SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 1-9930
THE PENN TRAFFIC COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 25-0716800
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1200 STATE FAIR BOULEVARD, SYRACUSE, NEW YORK 13221-4737
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 453-7284
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1.25 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the Registrant was $274,252,150 as of April 17, 1995.
COMMON STOCK $1.25 PAR VALUE - SHARES OUTSTANDING - 10,879,201 AS OF
APRIL 17, 1995
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement dated May 1, 1995 provided to
Registrant's stockholders in connection with the annual meeting of stockholders
scheduled for June 7, 1995 are incorporated by reference in Part III of this
Form 10-K.
1
FORM 10-K INDEX
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PART I PAGE
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Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Supplemental Item. Executive Officers of Registrant 16
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PART II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 19
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 20
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PART III
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Item 10. Directors and Executive Officers of the Registrant 55
Item 11. Executive Compensation 55
Item 12. Security Ownership of Certain Beneficial Owners
and Management 55
Item 13. Certain Relationships and Related Transactions 55
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 56
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-2-
PART I
ITEM 1. BUSINESS (AS OF JANUARY 28, 1995 UNLESS OTHERWISE NOTED)
GENERAL
The Penn Traffic Company ("Penn Traffic" or the "Company") is one of the leading
food retailers in the eastern United States. Penn Traffic operates 267
supermarkets in Pennsylvania, upstate New York, Ohio and northern West Virginia
under the names "Riverside Markets" (24 stores), "Bi-Lo Foods" (24 stores),
"Insalaco's" (30 stores), "Quality Markets" (44 stores), "P&C Foods" (68
stores), and "Big Bear" and "Big Bear Plus" (77 stores).
Penn Traffic also operates a wholesale food distribution business which serves
124 licensed franchisees and 117 independent operators and a discount general
merchandise business with 15 stores. Total consolidated revenues in the fiscal
year ended January 28, 1995 aggregated approximately $3.3 billion.
Approximately 70% of Penn Traffic's supermarket sales are in smaller communities
where Penn Traffic believes it virtually always holds the number one or number
two market position. The balance of Penn Traffic's sales is in Columbus, Ohio
and Buffalo and Syracuse, New York. Penn Traffic believes it has the leading
market share in each of these communities except Buffalo, New York.
Penn Traffic's retail and wholesale operations stretch from Ohio to upstate New
York. The Company operates in communities with diverse economies based on
manufacturing, natural resources, retailing, health care services, education and
government services. No supermarket company competes against stores
representing more than 20% of Penn Traffic's revenues, with the exception of
Kroger, which competes against Big Bear stores representing approximately 30% of
Penn Traffic's revenues.
In addition, Penn Traffic operates a full-service dairy business in Johnstown,
Pennsylvania under the name "Sani-Dairy" and bakery businesses in Syracuse, New
York and Columbus, Ohio under the names "Penny Curtiss" and "Big Bear Bakeries",
respectively.
Penn Traffic pursues an aggressive capital program that seeks to match store
size and format to local demographics and competitive conditions. During the
five fiscal years ended January 28, 1995, Penn Traffic has opened or remodeled
approximately 70% of its retail supermarket square footage. These larger, more
modern facilities strengthen Penn Traffic's competitive position and enable it
to offer its customers a broader variety of specialty departments, including
pharmacies, bakeries, delicatessens, floral products, greeting cards and other
general merchandise.
Over the next five fiscal years (including the fiscal year ending February 3,
1996), Penn Traffic expects to spend approximately $700 million on capital
expenditures (including capital leases), equivalent to approximately 3.5% to
4.0% of planned retail sales over this period. These expenditures are expected
to be made within or contiguous to Penn Traffic's current marketing areas,
primarily to support Penn Traffic's retail supermarket business. Penn Traffic
believes that it will be able to fund its capital plan through internally
generated funds, borrowings under its revolving credit facility and capital
leases.
-3-
Penn Traffic also expects to derive long-term benefits in operational
performance and cost savings from its continuing investment in and
implementation of technology. Examples of recent in-store projects include
coupon scanning to improve customer service and reduce misredemption, automated
scale management to improve price accuracy and expedite customer checkout, a
direct store delivery system to speed receipt of merchandise and eliminate
payment errors, and satellite transmissions that enable the Company to
communicate more efficiently between the stores and headquarters.
The principal executive offices of Penn Traffic are located at 1200 State Fair
Boulevard, Syracuse, New York 13221-4737. The Company's telephone number is
(315) 453-7284.
-4-
RETAIL FOOD DISTRIBUTION BUSINESS
Penn Traffic is one of the leading supermarket retailers in its primary
operating areas in New York, Pennsylvania and Ohio. Penn Traffic's supermarkets
are primarily located in towns and small cities. In many of these communities,
Penn Traffic operates or licenses one or more of a small number of supermarkets
or the only supermarket in town.
Penn Traffic's store sizes and formats vary widely, depending upon the
demographic and competitive conditions in each location. For example,
"conventional" store formats are generally more appropriate in areas of low
population density, while larger or more affluent areas are better served by
full service supermarkets of up to 65,000 square feet, which contain numerous
specialty service departments such as bakeries, delicatessens, floral
departments and fresh seafood departments. Penn Traffic's "Plus" format has
store sizes ranging from 65,000 to 140,000 square feet. These full service
supermarkets carry an expanded variety of nonfood merchandise.
Penn Traffic's supermarkets offer a broad selection of grocery, meat, poultry,
seafood, dairy, fresh fruit, vegetable and frozen food products. The stores
also offer nonfood products and services such as health and beauty products,
housewares, general merchandise, floral items, video rental departments and
banking services. In general, Penn Traffic's larger stores carry broader
selections of merchandise and feature a larger variety of service departments.
Most of the supermarkets are located in shopping centers.
Penn Traffic believes that its data processing and automated systems are
sophisticated and up-to-date. Approximately 92% of Penn Traffic's stores use
product scanning systems and proprietary software to provide inventory and
shrinkage controls at both delivery and checkout points. Penn Traffic stores
utilize a "Time and Attendance" system where employees use computer-coded badges
which are inserted in a computer scanner at various times during a work shift to
ensure that employees work only during authorized periods. Penn Traffic stores
also use direct store delivery receiving systems to increase security and
accountability for outside vendor product deliveries to retail locations.
-5-
SELECTED STATISTICS ON PENN TRAFFIC'S RETAIL FOOD STORES ARE PRESENTED BELOW.
FISCAL YEAR ENDED
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JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1, FEBRUARY 2,
1995 1994 1993 1992 1991
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Average annual
sales per store $11,941,000 $11,816,000 $11,433,000 $11,420,000 $10,821,000
Total store area
in square feet 9,927,633 8,803,297 7,868,411 6,347,453 5,877,321
Total store
selling area in
square feet 7,140,390 6,333,023 5,684,179 4,561,199 4,199,008
Average total
square feet per
store 37,182 37,945 36,260 33,584 30,933
Average square
feet of selling
area per store 26,743 27,298 26,194 24,133 22,100
Annual sales per
square foot of
selling area $434.09 $442.23 $452.66 $485.39 $512.15
Number of stores:
Remodels/expansions
(over $100,000) 9 39 12 18 9
New stores opened 12 12 10 6 7
Stores acquired 31(1) 19(2) 29(2) 1 4
Stores closed 8 16 11 8 33(3)
Size of stores (total store area):
Up to 19,999
square feet 39 29 33 33 37
20,000 - 29,999
square feet 67 60 63 65 71
30,000 - 44,999
square feet 96 86 73 61 59
45,000 - 60,000
square feet 48 43 36 21 18
Greater than
60,000 square
feet 17 14 12 9 5
Total stores open
at fiscal year end 267 232 217 189 190
<FN>
(1) Includes the addition of 30 of the 45 former Acme stores acquired by the
Company on January 19, 1995 which Penn Traffic expects to operate.
(2) Includes the addition of 12 Insalaco's stores acquired by the Company on
September 27, 1993 and the addition of 23 stores acquired from the Peter J.
Schmitt Co., Inc. ("Schmitt") on January 5, 1993 which the Company
initially operated.
(3) Includes divestiture of 26 P&C New England Division stores. See
"Divestiture of P&C New England Division" on Page 13 of this Form 10-K.
-6-
WHOLESALE FOOD DISTRIBUTION BUSINESS
Penn Traffic licenses the use of its "Riverside Markets," "Bi-Lo Foods" and "Big
M" names to 124 independently owned supermarkets that are required to maintain
certain quality and other standards and 117 independent operators. The majority
of these independent stores use Penn Traffic as their primary wholesaler and
also receive advertising, accounting, merchandising, consulting and retail
counseling services from Penn Traffic. Penn Traffic receives rent from 59 of
the licensed independent operators which lease or sublease the supermarket
buildings and much of the equipment used in the supermarkets from Penn Traffic.
In Fiscal 1995, Penn Traffic's wholesale operations accounted for $434.4 million
or 13.0% of total revenues. The incremental volume provided by wholesale
operations enhances Penn Traffic's purchasing power and enables it to improve
the efficiency of its distribution system.
At January 28, 1995, Penn Traffic had guaranteed obligations of $2.7 million of
indebtedness of certain of such licensed independent operators. Riverside
receives an initial fee but no annual fee for the license of its Riverside
Markets and Bi-Lo Foods names. P&C receives neither an initial fee nor an
annual fee for the use of the Big M name.
FOOD PROCESSING OPERATIONS
Sani-Dairy owns and operates a dairy processing plant in Johnstown,
Pennsylvania, which is one of the largest dairies in Pennsylvania. This plant
produces over 900 dairy and dairy-related products which are distributed
directly from the plant or through two Penn Traffic-owned distribution
facilities in Pennsylvania and one distribution facility in northwestern
Maryland. The Sani-Dairy Division sells its products to certain Penn Traffic-
owned and licensed supermarkets and to other retail outlets located in
Pennsylvania and adjoining states.
Penn Traffic owns and operates Penny Curtiss Bakery, a bakery processing plant
in Syracuse, New York. This operation primarily supplies P&C's stores and its
affiliated accounts with private label fresh and frozen bakery products. In
addition, Riverside and Quality Markets procure certain fresh and frozen bakery
products from Penny Curtiss.
Penn Traffic also owns and operates Big Bear Bakeries, a bakery in Columbus,
Ohio. This operation primarily supplies Big Bear stores with private label
fresh and frozen bakery products.
-7-
MASS MERCHANDISING BUSINESS
Fourteen of the fifteen Harts stores are located in central and southern Ohio,
and one is located in northern West Virginia. Harts discount general
merchandise stores (other than two small variety stores) range in size from
approximately 39,000 square feet to approximately 86,000 square feet. The
average store (excluding the variety stores) has approximately 66,000 square
feet.
Harts stores sell a wide variety of products, including health and beauty care
items, hardware, housewares, sporting goods, electronics and apparel. Eleven of
the Harts stores have pharmacies. The lines of products carried by each store
vary to some extent to meet different patterns of local demand.
The profitability of the Company's general merchandise operations is much more
sensitive to the Ohio economy than its supermarket operations and can be
expected to be adversely impacted by a decline in economic conditions.
PURCHASING AND DISTRIBUTION
Penn Traffic is a large volume purchaser of products. Penn Traffic's purchases
are of sufficient volume to qualify for minimum price brackets for most items.
Penn Traffic purchases brand name grocery merchandise directly from national
manufacturers. The Company purchases private label and generic items from TOPCO
Associates, Inc., a national purchasing cooperative comprising 46 regional
supermarket chains. In Fiscal 1995, purchases from TOPCO Associates accounted
for approximately 14% of product purchases.
Penn Traffic's principal Pennsylvania distribution facility is a Company-owned
390,000-square foot distribution center in DuBois, Pennsylvania. Penn Traffic
also operates a 196,000-square foot distribution center for perishable products
in DuBois, Pennsylvania. In addition, Penn Traffic leases a 70,000-square foot
warehouse in New Bethlehem, Pennsylvania, which Penn Traffic uses to supplement
its forward buy program, under which Penn Traffic purchases and stores for later
sale certain products which from time to time are available for purchase at
reduced prices. Penn Traffic also leases a 37,000-square foot warehouse in
Punxsutawney, Pennsylvania, which houses certain store supplies and aerosol
products and a 44,000-square foot warehouse in DuBois, Pennsylvania, which
houses high-bulk grocery products.
The principal New York distribution facility is a highly automated, Company-
owned 498,000-square foot distribution center in Syracuse, New York. The
Company also owns a 217,000-square foot distribution center for perishable
products in Syracuse, New York. Penn Traffic also owns a 267,000-square foot
distribution center in Jamestown, New York. In Fiscal 1995, the Company leased
a 12,000-square foot perishable floral warehouse in Jamestown, New York.
The primary Ohio distribution center is a leased 484,000-square foot dry grocery
facility in Columbus, Ohio. Penn Traffic also owns a 208,000-square foot
distribution facility for perishable goods in Columbus, Ohio. Big Bear also
leases two general merchandise warehouses comprising 399,000 square feet in
Columbus, Ohio.
-8-
In September 1993, Penn Traffic entered into a program to consolidate the
purchasing and distribution of health and beauty care products and general
merchandise with The Grand Union Company ("Grand Union"). Under this program,
Grand Union procures health and beauty care products for both Grand Union and
Penn Traffic, and Penn Traffic, through its Big Bear division, procures general
merchandise for both Penn Traffic and Grand Union. Grand Union's general
merchandise warehouse in Montgomery, New York is used to distribute general
merchandise and health and beauty care products to Insalaco's, P&C, Quality
Markets and Riverside stores. This warehouse also supplies the majority of Penn
Traffic's wholesale customers, as well as Grand Union stores. Under the
arrangement, the cost of operating the Montgomery warehouse is shared by Penn
Traffic in an amount proportionate to Penn Traffic's usage of the facility. Penn
Traffic owns the general merchandise and health and beauty care products
inventory located at the Montgomery, New York warehouse. In January 1995, Grand
Union filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code with the United States Bankruptcy Court, District
of Delaware. The Company's ongoing relationships with Grand Union are being
reevaluated in connection with the pending Grand Union bankruptcy proceedings.
No determination has yet been made as to whether, or on what basis, the
Company's and Grand Union's arrangement with regard to consolidated purchasing
and distribution of health and beauty care products and of general merchandise
will be continued.
Approximately 80% of the merchandise offered in Penn Traffic's retail stores is
distributed from its warehouses by its fleet of 332 tractors, 397 refrigerated
trailers and 554 dry trailers. Merchandise not delivered from Penn Traffic's
warehouses or from the Grand Union general merchandise warehouse in Montgomery,
New York, as described above, is delivered directly to the stores by
distributors, vendor drivers and salesmen for such products as beverages, snack
foods and bakery items.
COMPETITION
The food retailing business is highly competitive and may be affected by general
economic conditions. The number of competitors and the degree of competition
experienced by Penn Traffic's supermarkets vary by location. Penn Traffic
competes with several regional and local supermarket chains, convenience stores,
stores owned and operated and otherwise affiliated with large food wholesalers,
unaffiliated independent food stores, warehouse clubs, discount drug store
chains and discount general merchandise chains. No other supermarket company
competes against Penn Traffic stores representing more than 20% of Penn
Traffic's revenues, with the exception of Kroger, which competes against Big
Bear stores, representing approximately 30% of Penn Traffic's revenues.
-9-
EMPLOYEES
Labor costs and their impact on product prices are important competitive factors
in the supermarket industry. At January 28, 1995, Penn Traffic had 26,700
hourly employees and 1,800 salaried employees.
Approximately 51% of Penn Traffic's hourly employees belong to the United Food
and Commercial Workers union. An additional 7% of Penn Traffic's hourly
employees (principally involved in the distribution function and the Company's
dairy and bakery plants) belong to six other unions. The Company competes with
certain independently owned and chain-owned supermarkets, discount drug stores,
warehouse clubs and general merchandise stores, whose employees are not union
affiliated.
Penn Traffic believes its relationships with its employees are good.
GOVERNMENT REGULATION
The United States Department of Agriculture and the Pennsylvania Milk Marketing
Board each regulate and inspect all aspects of fluid milk and dairy product
production, enforcing strict standards of sanitation, product composition,
packaging and labelling, as well as regulating milk and dairy product pricing.
All dairy goods producers and distributors must comply with substantially
similar standards, and compliance by Penn Traffic with these standards has not
had and is not expected to have a significant effect on its earnings or
competitive position.
SEASONALITY, CUSTOMERS AND SUPPLIERS
The supermarket business of Penn Traffic is generally not seasonal in nature.
During the past three fiscal years, no single customer or group of customers
under common control accounted for 10% or more of Penn Traffic's consolidated
revenues. Groceries, general merchandise and raw materials are available from
many different sources. During the past three fiscal years, no single supplier
accounted for 10% or more of Penn Traffic's cost of sales except TOPCO
Associates, Inc. which accounted for approximately 14% of product purchases in
the fiscal year ended January 28, 1995.
-10-
HISTORY
Penn Traffic is the successor to a retail business which can be traced to 1854.
Penn Traffic, a then-publicly held corporation, was acquired in March 1987 by
Riverside Acquisition Company, Limited Partnership ("RAC"), a Delaware limited
partnership and an affiliate of Miller Tabak Hirsch + Co. ("MTH"). At the time
of the acquisition, Penn Traffic was the largest retail and wholesale food
distribution company in its principal operating area, comprising 19 counties in
central and northwestern Pennsylvania and southwestern New York. In 1988, Penn
Traffic again became a publicly held corporation and stated that it intended to
acquire retail and wholesale food distribution companies contiguous to its
operating area.
In August 1988, Penn Traffic acquired P&C Food Markets, Inc. ("P&C") which
operates in a contiguous market to the east of Penn Traffic's historical
marketplace. In October 1991, P&C became a wholly owned subsidiary of the
Company, and in April 1993, P&C was merged into the Company. P&C currently
operates as a division of the Company. P&C is headquartered in Syracuse, New
York and operates 68 "P&C" retail supermarkets, franchises 66 "Big M" stores and
provides wholesaling services to 85 independent supermarkets.
In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big Bear"), a
leading food retailer in Columbus and eastern Ohio, which is to the west of Penn
Traffic's traditional market area. In April 1993, Big Bear was merged into the
Company. Big Bear currently operates as a division of the Company. Big Bear is
headquartered in Columbus, Ohio and operates 77 retail supermarkets under the
names "Big Bear" and "Big Bear Plus," as well as 15 discount department stores
under the "Harts" name.
In January 1993, Penn Traffic acquired 28 supermarkets located in western New
York and northwestern Pennsylvania from Schmitt. Eighteen of the stores are
currently being operated by Penn Traffic and one store has been converted to a
franchise store.
In September 1993, Penn Traffic acquired the operating assets of Insalaco
Supermarkets, Inc. ("Insalaco"), which consisted of 12 supermarkets with a total
square footage of approximately 400,000. Two new stores totalling approximately
90,000 square feet have been opened subsequent to the original acquisition.
On January 19, 1995, Penn Traffic acquired 45 supermarkets owned by American
Stores Company which had operated under the Acme trade name. Forty-one of the
acquired stores are located in north central and northeastern Pennsylvania and
four are located in south central New York state. Fifteen of these acquired
stores have been or will be closed or divested in Fiscal 1996. The Company is
operating the remaining 30 stores under the Insalaco's, Bi-Lo Foods and P&C
tradenames.
-11-
INVESTMENT IN GRAND UNION
Until March 1995, Penn Traffic held an indirect ownership interest in the common
stock of Grand Union Holdings Corporation ("Grand Union Holdings"), the indirect
corporate parent of Grand Union. Grand Union is engaged in the food retailing
business. Penn Traffic's ownership interest in Grand Union Holdings was
acquired in July 1989 (Fiscal 1990) and was held through a limited partnership
interest in Grand Acquisition Company, L.P. ("GAC, L.P."). As of January 28,
1995, Penn Traffic's indirect ownership interest was 17.8% on a fully diluted
basis.
On January 25, 1995, Grand Union filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court, District of Delaware (the "Bankruptcy Court"). On
February 16, 1995, Grand Union Holdings filed a voluntary Chapter 11 petition
with the Bankruptcy Court. As a result of these bankruptcy proceedings, Penn
Traffic's equity interest in Grand Union Holdings became worthless, and on
March 24, 1995, Penn Traffic's limited partnership interest in GAC, L.P. was
redeemed for nominal consideration.
The Company accounted for its investment in Grand Union under the equity method.
At the time the investment was made in July 1989, it was recorded at a cost of
$18.3 million. As of February 2, 1991, Penn Traffic had recorded losses which
reduced the carrying value of its investment to zero.
As described elsewhere in this Form 10-K, certain of the Company's ongoing
relationships with Grand Union are being reevaluated in connection with the
pending Grand Union bankruptcy proceedings. No determination has yet been made
as to whether, or on what basis, these relationships will be continued.
Grand Union Holdings is subject to the information requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Copies of such materials may be inspected and copied at any of
the offices of the Commission.
-12-
DIVESTITURE OF P&C NEW ENGLAND DIVISION
At the time of the acquisition of Grand Union by Grand Union Holdings in July
1989, Grand Union and P&C (then a subsidiary, and now a division of Penn
Traffic), operated stores in some of the same geographic areas in Vermont and
upstate New York. In connection with the acquisition, agreements were entered
into with federal and state antitrust authorities which required the divestiture
of 16 Grand Union stores or P&C stores. The divestitures required by these
agreements were completed in July 1990. P&C operated thirteen of the sixteen
divested stores and Grand Union operated three. In connection with the
divestiture program, P&C discontinued its New England wholesaling business.
In a related transaction, in July 1990, P&C and Grand Union entered into an
operating agreement (the "Operating Agreement") whereby Grand Union acquired the
right to operate P&C's 13 remaining stores in New England under the Grand Union
name until July 2000. Pursuant to the Operating Agreement, Grand Union agreed
to pay Penn Traffic (as the successor to P&C, which was merged into the Company
in April 1993) a minimum annual fee averaging $10.7 million per year during the
ten-year term and, beginning with the year commencing July 31, 1992, to pay Penn
Traffic additional contingent fees of up to $700,000 per year based upon sales
performance of the stores operated by Grand Union. Penn Traffic received
payment of the maximum contingent fee of $700,000 for the year ended July 30,
1994 and, based upon current sales levels, Penn Traffic expects to receive
payment of the maximum contingent fee of $700,000 in the year ending July 30,
1995 and in each year remaining in the term of the Operating Agreement. Under
the terms of the Operating Agreement, the recapitalization of Grand Union in
July 1992 triggered a $15 million prepayment of the operating fee. This
prepayment reduced the future payments that Grand Union will make to Penn
Traffic pursuant to the terms of the Operating Agreement by approximately $3.2
million per year.
At the expiration of the ten-year term of the Operating Agreement, Grand Union
has the right to extend the term of the Operating Agreement for an additional
five years. In the event of such extension of the lease term, Grand Union will
pay to Penn Traffic an annual fee of $13.6 million in the first year of the
extended term, $14.0 million in the second year, $14.4 million in the third
year, $14.9 million in the fourth year and $15.3 million in the fifth year, plus
contingent fees based upon the sales performance of the stores of up to $700,000
in each year.
Penn Traffic also granted Grand Union an option (the "Purchase Option") to
purchase the stores operated by Grand Union under the Operating Agreement.
Grand Union paid Penn Traffic $7.5 million for the Purchase Option, which
provides that (i) prior to July 30, 1998, Grand Union may purchase the stores
operated under the Operating Agreement from Penn Traffic for a purchase price
equal to $95 million and (ii) from July 30, 1998 and until the expiration of the
term (or the extended term) of the Operating Agreement, Grand Union may purchase
the stores operated under the Operating Agreement from Penn Traffic for a
purchase price equal to the greater of $55 million or the amount produced under
a formula based upon the stores' cash flow, provided that the purchase price
shall not exceed $95 million.
-13-
If Grand Union does not extend the initial term of the Operating Agreement at
its expiration in July 2000 or does not exercise the Purchase Option prior to
the expiration of the term (or the extended term), or in the event of a default
by Grand Union in the performance of its obligations pursuant to the Operating
Agreement, the stores operated by Grand Union pursuant to the Operating
Agreement will be returned to operation by Penn Traffic. Based on current
conditions, management does not believe that the return of operation of the
stores to Penn Traffic would have a significant impact on the financial
condition of the Company.
-14-
ITEM 2. PROPERTIES
Penn Traffic follows the general industry practice of leasing the majority of
its retail supermarket locations. Penn Traffic presently owns 36 supermarkets
and leases 231 supermarkets. The owned supermarkets range in size from 4,300 to
123,000 square feet. The leased supermarkets range in size from 8,000 to
140,000 square feet and are held under leases expiring from 1995 to 2014,
excluding option periods. Penn Traffic also owns two supermarkets and leases 59
supermarkets which are leased or subleased to independent operators.
Penn Traffic owns a five-story building located in Johnstown, Pennsylvania,
which housed the Company's headquarters prior to relocation of the Company's
headquarters to Syracuse, New York in July 1993. The building is leased to
other tenants.
Penn Traffic also owns nine shopping centers, eight of which contain one of the
Company-owned or licensed supermarkets. Penn Traffic also operates major
distribution centers in DuBois, Pennsylvania; Syracuse and Jamestown, New York;
and Columbus, Ohio; a dairy plant in Johnstown, Pennsylvania; and bakery plants
in Syracuse, New York and Columbus, Ohio. Penn Traffic also owns a fleet of
trucks and trailers and other miscellaneous real estate and equipment used in
the operation of its businesses.
Penn Traffic believes that all of its properties, fixtures and equipment are
well maintained and in good condition.
ITEM 3. LEGAL PROCEEDINGS
Penn Traffic and its subsidiaries are involved in various legal actions, some of
which involve claims for substantial sums. However, any ultimate liability with
respect to these contingencies is not considered by management to be material in
relation to the consolidated financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of Fiscal 1995.
-15-
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT
Certain information regarding the executive officers of Penn Traffic is set
forth as follows:
Name Age Position with Penn Traffic
- -------------------------- --- -----------------------------------
Gary D. Hirsch 45 Chairman and Director
Martin A. Fox 41 Director, Vice Chairman - Finance
and Assistant Secretary
John T. Dixon 55 Director, President and Chief
Executive Officer
Roy E. Flood 54 Senior Vice President; President
of P&C Foods Division
Raymond J. Heath 56 Senior Vice President; President
of Riverside Markets Division
John E. Josephson 47 Senior Vice President; President
of Big Bear Division
Eugene R. Sunderhaft 47 Senior Vice President - Finance
and Secretary
(Chief Financial Officer)
David A. Adamsen 43 Vice President - Manufacturing
Ronald E. Flowers 56 Vice President - Nonfood
Merchandising
Glenn L. Goldberg 43 Vice President and Assistant
Secretary
Francis D. Price, Jr. 45 Vice President, General Counsel
and Assistant Secretary
Randall J. Sweeney 43 Vice President and General
Manager - Quality Markets
Division
Joseph S. Zoldi 50 Vice President and General
Manager - Insalaco's Division
William G. Berryman 51 Vice President and Chief
Information Officer
Each of the executive officers is a citizen of the United States.
-16-
Mr. Hirsch has been a Director and Chairman of Penn Traffic since 1987. Mr.
Hirsch has been a general partner and the managing partner of MTH
(broker-dealer) since March 1982 and a Managing Director of MTH Holdings, Inc.
("MTH Holdings") since November 1983. He is Chairman, President and a Director
of RAC Partners, Inc. ("RAC Partners"), the sole general partner of Riverside
Acquisition Company, Limited Partnership ("RAC"). Mr. Hirsch has been Chairman
and a Director of Grand Union Holdings (food distribution holding company) since
July 1989. Mr. Hirsch became Chairman and a Director of Grand Union Capital
Corporation ("Grand Union Capital") in May 1992 and Chairman and a Director of
Grand Union in July 1992.
Mr. Fox has been Director and Vice Chairman - Finance since February 1993. From
1989 until February 1993, Mr. Fox was a Vice President of the Company. Mr. Fox
has been Assistant Secretary of Penn Traffic since 1989. Mr. Fox has been
Executive Vice President of MTH since 1988. Mr. Fox became a Director, Vice
President and Secretary of Grand Union Capital in May 1992 and Treasurer of
Grand Union Capital in May 1993. Mr. Fox became Vice President and Assistant
Secretary and a Director of Grand Union and Vice President and Secretary and a
Director of Grand Union Holdings in July 1992 and Treasurer of Grand Union
Holdings in May 1993.
Mr. Dixon has been a Director since December 1994 and President and Chief
Executive Officer of Penn Traffic since January 29, 1995. Mr. Dixon was a Vice
President of Penn Traffic and the President of P&C from 1993 until January 1995.
He served as President of Quality Markets, Inc. from January 1992 until August
1993 and had served in various other positions at Big Bear since 1957.
Mr. Flood was appointed Senior Vice President of Penn Traffic and President of
the P&C division effective January 29, 1995. Mr. Flood was Executive Vice
President of Merchandising for Big Bear from 1990 until January 1995. He was
Vice President of Sales and Merchandising of P&C from 1986 to 1990 and served in
various other positions at P&C from 1977 to 1986.
Mr. Heath was appointed Senior Vice President of Penn Traffic effective January
29, 1995. Mr. Heath was a Vice President of Penn Traffic since 1979 and has
been President of the Riverside division since 1979. He had held the position
of Executive Vice President and Assistant General Manager since 1976 and has
served in various other positions in the Riverside division since 1967.
Mr. Josephson was appointed Senior Vice President of Penn Traffic effective
January 29, 1995. Mr. Josephson was a Vice President of Penn Traffic since 1989
and has been President of Big Bear since 1989. Prior to his appointment as
President of Big Bear, Mr. Josephson was Senior Vice President, Finance and
Treasurer of P&C from 1986 to 1989. Mr. Josephson was Vice President, Finance
and Treasurer of P&C from 1983 until 1986.
Mr. Sunderhaft was appointed Senior Vice President - Finance of Penn Traffic
effective January 29, 1995. Mr. Sunderhaft had been Vice President - Finance
since May 1993, and has been Chief Financial Officer and Secretary of Penn
Traffic since May 1993. Mr. Sunderhaft was Treasurer of Penn Traffic from May
1993 until April 1995. He has been employed by P&C since 1972 and he became
Vice President - Finance and Chief Financial Officer of P&C in 1989.
-17-
Mr. Adamsen was appointed Vice President of Manufacturing of Penn Traffic
effective September 13, 1994. Mr. Adamsen has been President of Penny Curtiss
Baking Company since 1986. He has been employed by P&C since 1974 serving in
various positions at Penny Curtiss Baking Company including Vice
President/General Manager and Vice President of Sales and Marketing.
Mr. Flowers was appointed Vice President of Nonfood Merchandising of Penn
Traffic on February 10, 1995. Mr. Flowers was Vice President of Nonfood
Merchandising for Big Bear from 1993 until February 1995 and has served in
various other positions at Big Bear since 1955.
Mr. Goldberg has been a Vice President and Assistant Secretary of Penn Traffic
since 1989. Mr. Goldberg has been Executive Vice President of MTH since 1988,
and was Senior Vice President of MTH from 1982 to 1988. Mr. Goldberg became a
Vice President, Assistant Secretary and Assistant Treasurer of each of Grand
Union Capital and Grand Union Holdings in July 1992.
Mr. Price has been Vice President and General Counsel and Assistant Secretary of
Penn Traffic since February 1993. He was Vice President and General Counsel of
P&C from 1985 until the merger of P&C into the Company in April 1993 and
Secretary of P&C from 1991 until the merger of P&C into the Company in April
1993. Mr. Price has been employed by P&C since 1978.
Mr. Sweeney was appointed a Vice President of Penn Traffic effective January 29,
1995. Mr. Sweeney has been General Manager of the Quality Markets division
since 1993 and has served in various other positions at Quality since 1974.
Mr. Zoldi was appointed a Vice President of Penn Traffic effective January 29,
1995. Mr. Zoldi has been General Manager of the Insalaco's division since 1993.
Mr. Zoldi has been employed by Insalaco's since 1974.
Mr. Berryman was appointed Vice President and Chief Information Officer of Penn
Traffic effective April 10, 1995. Prior to joining the Company, Mr. Berryman
served as a consultant for Technology Solutions Company from 1994 until April
1995. Mr. Berryman was Vice President of Management Information Services for
Dominick's Finer Foods, Inc. from 1989 until 1994.
On January 25, 1995, Grand Union filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court.
On February 6, 1995, an involuntary Chapter 11 petition was filed in the
Bankruptcy Court against Grand Union Capital. On February 16, 1995, Grand Union
Capital commenced a voluntary Chapter 11 case in the Bankruptcy Court by
consenting to the entry of an order for relief on the involuntary Chapter 11
petition. Also on February 15, 1995, Grand Union Holdings filed a voluntary
Chapter 11 petition in the Bankruptcy Court. Messrs. Hirsch and Fox are
directors and executive officers of Grand Union, Grand Union Capital and Grand
Union Holdings and Mr. Goldberg is an executive officer of Grand Union Capital
and Grand Union Holdings. Messrs. Hirsch, Fox and Goldberg have indicated that
they intend to resign from all positions which any of them hold with Grand
Union, Grand Union Capital and Grand Union Holdings, such resignation to be
effective no later than the date of completion of the pending Bankruptcy Court
proceedings.
There are no family relationships between executive officers of Penn Traffic.
The term of office of executive officers is for a one-year period beginning on
the date of the annual meeting, which is normally held in June of each year.
-18-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Penn Traffic's common stock is listed on the New York Stock Exchange and was
held by approximately 286 shareholders of record on January 28, 1995.
Common stock information is provided on Page 20 of this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The comparative summary of selected financial data of Penn Traffic for the five
years ended January 28, 1995 appears on Pages 21 and 22 of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on Pages 23 through 29 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Accountants 30
Consolidated Financial Statements:
Statement of Operations for each of the three fiscal
years ended January 28, 1995 31
Balance Sheet as of January 28, 1995 and January 29, 1994 32
Statement of Shareholders' Equity for each of the three
fiscal years ended January 28, 1995 34
Statement of Cash Flows for each of the three fiscal
years ended January 28, 1995 35
Notes to Consolidated Financial Statements 37
Financial Statement Schedule for the three years ended
January 28, 1995:
Schedule VIII - Valuation and Qualifying Accounts 65
-19-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized below are quarterly financial data for the fiscal years ended January
28, 1995 and January 29, 1994.
Fiscal 1995 Fiscal 1994
------------------------------------------------- -----------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands of dollars, except per share data)
Total revenues . . . . . . . $809,961 $835,767 $828,064 $859,433 $762,040 $780,996 $783,253 $845,311
Gross margin . . . . . . . . $178,503 $192,837 $188,125 $203,052 $168,283 $172,102 $173,008 $193,354
Net income (loss)
before extraordinary
item and cumulative effect
of change in accounting
principle . . . . . . . . . $ 2,256 $ 6,868 $ 4,777 $ 8,124 $ 419 $ 634 $ (503) $ 7,626
Extraordinary item . . . . . (2,276) (691) (58) (17,602) (4,477) (1,091) (2,673)
Cumulative effect of change
in accounting principle . . (5,790)
Net (loss) income. . . . . . (5,810) 6,177 4,719 8,124 (17,183) (3,843) (1,594) 4,953
Preferred dividends. . . . . (159)
Net (loss) income
applicable to common
stock . . . . . . . . . . . $ (5,810) $ 6,177 $ 4,719 $ 8,124 $(17,342) $ (3,843) $ (1,594) $ 4,953
Per share data:
Income (loss)
before extraordinary
item and cumulative effect
of change in accounting
principle. . . . . . . . . $ 0.20 $ 0.62 $ 0.43 $ 0.73 $ 0.03 $ 0.06 $ (0.04) $ 0.68
Extraordinary item. . . . . (0.20) (0.07) (0.01) (2.03) (0.41) (0.10) (0.24)
Cumulative effect of change
in accounting principle. . (0.52)
Net (loss) income . . . . . $ (0.52) $ 0.55 $ 0.42 $ 0.73 $ (2.00) $ (0.35) $ (0.14) $ 0.44
Dividends per preferred
share:
Big Bear. . . . . . . . . $ 0.46
Market value per common
share:
High. . . . . . . . . . . $ 44 5/8 $ 41 $ 43 1/2 $ 41 1/4 $ 42 7/8 $ 45 1/2 $ 45 3/4 $ 39 1/8
Low . . . . . . . . . . . $ 37 1/2 $ 34 3/8 $ 35 1/4 $ 36 $ 34 $ 38 1/4 $ 36 3/8 $ 34 7/8
Other data:
Depreciation and
amortization . . . . . . . $ 21,706 $ 21,539 $ 21,887 $ 22,679 $ 19,871 $ 20,366 $ 20,894 $ 21,738
LIFO provision . . . . . . $ 25 $ 425 $ 2,342 $ 560 $ 430 $ 100 $ (987)
SUPPLEMENTAL QUARTERLY EBITDA INFORMATION (UNAUDITED)
Fiscal 1995 Fiscal 1994
------------------------------------------------- -----------------------------------------------
(In thousands of dollars) 1st 2nd 3rd 4th 1st 2nd 3rd 4th
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands of dollars, except per share data)
EBITDA . . . . . . . . . . . $ 55,122 $ 64,362 $ 58,158 $ 68,696 $ 51,990 $ 57,673 $ 53,769 $ 66,558
EBITDA as a percentage of
revenues . . . . . . . . . 6.8% 7.7% 7.0% 8.0% 6.8% 7.4% 6.9% 7.9%
-20-
CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY
Set forth below are the selected historical consolidated financial data of Penn
Traffic for the five fiscal years ended January 28, 1995. Due to the
adoption of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"), at the beginning of the
fiscal year ended January 28, 1995 and the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
retroactive to the beginning of the fiscal year ended February 1, 1992,
comparisons of the consolidated financial results among years are not
necessarily meaningful.
The selected historical consolidated financial data for the five fiscal years
ended January 28, 1995 are derived from the consolidated financial statements of
Penn Traffic which have been audited by Price Waterhouse LLP, independent
accountants. The selected historical consolidated financial data should be read
in conjunction with the Penn Traffic consolidated financial statements and
related notes included elsewhere herein.
STATEMENT OF OPERATIONS As of and for the Fiscal Year Ended
(In thousands of dollars, January 28, January 29, January 30, February 1, February 2,
except per share data) 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
Total revenues. . . . . . . $3,333,225 $3,171,600 $2,832,949 $2,772,104 $2,803,781
Cost of sales . . . . . . . 2,570,708 2,464,853 2,230,493 2,195,773 2,253,619
Selling and administrative
expenses. . . . . . . . . 606,782 559,729 475,839 460,684 444,280
Unusual item. . . . . . . . 6,400
---------- ---------- ---------- ---------- ----------
Operating income. . . . . . 155,735 140,618 126,617 115,647 105,882
Interest expense. . . . . . 117,859 117,423 115,814 116,782 117,300
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes, equity in net loss
of affiliated company,
extraordinary item and
cumulative effect of
change in accounting
principle . . . . . . . . 37,876 23,195 10,803 (1,135) (11,418)
Provision for
income taxes (1). . . . . 15,851 15,019 6,812 4,217 2,427
---------- ---------- ---------- ---------- ----------
Income (loss) before
equity in net loss of
affiliated company,
extraordinary item and
cumulative effect of
change in accounting
principle . . . . . . . . 22,025 8,176 3,991 (5,352) (13,845)
Equity in net loss of Grand
Union(2). . . . . . . . . (10,334)
---------- ---------- ---------- ---------- ----------
Income (loss) before extra-
ordinary item and
cumulative effect of
change in accounting
principle . . . . . . . . 22,025 8,176 3,991 (5,352) (24,179)
Extraordinary item (net of
tax benefit)(3) . . . . . (3,025) (25,843) (10,823) (3,718)
---------- ---------- ---------- ---------- ----------
Net income (loss)
before cumulative effect
of change in accounting
principle . . . . . . . . 19,000 (17,667) (6,832) (9,070) (24,179)
Cumulative effect of
change in accounting
principle (1) and (4) . . (5,790) (58,330)
---------- ---------- ---------- ---------- ----------
Net income (loss) . . . . . 13,210 (17,667) (6,832) (67,400) (24,179)
Preferred dividends . . . . (159) (968) (2,768) (3,286)
---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to
common stock. . . . . . . $ 13,210 $ (17,826) $ (7,800) $ (70,168) $ (27,465)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
-21-
PER SHARE DATA:
Income (loss) before extra-
ordinary item and cumulative
effect of change in
accounting principle
(after preferred
dividends)(5). . . . . . . $ 1.97 $ 0.76 $ 0.37 $ (1.19) $ (4.94)
Extraordinary item. . . . . (0.27) (2.45) (1.31) (0.54)
Cumulative effect of change
in accounting
principle. . . . . . . . . (0.52) (8.52)
---------- ---------- ---------- ---------- ----------
Net income (loss) (5) . . . $ 1.18 $ (1.69) $ (0.94) $ (10.25) $ (4.94)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
No dividends on common stock have been paid during the past five fiscal years.
BALANCE SHEET DATA:
Total assets. . . . . . . . $1,793,966 $1,632,901 $1,417,230 $1,291,691 $1,165,202
Total funded
indebtedness . . . . . . . 1,277,276 1,166,025 1,005,136 912,070 884,996
Redeemable preferred
stock. . . . . . . . . . . 11,477 13,846 41,080
Shareholders' equity. . . . 32,927 14,982 (40,488) (31,459) (20,369)
OTHER DATA:
Depreciation and
amortization . . . . . . . 87,811 82,869 72,787 68,581 61,307
LIFO provision. . . . . . . 2,792 103 479 1,617 3,109
Capital expenditures,
including capital
leases and acquisitions. . 202,359 182,700 148,650 82,061 74,750
<FN>
(1) The historical consolidated financial data for fiscal years 1995,
1994, 1993 and 1992 includes a provision for income taxes computed in
accordance with SFAS 109. The provision for income taxes for fiscal
year 1991 was computed in accordance with APB 11.
(2) Until March 1995, Penn Traffic had a minority interest investment in
Grand Union, which was accounted for under the equity method. As of
February 2, 1991, Penn Traffic had recorded losses that reduced the
carrying value of its investment to zero.
(3) The extraordinary item (net of income tax benefits) resulted from the
early retirement of debt.
(4) Effective January 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires employers to
recognize the obligation to provide postemployment benefits on an
accrual basis if certain conditions are met. The cumulative effect of
the change in accounting principle determined as of January 30, 1994,
reduced net income $5.8 million, net of a $4.1 million income tax
benefit, for the fifty-two week period ended January 28, 1995.
(5) Net income (loss) per share of common stock is based on the average
number of shares of common stock and equivalents outstanding during
each period. Fully diluted net income per share is not presented
since the reduction from primary net income per share is less than
three percent for each period presented.
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 28, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR
ENDED JANUARY 29, 1994 ("FISCAL 1994")
The following table sets forth Statement of Operations components expressed
as percentages of total revenues for Fiscal 1995 and Fiscal 1994:
PERCENTAGE OF TOTAL REVENUES
FISCAL YEAR ENDED
----------------------------
1995 1994
------ ------
Total revenues 100.0% 100.0%
Gross profit (1) 22.9 22.3
Selling and administrative
expenses 18.2 17.7
Unusual item 0.2
Operating income 4.7 4.4
Interest expense 3.6 3.7
Income before income taxes,
extraordinary item and cumulative
effect of change in accounting
principle 1.1 0.7
<FN>
(1) Total revenues less cost of goods sold.
Total revenues for Fiscal 1995 increased 5.0% to $3.33 billion from $3.17
billion in Fiscal 1994. Sales from retail supermarkets existing in both years,
"same store sales," increased 0.9% in Fiscal 1995. The increase in total
revenues is primarily the result of the increase in retail supermarket sales
from the acquisition of the Insalaco's stores in September 1993, the increase in
same store sales, and revenues from incremental stores that the Company has
recently opened. Wholesale supermarket sales decreased in Fiscal 1995 to $434.4
million from Fiscal 1994 sales of $453.4 million.
In Fiscal 1995, gross profit as a percentage of total revenues increased to
22.9% from 22.3% in Fiscal 1994. The increase in gross profit as a percentage
of total revenues primarily resulted from a combination of reduced product
procurement costs and the relative increase in retail revenues compared to
wholesale revenues.
Selling and administrative expenses as a percentage of total revenues
increased to 18.2% for Fiscal 1995 from 17.7% in Fiscal 1994. The increase in
selling and administrative expenses as a percentage of total revenues primarily
resulted from the relative increase in retail revenues compared to wholesale
revenues and increases in fixed and semi-variable expenses as a percentage of
total revenues during a period with low food price inflation and continued
consumer preferences towards lower-priced products.
-23-
During the second quarter of Fiscal 1994, the Company recorded certain
expenses totalling $6.4 million classified as an unusual item. This unusual
item was comprised of $4.0 million related to a voluntary employee separation
program at the Company's P&C division and $2.4 million related to the
realignment of certain operations.
Depreciation and amortization of $87.8 million in Fiscal 1995 and $82.9
million in Fiscal 1994 represented 2.6% of total revenues in both years.
Operating income for Fiscal 1995 was $155.7 million or 4.7% of total
revenues compared to $140.6 million or 4.4% of total revenues in Fiscal 1994.
Excluding the effect of the unusual item, operating income for Fiscal 1994 was
$147.0 million or 4.6% of total revenues.
Interest expense for Fiscal 1995 and Fiscal 1994 was $117.9 million and
$117.4 million, respectively.
Income before income taxes, extraordinary item and the cumulative effect of
change in accounting principle was $37.9 million for Fiscal 1995 compared to
$23.2 million for Fiscal 1994.
The income tax provision for Fiscal 1995 was $15.9 million compared to
$15.0 million in Fiscal 1994. The Fiscal 1995 income tax provision includes a
$1.0 million decrease in income tax expense and the Fiscal 1994 income tax
provision includes a $2.4 million charge. These adjustments are the result of
changes in the statutory tax rates applicable to deferred taxes in accordance
with the requirements of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). The effective tax rates vary from
the statutory rates due to differences between income for financial reporting
and tax reporting purposes that primarily result from the amortization of
goodwill (Note 4).
The extraordinary item for Fiscal 1995 was a $3.0 million charge (net of
$2.0 million income tax benefit) compared to a $25.8 million charge (net of
$17.8 million income tax benefit) in Fiscal 1994. These extraordinary items
relate to the early retirement of debt.
During the first quarter of Fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). The cumulative effect of this change in
accounting principle was a charge of $5.8 million (net of $4.1 million income
tax benefit) (Note 3). This accounting change did not have a material impact
on Fiscal 1995 results.
-24-
FISCAL YEAR ENDED JANUARY 29, 1994 ("FISCAL 1994") COMPARED TO FISCAL YEAR
ENDED JANUARY 30, 1993 ("FISCAL 1993")
The following table sets forth Statement of Operations components expressed
as percentages of total revenues for Fiscal 1994 and Fiscal 1993:
PERCENTAGE OF TOTAL REVENUES
FISCAL YEAR ENDED
----------------------------
1994 1993
------ ------
Total revenues. . . . . . . . . . . . . . 100.0% 100.0%
Gross profit (1). . . . . . . . . . . . . 22.3 21.3
Selling and administrative
expenses. . . . . . . . . . . . . . . . 17.7 16.8
Unusual item. . . . . . . . . . . . . . . 0.2
Operating income. . . . . . . . . . . . . 4.4 4.5
Interest expense. . . . . . . . . . . . . 3.7 4.1
Income before income taxes
and extraordinary item. . . . . . . . . 0.7 0.4
<FN>
(1) Total revenues less cost of goods sold.
Total revenues for Fiscal 1994 increased to $3.17 billion from $2.83
billion in Fiscal 1993. The increase in total revenues is primarily the result
of the increase in retail supermarket sales resulting from the acquisition of
the former Peter J. Schmitt and the Insalaco's stores. Retail operations,
wholesale operations and the food processing businesses contributed 81.6%, 14.5%
and 3.9%, respectively, to Fiscal 1994 total revenues. Wholesale supermarket
revenues increased in Fiscal 1994 to $453.4 million from $438.7 million in
Fiscal 1993. Sales from retail supermarkets existing in both periods, "same
store sales," for the 52 weeks ended January 29, 1994, increased 1.5%.
In Fiscal 1994, gross profit was $706.7 million compared to Fiscal 1993
gross profit of $602.5 million, representing 22.3% and 21.3% of total revenues,
respectively. The increase in gross profit as a percentage of total revenues
was primarily the result of the reclassification of certain expenses from cost
of goods sold to selling and administration expenses and lower product
procurement costs partially offset by increased buying and occupancy costs. The
lower product procurement costs are partly the result of the Company's
continuing consolidated purchasing initiatives which have led to increased
vendor allowances and other reductions in product procurement costs.
Selling and administrative expenses for Fiscal 1994 were $559.7 million
compared with $475.8 million in Fiscal 1993. Selling and administrative
expenses as a percentage of total revenues increased to 17.7% for Fiscal 1994
from 16.8% in Fiscal 1993. The increase in selling and administrative expenses
as a percentage of total revenues was primarily due to the reclassification of
certain expenses from cost of goods sold to selling and administrative expenses
and increases in fixed and semi-variable expenses as a percentage of total
revenues during a period without food price inflation and with changes in
consumer preferences towards lower-priced products.
-25-
During the second quarter of Fiscal 1994, the Company recorded certain
expenses totalling $6.4 million classified as an unusual item. This unusual
item is comprised of $4.0 million related to a voluntary employee separation
program at the Company's P&C division and $2.4 million related to the
realignment of certain operations.
Depreciation and amortization of $82.9 million in Fiscal 1994 and $72.8
million in Fiscal 1993 represented 2.6% of total revenues in both periods,
respectively.
Operating income for Fiscal 1994 increased by $14.0 million to $140.6
million from $126.6 million in Fiscal 1993. Operating income as a percentage of
total revenues was 4.4% and 4.5% in Fiscal 1994 and Fiscal 1993, respectively.
Fiscal 1994 operating income includes an unusual item of $6.4 million, or 0.2%
of total revenues.
Interest expense for Fiscal 1994 and Fiscal 1993 was $117.4 million and
$115.8 million, respectively.
Income before income taxes and extraordinary item was $23.2 million for
Fiscal 1994, compared to $10.8 million for Fiscal 1993.
The income tax provision for Fiscal 1994 was $15.0 million compared to $6.8
million in Fiscal 1993. The Fiscal 1994 income tax provision includes a $2.4
million charge relating to an increase in the federal tax rate applicable to
deferred taxes in accordance with the requirements of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
effective tax rates vary from the statutory rates, due to differences between
income for financial reporting and tax reporting purposes that primarily result
from the amortization of goodwill. The income tax provisions for both years
reflect the adoption of SFAS 109 (Note 4).
The extraordinary item for Fiscal 1994 was a $25.8 million charge (net of
$17.8 million income tax benefit) compared to a $10.8 million charge (net of
$6.9 million income tax benefit) in Fiscal 1993. These extraordinary items
relate to the early retirement of debt.
Net loss was $17.7 million for Fiscal 1994 compared to $6.8 million in
Fiscal 1993. The increase in the net loss was primarily due to a $15.0 million
increase in extraordinary item relating to the early retirement of debt, an
unusual item of $6.4 million ($3.8 million net of tax benefit) and an $8.2
million increase in the tax provision (including a $2.4 million charge related
to the impact on deferred taxes resulting from the increase in the federal tax
rate), partially offset by an $18.8 million increase in income before taxes and
extraordinary item (before unusual item).
-26-
LIQUIDITY AND CAPITAL RESOURCES
During Fiscal 1995, operating income increased to $155.7 million from
$140.6 million for Fiscal 1994. Interest expense for Fiscal 1995 was $117.9
million compared to $117.4 million for Fiscal 1994. Income before extraordinary
item and the cumulative effect of an accounting change for Fiscal 1995 was $22.0
million compared to $8.2 million in Fiscal 1994.
Payments of interest and principal on the Company's $1.14 billion of
long-term debt (excluding capital leases) will restrict funds available to the
Company to finance capital expenditures and working capital. Principal payments
of long-term debt due during Fiscal 1996, 1997 and 1998 total $4.1 million, $2.7
million and $2.2 million, respectively.
During Fiscal 1995, the Company's internally generated funds from
operations, proceeds from the issuance of $100 million of 10.65% Senior Notes
and amounts available under the revolving credit facility described below
provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs.
The Company has a revolving credit facility (the "Revolving Credit
Facility") which provides for borrowings of up to $225 million, subject to a
borrowing base limitation measured by eligible inventory and accounts receivable
of the Company. The Revolving Credit Facility matures in April 2000 and is
secured by a pledge of the Company's inventory, accounts receivable and related
assets. During Fiscal 1995, the Revolving Credit Facility was amended to
provide for certain interest rate reductions. After giving effect to the terms
of the amendment, based on the interest coverage ratio which the Company has
attained, the interest rate on borrowings as to which the Company elects a
LIBOR-based rate option is LIBOR plus 1.75%, and the interest rate on borrowings
as to which the Company elects a prime-based rate option is prime plus 0.50%.
As of January 28, 1995, total availability under the Penn Traffic Revolving
Credit Facility was $121.8 million.
In January 1995, the Company acquired 45 supermarkets from American Stores
Company formerly operated under the Acme trade name. Forty-one of these stores
are located in north central and northeastern Pennsylvania and four are located
in south central New York state. The purchase price for the 45 stores was
approximately $75 million plus inventory (approximately $16 million). As the
result of a review by the Federal Trade Commission, the Company has agreed to
divest three stores in Pennsylvania. The acquisition was funded with the
proceeds from the issuance in October 1994 of $100 million of 10.65% Senior
Notes due November 1, 2004 in an underwritten public offering.
-27-
During Fiscal 1995, the Company redeemed or repurchased $52.4 million of
13 3/4% Senior Subordinated Notes due 1999 and $5.8 million of 11 1/2% Senior
Notes due 2001.
The Company has entered into four interest rate swap agreements, each of
which expires within the next four years, that effectively convert $155 million
of its fixed rate borrowings into variable rate obligations. Under the terms of
these agreements, the Company makes payments at variable rates which are based
on LIBOR and receives payments at fixed interest rates. The net amount paid or
received is included in interest expense. For Fiscal 1995, the Company recorded
a $2.3 million reduction of interest expense related to these agreements.
Cash flows to meet the Company's requirements for operating, investing and
financing activities during Fiscal 1995 are reported in the Consolidated
Statement of Cash Flows. During the fiscal year ended January 28, 1995, the
Company's net cash used in investing activities was $210.3 million. These
amounts were financed by net cash provided by operating activities of $71.7
million, net cash provided by financing activities of $102.6 million and
available cash of $36.0 million. During the fiscal year ended January 29, 1994,
the Company's net cash used in investing activities was $175.4 million and the
Company had an increase in cash of $27.6 million. These amounts were financed
by net cash provided by operating activities of $9.3 million and net cash
provided by financing activities of $193.7 million. During the fiscal year
ended January 30, 1993, the Company's net cash used in investing activities was
$112.9 million and the Company had an increase in cash of $17.7 million. These
amounts were financed by net cash provided by operating activities of $85.0
million and net cash provided by financing activities of $45.6 million.
Working capital decreased by $13.3 million from January 29, 1994 to January
28, 1995.
The Company is in compliance with all terms and restrictive covenants of
its Revolving Credit Facility and long-term debt agreements for the fiscal year
ended and as of January 28, 1995.
The Company's debt agreements provide restrictive covenants on the payment
of dividends to its shareholders. As of January 28, 1995, no dividend payments
to the Company's shareholders could have been made under the most restrictive of
these limitations.
Over the next five fiscal years (including the fiscal year ending February
3, 1996), the Company expects to spend approximately $700 million on capital
expenditures (including capital leases), equivalent to approximately 3.5% to
4.0% of planned retail sales over this period. Penn Traffic expects to finance
such capital expenditures (including capital leases) through cash generated from
operations, as well as amounts available under the Revolving Credit Facility and
additional capital lease obligations. The Company anticipates that these
sources of funds will be sufficient to finance its planned
-28-
capital expenditures over this period. Capital expenditures will be principally
for new stores, replacement stores and remodels.
During Fiscal 1995, the Company opened six new stores, six replacement
stores and completed nine remodels/expansions. Capital expenditures (including
capitalized leases) were approximately $127 million for Fiscal 1995, excluding
the Acme acquisition.
-29-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Penn Traffic Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Penn
Traffic Company and its subsidiaries (the "Company") at January 28, 1995 and
January 29, 1994, and the results of their operations and their cash flows for
each of the three years in the period ended January 28, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for postemployment benefits to adopt the
provisions of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits," effective January 30, 1994.
Price Waterhouse LLP
Syracuse, New York
March 24, 1995
-30-
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 28, 1995 January 29, 1994 January 30, 1993
---------------- ---------------- ----------------
(All dollar amounts in thousands, except per share data)
TOTAL REVENUES $3,333,225 $3,171,600 $2,832,949
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy cost) 2,570,708 2,464,853 2,230,493
Selling and administrative
expenses 606,782 559,729 475,839
Unusual item (Note 6) 6,400
---------- ---------- ----------
OPERATING INCOME 155,735 140,618 126,617
Interest expense 117,859 117,423 115,814
---------- ---------- ----------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 37,876 23,195 10,803
Provision for income taxes
(Note 4) 15,851 15,019 6,812
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 22,025 8,176 3,991
Extraordinary item (net of tax
benefit) (Note 12) (3,025) (25,843) (10,823)
---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 19,000 (17,667) (6,832)
Cumulative effect of change
in accounting principle
(Note 3) (5,790)
---------- ---------- ----------
NET INCOME (LOSS) 13,210 (17,667) (6,832)
Preferred dividends (Note 7) (159) (968)
---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ 13,210 $ (17,826) $ (7,800)
---------- ---------- ----------
---------- ---------- ----------
PER SHARE DATA:
Income before extraordinary
item and cumulative effect
of change in accounting
principle (after preferred
dividends) $ 1.97 $ 0.76 $ 0.37
Extraordinary item (0.27) (2.45) (1.31)
Cumulative effect of change in
accounting principle (0.52)
---------- ---------- ----------
Net income (loss) $ 1.18 $ (1.69) $ (0.94)
---------- ---------- ----------
---------- ---------- ----------
Dividends per preferred share:
Big Bear $ 0.46 $ 1.84
---------- ----------
---------- ----------
Average number of common shares
and equivalents outstanding 11,169,337 10,561,256 8,258,113
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these statements.
-31-
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
January 28, January 29,
1995 1994
---------- -----------
(In thousands of dollars)
ASSETS
CURRENT ASSETS:
Cash and short-term investments (Note 1). . . . . . $ 46,519 $ 82,467
Accounts and notes receivable (less allowance
for doubtful accounts of $1,374 and $740,
respectively). . . . . . . . . . . . . . . . . . . 81,967 60,020
Inventories (Note 1). . . . . . . . . . . . . . . . 385,968 348,455
Prepaid expenses and other current assets . . . . . 10,913 9,939
---------- ----------
525,367 500,881
---------- ----------
FACILITIES UNDER CAPITAL LEASES (NOTE 5):
Capital leases. . . . . . . . . . . . . . . . . . . 178,198 173,690
Less: Accumulated amortization . . . . . . . . . . (50,450) (39,589)
---------- ----------
127,748 134,101
---------- ----------
FIXED ASSETS (NOTE 1):
Land. . . . . . . . . . . . . . . . . . . . . . . . 26,212 20,741
Buildings . . . . . . . . . . . . . . . . . . . . . 180,568 157,641
Furniture and fixtures. . . . . . . . . . . . . . . 439,544 389,598
Vehicles. . . . . . . . . . . . . . . . . . . . . . 19,452 19,586
Leaseholds and improvements . . . . . . . . . . . . 207,634 162,725
---------- ----------
873,410 750,291
Less: Accumulated depreciation . . . . . . . . . . (272,613) (214,563)
---------- ----------
600,797 535,728
---------- ----------
OTHER ASSETS:
Intangible assets resulting from acquisitions,
net (Note 1) . . . . . . . . . . . . . . . . . . . 451,897 377,450
Other assets and deferred charges, net. . . . . . . 88,157 84,741
---------- ----------
540,054 462,191
---------- ----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . $1,793,966 $1,632,901
---------- ----------
---------- ----------
The accompanying notes are an integral part of these statements.
-32-
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
January 28, January 29,
1995 1994
----------- -----------
(In thousands of dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital
leases (Note 5). . . . . . . . . . . . . . . . . . . . . . $ 9,962 $ 8,773
Current maturities of long-term debt (Note 2) . . . . . . . 4,118 4,208
Trade accounts and drafts payable . . . . . . . . . . . . . 209,890 183,967
Payroll and other accrued liabilities . . . . . . . . . . . 79,434 74,028
Accrued interest expense. . . . . . . . . . . . . . . . . . 30,686 28,690
Payroll taxes and other taxes payable . . . . . . . . . . . 19,582 18,901
Deferred income taxes -- current (Note 4) . . . . . . . . . 27,384 24,669
---------- -----------
381,056 343,236
---------- -----------
NONCURRENT LIABILITIES:
Obligations under capital leases (Note 5) . . . . . . . . . 126,894 131,148
Long-term debt (Note 2) . . . . . . . . . . . . . . . . . . 1,136,302 1,021,896
Deferred income taxes (Note 4). . . . . . . . . . . . . . . 73,598 72,411
Other noncurrent liabilities. . . . . . . . . . . . . . . . 43,189 49,228
---------- -----------
1,379,983 1,274,683
---------- -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 1,761,039 1,617,919
---------- -----------
SHAREHOLDERS' EQUITY (NOTE 8):
Preferred Stock--Authorized 10,000,000, $1.00 par
value; none issued . . . . . . . . . . . . . . . . . . . .
Common Stock--Authorized 30,000,000, $1.25 par value;
10,846,701 shares and 10,840,151 shares issued and
outstanding, respectively. . . . . . . . . . . . . . . . . 13,558 13,550
Capital in Excess of Par Value 179,165 179,087
Retained Deficit (149,681) (162,924)
Minimum Pension Liability Adjustment (Note 3) (356) (4,963)
Unearned Compensation (Note 8) (9,759) (9,768)
---------- -----------
TOTAL SHAREHOLDERS' EQUITY 32,927 14,982
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,793,966 $1,632,901
---------- -----------
---------- -----------
The accompanying notes are an integral part of these statements.
-33-
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Minimum
Capital in Pension Total
Common Excess of Retained Liability Unearned Shareholders'
Stock Par Value Deficit Adjustment Compensation Equity
------- ----------- -------- ---------- ------------ ---------
(In thousands of dollars)
FEBRUARY 1, 1992 $10,322 $ 95,517 $(137,298) $(31,459)
Net loss (6,832) (6,832)
Cash dividends--preferred stock (968) (968)
Purchase of 112,140 shares of
Big Bear common stock (803) (803)
Purchase of 103,000 shares of
Big Bear redeemable convertible
8% preferred stock (291) (291)
Other (135) (135)
------- -------- ---------- ------- ------- --------
JANUARY 30, 1993 10,322 94,288 (145,098) (40,488)
Net loss (17,667) (17,667)
Cash dividends--preferred stock (159) (159)
Issuance of 2,000,000 shares of
common stock, net (Note 8) 2,500 71,888 74,388
Issuance of 307,836 shares of
common stock, net (Note 8) 385 3,276 3,661
Exercise of 11,105 common stock
option shares (Note 8) 14 196 210
Issuance of 263,100 restricted
stock shares (Note 8) 329 9,439 $(9,768)
Minimum pension liability adjustment
(Note 3) $(4,963) (4,963)
------- -------- ---------- ------- ------- --------
JANUARY 29, 1994 13,550 179,087 (162,924) (4,963) (9,768) 14,982
Net income 13,210 13,210
Exercise of 7,550 common stock
option shares (Note 8) 9 119 128
Cancellation of 1,000 restricted
stock shares (Note 8) (1) (41) 42
Minimum pension liability adjustment
(Note 3) 4,607 4,607
Unearned compensation adjustment
(Note 8) (9) 9
------- -------- ---------- ------- ------- --------
JANUARY 28, 1995 $13,558 $179,165 $(149,681) $ (356) $(9,759) $ 32,927
------- -------- ---------- ------- ------- --------
------- -------- ---------- ------- ------- --------
The accompanying notes are an integral part of these statements.
-34-
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 28, 1995 January 29, 1994 January 30, 1993
---------------- ---------------- ----------------
(In thousands of dollars)
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . $ 13,210 $ (17,667) $ (6,832)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cumulative effect of change in
accounting principle. . . . . . . . 5,790
Depreciation and amortization. . . . 72,853 68,556 59,977
Amortization of intangibles. . . . . 14,958 14,313 12,810
Proceeds from prepayment of
operating fee . . . . . . . . . . . 15,000
Other--net . . . . . . . . . . . . . (4,245) (16,391) (10,143)
Net change in assets and
liabilities:
Accounts receivable and prepaid
expenses. . . . . . . . . . . . . . (24,031) 276 (14,501)
Inventories. . . . . . . . . . . . . (22,011) (59,002) (20,981)
Accounts payable and accrued
expenses. . . . . . . . . . . . . . 11,637 3,054 48,955
Deferred charges and other
assets. . . . . . . . . . . . . . . 3,577 16,181 678
--------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES . . . . . . . . . . 71,738 9,320 84,963
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . (120,005) (128,103) (80,903)
Acquisition of Peter J. Schmitt
stores . . . . . . . . . . . . . . . . (38,800)
Acquisition of Insalaco's stores. . . . (51,651)
Acquisition of Acme stores. . . . . . . (91,004)
Other--net. . . . . . . . . . . . . . . 701 4,348 6,856
--------- --------- ---------
NET CASH (USED IN) INVESTING
ACTIVITIES . . . . . . . . . . . . . . . (210,308) (175,406) (112,847)
--------- --------- ---------
(continued)
-35-
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 28, 1995 January 29, 1994 January 30, 1993
---------------- ---------------- ----------------
(In thousands of dollars)
FINANCING ACTIVITIES:
Issuance of Penn Traffic
common stock--net. . . . . . . . . $ $ 74,388 $
Purchase of subsidiary
securities . . . . . . . . . . . . (10,814) (4,636)
Increase in long-term debt. . . . . 100,000 617,145 263,828
Payments to settle long-term
debt . . . . . . . . . . . . . . . (62,384) (443,342) (195,799)
Borrowing of revolver debt. . . . . 476,000 587,976 381,014
Repayment of revolver debt. . . . . (399,300) (600,776) (382,914)
Reduction of capital lease
obligations. . . . . . . . . . . . (8,598) (7,727) (7,949)
Payment of debt issuance costs. . . (3,224) (23,188) (6,830)
Preferred dividends and other--
net. . . . . . . . . . . . . . . . 128 51 (1,111)
--------- --------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES . . . . . . . . 102,622 193,713 45,603
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . (35,948) 27,627 17,719
Cash and cash equivalents at
beginning of year. . . . . . . . . 82,467 54,840 37,121
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR. . . . . . . . . . . . . $ 46,519 $ 82,467 $ 54,840
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these statements.
-36-
THE PENN TRAFFIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS DESCRIPTION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:
The Penn Traffic Company ("Penn Traffic" or the "Company") is primarily
engaged in retail and wholesale food distribution. As of January 28, 1995, the
Company operated 267 supermarkets (excluding 15 acquired Acme stores to be sold
or divested) in Pennsylvania, New York, Ohio and West Virginia and supplied 124
franchise supermarkets and 117 independent wholesale accounts. It also
operated 15 general merchandise stores. The Company operated 13 modern
distribution centers with approximately 2.8 million square feet of combined
space, owned bakery and dairy operations and had approximately 28,000 employees.
PRINCIPLES OF CONSOLIDATION AND BUSINESS SEGMENT All significant
intercompany transactions and accounts have been eliminated in consolidation.
The Company is principally involved with the distribution and retail sale of
food and related products, which constitutes a single significant business
segment.
FISCAL YEAR The fiscal year of the Company ends on the Saturday nearest to
January 31.
CASH AND SHORT-TERM INVESTMENTS Short-term investments are classified as
cash and are stated at cost, which approximates market value. For the purpose
of the Consolidated Statement of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
INVENTORIES Inventories are valued at the lower of cost or market. The
Company's inventories, representing grocery and certain general merchandise and
manufactured inventories, are stated at cost using the last-in, first-out (LIFO)
method of valuation. Inventories stated on the LIFO basis were approximately
$17,145,000 and $14,353,000 below replacement cost at January 28, 1995 and
January 29, 1994, respectively.
FIXED ASSETS AND CAPITAL LEASES Major renewals and betterments are
capitalized, whereas maintenance and repairs are charged to operations as
incurred. Depreciation and amortization for financial accounting purposes are
provided on the straight-line method. For income tax purposes, the Company
principally uses accelerated methods. For financial accounting purposes,
depreciation and amortization are provided over the following useful lives or
lease term:
Buildings . . . . . . . . . . . . 16 to 50 years
Furniture and fixtures. . . . . . 4 to 15 years
Vehicles. . . . . . . . . . . . . 3 to 8 years
Leaseholds and improvements . . . 5 to 30 years
Capital leases. . . . . . . . . . lease term
-37-
INTANGIBLE ASSETS RESULTING FROM ACQUISITIONS The excess of the costs over
the amounts attributed to tangible net assets is primarily being amortized over
40 years using the straight-line method. In addition, certain nonfinancing
costs resulting from acquisitions have been capitalized as other assets and
deferred charges. For Fiscal 1995, 1994 and 1993, amortization of intangibles
was $14,958,000, $14,313,000 and $12,810,000, respectively.
At each balance sheet date, the Company evaluates the realizability of
goodwill based on estimated future nondiscounted cash flows. Based upon its
most recent analysis, the Company believes that no impairment of goodwill exists
at January 28, 1995.
INVESTMENT IN AFFILIATED COMPANY Until March 1995, the Company had a
minority interest investment in The Grand Union Company which was carried on the
equity basis (Note 9).
DEFERRED CHARGES Deferred charges consist of debt issuance costs and
prepaid pension expense and the value of leasehold interests that were recorded
in conjunction with acquisitions. These deferred charges are being amortized
primarily on a straight-line basis over the life of the related debt, the
remaining service lives of employees and the lives of the related leases,
respectively.
STORE PRE-OPENING COSTS Store pre-opening costs are generally charged to
expense as incurred.
INCOME TAXES Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109").
Deferred income taxes are recorded to reflect the tax consequences on
future years of temporary differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end.
NET INCOME (LOSS) PER SHARE Net income (loss) per share of common stock is
based on the average number of shares and equivalents of common stock
outstanding during each period, after giving effect to preferred stock
dividends. Fully diluted income per share is not presented for each of the
periods since the reduction from primary income per share is less than three
percent.
-38-
NOTE 2 -- LONG-TERM DEBT
The long-term debt of Penn Traffic consists of the obligations described
below:
JANUARY 28, JANUARY 29,
1995 1994
----------- ----------
(IN THOUSANDS OF DOLLARS)
Secured Revolving Credit Facility. . . . . . . . . . $ 76,700 $
Other Secured Debt . . . . . . . . . . . . . . . . . 31,480 35,681
11 1/2% Senior Notes due October 15, 2001. . . . . . 107,240 113,000
10 1/4% Senior Notes due February 15, 2002 . . . . . 125,000 125,000
8 5/8% Senior Notes due December 15, 2003 . . . . . 200,000 200,000
10 3/8% Senior Notes due October 1, 2004 . . . . . . 100,000 100,000
10.65% Senior Notes due November 1, 2004 . . . . . . 100,000
13 3/4% Senior Subordinated Notes due June 15, 1999. 52,423
9 5/8% Senior Subordinated Notes due April 15, 2005 400,000 400,000
---------- -----------
TOTAL DEBT . . . . . . . . . . . . . . . . . . . . . 1,140,420 1,026,104
Less: Amounts due within one year . . . . . . . . . 4,118 4,208
---------- -----------
TOTAL LONG-TERM DEBT . . . . . . . . . . . . . . . . $1,136,302 $1,021,896
---------- -----------
---------- -----------
Amounts maturing within the next five years are: $4,118,000,
$2,728,000, $2,186,000, $3,271,000 and $2,644,000. The Company incurred
interest expense of $117,859,000, $117,423,000 and $115,814,000, including
noncash amortization of deferred financing costs of $4,195,000, $4,153,000 and
$4,336,000 for Fiscal 1995, 1994 and 1993, respectively. Interest paid amounted
to $111,669,000, $110,070,000 and $108,789,000 for Fiscal 1995, 1994 and 1993,
respectively.
The estimated fair value of the Company's long-term debt, including current
maturities, was $1.07 billion at both January 28, 1995 and January 29, 1994.
The estimated fair value of the Company's long-term debt has been determined by
the Company using market information provided by an investment banking firm as
to the market value of such debt amounts.
The Company has a revolving credit facility (the "Revolving Credit
Facility") which provides for borrowings of up to $225 million, subject to a
borrowing base limitation measured by eligible inventory and accounts receivable
of the Company. The Revolving Credit Facility matures in April 2000 and is
secured by a pledge of the Company's inventory, accounts receivable and related
assets. Total availability under the Revolving Credit Facility was $121.8
million at January 28, 1995. Effective August 24, 1994, the Revolving Credit
Facility was amended to provide for certain interest rate reductions on
borrowings made thereunder. After giving effect to the terms of the amendment,
based on the interest coverage ratio which the Company has attained, the
interest rate on borrowings as to which the Company elects a LIBOR-based rate
option is LIBOR plus 1.75%, and the interest rate on borrowings as to which the
Company elects a prime-based rate option is prime plus 0.50%. At January 28,
1995, the weighted average rate of interest on the Revolving Credit Facility was
8.1%.
-39-
In October 1994, Penn Traffic issued $100 million of 10.65% Senior Notes
due 2004. The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due
2002, the 8 5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004 and
the 10.65% Senior Notes due 2004 are unsecured obligations of Penn Traffic
which rank pari passu with each other and with indebtedness under the Revolving
Credit Facility. However, indebtedness under the Revolving Credit Facility is
secured by certain assets of the Company. The 9 5/8% Senior Subordinated Notes
due 2005 are subordinated to all existing and future senior indebtedness.
The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due 2002, the 8
5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004, the 10.65% Senior
Notes due 2004, the 9 5/8% Senior Subordinated Notes due 2005 and the Revolving
Credit Facility contain certain covenants, including restrictions on incurrence
of indebtedness by Penn Traffic and limitations on the payment of dividends to
Penn Traffic's common shareholders. The Company is in compliance with all terms
and covenants of its long-term debt agreements as of and for the fiscal year
ended January 28, 1995.
The Company has entered into four interest rate swap agreements, each of
which expires within the next four years, that effectively convert $155 million
of its fixed rate borrowing into variable rate obligations. Under the terms of
these agreements, the Company makes payments at variable rates which are based
on LIBOR and receives payments at fixed interest rates. The net amount paid or
received is included in interest expense. The estimated fair value of the
Company's interest rate swap agreements at January 28, 1995 was a $4.3 million
liability and a $6.7 million asset at January 29, 1994, neither of which has
been recorded on the books of the Company. The estimated fair value of these
interest rate agreements has been determined by the Company using market
information available to the Company, based on information provided by the
counterparty to each interest rate agreement.
-40-
NOTE 3 -- EMPLOYEE BENEFIT PLANS:
Substantially all of the Company's employees are covered by either defined
benefit plans or defined contribution plans.
The following sets forth the net pension expense recognized for the defined
benefit pension plans and the status of the Company's defined benefit plans:
FISCAL YEAR ENDED
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- ----------
(IN THOUSANDS OF DOLLARS)
Service cost -- benefits earned
during the period. . . . . . . . . $ 4,617 $ 4,345 $ 3,996
Interest cost on projected benefit
obligation . . . . . . . . . . . . 9,207 8,281 7,014
Actual return on plan assets . . . . (2,117) (11,163) (12,212)
Net amortization and deferral. . . . (9,365) 482 1,663
-------- -------- --------
Net pension expense. . . . . . . . . $ 2,342 $ 1,945 $ 461
-------- -------- --------
-------- -------- --------
JANUARY 28, 1995 JANUARY 29, 1994
PLANS IN WHICH PLANS IN WHICH
----------------------- ------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ---------- ----------- ----------
(IN THOUSANDS OF DOLLARS)
Actuarial present value of
vested benefit obligation . . . $(52,803) $(39,608) $(60,632) $(48,265)
-------- -------- -------- --------
Accumulated benefit obligation . $(56,849) $(43,467) $(64,790) $(52,414)
-------- -------- -------- --------
Projected benefit obligation . . $(67,363) $(43,467) $(79,629) $(52,414)
Plan assets at fair value. . . . 88,964 39,159 89,035 39,265
-------- -------- -------- --------
Plan assets in excess of (less
than) projected benefit
obligation. . . . . . . . . . 21,601 (4,308) 9,406 (13,149)
Unrecognized net transition
(asset) liability . . . . . . (1,774) 119 (1,894) 130
Unrecognized net (gain) loss . . (10,235) 82 (184) 8,469
Unrecognized prior service cost. 4,478 6,822 4,879 7,420
Minimum liability. . . . . . . . (7,023) (16,019)
-------- -------- -------- --------
Net pension asset (liability). . $ 14,070 $ (4,308) $ 12,207 $(13,149)
-------- -------- -------- --------
-------- -------- -------- --------
In calculating benefit obligations and plan assets for Fiscal 1995, the
Company assumed a weighted average discount rate of 9.0%, compensation increase
rates ranging from 3.0% to 3.5% and expected long-term rates of return on plan
assets ranging from 8.5% to 9.5%. For Fiscal 1994, the Company assumed a
weighted average discount rate of 7.25%, compensation increase rates ranging
from 3.0% to 3.5% and expected long-term rates of return on plan assets ranging
from 8.5% to 9.5%.
The Company's defined benefit plans generally provide a retirement benefit
to employees based on specified percentages applied to final average
compensation, as defined, coupled with years of service earned to the date of
retirement. All pension plans comply with the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Generally, the Company
-41-
funds accrued pension costs as incurred. Penn Traffic's defined benefit plans'
assets are maintained in separate trusts and are managed by independent
investment managers. The assets were principally invested in equity, debt and
short-term cash securities.
Quality Markets, P&C and Big Bear also contribute to multi-employer pension
funds, which cover certain union employees under collective bargaining
agreements. Such contributions aggregated $4,297,000, $4,759,000 and $4,088,000
in Fiscal 1995, 1994 and 1993, respectively. The applicable portion of the
total plan benefits and net assets of these plans is not separately
identifiable.
The Company contributed to a separate profit-sharing retirement plan for
eligible employees of Quality Markets not covered by a union pension fund for
Fiscal 1994 and Fiscal 1993 and contributes to a profit-sharing arrangement for
certain Riverside division union employees. The expense for these
profit-sharing plans for Fiscal 1994 and 1993 was $279,000 and $572,000,
respectively. Big Bear sponsors a deferred profit-sharing plan for certain
salaried employees. Contributions and costs totalled $845,000, $1,053,000 and
$1,001,000 in Fiscal 1995, 1994 and 1993, respectively.
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), the Company recorded
in other noncurrent liabilities an additional minimum pension liability
adjustment of $7,024,000 as of January 28, 1995 and $16,019,000 as of January
29, 1994, representing the amount by which the accumulated benefit obligation
exceeded the fair value of plan assets plus accrued amounts previously recorded.
The additional liability has been offset by an intangible asset to the extent of
previously unrecognized prior service cost. The amount in excess of previously
unrecognized prior service cost is recorded as a reduction of shareholders'
equity in the amount of $356,000 as of January 28, 1995 and $4,963,000 as of
January 29, 1994, representing the after-tax impact.
Effective January 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation
to provide postemployment benefits on an accrual basis if certain conditions are
met. The cumulative effect of the change in accounting principle determined as
of January 30, 1994 reduced net income $5.8 million, net of a $4.1 million
income tax benefit, for the fiscal year ended January 28, 1995.
-42-
NOTE 4 -- INCOME TAXES:
The provision for income taxes charged to continuing operations was
provided as follows:
FISCAL YEAR ENDED
-----------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
Current Tax Expense:
Federal income. . . . . . . . . . . $10,330 $ 7,728 $11,365
State income. . . . . . . . . . . . 2,682 1,690 2,430
-------- -------- --------
13,012 9,418 13,795
-------- -------- --------
Deferred Tax Expense (Benefit):
Federal income. . . . . . . . . . . 2,895 4,454 (5,936)
State income. . . . . . . . . . . . (56) 1,147 (1,047)
-------- -------- --------
2,839 5,601 (6,983)
-------- -------- --------
Provision for income taxes . . . . . . $15,851 $15,019 $ 6,812
-------- -------- --------
-------- -------- --------
The differences between income taxes computed using the statutory federal
income tax rate and those shown in the Consolidated Statement of Operations are
summarized as follows:
FISCAL YEAR ENDED
-----------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
Federal tax at statutory rates. . . . . $13,254 $ 8,118 $ 3,673
State income taxes net of federal
income tax effect . . . . . . . . . . 2,722 1,844 1,139
Nondeductible goodwill
amortization. . . . . . . . . . . . . 3,343 3,284 3,189
Capital loss carryforward . . . . . . . (992)
Miscellaneous items . . . . . . . . . . 639 (167) (343)
Increase in deferred income taxes due
to change in federal income tax rate. 2,439
Decrease in deferred income taxes due
to changes in state income tax rates. (997)
State net operating loss carryforwards. (726)
Tax credits . . . . . . . . . . . . . . (1,392) (499) (846)
------- ------- -------
Provision for income taxes. . . . . . . $15,851 $15,019 $ 6,812
------- ------- -------
------- ------- -------
-43-
Components of deferred income taxes at January 28, 1995 and January 29,
1994 were as follows:
JANUARY 28, JANUARY 29,
1995 1994
----------- -----------
(IN THOUSANDS OF DOLLARS)
Deferred Tax Liabilities:
Fixed assets. . . . . . . . . . . . . . $103,673 $ 98,407
Inventory . . . . . . . . . . . . . . . 30,237 30,557
Prepaid expenses and other
current assets . . . . . . . . . . . . 955 530
Goodwill amortization . . . . . . . . . 956 413
Pensions. . . . . . . . . . . . . . . . 2,142 1,119
Deferred charges and other assets . . . 6,209 4,544
-------- --------
$144,172 $135,570
-------- --------
-------- --------
Deferred Tax Assets:
Nondeductible accruals. . . . . . . . . $ 7,604 $ 11,019
Prepaid operating fee . . . . . . . . . 4,170 5,058
Capital leases. . . . . . . . . . . . . 3,791 2,429
Reserve for discontinued
operations . . . . . . . . . . . . . . 560
Net operating loss carryforward . . . . 3,863 10,077
Capital loss carryforward . . . . . . . 1,500 339
Tax credit carryforwards. . . . . . . . 22,262 9,008
-------- --------
$ 43,190 $ 38,490
-------- --------
-------- --------
Net Deferred Tax Liability. . . . . . . . $100,982 $ 97,080
-------- --------
-------- --------
At January 28, 1995, Penn Traffic had alternative minimum tax credit
carryforwards of $17,945,000, general business tax credit carryforwards of
$2,354,000, targeted jobs credits of $1,313,000 and various state tax credits,
tax effected for federal income tax purposes, of $650,000 available to offset
the Company's regular income tax liability in future years. The general
business tax credit carryforwards begin to expire in 2005 and the alternative
minimum tax credit carryforwards have no expiration date. In addition, the
Company has various state net operating loss carryforwards, tax effected for
federal income tax purposes, of approximately $3,664,000. In Fiscal 1995, the
Company recorded a deferred tax asset of approximately $7,500,000 subject to a
valuation allowance of $6,000,000 for the capital loss realized on the
investment in the capital stock of Grand Union (Note 9).
-44-
NOTE 5 -- LEASES:
The following is a schedule by year of future gross minimum rental payments
for all leases with terms greater than one year reconciled to the present value
of net minimum capital lease payments as of January 28, 1995:
FISCAL YEARS ENDING IN TOTAL OPERATING CAPITAL
---------------------- ----- --------- -------
(IN THOUSANDS OF DOLLARS)
1996. . . . . . . . . . . . . $ 58,579 $ 34,050 $ 24,529
1997. . . . . . . . . . . . . 56,011 32,333 23,678
1998. . . . . . . . . . . . . 50,856 29,425 21,431
1999. . . . . . . . . . . . . 47,474 27,263 20,211
2000. . . . . . . . . . . . . 43,774 25,338 18,436
Later years . . . . . . . . . 375,862 212,700 163,162
-------- -------- --------
Total minimum lease payments. $632,556 $361,109 271,447
-------- --------
-------- --------
Less: Executory costs . . . . (1,501)
--------
Net minimum capital
lease payments. . . . . . . 269,946
Less: Estimated amount
representing interest . . . (133,090)
--------
Present value of
net minimum capital
lease payments. . . . . . . 136,856
Less: Current portion . . . . (9,962)
--------
Long-term obligations
under capital lease at
January 28, 1995. . . . . . $126,894
--------
--------
The Company principally operates in leased store facilities with terms of
up to 20 years and renewable options for additional periods. The Company
follows the provisions of Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" ("SFAS 13"), in determining the criteria for capital
leases. Leases that do not meet such criteria are classified as operating
leases, and related rentals are charged to expense in the year incurred.
During Fiscal 1995, 1994 and 1993, the Company incurred capital lease
obligations (including acquired leases) of $5,533,000, $7,613,000 and
$35,515,000, respectively, in connection with lease agreements for buildings
and equipment. For Fiscal 1995, 1994 and 1993, capital lease amortization
expense was $11,887,000, $11,758,000 and $10,149,000, respectively.
Future minimum rentals have not been reduced by minimum sublease rentals of
$42,427,000 due in the future under noncancelable subleases. In addition to
minimum rentals, some leases provide for the Company to pay real estate taxes
and other expenses and, in many cases, contingent rentals based on sales.
-45-
Minimum rental payments and related executory costs for operating leases
were as follows. Contingent rentals and sublease payments include arrangements
on primary leases classified as both capital and operating leases:
FISCAL YEAR ENDED
-----------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
Minimum rentals and executory costs. . $ 35,863 $ 30,393 $ 24,079
Contingent rentals . . . . . . . . . . 1,874 1,437 2,352
Less: Sublease payments. . . . . . . . (9,607) (8,226) (6,904)
-------- -------- --------
Net rental payments. . . . . . . . . . $ 28,130 $ 23,604 $ 19,527
-------- -------- --------
-------- -------- --------
NOTE 6 -- UNUSUAL ITEM:
During the second quarter of Fiscal 1994, the Company recorded certain
expenses totalling $6.4 million classified as an unusual item. This unusual
item is comprised of $4.0 million related to a voluntary employee separation
program at the Company's P&C division and $2.4 million related to the
realignment of certain operations.
NOTE 7 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In April 1993, Big Bear was merged into Penn Traffic. At the effective
date of the merger, holders of Big Bear redeemable convertible 8% preferred
stock and Big Bear common stock received aggregate merger consideration for the
merger equal to 307,836 shares of Penn Traffic common stock and approximately
$10.8 million in cash. As a result of the merger, the Big Bear redeemable
convertible 8% preferred stock was retired.
-46-
NOTE 8 -- SHAREHOLDERS' EQUITY:
In April 1993, the Company issued 2,000,000 shares of common stock at a
price of $39.25 per share and concurrently offered $400 million of the 9 5/8%
Senior Subordinated Notes due 2005 in underwritten public offerings (the
"Offerings"). Approximately $10.8 million of the proceeds of the Offerings was
used to provide the cash portion of consideration paid to holders of Big Bear
convertible preferred stock and holders of Big Bear common stock other than Penn
Traffic in connection with the merger of Big Bear into the Company (Note 7).
Holders of Big Bear convertible preferred stock and holders of Big Bear common
stock other than Penn Traffic also received 307,836 shares of Penn Traffic
common stock as consideration for the merger. At the effective time of the
merger, the outstanding shares of Big Bear common stock owned by Penn Traffic
were canceled. The remaining proceeds of the Offerings were used to pay or
retire certain outstanding indebtedness of the Company and for general corporate
purposes.
The Company has a Long-term Incentive Plan (the "1993 Plan") which provides
for long-term incentives based upon objective, quantifiable measures of the
Company's performance over time through the payment of incentive compensation of
the types commonly known as stock options, restricted stock, performance shares,
other forms of stock-based incentives such as phantom stock and cash awards. A
maximum of 350,000 shares of common stock may be paid to participants under the
1993 Plan and/or purchased pursuant to stock options granted under the 1993
Plan, subject to antidilution and other adjustments specified in the 1993 Plan.
As of January 28, 1995, a total of 262,100 shares of restricted stock have
been awarded under the Company's 1993 Plan to 67 officers and employees of Penn
Traffic (including one independent contractor). At January 28, 1995, an
additional 87,900 shares of common stock were reserved for future grants under
the 1993 Plan. For all awards made prior to January 29, 1995, vesting of the
shares of restricted stock granted pursuant to such awards is contingent upon
attainment, subsequent to the date of grant, of EBITDA (as defined) levels of
$265 million in any four consecutive fiscal quarter period (plus $4 million for
each fiscal quarter included in the period subsequent to the acquisition of the
Acme stores in January 1995), or $500 million in any eight consecutive fiscal
quarter period (plus $4 million for each fiscal quarter included in the period
subsequent to the acquisition of the Acme stores in January 1995). Such shares
will be forfeited if such levels are not achieved by the fifth anniversary of
the date of grant. To encourage retention of such shares by the participants,
upon vesting of the restricted stock, the Company will make a cash payment to
each participant equal to the amount of income tax payable by such participant
in respect of the award and the cash payment, if such participant agrees not to
sell his shares for at least two years beyond vesting and to refund the payment
if he resigns within such two-year period. As of January 28, 1995, common stock
and capital in excess of par value were increased by $9,759,000 and unearned
compensation was recorded at the same amount to reflect the issuance of the
restricted shares. Unearned compensation, which is shown as a
-47-
separate component of shareholders' equity, will be expensed as the compensation
is earned.
The 1993 Plan was adopted in Fiscal 1994 as the successor to the Company's
1988 Stock Option Plan (the "1988 Plan"). The Company also has a stock option
plan for directors (the "Directors' Plan") pursuant to which each director of
the Company who is not an employee of the Company receives as of the date of
appointment to the Board of Directors, and thereafter annually, as of the first
business day after the conclusion of each Annual Meeting of Shareholders of the
Company, an option to purchase 1,500 shares of common stock (subject to
antidilution adjustments) at a price equal to the fair market value (as defined
in the Directors' Plan) of such shares on the date of grant.
As of January 28, 1995, options for 244,442 shares and 39,000 shares are
outstanding under the 1988 Plan and the Directors' Plan, respectively. An
additional 11,000 shares of common stock are reserved for issuance under the
Directors' Plan at January 28, 1995. Under the terms of the Directors' Plan,
option prices are 100% of the "fair market value" of the shares on the date
granted. The 1988 Plan options generally vest 20% on the date of grant and 20%
on each of the next four anniversary dates. The Directors' Plan options are
immediately exercisable. Under both plans, options expire ten years after the
date of grant. Changes during the three years ended January 28, 1995 in options
outstanding under the 1988 Plan and the Directors' Plan are as follows:
PENN TRAFFIC STOCK OPTIONS
OPTION PRICE SHARES
PER SHARE UNDER OPTION
------------ ------------
1988 PLAN
Balance, February 1, 1992 . . . . . . . . . $12.50 - 26.75 263,863
Granted. . . . . . . . . . . . . . . . . . . $28.13 5,000
Canceled . . . . . . . . . . . . . . . . . . $12.87 - 26.75 (3,676)
-------
Balance, January 30, 1993 . . . . . . . . . $12.50 - 28.13 265,187
Granted. . . . . . . . . . . . . . . . . . . 0
Canceled . . . . . . . . . . . . . . . . . . $12.50 - 26.75 (12,935)
-------
Balance, January 29, 1994. . . . . . . . . . $12.50 - 28.13 252,252
Granted. . . . . . . . . . . . . . . . . . . 0
Canceled . . . . . . . . . . . . . . . . . . $12.50 - 26.75 (7,810)
-------
Balance, January 28, 1995. . . . . . . . . . $12.50 - 28.13 244,442
-------
-------
DIRECTORS' PLAN
Granted and outstanding at January 28, 1995 $18.44 - 42.00 39,000
-------
-------
At January 28, 1995, 236,010 of the 1988 Plan options were exercisable.
At January 28, 1995, certain persons affiliated with Miller Tabak Hirsch +
Co. ("MTH") held warrants to purchase 289,000 shares at $14.00 per share.
-48-
NOTE 9 -- EQUITY INVESTMENT:
In July 1989, Penn Traffic, through its limited partnership investment in
Grand Acquisition Company, L.P. ("GAC, L.P."), acquired an indirect ownership
interest in approximately 24.3% of the currently outstanding common stock of
Grand Union Holdings Corporation (formerly named GND Holdings Corporation)
("Holdings"), the corporate parent of The Grand Union Company ("Grand Union").
GAC, L.P. owns approximately 39% of the currently outstanding common equity of
Holdings on a fully diluted basis. As of January 28, 1995, Penn Traffic's
indirect ownership interest was 17.8% on a fully diluted basis.
The Company accounted for its investment in Grand Union under the equity
method. The investment was recorded originally at a cost of $18,250,000. The
carrying value of the investment was reduced to zero as of February 2, 1991.
On January 25, 1995, Grand Union filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code with the
United States Bankruptcy Court, District of Delaware (the "Bankruptcy Court").
On February 16, 1995, Grand Union Holdings filed a voluntary Chapter 11 petition
in the Bankruptcy Court. Penn Traffic's equity interest in Grand Union Holdings
became worthless as a result of these bankruptcy proceedings and, on March 24,
1995 Penn Traffic's limited partnership interest in GAC, L.P. was redeemed for
nominal consideration.
See Note 10 - Related Parties for a description of certain ongoing
arrangements between Penn Traffic and Grand Union.
-49-
NOTE 10 -- RELATED PARTIES:
During Fiscal 1995, the Company had an agreement for financial consulting
and business management services to be provided by MTH. Under this agreement,
the Company paid MTH an annual fee of $1,357,100. The annual fee payable to MTH
for Fiscal 1996 will increase to $1,395,100 as a result of an adjustment to such
fee based upon the increase in the consumer price index.
During Fiscal 1995, the Company paid MTH an additional fee of $500,000 for
its services in connection with assisting the Company with the acquisition of 45
former Acme stores and the public offering of $100 million in principal amount
of Penn Traffic 10.65% Senior Notes due 2004. During Fiscal 1994, the Company
paid MTH additional fees totalling $1,500,000 for its services in connection
with public offerings of debt and equity securities and with the mergers of P&C
and Big Bear into the Company. In Fiscal 1993, the Company paid MTH additional
fees totalling $1,150,000 related to debt offerings and the acquisition of 28
stores from Peter J. Schmitt.
At the time of the acquisition of Grand Union by Holdings in July 1989,
Grand Union and P&C operated stores in some of the same geographic areas in
Vermont and upstate New York. In connection with such acquisition, agreements
were entered into with federal and state antitrust authorities that required the
divestiture of 16 Grand Union stores or P&C stores. The divestitures required
by these agreements were completed on July 30, 1990. P&C operated 13 of the 16
divested stores and Grand Union operated three. In connection with the
divestiture program, P&C discontinued its New England wholesaling business in
December 1989.
In a related transaction, on July 30, 1990, P&C and Grand Union entered
into an agreement (the "Operating Agreement") whereby Grand Union acquired the
right to operate P&C's 13 remaining stores in New England under the Grand Union
name until July 2000. Pursuant to the Operating Agreement, Grand Union agreed
to pay Penn Traffic (as the successor of P&C, which was merged into the Company
in April 1993) a minimum annual fee averaging $10.7 million per year during the
10-year term and, beginning with the year commencing July 31, 1992, to pay Penn
Traffic additional contingent fees of up to $700,000 per year based on sales
performance of the stores operated by Grand Union. As a result of the
recapitalization of Grand Union in July 1992, Penn Traffic received a $15
million prepayment of an operating fee from Grand Union pursuant to the terms of
the Operating Agreement. This prepayment reduced the future payments that Grand
Union will make to Penn Traffic pursuant to the terms of the Operating Agreement
by approximately $3.2 million per year. The Total Revenues line of the
Consolidated Statement of Operations includes pretax operating fees of $11.2
million for the 52 weeks ended January 28, 1995, January 29, 1994 and January
30, 1993. Based on current sales levels, Penn Traffic expects to receive
payment of the maximum contingent fee of $700,000 in each year remaining in the
term of the Operating Agreement.
-50-
At the expiration of the 10-year term of the Operating Agreement, Grand
Union has the right to extend the term of the Operating Agreement for an
additional five years. In the event of such extension of the lease term, Grand
Union will pay to Penn Traffic an annual fee of $13.6 million in the first year
of the extended term, $14.0 million in the second year, $14.4 million in the
third year, $14.9 million in the fourth year and $15.3 million in the fifth
year, plus contingent fees based on the sales performance of the stores of up to
$700,000 each year.
Penn Traffic also granted Grand Union an option (the "Purchase Option") to
purchase the stores operated by Grand Union under the Operating Agreement.
Grand Union paid Penn Traffic $7.5 million for the Purchase Option.
If Grand Union does not extend the initial term of the Operating Agreement
at its expiration in July 2000 or does not exercise the Purchase Option prior to
the expiration of the term (or the extended term), or in the event of a default
by Grand Union in the performance of its obligations pursuant to the Operating
Agreement, the stores operated by Grand Union pursuant to the Operating
Agreement will be returned to operation by Penn Traffic. Based on current
conditions, management does not believe that the return of operation of the
stores to Penn Traffic would have a significant impact on the financial
condition of the Company.
Grand Union purchases bakery products from Penn Traffic's Penny Curtiss
bakery, and Penn Traffic purchases products from Grand Union's commissary. All
of such purchases are made in the ordinary course of business. The amount of
bakery products purchased by Grand Union from Penny Curtiss was approximately
$3.5 million in Fiscal 1995, $3.1 million in Fiscal 1994 and $3.1 million in
Fiscal 1993. The amount of commissary product purchased by Penn Traffic from
Grand Union was approximately $0.3 million in Fiscal 1995, $0.4 million in
Fiscal 1994 and $0.5 million in Fiscal 1993.
In September 1993, Penn Traffic entered into a program to consolidate the
purchasing and distribution of health and beauty care products and general
merchandise with Grand Union. Under this program, Grand Union procures health
and beauty care products for both Grand Union and Penn Traffic, and Penn
Traffic, through its Big Bear division, procures general merchandise for both
Penn Traffic and Grand Union. Grand Union's general merchandise warehouse in
Montgomery, New York is used to distribute general merchandise and health and
beauty care products to Insalaco's, P&C, Quality Markets and Riverside stores.
This warehouse also supplies Penn Traffic's wholesale customers, as well as
Grand Union stores. Under this arrangement, the cost of operating the
Montgomery warehouse is shared by Penn Traffic in an amount proportionate to
Penn Traffic's usage of the facility. Penn Traffic owns the general merchandise
and health and beauty care products inventory located at the Montgomery, New
York warehouse. In Fiscal 1995, the amount of product sold by Penn Traffic to
Grand Union was $87.9 million. At January 28, 1995, the Company had recorded
net accounts receivable from Grand Union of $0.2 million.
-51-
As described in Note 9, Grand Union filed a voluntary petition for
reorganization under the Bankruptcy Code in January 1995. The Company's ongoing
relationships with Grand Union are being reevaluated in connection with the
pending Grand Union bankruptcy proceedings. No determination has yet been made
as to whether or on what basis Grand Union's purchase of Penn Traffic's bakery
products and Penn Traffic's purchase of Grand Union's commissary products, or
the arrangement with regard to consolidated purchasing and distribution of
health and beauty care products and of general merchandise, will be continued.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES:
The Company enters into various purchase commitments in the normal course
of business. No losses are expected to result from these purchase commitments.
At January 28, 1995, Penn Traffic had guaranteed obligations of $2.7
million of indebtedness of certain of licensed independent operators.
The Company, its subsidiaries and divisions also are involved in various
legal actions, some of which involve claims for substantial sums. However, any
ultimate liability with respect to these contingencies is not considered to be
material in relation to the consolidated financial position or results of
operations of the Company.
NOTE 12 -- EXTRAORDINARY ITEM:
During Fiscal 1995, Fiscal 1994 and Fiscal 1993, the Company had
extraordinary items of $3,025,000 (net of $2,045,000 income tax benefit),
$25,843,000 (net of $17,848,000 income tax benefit) and $10,823,000 (net of
$6,946,000 income tax benefit), respectively, relating to the early retirement
of debt.
-52-
NOTE 13 -- ACQUISITIONS:
On January 19, 1995, the Company acquired 45 food stores from American
Stores Company. The stores are located in north central and northeastern
Pennsylvania and in south central New York.
The acquisition cost of $91,570,000 was attributed to major categories of
assets obtained and obligations assumed as follows: inventories $15,502,000;
property, plant and equipment $9,638,000; other assets (goodwill) $81,217,000;
cash $566,000 and other noncurrent liabilities $15,353,000.
On September 27, 1993, the Company acquired 12 food stores from Insalaco's
Markets, Inc. The stores are located in northeastern Pennsylvania.
The acquisition cost of $51,651,000 was attributed to major categories of
assets obtained and obligations assumed as follows: inventories $6,633,000;
property, plant and equipment $9,947,000; other assets (goodwill) $37,071,000
and other noncurrent liabilities $2,000,000.
The unaudited consolidated results of operations on a pro forma basis as
though the American Stores Company stores and Insalaco's stores had been
acquired on January 31, 1993 are as follows:
FOR THE 52 WEEKS ENDED
----------------------
JANUARY 28, JANUARY 29,
1995 1994
----------- ---------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AND
AVERAGE NUMBER OF SHARES
AND EQUIVALENTS)
Total revenues $ 3,599,513 $ 3,534,710
Net income (loss) applicable to common stock $ 13,303 $ (17,978)
Net income (loss) per common share $ 1.19 $ (1.71)
Average number of common shares and
equivalents outstanding 11,169,337 10,561,256
The pro forma financial information is not necessarily indicative of the
results of operations that would have occurred had the purchase been made at the
beginning of the period or of the future results of the combined operations.
-53-
REPORT OF MANAGEMENT
Penn Traffic's management has prepared the financial statements presented in
this annual report and is responsible for the integrity of all information
contained herein. The financial statements presented in this report have been
audited by the independent accountants appointed by the Board of Directors on
the recommendation of its Audit Committee and management. The Company maintains
an effective system of internal accounting controls. The independent
accountants obtain and maintain an understanding of the Company's internal
accounting controls and conduct such tests and related procedures as they deem
necessary to express an opinion on the fairness of the presentation of the
financial statements. The Audit Committee, composed solely of outside
directors, meets periodically with management, internal auditors and independent
accountants to review auditing and financial reporting matters and to ensure
that each group is properly discharging its responsibilities. We rely on our
internal and external auditors to assist us in fulfilling our responsibility for
the fairness of the Company's financial reporting and monitoring the
effectiveness of our system of internal accounting controls.
-54-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
As permitted by General Instruction G(3), information concerning the executive
officers of Penn Traffic is set forth as a supplemental item included in Part I
of the Form 10-K Report under the caption "Executive Officers of Registrant."
Information concerning the directors of Penn Traffic is incorporated by
reference from pages 2 through 7 of the Proxy Statement dated May 1, 1995 filed
or to be filed in connection with the Company's Annual Meeting of Stockholders
to be held on June 7, 1995. Information concerning compliance with Section
16(a) of the Securities Exchange Act of 1934 is incorporated by reference from
page 13 of the Proxy Statement dated May 1, 1995 filed or to be filed in
connection with the Company's Annual Meeting of Stockholders to be held on June
7, 1995.
ITEM 11. EXECUTIVE COMPENSATION
The remuneration of directors and officers appearing on pages 14 through 29 of
the Company's Proxy Statement dated May 1, 1995 filed or to be filed in
connection with the Company's Annual Meeting of Stockholders to be held on
June 7, 1995 is incorporated herein by reference. The information set forth
after the first full paragraph of page 29 through page 38 of the Company's Proxy
Statement dated May 1, 1995, filed or to be filed in connection with the
Company's Annual Meeting of Stockholders to be held on June 7, 1995, is not
"filed" as a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The security ownership of certain shareholders appearing on pages 8 through 13
of the Company's Proxy Statement dated May 1, 1995 filed or to be filed in
connection with the Company's Annual Meeting of Stockholders to be held on
June 7, 1995 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
The information concerning certain relationships and related transactions
appearing on pages 39 through 41 of the Company's Proxy Statement dated
May 1, 1995 filed or to be filed in connection with the Company's Annual Meeting
of Stockholders to be held on June 7, 1995 is incorporated herein by reference.
-55-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The index for Financial Statements and Supplementary Data is on page 19 under
Item 8 of this Form 10-K.
EXHIBITS:
The following are filed as Exhibits to this Report:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Certificate of Merger for merger of Penn Traffic Acquisition
Corporation into Penn Traffic dated April 14, 1993 (incorporated by
reference to Exhibit No. 2.5 to Penn Traffic's Registration
Statement on Form S-3 (Reg. No. 33-51213) filed on December 8, 1993
with the Securities and Exchange Commission (the "SEC") and
referred to herein as the "December 1993 Registration Statement").
2.2 Plan of Merger dated as of February 25, 1993 for the merger of P&C
Food Markets, Inc. ("P&C") into Penn Traffic (incorporated by
reference to Exhibit No. 2.6 to Penn Traffic's Registration
Statement on Form S-3 (Reg. No. 33-58918) filed on April 7, 1993
with the SEC and referred to herein as the "April 1993 Registration
Statement").
2.3 Certificates of Merger for merger of P&C into Penn Traffic dated
April 14, 1993 (incorporated by reference to Exhibit No. 2.7 to the
December 1993 Registration Statement).
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EXHIBITS (CONTINUED):
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.4 Agreement and Plan of Merger dated as of February 25, 1993 by and
among Penn Traffic, Penn Traffic Acquisition Corporation and Big
Bear Stores Company ("Big Bear") (incorporated by reference to
Exhibit No. 2.8 to the April 1993 Registration Statement).
2.5 Certificate of Merger for merger of Big Bear into Penn Traffic
Acquisition Corporation dated April 14, 1993 (incorporated by
reference to Exhibit No. 2.9 to the December 1993 Registration
Statement).
2.6 Asset Purchase Agreement dated as of December 9, 1992 between Penn
Traffic and Peter J. Schmitt Co., Inc. (the "December 9, 1992 Asset
Purchase Agreement") (incorporated by reference to Exhibit No. 2.1
to Penn Traffic's Current Report on Form 8-K filed on January 18,
1993 with the SEC and referred to herein as the "Penn Traffic 1993
8-K").
2.6A Letter Agreement dated December 31, 1992 with respect to the
December 9, 1992 Asset Purchase Agreement (incorporated by
reference to Exhibit No. 2.1A to the Penn Traffic 1993 8-K).
2.7 Asset Purchase Agreement dated as of December 29, 1992 between Penn
Traffic and Peter J. Schmitt Co., Inc. (the "December 29, 1992
Asset Purchase Agreement") (incorporated by reference to Exhibit
No. 2.2 to the Penn Traffic 1993 8-K).
2.7A Letter Agreement dated December 30, 1992 with respect to the
December 29, 1992 Asset Purchase Agreement (incorporated by
reference to Exhibit No. 2.2A to the Penn Traffic 1993 8-K).
2.8 Agreement of Purchase and Sale, dated as of August 27, 1993, by and
between Insalaco Markets, Inc., Insalaco's Old Forge, Inc.,
Insalaco's Clarks Green, Inc., Insalaco's Supermarkets Warehouse,
Insalaco Enterprises, Insalaco's Real Estate, Insalaco's Foodliner,
Eagle Valley Realty, Tannersville Realty Company and Penn Traffic
(incorporated by reference to Exhibit No. 10.23 to Penn Traffic's
Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
1993 and referred to herein as the "Penn Traffic July 1993 10-Q").
2.9 Asset Purchase Agreement by and among Acme Markets, Inc., American
Stores Properties, Inc., American Stores Realty Corp. and The Penn
Traffic Company, dated as of September 30, 1994 (incorporated by
reference to Exhibit 2.13 to Penn Traffic's Report on Form 8-K
dated October 12, 1994 and referred to herein as the "1994 8-K").
3.1 Certificate of Incorporation of Penn Traffic (incorporated by
reference to Exhibit No. 3.1 to Penn Traffic's Registration
Statement on Form S-3 (Reg. No. 33-51824) filed on October 2, 1992
with the SEC and referred to herein as the "October 1992
Registration Statement").
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EXHIBITS (CONTINUED):
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.2 Amended and Restated By-Laws of Penn Traffic (incorporated by
reference to Exhibit No. 3.2 to the December 1993 Registration
Statement).
4.1 Certificate of Incorporation of Penn Traffic (filed as Exhibit No.
3.1).
4.2 Amended and Restated By-Laws of Penn Traffic (filed as Exhibit No.
3.2).
4.3 Form of Common Stock Certificate.
4.4 Indenture, including form of 11 1/2% Senior Note Due 2001, dated
as of October 16, 1991 between P&C and Bankers Trust Company
("Bankers Trust"), as Trustee (incorporated by reference to Exhibit
No. 10.25 to P&C's quarterly report on Form 10-Q for the fiscal
quarter ended November 2, 1991 and referred to herein as the "P&C
November 1991 10-Q").
4.4A First Supplemental Indenture dated as of April 15, 1993 between the
Company and Bankers Trust, as Trustee, relating to the 11 1/2%
Senior Notes Due 2001 (incorporated by reference to Exhibit No.
4.10A to Penn Traffic's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 1, 1993 and referred to herein as the
"Penn Traffic May 1993 10-Q").
4.5 Indenture, including form of 10 1/4% Senior Note Due February 15,
2002, dated as of February 18, 1992 between Penn Traffic and Marine
Midland Bank, N.A., Trustee (incorporated by reference to Exhibit
No. 4.13 to Penn Traffic's Annual Report on Form 10-K for the
fiscal year ended February 1, 1992 and referred to herein as the
"Penn Traffic 1992 10-K").
4.5A First Supplemental Indenture dated as of June 10, 1992 to the
Indenture dated as of February 18, 1992, relating to the
10 1/4% Senior Notes Due 2002, between Penn Traffic and Marine
Midland Bank, N.A., as Trustee (incorporated by reference to
Exhibit 4.15A to the October 1992 Registration Statement).
4.5B Second Supplemental Indenture dated as of September 18, 1992 to the
Indenture dated as of February 18, 1992, relating to the 10 1/4%
Senior Notes Due 2002, between Penn Traffic and Marine Midland
Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.15B
to the October 1992 Registration Statement).
4.6 Indenture, including form of 10 3/8% Senior Note Due October 1,
2004, dated as of October 1, 1992, between Penn Traffic and United
States Trust Company of New York, as Trustee (incorporated by
reference to Exhibit No. 4.16 to Penn Traffic's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31, 1992).
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EXHIBITS (CONTINUED):
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.7 Indenture, including form of 9 5/8% Senior Subordinated Note Due
April 15, 2005, dated as of April 15, 1993, between Penn Traffic
and First Trust of California, National Association, as Trustee
(incorporated by reference to Exhibit No. 4.14 to the Penn Traffic
May 1993 10-Q).
4.8 Indenture dated as of December 15, 1993, between Penn Traffic and
United States Trust Company of New York, as Trustee (incorporated by
reference to Exhibit No. 4.9 to Penn Traffic's Form 10-K for the
fiscal year ended January 29, 1994, and referred to herein as the
"1994 10-K").
4.8A Officer's Certificate pursuant to the Indenture filed as Exhibit
4.8, dated December 21, 1993, establishing the terms of the 8 5/8%
Senior Notes due December 15, 2003.
4.8B Officer's Certificate pursuant to the Indenture filed as Exhibit
4.8, dated October 20, 1994, establishing the terms of the 10.65%
Senior Notes due November 1, 2004.
10.1 Membership and Licensing Agreement dated April 18, 1982 among TOPCO
Associates, Inc. (Cooperative), Kingston Marketing Co. and Penn
Traffic (incorporated by reference to Exhibit No. 10.2 to Penn
Traffic's Registration Statement on Form S-1 (Reg. No. 33-12926)
filed on March 27, 1987 with the SEC and referred to herein as the
"1987 Registration Statement").
*10.2 The Penn Traffic Company Incentive Compensation Plan (incorporated
by reference to Exhibit No. 10.3 to the 1987 Registration
Statement).
*10.3 The Penn Traffic Company Severance Pay Plan (incorporated by
reference to Exhibit No. 10.5 to the 1987 Registration Statement).
*10.4 Riverside Division of The Penn Traffic Company Bargaining Employees
Pension Plan (incorporated by reference to Exhibit No. 10.6 to the
1987 Registration Statement).
*10.5 Pension Plan for Non-Bargaining Employees of Riverside Division of
The Penn Traffic Company (incorporated by reference to Exhibit No.
10.7 to the 1987 Registration Statement).
*10.6 Johnstown Sanitary Dairy Pension Plan for Bargaining Employees
(incorporated by reference to Exhibit No. 10.8 to the 1987
Registration Statement).
*10.7 Johnstown Sanitary Dairy Salaried Personnel Pension Plan
(incorporated by reference to Exhibit No. 10.9 to the 1987
Registration Statement).
- ----------------------
* Management contract, compensatory plan or arrangement.
-59-
EXHIBITS (CONTINUED):
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10.8 Quality Markets, Inc. ("Quality") Profit Sharing Plan (incorporated
by reference to Exhibit No. 10.11 to the 1987 Registration
Statement).
10.9 Loan and Security Agreement (the "Loan and Security Agreement")
among Penn Traffic, Quality, Dairy Dell, Big M Supermarkets, Inc.
("Big M"), Penny Curtiss Baking Company Inc. ("Penny Curtiss"),
and Hart Stores, Inc. ("Hart"), the lenders party thereto and
NatWest USA Credit Corp., as Agent, dated March 5, 1993
(incorporated by reference to Exhibit No. 10.2 to the April 1993
Registration Statement).
10.9A Amendment No. 1, dated March 12, 1993, to the Loan and Security
Agreement (incorporated by reference to Exhibit No. 10.2A to the
April 1993 Registration Statement).
10.9B Amendment No. 2, dated as of March 24, 1993, to the Loan and
Security Agreement (incorporated by reference to Exhibit No. 10.2B
to the April 1993 Registration Statement).
10.9C Waiver Letter dated as of April 14, 1993, among the lenders under
the Loan and Security Agreement, Penn Traffic, Quality, Dairy Dell,
Big M, Penny Curtiss and Hart (incorporated by reference to Exhibit
No. 10.22C to the Penn Traffic May 1993 10-Q).
10.9D Amendment No. 3, dated as of April 15, 1993, to the Loan and
Security Agreement (incorporated by reference to Exhibit No. 10.22D
to the Penn Traffic May 1993 10-Q).
10.9E Amendment No.4, dated as of August 20, 1993, to the Loan and
Security Agreement (incorporated by reference to Exhibit No. 10.22E
to the Penn Traffic July 1993 10-Q).
10.9F Amendment No. 5, dated as of August 24, 1994, to the Loan and
Security Agreement (incorporated by reference to Exhibit 10.9F to
Penn Traffic's Report on Form 10-Q for the fiscal quarter ended
July 30, 1994 and referred to herein as the "July 1994 10-Q").
10.9G Amendment No. 6, dated as of August 24, 1994, to the Loan and
Security Agreement (incorporated by reference to Exhibit 10.9G to
the July 1994 10-Q).
10.9H Consent and Amendment to the Loan and Security Agreement, dated as
of September 29, 1994 (incorporated by reference to Exhibit 10.9H
to the 1994 Form 8-K).
10.10 Engagement Letter dated as of January 30, 1994 by and among Penn
Traffic and Miller Tabak Hirsch + Co. (incorporated by reference to
Exhibit 10.10 to the 1994 10-K).
- ----------------------
* Management contract, compensatory plan or arrangement.
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EXHIBITS (CONTINUED):
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10.11 U-Save Foods, Inc. Employees' Retirement Plan (incorporated by
reference to Exhibit No. 10.17 to Penn Traffic's Annual Report on
Form 10-K for the fiscal year ended January 30, 1988).
*10.12 The Penn Traffic Company Directors' Stock Option Plan (incorporated
by reference to Exhibit No. 10.20 to Penn Traffic's Annual Report
on Form 10-K for the fiscal year ended February 3, 1990 and
referred to herein as the "Penn Traffic 1990 10-K").
10.13 Agreement and Master Sublease dated as of July 30, 1990, by and
between The Grand Union Company and P&C (incorporated by reference
to Exhibit No. 10.24 to Penn Traffic's Quarterly Report on Form 10-
Q for the Fiscal Quarter ended August 4, 1990 and referred to
herein as the "Penn Traffic August 1990 10-Q").
10.14 Interest Rate and Currency Exchange Agreement dated as of October
16, 1991 between Salomon Brothers Holding Company, Inc. ("SBHC")
and P&C (incorporated by reference to Exhibit No. 10.27 to the P&C
November 1991 10-Q).
- ----------------------
* Management contract, compensatory plan or arrangement.
-61-
EXHIBITS (CONTINUED):
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.14A Letter Agreement dated October 16, 1991 from SBHC to P&C, setting
forth the terms and conditions of the swap transaction and interest
rate transaction entered into between SBHC and P&C on October 16,
1991 (incorporated by reference to Exhibit No. 10.27A to the P&C
November 1991
10-Q).
10.15 Interest Rate and Currency Exchange Agreement dated as of October
16, 1991 between SBHC and Big Bear (incorporated by reference to
Exhibit No. 10.22 to Big Bear's Quarterly Report on Form 10-Q for
the quarterly period ended November 2, 1991 and referred to herein
as the "Big Bear third quarter 1991 10-Q").
10.15A Letter Agreement dated October 16, 1991 from SBHC to Big Bear
setting forth the terms and conditions of the swap transaction and
interest (incorporated by reference to Exhibit No. 10.22A for the
Big Bear 1991 third quarter 10-Q).
*10.16 Employment Agreement, dated as of February 2, 1992, among Penn
Traffic, P & C and Claude J. Incaudo (incorporated by reference to
Exhibit No. 10.37 to the Penn Traffic 1992
10-K).
*10.17 The Penn Traffic Company's 1993 Long Term Incentive Plan (filed as
Exhibit "A" to Penn Traffic's Proxy Statement filed with the SEC on
May 1, 1993 and incorporated herein by reference).
10.18 First Mortgage, Security Agreement, Financing Statement and
Assignment of Leases and Rents dated as of October 25, 1993 by and
among Penn Traffic and Onondaga County Industrial Development
Agency, as mortgagor and NatWest USA Credit Corp., as mortgagee
(incorporated by reference to Exhibit No. 10.24 to Penn Traffic's
Quarterly Report on Form 10-Q for the fiscal quarter ended October
31, 1993).
10.19 Underwriting Agreement relating to Debt Securities, dated December
14, 1993, between Penn Traffic and Goldman, Sachs & Co. and BT
Securities Corporation (incorporated by reference to Exhibit 10.24
to Penn Traffic's 1994 10-K).
10.20 Agreement Containing Consent Order dated January 9, 1995 by and
between Penn Traffic and the Federal Trade Commission entered into
in the matter of The Penn Traffic Company (incorporated by
reference to Exhibit 10.25 to Penn Traffic's Report on Form 8-K
dated January 19, 1995).
10.21 Agreement, dated November 18, 1994, between Penn Traffic and Grand
Union relating to the Grand Union warehouse in Montgomery, New
York.
- ----------------------
* Management contract, compensatory plan or arrangement.
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EXHIBITS (CONTINUED):
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10.22 Employment Agreement, dated as of January 29, 1995, between John T.
Dixon and Penn Traffic.
21.1 Subsidiaries of Penn Traffic (incorporated by reference to Exhibit
21.1 to Penn Traffic's 1994 10-K).
23.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
- ----------------------
* Management contract, compensatory plan or arrangement.
- --------------------------------------------------------------------------------
Copies of the above exhibits will be furnished without charge to any shareholder
by writing to Treasurer, The Penn Traffic Company, 1200 State Fair Boulevard,
Syracuse, New York 13221.
REPORTS ON FORM 8-K
On October 12, 1994 and January 27, 1995, the Company filed reports on Form
8-K relating to the acquisition of 45 stores from American Stores Company.
-63-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE PENN TRAFFIC COMPANY
April 26, 1995 By: /s/ John T. Dixon
-------------- ----------------------------
DATE John T. Dixon, President,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Gary D. Hirsch /s/ Eugene R. Sunderhaft
- ------------------------------------- -----------------------------
Gary D. Hirsch, Chairman of the Board Eugene R. Sunderhaft,
and Director Senior Vice President
and Secretary
April 26, 1995 (Principal Financial Officer and
-------------- Principal Accounting Officer)
DATE
April 26, 1995
--------------
DATE
/s/ Eugene A. DePalma
- ------------------------------------- -----------------------------
Susan E. Engel, Director Eugene A. DePalma, Director
April 26, 1995 April 26, 1995
-------------- -------------
DATE DATE
/s/ Martin A. Fox
- ------------------------------------- -----------------------------
Martin A. Fox, Director Joseph J. McCaig, Director
April 26, 1995 April 26, 1995
-------------- --------------
DATE DATE
/s/ Guido Malacarne /s/ Harold S. Poster
- ------------------------------------- -----------------------------
Guido Malacarne, Director Harold S. Poster, Director
April 26, 1995 April 26, 1995
-------------- --------------
DATE DATE
/s/ Richard D. Segal /s/ Claude J. Incaudo
- ------------------------------------- -----------------------------
Richard D. Segal, Director Claude J. Incaudo, Director
April 26, 1995 April 26, 1995
-------------- --------------
DATE DATE
-64-
THE PENN TRAFFIC COMPANY
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS
BALANCE CHARGED DEDUCTIONS BALANCE
AT BEGINNING TO COSTS FROM AT END
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS OF PERIOD
- ----------- --------- ------------ -------- ----------
Reserve deducted from asset
to which it applies:
FOR THE 52 WEEKS ENDED
JANUARY 28, 1995
Provision for doubtful
accounts. . . . . . . . . . $ 740 $ 1,610 $ 976(a) $ 1,374
------- ------- ------- -------
------- ------- ------- -------
FOR THE 52 WEEKS ENDED
JANUARY 29, 1994
Provision for doubtful
accounts. . . . . . . . . . $ 661 $ 1,806 $ 1,727(a) $ 740
------- ------- ------- -------
------- ------- ------- -------
FOR THE 52 WEEKS ENDED
JANUARY 30, 1993
Provision for doubtful
accounts. . . . . . . . . . $ 643 $ 1,196 $ 1,178(a) $ 661
------- ------- ------- -------
------- ------- ------- -------
<FN>
(a) Uncollectible receivables written off net of recoveries.
-65-