UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 2, 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: 10,914,641 shares
outstanding as of December 2, 1996
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 THIRTY-NINE WEEKS ENDED
NOVEMBER 2, OCTOBER 28, NOVEMBER 2, OCTOBER 28,
1996 1995 1996 1995
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TOTAL REVENUES $ 811,125 $ 844,619 $2,481,547 $2,588,876
COST AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy
costs) 630,443 651,972 1,915,022 2,000,278
Selling and administrative
expenses 169,877 163,010 514,050 492,012
Unusual item (Note 4) 65,237
----------- ---------- ---------- ----------
OPERATING INCOME 10,805 29,637 52,475 31,349
Interest expense 36,591 33,406 107,309 99,434
----------- ---------- ---------- ----------
(LOSS) BEFORE INCOME TAXES (25,786) (3,769) (54,834) (68,085)
Benefit for income taxes 9,862 3,419 19,732 16,160
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NET (LOSS) $ (15,924) $ (350) $ (35,102) $ (51,925)
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----------- ---------- ---------- ----------
PER SHARE DATA:
Net (loss) $ (1.46) $ (.03) $ (3.23) $ (4.78)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Average number of common
shares outstanding 10,869,441 10,867,977 10,863,407 10,861,394
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands)
UNAUDITED
NOVEMBER 2, 1996 FEBRUARY 3, 1996
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ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 51,022 $ 58,585
Accounts and notes receivable
(less allowance for doubtful accounts
of $3,456 and $1,483, respectively) 75,133 83,519
Inventories (Note 3) 376,531 356,309
Prepaid expenses and other current assets 18,143 15,717
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Total Current Assets 520,829 514,130
NONCURRENT ASSETS:
Capital leases - net 133,617 122,529
Property, plant and equipment - net 583,863 602,440
Intangible assets - net 424,812 431,394
Other assets and deferred charges - net 95,095 89,653
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$1,758,216 $1,760,146
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,345 $ 2,728
Current portion of obligations
under capital leases 14,019 11,735
Trade accounts and drafts payable 191,933 208,880
Payroll and other accrued liabilities 78,126 82,154
Accrued interest expense 16,049 33,812
Payroll taxes and other taxes payable 9,769 16,880
Deferred income taxes 30,385 30,385
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Total Current Liabilities 343,626 386,574
NONCURRENT LIABILITIES:
Long-term debt 1,284,263 1,200,997
Obligations under capital leases 136,189 126,197
Deferred income taxes 29,178 38,789
Other noncurrent liabilities 53,263 60,860
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Total Liabilities 1,846,519 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; 10,869,441
shares and 10,840,849 shares
issued, respectively 13,613 13,606
Capital in excess of par value 180,092 180,029
Retained deficit (273,277) (235,223)
Minimum pension liability adjustment (6,606) (6,606)
Unearned compensation (1,500) (4,452)
Treasury stock, at cost (625) (625)
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Total Shareholders' Equity (88,303) (53,271)
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$1,758,216 $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)
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
NOVEMBER 2, 1996 OCTOBER 28, 1995
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OPERATING ACTIVITIES:
Net (loss) $ (35,102) $ (51,925)
Adjustments to reconcile
net (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 56,914 55,610
Amortization of intangibles 12,285 12,489
Write-off of fixed assets 16,416
Write-off of intangible assets 32,809
Deferred tax benefit (13,313)
Other - net (16,004) (14,148)
Net change in assets and liabilities:
Accounts receivable and prepaid
expenses 4,234 2,847
Inventories (20,222) (3,823)
Accounts payable and accrued expenses (45,851) (12,784)
Deferred charges and other assets (4,420) 1,052
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NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (48,166) 25,230
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INVESTING ACTIVITIES:
Capital expenditures (53,477) (102,004)
Proceeds from sale-and-leaseback
transactions 19,879
Proceeds from sale of assets 3,439 1,512
Other - net (115) (1,010)
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NET CASH (USED IN) INVESTING ACTIVITIES (30,274) (101,502)
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FINANCING ACTIVITIES:
Increase in long-term debt 106,840
Payments to settle long-term debt (2,756) (2,462)
Borrowings of revolver debt 357,400 452,200
Payment of revolver debt (377,600) (371,400)
Reduction of capital lease obligations (9,560) (6,972)
Payment of debt issuance costs (3,517) (168)
Purchase of treasury stock (474)
Other - net 70 347
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NET CASH PROVIDED BY FINANCING ACTIVITIES 70,877 71,071
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(DECREASE) IN CASH AND CASH EQUIVALENTS (7,563) (5,201)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 58,585 46,519
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 51,022 $ 41,318
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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) Third Quarter Thirty-nine Weeks
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Fiscal 1997
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Operating Income $ 10,805 $ 52,475
Depreciation and Amortization 23,397 69,199
LIFO Provision 825 2,650
Cash Interest Expense 35,440 103,943
Fiscal 1996
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Operating Income $ 29,637 $ 96,586 *
Unusual Item 0 65,237
Depreciation and Amortization 22,347 68,099
LIFO Provision 859 1,717 *
Cash Interest Expense 32,334 96,219
* Excludes the effect of the unusual item.
NOTE 3 - INVENTORIES
If the first-in, first-out (FIFO) method had been used by the Company,
inventories would have been $20,498,000 and $17,848,000 higher than reported at
November 2, 1996 and February 3, 1996, respectively.
NOTE 4 - UNUSUAL ITEM
During the second quarter of Fiscal 1996, the Company recorded certain
expenses totaling $65.2 million ($51.9 million net of tax benefit) classified as
an unusual item. The unusual item was related to the closure of the stand alone
general merchandise business (Harts), the write-off of equipment which the
Company determined would no longer utilize in its business, costs incurred in
connection with the Company's expense reduction program and an increase in the
Company's closed store reserve.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ("THIRD QUARTER FISCAL 1997") AND THIRTY-NINE WEEKS ENDED
NOVEMBER 2, 1996 COMPARED TO THIRTEEN WEEKS ("THIRD QUARTER FISCAL 1996") AND
THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995
The following table sets forth statement of operations components expressed
as a percentage of total revenues for Third Quarter Fiscal 1997 and Third
Quarter Fiscal 1996 and for the thirty-nine weeks ended November 2, 1996 and
October 28, 1995, respectively:
Third Quarter Ended Thirty-nine Weeks Ended
NOVEMBER 2, October 28, NOVEMBER 2, October 28,
1996 1995 1996 1995
-------- -------- -------- --------
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit (1) 22.3 22.8 22.8 22.7
Selling and administrative
expenses 21.0 19.3 20.7 19.0
Unusual item 2.5
Operating income 1.3 3.5 2.1 1.2
Interest expense 4.5 4.0 4.3 3.8
(Loss) before income taxes (3.2) (0.5) (2.2) (2.6)
Net (loss) (2.0) 0.0 (1.4) (2.0)
(1) Total revenues less cost of sales.
Total revenues for Third Quarter Fiscal 1997 decreased to $811.1 million
from $844.6 million in Third Quarter Fiscal 1996. Total revenues for the
thirty-nine week period ended November 2, 1996 decreased to $2.48 billion from
$2.59 billion for the thirty-nine week period ended October 28, 1995. Same
store sales for Third Quarter Fiscal 1997 declined 1.9%.
The decrease in total revenues is primarily the result of the Harts closure
and a decline in same store sales. Third Quarter Fiscal 1996 revenues and
revenues for the thirty-nine week period ended October 28, 1995 included $12.5
million and $43.2 million, respectively, generated by 11 of the Company's former
general merchandise stores (Harts) and certain former Acme stores, which were
closed during Fiscal 1996. Excluding these closed stores, revenues for Third
Quarter Fiscal 1997 and for the thirty-nine week period ended November 2, 1996
decreased 2.5%.
Wholesale supermarket revenues decreased in Third Quarter Fiscal 1997 to
$98.2 million from Third Quarter Fiscal 1996 revenues of $102.9 million and
decreased to $304.2 million for the thirty-nine weeks ended November 2, 1996
from $310.5 million for the thirty-nine weeks ended October 28, 1995.
-7-
RESULTS OF OPERATIONS (CONTINUED)
The Company experienced a work stoppage at its Sani-Dairy division from
August 1, 1996 through September 22, 1996. Operating income was reduced by
approximately $2.5 million during Third Quarter Fiscal 1997 as the result of the
work stoppage.
In Third Quarter Fiscal 1997, gross profit was $180.7 million compared to
Third Quarter Fiscal 1996 gross profit of $192.6 million, representing 22.3% and
22.8% of total revenues, respectively. Gross profit as a percentage of total
revenues increased to 22.8% for the thirty-nine week period ended November 2,
1996 from 22.7% for the thirty-nine weeks ended October 28, 1995.
The decrease in gross profit as a percentage of total revenues for Third
Quarter Fiscal 1997 was primarily the result of (1) an increase in certain
occupancy costs as a percentage of revenues during a period of low price
inflation and a decline in same store sales, (2) increased product costs
associated with the procurement of dairy products during the work stoppage at
the Company's Sani-Dairy division and (3) a reduction in certain perishable
product margins in the early portion of the quarter. These factors were
partially offset by the classification of certain expenses (approximately $2.9
million for Third Quarter Fiscal 1997 and approximately $6.6 million for the
thirty-nine week period ended November 2, 1996) as selling and administrative
expenses in Fiscal 1997 which had been recorded in cost of goods sold in Fiscal
1996.
Selling and administrative expenses for Third Quarter Fiscal 1997 were
$169.9 million compared with $163.0 million in Third Quarter Fiscal 1996.
Selling and administrative expenses as a percentage of total revenues increased
to 21.0% for Third Quarter Fiscal 1997 from 19.3% in Third Quarter Fiscal 1996.
Selling and administrative expenses for the thirty-nine week period ended
November 2, 1996 were $514.1 million compared to $492.0 million for the thirty-
nine week period ended October 28, 1995. Selling and administrative expenses as
a percentage of total revenues increased to 20.7% for the thirty-nine week
period ended November 2, 1996 from 19.0% for the thirty-nine week period ended
October 28, 1995.
The increase in selling and administrative expenses as a percentage of
total revenues in Third Quarter Fiscal 1997 and for the thirty-nine week period
ended November 2, 1996 primarily resulted from (1) increased payroll 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 (approximately $2.9 million for Third
Quarter Fiscal 1997 and approximately $6.6 million for the thirty-nine week
period ended November 2, 1996) as selling and administrative expenses in Fiscal
1997 which had been recorded in cost of goods sold in Fiscal 1996.
Depreciation and amortization of $23.4 million in Third Quarter Fiscal 1997
and $22.3 million in Third Quarter Fiscal 1996 represented 2.9% and 2.6% of
total revenues, respectively. Depreciation and amortization of $69.2 million
for the thirty-nine weeks ended November 2, 1996 and $68.1 million for the
thirty-nine weeks ended October 28, 1995 represented 2.8% and 2.6% of total
revenues, respectively.
-8-
RESULTS OF OPERATIONS (CONTINUED)
During the second quarter of Fiscal 1996, the Company recorded certain
expenses totaling $65.2 million ($51.9 million net of tax benefit) classified as
an unusual item. The unusual item was related to the closure of the stand alone
general merchandise business (Harts), the write-off of equipment which the
Company determined would no longer utilize in its business, costs incurred in
connection with the Company's expense reduction program and an increase in the
Company's closed store reserve.
Operating income for Third Quarter Fiscal 1997 was $10.8 million or 1.3% of
total revenues compared to $29.6 million or 3.5% of total revenues in Third
Quarter Fiscal 1996. Operating income for the thirty-nine week period ended
November 2, 1996 was $52.5 million or 2.1% of total revenues compared to $96.6
million (excluding the unusual item) or 3.7% of total revenues for the thirty-
nine week period ended October 28, 1995. The decline in operating income as a
percentage of total revenues for Third Quarter Fiscal 1997 was the result of a
decrease in gross margin as a percentage of total revenues combined with
increased selling and administrative expenses as a percentage of total revenues.
The decline in operating income (excluding the unusual item) as a percentage of
total revenues for the thirty-nine week period ended November 2, 1996 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. Operating income was reduced by approximately $2.5 million
during Third Quarter Fiscal 1997 as a result of the work stoppage at the
Company's Sani-Dairy division.
Interest expense for Third Quarter Fiscal 1997 and Third Quarter Fiscal
1996 was $36.6 million and $33.4 million, respectively. Interest expense for
the thirty-nine week periods ended November 2, 1996 and October 28, 1995 was
$107.3 million and $99.4 million, respectively. The increase in interest
expense was due to the higher debt levels outstanding during the first three
quarters of Fiscal 1997.
Loss before income taxes for Third Quarter Fiscal 1997 and Third Quarter
Fiscal 1996 was $25.8 million and $3.8 million, respectively. Loss before
income taxes for the thirty-nine week periods ended November 2, 1996 and
October 28, 1995 was $54.8 million and $2.8 million (excluding the unusual
item), respectively. The increase in the loss before income taxes in Third
Quarter Fiscal 1997 and for the thirty-nine week period ended November 2, 1996
resulted from the decrease in operating income and the increase in interest
expense.
The income tax benefit was $9.9 million for Third Quarter Fiscal 1997
compared to a benefit of $3.4 million in Third Quarter Fiscal 1996. The income
tax benefit was $19.7 million for the thirty-nine week period ended November 2,
1996 compared to a benefit of $16.2 million in the prior year. Excluding the
unusual item, the income tax benefit was $2.9 million for the thirty-nine week
period ended October 28, 1995. 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 $15.9 million in Third Quarter Fiscal 1997 compared to net
loss of $0.4 million in Third Quarter Fiscal 1996. Net loss was $35.1 million
for the thirty-nine week period ended November 2, 1996 compared to net income of
$0.0 million (excluding the unusual item) for the thirty-nine week period ended
October 28, 1995.
-9-
LIQUIDITY AND CAPITAL RESOURCES
During Third Quarter Fiscal 1997, operating income decreased to $10.8
million from $29.6 million for Third Quarter Fiscal 1996. Interest expense for
Third Quarter Fiscal 1997 was $36.6 million as compared to $33.4 million during
Third Quarter Fiscal 1996.
Payments of principal and interest on the Company's $1.28 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 (excluding capital leases) of $0.6 million, $3.1
million and $3.0 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. At November 2, 1996, additional availability under the Revolving Credit
Facility was $98.6 million.
During Third Quarter Fiscal 1997, the Company's internally generated funds
from operations and amounts available under the Revolving Credit Facility
provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs. 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 the first quarter of 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 two interest rate swap agreements, each of
which expires within the next two years, that effectively convert $75 million of
its fixed rate borrowings into variable rate obligations. Under the terms of
these agreements, the Company makes payments at variable rates which are based
on LIBOR and receives payments at fixed interest rates. The net amount paid or
received is included in interest expense.
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 during the first three quarters of 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 Third Quarter Fiscal 1997 are reported in the
Consolidated Statement of Cash Flows. For the thirty-nine week period ended
November 2, 1996, the Company experienced a negative cash flow from operating
activities of $48.2 million.
-10-
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Working capital increased by $49.6 million from February 3, 1996 to
November 2, 1996.
The Company is in compliance with all terms and restrictive covenants of
its long-term debt agreements.
The Company expects to spend approximately $75 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, mortgages and new capital
leases. Capital expenditures will be principally for new stores, replacement
stores and remodeled/expanded store facilities. In Third Quarter Fiscal 1997,
the Company opened one new store and completed one expansion.
-11-
PART II. OTHER INFORMATION
All items which are not applicable or to which the answer is negative have
been omitted from this report.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
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10.50 Amendment No. 14, dated as of
October 16, to the Loan and
Security Agreement, incorporated
by reference to Exhibit No.
10.50 to Penn Traffic's Report
on Form 8-K dated October 16,
1996.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On October 16, 1996, the Company filed a report on Form 8-K relating
to Amendment No. 14 to its Revolving Credit Facility.
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PENN TRAFFIC COMPANY
December 13, 1996 /s/- Eugene R. Sunderhaft
----------------------------
By: Eugene R. Sunderhaft
(Senior Vice President and
Secretary, Principal Financial
Officer and Principal
Accounting Officer)
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