===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 4, 2002
OR
[ ] AMENDMENT TO TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission file number 0-8858
THE PENN TRAFFIC COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 25-0716800
(State of incorporation) (IRS Employer Identification No.)
1200 STATE FAIR BLVD., SYRACUSE, NEW YORK 13221-4737
(Address of principal executive offices) (Zip Code)
(315) 453-7284
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES X NO
--- ----
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
--- ----
Common stock, par value $.01 per share: 20,064,264 shares outstanding
as of June 7, 2002
===============================================================================
PART I. FINANCIAL INFORMATION
This amendment to the Company's Report on Form 10-Q for the quarter
ended May 4, 2002 amends and restates those items of the Form 10-Q originally
filed on June 18, 2002 (the "Original Filing") which have been affected by
the restatement of the Company's financial statements described below. In
order to preserve the nature and character of the disclosures set forth in
such items as originally filed, no attempt has been made in this amendment
to update such disclosures. Except as required to reflect the effects of
the restatement, all information contained in this amendment is stated as
the date of the Original Filing. For additional information regarding
the restatement, see "--Notes to Interim Consolidated Financial Statements
- -Note 1."
-2-
ITEM 1. FINANCIAL STATEMENTS
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
RESTATED RESTATED
13 WEEKS 13 WEEKS
ENDED ENDED
MAY 4, MAY 5,
2002 (NOTE 1) 2001 (NOTE 1)
---------------- ------------------
REVENUES $ 576,172 $ 578,785
COST AND OPERATING EXPENSES:
Cost of sales 417,993 424,090
Selling and administrative expenses 148,756 145,417
Amortization of excess reorganization value 27,452
-------------- --------------
OPERATING INCOME (LOSS) 9,423 (18,174)
Interest expense 8,511 9,530
-------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 912 (27,704)
Provision for income taxes (Note 2) 479 151
-------------- --------------
NET INCOME (LOSS) $ 433 $ (27,855)
============== ==============
PER SHARE (BASIC AND DILUTED):
Net Income (Loss) (Note 3) $ 0.02 $ (1.39)
============= =============
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
-3-
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
RESTATED RESTATED
UNAUDITED AUDITED
MAY 4, FEBRUARY 2,
2002 (NOTE 1) 2002 (NOTE 1)
----------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 38,021 $ 39,562
Accounts and notes receivable (less allowance for
doubtful accounts of $2,412 and $2,107, respectively) 41,533 49,710
Inventories 268,166 274,845
Prepaid expenses and other current assets 11,033 9,506
----------- -----------
358,753 373,623
----------- -----------
NONCURRENT ASSETS:
Capital leases 43,135 44,747
Property, plant and equipment 281,267 273,436
Goodwill 8,990 8,990
Beneficial leases 45,368 46,920
Excess reorganization value 42,238 42,238
Other assets 19,315 16,414
----------- -----------
$ 799,066 $ 806,368
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) $ 137,358 $ 140,666
Current portion of obligations under capital leases 8,107 8,329
Trade accounts and drafts payable 122,086 129,158
Other accrued liabilities 79,783 77,590
Accrued interest expense 5,138 2,514
Taxes payable and deferred taxes 14,077 15,125
----------- -----------
366,549 373,382
----------- -----------
NONCURRENT LIABILITIES:
Long-term debt (Note 4) 111,973 112,046
Obligations under capital leases 65,417 67,075
Deferred income taxes 65,273 63,770
Other noncurrent liabilities 49,676 51,471
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 1,000,000
shares; $.01 par value; none issued
Common Stock - authorized 30,000,000 shares; $.01 par value;
20,058,264 and 20,056,364 shares issued and outstanding, respectively 201 201
Capital in excess of par value (Note 5) 417,395 416,597
Stock warrants 7,249 7,249
Retained deficit (261,871) (262,304)
Accumulated other comprehensive loss (Note 5) (22,421) (22,744)
Treasury stock, at cost (Note 5) (375) (375)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 140,178 138,624
----------- -----------
$ 799,066 $ 806,368
=========== ===========
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
-4-
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
RESTATED RESTATED
13 WEEKS 13 WEEKS
ENDED ENDED
MAY 4, MAY 5,
2002 (NOTE 1) 2001 (NOTE 1)
----------------- ------------------
OPERATING ACTIVITIES:
Net income (loss) $ 433 $ (27,855)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,557 10,454
Amortization of excess reorganization value 27,452
Other - net 640 127
NET CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable and prepaid expenses 6,650 3,819
Inventories 6,679 (1,458)
Payables and accrued expenses 1,172 10,312
Deferred income taxes 1,536 133
Other assets (2,590) (844)
Other noncurrent liabilities (1,614) (34)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,463 22,106
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (15,189) (9,116)
Proceeds from sale of assets 168 20
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (15,021) (9,096)
------------ ------------
FINANCING ACTIVITIES:
Net decrease in drafts payables (4,722) (2,115)
Payments to settle long-term debt (1,081) (1,076)
Borrowing of revolving debt 45,100 55,300
Repayment of revolving debt (47,400) (63,700)
Reduction of capital lease obligations (1,880) (2,213)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (9,983) (13,804)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,541) (794)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 39,562 42,529
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,021 $ 41,735
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid 5,667 7,234
Income taxes paid 1,422 53
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
-5-
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/A for the fiscal year
ended February 2, 2002.
All significant intercompany transactions and accounts have been
eliminated in consolidation.
During the third quarter of the fiscal year ended February 2, 2002, the
Company implemented EITF Issue Number 00-14, "Accounting for Certain Sales
Incentives" as codified by EITF Issue Number 01-9, "Accounting for Consideration
Given by a Vendor to a Customer" and made certain other income statement
reclassifications. Accordingly, certain amounts in the Consolidated Statement of
Operations for the 13-week period ended May 5, 2001 have been reclassified for
comparability purposes.
-6-
RESTATEMENT
In August 2002, Penn Traffic announced that it would restate its
financial results after discovering that an employee of its Penny Curtiss bakery
manufacturing subsidiary had made false accounting entries which primarily
involved the overstatement of inventory over a period of approximately three and
one-quarter years. Based on the preliminary findings of an internal review, the
Company's Audit Committee engaged independent legal counsel to conduct an
independent investigation, who in turn engaged KPMG LLP to assist in this
investigation, which is substantially complete. The Company has concluded that
the false accounting entries were limited to its Penny Curtiss bakery
manufacturing subsidiary. As a result of these false accounting entries and
based on the investigation into the misconduct, the Company has restated its
financial results for the 13-week period ended May 4, 2002, the fiscal years
ended February 2, 2002 and February 3, 2001, the 31-week period ended January
29, 2000 and the 21-week period ended June 26, 1999. The aggregate effect of the
restatement was to reduce net income over this three and one-quarter year period
by $7.3 million. In addition, the restatement reduced operating income for the
21-week period ended June 26, 1999 by $1.1 million; this amount was offset in
the Company's Consolidated Statement of Operations by an adjustment associated
with the Company's adoption of fresh-start reporting in 1999.
The aggregate effect of the correction of the misstatements on
previously reported EBITDA was a reduction of $11 million over the three and
one-quarter year period ended May 4, 2002. EBITDA is earnings before interest,
taxes, depreciation, amortization, amortization of excess reorganization value,
LIFO provision, special charges, unusual items, write-down of long-lived assets,
reorganization items and extraordinary items. EBITDA should not be interpreted
as a measure of operating results, cash flow provided by operating activities or
liquidity, or as an alternative to any generally accepted accounting principle
measure of performance. The Company reports 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.
The restatement also includes the reclassification of $1.0 million
and $1.0 million of expenses for the 13-week periods ended May 4, 2002 and
May 5, 2001, respectively, from Selling and administrative expenses to
Cost of Sales to more appropriately reflect the classification of certain
indirect manufacturing expenses associated with the Penny Curtiss bakery
manufacturing subsidary.
-7-
The effect of the correction of the misstatements for the 13-week
periods ended May 4, 2002 and May 5, 2001 was to (1) increase the previously
reported net loss by $0.7 million and net loss per share - diluted by $0.04
for both periods and (2) reduce previously reported EBITDA by $1.2 million
and $1.0 million for the 13-week periods ended May 4, 2002 and May 5, 2001,
respectively. The financial statement line items which were restated are
Revenues, Cost of sales, Selling and administrative expenses, Amortization of
excess reorganization value, Provision for income taxes, Inventories, Prepaid
expenses and other current assets, Excess reorganization value, Trade
accounts and drafts payables, Taxes payable and deferred taxes and Retained
deficit. The consolidated financial statements for the 13-week periods ended
May 4, 2002 and May 5, 2001, and notes thereto included in this Form 10-Q/A
have been restated to include the effects of the correction of these
misstatements and the reclassification of all amounts outstanding under the
Company's $320 million secured credit facility (the "Credit Facility") as
Current maturities of long-term debt (see Note 4) as follows:
-8-
13 WEEKS ENDED 13 WEEKS ENDED
MAY 4, 2002 MAY 5, 2001
----------------------------------- -----------------------------------
AS AS
PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
----------------- ----------------- ----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS
Revenues $ 576,372 $ 576,172 $ 579,055 $ 578,785
Cost of sales 416,009 417,993 422,412 424,090
Selling and administrative expenses 149,743 148,756 146,371 145,417
Amortization of excess
reorganization value 27,318 27,452
------------ ------------ ------------ ------------
Operating income (loss) 10,620 9,423 (17,046) (18,174)
Interest expense 8,511 8,511 9,530 9,530
------------ ------------ ------------ ------------
Income (loss) before income taxes 2,109 912 (26,576) (27,704)
Provision for income taxes 970 479 559 151
------------ ------------ ------------ ------------
Net income (loss) $ 1,139 $ 433 $ (27,135) $ (27,855)
============ ============ ============ ============
Per share (Basic and Diluted) $ 0.06 $ 0.02 $ (1.35) $ (1.39)
============ ============ ============ ============
MAY 4, 2002 FEBRUARY 2, 2002
----------------------------------- -----------------------------------
AS AS
PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
----------------- ----------------- ----------------- -----------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET
Inventories $ 278,802 $ 268,166 $ 284,221 $ 274,845
Prepaid expenses and other
current assets 11,224 11,033 9,697 9,506
Total current assets 369,580 358,753 383,190 373,623
Excess reorganization value 42,032 42,238 42,032 42,238
Total assets 809,687 799,066 815,729 806,368
Trade accounts and drafts payable 121,863 122,086 128,872 129,158
Taxes payables and deferred taxes 17,622 14,077 18,179 15,125
Current maturities of long-term debt 8,058 137,358 7,066 140,666
Total current liabilities 240,571 366,549 242,550 373,382
Long-term debt 241,273 111,973 245,646 112,046
Retained deficit (254,572) (261,871) (255,711) (262,304)
Total stockholders' equity 147,477 140,178 145,217 138,624
Total liabilities and
stockholders' equity 809,687 799,066 815,729 806,368
-9-
NEW ACCOUNTING STANDARDS
Penn Traffic adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142") in the 13-week period
ending May 4, 2002 ("First Quarter Fiscal 2003"). SFAS 142 provides that
intangible assets with finite useful lives be amortized, and that goodwill and
intangible assets with indefinite useful lives not be amortized but tested at
least annually for impairment. Accordingly, the Company no longer records
amortization of excess reorganization value or goodwill in its Consolidated
Statement of Operations. In conjunction with the adoption of SFAS 142, Penn
Traffic performed a comprehensive test of the carrying value of the excess
reorganization value and goodwill assets for impairment. As a result of this
review, no assets were deemed impaired. Excess reorganization value and goodwill
have a carrying value of approximately $51 million at the date of adoption of
this standard.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 supercedes Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting Principle
Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company adopted this
standard in First Quarter Fiscal 2003. The adoption of this standard did not
have a material effect on the Company's financial statements.
-10-
NOTE 2 - INCOME TAXES
- ---------------------
The provision for income taxes for First Quarter Fiscal 2003 and the
13-week period ended May 5, 2001 ("First Quarter Fiscal 2002") are not recorded
at statutory rates due to differences between income calculations for financial
reporting and tax reporting purposes. The effective tax rate for First Quarter
Fiscal 2003 reflects the recognition of tax expense based on the estimated
effective annual tax rate for the fiscal year ending February 1, 2003. The
effective tax rate for First Quarter Fiscal 2002 has not been annualized due to
the net loss reported for the fiscal year ended February 2, 2002.
NOTE 3 - NET INCOME (LOSS) PER SHARE
- ------------------------------------
The calculation of Basic earnings per share utilized 20,058,264 and
20,054,112 shares for First Quarter Fiscal 2003 and First Quarter Fiscal 2002,
respectively. The calculation of Diluted earnings per share utilized 20,383,567
and 20,054,112 shares for First Quarter Fiscal 2003 and First Quarter Fiscal
2002, respectively. The calculation of Diluted earnings per share for First
Quarter Fiscal 2002 excludes the effect of incremental common stock equivalents
aggregating 42,191 shares, since they would have been antidilutive given the net
loss for the quarter.
-11-
NOTE 4 - DEBT
- -------------
The Company's debt (excluding capital leases) is shown below:
MAY 4, FEBRUARY 2,
2002 2002
-------------------- -------------------
(IN THOUSANDS)
Secured Term Loan $ 107,250 $ 108,250
Secured Revolving Credit Facility 29,800 32,100
Other Secured Debt 12,281 12,362
11% Senior Notes due June 29, 2009 100,000 100,000
------------- -------------
Total Debt $ 249,331 $ 252,712
Less: Current maturities of long-term debt (137,358) (140,666)
------------- -------------
Total Long-Term Debt $ 111,973 $ 112,046
============= =============
The Company's 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 covenants
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).
As discussed below, the lenders under the Credit Facility have waived
and agreed to forbear until October 31, 2002 (or, if earlier, the date on which
certain other events specified in the Waiver and Forbearance Agreement occur)
from exercising any remedies as a result of an event of default that arose due
to the accounting restatement that resulted from the false accounting entries at
the Company's Penny Curtiss bakery manufacturing subsidiary. Accordingly,
notwithstanding the scheduled maturities of the Revolving Credit Facility and
Term Loan described below, in accordance with generally accepted accounting
principles, all amounts outstanding under the Credit Facility ($137.1 million at
May 4, 2002 and $140.4 million at February 2, 2002) have been reclassified as
Current maturities of long-term debt.
-12-
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 is scheduled to mature on June 30, 2005.
Availability under the Revolving Credit Facility was approximately $120 million
as of May 4, 2002 (after giving effect to the restatement of the Company's
financial statements (see Note 1)).
The Term Loan is scheduled to mature on June 30, 2006. Amounts of the
Term Loan scheduled to mature in each fiscal year are outlined in the following
table (in thousands):
FISCAL YEAR ENDING AMOUNT MATURING
------------------ ---------------
(In thousands of dollars)
February 1, 2003 $ 6,750
January 31, 2004 9,750
January 29, 2005 12,750
January 28, 2006 7,750
February 3, 2007 71,250
-------------
$ 108,250
=============
On August 14, 2002, the Company received a letter waiving certain
events of default that arose under the Credit Facility as a result of the
accounting restatement that resulted from the false accounting entries at the
Company's Penny Curtiss bakery manufacturing subsidiary (see Note 1). The waiver
letter also stated that the lenders under the Credit Facility would forbear from
taking any action under the Credit Facility as a result of such defaults and
permitted the Company to borrow, repay and reborrow under the Credit Facility
through August 30, 2002.
On August 29, 2002, the Company received a further extension of the
waiver and forbearance from the lenders under the Credit Facility and entered
into a Waiver and Forbearance Agreement dated as of August 30, 2002. The Waiver
and Forbearance Agreement waives certain events of default that arose under the
Credit Facility as a result of the accounting restatement that resulted from the
false accounting entries at the Company's Penny Curtiss bakery manufacturing
subsidiary or could arise as a result of the Company's noncompliance with
certain financial covenants in the Credit Facility until October 31, 2002 (or,
if earlier, the date on which certain other events specified in the Waiver and
Forbearance Agreement occur). The Waiver and Forbearance Agreement also provides
that the lenders would forbear from taking any action under the Credit Facility
as a result of such defaults and permits the Company to borrow, repay and
reborrow under the Credit Facility through October 31, 2002.
-13-
The Waiver and Forbearance Agreement will enable Penn Traffic to assess
whether any other modifications to the Credit Facility would be required,
including modifications to the existing financial covenants. Penn Traffic
anticipates that on or prior to October 31, 2002, it will enter into a
longer-term amendment to the Credit Facility with the lenders that will enable
Penn Traffic to continue to borrow, repay and reborrow under the Revolving
Credit Facility. In the event the Company was unable to negotiate and enter
into such a longer-term amendment on a satisfactory basis with the lenders
under the Credit Facility, the Company believes that it could refinance the
amounts outstanding under the Credit Facility with an alternate lender.
There can be no assurance, however, that the Company would be able to complete
any such financing on terms comparable to the terms of the Credit Facility or
otherwise acceptable to the Company.
-14-
NOTE 5 - STOCKHOLDERS' EQUITY
- -----------------------------
Comprehensive income (loss) for First Quarter Fiscal 2003 and First
Quarter Fiscal 2002 consists of net income (loss), the effects of accounting for
hedges under Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," and unrealized gains or
losses on marketable securities. Total comprehensive income for First Quarter
Fiscal 2003 was $0.8 million. Total comprehensive loss for First Quarter Fiscal
2002 was $29.9 million. Capital in excess of par value includes accumulated
compensation expense with respect to certain stock options subject to variable
accounting of $1.2 million and $0.4 million as of May 4, 2002 and February 2,
2002, respectively.
On June 29, 2000, the Company announced that its Board of Directors had
authorized the Company to repurchase up to an aggregate value of $10 million of
Penn Traffic's common stock from time to time in the open market or privately
negotiated transactions. The timing and amounts of purchases will be governed by
prevailing market conditions and other considerations. To date, the Company has
repurchased 53,000 shares of common stock at an average price of $7.08 per
share.
-15-
NOTE 6 - SUPPLEMENTAL FINANCIAL INFORMATION
- -------------------------------------------
RESTATED RESTATED
13 WEEKS 13 WEEKS
ENDED ENDED
MAY 4, MAY 5,
2002 2001
------------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EBITDA (1) $ 20,480 $ 20,357
Cash interest expense 8,291 9,311
Adjusted net income (loss) (2) 433 (403)
Adjusted Earnings (Loss) Per Share
(Basic and Diluted) (3) $ 0.02 $ (0.02)
- --------------------------
See notes below
(1) "EBITDA" is earnings before interest, taxes, depreciation,
amortization, amortization of excess reorganization value and LIFO
provision. EBITDA should not be interpreted as a measure of operating
results, cash flow provided by operating activities, a measure of
liquidity or as an alternative to any generally accepted accounting
principle measure of performance. The Company is reporting EBITDA
because it is a widely used financial measure of the potential capacity
of a company to incur and service debt. Penn Traffic's reported EBITDA
may not be comparable to similarly titled measures used by other
companies.
(2) Adjusted net income for First Quarter Fiscal 2003. Adjusted net loss
for First Quarter Fiscal 2002 excluding amortization of excess
reorganization value of $27.5 million.
(3) The calculation of Basic Adjusted Earnings Per Share utilized
20,058,264 and 20,054,112 shares for First Quarter Fiscal 2003 and
First Quarter Fiscal 2002, respectively. The calculation of Diluted
Adjusted earnings per share utilized 20,383,567 and 20,054,112 shares
for the First Quarter Fiscal 2003 and First Quarter Fiscal 2002,
respectively. The calculation of Diluted earnings per share for First
Quarter Fiscal 2002 excludes the effect of incremental common stock
equivalents aggregating 42,191 shares, since they would have been
antidilutive given the Adjusted net loss for the quarter.
-16-
NOTE 7 - AMORTIZATION OF EXCESS REORGANIZATION VALUE AND GOODWILL
- -----------------------------------------------------------------
Penn Traffic's adoption of SFAS 142 eliminates the amortization of
excess reorganization value and goodwill beginning in First Quarter Fiscal 2003.
The following table presents a comparison of First Quarter Fiscal 2003 net
income to the reported net loss for First Quarter Fiscal 2002 adjusted to
exclude the amortization of excess reorganization value and goodwill ("Pro forma
net income"):
PRO FORMA
RESTATED RESTATED
13 WEEKS 13 WEEKS
ENDED ENDED
MAY 4, MAY 5,
2002 2001
------------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Reported net income (loss) $ 433 $ (27,855)
Amortization of excess reorganization value 27,452
Goodwill amortization, net of tax 35
------------ ------------
Pro forma net income (loss) $ 433 $ (368)
============ ============
Basic and diluted earnings per share
Reported net income (loss) $ 0.02 $ (1.39)
Amortization of excess reorganization value 1.37
Goodwill amortization, net of tax
------------- -------------
Pro forma net income (loss) $ 0.02 $ (0.02)
============= ============
-17-
NOTE 8 - SEGMENT INFORMATION
- ----------------------------
The table below presents Revenues and EBITDA by reportable segment:
WHOLESALE
RETAIL FOOD
FOOD DISTRIBUTION TOTAL
------------------- ------------------- --------------------
(IN THOUSANDS)
RESTATED FIRST QUARTER FISCAL 2003
Revenues $ 506,705 $ 64,739 $ 571,444
EBITDA 31,060 4,481 35,541
RESTATED FIRST QUARTER FISCAL 2002
Revenues $ 508,466 $ 66,351 $ 574,817
EBITDA 31,533 4,115 35,648
The table below reconciles (a) Total segment revenues to Consolidated
revenues and (b) Total EBITDA for reportable segments to Income (loss) before
income taxes:
RESTATED RESTATED
13 WEEKS 13 WEEKS
ENDED ENDED
MAY 4, MAY 5,
2002 2001
------------------- -------------------
(IN THOUSANDS)
REVENUES:
Total segment revenues $ 571,444 $ 574,817
Other revenues 4,728 3,968
------------ ------------
Consolidated revenues $ 576,172 $ 578,785
============ ============
EBITDA (1):
Total EBITDA for reportable segments $ 35,541 $ 35,648
Unallocated expenses/income (15,061) (15,291)
Depreciation and amortization (10,557) (10,454)
Amortization of excess reorganization value (27,452)
LIFO provision (500) (625)
Interest expense (8,511) (9,530)
------------ ------------
Income (loss) before income taxes $ 912 $ (27,704)
============ ============
- ---------------------------
See notes below
(1) EBITDA is earnings before interest, taxes, depreciation, amortization,
amortization of excess reorganization value and LIFO provision.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and
Results of Operations presented below reflects the impact of the restatements to
the Company's previously reported Consolidated Financial Statements for the
13-week period ended May 4, 2002, the fiscal years ended February 2, 2002 and
February 3, 2001, the 31-week period ended January 29, 2000 and the 21-week
period ended June 26, 1999. The Company restated its financial results for these
periods after discovering in August 2002 that an employee of its Penny Curtiss
bakery manufacturing subsidiary had made false accounting entries which
primarily involved the overstatement of inventory. The aggregate effect of the
restatement was to reduce net income over this three and one-quarter year period
by $7.3 million. In addition, the restatement reduced operating income for the
21-week period ended June 26, 1999 by $1.1 million; this amount was offset in
the Company's Consolidated Statement of Operations by an adjustment associated
with the Company's adoption of fresh-start reporting in 1999.
The effect of the correction of the misstatements for the 13-week
periods ended May 4, 2002 and May 5, 2001 was to increase the previously
reported net loss by $0.7 million and net loss per share - diluted by $0.04 for
both periods. The financial statement line items which were restated are
Revenues, Cost of sales, Selling and administrative expenses, Amortization of
excess reorganization value, Provision for income taxes, Inventories, Prepaid
expenses and other current assets, Excess reorganization value, Trade accounts
and drafts payables, Taxes payable and deferred taxes and Retained deficit.
-19-
Certain statements included in this Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Quarterly Report on Form 10-Q which are not statements of
historical fact are intended to be, and are hereby identified as,
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. Without limiting the foregoing,
the words "anticipate," "believe," "estimate," "expect," "intend," "plan,"
"project" and other similar expressions are intended to identify
forward-looking statements. The Company cautions readers that forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievement expressed or implied by such forward-looking statements. Such
factors include, among other things, the success or failure of the Company in
implementing its current business and operational strategies; general
economic and business conditions; competition; availability, location and
terms of sites for store development; the successful implementation of the
Company's capital expenditure program (including store remodeling and
investments in the Company's technology infrastructure including
point-of-sale systems); labor relations; labor and employee benefit costs
including increases in health care and pension costs; the impact of the
Company's loyalty card program on its results of operations; availability and
terms of and access to capital; the Company's liquidity and other financial
considerations; the ability of the Company to successfully negotiate
modifications or amendments to its Credit Facility or negotiate any new
credit facility; 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; the outcome of internal and external investigations
into the previously mentioned false accounting entries at the Company's
bakery manufacturing subsidiary and the outcome of pending or yet-to-be
instituted legal proceedings. Penn Traffic cautions that the foregoing list
of important factors is not exhaustive.
-20-
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MAY 4, 2002 ("FIRST QUARTER FISCAL 2003") COMPARED TO
THIRTEEN WEEKS ENDED MAY 5, 2001 ("FIRST QUARTER FISCAL 2002")
- -----------------------------------------------------------------------------
The following table sets forth Consolidated Statement of Operations
components expressed as percentages of revenues for First Quarter Fiscal 2003
and First Quarter Fiscal 2002:
RESTATED
FIRST QUARTER ENDED
MAY 4, MAY 5,
2002 2001
------------------- -------------------
Revenues 100.0% 100.0%
Gross profit (1) 27.5 26.7
Selling and administrative expenses 25.8 25.1
Amortization of excess reorganization value 4.7
Operating income (loss) 1.6 (3.1)
Adjusted operating income (2) 1.6 1.6
Interest expense 1.5 1.6
Net income (loss) 0.1 (4.8)
Adjusted net income (loss) (3) 0.1 (0.1)
- ---------------------------
See notes below
(1) Revenues less cost of sales.
(2) Operating income for First Quarter Fiscal 2003. Operating loss for
First Quarter Fiscal 2002 excluding amortization of excess
reorganization value of $27.5 million.
(3) Net income for First Quarter Fiscal 2003. Net loss for First Quarter
Fiscal 2002 excluding amortization of excess reorganization value of
$27.5 million.
-21-
RESULTS OF OPERATIONS (CONTINUED)
REVENUES
Total revenues for First Quarter Fiscal 2003 were $576.2 million, a
decrease of 0.5% from $578.8 million in First Quarter Fiscal 2002. The decrease
in revenues in First Quarter Fiscal 2003 is primarily attributable to (1) the
reduction in the number of stores the Company operated in First Quarter Fiscal
2003 as compared to First Quarter Fiscal 2002 and (2) a decline in wholesale
food distribution revenues. These decreases were partially offset by an increase
in same store sales.
Same store sales for First Quarter Fiscal 2003 increased 0.6% from the
comparable prior year period. Wholesale food distribution revenues were $64.7
million in First Quarter Fiscal 2003 compared to $66.4 million in First Quarter
Fiscal 2002.
GROSS PROFIT
Gross profit for First Quarter Fiscal 2003 was 27.5% of revenues
compared to 26.7% of revenues in First Quarter Fiscal 2002. The Company's
ability to more effectively promote its offerings with its new loyalty card, an
increase in private label sales, a reduction in inventory shrink expense and a
reduction in the LIFO provision from the prior year contributed to the
improvement in gross profit as a percentage of revenues in First Quarter Fiscal
2003.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for First Quarter Fiscal 2003 were
25.8% of revenues compared to 25.1% of revenues in First Quarter Fiscal 2002.
The increase in selling and administrative expenses as a percentage of revenues
for First Quarter Fiscal 2003 is primarily due to increases in wage, pension and
health insurance costs during a period of little or no food inflation. These
increases were partially offset by the benefit of the Company's cost reduction
initiatives.
-22-
RESULTS OF OPERATIONS (CONTINUED)
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $10.6 million in First
Quarter Fiscal 2003 and $10.5 million in First Quarter Fiscal 2002, representing
1.8% of revenues for both periods.
Amortization of excess reorganization value for First Quarter Fiscal
2002 was $27.5 million. The excess reorganization value asset, which was
established in June 1999 in connection with the implementation of fresh-start
reporting, was being amortized on a straight-line basis over a three-year
period. The Company is no longer amortizing the excess reorganization value
asset in accordance with SFAS 142 (see "Impact of New Accounting Standards"
below).
OPERATING INCOME (LOSS); ADJUSTED OPERATING INCOME
Operating income for First Quarter Fiscal 2003 was $9.4 million or 1.6%
of revenues compared to an operating loss of $18.2 million or 3.1% of revenues
in First Quarter Fiscal 2002. Adjusted operating income for First Quarter Fiscal
2003 was $9.4 million or 1.6% of revenues compared to $9.3 million or 1.6% of
revenues in First Quarter Fiscal 2002.
INTEREST EXPENSE
Interest expense for First Quarter Fiscal 2003 was $8.5 million
compared to $9.5 million in First Quarter Fiscal 2002. The decrease in interest
expense in First Quarter Fiscal 2003 is due to a decrease in the interest rate
on the Company's variable rate debt from the prior year.
-23-
RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES
Income tax provision was $0.5 million for First Quarter Fiscal 2003
compared to $0.2 million in First Quarter Fiscal 2002. The tax provisions for
the First Quarter Fiscal 2003 and First Quarter Fiscal 2002 are not recorded at
statutory rates due to differences between income calculations for financial
reporting and tax reporting purposes. The effective tax rate for First Quarter
Fiscal 2003 reflects the recognition of tax expense based on the estimated
effective annual tax rate for the fiscal year ending February 1, 2003. The
effective tax rate for First Quarter Fiscal 2002 has not been annualized due to
the net loss reported for Fiscal 2002.
NET INCOME (LOSS); ADJUSTED NET INCOME
Net income for First Quarter Fiscal 2003 was $0.4 million compared to a
net loss of $27.9 million for First Quarter Fiscal 2002. Adjusted net income for
First Quarter Fiscal 2003 was $0.4 million compared to a net loss of $0.4
million in First Quarter Fiscal 2002.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those accounting policies that are
very important to the portrayal of the Company's financial condition and results
which require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. The Company believes that estimates for reserve for
store closures, impairment of long-lived assets, liabilities for employee
benefit plans and self-insurance liabilities are critical accounting policies.
Materially different amounts could be reported under different conditions or
using different assumptions for these items. These estimates and assumptions are
evaluated on an ongoing basis, based on historical experience and on various
other factors that are believed to be reasonable. There are no significant
changes to these estimates and assumptions since the issuance of the Company's
Form 10-K/A for the fiscal year ended February 2, 2002.
-24-
LIQUIDITY AND CAPITAL RESOURCES
The Company's debt (excluding capital leases) consists primarily of
$100 million of 11% Senior Notes due June 29, 2009 (the "Senior Notes") and
amounts outstanding under a $320 million secured credit facility (the "Credit
Facility") as shown below.
MAY 4, FEBRUARY 2,
2002 2002
-------------------- -------------------
(IN THOUSANDS)
Secured Term Loan $ 107,250 $ 108,250
Secured Revolving Credit Facility 29,800 32,100
Other Secured Debt 12,281 12,362
11% Senior Notes due June 29, 2009 100,000 100,000
------------- -------------
Total Debt $ 249,331 $ 252,712
Less: Current maturities of long-term debt (137,358) (140,666)
------------- -------------
Total Long-Term Debt $ 111,973 $ 112,046
============= =============
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).
As discussed below, the lenders under the Credit Facility have
waived and agreed to forbear until October 31, 2002 (or, if earlier, the date
on which certain other events specified in the waiver forbearance agreement
occur) from exercising any remedies as a result of an event of default that
arose as a result of the accounting restatement that resulted from the false
accounting entries at the Company's Penny Curtiss bakery manufacturing
subsidiary or could arise as a result of the Company's noncompliance with
certain financial covenants in the Credit Facility. Accordingly,
notwithstanding the scheduled maturities of the Revolving Credit Facility and
Term Loan described below, in accordance with generally accepted accounting
principles, all amounts outstanding under the Credit Facility ($137.1 million
at May 4, 2002 and $140.4 million at February 2, 2002) have been classified
as Current maturities of long-term debt.
-25-
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 is scheduled to
mature on June 30, 2005. Availability under the Revolving Credit Facility was
approximately $120 million as of May 4, 2002 after giving effect to the
restatement of the Company's financial statements (see Note 1 to the Interim
Consolidated Financial Statements).
The Term Loan is scheduled to mature on June 30, 2006. Amounts of the
Term Loan maturing in each fiscal year are outlined in the following table
(in thousands):
FISCAL YEAR ENDING AMOUNT MATURING
----------------- ---------------
February 1, 2003 $ 6,750
January 31, 2004 9,750
January 29, 2005 12,750
January 28, 2006 7,750
February 3, 2007 71,250
-------------
$ 108,250
=============
On August 8, 2002, the Company announced that it had discovered that
an employee of its Penny Curtiss bakery manufacturing subsidiary had made
false accounting entries which primarily involved the overstatement of
inventory over a period of approximately three and one-quarter years. Based
on the preliminary findings of an internal review, the Company's Audit
Committee engaged independent legal counsel to conduct an independent
investigation, who in turn engaged KPMG LLP to assist in this investigation,
which is substantially complete. The Company has concluded that the false
accounting entries were limited to its Penny Curtiss bakery manufacturing
subsidiary and that the aggregate effect of the restatements was to reduce
net income over the three and one-quarter year period ended May 4, 2002 by
$7.3 million. In addition, the restatement reduced operating income for the
21-week period ended June 26, 1999 by $1.1 million; this amount was offset in
the Company's Consolidated Statement of Operations by an adjustment
associated with the Company's adoption of fresh-start reporting in 1999. The
aggregate effect of the restatements on EBITDA was a reduction of $11 million
over the three and one-quarter year period ended May 4, 2002. The Company is
cooperating with all appropriate regulators with respect to the false
accounting entries. The Company anticipates that it will incur significant
costs in connection with this investigation.
-26-
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On August 14, 2002, the Company received a letter waiving certain
events of default that arose under the Credit Facility as a result of the
accounting restatements described above. The waiver letter also stated that
the lenders under the Credit Facility would forbear from taking any action
under the Credit Facility as a result of such defaults and permitted the
Company to borrow, repay and reborrow under the Credit Facility through
August 30, 2002.
On August 29, 2002, the Company received a further extension of the
waiver from the lenders under the Credit Facility and entered into a Waiver and
Forbearance Agreement dated as of August 30, 2002. The Waiver and Forbearance
Agreement waives certain events of default that arose under the Credit Facility
as a result of the accounting restatement arising from the employee misconduct
at the Company's Penny Curtiss bakery manufacturing subsidiary or could arise as
a result of the Company's noncompliance with certain financial covenants in the
Credit Facility until October 31, 2002 (or, if earlier, the date on which
certain other events specified in the Waiver and Forbearance Agreement occur).
The Waiver and Forbearance Agreement also provides that the lenders would
forbear from taking any action under the Credit Facility as a result of such
defaults and permits the Company to borrow, repay and reborrow under the Credit
Facility through October 31, 2002.
The Waiver and Forbearance Agreement will enable Penn Traffic to assess
whether any other modifications to the Credit Facility would be required. Penn
Traffic anticipates that on or prior to October 31, 2002, it will enter into a
longer-term amendment to the Credit Facility with the lenders that will enable
Penn Traffic to continue to borrow, repay and reborrow under the Revolving
Credit Facility. In the event the Company was unable to negotiate and enter
into such a longer-term amendment on a satisfactory basis with the lenders
under the Credit Facility, the Company believes that it could refinance the
amounts outstanding under the Credit Facility with an alternate lender.
There can be no assurance however that the Company would be able to complete
any such financing on terms comparable to the terms of the Credit Facility or
otherwise acceptable to the Company. In addition, the revised terms of the
Credit Facility, as well as other factors, could impact the ability of the
Company to invest in new and existing stores and the Company's infrastructure,
which could adversely affect the Company's results of operations.
The indenture for the Senior Notes contains certain negative covenants
that, among other things, restrict the Company's ability to incur additional
indebtedness, permit additional liens and make certain restricted payments.
-27-
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The indenture for the Senior Notes contains certain negative covenants
that, among other things, restrict the Company's ability to incur additional
indebtedness, permit additional liens and make certain restricted payments.
Cash flows used to meet the Company's operating requirements during
First Quarter Fiscal 2003 are reported in the Consolidated Statement of Cash
Flows. During First Quarter Fiscal 2003, the Company's net cash used in
investing activities was $15.0 million and net cash used in financing activities
was $10.0 million. This amount was financed by net cash provided by operating
activities of $23.5 million and a reduction in cash and cash equivalents of $1.5
million.
During First Quarter Fiscal 2003, the Company's internally generated
funds from operations and amounts available under the Revolving Credit Facility
provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs. For the next year, the Company expects to
utilize internally generated funds from operations, amounts available under the
Revolving Credit Facility and new mortgages and capital leases to satisfy its
operating, capital expenditure and debt service needs and to fund any repurchase
of shares of its common stock under its stock repurchase program.
The Company competes with several supermarket chains, independent
grocery stores, supercenters (combination supermarket and general merchandise
stores) and other retailers, many of which have greater resources than Penn
Traffic. The number of competitors and the degree of competition encountered by
the Company's supermarkets vary by location. Any significant change in the
number of the Company's competitors, the number or size of competitors' stores,
or in the pricing and promotion practices of the Company's competitors could
have an impact on the Company's results of operations.
Penn Traffic will incur significant increases in employee benefit costs
in the 52-week period ending February 1, 2003 ("Fiscal 2003"). These are
comprised of (1) increases in health care costs which the Company believes are,
on a percentage basis, generally consistent with overall increasing costs in the
health care industry and (2) an increase in pension expense that the Company
will record in Fiscal 2003 as a result of the declining returns in the equity
markets over the past two years. Penn Traffic competes against some companies
which do not provide the same levels of employee benefits as the Company. It is
not certain what portion of these cost increases Penn Traffic will be able to
offset through its cost reduction programs, merchandising enhancements or market
pricing adjustments.
-28-
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During 2000, the Company entered into interest rate swap agreements,
which expire in April 2005, that effectively convert $50 million of its variable
rate borrowings into fixed rate obligations. Under the terms of these
agreements, the Company makes payments at a weighted average fixed interest rate
of 7.08% per annum and receives payments at variable interest rates based on the
London InterBank Offered Rate.
During Fiscal 2003, Penn Traffic expects to invest approximately $65
million in capital expenditures (including capital leases). Capital expenditures
will be principally for new stores, store remodels and investments in the
Company's distribution system and technology infrastructure (including new
point-of-sale systems in several of the Company's stores). The Company expects
to finance such expenditures through cash generated from operations, amounts
available under the Revolving Credit Facility and new mortgages and capital
leases.
On June 29, 2000, the Company announced that its Board of Directors has
authorized the Company to repurchase up to an aggregate value of $10 million of
Penn Traffic's common stock from time to time in the open market or privately
negotiated transactions. The timing and amounts of purchases will be governed by
prevailing market conditions and other considerations. To date, the Company has
repurchased 53,000 shares of common stock at an average price of $7.08 per
share.
During First Quarter Fiscal 2003, the Company did not have any
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. In
addition, the Company does not engage in trading activities involving
non-exchange traded contracts. As such, the Company is not materially exposed
to any financing, liquidity, market or credit risk that could arise if the
Company had engaged in such relationships. Penn Traffic does not have
relationships or transactions with persons or entities that derive benefits
from their non-independent relationship with the Company or its related
parties other than what is disclosed in Note 15 to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K/A for the fiscal year
ended February 2, 2002.
-29-
IMPACT OF NEW ACCOUNTING STANDARDS
The Company's Consolidated Statement of Operations and same store sales
results for the First Quarter Fiscal 2003 reflect the Company's implementation
of EITF Issue Number 00-14, "Accounting for Certain Sales Incentives" as
codified by EITF Issue Number 01-9, "Accounting for Consideration Given by
Vendors to a Customer" ("EITF 00-14") and certain other income statement
classifications the Company made during the fiscal year ended February 2, 2002.
The Consolidated Statement of Operations for First Quarter Fiscal 2002 has been
reclassified for comparability purposes. The implementation of EITF 00-14 and
these other reclassifications do not have any effect on Penn Traffic's reported
Operating Income (Loss), EBITDA or Net Income (Loss).
Penn Traffic adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142") in First Quarter Fiscal
2003. SFAS 142 provides that intangible assets with finite useful lives be
amortized, and that goodwill and intangible assets with indefinite useful lives
not be amortized but tested at least annually for impairment. The Company no
longer records amortization of excess reorganization value or goodwill in its
Consolidated Statement of Operations. In conjunction with the adoption of SFAS
142, Penn Traffic performed a comprehensive test of the carrying value of the
excess reorganization value and goodwill assets for impairment. As a result of
this review, no assets were deemed impaired. Excess reorganization value and
goodwill have a carrying value of approximately $51 million at the date of
adoption of this standard.
In October 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 supercedes Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting Principle
Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company adopted this
standard in First Quarter Fiscal 2003. The adoption of this standard did not
have a material effect on the Company's financial statements.
-30-
PART II. OTHER INFORMATION
- ---------------------------
All items which are not applicable or to which the answer is negative
have been omitted from this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fiscal quarter ended May
4, 2002.
-31-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PENN TRAFFIC COMPANY
September 18, 2002 /s/- Joseph V. Fisher
-----------------------------------------------
By: Joseph V. Fisher
President and Chief Executive Officer
September 18, 2002 /s/- Martin A. Fox
-----------------------------------------------
By: Martin A. Fox
Executive Vice President and
Chief Financial Officer
-32-