value of $82.0 million. Adjusted
operating income for Third Quarter Fiscal 2001 is operating loss
excluding loyalty card startup costs of $1.5 million, startup costs and
operating losses associated with the commencement of operation of the
Company's New England stores of $0.7 million and amortization of excess
reorganization value of $27.3 million. Adjusted operating income for
the 39-week period ended October 28, 2000 is operating loss excluding
income associated with the New England Lease of $5.7 million, and
loyalty card startup costs of $1.5 million, startup costs and operating
losses associated with the commencement of operation of the Company's
New England stores of $0.7 million, an unusual item (expense) of $1.3
million and amortization of excess reorganization value of $82.0
million.
(5) "Adjusted net income" for Third Quarter Fiscal 2002 is net loss
excluding loyalty card startup costs of $1.4 million (after tax) and
amortization of excess reorganization value of $27.3 million. Adjusted
net income for the 39-week period ended November 3, 2001 is net loss
excluding loyalty card startup costs of $1.4 million (after tax) and
amortization of excess reorganization value of $82.0 million. Adjusted
net income for the Third Quarter Fiscal 2001 is net loss excluding
loyalty card startup costs of $0.9 million (after tax), startup costs
and operating losses associated with the commencement of operation of
the Company's New England stores of $0.4 million (after tax) and
amortization of excess reorganization value of $27.3 million. Adjusted
net income for the 39-week period ended October 28, 2000 is net loss
excluding New England lease income of $3.4 million (after tax), loyalty
card startup costs of $0.9 million (after tax), startup costs and
operating losses associated with the commencement of operation of the
Company's New England stores of $0.4 million (after tax), an unusual
item (expense) of $0.7 million (after tax) and amortization of excess
reorganization value of $82.0 million.
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<Page>
RESULTS OF OPERATIONS (CONTINUED)
REVENUES
Total revenues for Third Quarter Fiscal 2002 increased 2.3% to $598.8
million from $585.4 million in Third Quarter Fiscal 2001. Total revenues for the
39-week period ended November 3, 2001 increased 2.0% to $1.79 billion from $1.75
billion for the 39-week period ended October 28, 2000. The increase in revenues
in Third Quarter Fiscal 2002 is primarily attributable to an increase in same
store sales. The increase in revenues in the 39-week period ended November 3,
2001 is primarily attributable to an increase in same store sales and the
commencement of the Company's operation of 10 New England stores (see "Liquidity
and Capital Resources" below).
Same store sales for Third Quarter Fiscal 2002 increased 2.3% from the
comparable prior year period. Same store sales for the 39-week period ended
November 3, 2001 increased 0.6% from the comparable prior year period.
Wholesale supermarket revenues were $70.2 million in Third Quarter
Fiscal 2002 compared to $68.6 million in Third Quarter Fiscal 2001. Wholesale
supermarket revenues were $205.9 million for the 39-week period ended November
3, 2001 compared to $202.6 million for the 39-week period ended October 28,
2000.
GROSS PROFIT; ADJUSTED GROSS PROFIT
Gross profit for Third Quarter Fiscal 2002 was 27.1% of revenues
compared to 26.6% of revenues in Third Quarter Fiscal 2001. Adjusted gross
profit for Third Quarter Fiscal 2002 was 27.1% of revenues compared to 26.7% of
revenues in Third Quarter Fiscal 2001. The increase in adjusted gross profit as
a percentage of revenues in Third Quarter Fiscal 2002 is primarily due to the
benefits of the Company's marketing and merchandising programs and a reduction
in inventory shrink expense. These enhancements to the Company's adjusted gross
profit were partially offset by increases in promotional spending to drive
sales.
Gross profit for the 39-week period ended November 3, 2001 was 27.1% of
revenues compared to 26.9% of revenues for the 39-week period ended October 28,
2000. Adjusted gross profit for the 39-week period ended November 3, 2001 was
27.1% of revenues compared to 26.7% of revenues for the 39-week period ended
October 28, 2000. The increase in adjusted gross profit as a percentage of
revenues in the 39-week period ended November 3, 2001 is primarily due to the
benefits of the Company's marketing and merchandising programs, and reductions
in inventory shrink expense and distribution costs. These enhancements to the
Company's adjusted gross profit were partially offset by increases in
promotional spending to drive sales.
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<Page>
RESULTS OF OPERATIONS (CONTINUED)
SELLING AND ADMINISTRATIVE EXPENSES; ADJUSTED SELLING AND ADMINISTRATIVE
EXPENSES
Selling and administrative expenses for Third Quarter Fiscal 2002 and
Third Quarter Fiscal 2001 were 25.2% of revenues. Adjusted selling and
administrative expenses for Third Quarter Fiscal 2002 were 24.9% of revenues
compared to 25.0% of revenues in Third Quarter Fiscal 2001. The decrease in
adjusted selling and administrative expenses as a percentage of revenues for
Third Quarter Fiscal 2002 is primarily due to the benefits of the Company's
cost reduction programs partially offset by cost increases in labor and
utilities.
Selling and administrative expenses for the 39-week period ended
November 3, 2001 were 24.9% of revenues compared to 24.8% of revenues for the
39-week period ended October 28, 2000. Adjusted selling and administrative
expenses for the 39-week period ended November 3, 2001 and the 39-week period
ended October 28, 2000 were 24.8% of revenues. The comparison of adjusted
selling and administrative expenses as a percentage of revenues for the 39-week
period ended November 3, 2001 to the prior year reflects the benefits of the
Company's cost reduction programs offset by cost increases in labor and
utilities.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $10.4 million in Third
Quarter Fiscal 2002 and $10.9 million in Third Quarter Fiscal 2001, representing
1.7% of revenues and 1.9% of revenues, respectively. Depreciation and
amortization expense was $31.4 million for the 39-week periods ended November 3,
2001 and October 28, 2000 representing 1.8% of revenues.
Amortization of excess reorganization value for Third Quarter Fiscal
2002 and Third Quarter Fiscal 2001 was $27.3 million. Amortization of excess
reorganization value for the 39-week periods ended November 3, 2001 and October
28, 2000 was $82.0 million. The excess reorganization value asset of $327.8
million, which was established in June 1999 in connection with the
implementation of fresh-start reporting, is being amortized on a straight-line
basis over a three-year period. The Company will cease amortizing the excess
reorganization value asset in the first quarter of Fiscal 2003 (see "Impact of
New Accounting Standards" below).
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<Page>
RESULTS OF OPERATIONS (CONTINUED)
UNUSUAL ITEM
During the 39-week period ended October 28, 2000, the Company recorded
an unusual item of $1.3 million, related to the implementation of a warehouse
consolidation project (see Note 2 to the Interim Consolidated Financial
Statements).
OPERATING LOSS; ADJUSTED OPERATING INCOME
Operating loss for Third Quarter Fiscal 2002 was $16.2 million or 2.7%
of revenues compared to an operating loss of $19.2 million or 3.3% of revenues
in Third Quarter Fiscal 2001. Adjusted operating income for Third Quarter Fiscal
2002 was $13.5 million or 2.2% of revenues compared to $10.3 million or 1.8% of
revenues in Third Quarter Fiscal 2001. The increase in adjusted operating income
as a percentage of revenues in Third Quarter Fiscal 2002 is due to an increase
in adjusted gross profit as a percentage of revenues and a decrease in adjusted
selling and administrative expense as a percentage of revenues.
Operating loss for the 39-week period ended November 3, 2001 was $42.2
million or 2.4% of revenues compared to an operating loss of $46.4 million or
2.6% of revenues for the 39-week period ended October 28, 2000. Adjusted
operating income for the 39-week period ended November 3, 2001 was $42.1 million
or 2.4% of revenues compared to $33.3 million or 1.9% of revenues for the
39-week period ended October 28, 2000. The increase in adjusted operating income
as a percentage of revenues in the 39-week period ended November 3, 2001 is due
to an increase in adjusted gross profit as a percentage of revenues.
INTEREST EXPENSE
Interest expense for Third Quarter Fiscal 2002 was $8.9 million
compared to $9.5 million in Third Quarter Fiscal 2001. Interest expense for the
39-week period ended November 3, 2001 was $27.5 million compared to $28.8
million for the 39-week period ended October 28, 2000. The decreases in interest
expense in Third Quarter Fiscal 2002 and the 39-week period ended November 3,
2001 are due to a decrease in the interest rate on the Company's variable
rates debt from the prior year.
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<Page>
RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES; ADJUSTED INCOME TAXES
Income tax provision was $1.3 million for Third Quarter Fiscal 2002
compared to a benefit of $0.3 million in Third Quarter Fiscal 2001. Adjusted
income tax provision was $2.3 million for Third Quarter Fiscal 2002 compared to
$0.6 million in Third Quarter Fiscal 2001. Income tax provision for the 39-week
period ended November 3, 2001 was $5.9 million compared to $3.5 million for the
39-week period ended October 28, 2000. Adjusted income tax provision for the
39-week period ended November 3, 2001 was $6.8 million compared to $2.6 million
for the 39-week period ended October 28, 2000.
The effective tax rates for Third Quarter Fiscal 2002, Third Quarter
Fiscal 2001 and the 39-week periods ended November 3, 2001 and October 28, 2000
vary from statutory rates due to differences between income for financial
reporting and tax reporting purposes that result primarily from the
nondeductible amortization of excess reorganization value.
NET LOSS; ADJUSTED NET INCOME
Net loss for Third Quarter Fiscal 2002 was $26.4 million compared to a
net loss of $28.3 million for Third Quarter Fiscal 2001. Adjusted net income was
$2.3 million for Third Quarter Fiscal 2002 compared to $0.3 million for Third
Quarter Fiscal 2001.
Net loss for the 39-week period ended November 3, 2001 was $75.5
million compared to a net loss of $78.6 million for the 39-week period ended
October 28, 2000. Adjusted net income for the 39-week period ended November 3,
2001 was $7.8 million compared to $2.0 million for the 39-week period ended
October 28, 2000.
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<Page>
LIQUIDITY AND CAPITAL RESOURCES
In connection with the completion of the Company's financial
restructuring in June 1999, the Company issued $100 million of senior notes (the
"Senior Notes") and entered into a new $320 million secured credit facility (the
"Credit Facility"). Certain terms of the Senior Notes and the Credit Facility
are summarized below.
The Senior Notes mature on June 29, 2009. The indenture contains
certain negative covenants that, among other things, restrict the Company's
ability to incur additional indebtedness, permit additional liens and make
certain restricted payments.
The Credit Facility includes (1) a $205 million revolving credit
facility (the "Revolving Credit Facility") and (2) a $115 million term loan (the
"Term Loan"). The lenders under the Credit Facility have a first priority
perfected security interest in substantially all of the Company's assets. The
Credit Facility contains a variety of operational and financial covenants
intended to restrict the Company's operations. These include, among other
things, restrictions on the Company's ability to incur debt, make capital
expenditures and restricted payments, as well as, requirements that the Company
achieve required levels for Consolidated EBITDA, interest coverage, fixed charge
coverage and funded debt ratio (all as defined in the Credit Facility).
The Term Loan will mature on June 30, 2006. Amounts of the Term Loan
maturing in each fiscal year are outlined in the following table (in thousands):
<Table>
<Caption>
Fiscal Year Ending Amount Maturing
------------------ ---------------
February 2, 2002 $ 4,750
February 1, 2003 6,750
January 31, 2004 9,750
January 29, 2005 12,750
January 28, 2006 7,750
February 3, 2007 71,250
-------------
$ 113,000
=============
</Table>
Availability under the Revolving Credit Facility is calculated based on
a specified percentage of eligible inventory and accounts receivable of the
Company. The Revolving Credit Facility will mature on June 30, 2005.
Availability under the Revolving Credit Facility was approximately $141 million
as of November 3, 2001.
-19-
<Page>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During Third Quarter Fiscal 2002, the Company's internally generated
funds from operations and amounts available under the Revolving Credit Facility
provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs. For the next year, the Company expects to
utilize internally generated funds from operations, amounts available under the
Revolving Credit Facility and new capital leases to satisfy its operating,
capital expenditure and debt service needs and to fund any repurchase of shares
of its common stock under its stock repurchase program.
Cash flows used to meet the Company's operating requirements during the
39-week period ended November 3, 2001 are reported in the Consolidated Statement
of Cash Flows. During the 39-week period ended November 3, 2001, the Company's
net cash used in investing activities was $30.4 million. This amount was
financed by net cash provided by operating activities of $17.3 million, net cash
provided by financing activities of $9.6 million and a decrease in cash and cash
equivalents of $3.5 million.
In July 1990, the Company entered into an agreement with another
supermarket company pursuant to which such company acquired the right to operate
13 stores in Vermont and New Hampshire under its trade name until July 31, 2000
(the "New England Operating Agreement"). Prior to July 1990, these stores had
been operated by Penn Traffic under the Company's "P&C" trade name. By August 1,
2000, the Company had regained operating control of the remaining 10 stores that
had been subject to the New England Operating Agreement. Nine of these stores
were opened for business in August 2000.
The Revenues account of the Company's Consolidated Statement of
Operations includes income of approximately $2.9 million and $2.8 million from
the New England Operating Agreement in the 13-week periods ended April 29, 2000
and July 29, 2000, respectively. In contrast, during the second half of the
53-week period ended February 3, 2001 ("Fiscal 2001"), the Company incurred
approximately $1 million of operating losses in connection with the commencement
of operation of these 10 stores. While these stores contributed to the Company's
operating income in Third Quarter Fiscal 2002 and the 39-week period ended
November 3, 2001, Penn Traffic believes that the operating income allocable to
such stores in future periods will be significantly less than the income
received pursuant to the New England Operating Agreement.
The Company competes with several supermarket chains, independent
grocery stores, supercenters (combination supermarket and general merchandise
stores) and other retailers, many of which have greater resources than Penn
Traffic. The number of competitors and the degree of competition encountered by
the Company's supermarkets vary by location. Any significant change in the
number of the Company's competitors, the number or size of competitors' stores,
or in the pricing and promotion practices of the Company's competitors could
have an impact on the Company's results of operations.
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<Page>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During Fiscal 2001, the Company commenced implementation of a loyalty
card program in its 69 Big Bear stores in Ohio and West Virginia. Third Quarter
Fiscal 2001 operating income was reduced by an estimated $1.5 million in
connection with the launch of this loyalty card program. Penn Traffic completed
the chain-wide implementation of this program by introducing the loyalty card in
the Company's remaining 150 stores in New York, Pennsylvania and New England in
September 2001. The Company incurred approximately $2.4 million of startup costs
in Third Quarter Fiscal 2002 to complete the rollout of the loyalty card
program.
During Fiscal 2002, the Company expects to invest approximately $55
million in capital expenditures (including capital leases). Capital expenditures
will be principally for new stores, store remodels, and investments in the
Company's distribution infrastructure and technology. The Company expects to
finance such expenditures through cash generated from operations, amounts
available under the Revolving Credit Facility and new capital leases.
On June 29, 2000, the Company announced that its Board of Directors had
authorized the Company to repurchase up to an aggregate value of $10 million of
Penn Traffic's common stock from time to time in the open market or privately
negotiated transactions. The timing and amounts of purchases will be governed by
prevailing market conditions and other considerations. To date, the Company has
repurchased 53,000 shares of common stock at an average price of $7.08 per
share.
-21-
<Page>
IMPACT OF NEW ACCOUNTING STANDARDS
The Company's Consolidated Statement of Operations and same store sales
results for Third Quarter Fiscal 2002 and the 39-week period ended November 3,
2001 reflects the Company's implementation of EITF Issue Number 00-14,
"Accounting for Certain Sales Incentives" ("EITF 00-14") in Third Quarter Fiscal
2002. EITF 00-14 addresses the recognition, measurement and income statement
classification of certain sales incentives offered by companies in the form of
discounts, coupons or rebates. In connection with the implementation of this new
accounting pronouncement, Penn Traffic has made certain reclassifications
between Revenues and Costs and Operating Expenses in the Company's Consolidated
Statement of Operations for Third Quarter Fiscal 2002 and the 39-week period
ended November 3, 2001. These reclassifications result in an equal decrease to
the Company's reported Revenues and Costs and Operating Expenses. Penn Traffic
has also reclassified the Company's prior year financial statements for
comparability purposes.
In addition, in Third Quarter Fiscal 2002, the Company made certain
other reclassifications of expenses in the Consolidated Statement of Operations
between "Cost of sales" and "Selling and administrative expenses" for all of
the quarterly and year-to-date periods in the current year and the prior year.
After such reclassifications, the "Cost of sales" caption includes cost of
goods sold including the cost of distributing such products to the Company's
retail stores and wholesale/franchise accounts. In contrast, in the Company's
historic income statement classifications, the Cost of sales caption also
included buying and occupancy costs. These costs are now included under the
caption, "Selling and administrative expenses." The Company believes that
after these reclassifications, Penn Traffic's income statement presentation
is more consistent with the majority of public companies in the supermarket
industry than its historic presentation. The implementation of EITF 00-14 and
these other reclassifications do not have any effect on Penn Traffic's
reported Operating Loss, EBITDA or Net Loss.
In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
SFAS 142 provides that intangible assets with finite useful lives be amortized,
and that goodwill and intangible assets with indefinite useful lives not be
amortized but tested at least annually for impairment.
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<Page>
IMPACT OF NEW ACCOUNTING STANDARDS (CONTINUED)
Penn Traffic expects to adopt SFAS 142 in the first quarter of Fiscal
2003 (the 52-week period ending February 1, 2003). The Company does not expect
to record any amortization of excess reorganization value or goodwill in its
Consolidated Statement of Operations for periods after Fiscal 2002. In
conjunction with the adoption of SFAS 142 Penn Traffic will test the carrying
value of the excess reorganization value and goodwill assets for impairment.
Excess reorganization value and goodwill are currently being amortized at a rate
of approximately $110 million annually and will have a carrying value of
approximately $51 million at the date of adoption of this standard.
-23-
<Page>
PART II. OTHER INFORMATION
All items which are not applicable or to which the answer is negative
have been omitted from this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.10B Amendment No. 2 to the Revolving Credit and
Term Loan Agreement by and among Penn
Traffic, certain of its subsidiaries, Fleet
Capital Corporation and the lenders party
thereto.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
November 3, 2001.
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<Page>
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
December 18, 2001 /s/ Joseph V. Fisher
-------------------------------------
By: Joseph V. Fisher
President, Chief Executive
Officer and Director
December 18, 2001 /s/ Martin A. Fox
-------------------------------------
By: Martin A. Fox
Executive Vice President,
Chief Financial Officer and
Director
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