UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 4, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission file number 1-9930
THE PENN TRAFFIC COMPANY
(Exact name of registrant as specified in its charter)
Delaware 25-0716800
(State of incorporation) (IRS Employer Identification No.)
1200 State Fair Blvd., Syracuse, NY 13209
(Address of principal executive offices) (Zip Code)
(315) 453-7284
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X . NO .
--- ---
Common stock, par value $1.25 per share: 10,869,941 shares
outstanding as of May 30, 1996
Page 1 of 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(All dollar amounts in thousands,
except per share data)
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MAY 4, 1996 APRIL 29, 1995
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TOTAL REVENUES $827,658 $860,028
COST AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy
costs) 635,996 662,449
Selling and administrative
expenses 170,845 164,222
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OPERATING INCOME 20,817 33,357
Interest expense 34,560 33,034
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(LOSS) INCOME BEFORE INCOME TAXES (13,743) 323
Benefit (provision) for
income taxes 4,714 (194)
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NET (LOSS) INCOME $ (9,029) $ 129
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PER SHARE DATA:
Net (loss) income $ (.83) $ .01
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Average number of common
shares outstanding 10,896,286 11,149,486
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands)
UNAUDITED
MAY 4, 1996 FEBRUARY 3, 1996
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ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 58,707 $ 58,585
Accounts and notes receivable
(less allowance for doubtful accounts
of $1,851 and $1,483, respectively) 83,724 83,519
Inventories (Note 3) 353,943 356,309
Prepaid expenses and other current assets 18,318 15,717
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Total Current Assets 514,692 514,130
NONCURRENT ASSETS:
Capital leases - net 128,325 122,529
Property, plant and equipment - net 595,904 602,440
Intangible assets - net 428,753 431,394
Other assets and deferred charges - net 92,286 89,653
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$1,759,960 $1,760,146
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,658 $ 2,728
Current portion of obligations
under capital leases 12,041 11,735
Trade accounts and drafts payable 192,884 208,880
Payroll and other accrued liabilities 81,000 82,154
Accrued interest expense 15,918 33,812
Payroll taxes and other taxes payable 14,957 16,880
Deferred income taxes 30,385 30,385
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Total Current Liabilities 349,843 386,574
NONCURRENT LIABILITIES:
Long-term debt 1,243,031 1,200,997
Obligations under capital leases 132,177 126,197
Deferred income taxes 38,789 38,789
Other noncurrent liabilities 58,374 60,860
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Total Liabilities 1,822,214 1,813,417
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SHAREHOLDERS' EQUITY:
Preferred Stock - authorized 10,000,000
shares at $1.00 par value; none issued
Common Stock - authorized 30,000,000
shares at $1.25 par value; 10,867,941
shares and 10,840,849 shares
issued, respectively 13,611 13,606
Capital in excess of par value 180,069 180,029
Retained deficit (244,771) (235,223)
Minimum pension liability adjustment (6,606) (6,606)
Unearned compensation (3,932) (4,452)
Treasury stock, at cost (625) (625)
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Total Shareholders' Equity (62,254) (53,271)
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$1,759,960 $1,760,146
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See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(All dollar amounts in thousands)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 4, 1996 APRIL 29, 1995
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OPERATING ACTIVITIES:
Net (loss) income $ (9,029) $ 129
Adjustments to reconcile
net (loss) income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 18,745 18,892
Amortization of intangibles 4,077 4,253
Other - net (2,305) (1,037)
Net change in assets and liabilities:
Accounts receivable and prepaid expenses (2,598) 3,300
Inventories 2,366 (7,193)
Accounts payable and accrued expenses (36,967) (6,855)
Deferred charges and other assets (1,152) 358
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NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (26,863) 11,847
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INVESTING ACTIVITIES:
Capital expenditures (20,143) (22,467)
Other - net 1,148 2
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NET CASH (USED IN) INVESTING ACTIVITIES (18,995) (22,465)
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FINANCING ACTIVITIES:
Increase in long-term debt 104,840
Payments to settle long-term debt (876) (839)
Borrowings of revolver debt 143,000 173,600
Payment of revolver debt (205,000) (159,400)
Proceeds from sale-and-leaseback
transactions 9,087
Reduction of capital lease obligations (2,801) (2,254)
Payment of debt issuance costs (2,315)
Other - net 45 100
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 45,980 11,207
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INCREASE IN CASH AND CASH EQUIVALENTS 122 589
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 58,585 46,519
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 58,707 $ 47,108
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See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The results of operations for the interim periods are not necessarily an
indication of results to be expected for the year. In the opinion of
management, all adjustments necessary for a fair presentation of the results are
included for the interim periods, and all such adjustments are normal and
recurring. These unaudited interim financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Annual Report on Form 10-K for the fiscal year ended February
3, 1996.
Net (loss) income per share of common stock is based on the average number
of shares and equivalents, as applicable, of common stock outstanding during
each period. Fully diluted (loss) income per share is not presented for each of
the periods since conversion of the Company's shares under option would be anti-
dilutive or the reduction from primary (loss) income per share is less than
three percent.
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NOTE 2 - SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands of dollars)
FIRST QUARTER, FISCAL 1997
Operating Income $20,817
Depreciation and Amortization 22,822
LIFO Provision 1,000
Cash Interest Expense 33,485
FIRST QUARTER, FISCAL 1996
Operating Income $33,357
Depreciation and Amortization 23,145
LIFO Provision 0
Cash Interest Expense 31,964
NOTE 3 - INVENTORIES
If the first-in, first-out (FIFO) method had been used by the Company,
inventories would have been $18,848,000 and $17,848,000 higher than reported at
May 4, 1996 and February 3, 1996, respectively.
NOTE 4 - DEBT OFFERING
In April 1996, the Company issued $100,000,000 of 11.50% Senior Notes due
April 15, 2006 (the "11.50% Senior Notes") in an underwritten public offering.
During First Quarter Fiscal 1997, proceeds of the issuance of the 11.50% Senior
Notes were applied to the repayment of indebtedness outstanding under the
Company's revolving credit facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MAY 4, 1996 ("FIRST QUARTER FISCAL 1997") COMPARED TO
THIRTEEN WEEKS ENDED APRIL 29, 1995 ("FIRST QUARTER FISCAL 1996")
The following table sets forth statement of operations components expressed
as a percentage of total revenues for First Quarter Fiscal 1997 and First
Quarter Fiscal 1996:
First Quarter Ended
May 4, April 29,
1996 1995
Total revenues 100.0% 100.0%
Gross profit (1) 23.2 23.0
Selling and administrative
expenses 20.7 19.1
Operating income 2.5 3.9
Interest expense 4.2 3.8
(Loss) income before
income taxes (1.7) 0.1
Net (loss) income (1.1) 0.0
(1) Total revenues less cost of sales.
Total revenues for First Quarter Fiscal 1997 decreased to $827.7 million
from $860.0 million in First Quarter Fiscal 1996. First Quarter Fiscal 1996
revenues include $19.4 million generated by 11 of the Company's former general
merchandise stores (Harts) and five former Acme stores, all of which were closed
after First Quarter Fiscal 1996. Excluding these closed stores, revenues for
First Quarter Fiscal 1997 decreased by 1.5%. Wholesale supermarket sales were
$101.7 million in First Quarter Fiscal 1997 and $101.4 million in First Quarter
Fiscal 1996. Same store sales for First Quarter Fiscal 1997 declined 1.0%.
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RESULTS OF OPERATIONS (CONTINUED)
In First Quarter Fiscal 1997, gross profit was $191.7 million compared to
First Quarter Fiscal 1996 gross profit of $197.6 million, representing 23.2% and
23.0% of total revenues, respectively. The increase in gross profit as a
percentage of total revenues for First Quarter Fiscal 1997 resulted from the
classification of certain expenses approximating $1.8 million as selling and
administrative expenses in First Quarter Fiscal 1997 which had been recorded in
cost of sales in First Quarter Fiscal 1996.
Selling and administrative expenses for First Quarter Fiscal 1997 were
$170.8 million compared with $164.2 million in First Quarter Fiscal 1996
representing 20.7% and 19.1% of total revenues, respectively. The increase in
selling and administrative expenses as a percentage of total revenues for First
Quarter Fiscal 1997 primarily resulted from (1) increased payroll and
promotional expenses related to the Company's repositioning program which
emphasizes increased levels of customer service and enhanced perishables
departments in its stores, (2) an increase in fixed and semi-fixed expenses as a
percentage of total revenues during a period of low price inflation and a
decline in same store sales, and (3) the classification of certain expenses
approximating $1.8 million as selling and administrative expenses in First
Quarter Fiscal 1997 which had been recorded in cost of sales in First Quarter
Fiscal 1996.
Depreciation and amortization expense was $22.8 million in First Quarter
Fiscal 1997 and $23.1 million in First Quarter Fiscal 1996, representing 2.8%
and 2.7% of total revenues, respectively.
Operating income for First Quarter Fiscal 1997 was $20.8 million or 2.5%
of total revenues compared to $33.4 million or 3.9% of total revenues in First
Quarter Fiscal 1996. The decline in operating income as a percentage of total
revenues was the result of increased selling and administrative expenses as a
percentage of total revenues, partially offset by an increase in gross profit as
a percentage of total revenues.
Interest expense for First Quarter Fiscal 1997 and First Quarter Fiscal
1996 was $34.6 million and $33.0 million, respectively. The increase in
interest expense is due to the higher debt levels outstanding during First
Quarter Fiscal 1997.
Loss before income taxes was $13.7 million for First Quarter Fiscal 1997,
compared to income of $0.3 million for First Quarter Fiscal 1996. The reason
for the decline is the decrease in operating income combined with an increase in
interest expense.
The income tax benefit was $4.7 million for First Quarter Fiscal 1997
compared to a provision of $0.2 million in First Quarter Fiscal 1996. The
effective tax rates vary from the statutory rates due to differences between
income for financial reporting and tax reporting purposes, primarily related to
goodwill amortization resulting from prior acquisitions.
Net loss was $9.0 million in First Quarter Fiscal 1997 compared to net
income of $0.1 million in First Quarter Fiscal 1996.
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LIQUIDITY AND CAPITAL RESOURCES
During First Quarter Fiscal 1997, operating income decreased to $20.8
million from $33.4 million for First Quarter Fiscal 1996. Interest expense for
First Quarter Fiscal 1997 was $34.6 million as compared to $33.0 million during
First Quarter Fiscal 1996. Net loss for First Quarter Fiscal 1997 was $9.0
million as compared to net income of $0.1 million for First Quarter Fiscal 1996.
Payments of principal and interest on the Company's $1.2 billion of long-
term debt (excluding capital leases) will materially restrict Company funds
available to finance capital expenditures and working capital. Principal
payments of long-term debt of $1.9 million, $2.2 million and $3.3 million are
due during the remainder of Fiscal 1997, Fiscal 1998 and Fiscal 1999,
respectively.
The Company has a revolving credit facility (the "Revolving Credit
Facility") which provides for borrowings of up to $250 million, subject to a
borrowing base limitation measured by eligible inventory and accounts receivable
of the Company. The Revolving Credit Facility matures in April 2000 and is
secured by a pledge of the Company's inventory, accounts receivable and related
assets. As of May 4, 1996, additional availability under the Revolving Credit
Facility was $137.1 million.
During First Quarter Fiscal 1997, the Company's internally generated funds
from operations, amounts available under the Revolving Credit Facility and the
proceeds of sale-and-leaseback and mortgage transactions provided sufficient
liquidity to meet the Company's operating, capital expenditure and debt service
needs. In April 1996, the Company issued $100 million of 11.50% Senior Notes
due April 15, 2006 (the "11.50% Senior Notes") in an underwritten public
offering. During First Quarter Fiscal 1997, proceeds of the issuance of the
11.50% Senior Notes were used to repay indebtedness outstanding under the
Revolving Credit Facility.
The Company has entered into three interest rate swap agreements, each of
which expires within the next three years, that effectively convert $125 million
of its fixed rate borrowings into variable rate obligations. Under the terms of
these agreements, the Company makes payments at variable rates which are based
on LIBOR and receives payments at fixed interest rates. The net amount paid or
received is included in interest expense.
In October 1995, Penn Traffic's Board of Directors authorized the
repurchase by the Company of up to 500,000 shares of its outstanding common
stock, of which 45,200 shares have been repurchased. No shares of common stock
were repurchased in First Quarter Fiscal 1997. Penn Traffic's debt agreements
contain limitations on the Company's ability to repurchase its common stock
which currently prohibit it from repurchasing any additional shares of its
common stock.
Cash flows to meet the Company's requirements for operating, investing and
financing activities in First Quarter Fiscal 1997 are reported in the
Consolidated Statement of Cash Flows. For the thirteen week period ended May 4,
1996, the Company experienced a negative cash flow from operating activities of
$26.9 million.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Working capital increased by $37.3 million from February 3, 1996 to May 4,
1996.
The Company is in compliance with all terms and restrictive covenants of
its long-term debt agreements.
The Company expects to spend approximately $80 million on capital
expenditures, including capital leases, during Fiscal 1997. The Company expects
to finance such capital expenditures through internally generated cash flow,
borrowings under the Revolving Credit Facility, new capital leases and
mortgages. Capital expenditures will be principally for new stores, replacement
stores and remodeled store facilities. In First Quarter Fiscal 1997, the
Company opened a replacement store and completed three expansions.
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PART II. OTHER INFORMATION
All items which are not applicable or to which the answer is negative have
been omitted from this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Penn Traffic's Annual Meeting of Stockholders was held on June 4, 1996. At
the Annual Meeting, the holders of Penn Traffic common stock considered and
voted upon a proposal to approve and adopt the Company's Amended and Restated
Directors' Stock Option Plan (the "Plan"). Approval and adoption of the Plan
required the affirmative vote of a majority of the votes cast. There were
6,950,767 votes cast in favor of the Plan and 2,981,152 votes cast against the
Plan. There were 45,622 abstentions.
At the Annual Meeting, two directors were elected to serve for three-year
terms on the Company's Board of Directors by the following votes:
FOR WITHHELD
Martin A. Fox 7,033,500 2,944,041
Harold S. Poster 7,030,122 2,947,419
At the Annual Meeting, the selection of Price Waterhouse LLP as auditors
for the Company for Fiscal 1997 was ratified by a vote of 9,195,631 shares in
favor and 776,827 shares opposed. There were 5,084 abstentions.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
4.8C Officer's Certificate pursuant to the Indenture
filed as Exhibit 4.8, dated April 23, 1996,
establishing the terms of the 11.50% Senior Notes
due April 15, 2006.
10.5N Amendment No. 13, dated as of May 31, 1996, to the
Loan and Security Amendment.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
May 4, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PENN TRAFFIC COMPANY
June 07, 1996 /s/- John T. Dixon
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By: John T. Dixon
(President and Chief
Executive Officer, and
Director)
June 07, 1996 /s/- Eugene R. Sunderhaft
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By: Eugene R. Sunderhaft
(Senior Vice President and
Secretary, Principal Financial
Officer and Principal Accounting
Officer)
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