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UNITED STATES
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, 2006
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from____________ to _____________
Commission file number: 0-8858
THE PENN TRAFFIC COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 25-0716800
(State of incorporation) (IRS Employer Identification No.)
1200 STATE FAIR BLVD., SYRACUSE, NEW YORK 13221-4737 (315) 453-7284
(Address of principal executive offices) (Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES [_] NO [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to, Section 13 or 15 (d) of the Act. YES [_] NO [X]
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 [_] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) 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. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]
Indicated by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). YES [_] NO [X]
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was approximately $0 as of July 30, 2005, the
last business day of the registrant's most recently completed second quarter.
COMMON STOCK, PAR VALUE $.01 PER SHARE: 8,297,697 SHARES OUTSTANDING AS OF
AUGUST 9, 2007
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FORM 10-K INDEX
PAGE
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PART I.
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Item 1. Business 4
Item 1A. Risk Factors 14
Item 2. Properties 23
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
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PART II.
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Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of
Equity Securities 24
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 30
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 45
Item 8. Financial Statements and Supplementary Data 45
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 74
Item 9A. Controls and Procedures 75
Item 9B. Other Information 75
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PART III.
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Item 10. Directors and Executive Officers of Registrant 76
Item 11. Executive Compensation 84
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 91
Item 13. Certain Relationships and Related Transactions 93
Item 14. Principal Accounting Fees and Services 93
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PART IV.
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Item 15. Exhibits, and Financial Statement Schedules 94
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this Form 10-K, including without limitation,
statements included in Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are not statements of
historical fact, are intended to be, and are hereby identified as,
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended, reflecting management's current
analysis and expectations, based on what management believes to be reasonable
assumptions. These forward-looking statements include statements relating to
our anticipated financial performance and business prospects. Statements
proceeded by, followed by or that include words such as "believe,"
"anticipate," "estimate," "expect," "could," and other similar expressions are
to be considered such forward-looking statements. Forward-looking statements
may involve known and unknown risks, uncertainties and other factors, which may
cause the actual results to differ materially from those projected, stated or
implied, depending on such factors as: our ability to improve operating
performance and effectuate business plans; our ability to operate pursuant to
the terms of our credit facilities and to comply with the terms of our lending
agreements or to amend or modify the terms of such agreements as may be needed
from time to time; our ability to generate cash; our ability to attract and
maintain adequate capital; our ability to refinance our indebtedness; increases
in prevailing interest rates; our ability to obtain trade credit, and shipments
and terms with vendors and service providers for current orders; our ability to
maintain contracts that are critical to our operations; potential adverse
developments with respect to our liquidity or results of operations; general
economic and business conditions; competition, including increased capital
investment and promotional activity by our competitors; availability, location
and terms of sites for store development; the successful implementation of our
capital expenditure program; labor relations; labor and employee benefit costs
including increases in health care and pension costs and the level of
contributions to our sponsored pension plans; the result of our pursuit of
strategic alternatives; economic and competitive uncertainties; our ability to
pursue strategic alternatives; economic and competitive uncertainties; changes
in strategies; changes in generally accepted accounting principles; adverse
changes in economic and political climates around the world, including
terrorist activities and international hostilities; and the outcome of pending,
or the commencement of any new, legal proceedings against, or governmental
investigations of us, including the previously announced SEC and U.S.
Attorney's Office investigations. We caution that the foregoing list of
important factors is not exhaustive. Accordingly, there can be no assurance
that we will meet future results, performance or achievements expressed or
implied by such forward-looking statements, which are generally required to be
publicly revised as circumstances change, and which we do not intend to update.
EXPLANATORY NOTE
This Annual Report on Form 10-K is for the fiscal year ended January 28, 2006
and, except as expressly indicated otherwise, information in this report speaks
as of such date. This report does not include all of the audited financial
information required to be included in a Form 10-K under applicable SEC rules.
This report includes audited financial information for the 41-week period ended
January 28, 2006 and unaudited financial information for the 11-week period
ended April 15, 2005 and the fiscal years ended January 29, 2005, January 31,
2004, February 1, 2003 and February 2, 2002, as well as management's discussion
of our results of operations since 2004. This report does not include, and we
have not otherwise filed or furnished to the SEC, audited financial information
for the fiscal years ended January 29, 2005 and January 28, 2006. As discussed
further in this report, we emerged from Chapter 11 bankruptcy reorganization
effective April 13, 2005.
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PART I
ITEM 1. BUSINESS
GENERAL
We are one of the leading food retailers in the eastern United States. We
operate 110 supermarkets in Pennsylvania, upstate New York, Vermont and New
Hampshire under the "Bi-Lo" (25 stores), "P&C" (59 stores) and "Quality" (26
stores) trade names. We also operate a wholesale food distribution business
serving 79 independent supermarkets and 41 other independent wholesale accounts
and Penny Curtiss Bakery, a Syracuse-based commercial bakery. We classify our
businesses in two primary segments: (i) Retail Food Business and (ii) Wholesale
Food Distribution Business. Our consolidated revenues for the 41-week period
ended January 28, 2006, or the "fiscal period" ended January 28, 2006, were
approximately $1.0 billion.
Our Retail Food Business currently operates in communities with diverse
economies and demographics. The average revenue per store for the 41-week
period ended January 28, 2006 was approximately $7.5 million. Our stores are
generally clustered geographically within our marketing area to provide
economies of scale in advertising, distribution and operations management.
Our supermarkets offer a broad selection of grocery, meat, poultry, seafood,
dairy, fresh produce, delicatessen, bakery and frozen food products. The stores
also offer nonfood products and services such as health and beauty care
products, housewares, general merchandise, and in many cases, pharmacies,
floral items and banking.
Our supermarkets, which average approximately 36,000 square feet, are
conveniently located and generally modern. We tailor the size and product
assortment of each store to local demographics.
Our Wholesale Food Distribution Business supplies independently operated
supermarkets with a wide variety of food and nonfood products from our
distribution centers in New York and Pennsylvania. Customers of the wholesale
food distribution business are primarily located in upstate New York and
western Pennsylvania.
Revenues for our wholesale food distribution segment for the 41-week period
ended January 28, 2006 were approximately $171.9 million, which represented
16.9% of our revenues for the period.
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On May 30, 2003, The Penn Traffic Company and certain of its subsidiaries filed
petitions for relief (the "Bankruptcy Cases") under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"). On February 2, 2005, we filed
the First Amended Joint Plan of Reorganization with the Bankruptcy Court. The
Plan was confirmed on March 17, 2005 and became effective on April 13, 2005
(the "2005 Effective Date"). See "Reorganization" and Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Penn Traffic Company was incorporated in the State of Delaware on April 22,
1992. Our principal executive offices are at 1200 State Fair Boulevard,
Syracuse, New York, 13221, telephone (315) 453-7284.
Our fiscal year ends each year on the Saturday closest to January 31. In
addition, in connection with our emergence from Chapter 11 bankruptcy
protection, on April 16, 2005 we commenced fresh-start financial reporting. As
a result, fiscal year 2006 includes the 52-week period from January 30, 2005 to
January 28, 2006 ("fiscal year 2006") and two fiscal period ends, the 41-week
period from April 17, 2005 to January 28, 2006 ("period ended January 28,
2006") and the 11-week period from January 30, 2005 to April 16, 2005 ("period
ended April 16, 2005").
BUSINESS STRATEGY
Over the past few years, the operating environment in the supermarket industry
has become more competitive and challenging as a result of, among other
factors, a slowing economy, lack of inflation on food prices and the increased
penetration of the retail food industry by alternative channels of trade, such
as Wal-mart supercenters and limited assortment stores. In addition, since
2002, a greater number of competitive new stores have opened in our markets
than in prior years. To respond to the challenges of such an operating
environment, we are committed to all components of our business strategy and
are continuing to enhance or refine this strategy as actual results unfold.
In the fall of 2005, a strategy session was held to identify key strategic
initiatives to guide us through fiscal year 2006 into fiscal year 2007 or the
"period ended February 3, 2007". These initiatives interrelate with each other,
such that improving on one will have a benefit on the others. The initiatives
are as follows:
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I. INCREASE SAME STORE SALES AND CUSTOMER COUNT
We identified five key factors to increase same store sales and customer counts
at our retail store level. They are:
1. Improve price perception
We undertook several actions to improve our price perception with our
customers. They included:
a. increasing and reintroducing our private label items, which increased
availability of lower priced items that had not been traditionally
offered in our stores;
b. improving the front page of our advertising circular by reducing the
number of items presented on the page while making the savings on the
items greater for our customers. We also changed our circular
distribution where appropriate;
c. better monitoring of competitors' pricing to insure that we are in line
with the competition;
d. increasing our event marketing plan for each of our trade names by
developing advertising and targeted marketing campaigns to increase
customer volume,
e. improving the in-store signage to make our customers aware of savings
opportunities throughout our stores; and
f. lowering our costs of goods by taking advantage of truck-load savings
when available in order to pass the savings on to our customers.
2. Improve store conditions and execution
We enhanced our store conditions by improving our in-stock of products with
more efficient ordering and in some cases, daily replenishment of product. We
also developed a standard for all stores regarding facing the store perimeter
and blocking of all aisles. With the implementation of this standard, our
shelves are consistent and orderly. In addition, we changed the scheduling
policy to insure that our store department managers' were accessible to meet
our customers' needs.
3. Improve customer service
We listened to what the customer wanted via research and complaints. As a
result, we increased efficiency at the checkout by improving the number of
items scanned per minute and improving our scheduling to better meet our
customers' needs. We followed up with an enhanced secret shopper program to
point out areas that required special attention. We implemented a program
having our store managers' walk through their stores to check the condition of
the store "through the customers' eyes".
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4. React to changing competitive environment
As competitors remodeled and added stores, some of our locations became stale.
We took a hard look at the capital we had to spend on improvements and
determined that our "Fresh" concept was the best way to combat the competition.
"Fresh" concept stores offer an enhanced fresh foods selection, presentation,
and breadth.
5. Increase community involvement
We looked at each of our marketing areas to determine our community
involvement. We found that we were not as active in these communities as we
would like to be. We implemented a plan in which one person at each store
coordinates and plans community events. We also developed an improved community
events budget to assist our stores in funding these events.
II. ATTRACT, DEVELOP AND RETAIN THE BEST PEOPLE
In recent years we faced several uncertainties, including our bankruptcy filing
in May 2003. Under these conditions we found it difficult to attract and retain
qualified personnel. This caused us to fill positions and hire individuals who
may not have been the correct person for the position. Since our emergence from
bankruptcy we have refocused our hiring practices and have assigned a hiring
manager for each location. These managers must approve all new hires and be
accountable for the recruitment and hiring of their staff.
We have also improved our strategy to entice new hires. These strategies
included advertising on local radio stations, participating in local job fairs
and expanding our referral programs.
To retain our current staff and reduce turnover rates, we improved the working
conditions of our facilities and stores.
III. EFFECTIVELY COMMUNICATE TO ASSOCIATES RESULTING IN DESIRABLE MORALE AND
INCREASED MOTIVATION
While we were in bankruptcy, we did not adequately communicate to our
associates at all levels of the company. This lack of communication led to
employee uncertainty, which contributed to low productivity, high turnover, a
lack of initiative and poor employee morale. We developed a detailed
communication plan that includes a company newsletter, semi-annual town hall
meetings and more information being disseminated to our associates through our
e-mail system.
In addition the executive management team has undertaken a "flow down"
technique whereby information from management's weekly meetings is provided
down the chain to our employees. Also, regular conference calls are held with
the operations staff to make sure they are all working towards the same goals
and all members have the same information.
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IV. PROVIDE DIFFERENTIABLE SUPERIOR CUSTOMER SERVICE
We have identified the need to provide superior customer service to
differentiate ourselves from our competitors. We have done this through better
associate training, improved hiring practices, refocusing staff on the
customer, and improved out of stock inventory.
Our training programs have been improved by keeping our training material up to
date with the latest information, improving our new hire orientation process,
developing a computer based training program and holding semi-annual training
seminars. We have used customer feedback to improve processes and help
individuals become more effective.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Our businesses are classified by our management into two primary industry
segments: Retail Food Business and Wholesale Food Distribution Business (both
described below). Financial information about our industry segments for the
41-week period ended January 28, 2006 is found in Note 13 to the Consolidated
Financial Statements.
RETAIL FOOD BUSINESS
We are one of the leading supermarket retailers in our operating areas, which
include Pennsylvania, upstate New York, Vermont and New Hampshire. We operate
in communities with diverse economies and demographics.
Our stores are conveniently located in close proximity to our customers. Most
of our stores are located in shopping centers. We believe that our store base
is generally modern and provides a pleasant shopping experience for our
customers.
Our supermarkets offer a broad selection of grocery, meat, poultry, seafood,
dairy, fresh produce, delicatessen, bakery and frozen food products. Our stores
also offer nonfood products and services such as health and beauty care
products, housewares, general merchandise, and in many cases, pharmacies,
floral items and banking services. In general, our larger stores carry broader
selections of merchandise and feature a larger variety of service departments
than our other stores.
Our store sizes and formats vary widely, depending upon the demographic
conditions in each location. For example, "conventional" store formats are
generally more appropriate in areas of low population density; larger
populations are better served by full-service supermarkets of up to 78,000
square feet, which offer an increased variety of merchandise and expanded
service departments such as bakeries, delicatessens, floral departments and
fresh seafood departments.
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WHOLESALE FOOD DISTRIBUTION BUSINESS
We supply 120 independently operated supermarkets and other independent
accounts with a wide variety of food and nonfood products from our distribution
centers in New York and Pennsylvania. These customers of our wholesale food
distribution business are primarily located in upstate New York and western
Pennsylvania.
As part of our wholesale food distribution business, we license on a
royalty-free basis, the use of our "Riverside," "Bi-Lo" and "Big M" names to 79
of these independently owned supermarkets that are required to maintain certain
quality and other standards. The majority of these independent stores use us as
their primary wholesaler and also receive advertising, accounting,
merchandising and retail counseling services from us. In addition, we receive
rent from 24 of the licensed independent operators that sublease their
supermarkets from us. We also act as a food distributor to 41 other independent
accounts. In addition to contributing to our operating income, our wholesale
food distribution business enables us to spread fixed and semi-fixed
procurement and distribution costs over additional revenues.
OTHER
We own and operate Penny Curtiss, a bakery processing plant in Syracuse, New
York. Penny Curtiss manufactures and distributes fresh and frozen bakery
products to our stores and third parties, including customers of our wholesale
food distribution business.
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PURCHASING AND DISTRIBUTION
We are a large-volume purchaser of products. Our purchases are generally of
sufficient volume to qualify for minimum price brackets for most items. We
purchase brand name grocery merchandise directly from national manufacturers.
We also purchase private label products, other food products and certain goods
not for resale through TOPCO Associates, Inc., a national product purchasing
cooperative comprising 63 regional supermarket chains and other food
distributors. For the 11-week period ended April 16, 2005, the 41-week period
ended January 28, 2006 and the fiscal years ended January 29, 2005 and January
31, 2004, purchases of goods for resale from TOPCO Associates, Inc. accounted
for approximately 19%, 20%, 21% and 17%, respectively, of our total purchases
of goods during those periods.
Our primary New York distribution facility is a leased 514,000 square foot dry
grocery facility in Syracuse, New York. We also lease a 241,000 square foot
distribution center for perishable products in Syracuse, and a 274,000 square
foot distribution center for general merchandise and health and beauty care
items in Jamestown, New York.
Our primary Pennsylvania distribution facility is a leased 390,000 square foot
dry grocery facility in DuBois, Pennsylvania. We also lease a 195,000 square
foot distribution center for perishable products in DuBois.
Approximately three-fourths of the merchandise offered in our retail stores is
distributed from our warehouses by our fleet of tractors, refrigerated trailers
and dry trailers. Merchandise not delivered from our warehouses is delivered
directly to the stores by manufacturers, distributors, vendor drivers and sales
representatives 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 encountered by our supermarkets vary by location. We compete with
several multi-regional, 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, discount general merchandise chains, "supercenters"
(combination supermarket and general merchandise stores) and other retailers.
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EMPLOYEES
Labor costs and their impact on product prices are important competitive
factors in the supermarket industry. As of January 28, 2006, we had
approximately 7,600 hourly employees and 700 salaried employees.
Approximately 84.5% of our hourly employees belong to the United Food and
Commercial Workers Union. An additional 8.3% of our hourly employees
(principally employed in our distribution function and in our bakery plant)
belong to a total of four other unions. All salaried employees and 7.2% of the
hourly employees do not belong to a union.
GOVERNMENT REGULATION
Our food and drug business requires us to hold various licenses and to register
certain of our facilities with state and federal health, drug and alcoholic
beverage regulatory agencies. By virtue of these licenses and registration
requirements, we are obligated to observe certain rules and regulations. A
violation of such rules and regulations could result in a suspension or
revocation of these licenses or registrations, which could require us to close
the affected stores until the violation is remedied. Most of our licenses
require periodic renewals. We have experienced no material difficulties with
respect to obtaining, retaining or renewing our licenses and registrations.
SEASONALITY, CUSTOMERS AND SUPPLIERS
Our supermarket business 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 our 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 our cost of sales except TOPCO Associates, Inc., which accounted
for approximately 19%, 20%, 21% and 17% of purchases of goods for resale for
the 11-week period ended April 16, 2005, the 41-week period ended January 28,
2006, the fiscal years ended January 29, 2005 and January 31, 2004,
respectively.
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REORGANIZATION - 2005 EFFECTIVE DATE
On May 30, 2003 we and all of our subsidiaries filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of New York. On April 13, 2005 our Chapter 11
Plan of Reorganization became effective.
While operating under Chapter 11, we reorganized our business operations,
including the cessation of business in Ohio and West Virginia under the Big
Bear name, the implementation of cost reduction and cost containment
initiatives, which included consolidation and closing of warehouses, the
closing of unprofitable stores and the rejection of certain executory contracts
and unexpired leases. Additionally, we disposed of a number of non-core real
estate properties.
Pursuant to the terms of our plan of reorganization the following
transactions occurred:
1. Administrative claims, priority tax claims and our debtor-in-
possession loan were paid in full, in cash.
2. The Penn Traffic Company Cash Balance Pension Plan was terminated in
accordance with the terms and conditions of a settlement agreement
between The Pension Benefit Guaranty Corporation, or the "PBGC," and
us. The PBGC settlement agreement provided for, among other things,
o an initial partial cash settlement payment to the PBGC of
$155,378;
o funding of PBGC allowed administrative claims of $3.5 million to
be paid in four equal installments bi-annually over a two-year
period commencing six months after the 2005 Effective Date; and
o an allowed PBGC unsecured claim in the amount of $60.0 million.
The PBGC settlement agreement also required us to maintain all
remaining retirement plans in accordance with their terms and all
requirements of ERISA and the Internal Revenue Code.
3. We issued 8,279,800 new shares of our common stock to satisfy senior
note claims, trade claims and other unsecured claims.
4. Unsecured claim holders with claims of $5,000 or less who elected to
be classified as convenience claims received 15% of their allowed
claim in cash.
5. Our existing common stock and other equity interests were canceled and
received no distributions under our plan of reorganization.
-12-
On April 13, 2005, in connection with the consummation of our plan of
reorganization, we entered into a $136.0 million senior credit facility
comprised of a $130.0 million revolving loan and a $6.0 million term loan.
Concurrent with the senior credit facility, we entered into a $28.0 million
supplemental real estate facility consisting of a term loan on a multi-draw
basis. The credit facility and the supplemental real estate facility provide us
with aggregate credit facilities of $164.0 million. Additionally, pursuant to
our plan of reorganization, we entered into a sale-leaseback transaction
pursuant to which we sold our five owned distribution centers located in New
York and Pennsylvania for $37.0 million and leased the distribution centers
back for a period of 15 years from emergence. The lenders under the credit
facility have a first priority perfected security interest in substantially all
of our assets, with a second lien on a substantial number of our leasehold
assets. The supplemental real estate facility is secured by a first lien on
such leasehold interests and a second lien on substantially all of our
remaining properties. Proceeds from the two credit facilities and the
sale-leaseback transaction were used to satisfy our obligations under our plan
of reorganization, including payment of our debtor-in-possession financing.
Additionally, the credit facilities continue to provide funds to satisfy our
ongoing working capital and capital expenditure requirements.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC under the Exchange Act.
You may read and copy this information at the Public Reference Room of the SEC,
Room 1024, 100 F Street NE, Washington, D.C. 20549. You may obtain information
about the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet website that contains reports, proxy
and information statements and other information regarding issuers that file
electronically through the "EDGAR" (Electronic Data Gathering, Analysis and
Retrieval) System, available on the SEC's website (WWW.SEC.GOV).
-13-
ITEM 1A. RISK FACTORS
THE SUPERMARKET INDUSTRY IS HIGHLY COMPETITIVE. IF WE ARE UNABLE TO COMPETE
EFFECTIVELY, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE
MATERIALLY AFFECTED.
The supermarket industry is highly competitive and characterized by high
inventory turnover, high capital intensity and narrow profit margins. The number
and type of competitors vary by location and include:
o multi-regional and regional supermarket chains;
o independent and specialty grocers;
o drug and convenience stores; and
o "alternative format" food stores, such as specialty food stores,
retail drug stores, national general merchandisers and discount
retailers, membership clubs, warehouse stores and supercenters.
We also face increasing competition from restaurants and fast food chains due
to the increasing proportion of household food expenditures for food prepared
outside the home. In addition, certain of our stores also compete with local
video stores, florists, book stores, pharmacies and gas stations.
Our principal competitors include national and regional supermarket chains,
which compete with us on the basis of location, quality of products, service,
price, product variety and store condition. An overall lack of inflation in
food prices and increasingly competitive markets has made it difficult
generally for grocery store operators to achieve comparable store sales gains.
Because sales growth has been difficult to attain, our competitors have
attempted to maintain market share through increased levels of promotional
activities and discount pricing, creating a more difficult environment in which
to consistently increase year-over-year sales gains.
In addition, most of our "traditional" and "nontraditional" competitors are not
unionized and have lower labor costs, which allows them to take measures that
could adversely affect our competitive position.
We face increased competitive pressure in all of our markets from existing
competitors and from the threatened entry by one or more major new competitors.
Some of our competitors have greater financial resources and have less
indebtedness than us, and could use these resources to take measures which
could adversely affect our competitive position.
Our business, financial condition or results of operations could be adversely
affected by competitive factors, including product mix and pricing changes that
may be made in response to competition from existing or new competitors. From
time to time, the relative strength of our competitors changes depending on
prevailing market conditions.
-14-
OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE SENSITIVE TO ECONOMIC CONDITIONS
THAT IMPACT CONSUMER SPENDING.
Our business and results of operations may be sensitive to changes in overall
economic conditions that impact consumer spending, including discretionary
spending. Future economic conditions affecting disposable consumer income such
as employment levels, energy prices, business conditions, interest rates and
tax rates could reduce consumer spending or cause consumers to shift their
spending away from our product quality and service offering, to a more focused
price-based offering. A general reduction in the level of discretionary
spending or shifts in consumer discretionary spending to our competitors could
adversely affect our growth and profitability.
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR COMPARABLE STORE SALES.
Our comparable store sales in the future could fluctuate or be lower than our
historical average for many reasons, including increased competition, price
changes in response to competitive factors, shifts in demographic patterns and
local economic conditions, changes in traffic patterns and possible supply
shortages. Our results of operations may be materially impacted by fluctuations
in our comparable store sales as it becomes more difficult to leverage expenses
at a lower level of sales.
OUR STORES ARE CONCENTRATED IN THE NORTHEASTERN UNITED STATES, MAKING US
SUSCEPTIBLE TO ECONOMIC DOWNTURNS, NATURAL DISASTERS AND OTHER ADVERSE
CONDITIONS OR CATASTROPHIC EVENTS IN THAT REGION.
Our stores are located in Pennsylvania, upstate New York, Vermont and New
Hampshire. As a result, we are vulnerable to economic downturns in those areas,
in addition to those that may affect the country as a whole, as well as natural
and other catastrophic and terrorist events that may impact these regions. In
addition, we may be adversely affected by these events to a greater extent than
our competitors whose operations extend outside of these regions. These events
may adversely affect our sales, which may lead to lower earnings, or even
losses, and may also adversely affect our future growth and expansion.
-15-
OUR DISTRIBUTION AND BAKERY BUSINESS COULD BE NEGATIVELY AFFECTED IF WE FAIL TO
RETAIN EXISTING CUSTOMERS OR ATTRACT SIGNIFICANT NUMBERS OF NEW CUSTOMERS.
Increasing the growth and profitability of our distribution and bakery business
is dependent in large measure upon our ability to retain existing customers and
capture additional customers through our existing network of distribution
centers, enabling us to more effectively utilize the fixed assets in our
distribution and bakery businesses. Our ability to achieve these goals is
dependent, in part, upon our ability to continue to provide a high level of
customer service, offer competitive products at low prices, maintain high
levels of productivity and efficiency, particularly in the process of
integrating new customers into our distribution system and manufacturing
process, and offer marketing, merchandising and ancillary services that provide
value to our independent distribution customers. If we are unable to execute
these tasks effectively and at a competitive price, we may not be able to
attract significant numbers of new customers and attrition among our existing
customer base could increase, either or both of which could have an adverse
impact on our revenue and profitability.
CHANGES IN VENDOR PROMOTIONS OR ALLOWANCES, INCLUDING THE WAY VENDORS TARGET
THEIR PROMOTIONAL SPENDING, AND OUR ABILITY TO EFFECTIVELY MANAGE THESE PROGRAMS
COULD SIGNIFICANTLY IMPACT OUR MARGINS AND PROFITABILITY.
We engage in a wide variety of promotional programs cooperatively with our
vendors. The nature of these programs and the allocation of funds among them
evolve over time as the parties assess the results of specific promotions and
plan for future promotions. These programs require careful management in order
for us to maintain or improve margins while at the same time increasing sales
for us and for our participating vendors. A reduction in overall promotional
spending or a shift in promotional spending away from certain types of
promotions that we have historically utilized could have a significant impact
on our gross profit margin and profitability. Our ability to anticipate and
react to changes in promotional spending by, among other things, planning and
implementing alternative programs that are expected to be mutually beneficial
to our vendors and us, will be an important factor in maintaining or improving
margins and profitability. If we are unable to effectively manage these
programs, it could have a material adverse effect on our results of operations
and financial condition.
-16-
OUR DEBT INSTRUMENTS INCLUDE FINANCIAL AND OTHER COVENANTS THAT MAY LIMIT OUR
OPERATING FLEXIBILITY AND THAT MAY AFFECT OUR FUTURE BUSINESS STRATEGIES AND
OPERATING RESULTS.
Covenants in the documents governing our outstanding or future debt, including
our credit facilities, or our future debt levels, could limit our operating and
financial flexibility. Our ability to respond to market conditions and
opportunities as well as capital needs could be constrained by the degree to
which we are leveraged, by changes in our availability or cost of capital, and
by contractual limitations on the degree to which we may, without the consent
of our lenders, take actions such as engaging in mergers, acquisitions or
divestitures, incurring additional debt, making capital expenditures,
rationalizing underperforming assets and making investments, loans or advances.
If needs or opportunities were identified that would require additional
financial resources, obtaining those additional resources could increase our
borrowing costs, further reduce financial flexibility, require alterations in
our strategies and affect future operating results.
SUBSTANTIAL OPERATING LOSSES MAY OCCUR IF THE CUSTOMERS TO WHOM WE EXTEND CREDIT
OR FOR WHOM WE GUARANTEE LOAN OR LEASE OBLIGATIONS FAIL TO REPAY US.
In the ordinary course of business, we extend credit, including loans, to our
food distribution customers. We also sublease store sites to independent
retailers. Generally, our loans and other financial accommodations are extended
to small businesses that are unrated and may have limited access to
conventional financing. As of January 28, 2006 we had loans, net of reserves,
of $0.3 million outstanding to two of our food distribution customers and lease
obligations for properties sublet to food distribution customers totaling $8.3
million. In the normal course of business, we also sublease retail properties
to third parties. While we seek to obtain security interests and other credit
support in connection with the financial accommodations we extend, such
collateral may not be sufficient to cover our exposure.
If a significant number of these customers or lease counterparties fail to
repay us or honor their lease obligations to us, our operating results may be
adversely affected.
-17-
A SIGNIFICANT PORTION OF OUR EMPLOYEES ARE UNIONIZED, AND OUR RELATIONSHIPS
WITH UNIONS, INCLUDING LABOR DISPUTES OR WORK STOPPAGES, COULD HAVE AN ADVERSE
IMPACT ON OUR FINANCIAL RESULTS.
We are party to approximately 18 collective bargaining agreements, of which
seven were scheduled to expire in fiscal year 2006, and all seven have been
renewed. These expiring agreements covered approximately 71% of our union
employees. In future negotiations with labor unions, we expect that rising
health care, pension and employee benefit costs, among other issues, will be
important topics for negotiation. Upon the expiration of such collective
bargaining agreements, our inability to negotiate acceptable contracts with
labor unions could result in strikes by the affected workers and thereby
significantly disrupt our operations. Further, if we are unable to control
health care and pension costs provided for in the collective bargaining
agreements, we may experience increased operating costs and an adverse impact
on future operating results.
WE MAY EXPERIENCE TECHNOLOGY FAILURES WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.
We use large, complex information technology systems that are important to our
business operations. Although we have a disaster-recovery plan and have
installed security programs and procedures, the security of our technology
systems could be compromised and technology failures and system disruptions
could occur. Any of these events could result in a loss of sales or profits or
cause us to incur significant costs, including payments to third parties for
damages.
-18-
LOSSES AS A RESULT OF OUR OWNING, LEASING AND DEVELOPING REAL ESTATE MAY IMPAIR
OUR ABILITY TO FOCUS ON AND EXPAND OUR CORE BUSINESS AS DESIRED.
As a result of our real estate holdings and leases, we are subject to varying
degrees of risk and liability generally incident to the ownership, use and
development of real estate. These risks and liabilities include, among other
things:
o fluctuations in value caused by adverse changes in national, regional
and local economic condition and local real estate market conditions
(such as an oversupply of or a reduction in demand for retail space in
the area);
o costs of compliance with zoning, environmental, tax and other laws and
regulations;
o real estate development risks, such as incorrect cost and occupancy
estimates, non-availability of financing and the need for mortgage
lender or property partner approvals for certain expansion activities;
o the perceptions of customers and tenants and prospective tenants of
the safety, convenience and attractiveness of our properties;
o the lack of liquidity of real estate investments and our ability to
sell, lease or sublease any of our properties for cash in a timely
fashion;
o failure to promptly renew leases;
o competition from comparable properties;
o the occupancy rate of our properties;
o tenant and subtenant defaults and the costs of enforcing our rights;
o the effects of any bankruptcies or solvencies of major tenants or
subtenants;
o increasing operating costs (including increased real estate taxes)
which may not be passed through fully to tenants or subtenants; and
o fluctuations in mortgage interest and lease rates.
A failure to adequately manage these risks and liabilities could adversely
affect our revenues, profits and available cash and could have a material
adverse effect on our business, financial condition or results of operations.
Several portions of our properties are mortgaged to secure payment of
indebtedness outstanding under our credit facilities. If we are unable to meet
our debt obligations, we could sustain losses as a result of foreclosures on
the properties by our lenders. In addition, if it becomes necessary or
desirable for us to dispose of one or more of the mortgaged properties, we
might not be able to obtain a release of the lien on such mortgaged properties
without payment of the associated debt. The foreclosure of a mortgage or
default of a loan on a property or the inability to sell a property could
adversely affect our business, financial condition or results of operations.
These considerations could make it difficult for us to sell properties, even if
a sale were in our best interests.
-19-
We maintain property insurance, difference in conditions insurance, national
flood insurance (where applicable), general liability insurance, directors' and
officers' insurance and excess insurance coverage. At leased and mortgaged
locations we maintain any of these lines of coverage that we are contractually
obligated to maintain. At owned locations we maintain all of these lines of
coverage. We maintain large deductibles and/or large layers of self-insurance
on several of these lines of coverage.
We are subject to federal, state and local laws and regulations relating to
zoning, land use, environmental protection, work place safety, public health,
beer and wine sales and pharmaceutical sales. A number of states and local
jurisdictions regulate the licensing of supermarkets, including beer license
grants. In addition, under certain local regulations, we are prohibited from
selling beer in certain of our stores.
WE ARE AFFECTED BY FLUCTUATING UTILITY AND FUEL COSTS.
Fluctuating fuel costs adversely affect our operating costs for our fleet of
tractors and trailers that distribute goods from our warehouses and
distribution facilities to all of our stores. We may not be able to recover
these rising utility and fuel costs through increased prices charged to our
customers.
WE MAY BE HELD LIABLE FOR ENVIRONMENTAL DAMAGES WITH REGARD TO OUR CURRENT AND
FORMER PROPERTIES, REGARDLESS OF THE LAWFULNESS OF OUR ACTIVITIES ON SUCH
PROPERTIES.
Our operations subject us to various laws and regulations relating to the
protection of the environment, including those governing the management and
disposal of hazardous materials and the cleanup of contaminated sites. Under
some environmental laws, such as the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund
law, and similar state statutes, responsibility for the entire cost of cleanup
of a contaminated site can be imposed upon any current or former site owners or
operators, or upon any party who sent waste to the site, regardless of the
lawfulness of the original activities that led to the contamination. From time
to time we have been named as one of many potentially responsible parties at
Superfund sites, although to date our share of liability has typically been
small. We believe we are currently in substantial compliance with applicable
environmental requirements.
However, future developments such as more aggressive enforcement policies, new
laws or discovery of unknown conditions may require expenditures that may have
a material adverse effect on our business and financial condition.
-20-
CUSTOMER CONCERNS REGARDING FOOD SAFETY MAY ADVERSELY AFFECT OUR BUSINESS.
We could be adversely affected if our customers lose confidence in the quality
and safety of certain products in our stores. Negative publicity regarding
these concerns, whether valid or not, may discourage customers from buying our
products. Any loss of confidence on the part of our customers would be
difficult and costly to reestablish. As such, any issue regarding the safety of
our products could have a substantial and adverse effect on our operations.
OUR OPERATING RESULTS MAY BE IMPACTED BY VARIABILITY IN SELF-INSURANCE LIABILITY
ESTIMATES.
We are self-insured for workers' compensation and general liability claims up
to set retention amounts, after which we maintain excess insurance coverage.
Liabilities are maintained based on independent actuarial estimates of
aggregate liability claims incurred and an estimate for incurred but not
reported claims. Our insurance accruals reflect certain actuarial assumptions
and management judgments that are made based on factors that are subject to
change. Any significant variation in these factors could cause a material
change in our self-insurance liabilities and our operating results.
WE HAVE NOT RECENTLY FILED PERIODIC REPORTS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
We did not complete an audit for the periods between February 1, 2003 through
April 16, 2005. Additionally, we have not made any required periodic filings
with the SEC for any period since our Annual Report on Form 10-K for the fiscal
year ended February 2, 2002 and our most recent quarterly reports on Form 10-Q
for the quarter ended November 2, 2002. Because of our failure to make timely
periodic filings with the SEC, we could be subject to civil penalties and other
administrative proceedings by the SEC. In addition, until we have completed
such updated filings, it is unlikely that our common shares will be approved
for listing on any national securities exchange. The failure of our common
shares to be so listed may adversely affect their liquidity and trading price.
WE HAVE NOT RECENTLY FILED LOCAL, STATE OR FEDERAL INCOME TAX RETURNS WITH THE
APPROPRIATE GOVERNMENTAL AUTHORITIES.
As a result of our inability to definitively determine our taxable income, and
as a result of our operating losses over the years, we have not filed any of
our federal, state or local income tax returns following fiscal year 2003. In
addition, we have not made any estimated tax payments during that period.
Because of our failure to file timely annual income tax returns with the
appropriate local authorities, we could be subject to failure to file
penalties, as well as other penalties.
-21-
THERE IS NO EXISTING TRADING MARKET FOR OUR COMMON STOCK.
Our common shares are currently quoted on the Pink Sheets and there is no
assurance that an active trading market for our common shares will develop. We
are not currently applying for a listing on any national securities exchange.
Accordingly, no assurance can be given that a holder of common shares will be
able to sell such securities in the future or as to the price at which any such
sale would occur. If a trading market were to develop, the liquidity of the
market for such securities and the prices at which such securities would trade
will depend upon many factors, including the number of holders, investor
expectations and other factors beyond our control. In addition, our common
shares have been issued to certain pre-petition creditors as part of our plan
of reorganization. Some of these holders may prefer to liquidate their
investment rather than to hold it on a long-term basis, which may create an
initial imbalance in the market if and when one were to develop.
THE RESULTS OF THE ONGOING GOVERNMENTAL INVESTIGATIONS REGARDING OUR PROMOTIONAL
ALLOWANCE PRACTICES AND POLICIES MAY HAVE AN ADVERSE EFFECT ON US.
We are currently the subject of ongoing investigations by the United States
Attorney's Office for the Northern District of New York and by the SEC
regarding our promotional allowance practices and policies. These
investigations began prior to our emergence from Chapter 11 bankruptcy
protection in April 2005. We are cooperating with these investigations and have
produced documents and made our employees available for interviews as
requested. At present, we are unable to predict the outcome of either of these
investigations. However, an unfavorable resolution of these investigations
could ultimately result in damage claims, fines or penalties to us. Any such
claims, fines or penalties could adversely affect our business or results of
operations.
OUR DISCLOSURE CONTROLS AND PROCEDURES WERE INEFFECTIVE AS OF JANUARY 28, 2006,
AND THESE WEAKNESSES COULD HAVE A MATERIALLY ADVERSE EFFECT ON US.
As discussed in more detail in Item 9A. below, as a result of changes in our
financial condition and operations immediately preceding, during and after our
reorganization under Chapter 11 bankruptcy protection, including the
appointment of our current President and Chief Executive Officer to such
position on December 12, 2006 and our current Senior Vice President and Chief
Financial Officer to such position on May 9, 2007 and other changes in our
senior management and our external auditors, as well as our failure to make
periodic reports on a timely basis to the SEC during such periods, our present
management has concluded that our disclosure controls and procedures were not
effective as of January 28, 2006 in providing reasonable assurance that
material information requiring disclosure was brought to management's attention
on a timely basis and that our financial reporting was reliable.
As discussed in more detail in Item 9A. below, our current management has taken
steps to correct deficiencies and weaknesses in our disclosure controls and
procedures. However, it is probable that we may not be able to remediate all
deficiencies and weaknesses before the conclusion of fiscal year 2008.
-22-
ITEM 2. PROPERTIES
We follow the general industry practice of leasing the majority of our retail
supermarket locations. We own 21 and lease 89 of the supermarkets that we
operate. The leased supermarkets are held under leases expiring from 2006 to
2020, excluding option periods. We own or lease 24 supermarkets which are
leased or subleased to independent operators.
We own 3 shopping centers that contain company-owned or licensed supermarkets.
We also lease distribution centers in Syracuse and Jamestown, New York; and
DuBois, Pennsylvania; and a bakery plant in Syracuse, New York.
Also see Item 1 - "Business - Retail Food Business" and "Business - Purchasing
and Distribution" for additional information concerning our properties.
ITEM 3. LEGAL PROCEEDINGS
The United States Attorney for the Northern District of New York and the
Securities and Exchange Commission has been conducting investigations relating
to our promotional allowance practices and policies. Such investigations began
prior to our emergence from bankruptcy in April 2005. We have been cooperating
with these investigations and have produced documents and made our employees
available for interviews as requested. We understand that these investigations
are ongoing.
On June 1, 2006, we announced that the Audit Committee of the Board of
Directors had completed its internal investigation of our promotional allowance
practices. The Audit Committee hired independent counsel to perform the
investigation. The Audit Committee found that we had engaged in certain
improper practices principally relating to the premature recognition of
promotional allowances and that these practices had largely ceased by the time
of our Chapter 11 filing in May 2003. On February 3, 2006, we announced that
the employment of our Chief Marketing Officer and our Vice President,
Non-Perishables Marketing had been terminated following an interim report to
the Audit Committee on the findings of the investigation.
In connection with these matters, we could be subject to damage claims, fines
or penalties. At present, we are unable to estimate the likelihood of an
unfavorable outcome or the amount of any damage claims, fines or penalties in
the event of an unfavorable outcome and, accordingly, no liability has been
recorded for this contingency.
Also see Item 1 - "Business - Reorganization - 2005 Effective Date" for a
description of the consummation of our plan of reorganization and see Note 8 to
our consolidated financial statements, included in this report, regarding legal
proceedings relating to the consummation of our plan of reorganization.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fiscal year
ended January 28, 2006.
-23-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES
Since August 23, 2005, our common shares have been quoted on an unsolicited
basis on the Pink Sheets under the symbol "PTFC.PK". All of our common shares
that were outstanding prior to April 13, 2005, the effective date of our plan
of reorganization, were cancelled as part of our emergence from Chapter 11
bankruptcy protection
The following table sets forth the high and low bid information for our common
shares during the two fiscal quarters during fiscal year 2006 in which our
common shares were quoted. Such over-the-counter market quotations reflect
inter-dealer prices, without retail markup, mark-down or commission and may not
necessarily represent actual transactions.
HIGH LOW
--------- ---------
Quarter Ended January 28, 2006 $ 17.00 $ 12.00
Quarter Ended October 29, 2005 22.25 15.00
Our common shares were held by approximately 700 stockholders of record on
August 1, 2007.
There have been no repurchases of our common shares during the fiscal year
ended January 28, 2006.
We have not paid a cash dividend to common stockholders since we emerged from
bankruptcy and we do not anticipate paying a cash dividend in the foreseeable
future.
-24-
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY
Set forth below is our selected historical consolidated financial data for the
five fiscal years ended January 28, 2006. As a result of the consummation of
our plan of reorganization we adopted fresh-start reporting as of April 16,
2005. The accounting periods ended on or prior to April 16, 2005, have been
designated "Predecessor Company" and the periods subsequent to April 16, 2005,
have been designated "Successor Company."
In accordance with the implementation of fresh-start reporting, our assets,
liabilities and stockholders' equity have been revalued as of April 16, 2005.
In addition, as a result of the consummation of our plan of reorganization, the
amount of our indebtedness has been substantially reduced. Accordingly, our
financial statements for periods after April 16, 2005 are not comparable to our
financial statements for periods ended on or prior to such date.
The selected historical consolidated financial data for the 41-week period
ended January 28, 2006, are derived from our consolidated financial statements,
which have been audited by Eisner LLP, independent accountants. The Predecessor
Company's selected historical consolidated financial data for the 11-week
period ended April 16, 2005, 52-week periods ended January 29, 2005, January
31, 2004, February 1, 2003 and February 2, 2002 are derived from our unaudited
consolidated financial statements. In addition, the selected historical
consolidated financial data for the Successor Company should be read in
conjunction with our consolidated financial statements and related notes
included elsewhere herein.
-25-
(AUDITED)
SUCCESSOR
COMPANY (UNAUDITED) PREDECESSOR COMPANY
-----------------------------------------------------------------------------------------
41 WEEKS 11 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
(IN THOUSANDS OF DOLLARS, JANUARY 28, APRIL 16, JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2,
EXCEPT PER SHARE DATA) 2006 2005 2005 2004 2003 2002 (11)
-------------------------------------------------------------------------- --------------
REVENUES $1,015,893 | $ 265,260 $1,285,148 $1,307,977 $1,348,437 $1,364,980
|
COSTS AND OPERATING EXPENSES: |
Cost of sales (1) 754,995 | 195,533 955,609 973,393 999,880 1,018,605
Selling and administrative |
expenses (2) 256,300 | 71,414 312,826 325,388 319,118 305,987
Amortization of goodwill (4) - | - - - - 109,809
Asset impairment charge (3) - | - - 1,002 17,858 -
Goodwill impairment charge (4) - | - - 22,832 28,397 -
---------- | ---------- --------- ---------- ---------- ----------
|
OPERATING INCOME (LOSS) 4,598 | (1,687) 16,713 (14,638) (16,816) (69,421)
Interest expense (5) 8,289 | 1,755 12,365 32,018 35,479 34,820
Gain on extinguishment of debt(6) | (182,831)
Reorganization expense (7) 1,023 | 71,117 19,060 30,818 - -
---------- | ---------- --------- ---------- ---------- ----------
|
(LOSS) INCOME FROM CONTINUING |
OPERATIONS, BEFORE INCOME TAXES |
AND DISCONTINUED OPERATIONS (4,714) | 108,272 (14,712) (77,474) (52,295) (104,241)
(Benefit) provision for income |
taxes (8) (903) | (23,945) 251 755 (8,565) 2,429
----------- | ---------- --------- ---------- ---------- ----------
|
(LOSS) INCOME FROM CONTINUING |
OPERATIONS BEFORE DISCONTINUED |
OPERATIONS (3,811) | 132,217 (14,963) (78,229) (43,730) (106,670)
Loss (Income) from discontinued |
operations, net of tax (9) - | 3,133 8,994 84,163 4,337 (11,719)
---------- | ---------- --------- ---------- ---------- -----------
|
NET (LOSS) INCOME $ (3,811) | $ 129,084 $ (23,957) $ (162,392) $ (48,067) $ (94,951)
========== | ========== ========= ========== ========== ==========
|
NET LOSS PER SHARE (BASIC AND |
DILUTED) $ (0.45) |
=========== |
No dividends on common stock have been paid during the past five fiscal years.
Per share data is not presented for the periods ended on or prior to April 16,
2005 due to a general lack of comparability as a result of the revised capital
structure of the company.
BALANCE SHEET DATA:
Total assets $ 329,207 | $ 418,086 $ 394,225 $ 454,417 $ 739,974 $ 809,032
Total debt (including capital |
leases) 51,252 | 67,473 156,201 164,555 356,925 328,116
Stockholders' equity (deficit) 119,686 | 0 (133,606) (99,021) 61,739 136,858
|
OTHER DATA: |
EBITDA (10) $ 25,130 | $ 3,100 $ 39,511 $ 31,596 $ 53,506 $ 66,404
Depreciation and amortization 19,075 | 4,712 21,985 21,697 26,173 25,368
LIFO (benefit) provision 1,457 | 75 813 703 (2,106) 648
Capital expenditures 20,533 | 4,148 21,244 6,377 56,439 48,008
Cash interest expense 7,222 | 1,753 10,520 27,542 32,858 33,944
-26-
NOTES
1) During the fourth quarter of fiscal year 2003 we adopted Emerging
Issues Task Force Issue No. 02-16 "Accounting by a Reseller for Cash
Consideration Received from a Vendor", or "EITF 02-16". EITF 02-16
requires that vendor allowances, including slotting allowances, be
categorized as a reduction of cost of sales unless they are a
reimbursement of costs incurred to sell the vendor's products, in which
case, the cash consideration should be characterized as a reduction of
that cost. EITF 02-16 also requires that rebates or refunds payable,
only if the customer completes a specified cumulative level of
purchases from the vendor, be recognized as a reduction of cost of
sales based on a systematic and rational allocation over the purchase
period. Adoption of this standard did not materially affect our net
loss for fiscal year 2003.
2) During the fourth quarter of fiscal year 2003, we recorded a $3.6
million reduction of selling and administrative expenses associated
with an adjustment to reserves for group health and general liability
insurance. The reserve balance for our sponsored group health insurance
was reduced due to improved claims processing that decreased the claims
incurred but not reported. Additionally, through fiscal year 2002, we
have estimated the general liability insurance reserve for future
claims based on our actual claim history, supplemented by industry
benchmarks for comparable companies. During the period when we had
insufficient actual claim history to provide the appropriate assurance
in the result, we maintained the liability balance at the upper end of
a reasonable range. Based on actual claim history, we recorded a
reduction in the general liability insurance reserve.
3) We adopted Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets", or
"SFAS 144" during fiscal year 2003, which required us to perform a
review of the recorded value of our long-lived assets whenever changes
in circumstances indicate the carrying value of the asset may not be
recoverable. During the fourth quarter of fiscal year 2003, we recorded
a non-cash charge of $17.9 million related to the write-down of 16 of
our operating retail stores and three closed stores to estimated fair
market value. In fiscal year 2004, we recorded a non-cash charge of
$1.0 million for 4 retail stores. The impairment charges under SFAS 144
resulted from lower estimated future cash flows that were due to a
combination of factors, including the difficult economic environment
and a more challenging competitive environment during fiscal year 2003
and fiscal year 2004. These factors reduced the profitability of our
stores and caused us to conclude that the profitability of certain of
our stores would not increase to a level that would enable the carrying
value to be recovered.
-27-
4) We adopted Statement of Financial Accounting Standard No. 142 "Goodwill
and Other Intangible Assets" or SFAS 142 in fiscal year 2003 and
performed a transitional goodwill assessment, which resulted in no
impairment. SFAS 142 provides that intangible assets with finite useful
lives be amortized, and that goodwill and intangible assets with
indefinite useful lives not to be amortized but tested at least
annually for impairment. As of the adoption of SFAS 142, we no longer
record amortization of goodwill in our Consolidated Statement of
Operations. During the fourth quarter of fiscal years 2003 and 2004, we
completed an annual impairment review, which was further necessitated
by the change in the economic and competitive environment, and we
recorded a $28.4 million and a $22.8 million, non-cash charge for the
impairment of goodwill in these periods, respectively.
5) As a result of our Chapter 11 filing on May 30, 2003, no principal or
interest payments were made on or after such date on our formerly
outstanding senior and senior subordinated notes. Accordingly, no
interest expense for these obligations has been accrued on or after
such date. Had such interest been accrued, interest expense would have
increased by $7.4 million, $11.0 million and $2.3 million for fiscal
years 2004, 2005 and the 11-week period ended April 16, 2005,
respectively.
6) The gain on extinguishment of debt for the 11-week period ended April
16, 2005, consists of our extinguishment of the allowed claims of our
unsecured creditors including trade claims, Cash Balance Pension Plan
assumed by Pension Benefit Guaranty Corporation and the former senior
notes in exchange primarily for shares of our common stock.
7) During the 41-week period ended January 28, 2006 reorganization expense
consisted of $1.0 million for professional fees and during the 11-week
period ended April 16, 2005 reorganization expense primarily consisted
of $10.4 million of professional fees and $60.0 million of losses
included in other comprehensive loss related to the Cash Balance
Pension Plan, which was recognized in income on termination of the
plan, upon assumption by the PBGC. For fiscal year ended January 29,
2005 the reorganization expenses consisted of $17.9 million for
professional fees related to the bankruptcy filing, $0.2 million loss
on asset disposals and $0.9 million related to severances paid in
connection with the reorganization. For fiscal year 2004 the
reorganization expenses were primarily for professional fees related to
our plan of reorganization.
8) The tax benefit from continuing operations for the 11-week period ended
April 16, 2005 is not recorded at statutory rates principally due to
the gain on the extinguishment of debt not being included in taxable
income and a $24.0 million tax benefit related to losses from the Cash
Balance Pension Plan, which benefit had previously been credited to
other comprehensive loss. The tax provision for fiscal years 2004 and
2005 was not recorded at statutory rates due to the recording of a
valuation allowance for all of the income tax benefits generated. A
valuation allowance is required when it is more likely than not that
the recorded value of a deferred tax asset will not be realized. The
tax provision (benefit) for fiscal years 2002 and 2003 is not recorded
at statutory rates due to differences between income calculations for
financial reporting and tax reporting purposes that result primarily
from nondeductible amortization of goodwill.
-28-
9) The (income) loss from discontinued operations reflects operating
results and (gains) losses on disposals of Big Bear Stores and other
stores, which were closed or sold during the fiscal years of 2004 and
2005 and the 11-week period ended April 16, 2005. The losses (gains)
for these periods are $33.6 million, ($1.9) million and ($0.3) million,
respectively.
10) "EBITDA" is earnings from continuing operations before interest, taxes,
depreciation, amortization, amortization of goodwill, asset impairment
charge, goodwill impairment charge, and LIFO provision. EBITDA should
not be interpreted as a measure of operating results, cash flow
provided by operating activities or liquidity, or as an alternative to
any generally accepted accounting principle measure of performance. We
report EBITDA as it is an important measure utilized by management to
monitor the operating performance of our business. We also believe that
EBITDA assists investors and other interested parties in evaluating our
capacity to service its debt. Our reported EBITDA may not be comparable
to similarly titled measures used by other companies. Below is a table
that sets forth the reconciliation of operating income (loss) to
EBITDA.
(AUDITED)
SUCCESSOR
COMPANY (UNAUDITED) PREDECESSOR COMPANY
-----------------------------------------------------------------------------------------
41 WEEKS 11 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
(IN THOUSANDS OF DOLLARS) JANUARY 28, APRIL 16, JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2006 2005 2005 2004 2003 2002
-----------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) $ 4,598 | $ (1,687) $ 16,713 $ (14,638) $ (16,816) $ (69,421)
|
Depreciation and |
amortization 19,075 | 4,712 21,985 21,697 26,173 25,368
Amortization of |
goodwill - | - - - - 109,809
Asset impairment charge - | - - 1,002 17,858 -
Goodwill impairment |
charge - | - - 22,832 28,397 -
LIFO provision (benefit) 1,457 | 75 813 703 (2,106) 648
---------- | -------- --------- --------- --------- ---------
|
EBITDA $ 25,130 | $ 3,100 $ 39,511 $ 31,596 $ 53,506 $ 66,404
========== | ======== ========= ========= ========= =========
11) Restated from amounts previously reported to reflect discontinued
operations and a reduction of cost of sales to reflect a correction for
the recording of certain promotional allowances.
-29-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
As discussed in Note 2 to the accompanying Consolidated Financial Statements,
we emerged from our Chapter 11 proceedings on April 13, 2005. For financial
reporting purposes, we accounted for the consummation of our plan of
reorganization as of the close of business on April 16, 2005. In accordance
with the American Institute of Certified Public Accountant's Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" we have applied fresh-start reporting as of the close of
business on April 16, 2005, which has resulted in significant changes to the
valuation of certain of our assets and liabilities, and to its stockholders'
equity. In connection with the adoption of fresh-start reporting, a new entity
has been deemed to be created for financial reporting purposes. The periods
ended on or prior to April 16, 2005 have been designated "Predecessor Company"
and the periods subsequent to April 16, 2005 have been designated "Successor
Company". For purposes of the discussion of the unaudited Results of Operations
the 11-week period ended April 16, 2005 and the audited 41-week period ended
January 28, 2006 have been deemed noncomparible to prior years and no
comparison was done for these periods and prior years.
-30-
RESULTS OF OPERATIONS
The following table sets forth certain Consolidated Statement of Operations
components expressed as percentages of revenues for the 41-week period ended
January 28, 2006 and the 11-week period ended April 16, 2005.
AUDITED UNAUDITED
SUCCESSOR COMPANY PREDECESSOR COMPANY
------------------- -------------------
41-WEEKS 11-WEEKS
ENDED ENDED
JANUARY 28, APRIL 16,
2006 2005
------------------- -------------------
|
Revenues 100.0% | 100.0%
|
Gross profit (1) 25.7 | 26.3
|
Selling and administrative expenses 25.2 | 26.9
|
Operating income 0.5 | (0.6)
|
Interest expense 0.8 | 0.7
|
Extinguishment of debt 0.0 | (68.9)
|
Reorganization item 0.1 | 26.8
|
Income tax benefit (0.1) | (9.0)
|
Discontinued operations 0.0 | 1.2
|
Net (loss) income (0.4) | 48.7
- ---------------------------
(1) Revenues less cost of sales.
-31-
FISCAL 2006 (THE AUDITED 41-WEEK PERIOD ENDED JANUARY 28, 2006 AND THE
UNAUDITED 11-WEEK PERIOD ENDED APRIL 15, 2005)
REVENUES
Revenues for the 41-week period ended January 28, 2006 and the 11-week period
ended April 16, 2005 were $1.0 billion and $265.3 million, respectively.
Same store sales for the 41-week period ended January 28, 2006 was a decrease
of 1.59% compared to the 41-week period ended January 29, 2005 and the same
store sales for the 11-week period ended April 16, 2005 was a decrease of 0.53%
compared to the 11-week period ended April 17, 2004.
Wholesale food distribution revenues were $171.9 million for the 41-week period
ended January 28, 2006 and $28.7 million for the 11-week period ended April 16,
2005.
GROSS PROFIT
Gross profit was $260.9 million, or 25.7% of revenues for the 41-week period
ended January 28, 2006 and $69.7 million or 26.3% of revenues for the 11-week
period ended April 16, 2005.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the 41-week period ended January 28,
2006 were $256.3 million, or 25.2% of revenues and the selling and
administrative expenses for the 11-week period ended April 16, 2005 were $71.4
million, or 26.9% of revenues.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $19.1 million, or 1.9% of revenues
for the 41-week period ended January 28, 2006 and $4.7 million, or 1.8% of
revenues for the 11-week period ended April 16, 2005. Depreciation and
amortization expense increased in Fiscal 2006 primarily due to the shortening
of asset life for our property, equipment and machinery, an increase in
carrying value of favorable leases, the addition of two new intangible assets
(Pharmacy Scripts and Software) with the implementation of fresh-start
reporting. The increase in depreciation and amortization expense was partially
offset by the recording of unfavorable leases associated with the
implementation of fresh-start reporting.
-32-
OPERATING INCOME (LOSS)
Operating income for the 41-week period ended January 28, 2006 was $4.6
million, or 0.5% of revenues, and for the 11-week period ended April 16, 2005
operating loss was $1.7 million, or 0.6% of revenues.
INTEREST EXPENSE
Interest expense for the 41-week period ended January 28, 2006 was $8.3
million, or 0.8% of revenues, and for the 11-week period ended April 16, 2005
interest expense was $1.8 million, or 0.7% of revenues. At fresh-start we
eliminated the interest rate swap. We obtained a more favorable interest rate
under our credit facility and cancellation of our debtor-in-possession
facility.
INCOME TAX BENEFIT
Income tax benefit for the 41-week period ended January 28, 2006 was $0.9
million, or 0.1% of revenues, and the income tax benefit for the 11-week period
ended April 16, 2005 was $23.9 million, or 9.0% of revenues.
During Fiscal 2006 we provided for only minimal state taxes and
capital/franchise tax and reset our deferred tax liability due to our emergence
from bankruptcy.
At January 29, 2005 we had approximately $59.8 million of federal net operating
loss carry-forwards, as well as certain state net operating loss
carry-forwards. On January 29, 2006 $85.0 million of net operating loss and tax
credit carry-forwards were eliminated due to the implementation of our plan of
reorganization. In addition, as the result of the implementation of our plan of
reorganization we lost 55.6% of the tax basis of our long lived assets
(approximately $38.4 million as of January 29, 2006).
REORGANIZATION ITEM
During the 41-week period ended January 28, 2006 we recorded reorganization
item expense of $1.0 million, or 0.1% of revenues, and for the 11-week period
ended April 16, 2005 we recorded reorganization item expense of $71.1 million,
or 26.8% of revenues. These expenses were primarily due to PBGC assumption of
our Cash Balance Plan and consulting fees paid to various bankruptcy
professionals.
-33-
DISCONTINUED OPERATIONS
Loss from discontinued operations for the 11-week period ended April 16, 2005
was $3.1 million. This loss was primarily attributable to our closure of
unprofitable stores during this period.
NET (LOSS) INCOME
Net loss for the 41-week period ended January 28, 2006 was $3.8 million, or
0.4% of revenues, and net income for the 11-week period ended April 16, 2005
was $129.1 million, or 48.7% of revenues. The change in the net income (loss)
was primarily attributable to recognition of a gain from the extinguishment of
debt of $182.8 million in the 11-week period ended April 16, 2005.
-34-
RESULTS OF OPERATIONS (CONTINUED)
The following table sets forth certain Consolidated Statement of Operations
components expressed as percentages of revenues for the fiscal year ended
January 29, 2005, or "Fiscal 2005", and the fiscal year ended January 31, 2004,
or "Fiscal 2004":
UNAUDITED
PREDECESSOR COMPANY
FISCAL FISCAL
2005 2004
------------- -----------
Revenues 100.0% 100.0%
Gross profit (1) 25.6 25.6
Selling and administrative expenses 24.3 24.9
Asset impairment charge 0.0 0.1
Goodwill impairment charge 0.0 1.7
Operating income (loss) 1.3 (1.1)
Interest expense 1.0 2.4
Reorganization item 1.5 2.4
Income tax provision 0.0 0.1
Discontinued operations, net of tax 0.7 6.4
Net loss (1.9) (12.4)
- ------------------------------
1) Revenues less cost of sales.
-35-
FISCAL 2005 COMPARED TO FISCAL 2004 (BASED ON UNAUDITED RESULTS)
REVENUES
Revenues for Fiscal 2005 were $1.29 billion, a 1.7% decrease from $1.31 billion
in Fiscal 2004. The decrease in revenues for Fiscal 2005 is primarily
attributable to a decrease in same store sales.
Same store sales for Fiscal 2005 decreased 1.64% from Fiscal 2004.
Wholesale food distribution revenues were $213.2 million for Fiscal 2005, a
decrease of 2.3% from $218.3 million for Fiscal 2004. The decrease in wholesale
food distribution revenues in Fiscal 2005 was primarily attributable to a
reduction in the number of customers of our wholesale food distribution
business.
GROSS PROFIT
Gross profit was $329.5 million, or 25.6% of revenues, for Fiscal 2005,
compared to $334.6 million, or 25.6% of revenues, for Fiscal 2004. The decrease
in gross profit is primarily due to a decrease in revenues.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for Fiscal 2005 were $312.8 million, or
24.3% of revenues, compared to $325.4 million, or 24.9% of revenues, for Fiscal
2004. The decrease in selling and administrative expenses were primarily due to
a reduction in the administrative labor force stemming from the sale and
closure of 99 stores in Fiscal 2004 and 7 stores in Fiscal 2005.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $22.0 million, or 1.7% of revenues,
in Fiscal 2005 compared to $21.7 million, or 1.7% of revenues, in Fiscal 2004.
OPERATING INCOME (LOSS)
Operating income for Fiscal 2005 was $16.7 million, or 1.3% of revenues,
compared to an operating loss for Fiscal 2004 of $14.6 million, or 1.1% of
revenues for Fiscal 2004. The change from an operating loss for Fiscal 2004 to
operating income for Fiscal 2005 was primarily due to a reduction in selling
and administrative expenses and asset impairment and goodwill impairment
charges recorded in Fiscal 2004.
-36-
INTEREST EXPENSE
Interest expense for Fiscal 2005 decreased to $12.4 million, or 1.0% of
revenues, from $32.0 million, or 2.4% of revenues, in Fiscal 2004. Interest
expense for Fiscal 2005 decreased primarily due to the elimination of principal
and interest payments on our senior notes, the cancellation of our hedging
activities and reduced average balances outstanding on our debtor-in-possession
facility in accordance with our cost reduction initiatives.
REORGANIZATION ITEMS
During Fiscal 2005 we recorded reorganization expenses of $19.0 million
compared to $30.8 million recorded in Fiscal 2004. These expenses were
attributable to various lawyers and consultants retained to proceed with the
bankruptcy filing and to manage our operations during this process.
DISCONTINUED OPERATIONS
Losses from discontinued operations were $9.0 million for Fiscal 2005, compared
to $84.2 million in Fiscal 2004. The decrease is primarily attributable to the
results of operations of the 99 stores sold or closed in Fiscal 2004 compared
with the 7 stores closed or sold in Fiscal 2005 and a $33.6 million loss on
sales or closure of unprofitable stores during Fiscal 2004 compared to $1.9
million gain on disposals of unprofitable stores during Fiscal 2005.
INCOME TAX PROVISION
Income tax provision was $0.3 million, or 0.0% of revenues, for Fiscal 2005
compared to an income tax provision of $0.8 million, or 0.1% of revenues for
continuing operations, for Fiscal 2004.
The effective tax rate for Fiscal 2005 is not recorded at expected statutory
rates primarily due to the recording of a valuation allowance of $7.7 million
principally related to tax benefit attributable to net operating loss generated
during Fiscal 2005. A valuation allowance is required when it is more likely
than not that the recorded value of a deferred tax asset will not be realized.
The effective tax rate for Fiscal 2004 varies from the expected statutory rates
due to the recording of a valuation allowance of $20.6 million.
-37-
NET LOSS
Net loss for Fiscal 2005 was $24.0 million, or 1.9% of revenues, compared to a
net loss of $162.4 million, or 12.4% of revenues, for Fiscal 2004. The net loss
decreased during Fiscal 2005 primarily due to the reduction of reorganization
expenses, interest expense and impairment charges and reduced losses from
discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
On April 16, 2005, upon emergence from Chapter 11 proceedings, we entered into
a revolving credit and term loan facility with a group of financial
institutions providing for a $130.0 million revolving credit facility and a
$6.0 million term loan. Also on April 16, 2005, we entered into a supplemental
real estate credit facility with another group of lenders, providing for term
loan borrowings of up to $28.0 million. Availability under both credit
facilities is dependent on levels of accounts receivable, inventory and certain
other assets. Interest rates on borrowings under the revolving credit facility
vary depending upon the amount of availability. At January 28, 2006,
outstanding borrowings under both facilities aggregated $33.0 million and
outstanding letters of credit under the revolving credit facility amounted to
approximately $53.0 million. At such date, availability in excess of
outstanding borrowings and letters of credit was approximately $54.0 million.
Borrowings under the revolving credit and term loan facility are secured by
substantially all of our assets, subject to first liens on certain properties
by other lenders. Borrowings under the real estate facility are secured by a
first lien on substantially all of our leasehold interests and a second lien on
substantially all of our remaining assets. During fiscal year 2006, we had
stand-by letters of credit of approximately $53.5 million. Many of these
stand-by letters of credit were required upon emergence from bankruptcy and as
a result of our inability to file financial statements.
Provisions of both credit facilities, among other things, require the
maintenance of certain financial covenants (when availability under the credit
facilities is less than $35.0 million for four consecutive days or less than
$30.0 million for any one day), and limit the amount of capital expenditures,
our assumption of additional debt and our payment of dividends. At no time
through January 28, 2006 have we been subject to compliance with these
financial covenants. However, had such an event occurred, we would not have
been in compliance with the financial covenants and would have been in default
under the terms of the loan agreement at January 28, 2006.
On December 26, 2006 and on August 1, 2007, both the revolving credit and term
loan facility and the supplemental real estate credit facility were amended to
permit the disposal of assets in connection with the closing of certain stores.
Pursuant to our plan of reorganization, we entered into a collateral trust
agreement with the collateral trustee in connection with the secured trade lien
program. The secured trade lien program is with certain of our vendors and
allows us to maintain trade terms. This program has been extended until April
13, 2008.
We also have borrowings under mortgages secured by the related properties.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any material off-balance sheet arrangements.
-38-
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The table below presents our significant contractual obligations at January 28,
2006 (in thousands of dollars):
TOTAL
COMMITMENT EXPIRES OTHER CONTRACTUAL
DURING THE LONG-TERM CAPITAL LEASE OPERATING LONG-TERM CASH
FISCAL YEAR ENDING DEBT (1) OBLIGATIONS (2)(3) LEASES (3) LIABILITIES (4) OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------
February 3, 2007 $ 278 $ 2,855 $ 22,766 $ 7,440 $ 33,339
February 2, 2008 33,314 2,855 20,873 4,053 61,095
January 31, 2009 280 2,855 19,759 2,443 25,337
January 29, 2010 298 2,781 15,778 1,868 20,725
January 28, 2011 324 1,944 13,761 1,451 17,480
Thereafter 3,019 12,766 70,935 4,294 91,014
- ----------------------
(1) Balance for fiscal year ending February 2, 2008 includes repayment of
$33.0 million under the Revolving Credit Facility at January 28, 2006.
(2) Includes amounts classified as imputed interest.
(3) See Note 4 to the Consolidated Financial Statements.
(4) Other liabilities include workers compensation, general liability,
asset retirement obligations, store closing costs and the PBGC
settlement.
We have also made certain contractual commitments that extend beyond January
28, 2006 as shown below (in thousands of dollars):
STAND-BY
LETTERS OF SURETY
CREDIT (1) BONDS (2)
------------ -------------
Total amounts committed $ 53,483 $ 7,495
- -------------
(1) Letters of credit are primarily associated with supporting workers'
compensation obligations and are renewable annually.
(2) We are required to maintain surety bonds for varying periods of up to
three years from the date of issuance.
-39-
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
During December 2004, the Financial Accounting Standards Board issued FASB
Statement No. 123 (revised 2004), "Share-Based Payment," or "SFAS 123R", which
is a revision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation". SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative. SFAS 123R is required to be adopted in the first annual reporting
period beginning after June 15, 2005. Accordingly, we adopted SFAS 123R
effective January 29, 2006.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109", or
"FIN 48", effective for fiscal years beginning after December 15, 2006. FIN 48
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
financial statement recognition of the impact of a tax position when it is more
likely than not, based on its technical merits, that the position will be
sustained upon examination. We are currently evaluating the effect of adopting
FIN 48.
In June 2006, the FASB ratified Emerging Issues Task Force Issue No. 06-3, "How
Sales Taxes Collected From Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (that is, Gross Versus Net
Presentation)", or "EITF 06-3", effective for periods beginning after December
15, 2006. EITF 06-3 allows taxes assessed by various governmental authorities
that are directly imposed on revenue-producing transactions between a seller
and a customer, such as sales and some excise taxes, to be presented on either
a gross or net basis. If such taxes are significant, the accounting policy
should be disclosed as well as the amount of taxes included in revenue if
presented on a gross basis. We record sales net of applicable sales taxes.
Therefore, the adoption of EITF 06-3 will have no effect on the presentation of
our financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard
No. 157, "Fair Value Measurement", or "SFAS 157", effective for fiscal years
beginning after November 15, 2007. SFAS 157 defines fair value, establishes a
framework for measuring fair value according to generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS 157 does
not require any new fair value measurements. We are currently evaluating the
effect of adopting SFAS 157.
In September 2006, the FASB issued Statement of Financial Accounting Standard
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132R", or "SFAS 158", effective for fiscal years ending after December 15, 2006
with early application encouraged. SFAS 158 requires financial statement
recognition of the overfunded or underfunded status of a defined benefit
postretirement plan or other postretirement plan as an asset or liability and
recognition of changes in the funded status in comprehensive earnings in the
year in which the changes occur. We elected early application and adopted SFAS
158 effective as of January 28, 2006. The adoption of the recognition provision
of SFAS 158 increased stockholders equity by $4.9 million reduced the defined
benefit pension plan liability by $8.3 million and reduced the deferred tax
liability by $3.4 million at January 28, 2006 (see Note 10 to the Consolidated
Financial Statements).
-40-
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those accounting policies that are very
important to the portrayal of our financial condition which require
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. Our significant accounting policies are summarized in Note 3 to the
consolidated financial statements.
We believe the following accounting policies to be critical and could result in
materially different amounts being reported under different conditions or using
different assumptions:
RESERVE FOR STORE CLOSURES
Reserves for closed stores are recorded in accordance with Statement of
Financial Accounting Standard No. 146, "Accounting for Costs Associated with
Exit and Disposal Activities," or "SFAS 146". We record a liability for the
estimated future cash flows (including future lease commitments, net of
estimated cost recoveries) and miscellaneous closing costs. Future cash flows
are estimated based on our knowledge of the market in which the closed stores
are located. The estimates of future cash flows are then discounted to the
present based on our interest rate of our real estate facility term loan. These
estimates of discounted future cash flows could be affected by changes in real
estate markets, other economic conditions and the interest rate used in such
calculations.
IMPAIRMENT OF LONG-LIVED ASSETS
Annually or whenever changes in circumstance indicate that the carrying value
of an asset may not be recoverable, we review our long-lived assets for
impairment at the individual store level based on estimated future undiscounted
cash flows attributable to such assets. This review is in accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", or "SFAS 144".
In the event such cash flows are not expected to be sufficient to recover the
recorded value of the assets, such assets are written down to their fair value.
In estimating future cash flows, management considers historical performance
and assesses the effect of projected changes in competition, maturation of new
stores and store remodels, merchandising and marketing strategies and general
market conditions. Fair values were determined either by management, based on
management's knowledge of local real estate markets and the value of equipment
utilized in the supermarket industry, or by an independent third party
valuation firm. No assurance can be given that the actual future cash flows
will be sufficient to recover the carrying value of long-lived assets. Any
reductions in the carrying value resulting from the application of this policy
are reflected in the Consolidated Statement of Operations as "Asset impairment
charge".
-41-
INVENTORIES
Our inventories are stated at the lower of cost or market. We follow the
link-chain, dollar-value LIFO method when calculating our LIFO charge or
credit. Vendor allowances, including early payment discounts, volume rebates,
and funds for product placement and advertising, are generally recorded as a
reduction of inventory cost based on average inventory turnover rates by
product category.
We take physical counts of inventories throughout the year and record inventory
shortages based on our physical counts. Where physical counts are not available
we record an allowance for inventory shortages based on historical shrinkage
percentages.
INTANGIBLE ASSETS
We have recorded intangible assets for favorable leases, pharmacy prescription
files and computer software. We amortize our favorable leases over the
remaining life of the lease including all favorable options. We amortize the
pharmacy prescription files over five years and we amortize the computer
software over five years. We consider these assets annually during our
impairment testing.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We evaluate the collectability of our accounts and notes receivable based on
our analysis of past due accounts and historical loss trends. We record an
allowance for doubtful accounts against the receivable based on the amount that
we believe is reasonably collectable. It is possible that our estimation
process could differ materially from the actual amounts collected.
INCOME TAXES
We are required to estimate our income taxes in each of the jurisdictions in
which we operate. In addition, various tax authorities audit our income tax
returns. Although management believes these estimates are reasonable the actual
results could differ resulting in a material effect on our consolidated
financial statements.
-42-
SELF-INSURANCE LIABILITY
We are primarily self-insured for workers' compensation and general liability.
Self-insurance liabilities are primarily calculated based on claims filed and
an estimate of claims incurred but not yet reported. Workers' compensation and
general liability reserves are determined based on historical loss history,
industry development factors and trends related to actual payments. We have
limited our total exposure related to self-insured liability claims incurred by
maintaining stop-loss coverage with third party insurers, as defined in the
applicable insurance policies, for claims incurred in excess of established
stop-loss levels and policy deductibles. Projection of losses concerning these
liabilities is subject to a high degree of variability due to factors such as
claim settlement patterns, litigation trends, legal interpretations and future
levels of health care. Should a greater amount of claims occur compared to what
was estimated or costs of health care increase beyond what was anticipated,
reserves recorded may not be adequate and additional expense could be required
in the consolidated financial statements.
PENSION ACCOUNTING
We currently are sole sponsors of four tax-qualified defined benefit pension
plans (the "Pension Plans"). In accordance with the provisions of SOP 90-1,
upon emergence from bankruptcy, the Company recorded the underfunded status of
each of the defined benefit plans as a liability on the balance sheet. As of
January 28, 2006, the Company adopted the provisions of Financial Accounting
Standard No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans" and in accordance therewith reflected the underfunded
status of the plans in its balance sheet at such date. Prospectively, the
Company will adjust the liability to reflect the current funded status of the
plan. Any gains or losses that arise during the period but are not recognized
as components of net periodic benefit cost will be recognized as a component of
other comprehensive income. The adoption of SFAS 158 resulted in the
recognition of $8.3 million of unrecognized actuarial gains which arose during
the period ended January 28, 2006 and a corresponding reduction in the defined
benefit pension plan liability at January 28, 2006. Such unrecognized gains,
net of deferred taxes of $3.4 million were credited to accumulated other
comprehensive income in the amount of $4.9 million. The adoption of SFAS 158
had no effect on the Company's consolidated statement of operations for the
period ended January 28, 2006. See Note 10 to the Consolidated Financial
Statements for further discussion on pensions.
Pension expense is calculated based upon a number of actuarial assumptions,
including an expected long-term rate of return on the Pension Plans assets, a
discount rate, and an assumed rate of compensation increase. After consultation
with our actuaries, we determined these actuarial assumptions on our fiscal
year end of each year to calculate liability information as of that date and
pension expense for the following year. The discount rate assumption is
determined based on the internal rate of return for Citigroup Pension Liability
Index with maturities that are consistent with projected future plan cash
flows. The assumed discount rate used to determine pension expense for the
period ended January 28, 2006 was 5.48%. The assumed discount rate at January
28, 2006 of 5.68% will be used to determine pension expense for Fiscal 2007.
-43-
The assets of the plans consist of approximately 54% equity securities, 44%
fixed income securities and 2% cash at January 28, 2006. The expected long-term
rates of return on plan assets is based on historical and projected average
rates of return for current and planned asset classes in the plan investment
portfolio. At January 28, 2006 the expected long-term rate of return on plan
assets to be used in the determination of pension expense for Fiscal 2007 was
7.5%. Based on an estimate of 50% bonds and 50% stock, the rate of return at
January 28, 2006 was 10% and 5%, respectively.
Significant differences between our actual experience or significant changes in
our assumptions, may materially affect the pension obligations and future
expense. Additionally, changes in the fair value of plan assets at year end may
materially affect our future pension expense. The fair value of plan assets can
vary significantly from year to year.
-44-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
Our financial results are subject to risk from interest rate changes on debt
that has variable interest rates. Total variable rate debt outstanding under
our loan agreements at January 28, 2006 was $33 million with a weighted average
interest rate of 9.49%. A 1% change in interest rates would impact pre-tax
income by $0.3 million based on the debt outstanding at January 28, 2006. In
addition to the variable rate debt we had $5 million of fixed rate debt
outstanding at January 28, 2006 with a weighted average interest rate of 7.80%.
We view the fixed rate debt as a partial hedge against interest rate
fluctuations which should minimize the potential impact on earnings from
interest rate changes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
- ------------------------------------------ ----
Reports of Independent Accountants 46
Consolidated Financial Statements:
Balance Sheets 47
Statement of Operations 49
Statement of Cash Flows 50
Statement of Stockholders' Equity 51
Notes to Consolidated Financial Statements 52
-45-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
The Penn Traffic Company
Syracuse, New York
We have audited the accompanying consolidated balance sheets of The Penn
Traffic Company (the "Company") as of January 28, 2006 and April 16, 2005
(effective date of plan of reorganization for accounting purposes), and the
related consolidated statements of operations, cash flows and stockholders'
equity for the period from April 17, 2005 to January 28, 2006. 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 audit.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Penn Traffic
Company as of January 28, 2006 and April 16, 2005, and the consolidated results
of its operations and its cash flows for the period from April 17, 2005 to
January 28, 2006, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 2 to the consolidated financial statements, on May 30,
2003, the Company filed for voluntary bankruptcy protection and reorganization
under Chapter 11 of the United States Bankruptcy Code. On April 13, 2005, the
Company's amended plan of reorganization became effective and the Company
emerged from bankruptcy and effective April 16, 2005 adopted fresh-start
reporting which results in a new reporting entity and a new basis of
accounting.
The Company has not presented the selected quarterly financial data specified
in item 302(a) of Regulation S-K that the Securities and Exchange Commission
requires as supplementary information to the basic financial statements.
/s/ Eisner LLP
New York, New York
June 29, 2007
-46-
The Penn Traffic Company
Consolidated Balance Sheets
As of January 28, 2006 and April 16, 2005
(In thousands, except share and per share data)
JANUARY 28, APRIL 16,
2006 2005
------------ -------------
(Note 3)
ASSETS
CURRENT ASSETS:
Cash $ 12,432 $ 29,304
Accounts and notes receivable (less allowance for
doubtful accounts of $3,174 and $3,243, respectively) 36,970 40,416
Inventories (Note 3) 113,467 116,518
Prepaid expenses and other current assets 6,157 11,433
------------ ------------
169,026 197,671
------------ ------------
CAPITAL LEASES:
Capital leases 12,023 12,023
Less: Accumulated amortization (1,026) -
------------ ------------
10,997 12,023
------------ ------------
FIXED ASSETS:
Land 11,588 11,584
Buildings 13,621 13,238
Equipment and furniture 86,885 72,444
Vehicles 6,749 5,419
Leasehold improvements 5,062 721
------------ ------------
123,905 103,406
Less: Accumulated depreciation (16,276) -
------------ ------------
107,629 103,406
------------ ------------
OTHER ASSETS:
Intangible assets (Note 5) 36,220 39,612
Other assets 5,335 6,845
------------ ------------
41,555 46,457
------------ ------------
TOTAL ASSETS $ 329,207 $ 359,557
============ ============
The accompanying notes are an integral part of these statements.
-47-
The Penn Traffic Company
Consolidated Balance Sheets
As of January 28, 2006 and April 16, 2005
(In thousands, except share and per share data)
JANUARY 28, APRIL 16,
2006 2005
------------ --------------
(Note 3)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases (Note 4) $ 1,310 $ 1,200
Current maturities of long-term debt (Note 6) 278 254
Accounts payable 36,695 35,075
Other current liabilities (Note 7) 46,294 58,576
Accrued interest expense 557 554
Deferred income taxes (Note 9) 119 344
Liabilities subject to compromise (Note 8) 2,871 8,497
------------ ------------
88,124 104,500
------------ ------------
NON-CURRENT LIABILITIES:
Obligations under capital leases (Note 4) 12,429 13,425
Long-term debt (Note 6) 37,235 37,967
Deferred income taxes (Note 9) 16,112 13,655
Defined benefit pension plan liability (Note 10) 27,600 39,959
Other non-current liabilities (Note 7) 28,021 31,473
------------ ------------
121,397 136,479
------------ ------------
TOTAL LIABILITIES 209,521 240,979
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 6 AND 11)
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 1,000,000 shares,
$.01 par value; none issued - -
Common stock - authorized 15,000,000 shares, $.01 par value; 85 85
issued and to be issued 8,498,752 shares at both dates
Capital in excess of par value 118,493 118,493
Deficit (3,811) -
Accumulated other comprehensive income 4,919 -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 119,686 118,578
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 329,207 $ 359,557
============ ============
The accompanying notes are an integral part of these statements.
-48-
The Penn Traffic Company
Consolidated Statement of Operations
For the Period from April 17, 2005 to January 28, 2006
(In thousands, except share and per share data)
REVENUES $ 1,015,893
COST AND OPERATING EXPENSES:
Cost of sales 754,995
Selling and administrative expenses 256,300
-------------
OPERATING INCOME 4,598
Interest expense 8,289
Reorganization expenses 1,023
-------------
LOSS BEFORE INCOME TAXES (4,714)
Income tax benefit (Note 3 and 9) (903)
-------------
NET LOSS $ (3,811)
=============
Shares outstanding and to be issued 8,498,752
NET LOSS PER SHARE (BASIC AND DILUTED) (NOTE 3) $ (0.45)
=============
-49-
The Penn Traffic Company
Consolidated Statement of Cash Flows
For the Period from April 17, 2005 to January 28, 2006
(In thousands)
OPERATING ACTIVITIES:
Net (loss) $ (3,811)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 19,075
Amortization of deferred financing cost 1,066
Deferred income taxes (1,164)
(Gain) on sale of fixed assets (605)
NET CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts and notes receivable, net 3,446
Prepaid expenses and other current assets 5,276
Inventories 3,051
Liabilities subject to compromise (5,626)
Accounts payable and other current liabilities (10,659)
Other assets 444
Defined benefit pension plan (4,044)
Other non-current liabilities (1,799)
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,650
------------
INVESTING ACTIVITIES:
Capital expenditures (20,533)
Proceeds from sale of fixed assets 605
------------
NET CASH USED IN INVESTING ACTIVITIES (19,928)
------------
FINANCING ACTIVITIES:
Payments of mortgages (208)
Net repayments under revolving credit facility (500)
Reduction in capital lease obligations (886)
------------
NET CASH USED IN FINANCING ACTIVITIES (1,594)
------------
NET DECREASE IN CASH (16,872)
CASH AT THE BEGINNING OF PERIOD 29,304
------------
CASH AT END OF PERIOD $ 12,432
============
-50-
The Penn Traffic Company
Consolidated Statement of Stockholders' Equity For the Period from April 17,
2005 to January 28, 2006 (In thousands)
Capital in Accumulated Other Total
Common Excess of Comprehensive Stockholders'
Stock Par Value Deficit Income Equity
----------- ------------- ------------ ------------------ ---------------
Common stock to be issued
in connection with plan
of reorganization $ 85 $ 118,493 $ 0 $ 118,578
Net loss for the 41-week
period ended
January 28, 2006 (3,811) (3,811)
Unrecognized actuarial
gain of pension plans,
net of deferred taxes
of $3,396 4,919 4,919
- --------------------------------------------------------------------------------------------------------------
Balance at January 28, 2006 $ 85 $ 118,493 $(3,811) $ 4,919 $ 119,686
==============================================================================================================
-51-
The Penn Traffic Company
Notes to Consolidated Financial Statements
NOTE 1 - DESCRIPTION OF BUSINESS
The Penn Traffic Company and its subsidiaries (the "Company") are engaged in
the retail food business and the wholesale food distribution business. As of
January 28, 2006, the Company operated 110 supermarkets under the "P&C",
"Quality" and "Bi-Lo" banners in upstate New York, Pennsylvania, Vermont and
New Hampshire, and supplied 79 independent supermarkets and 41 other
independent wholesale accounts. The Company services these owned and
independent supermarkets and independent wholesale accounts through five
distribution centers and a bakery.
NOTE 2 - VOLUNTARY BANKRUPTCY FILING AND REORGANIZATION
On May 30, 2003, The Penn Traffic Company and all of its subsidiaries filed
voluntary petitions under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Southern District of New York. The
filing was made in response to pending defaults under the Company's
then-existing loan agreements and a lack of liquidity to continue operations.
Under Chapter 11, the Company continued to operate its businesses as
debtor-in-possession under court protection from its creditors and claimants,
while using the Chapter 11 process to substantially reduce its debt obligations
and implement a plan of reorganization.
On February 2, 2005, the Company filed the First Amended Joint Plan of
Reorganization (the "Plan") with the bankruptcy court. The Plan was confirmed
on March 17, 2005 and became effective on April 13, 2005 (the "Effective
Date").
Pursuant to the terms of the Plan, the following transactions occurred on or
around the Effective Date:
1. The Company entered into new credit agreements providing for
borrowings of up to $164 million (see Note 6). Proceeds from these new
credit agreements provided funds sufficient to repay a
debtor-in-possession credit facility and all administrative and
priority claims to the extent provided for in the Plan.
2. The Company sold and leased back its five owned distribution
facilities for a sales price of approximately $37 million.
3. All shares of common stock and all stock options and warrants
outstanding prior to the confirmation of the Plan were cancelled and
the holders of such equity securities received no distributions under
the Plan.
4. The reorganized Company was authorized to issue new shares of common
stock to unsecured creditors, which included holders of $100 million
of senior notes, a claim by the Pension Benefit Guaranty Corporation
or the "PBGC" of $60 million (see Note 10) and trade claims, all of
whom were eligible to receive pro rata distributions of new shares of
common stock and the right to share in potential proceeds from certain
causes of action.
-52-
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of The Penn Traffic
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
year 2006 is the 41-week period from April 17, 2005, the commencement of
Fresh-Start Reporting (see below), to January 28, 2006.
BASIS OF PRESENTATION
The accompanying consolidated financial statements as of April 16, 2005 and
January 28, 2006, and for the fiscal period from April 17, 2005 to January 28,
2006, have been prepared in accordance with the provisions of Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7") issued by the American Institute of Certified
Public Accountants. Pursuant to the provisions of SOP 90-7, upon emergence from
Chapter 11 proceedings, the Company adopted fresh-start reporting which
resulted in a new reporting entity and a new basis of accounting.
Although April 13, 2005 was the effective date of the Plan, the Company chose
April 16, 2005 as the effective date for accounting purposes to adopt
fresh-start reporting because of the proximity of that date to the end of an
accounting period. Applying fresh-start reporting as of April 16, 2005 rather
than the actual effective date of April 13, 2005 did not have a material effect
on the financial condition or results of operations of the Company.
The reorganization value of the Company upon emergence from the Chapter 11
proceedings was approximately $195 million. The reorganization value represents
the debt and equity value of the Company as of the effective date. Such value,
which was determined with the assistance of the Company's financial advisors,
was based upon various valuation methods, including discounted cash flow
methodologies and analysis of comparable companies. The equity value of the
Company upon reorganization amounting to approximately $118 million, was
determined after taking into account approximately $77 million of debt,
consisting of long-term debt, obligations under capital leases and defined
benefit pension plan liabilities, net of related deferred taxes. In accordance
with fresh-start reporting, all assets and liabilities were recorded at their
respective fair values. The fair values of the Company's long-lived assets were
determined, in part, using information provided by third-party appraisers. The
excess of the aggregate fair value of the Company's tangible and identifiable
intangible assets less non-interest bearing liabilities over the total
reorganization value of approximately $31.7 million has been recorded as a pro
rata reduction of non-current assets.
-53-
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those estimates.
REVENUE RECOGNITION
Revenue from the sale of products to retail customers is recognized at the time
of sale. Discounts provided to customers through company sponsored loyalty
programs are recognized as a reduction in sales as products are sold. Discounts
provided through vendor coupons are not recognized as a reduction in sales to
the extent the Company is reimbursed by the vendor. Pharmacy sales are recorded
when prescriptions are picked up by the customer. Sales taxes are not recorded
as a component of sales. Revenue from gift certificates is recognized upon
redemption of the gift certificates for products.
Revenue from the sale of products to wholesale customers is recognized at the
time of shipment.
COST OF SALES
Cost of sales includes the cost of product and related warehousing and freight
costs. Vendor allowances are recorded as a reduction of cost of sales when the
related product is sold in accordance with the provisions of Emerging Issues
Task Force Issue 02-16. "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor". Vendor allowances, including
early payment discounts, volume rebates, and funds for product placement and
advertising, are generally recorded as a reduction of inventory cost based on
average inventory turnover rates by product category.
Vendor allowances recognized as a reduction of cost of sales for the period
ended January 28, 2006 aggregated $43.8 million.
ADVERTISING
Advertising costs are expensed as incurred and included in selling and
administrative expenses. Advertising expense for the period ended January 28,
2006 aggregated $11.1 million.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist primarily of amounts due from wholesale
customers, debit and credit card sales, third party insurance pharmacy sales
and vendor allowances. The Company establishes an allowance for doubtful
accounts based on an analysis of past due accounts and historical loss trends.
-54-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, trade accounts payable and
accrued expenses approximate their fair values due to the relatively short
maturities of the instruments. For other debt, carrying value approximates fair
value because their interest rates approximate market rates.
INVENTORIES
Inventories, consisting primarily of grocery and pharmacy products, are stated
at the lower of cost or market. Cost is determined using the last-in, first-out
method ("LIFO") using the estimated fair value of inventory on April 16, 2005
upon adoption of fresh-start reporting to determine LIFO cost for financial
reporting purposes. If cost had been determined using the first-in, first-out
method ("FIFO"), inventories would have been $1.5 million higher than reported
at January 28, 2006.
The Company takes physical counts of inventories throughout the year and
records inventory shortage adjustments based on the physical counts. Throughout
the year the Company is accruing for inventory shortages based on historical
trends and averages in the proper periods. Where physical counts are not taken
at the year end, the Company establishes an allowance for inventory shortages
based on historical shrinkage percentages.
FIXED ASSETS AND CAPITAL LEASES
Major renewals and betterments are capitalized, while maintenance and repairs
are charged to expense as incurred. Depreciation and amortization are provided
on a straight-line basis over the estimated useful lives of the assets or, for
leasehold improvements, the shorter of the estimated useful lives of the assets
or the lease term (which includes renewal periods that are reasonably assured).
Estimated useful lives are as follows:
Buildings 39 years
Capitalized leases 5 to 32 years
Equipment and furniture 3 to 10 years
Leasehold improvements 10 to 32 years
Vehicles 3 to 8 years
Fixed assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss would be recognized when future undiscounted cash flows
expected to result from the use of the asset and its eventual disposal are less
than the carrying amount.
-55-
INTANGIBLE ASSETS
Identifiable intangible assets consist primarily of favorable leases and
pharmacy prescription files (both established upon adoption of fresh-start
reporting). Favorable operating leases represent the present value of the
difference by which market value rent exceeds contract rent and are amortized
on a straight-line basis over the remaining lease term, including renewal
options ranging from 2 to 32 years. Pharmacy prescription files are amortized
on a straight-line basis over 5 years. Computer software is amortized over 5
years.
Identifiable intangibles are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss would be recognized when future undiscounted cash flows
expected to result from the use of the asset and its eventual disposal are less
than the carrying amount.
UNFAVORABLE LEASES
Unfavorable operating leases (established upon adoption of fresh-start
reporting) are reported in other non-current liabilities and represent the
present value of the difference by which contract rent exceeds market value
rent and are amortized on a straight-line basis over the remaining lease term,
excluding renewal options, ranging from 2 to 13 years.
INCOME TAXES
Income taxes are provided based on the liability method of accounting. Deferred
income taxes are recorded to reflect the tax consequences in future years of
net operating loss carryovers and temporary differences between the tax basis
of assets and liabilities and their corresponding financial reporting amounts
at each year-end.
SELF-INSURANCE LIABILITY
The Company self-insures certain insurable risks related to workers'
compensation and general product liability claims. The Company accrues
estimated losses for unpaid claims, including incurred but not reported losses,
with the assistance of an external actuary and by factoring in pending claims
and historical loss experience. The Company also maintains self-insured health
benefits plans, which provide medical and dental benefits to employees electing
coverage under the plans. The Company accrues estimated losses for unpaid
claims, including incurred but not reported claims, based on historical
experience and other assumptions. Commercial policies are obtained to provide
for coverage of certain risk exposure above the self-insured retention limits.
The estimated liability associated with settling unpaid claims is included in
other current liabilities if expected to be settled within one year, or
otherwise is included in other non-current liabilities.
-56-
STORE PRE-OPENING COSTS
Store pre-opening costs are expensed as incurred.
STORE CLOSING COSTS
For operating leases related to closed stores, the Company records the fair
value of the liability at the cease-use date, determined based on the
discounted value of the remaining lease rentals, reduced by estimated sublease
rentals that could be reasonably obtained for the property. Any one-time
termination benefits are recognized at the time the benefits are communicated
to the employees. Other related costs are recognized in the period when the
liability is incurred.
PER SHARE DATA
Basic and diluted net loss per share is based on the number of common shares
issued and estimated to be issued pursuant to the Plan. Common shares issued
and estimated to be issued in settlement of claims filed in the Company's
Chapter 11 proceeding are treated as outstanding as of the effective date of
the Plan. At January 28, 2006, 201,055 common shares are estimated to be issued
in connection with the settlement of remaining claims (see Note 8).
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123R") which is
a revision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation." SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative. SFAS 123R is required to be adopted in the first annual reporting
period beginning after June 15, 2005. Accordingly, the Company will adopt SFAS
123R effective January 29, 2006.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109"
("FIN 48") effective for fiscal years beginning after December 15, 2006. FIN 48
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
financial statement recognition of the impact of a tax position when it is more
likely than not, based on its technical merits, that the position will be
sustained upon examination. The Company is currently evaluating the effect of
adopting FIN 48.
-57-
In June 2006, the FASB ratified Emerging Issues Task Force Issue No. 06-3, "How
Sales Taxes Collected From Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (that is, Gross Versus Net
Presentation)" ("EITF 06-3") effective for periods beginning after December 15,
2006. EITF 06-3 allows taxes assessed by various governmental authorities that
are directly imposed on revenue-producing transactions between a seller and a
customer, such as sales and some excise taxes, to be presented on either a
gross or net basis. If such taxes are significant, the accounting policy should
be disclosed as well as the amount of taxes included in revenue if presented on
a gross basis. The Company records sales net of applicable sales taxes.
Therefore, the adoption of EITF 06-3 will have no effect on the presentation of
the Company's financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard
No. 157, "Fair Value Measurement" ("SFAS 157") effective for fiscal years
beginning after November 15, 2007. SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. SFAS 157 does not
require any new fair value measurements. The Company is currently evaluating
the effect of adopting SFAS 157.
In September 2006, the FASB issued Statement of Financial Accounting Standard
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132R" ("SFAS 158") effective for fiscal years ending after December 15, 2006
with early application encouraged. SFAS 158 requires financial statement
recognition of the overfunded or underfunded status of a defined benefit
postretirement plan or other postretirement plan as an asset or liability and
recognition of changes in the funded status in comprehensive earnings in the
year in which the changes occur. The Company elected early application and
adopted SFAS 158 effective as of January 28, 2006. The adoption of the
recognition provision of SFAS 158 increased stockholders equity by $4.9
million, reduced the defined benefit pension plan liability by $8.3 million and
reduced the deferred tax liability by $3.4 million at January 28, 2006 (see
Note 10).
-58-
NOTE 4 - LEASES
The Company leases store facilities for the operation of its retail food
business and distribution facilities for its wholesale food distribution
business. In accordance with the provision of FASB Statement No. 13,
"Accounting for Leases," certain of the leases meet the criteria to be recorded
as capital leases. The remaining leases are recorded as operating leases. Most
of the lease agreements provide for renewal options and require that the
Company pay real estate taxes and other related expenses. Certain of the lease
agreements also provide for contingent rent payments based on a percentage of
sales.
The following is a summary of future minimum rent payments for operating leases
and for capital leases as of January 28, 2006 (in thousands):
FISCAL YEAR ENDING OPERATING LEASES CAPITAL LEASES
February 3, 2007 $ 22,766 $ 2,855
February 2, 2008 20,873 2,855
January 31, 2009 19,759 2,855
January 30, 2010 15,778 2,781
January 29, 2011 13,761 1,944
Thereafter 70,935 12,766
------------- ------------
Total minimum lease payments $ 163,872 26,056
=============
Less: Amount representing interest 12,317
------------
Present value of net minimum lease payments 13,739
Less: Current portion 1,310
------------
Long-term obligations under capital leases $ 12,429
============
Future minimum rent payments have not been reduced by minimum sublease rent
income of $8.3 million due in the future under non-cancelable subleases.
Rent expense under operating leases for the period ended January 28, 2006 was
$10.7 million as follows (in thousands):
Minimum rent $ 13,115
Contingent rent 201
Less: sublease rent (2,625)
------------
Net rent expense $ 10,691
============
-59-
NOTE 5 - INTANGIBLE ASSETS
Intangible assets as of January 28, 2006 and April 16, 2005 consist of the
following (in thousands):
JANUARY 28, 2006 APRIL 16, 2005
-------------------------------------------------- ---------------
GROSS CARRYING ACCUMULATED GROSS CARRYING
AMOUNT AMORTIZATION NET AMOUNT
---------------- -------------- ------------ ---------------
Amortized intangible assets:
Favorable leases $ 26,739 $ (1,365) 25,374 $ 26,739
Pharmacy prescription files 10,362 (1,657) 8,705 10,362
Computer software 2,542 (401) 2,141 2,511
---------- ----------- ---------- -----------
Total $ 39,643 $ (3,423) $ 36,220 $ 39,612
========== =========== ========== ===========
Aggregate amortization expense:
For the period ended January 28, 2006 $ 3,423
Future Amortization:
Fiscal Year Ending:
February 3, 2007 $ 4,280
February 2, 2008 4,129
January 31, 2009 4,129
January 30, 2010 4,129
January 29, 2011 2,024
Thereafter 17,529
----------
$ 36,220
==========
-60-
NOTE 6 - DEBT
Debt consists of the following at January 28, 2006 and April 16, 2005 (in
thousands):
JANUARY 28, APRIL 16,
2006 2005
------------- -------------
Revolving credit facility, interest (6.60% at January 28, 2006)
at prime plus .50% to 1.25% or LIBOR plus 2.00% to 2.75%,
maturing April 13, 2008 $ 17,000 $ 17,500
Term loan facility, interest (12.25% at January 28, 2006)
at prime plus 5.00%, maturing April 13, 2008 6,000 6,000
Supplemental real estate credit facility, interest (12.75% at
January 28, 2006) at prime plus 5.50%, maturing April 13, 2008 10,000 10,000
Mortgages payable, interest at 6.125% to 12%, maturing at
various dates through May 1, 2021 4,513 4,721
------------ ------------
Total debt 37,513 38,221
Less: Current portion of long-term debt 278 254
------------ ------------
Total long-term debt $ 37,235 $ 37,967
============ ============
Maturities of debt over the next five years are as follows (in thousands):
Fiscal Year Ending:
February 3, 2007 $ 278
February 2, 2008 33,314
January 31, 2009 280
January 30, 2010 298
January 29, 2011 324
Thereafter 3,019
-----------
$ 37,513
===========
-61-
On April 16, 2005, upon emergence from Chapter 11 proceedings, the Company
entered into a revolving credit and term loan facility with a group of
financial institutions providing for a $130 million revolving credit facility
and a $6 million term loan. Also on April 16, 2005, the Company entered into a
supplemental real estate credit facility with another group of lenders,
providing for borrowings of up to $28 million. Availability under both credit
facilities is dependent on levels of accounts receivable, inventory and certain
other assets. Interest rates on borrowings under the revolving credit facility
vary depending upon the amount of availability. At January 28, 2006,
outstanding borrowings under both facilities aggregated $33 million and
outstanding letters of credit under the revolving credit facility amounted to
approximately $53 million. At such date, availability in excess of outstanding
borrowings and letters of credit was approximately $54 million. Borrowings
under the revolving credit and term loan facility are secured by substantially
all the assets of the Company, subject to first liens on certain property by
other lenders. Borrowings under the real estate facility are secured by a first
lien on substantially all leasehold interests of the Company, and a second lien
on realty owned by the Company.
Provisions of both credit facilities, among other things, require the
maintenance of certain financial covenants (when availability under the credit
facilities is less than $35 million for four consecutive days or less than $30
million for any one day), and limit the amount of capital expenditures, the
assumption of additional debt and the payment of dividends. At no time through
January 28, 2006 has we have been subject to compliance with these financial
covenants because the amount available for borrowing has not dropped to those
levels. However, had such an event occurred, we would not have been in
compliance with the financial covenants and would have been in default under
the terms of the loan agreement at January 28, 2006.
On December 26, 2006, both the revolving credit and term loan facility and the
supplemental real estate credit facility were amended to permit the disposal of
assets in connection with the closing of five stores.
The Company also has borrowings under mortgages secured by the related
properties.
-62-
NOTE 7 - OTHER CURRENT AND OTHER NON-CURRENT LIABILITIES
Other current and non-current liabilities as of January 28, 2006 and April 16,
2005 consist of the following (in thousands):
JANUARY 28, APRIL 16,
2006 2005
----------- -----------
OTHER CURRENT LIABILITIES:
Payroll and related payroll taxes $ 5,565 $ 9,130
Workers compensation 9,980 8,828
Vacation and other compensated absences 12,329 12,765
Reorganization costs 250 7,527
Employee benefits 5,310 5,467
State lottery 2,345 2,109
Utilities 2,195 1,636
Professional fees 1,680 2,532
Other accrued liabilities 6,640 8,582
---------- -----------
Total $ 46,294 $ 58,576
========== ===========
OTHER NON-CURRENT LIABILITIES:
Workers compensation $ 16,172 $ 17,444
Unfavorable leases 5,767 7,420
General liability insurance 1,294 1,657
Asset retirement obligations 928 862
Step rent liability 705 -
PBGC settlement 2,500 3,214
Store closing costs 655 876
---------- -----------
Total $ 28,021 $ 31,473
========== ===========
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NOTE 8 - LIABILITIES SUBJECT TO COMPROMISE
In connection with the Chapter 11 proceeding, there are two pending matters
involving claims for the payment of money or the transfer of property. In one
matter, the Ohio Bureau of Workers' Compensation ("OBWC") has filed priority
and administrative claims aggregating $13.4 million for pre-petition unpaid
workers' compensation premiums and for reserves to pay future claims arising
from existing injuries. The OBWC has also filed claims aggregating $1.8 million
for alleged non-payment of post-petition premiums and for reserves to pay
future claims arising from existing injuries. The Company disputes the amounts
of the claims, and is attempting to negotiate a settlement.
In another matter, a claimant has filed a priority claim allegedly arising
under an agreement for a sale-leaseback transaction seeking either damages of
$2.2 million or specific performance of the agreement. The Company disputes the
merits of the claim and is defending against it.
During the period ended January 28, 2006, the Company paid $5.6 million in
settlement of disputed claims. The Company has established liabilities for the
estimated cash payments required to settle the remaining claims outstanding in
the Chapter 11 proceedings. Estimated shares of common stock to be issued in
settlement of claims have been accounted for as stockholders' equity.
NOTE 9 - INCOME TAXES
The components of income tax benefit for the period ended January 28, 2006 are
as follows (in thousands):
Current tax provision
Federal $ -
State 261
Deferred tax benefit
Federal (908)
State (256)
-----------
Total income tax benefit $ (903)
===========
The following is reconciliation between the federal income tax benefit computed
at the statutory federal income tax rate and actual income tax benefit (in
thousands):
Federal income tax benefit at statutory rate $ (1,677)
State income taxes, net of federal income tax effect 172
Non-deductible expenses 602
-----------
Total income tax benefit $ (903)
===========
-64-
The significant components of deferred income tax assets and liabilities at
January 28, 2006 and April 16, 2005 are as follows (in thousands):
JANUARY 28, APRIL 16,
2006 2005
------------ --------------
Current deferred income tax assets / (liabilities)
Reserves and accruals $ 19,076 $ 19,427
Inventories (19,195) (19,771)
----------- -------------
(119) (344)
----------- -------------
Non-current deferred income tax assets / (liabilities)
Beneficial leases and other intangible assets (12,427) (13,150)
Fixed assets (21,774) (24,788)
Capital leases (4,492) (4,911)
Pensions 11,274 16,324
Goodwill (1) 5,695 6,896
Capital lease obligations 5,612 5,974
----------- -------------
(16,112) (13,655)
----------- -------------
Net deferred income tax (liabilities) $ (16,231) $ (13,999)
=========== =============
(1) Represents tax basis of deductible goodwill arising from acquisitions
consummated in prior years.
Prior net operating loss carry forwards were entirely eliminated effective
January 29, 2006 principally as a result of cancellation of debt in the Chapter
11 proceedings. Further, the Company lost a portion of the tax basis of its
long-lived assets, reducing the amount of tax depreciation and amortization
that the Company will be able to utilize on its tax returns.
-65-
NOTE 10 - PENSION PLANS
The Company has four noncontributory defined benefit pension plans covering
certain union personnel. The Company's policy is to fund pension benefits to
the extent contributions are deductible for tax purposes and in compliance with
federal laws and regulations. For the Company's plans, normal retirement age is
either 62 or 65, but provisions are made for earlier retirement. Benefits are
determined either on average annual compensation and years of service, or as a
pre-determined amount for each year of service. Full vesting occurs upon
completion of five years of service. Assets of the Company's pension plans
primarily consist of investments in publicly traded equity and debt securities.
In accordance with the provisions of SOP 90-1, upon emergence from bankruptcy,
the Company recorded the underfunded status of each of the defined benefit
plans as a liability on the balance sheet. As of January 28, 2006, the Company
adopted the provisions of Financial Accounting Standard No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans" and in
accordance therewith reflected the underfunded status of the plans in its
balance sheet at such date. Prospectively, the Company will adjust the
liability to reflect the current funded status of the plan. Any gains or losses
that arise during the period but are not recognized as components of net
periodic benefit cost will be recognized as a component of other comprehensive
income. The adoption of SFAS 158 resulted in the recognition of $8.3 million of
unrecognized actuarial gains which arose during the period ended January 28,
2006 and a corresponding reduction in the defined benefit pension plan
liability at January 28, 2006. Such unrecognized gains, net of deferred taxes
of $3.4 million were credited to accumulated other comprehensive income in the
amount of $4.9 million. The adoption of SFAS 158 had no effect on the Company's
consolidated statement of operations for the period ended January 28, 2006.
At April 16, 2005, the aggregate projected benefit obligation of the four
defined benefit plans was $108.8 million and the aggregate fair value of plan
assets was $68.8 million. The unfunded obligation of $39.9 million was recorded
as a liability on the balance sheet. The following weighted- average
assumptions were used to determine the projected benefit obligation as of April
16, 2005 - discount rate 5.48% and salary increases 3.00%.
-66-
Information as to the Company's four defined benefit pension plans as of
January 28, 2006, which is the measurement date of the plans, and for the
period then ended is as follows (in thousands):
JANUARY 28, 2006
-----------------
Change in benefit obligation
Benefit obligation at beginning of period $ (108,766)
Service cost (1,468)
Interest cost (4,356)
Actuarial gain 2,836
Benefits paid 4,154
--------------
Benefit obligation at end of period (107,600)
Change in plan assets
Fair value of plan assets at beginning of period 68,824
Actual return on plan assets 9,459
Employer contributions 5,872
Benefits paid (4,155)
--------------
Fair value of plan assets at end of period 80,000
Underfunded status $ (27,600)
==============
-67-
PERIOD ENDED
JANUARY 28, 2006
----------------
Components of net periodic pension cost
Service cost $ 1,468
Interest cost 4,356
Expected return on plan assets (3,979)
Amount of recognized gains and losses -
---------------
Net periodic pension cost $ 1,845
===============
The weighted-average assumptions used to determine the benefit obligation as of
January 28, 2006 are as follows:
Discount rate 5.68%
Rate of compensation increase 3.00%
The weighted-average assumptions used to determine the net benefit cost for the
period ended January 28, 2006 are as follows:
Discount rate 5.48%
Expected return on plan assets 7.50%
Rate of compensation increase 3.00%
Plan assets by major category as of January 28, 2006 are as follows:
Target Range Actual Allocation
Equity securities 50% to 60% 54%
Debt securities 40% to 50% 44%
Cash 0% to 10% 2%
-68-
The Company considers the actual asset categories of the invested assets and
the historical rates of return of those categories as the basis for
establishing the expected long-term rate of return (7.5% at January 28, 2006)
on plan assets.
For the year ended January 28, 2006, the Company contributed $5.9 million to
the four defined benefit pension plans and for the year ended February 3, 2007,
contributed $4.3 million to these plans.
The amount of benefits expected to be paid over each of the next six years and
in the aggregate for the following five-year period are as follows (in
thousands):
YEAR AMOUNT
---- ---------
2007 $ 5,002
2008 5,092
2009 5,080
2010 5,205
2011 5,434
2012 5,735
2013-2017 31,124
On May 20, 2004, a distress termination application was filed with the PBGC to
terminate a cash balance pension plan sponsored by the Company. The PBGC filed
various claims in bankruptcy court for payment of unfunded benefit liabilities.
On February 4, 2005, the parties entered into a global settlement whereby the
Company settled the PBGC claims by agreeing to pay the PBGC $0.155 million upon
emergence from bankruptcy and $3.5 million over a two year period commencing
six months after the emergence from bankruptcy. Further, the PBGC was permitted
to retain a $60 million unsecured claim in the bankruptcy proceeding which was
settled through the issuance of common shares pursuant to the Plan.
The Company maintains a 401(k) savings plan for eligible employees. The plan
provides for matching contributions by the Company for all employees not
covered by other union pension plans. The Company's contributions aggregated
$1.4 million for the period ended January 28, 2006.
The Company also participates in seventeen multiemployer collective bargaining
agreements that provide for employer contributions to fund union-sponsored
pension and other benefits. The Company's contributions aggregated $3.9 million
for the period ended January 28, 2006. While the Company has not indicated an
intention to withdraw from any multiemployer plan, such withdrawal could result
in an obligation to the plans for a portion of unfunded benefit obligations of
the particular plans. The Company's aggregate withdrawal liability at January
28, 2006 is approximately $70 million. (See "Item 11. Executive Compensation --
Stock Options".)
-69-
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The United States Attorney for the Northern District of New York and the
Securities and Exchange Commission have been conducting investigations relating
to the Company's promotional allowance practices and policies. Such
investigations began prior to the Company's emergence from bankruptcy in April
2005. The Company has been cooperating with these investigations and has
produced documents and made Company employees available for interviews as
requested. The Company understands that these investigations are ongoing.
On June 1, 2006, the Company announced that the Audit Committee of the Board of
Directors had completed its internal investigation of the Company's promotional
allowance practices. The Audit Committee hired independent counsel to perform
the investigation. The Audit Committee found that the Company had engaged in
certain improper practices principally relating to the premature recognition of
promotional allowances and that these practices had largely ceased by the time
of the Company's Chapter 11 filing in May 2003. On February 3, 2006, the
Company announced that the employment of the Company's Chief Marketing Officer
and the Company's Vice President, Non-Perishables Marketing had been terminated
following an interim report to the Audit Committee on the findings of the
investigation.
In connection with these matters, the Company could be subject to damage
claims, fines or penalties. At present, the Company is unable to estimate the
likelihood of an unfavorable outcome or the amount of any damage claims, fines
or penalties in the event of an unfavorable outcome and, accordingly, no
liability has been recorded for this contingency.
The Company enters into various purchase commitments in the ordinary course of
business. In the opinion of management, no losses are expected to result from
these purchase commitments (see "Item 11. Executive Compensation -- Stock
Options").
-70-
NOTE 12 - STOCK AWARD PLAN
On December 15, 2006, the Company established the 2006 Omnibus Award Plan (the
"Award Plan"). Pursuant to the provisions of the Award Plan, the Company can
grant stock options, restricted stock, phantom stock and stock appreciation
rights. The amount of shares of common stock that can be granted are limited to
902,268 in the aggregate.
On December 15, 2006, the Company granted an aggregate of 150,000 shares of
phantom stock to two officers of the Company. The awards provide for a payment
in cash on the settlement date of May 1, 2009, or earlier in certain
circumstances, of the difference between the value of the Company's common
stock on the grant date and the settlement date. In accordance with FASB
Statement No. 123R, "Accounting for Share Based Payment," the awards will be
accounted for as compensation expense and a corresponding liability over the
period to settlement date based on changes in the value of the Company's common
stock.
On May 14, 2007, the Company granted an aggregate of 22,685 shares of phantom
stock to five non-officer directors. The awards provide for a payment in cash
on the settlement date, which is the earlier of when the individual ceases to
be a member of the Company's Board of Directors or upon the occurrence of a
change in control, as defined, of the value of an equivalent number of shares
of common stock. The award was fully vested upon the grant date, and the
Company will record a compensation charge with a corresponding liability for
the fair value of the awards at date of grant. The liability will be adjusted
based on changes in value of the Company's common stock, with a corresponding
adjustment to compensation expense, at each period to settlement date.
-71-
NOTE 13 - SEGMENT INFORMATION
The Company operates in two segments - the retail food business and the
wholesale food distribution business. The retail food business consists of 110
supermarkets which the Company operates. The wholesale food distribution
business supplies 79 independent supermarkets and 41 other independent
wholesale accounts with food and related products. The Company has allocated
warehouse and transportation costs based on each segment's percentage of total
shipments. In fiscal year 2007, we had a change in our allocation policy for
warehouse and distribution. The calculation was modified to include order size
and distance from the warehouse. Although this change will not have an effect
on our consolidated results of operations, it may have a material effect on our
segment reporting.
The Company's senior management utilizes more than one measurement to evaluate
segment performance and allocate resources. However, the dominant measures
utilized are revenues and operating income before depreciation and amortization
and unallocated overhead expenses.
The accounting policies of the reportable segments are the same as those
described in Note 3 except that the Company accounts for inventory on a FIFO
basis at the segment level compared to LIFO basis at the consolidated level.
The table below presents information with respect to operating segments as well
as reconciliations to consolidated information (in thousands).
Wholesale Food Reconciling
Retail Food Distribution Items Total
-------------- --------------- --------------- --------------
Revenues $ 824,340 $ 171,907 $ 19,646 (1) $ 1,015,893
Cost of sales (579,288) (158,656) (13,715) (2) (751,659) (4)
Selling and administrative expense (207,260) (6,438) (26,863) (3) (240,561) (4)
Operating income before
depreciation and amortization 37,792 6,813 (20,932) 23,673
Depreciation and amortization (16,568) (1,337) (1,170) (19,075)
-----------
Operating income 4,598
Interest expense (8,289)
Reorganization costs (1,023)
-----------
Consolidated loss before income taxes $ (4,714)
===========
Total assets as of January 28, 2006 $ 290,230 (5) $ 23,744 (5) $ 15,233 (6) $ 329,207
========== ============ ========== ===========
Capital expenditures for the period
ended January 28, 2006 $ 16,649 $ - $ 3,884 $ 20,533
-72-
(1) Consists principally of approximately $12.2 million for bakery sales
principally to customers other than those of the retail and wholesale
segments and approximately $5.1 million for trucking revenues.
(2) Consists principally of approximately $10.8 million for bakery sales
and approximately $1.5 million increase in cost of sales to reconcile
segment inventories on FIFO to consolidated inventories on LIFO.
(3) Consists principally of approximately $22.3 million of payroll,
benefits, and payroll taxes associated with the administrative staff,
approximately $2.5 million of contract hauling costs associated with
trucking revenue, and approximately $2.2 million of legal costs
associated with the internal and SEC investigation relating to the
Company's practices regarding promotional discounts and allowances.
(4) Excludes depreciation and amortization of $3.3 million for cost of
sales and $15.7 million for selling and administrative expenses.
(5) The warehouse and transportation assets have been allocated using the
same methodology as that which was used for the warehouse and
transportation costs.
(6) Consists principally of fixed assets and inventory of the bakery
operation and general corporate assets.
NOTE 14 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
An analysis of the changes to the allowance for doubtful accounts for the
period from April 17, 2005 to January 28, 2006 was as follows (in thousands):
Balance at beginning of period $ 3,243
Additions charged to costs and expenses 2,540
Accounts written off, net of recoveries (2,609)
------------
Balance at the end of period $ 3,174
============
-73-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On September 6, 2006, Deloitte & Touche, LLP resigned as our independent
registered public accounting firm.
Deloitte never rendered an audit report with respect to our financial
statements for any period. During the fiscal years ended January 29, 2005 and
January 28, 2006 and through Deloitte's resignation on September 6, 2006, there
had been no disagreement between us and Deloitte on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of Deloitte,
would have caused it to make a reference to the subject matter of the
disagreement in connection with its reports.
Except as described below, during the fiscal years ended January 29, 2005 and
January 28, 2006 and through Deloitte's resignation on September 6, 2006, there
have been no reportable events (as defined in Item 304(a)(1)(v) of Regulation
S-K). In connection with its resignation, Deloitte informed us that it was
unwilling to rely on representations from our former internal General Counsel.
Further, as a result of the interim findings of the Audit Committee's
investigation that we had engaged in certain improper practices principally
relating to the premature recognition of promotional allowances, which has been
previously disclosed, Deloitte had advised us that it would need to expand
significantly the scope of its audit. However, due to its resignation, Deloitte
did not expand the scope of its audit.
We furnished a copy of the above disclosure to Deloitte and requested that
Deloitte furnish us with a letter addressed to the Securities and Exchange
Commission stating whether or not it agreed with such disclosure. Deloitte
subsequently furnished us with a letter addressed to the Securities and
Exchange Commission in which Deloitte agreed with the disclosure statements
made by us.
On September 22, 2006, we announced that we had hired the accounting firm of
Eisner LLP to serve as our independent auditor.
-74-
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures under Rule 13a-15(e) of the Exchange Act are
those controls and other procedures of a company that are designed to ensure
that information required to be disclosed by the company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
report, within the time periods specified in the SEC's rule and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports it files or submits under the Exchange Act is accumulated
and communicated to the issuer's management, including its principal executive
and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
Pursuant to Rule 13a-15(e) under the Exchange Act, our management evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures with the participation of our principal executive and principal
financial officers. Our President and Chief Executive Officer and our Senior
Vice President and Chief Financial Officer were not with us during fiscal year
2006. Based on their current observations combined with observations by the
disclosure committee (which is comprised of members of management, members of
the audit committee and external counsel), management concluded that our
disclosure controls and procedures were ineffective as of January 28, 2006 in
providing reasonable assurance that material information requiring disclosure
was brought to management's attention on a timely basis and that our financial
reporting was reliable.
CHANGE IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING
Management did not conduct an evaluation of the effectiveness of our internal
control over financial reporting as of January 28, 2006. In May 2007, we hired
an outside consulting firm to assist management in its evaluation of the
effectiveness of our internal controls over financial reporting, including
disclosure controls and procedures. They have since determined they will use
the framework established in "Internal Control-Integrated Framework", issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
ITEM 9B. OTHER INFORMATION
None
-75-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
As described in Part I, Item 1 of the Form 10-K, on May 30, 2003, we filed a
petition for relief under Chapter 11 of the United States Bankruptcy Code.
Members of the Board of Directors following our emergence from Chapter 11 were
included in our plan of reorganization and are listed below along with their
age as of January 28, 2006 and biographical information. We have not held a
meeting of stockholders to elect directors since we emerged from bankruptcy on
April 13, 2005.
We held 13 board meetings during the 41-week period ended January 28, 2006.
Each director attended at least 92% of the meeting of the Board of Directors,
plus meetings of committees on which the particular director served.
DIRECTORS FROM APRIL 13, 2005 TO CURRENT
NAME AND AGE BIOGRAPHICAL INFORMATION
- ------------ ------------------------
Robert J. Kelly Mr. Kelly has been our Chairman of the Board
Age: 61 since April 2005. Mr. Kelly was Chairman of the
Director since April 2005 Board of Reorganized Eagle Food Center Inc. from
2003 to present. Prior to that, between 2000 and
2003, Mr. Kelly was the Chairman of the Board of
Eagle Food Centers, Inc., during which time he
led Eagle through a successful reorganization of
their senior debt and an orderly liquidation of
the company. Prior to that, from 1995 to 2000,
Mr. Kelly was the Chairman, President and CEO of
Eagle Food Centers, Inc. Prior to joining Eagle
Food Centers, Mr. Kelly was employed by The Vons
Companies, from 1963 to 1995 in various
management positions, including Executive Vice
President of Retailing.
John E. Burke Mr. Burke served as a consultant for Nestle USA
Age: 65 through 2006, and has worked at Nestle since
Director since April 2005 1971. From 1991 through August, 2004, Mr. Burke
was the Vice President of Credit and Collections
for Nestle USA in the United States. Prior to
that, in 1979, Mr. Burke was appointed Assistant
Treasurer of Nestle Corporation. Mr. Burke has
chaired or served on a number of Official
Unsecured Creditors' Committees, including that
of Fleming Companies, Inc. Mr. Burke has also
served as a Director of Cumberland Farms, the
National Food Manufacturers Credit Group, the
Delaware Valley Credit Management Association,
and the New York Credit and Financial
Management.
-76-
Kevin P. Collins Mr. Collins has been a member and a Principal of
Age: 56 The Old Hill Company, LLC (financial advisory
Director since 1999 services company) since 1997. Mr. Collins was a
Principal of JHP Enterprises, Ltd. (financial
advisory services) from 1991 to 1997. Mr.
Collins serves as a Director of Key Energy
Services, Inc. (provider of oilfield services to
the oil and gas industry) and Metretek
Technologies, Inc. (provider of information
services to the energy industry). Mr. Collins is
a director of Contractors Holding Inc. and a CFA
charter holder.
Ben Evans Mr. Evans has served or is currently serving as
Age: 76 a Director of Revco D.S., Inc., Kash n' Karry
Director since April 2005 Food Stores, Inc., Jamesway Corporation,
Megafood Stores, Inc., Furrs/Bishop, Inc.,
Gibson's Discount Centers, Inc., Salant
Corporation, Accord Financial Corp., Hampton
Industries, Inc., Levitz Furniture, and Factory
Card & Party Outlet. Mr. Evans is a CPA and is a
member and chairman of various audit committees.
Mr. Evans is our audit committee financial
expert. Mr. Evans joined S.D. Leidesdorf &
Company, predecessor firm to Ernst & Young in
1954, became a partner at that firm in 1968, and
retired from Ernst & Whinney as a partner in
1989. From 1978 through 1989, Mr. Evans was a
member of Ernst & Whinney corporate financial
service group. From 1989 until 1999, Mr. Evans
was a consultant for the firm of Ernst & Young
in their corporate financial services group.
Alan C. Levitan Mr. Levitan currently serves on the Board of the
Age: 63 New Jersey Community Food Bank, the Academy of
Director since April 2005 Food Marketing at St. Joseph's University, and
the Arts Council of the Morris area in New
Jersey. Mr. Levitan is a former Director of the
Food Marketing Institute and former Vice
Chairman of the New Jersey Food Council. Mr.
Levitan was also employed by Kings Super Markets
in New Jersey in various management positions,
including President and CEO. Prior to that, Mr.
Levitan was employed by Purity Supreme, Inc. for
many years, progressing through a variety of
positions, including Senior Vice President of
Marketing and Merchandising and Division General
Manager.
Robert R. Panasuk Mr. Panasuk is President & CEO, serving in this
Age: 50 role since December 2006. Mr. Panasuk joined
Director since December 2006 Penn Traffic in October 2006 as Senior Vice
President, Co-Chief Operating Officer. Mr.
Panasuk was Executive Vice President of A&P from
2004 to 2005 where he was responsible for
Merchandising, Marketing and Distribution for
U.S. Operations. From 2002 to 2004 he served as
President of Waldbaum's Inc., and from 2001 to
2002 he was Executive Vice President A&P Canada.
-77-
Gregory J. Young Mr. Young is Executive Vice President & Chief
Age: 50 Operating Officer, serving in this role since
Director since December 2006 December 2006. Mr. Young was Senior Vice
President - Chief Marketing & Distribution
Officer of the Company between July and December
2006. From 2003 until he became associated with
Penn Traffic, Mr. Young served as an executive
with C&S Wholesale Grocers, first as Vice
President of Perishables and then as Vice
President/General Manager of C&S Retail. From
2001 to 2003 Mr. Young was Group Vice
President/General Manager for A&P Super
Foodmart. From 2000 to 2001 he served as Vice
President of Store Operations and from 1999 to
2000 he served as Vice President of Sales &
Merchandising for A&P Super Foodmart. Prior to
1999, Mr. Young served for more than 25 years in
a number of management and other positions at
the Company and its subsidiary, P&C Foods.
Kurt M. Cellar Mr. Cellar joined Bay Harbour Management in
Age: 37 1998. Mr. Cellar is a Chartered Financial
Director since June 2007 Analyst. He is currently a director of Hardwood
Lumber Manufacturing and a former director of
Telcove.
Scott Sozio Mr. Sozio joined Bay Harbour in November 2004.
Age: 27 Prior to joining Bay Harbour, Mr. Sozio worked
Director since June 2007 at CIBC World Markets in the Financial
Restructuring Group.
-78-
DIRECTORS FROM JANUARY 29, 2005 TO APRIL 12, 2005
NAME AND AGE BIOGRAPHICAL INFORMATION
- ------------ ------------------------
Byron E. Allumbaugh Mr. Allumbaugh is a business consultant. Mr.
Age: 75 Allumbaugh was the Chairman and Chief Executive
Director from 1999 until Officer of the former Ralphs Grocery Company
April 2005 from 1976 until he retired in 1997. Mr.
Allumbaugh serves as a Director of CKE
Restaurants, Inc. (quick-service restaurant
company), El Paso Energy Company (natural gas
and energy company), Galyan's Trading Co.
(sporting goods company) and The Pantry
(convenience store chain).
Richard P. Brennan Mr. Brennan has been the Portfolio Manager and
Age: 50 Managing Director responsible for the Special
Director from 2002 until Situations Group at Soros Fund Management, LLC.
April 2005 Prior to that time Mr. Brennan was the Managing
Director responsible for all of the European
credit business at Merrill Lynch as well as the
head of the European Credit for Donaldson,
Lufkin and Jenrette.
Kevin P. Collins Mr. Collins has been a member and a Principal of
Age: 56 The Old Hill Company LLC (financial advisory
Director since 1999 services company) since 1997. Mr. Collins was a
Principal of JHP Enterprises, Ltd. (financial
advisory services) from 1991 to 1997. Mr.
Collins serves as a Director of Key Energy
Services, Inc. (provider of oilfield services to
the oil and gas industry) and Metretek
Technologies, Inc. (provider of information
services to the energy industry). Mr. Collins is
a director of Contractors Holding, Inc. and a
CFA charter holder.
James A. Demme Mr. Demme serves as an Investment Principal for
Age: 66 Sterling Capital Management, Inc., a Birmingham,
Chairman of the Board from Alabama - based investment management and
September 2003 until venture capital firm. In 1997 Mr. Demme joined
April 2005 Bruno's as Chairman of the Board and Chief
Executive Officer, engineering the Alabama based
supermarket company's successful reorganization.
Bruno's was sold to Royal Ahold in 2001 and Mr.
Demme retired from Bruno's after leading a
successful transition program. Prior to Bruno's
Mr. Demme was Chairman, Chief Executive Officer
and President of Homeland Stores, Inc. an
Oklahoma-based supermarket company, which he
also guide through a successful reorganization.
Mr. Demme has also held senior management
positions at the Schriver Company, and served as
President and Chief Operating Officer at Shaw's
Supermarkets. Mr. Demme spent 20 years with the
Great Atlantic and Pacific Tea Company, where he
progressed through all store positions including
Store Manager and Division Manager.
-79-
Joseph V. Fisher Mr. Fisher was our President and Chief Executive
Age: 64 Officer from November 1998 until August 2003.
Director from 1998 until From 1992 to November 1998 Mr. Fisher held
April 2005 senior management positions with Big V
Supermarkets, Inc. ("Big V"), a regional
supermarket company operating primarily under
the ShopRite name, including President and Chief
Executive Officer from 1995 to 1998; Executive
Vice President - Marketing and Operations and
Chief Operating Officer from 1994 to 1995;
Senior Vice President - Marketing and Operations
from 1993 to 1994 and Vice President - Store
Operations from 1992 to 1993. He also served as
a Director of Big V from 1993 to 1998. Prior to
joining Big V, Mr. Fisher was employed by Purity
Supreme, Inc. (supermarket company), from 1973
to 1991, in various management positions,
including Senior Vice President - Supermarkets
from 1985 to 1991.
Matthew Glass Mr. Glass has worked in the special situation
Age: 47 group of Soros Fund Management, LLC as a
Director from 2002 until Director since 2002.
April 2005
Richard L. Hockett Mr. Hockett is a principal at DDJ Capital
Age: 43 Management, LLC, which he joined in 1996. Prior
Director from 2003 until to DDJ, between 1994 - 1996, Mr. Hockett was
April 2005 Vice President and an analyst in the High Yield
Department at Keystone Investments. Prior to
that, from 1989 to 1994, Mr. Hockett was vice
President in the Investment Banking Department
at Salomon Brothers, Inc. Mr. Hockett has served
on a number of Boards of Directors, including
Bruno's Supermarket, Inc.
Richard D. Holahan Mr. Holahan is Assistant General Counsel of
Age: 39 Soros Fund Management, LLC, and has worked at
Director from 2002 until Soros since 1999. Mr. Holahan is also a director
April 2005 of Seoul Securities Co. Ltd., a Korean broker
dealer.
Peter J. Zurkow Mr. Zurkow was our Chairman of the Board from
Age: 53 June 1999 until September 2003. Since January
Director from 1999 2002, Mr. Zurkow has been a Managing Director of
until April 2005 Investec, Inc. (investment banking firm). From
April 2001 to December 2001, Mr. Zurkow was a
private investor. From 1992 to April 2001, Mr.
Zurkow was a Managing Director of UBS Warburg
(January 2001 to April 2001) and its predecessor
firm, PaineWebber, Inc. (1992 to 2000). He
served as a Director of Streamline, Inc. (online
grocery company) from 1997 to 1998, Kash N'
Karry Supermarkets from 1994 to 1996 and
E-artgroup.com (online art dealer) from 1999 to
2000
There are no family relationships among our directors and executive officers.
-80-
The members of the Compensation Committee as of January 28, 2006 are Messrs.
Burke and Kelly. Mr. Burke is Chairman of the Compensation Committee. During
Fiscal 2006, Mr. Chapman served on the committee as our advisor. Mr. Chapman
was replaced in 2006 by Mr. Panasuk as an advisor to the committee. The
Compensation Committee reviews the annual recommendations of the Chief
Executive Officer concerning the compensation of our certain of our employees,
including the compensation plans, retirement plans and fringe benefit plans in
which such persons participate, and makes reports and recommendations with
respect to such matters to our Board of Directors. The Compensation Committee,
which held ten meetings during fiscal year 2006, also administers our 2006
Omnibus Award Plan.
The members of the Audit Committee as of January 28, 2006 are Messrs. Evans,
Collins and Levitan. Mr. Evans is Chairman of the Audit Committee and our audit
committee financial expert. The Audit Committee held 14 meetings during Fiscal
2006.
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EXECUTIVE OFFICERS FOR FISCAL YEAR 2006
NAME AGE POSITION HELD
- ---- --- -------------
Robert J. Chapman 56 Chief Executive Officer and President
Charles C. Bostwick 56 Vice President of Information Technology and
Chief Information Officer
Leslie H. Knox 60 Senior Vice President-Chief Marketing Officer
Randy P. Martin 50 Senior Vice President-Finance
Francis D. Price, Jr. 57 Vice President, General Counsel and Secretary
Executive officers are appointed by the Board of Directors and hold office
until their successors have been appointed or until their earlier resignation
or removal from office. A brief biography of each executive officer is
presented below.
Mr. Chapman served as our President and Chief Executive Officer from April 2004
until October 2006. Mr. Chapman joined P&C Foods as a part-time store employee
in 1968 and became store manager in 1974. Over the past 38 years, Mr. Chapman
held a number of positions of increasing authority first at P&C and later at
Penn Traffic after it purchased P&C in 1988. He served as Director of Store
Operations, Director of Franchise Operations and Vice President of Wholesale
and Franchise Operations. Mr. Chapman has also served on a number of Penn
Traffic's internal committees, including the Operations Steering Committee and
the Strategic Business Reorganization Committee.
Robert Panasuk, who joined us in October 2006, is our current President and
Chief Executive Officer.
Mr. Bostwick held the position of Vice President of Information Technology and
Chief Information Officer with us between 1998 and 2007. From 1993 to 1998 Mr.
Bostwick held top IT positions for various divisions of Whirlpool, Asian
Division. Mr. Bostwick was Vice President, MIS & Chief Information Officer,
Long Drugstore, 1989 to 1993. Between 1986 and 1989 he was Director of
Computing and Communication Services, Bekins.
Mr. Knox served as our Senior Vice President and Chief Marketing Officer from
May 1999 until March 4, 2006. From 1995 until May 1999, Mr. Knox held the
position of Vice President - Merchandising with Weis Markets, Inc. From 1984
until 1995, Mr. Knox held various management positions with ABCO Markets, Inc.,
including Senior Vice President of Sales and Marketing from 1988 to 1995. From
1969 to 1984, Mr. Knox was employed by Alpha Beta Company, a division of
American Stores Company, in various management positions.
-82-
Mr. Martin served as our Senior Vice-President-Finance from March 2005 until
January 2007. From January 1999 until March 2005 Mr. Martin held the position
of Vice President-Finance and Chief Accounting Officer. From 1997 until January
1999, he served as our Vice President of Strategic Planning and Treasurer. From
1993 to 1997, Mr. Martin served as our Director of Taxes. From 1984 to 1993,
Mr. Martin was employed by Price Waterhouse in various positions, including
Senior Tax Manager from 1991 to 1993.
Tod A. Nestor, who joined us in May 2007, is our current Senior Vice President
and Chief Financial Officer.
Mr. Price served as our Vice President and General Counsel from 1993, and as
our Secretary from 1997, until November 2006. Mr. Price was Vice President and
General Counsel of the Company's P&C division from 1985 until 1993. From 1978
to 1985, Mr. Price served in various other management positions at P&C.
Daniel Mahoney, who joined us in December 2006, is our current Vice President,
General Counsel and Secretary.
-83-
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued to (i) persons
serving as President and Chief Executive Officer during fiscal year 2006 and
(ii) the four other most highly compensated executive officers (collectively,
the "Named Executive Officers") during fiscal year 2006 for services rendered
in all capacities during fiscal year 2004, fiscal year 2005 and fiscal year
2006.
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------- ------------- ----------------
Long-Term
Compensation
Annual Compensation Awards
- -------------------------------------------------------------------------- -------------
Securities All
Underlying Other
Name and Principal Fiscal Salary Bonus Options/ Compensation
Position Year ($) ($) (1) SARs (#) (2) ($) (3)
- -------------------------------------------------------------------------- ------------- ----------------
Robert J. Chapman 2006 $ 451,000 $ 67,713 - $ 16,087
President and Chief Executive 2005 410,956 32,375 20,000 13,894
Officer 2004 196,215 7,358 20,000 10,782
Charles C. Bostwick 2006 $ 208,000 $ 23,400 - $ 12,749
Vice President of Information 2005 208,000 34,320 20,000 11,103
Technology and Chief Information 2004 208,000 7,800 20,000 10,520
Officer
Leslie B. Knox 2006 $ 305,000 $ 61,000 - $ 13,555
Senior Vice President and Chief 2005 305,000 58,713 50,000 12,731
Marketing Officer 2004 305,000 - 50,000 8,033
Randy P. Martin 2006 $ 221,452 $ 31,853 - $ 12,822
Senior Vice-President-Finance 2005 194,250 32,051 15,000 10,178
2004 194,250 7,284 15,000 9,383
Francis D. Price 2006 $ 169,126 $ 26,527 - $ 11,902
Vice-President, General Counsel, 2005 169,126 27,906 20,000 8,743
Secretary 2004 169,126 6,342 20,000 7,582
- -------------------------------------------------------------------------- ------------- ----------------
- -------------------------------
(1) Amounts shown were payments under our Key Employee Retention Program (see
below).
(2) On June 29, 1999, we adopted an Equity Plan. Pursuant to the Equity Plan,
on July 7, 1999 Messrs. Chapman, Bostwick, Knox, Martin and Price were
awarded options to purchase shares of our Common Stock then existing with
an exercise price of $12.13 per share and a four-year vesting period. The
numbers of shares awarded were 20,000, 20,000, 50,000, 15,000 and 20,000,
respectively. The options were voided upon our emergence from bankruptcy on
April 13, 2005.
(3) Amounts shown include the contribution to a company-sponsored 401(k) plan,
life insurance, health insurance, and disability insurance.
-84-
Compensation for our Executive Officers is comprised of:
o Salary
o Sign on bonus
o Performance based bonus
o Relocation
o Retirement & other benefits
We provide our executive officers with fixed and variable amounts of
compensation including annual salary reviews approved by the compensation
committee.
Store Managers and Assistant Managers were eligible to receive performance
based bonuses. Based on other factors such as our financial condition, the
compensation committee did not approve a plan for the executive and other
non-store employees fiscal year 2006. The amount of the Managers' bonuses were
based on targeted performance levels established by executive management and
approved by the Board of Directors.
Company directors and executives were paid retention bonuses in order to secure
their services during the reorganization period.
We provide retirement benefits to all non-union employees that have worked at
least 6 months in their position. We match 50% of the employees' contribution
up to 1.5%. We also contribute an annual match of 3% for participants in our
401(k) plan. We also contribute to health and group life insurance for all
levels of employees.
KEY EMPLOYEE RETENTION PLAN
On October 24, 2003, the bankruptcy court approved our Key Employee Retention,
Incentive and Severance Plan. We implemented the Key Employee Retention Plan
with the goal of retaining and incentivizing management and other key employees
to stabilize and continue our operations, implement a plan of reorganization
and preserve and enhance our value business during our Chapter 11 proceedings.
-85-
RETIREMENT PLANS
Our named executive officers are eligible to participate in our sponsored
401(k) plan after six months of employment. Under the plan, employees make
contributions from 1% to 25% of salary, tax-deferred up to the maximum Internal
Revenue Code limit and we match 50% of the first 3% of employee deferral after
one year of employment. In addition, once an employee completes six months of
service, we will make a contribution of 3% of the participants' total
compensation to the 401(k) plan each year.
COMPENSATION OF DIRECTORS
Set forth below is the fee schedule for directors. Directors who are also
officers are not eligible to receive board fees.
ANNUAL RETAINER FEE
-------------------
Chair $ 50,000
Director 25,000
BOARD MEETING FEES
------------------
Chair 1,500
Director 1,500
COMMITTEE FEES
AUDIT AND COMPENSATION:
-----------------------
Chair - annual 5,000
Chair and Member meeting 1,000
In addition to fees listed above, directors are reimbursed for expenses and
receive $750 for each telephonic meeting.
The following table sets forth amounts paid by us to directors in connection
with their services to us in fiscal year 2006. The second quarter retainer fees
were paid on a pro-rata basis.
FEES EARNED OR
NAME PAID IN CASH
---- ------------
John E. Burke 54,511
Kevin P. Collins 54,500
Ben Evans 56,511
Robert J. Kelly 72,601
Alan C. Levitan 56,926
In fiscal year 2007, certain members of the Board were grantd phantom stock
(see "Item 11. Executive Compensation -- Stock Options").
-86-
CURRENT EMPLOYEES - EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Mr. Panasuk pursuant to which
he serves as Chief Executive Officer and President, Mr. Nestor, pursuant to
which he serves as Senior Vice and President Chief Financial Officer, Mr.
Young, pursuant to which he serves as Executive Vice President and Chief
Operating Officer, and Mr. Mahoney, pursuant to which he serves as Vice
President General Counsel and Secretary. Certain terms of these agreements are
described below under Summary Compensation Table. The employment agreements for
Mr. Panasuk, Mr. Nestor, Mr. Young and Mr. Mahoney, are described below in
detail, which include annual salary, provisions for participation in our
Management Performance Incentive Plan, 401(k) Plan, health care and other
employee benefit programs and change in control severance payments. Employment
agreements for Mr. Panasuk and Mr. Young also provide for participation in the
Company 2006 Omnibus Award Plan.
EMPLOYMENT AGREEMENT OF ROBERT PANASUK
On December 12, 2006, Mr. Panasuk was appointed our Chief Executive Officer and
appointed to the Board of Directors. Pursuant to an offer letter from us dated
December 12, 2006, Mr. Panasuk will be entitled to receive an annual salary of
$500,000, with a performance and salary review within the first six months of
employment. In addition to participation in our 401(k), health insurance and
other employee benefits programs, Mr. Panasuk will be entitled to participate
in our Management Performance Incentive Program (Bonus), pursuant to which he
will be eligible to receive 75% of his base salary at 100% of Plan, increasing
to 150% of his base salary for exceeding the Plan. In addition, Mr. Panasuk
received a "phantom stock" award under our 2006 Omnibus Award Plan. The phantom
stock award entitles Mr. Panasuk, subject to his continued employment with us
or an affiliate thereof through the settlement date, to a cash payment on the
settlement date of the award equal to the excess, if any, of the fair market
value of 100,000 shares of our common stock on the settlement date over the
fair market value on the date of grant. The fair market value of a phantom
stock award on any given date is equal to the average of the high bid and low
ask price of our common stock on the Pink Sheets as of the most recent trading
day proceeding such date on which a sale of our common stock occurred on the
Pink Sheets. The shares of phantom stock will settle on the earlier of (i) May
1, 2009, (ii) the death or disability of Mr. Panasuk or (iii) a "change of
control" (as such term is defined in our 2006 Omnibus Award Plan). Pursuant to
the Offer letter dated October 6, 2006, Mr. Panasuk will also be entitled to
receive (i) the sign-on bonus of $100,000, which was paid in three installments
(ii) relocation expenses and (iii) the other benefits described in his existing
arrangement with us relating to his previous position. Mr. Panasuk is entitled
to 78 weeks of severance based on the terms of his change of control agreement.
-87-
EMPLOYMENT AGREEMENT OF GREG YOUNG
On December 12, 2006, Gregory J. Young was appointed Executive Vice President -
Chief Operating Officer and was appointed to the Board of Directors Pursuant to
an offer letter from us dated December 12, 2006. Mr. Young will be entitled to
receive an annual salary of $400,000, with a performance and salary review
within the first six months of employment. In addition to participation in our
401(k), health insurance and other employee benefits programs, Mr. Young will
be entitled to participate in the our Management Performance Incentive Program
(Bonus), pursuant to which he will be eligible to receive 60% of his base
salary at 100% of the Plan, increasing to 120% of his base salary for exceeding
the Plan. In addition, Mr. Young received a "phantom stock" award under the
2006 Omnibus Award Plan. The phantom stock award entitles Mr. Young, subject to
his continued employment with us or an affiliate thereof through the settlement
date, to a cash payment on the settlement date of the award equal to the
excess, if any, of the fair market value of 50,000 shares of our common stock
on the settlement date over the fair market value on the date of grant. The
fair market value of a phantom stock award on any given date is equal to the
average of the high bid and low ask price of our common stock on the Pink
Sheets as of the most recent trading day preceding such date on which a sale of
our common stock occurred on the Pink Sheets. The shares of phantom stock will
settle on the earlier of (i) May 1, 2009, (ii) the death or disability of Mr.
Young or (iii) a "change of control" (as such term is defined in our 2006
Omnibus Award Plan). Mr. Young will also continue to be entitled to receive the
other benefits described in his existing agreement with us relating to his
current position, the material term of which were described under Item 1.01 of
our Current Report on Form 8-K filed on October 6, 2006. He is also entitled to
receive up to 52 weeks of severance based on the terms of his change of control
agreement.
EMPLOYMENT AGREEMENT OF TOD NESTOR
On May 2, 2007, we delivered an offer letter to Tod Nestor with respect to his
employment as Senior Vice President - Chief Financial Officer. Pursuant to the
Offer Letter, Mr. Nestor will be entitled to receive an annual salary of
$275,000 as well as a sign-on bonus of $50,000, "grossed up," payable in three
installments, the first installment of 50% to be payable upon the date he
commences his employment in Syracuse, NY, the second installment of 25% to be
payable three months thereafter and the final installment of 25% to be payable
six months thereafter. In addition to participation in our 401(k), health
insurance and other employee benefits programs, Mr. Nestor will be entitled to
participate in our Management Performance Incentive Program (Bonus), pursuant
to which he will be eligible to receive 45% of his base salary up to a maximum
of 90% for exceeding the plan. He will also be entitled to receive $15,000
"grossed up" after 60 days of employment in lieu of a company car, up to $2,500
per month plus expenses for up to nine months for temporary housing expenses,
as well as 52 weeks of severance based on the terms of his change of control
agreement.
-88-
EMPLOYMENT AGREEMENT OF DANIEL MAHONEY
On December 10, 2006, we delivered an offer letter to Daniel Mahoney with
respect to his employment as Vice President, General Counsel. Pursuant to the
Offer Letter, Mr. Mahoney will be entitled to receive an annual salary of
$175,000 as well as a sign-on bonus of $42,500 payable in two installments, the
first installment of $28,750 to be payable upon the date he commences his
employment in Syracuse, NY, the second installment of $13,750.00 to be payable
three months. In addition to participation in our 401(k), health insurance and
other employee benefits programs, Mr. Mahoney will be entitled to participate
in our Management Performance Incentive Program (Bonus), pursuant to which he
will be eligible to receive 40% of his base salary up to a maximum of 80% for
exceeding the Plan. He will also be entitled to receive $2,000 per month for
three months for temporary housing expenses, as well as 52 weeks of severance
based on the terms of his change of control agreement.
FORMER EMPLOYEES - EMPLOYMENT AGREEMENTS
In connection with the resignation of Mr. Chapman as our President and Chief
Executive Officer, effective as of October 2, 2006, Mr. Chapman is entitled to
receive severance payments pursuant to our severance policy, which entitles Mr.
Chapman to 78 weeks of severance pay based on an annualized salary of $477,611.
Additionally, Mr. Chapman will continue to receive health care, life insurance
and 401(k) contributions through the severance payout period.
On March 16, 2005, Randy P. Martin was appointed as our Senior Vice President -
Finance. Mr. Martin's agreement with us called for him to receive an annual
salary of $225,000. Mr. Martin was eligible to participate in our benefits
programs.
In connection with the resignation of Mr. Martin as our Senior Vice President -
Finance, effective as of January 26, 2007, Mr. Martin is entitled to receive
severance payments pursuant to our severance policy, which entitles Mr. Martin
to 52 weeks of severance pay based on an annualized salary of $236,242.
Additionally, Mr. Martin will continue to receive health care, life insurance
and 401(k) contributions through the severance payout period.
In connection with the resignation of Mr. Price as our Senior Vice President
General Counsel and Secretary, effective as of November 10, 2006, Mr. Price is
entitled to receive severance payments pursuant to our severance policy, which
entitles Mr. Price to 52 weeks of severance pay based on an annualized salary
of $169,126. Additionally, Mr. Price will continue to receive health care, life
insurance and 401(k) contributions through the severance payout period.
-89-
CHANGE OF CONTROL AGREEMENT
Our Change of Control Protection Agreement, effective from April 17, 2006
through April 17, 2009, provides that in the event of a "Change of Control" (as
defined in the agreement), certain employees are eligible to receive severance
payments ranging from 12 weeks to 78 weeks of base salary if such employee's
employment is terminated within one year of such change of control for reasons
other than "Cause" or "Total Disability" (each as defined in the agreement) or
if the executive terminates his/her employment for "Good Reason" (as defined in
the agreement) within one year of such change of control.
STOCK OPTION PLANS
Upon emergence from bankruptcy on April 13, 2005, all stock options relating to
the 1999 Equity Plan were voided.
The 2006 Omnibus Award Plan provides a means through which we may attract
talented persons to enter and remain in our employment and to provide means
whereby our employees, directors and affiliates can acquire and maintain Common
Stock ownership, or be paid incentive compensation measured by reference to the
value of Common Stock, thereby strengthening their commitment to our affiliates
welfare and promoting an identity of interest between stockholders and these
persons. The Plan provides for granting Incentive Stock Options, Nonqualified
Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Deferred Stock Units, Phantom Stock Awards, Stock Bonuses and
Performance Compensation Awards or any combination of the foregoing.
In December of Fiscal 2007 a total of 150,000 shares of Phantom Stock were
granted under the Plan to the Mr. Panasuk and Mr. Young. On May 14, 2007, the
Board of Directors granted phantom stock awards under the Plan to John Burke,
Kevin Collins, Ben Evans, Alan Levitan and Robert Kelly, all of whom are
independent members of the Board. Each recipient received three separate grants
of phantom stock awards, with each recipient receiving grant of 1,242, 1,656
and 1,659 phantom stock awards. In addition, beginning in 2008, non-employee
members of the Board will receive an annual grant of phantom stock on the first
Monday of each fiscal year. Such annual phantom stock award will provide for a
cash payment on the settlement date equal to the fair market value (as defined
in the Plan) on the settlement date of the number of whole shares of our common
stock, par value $0.01 per share, which had a fair value equal to $25,000 on
the grant date.
-90-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information known to us with respect to
beneficial ownership of our common shares as of August 1, 2007 (unless
otherwise indicated) by: (i) each person who beneficially owns 5% or more of
our common shares; (ii) each of our directors; (iii) each of the persons named
in the Summary Compensation Table set forth herein; and (iv) all directors and
executive officers as a group. The information set forth below for 5%
stockholders was derived from publicly available reports made by the persons
listed below on Forms 13G and 13D. We have not attempted to verify any of this
information. All shares of our common stock issued prior to the effective date
of our plan of reorganization were deemed cancelled as provided in our plan of
reorganization. Except as otherwise indicated, the holders listed below have
sole voting and investment power with respect to all shares beneficially owned
by them. For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares which such person or group of persons
has the right to acquire within 60 days. For purposes of computing the
percentage of outstanding shares held by each person or group of persons named
below, any security which such person or persons has the right to acquire
within 60 days (including shares which may be acquired upon exercise of
warrants or upon exercise of vested portions of stock options) is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person. On August 9, 2007, there were
8,297,697 shares of Common Stock outstanding.
-91-
AMOUNT & NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- -------------------------------------------------------------------------------------------------
Bay Harbour Management, L.C.(1) 1,912,992 23.1%
885 Third Avenue
New York, NY 10022
Pension Benefit Guaranty Corporation (2) 1,874,134 22.6%
Agent: JP Morgan Investment Management, Inc
522 Fifth Avenue
New York, NY 10036
King Street Capital Management, L.L.C.(3) 1,174,908 14.2%
65 East 55th Street
30th Floor
New York, NY 10022
Southpoint Capital Advisors, LP (4) 607,236 7.3%
623 Fifth Avenue Suite 2503
New York, NY 10022
CR Intrinsic Investors LLC (5) 460,085 5.5%
72 Cummings Point Road
Stamford, CT 06901
All directors and executive officers as a Group (22 persons) 0 0%
John E. Burke, Kevin P. Collins, Ben Evans, Robert J. Kelly, Alan C.
Levitan, Robert J. Chapman, Byron E. Allumbaugh, Richard P. Brennan, James
Demme, Joseph V. Fisher, Matthew Glass, Richard L. Hockett, Richard D.
Holahan, Peter L. Zurkow, Charles G Bostwick, Leslie H Knox, Randy P.
Martin, Francis P Price, Robert R. Panasuk, Gregory J. Young, Tod A. Nestor
and Daniel J. Mahoney
1) As reported in the Schedule 13D (Amendment No. 5) filed with the SEC on
February 16, 2007.
2) On September 28, 2005, JP Morgan Investment Management, Inc., or "JPMIM",
as agent for the PBGC and pursuant to an investment management agreement
between JPMIM and PBGC, received 1,874,134 of our common shares, which
shares were distributed to the PBGC in accordance to our plan of
reorganization.
3) As reported in the Schedule 13D filed with the SEC on June 15, 2007.
4) As reported in the Schedule 13G/A (Amendment No. 1) filed with the SEC on
February 9, 2006.
5) As reported in the Schedule 13G filed with the SEC on April 25, 2007.
-92-
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, the directors and executive officers and any
persons holding more than 10% of our common shares are required to report their
initial ownership of such shares and any subsequent changes in that ownership
to the SEC. To our knowledge, based upon a review of the copies of the reports
furnished to us and written representations that no other reports were
required, these filing requirements were satisfied during fiscal year 2006.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 12, 2006, Robert J. Kelly, our Non-Executive Chairman of the Board,
terminated the Consulting Agreement, dated as of June 29, 2006, between us and
Mr. Kelly. Pursuant to which Mr. Kelly had been providing certain consulting
and advisory services to us, including certain services customarily performed
by a chief executive officer of a corporation. We paid Mr. Kelly $0.2 million
during this time period for his services.
On September 16, 2003, we entered into a Chairman Retention Agreement with
James A. Demme. Pursuant to the Chairman Retention Agreement, Mr. Demme served
as the Chairman of our Board of Directors and managed and directed our
merchandising, operational and other strategic decisions, assisted in
formulating the plans of reorganization, and had such other responsibilities as
are typically performed by the Chairman of the Board of Directors. Mr. Demme's
last day of employment was January 29, 2005 and he was replaced as Chairman of
Board upon emergence. Mr. Demme was paid $0.9 million during fiscal year 2006.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees billed by Eisner LLP for the audit of our financial statements for the
41-week period ended January 28, 2006, totaled approximately $4.8 million. Such
fees represented the total fees for audit services. There were no audit related
tax or other fees billed by Eisner LLP related to services rendered during such
period.
Pre-approval Policy. Pursuant to its Charter, the Audit Committee is required
to pre-approve the audit services to be performed by the independent
accountants in order to assure the provisions of such services does not impair
the auditor's independence. All the above services do not impair the auditor's
independence. All of the above services were approved by the Audit Committee in
accordance with its pre-approval policy.
Annually, the independent accountants will present to the Audit Committee
services expected to be performed by independent accountants over the next 12
months. The audit committee will review and, as it deems appropriate,
pre-approve those services.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Our consolidated financial statements filed as part of this report appear
beginning on page 45.
EXHIBITS:
The following are filed as Exhibits to this Report:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 First Amended Joint Plan of Reorganization of The Penn Traffic
Company and its Affiliated Debtors and Debtors-in-Possession,
dated February 4, 2005 (incorporated by reference to Exhibit 2.1
to Form 8-K filed on March 24, 2005).
2.2 Notice of Technical Modifications to the First Amended Joint Plan
of Reorganization of The Penn Traffic Company and its Affiliated
Debtors and Debtors in Possession under Chapter 11 of the
Bankruptcy Code dated February 4, 2005 (incorporated by reference
to Exhibit 2.3 to the Form 8-K filed on March 24, 2005).
3.1 Second Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to Form 8-A12G/A filed
on April 13, 2005).
3.2 Amended and Restated By-Laws of Penn Traffic (incorporated by
reference to Exhibit 2 to Form 8-A12G/A filed on June 29, 1999).
10.1 Global Settlement Agreement and Mutual Release, dated as of
February 4, 2005, by and between The Pension Benefit Guaranty
Corporation, the Official Committee of Unsecured Creditors and
The Penn Traffic Company and its affiliated debtors (incorporated
by reference to Exhibit 10.1 to the Form 8-K filed on February
11, 2005).
10.2 Form of Change in Control Protection Agreement (incorporated by
reference to Exhibit 99.1 to the Form 8-K filed on April 18,
2006).
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Exhibits (continued):
EXHIBITS NO.
- ------------
10.3 Credit Agreement, among The Penn Traffic Company, Penny Curtiss
Baking Company, Inc. and Big M Supermarkets, Inc., as borrowers;
the other credit parties signatory thereto; General Electric
Capital Corporation; JP Morgan Chase Bank, N.A.; The CIT
Group/Business Credit; GECC Capital Markets Group, Inc.; and the
other lenders signatory thereto from time to time (incorporated
by reference to Exhibit 99.1 to the Form 8-K filed on September
12, 2006).
10.4 Supplemental Loan Credit Agreement, dated as of April 13, 2005,
among The Penn Traffic Company, Penny Curtiss Baking Company,
Inc. and Big M Supermarkets, Inc., as borrowers; the other credit
parties signatory thereto; Kimco Capital Corp.; and the other
lenders signatory thereto from time to time (incorporated by
reference to Exhibit 99.2 to the Form 8-K filed on September 12,
2006).
10.5 Amendment, dated December 28, 2006, to the Credit Agreement,
among The Penn Traffic Company, Penny Curtiss Baking Company,
Inc. and Big M Supermarkets, Inc., as borrowers; the other credit
parties signatory thereto; General Electric Capital Corporation;
JP Morgan Chase Bank, N.A.; The CIT Group/Business Credit; GECC
Capital Markets Group, Inc.; and the other lenders signatory
thereto from time to time.
10.6 Amendment, dated December 28, 2006, to the Supplemental Loan
Credit Agreement, dated as of April 13, 2005, among The Penn
Traffic Company, Penny Curtiss Baking Company, Inc. and Big M
Supermarkets, Inc., as borrowers; the other credit parties
signatory thereto; Kimco Capital Corp.; and the other lenders
signatory thereto from time to time.
10.7 Consulting Agreement, dated as of June 29, 2006, between The Penn
Traffic Company and Robert J. Kelly (incorporated by reference to
Exhibit 99.1 to the Form 8-K filed on June 30, 2006).
10.8 Offer Letter, dated as of October 2, 2006, between The Penn
Traffic Company and Robert Panasuk (incorporated by reference to
Exhibit 99.1 to the Form 8-K filed on October 6, 2006).
10.9 Offer Letter, dated as of December 12, 2006, between The Penn
Traffic Company and Robert Panasuk (incorporated by reference to
Exhibit 99.1 to the Form 8-K filed on December 18, 2006).
10.10 Description of Material Terms of Compensation of Randy P. Martin
(incorporated by reference to the Form 8-K filed on March 15,
2005).
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Exhibits (continued):
EXHIBITS NO.
- ------------
10.11 Severance Agreement between The Penn Traffic Company and Randy P.
Martin (incorporated by reference to Exhibit 99.1 to the Form 8-K
filed on February 1, 2007).
10.12 Offer Letter, dated May 2, 2007, between The Penn Traffic Company
and Tod A. Nestor (incorporated by reference to Exhibit 99.1 to
the Form 8-K filed on May 9, 2007).
10.13 The Penn Traffic Company 2006 Omnibus Award Plan (incorporated by
reference to Exhibit 99.4 to the Form 8-K filed on December 18,
2006).
10.14 Form of The Penn Traffic Company Phantom Stock Award Agreement
(incorporated by reference to Exhibit 99.1 to the Form 8-K filed
on May 18, 2007).
10.15 Second Amendment, dated as of August 1, 2007, to the Credit
Agreement, among The Penn Traffic Company, Penny Curtiss Baking
Company, Inc. and Big M Supermarkets, Inc., as borrowers; the
other credit parties signatory thereto; General Electric Capital
Corporation; JP Morgan Chase Bank, N.A.; The CIT Group/Business
Credit; GECC Capital Markets Group, Inc.; and the other lenders
signatory thereto from time to time (incorporated by reference to
Exhibit 99.1 to the Form 8-K filed on August 13, 2007).
10.16 Second Amendment, dated as of August 1, 2007, to the Supplemental
Loan Credit Agreement, dated as of April 13, 2005, among The Penn
Traffic Company, Penny Curtiss Baking Company, Inc. and Big M
Supermarkets, Inc., as borrowers; the other credit parties
signatory thereto; Kimco Capital Corp.; and the other lenders
signatory thereto from time to time (incorporated by reference to
Exhibit 99.2 to the Form 8-K filed on August 13, 2007).
16.1 Letter from Deloitte & Touche LLP to the Securities and Exchange
Commission dated September 12, 2006 (incorporated by reference to
Exhibit 99.1 to the Form 8-K filed on September 12, 2006).
21.1 Subsidiaries of The Penn Traffic Company.
31.1 Certification of CEO pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.
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Exhibits (continued):
EXHIBITS NO.
- ------------
31.2 Certification of CFO pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.
32.1 Certification of CEO pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934, as amended, and Section 1350 of
Chapter 63 of Title 18 of the United States Code.
32.2 Certification of CFO pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934, as amended, and Section 1350 of
Chapter 63 of Title 18 of the United States Code.
-97-
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 as of the 16th day of
August 2007.
THE PENN TRAFFIC COMPANY
By: /s/ Robert R. Panasuk
--------------------------------------
Name: Robert R. Panasuk
Title: Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on its behalf by the
registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Robert J. Kelly Chairman of the Board August 16, 2007
- ---------------------------
Robert J. Kelly
/s/ John E. Burke Director August 16, 2007
- ---------------------------
John E. Burke
/s/ Kevin P. Collins Director August 16, 2007
- ---------------------------
Kevin P. Collins
/s/ Ben Evans Director August 16, 2007
- ---------------------------
Ben Evans
/s/ Alan C. Levitan Director August 16, 2007
- ---------------------------
Alan C. Levitan
/s/ Robert R. Panasuk Chief Executive Officer and August 16, 2007
- --------------------------- President and Director
Robert R. Panasuk
/s/ Gregory J. Young Executive Vice President August 16, 2007
- --------------------------- Chief Operating Officer and
Gregory J. Young Director
/s/ Tod A. Nestor Senior Vice President August 16, 2007
- --------------------------- Chief Financial Officer
Tod A. Nestor
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