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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 2, 2002
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
(Address of principal executive offices) (Zip Code)
(315) 453-7284
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES /X/ NO / /
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES /X/ NO / /
Common stock, par value $.01 per share: 20,064,264 shares outstanding as of
December 6, 2002
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<Page>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<Table>
<Caption>
RESTATED
13 WEEKS 13 WEEKS
ENDED ENDED
NOVEMBER 2, NOVEMBER 3,
2002 2001 (NOTE 1)
----------- -------------
REVENUES $ 580,059 $ 598,631
COST AND OPERATING EXPENSES:
Cost of sales 428,743 438,255
Selling and administrative expenses 151,521 150,013
Amortization of excess reorganization value 27,452
----------- -------------
OPERATING LOSS (205) (17,089)
Interest expense 8,820 8,886
----------- -------------
LOSS BEFORE INCOME TAXES (9,025) (25,975)
(Benefit) provision for income taxes (Note 2) (3,349) 989
----------- -------------
NET LOSS $ (5,676) $ (26,964)
=========== =============
PER SHARE (BASIC AND DILUTED):
Loss per share (Note 3) $ (0.28) $ (1.34)
=========== =============
</Table>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
-2-
<Page>
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<Table>
<Caption>
RESTATED
39 WEEKS 39 WEEKS
ENDED ENDED
NOVEMBER 2, NOVEMBER 3,
2002 2001 (NOTE 1)
----------- -------------
REVENUES $ 1,754,215 $ 1,788,799
COST AND OPERATING EXPENSES:
Cost of sales 1,283,296 1,309,453
Selling and administrative expenses 447,551 442,565
Amortization of excess reorganization value 82,356
----------- -------------
OPERATING INCOME (LOSS) 23,368 (45,575)
Interest expense 26,039 27,459
----------- -------------
LOSS BEFORE INCOME TAXES (2,671) (73,034)
(Benefit) provision for income taxes (Note 2) (167) 4,653
----------- -------------
NET LOSS $ (2,504) $ (77,687)
=========== =============
PER SHARE (BASIC AND DILUTED):
Loss per share (Note 3) $ (0.12) $ (3.87)
=========== =============
</Table>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<Page>
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
RESTATED
UNAUDITED AUDITED
NOVEMBER 2, FEBRUARY 2,
2002 2002 (NOTE 1)
----------- -------------
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 37,563 $ 39,562
Accounts and notes receivable (less allowance for
doubtful accounts of $2,201 and $2,107, respectively) 40,294 49,710
Inventories 283,253 274,845
Prepaid expenses and other current assets 10,101 9,506
----------- -------------
371,211 373,623
----------- -------------
NONCURRENT ASSETS:
Capital leases 36,998 44,747
Property, plant and equipment 302,864 273,436
Goodwill 8,990 8,990
Beneficial leases 42,034 46,920
Excess reorganization value 42,238 42,238
Other assets 19,211 16,414
----------- -------------
$ 823,546 $ 806,368
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) $ 9,523 $ 140,666
Current portion of obligations under capital leases 6,934 8,329
Trade accounts and drafts payable 129,599 129,158
Other accrued liabilities 75,799 77,590
Accrued interest expense 5,195 2,514
Taxes payable and deferred taxes 10,714 15,125
----------- -------------
237,764 373,382
----------- -------------
NONCURRENT LIABILITIES:
Long-term debt (Note 4) 277,195 112,046
Obligations under capital leases 61,965 67,075
Deferred taxes 65,518 63,770
Other noncurrent liabilities 45,890 51,471
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 1,000,000
shares; $.01 par value; none issued
Common Stock - authorized 30,000,000 shares; $.01 par value;
20,064,264 and 20,056,264 shares issued and outstanding,
respectively 201 201
Capital in excess of par value (Note 5) 416,473 416,597
Stock warrants 7,249 7,249
Retained deficit (264,808) (262,304)
Accumulated other comprehensive loss (Note 5) (23,526) (22,744)
Treasury stock, at cost (Note 5) (375) (375)
----------- -------------
TOTAL STOCKHOLDERS' EQUITY 135,214 138,624
----------- -------------
$ 823,546 $ 806,368
=========== =============
</Table>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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<Page>
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<Table>
<Caption>
RESTATED
39 WEEKS 39 WEEKS
ENDED ENDED
NOVEMBER 2, NOVEMBER 3,
2002 2001 (NOTE 1)
----------- -------------
OPERATING ACTIVITIES:
Net loss $ (2,504) $ (77,687)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 31,695 31,428
Amortization of excess reorganization value 82,356
Other - net (365) (153)
NET CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable and prepaid expenses 8,821 1,065
Inventories (8,408) (29,238)
Payables and accrued expenses (4,093) 9,881
Deferred income taxes 5,563 1,950
Other assets (2,301) (1,807)
Other noncurrent liabilities (6,907) (510)
----------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,501 17,285
----------- -------------
INVESTING ACTIVITIES:
Capital expenditures (50,305) (30,730)
Proceeds from sale of assets 363 294
----------- -------------
NET CASH USED IN INVESTING ACTIVITIES (49,942) (30,436)
----------- -------------
FINANCING ACTIVITIES:
Net (decrease) increase in drafts payables (1,090) 2,236
Payments to settle long-term debt (4,994) (3,982)
Borrowing of revolving debt 168,200 140,800
Repayment of revolving debt (129,200) (123,100)
Reduction of capital lease obligations (6,505) (6,325)
Exercise of stock options 31 8
----------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,442 9,637
----------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,999) (3,514)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 39,562 42,529
----------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,563 $ 39,015
=========== =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid 22,552 25,135
Income taxes paid 1,826 2,840
</Table>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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<Page>
THE PENN TRAFFIC COMPANY
Notes To Interim Consolidated Financial Statements
Unaudited
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
The results of operations for the interim periods are not necessarily an
indication of results to be expected for the year. In the opinion of management,
all adjustments necessary for a fair statement of the results are included for
the interim periods, and all such adjustments are normal and recurring. These
unaudited interim financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the Company's
Annual Report on Form 10-K/A for the fiscal year ended February 2, 2002, the
Company's Quarterly Report on Form 10-Q/A for the 13-week period ended May 4,
2002 and the Company's Quarterly Report on Form 10-Q for the 13-week period
ended August 3, 2002.
All significant intercompany transactions and accounts have been eliminated
in consolidation.
-6-
<Page>
RESTATEMENT
In August 2002, Penn Traffic announced that it would restate its financial
results after discovering that an employee of its Penny Curtiss bakery
manufacturing subsidiary had made false accounting entries which primarily
involved the overstatement of inventory over a period of approximately three and
one-quarter years. Based on the preliminary findings of an internal review, the
Company's Audit Committee engaged independent legal counsel to conduct an
independent investigation, who in turn engaged KPMG LLP to assist in this
investigation, which is substantially complete. The Company has concluded that
the false accounting entries were limited to its Penny Curtiss bakery
manufacturing subsidiary. As a result of these false accounting entries and
based on the investigation into the misconduct, the Company has restated its
financial results for the 13-week period ended May 4, 2002, the fiscal years
ended February 2, 2002 and February 3, 2001, the 31-week period ended January
29, 2000 and the 21-week period ended June 26, 1999. The aggregate effect of the
restatement was to reduce net income over this three and one-quarter year period
by $7.3 million. In addition, the restatement reduced operating income for the
21-week period ended June 26, 1999 by $1.1 million; this amount was offset in
the Company's Consolidated Statement of Operations by an adjustment associated
with the Company's adoption of fresh-start reporting in 1999.
The aggregate effect of the correction of the misstatements on previously
reported EBITDA was a reduction of $11 million over the three and one-quarter
year period ended May 4, 2002. EBITDA is earnings before interest, taxes,
depreciation, amortization, amortization of excess reorganization value, LIFO
provision, special charges, unusual items, write-down of long-lived assets,
reorganization items and extraordinary items. EBITDA should not be interpreted
as a measure of operating results, cash flow provided by operating activities or
liquidity, or as an alternative to any generally accepted accounting principle
measure of performance. The Company reports EBITDA because it is a widely used
financial measure of the potential capacity of a company to incur and service
debt. Penn Traffic's reported EBITDA may not be comparable to similarly titled
measures used by other companies.
The restatement also includes the reclassification of $1.0 million and $2.9
million of expenses for the 13-week and 39-week periods ended November 3, 2001,
respectively, from Selling and administrative expenses to Cost of sales to more
appropriately reflect the classification of certain indirect manufacturing
expenses associated with the Penny Curtiss bakery manufacturing subsidiary.
-7-
<Page>
The effect of the correction of the misstatements for the 13-week and
39-week periods ended November 3, 2001 was to (1) increase the previously
reported net loss by $0.6 million and $2.1 million and net loss per share -
diluted by $0.03 and $0.11 and (2) reduce previously reported EBITDA by $0.7
million and $3.0 million, respectively. The financial statement line items which
were restated are Revenues, Cost of sales, Selling and administrative expenses,
Amortization of excess reorganization value, Provision for income taxes,
Inventories, Prepaid expenses and other current assets, Excess reorganization
value, Trade accounts and drafts payable, Taxes payable and deferred taxes and
Retained deficit. The consolidated financial statements for the 13-week and
39-week periods ended November 3, 2001, and notes thereto included in this Form
10-Q, have been restated to include the effects of the correction of these
misstatements and the reclassification of all amounts outstanding under the
Company's $320 million secured credit facility (the "Credit Facility") at
February 2, 2002 as Current maturities of long-term debt (see Note 4) as
follows:
-8-
<Page>
<Table>
<Caption>
13 WEEKS ENDED 39 WEEKS ENDED
NOVEMBER 3, 2001 NOVEMBER 3, 2001
------------------------ --------------------------
AS AS
PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS
Revenues $ 598,766 $ 598,631 $ 1,789,325 $ 1,788,799
Cost of sales 436,672 438,255 1,304,142 1,309,453
Selling and administrative expenses 151,006 150,013 445,443 442,565
Amortization of excess
reorganization value 27,318 27,452 81,954 82,356
----------- --------- ----------- -----------
Operating loss (16,230) (17,089) (42,214) (45,575)
Interest expense 8,886 8,886 27,458 27,459
----------- --------- ----------- -----------
Loss before income taxes (25,116) (25,975) (69,672) (73,034)
Provision for income taxes 1,286 989 5,867 4,653
----------- --------- ----------- -----------
Net loss $ (26,402) $ (26,964) $ (75,539) $ (77,687)
=========== ========= =========== ===========
Per share (Basic and Diluted) $ (1.32) $ (1.34) $ (3.77) $ (3.87)
=========== ========= =========== ===========
</Table>
<Table>
<Caption>
FEBRUARY 2, 2002
------------------------
AS
PREVIOUSLY
REPORTED RESTATED
----------- ----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET
Inventories $ 284,221 $ 274,845
Prepaid expenses and other current assets 9,697 9,506
Total current assets 383,190 373,623
Excess reorganization value 42,032 42,238
Total assets 815,729 806,368
Trade accounts and drafts payable 128,872 129,158
Taxes payable and deferred taxes 18,179 15,125
Current maturities of long-term debt 7,066 140,666
Total current liabilities 242,550 373,382
Long-term debt 245,646 112,046
Retained deficit (255,711) (262,304)
Total stockholders' equity 145,217 138,624
Total liabilities and
stockholders' equity 815,729 806,368
</Table>
-9-
<Page>
NEW ACCOUNTING STANDARDS
Penn Traffic adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142") in the 13-week period ended
May 4, 2002 ("First Quarter Fiscal 2003"). SFAS 142 provides that intangible
assets with finite useful lives be amortized, and that goodwill and intangible
assets with indefinite useful lives not be amortized but tested at least
annually for impairment. Accordingly, the Company no longer records amortization
of excess reorganization value or goodwill in its Consolidated Statement of
Operations. In conjunction with the adoption of SFAS 142, Penn Traffic performed
a comprehensive test of the carrying value of the excess reorganization value
and goodwill assets for impairment. As a result of this review, no assets were
deemed impaired. Excess reorganization value and goodwill had a carrying value
of approximately $51 million at the date of adoption of this standard.
In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 supercedes Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting Principle
Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company adopted this
standard in First Quarter Fiscal 2003. The adoption of this standard did not
have a material effect on the Company's financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities,"
("SFAS 146") which addresses accounting for restructuring and similar costs,
including store closures. SFAS 146 replaces previous accounting guidance,
principally Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)," ("Issue 94-3"). Under
Issue 94-3, a liability for an exit cost was recognized at the date of a
company's commitment to an exit plan. SFAS 146 requires that the liability for
costs associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS 146 also established that the liability should
initially be measured and recorded at fair value. Accordingly, SFAS 146 may
affect the timing of recognizing future store closures and restructuring costs,
if any, as well as the amounts recognized. The Company adopted the provisions of
SFAS 146 during the 13-week and 39-week periods ended November 2, 2002. Adoption
of this standard did not have a material effect on the Company's financial
statements.
-10-
<Page>
NOTE 2 - INCOME TAXES
The (benefit) provision for income taxes for the 13-week and 39-week
periods ended November 2, 2002 and November 3, 2001 are not recorded at
statutory rates due to differences between income calculations for financial
reporting and tax reporting purposes.
NOTE 3 - NET LOSS PER SHARE
In the calculation of Basic and Diluted loss per share, 20,064,264 and
20,061,978 shares were used for the 13-week and 39-week periods ended November
2, 2002, respectively, and 20,056,264 and 20,055,298 shares were used for the
13-week and 39-week periods ended November 3, 2001, respectively. The
calculation of Diluted loss per share for the 13-week and 39-week periods ended
November 2, 2002 excludes the effect of incremental common stock equivalents
aggregating 196,611 and 293,257 shares and the calculation of Diluted loss per
share for the 13-week and 39-week periods ended November 3, 2001 excludes the
effect of incremental common stock equivalents aggregating 28,811 and 34,153
shares, since they would have been antidilutive given the net loss for these
periods.
-11-
<Page>
NOTE 4 - DEBT
The Company's debt (excluding capital leases) is shown below:
<Table>
<Caption>
RESTATED
NOVEMBER 2, FEBRUARY 2,
2002 2002
----------- -----------
(IN THOUSANDS)
Secured Term Loan $ 103,500 $ 108,250
Secured Revolving Credit Facility 71,100 32,100
Other Secured Debt 12,118 12,362
11% Senior Notes due June 29, 2009 100,000 100,000
----------- -----------
Total Debt $ 286,718 $ 252,712
Less: Current maturities of long-term debt (9,523) (140,666)
----------- -----------
Total Long-Term Debt $ 277,195 $ 112,046
=========== ===========
</Table>
The Company's Credit Facility includes (1) a $205 million revolving credit
facility (the "Revolving Credit Facility") and (2) a $115 million term loan (the
"Term Loan"). The lenders under the Credit Facility have a first priority
perfected security interest in substantially all of the Company's assets. The
Credit Facility contains a variety of operational and financial covenants
intended to restrict the Company's operations. These covenants include, among
other things, restrictions on the Company's ability to incur debt, make capital
expenditures and restricted payments, as well as, requirements that the Company
achieve required levels for Consolidated EBITDA, interest coverage, fixed charge
coverage and funded debt ratio (all as defined in the Credit Facility).
In connection with an amendment to the Credit Facility entered into with
the lenders on October 31, 2002 (the "October Bank Amendment"), the required
levels for the Consolidated EBITDA, interest coverage, fixed charge coverage and
funded debt ratio covenants were amended to make them less restrictive on the
Company. The Company paid the lenders an amendment fee for entering into the
October Bank Amendment and also agreed to certain increases in the applicable
interest rates and commitment fees payable to the lenders under the Credit
Facility. The October Bank Amendment also further restricted the Company's
ability to make capital expenditures during each of the fiscal years commencing
with the first quarter of the 52-week period ending January 31, 2004 through and
including the fiscal year ending February 3, 2007.
-12-
<Page>
In accordance with generally accepted accounting principles, all amounts
outstanding under the Credit Facility at February 2, 2002 ($140.4 million) were
classified as Current Maturities of long-term debt since the Company was not in
compliance with the terms of the Credit Facility on such date as a result of the
accounting misstatements in the Company's Penny Curtiss bakery manufacturing
subsidiary.
Pursuant to the October Bank Amendment, the lenders under the Credit
Facility also permanently waived any defaults or events of default arising from
the accounting misstatements associated with the Company's Penny Curtiss bakery
manufacturing subsidiary and the restatement of the Company's financial
statements (see Note 1).
Availability under the Revolving Credit Facility is calculated based on a
specified percentage of eligible inventory and accounts receivable of the
Company. The Revolving Credit Facility is scheduled to mature on June 30, 2005.
As of November 2, 2002, there were approximately $71.1 million of borrowings and
$35.0 million of letters of credit outstanding under the Revolving Credit
Facility. Availability under the Revolving Credit Facility was approximately $86
million as of November 2, 2002.
The Term Loan is scheduled to mature on June 30, 2006. Amounts of the Term
Loan (as of February 2, 2002) scheduled to mature in each fiscal year are
outlined in the following table:
<Table>
<Caption>
Fiscal Year Ending Amount Maturing
------------------ ----------------
(In thousands of dollars)
February 1, 2003 $ 6,750
January 31, 2004 9,750
January 29, 2005 12,750
January 28, 2006 7,750
February 3, 2007 71,250
-----------
$ 108,250
===========
</Table>
-13-
<Page>
NOTE 5 - STOCKHOLDERS' EQUITY
Comprehensive loss for 13-week and 39-week periods ended November 2, 2002
and the 13-week and 39-week periods ended November 3, 2001 consists of net loss,
the effects of accounting for hedges under Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and unrealized gains or losses on marketable securities. Total
comprehensive loss for the 13-week and 39-week periods ended November 2, 2002
was $5.8 million and $3.3 million, respectively. Total comprehensive loss for
the 13-week and 39-week periods ended November 3, 2001 was $28.2 million and
$81.1 million, respectively. Capital in excess of par value includes the
accumulated increase to compensation expense related to certain stock options
subject to variable accounting of $0.2 million and $0.4 million as of November
2, 2002 and February 2, 2002, respectively. During the 13-week and 39-week
periods ended November 2, 2002 the Company recorded decreases to compensation
expense related to such stock options subject to variable accounting of $0.8
million and $0.2 million, respectively.
On June 29, 2000, the Company announced that its Board of Directors had
authorized the Company to repurchase up to an aggregate value of $10 million of
Penn Traffic's common stock from time to time in the open market or privately
negotiated transactions. The timing and amounts of purchases will be governed by
prevailing market conditions and other considerations. To date, the Company has
repurchased 53,000 shares of common stock at an average price of $7.08 per
share.
-14-
<Page>
NOTE 6 - SUPPLEMENTAL FINANCIAL INFORMATION
<Table>
<Caption>
RESTATED
13 WEEKS 13 WEEKS
ENDED ENDED
NOVEMBER 2, NOVEMBER 3,
2002 2001
----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EBITDA(1) $ 10,789 $ 21,431
Adjusted EBITDA(2) 12,829 23,799
Cash interest expense 8,514 8,667
Adjusted net (loss) income(3) (4,473) 1,885
Adjusted (loss) earnings per share
(Basic and Diluted)(4) $ (0.22) $ 0.09
</Table>
<Table>
<Caption>
RESTATED
39 WEEKS 39 WEEKS
ENDED ENDED
NOVEMBER 2, NOVEMBER 3,
2002 2001
----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EBITDA(1) $ 56,313 $ 70,085
Adjusted EBITDA(2) 58,353 72,453
Cash interest expense 25,233 26,801
Adjusted net (loss) income(3) (1,301) 6,066
Adjusted (loss) earnings per share
(Basic and Diluted)(4) $ (0.06) $ 0.30
</Table>
- ----------
See notes below
-15-
<Page>
NOTE 6 - SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
(1) EBITDA is earnings before interest, taxes, depreciation, amortization,
amortization of excess reorganization value and LIFO provision. EBITDA
should not be interpreted as a measure of operating results, cash flow
provided by operating activities, a measure of liquidity or as an
alternative to any generally accepted accounting principle measure of
performance. The Company is reporting EBITDA because it is a widely used
financial measure of the potential capacity of a company to incur and
service debt. Penn Traffic's reported EBITDA may not be comparable to
similarly titled measures used by other companies.
(2) Adjusted EBITDA for the 13-week and 39-week periods ended November 2, 2002
is EBITDA excluding $2.0 million of costs incurred in connection with the
investigation of the false accounting entries at the Company's Penny
Curtiss bakery manufacturing subsidiary, the restatement of the Company's
financial results and a review of its internal controls and procedures.
Adjusted EBITDA for the 13-week and 39-week periods ended November 3, 2001
is EBITDA excluding loyalty card startup costs of $2.4 million.
(3) Adjusted net loss for the 13-week and 39-week periods ended November 2,
2002 is net loss excluding $1.2 million (after tax) of costs incurred in
connection with the investigation of the false accounting entries at the
Company's Penny Curtiss bakery manufacturing subsidiary, the restatement of
the Company's financial results and a review of its internal controls and
procedures. Adjusted net income for the 13-week period ended November 3,
2001 is net loss excluding loyalty card startup costs of $1.4 million
(after tax) and amortization of excess reorganization value of $27.5
million. Adjusted net income for the 39-week period ended November 3, 2001
is net loss excluding loyalty card startup costs of $1.4 million (after
tax) and amortization of excess reorganization value of $82.4 million.
(4) The calculation of Basic adjusted loss per share utilized 20,064,264 and
20,061,978 shares for the 13-week and 39-week periods ended November 2,
2002, respectively. The calculation of Basic adjusted earnings per share
utilized 20,056,264 and 20,055,298 shares for the 13-week and 39-week
periods ended November 3, 2001, respectively. The calculation of Diluted
adjusted loss per share for the 13-week and 39-week periods ended November
2, 2002 excludes the effect of incremental common stock equivalents
aggregating 196,111 and 293,257 shares, since they would have been
antidilutive given the net loss for these periods. The calculation of
Diluted adjusted earnings per share utilized 20,085,075 and 20,089,451
shares for the 13-week and 39-week periods ended November 3, 2001,
respectively.
-16-
<Page>
NOTE 7 - AMORTIZATION OF EXCESS REORGANIZATION VALUE AND GOODWILL
Penn Traffic's adoption of SFAS 142 eliminates the amortization of excess
reorganization value and goodwill beginning in First Quarter Fiscal 2003. The
following table presents a comparison of the reported net loss for the 13-week
and 39-week periods ended November 2, 2002 to the reported net loss for the
13-week and 39-week periods ended November 3, 2001 adjusted to exclude the
amortization of excess reorganization value and goodwill ("Pro forma net
income"):
<Table>
<Caption>
PRO FORMA PRO FORMA
RESTATED RESTATED
13 WEEKS 13 WEEKS 39 WEEKS 39 WEEKS
ENDED ENDED ENDED ENDED
NOVEMBER 2, NOVEMBER 3, NOVEMBER 2, NOVEMBER 3,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Reported net loss $ (5,676) $ (26,964) $ (2,504) $ (77,687)
Amortization of excess
reorganization value 27,452 82,356
Goodwill amortization, net of tax 35 105
----------- ----------- ----------- -----------
Pro forma net (loss) income $ (5,676) $ 523 $ (2,504) $ 4,774
=========== =========== =========== ===========
Basic earnings per share:
Reported net loss $ (0.28) $ (1.34) $ (0.12) $ (3.87)
Amortization of excess
reorganization value 1.37 4.11
Goodwill amortization, net of tax
----------- ----------- ----------- -----------
Pro forma basic (loss)
earnings per share $ (0.28) $ 0.03 $ (0.12) $ 0.24
=========== =========== =========== ===========
Diluted earnings per share:
Reported net loss $ (0.28) $ (1.34) $ (0.12) $ (3.87)
Amortization of excess
reorganization value 1.37 4.10
Goodwill amortization, net of tax
----------- ----------- ----------- -----------
Pro forma diluted (loss)
earnings per share $ (0.28) $ 0.03 $ (0.12) $ 0.23
=========== =========== =========== ===========
</Table>
-17-
<Page>
NOTE 8 - SEGMENT INFORMATION
The table below presents Revenues and EBITDA by reportable segment:
<Table>
<Caption>
WHOLESALE
RETAIL FOOD
FOOD DISTRIBUTION TOTAL
----------- ------------ -----------
(IN THOUSANDS)
13-WEEK PERIOD ENDED NOVEMBER 2, 2002
Revenues $ 509,406 $ 66,346 $ 575,572
EBITDA 22,088 4,342 26,430
RESTATED
13-WEEK PERIOD ENDED NOVEMBER 3, 2001
Revenues $ 524,021 $ 70,229 $ 594,250
EBITDA 32,183 4,225 36,408
39-WEEK PERIOD ENDED NOVEMBER 2, 2002
Revenues $ 1,541,150 $ 199,236 $ 1,740,386
EBITDA 86,601 13,233 99,834
RESTATED
39-WEEK PERIOD ENDED NOVEMBER 3, 2001
Revenues $ 1,570,626 $ 205,930 $ 1,776,556
EBITDA 102,114 12,876 114,990
</Table>
-18-
<Page>
The table below reconciles (a) Total segment revenues to Consolidated
revenues and (b) Total EBITDA for reportable segments to Loss before income
taxes:
<Table>
<Caption>
RESTATED
13 WEEKS 13 WEEKS
ENDED ENDED
NOVEMBER 2, NOVEMBER 3,
2002 2001
----------- -----------
(IN THOUSANDS)
REVENUES:
Total segment revenues $ 575,752 $ 594,250
Other revenues 4,307 4,381
----------- -----------
Consolidated revenues $ 580,059 $ 598,631
=========== ===========
EBITDA(1):
Total EBITDA for reportable segments $ 26,430 $ 36,408
Unallocated expenses/income (15,641) (14,977)
Depreciation and amortization (10,619) (10,443)
Amortization of excess reorganization value (27,452)
LIFO provision (375) (625)
Interest expense (8,820) (8,886)
----------- -----------
Loss before income taxes $ (9,025) $ (25,975)
=========== ===========
</Table>
<Table>
<Caption>
RESTATED
39 WEEKS 39 WEEKS
ENDED ENDED
NOVEMBER 2, NOVEMBER 3,
2002 2001
----------- -----------
(IN THOUSANDS)
REVENUES:
Total segment revenues $ 1,740,386 $ 1,776,556
Other revenues 13,829 12,243
----------- -----------
Consolidated revenues $ 1,754,215 $ 1,788,799
=========== ===========
EBITDA(1):
Total EBITDA for reportable segments $ 99,834 $ 114,990
Unallocated expenses/income (43,521) (44,905)
Depreciation and amortization (31,695) (31,429)
Amortization of excess reorganization value (82,356)
LIFO provision (1,250) (1,875)
Interest expense (26,039) (27,459)
----------- -----------
Loss before income taxes $ (2,671) $ (73,034)
=========== ===========
</Table>
- ----------
See notes below
(1) EBITDA is earnings before interest, taxes, depreciation, amortization,
amortization of excess reorganization value and LIFO provision.
-19-
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations presented below reflects the impact of the restatements to the
Company's previously reported Consolidated Financial Statements for the 13-week
period ended May 4, 2002, the fiscal years ended February 2, 2002 and February
3, 2001, the 31-week period ended January 29, 2000 and the 21-week period ended
June 26, 1999 (see "--Liquidity and Capital Resources" below). The Company
restated its financial results for these periods after discovering in August
2002 that an employee of its Penny Curtiss bakery manufacturing subsidiary had
made false accounting entries, which primarily involved the overstatement of
inventory. The aggregate effect of the restatement was to reduce net income over
this three and one-quarter year period by $7.3 million. In addition, the
restatement reduced operating income for the 21-week period ended June 26, 1999
by $1.1 million; this amount was offset in the Company's Consolidated Statement
of Operations by an adjustment associated with the Company's adoption of
fresh-start reporting in 1999.
The effect of the correction of the misstatements for the 13-week and
39-week periods ended November 3, 2001 was to increase the previously reported
net loss by $0.6 million and $2.1 million and net loss per share - diluted by
$0.03 and $0.11, respectively. The financial statement line items which were
restated are Revenues, Cost of sales, Selling and administrative expenses,
Amortization of excess reorganization value, Provision for income taxes,
Inventories, Prepaid expenses and other current assets, Excess reorganization
value, Trade accounts and drafts payable, Taxes payable and deferred taxes and
Retained deficit.
-20-
<Page>
Certain statements included in this Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Quarterly Report on Form 10-Q which are not statements of
historical fact are intended to be, and are hereby identified as,
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. Without limiting the foregoing, the
words "anticipate," "believe," "estimate," "expect," "intend," "plan," "project"
and other similar expressions are intended to identify forward-looking
statements. The Company cautions readers that forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievement expressed or
implied by such forward-looking statements. Such factors include, among other
things, the success or failure of the Company in implementing its current
business and operational strategies; general economic and business conditions;
competition, including increased capital investment and promotional activity by
the Company's competitors; availability, location and terms of sites for store
development; the successful implementation of the Company's capital expenditure
program (including store remodeling and investments in the Company's technology
infrastructure including point-of-sale systems); labor relations; labor and
employee benefit costs including increases in health care and pension costs and
the level of contributions to Company sponsored pension plans; the impact of the
Company's loyalty card program; availability and terms of and access to capital;
the Company's liquidity and other financial considerations; the ability of the
Company to satisfy the financial and other covenants contained in its debt
instruments; the ability of the Company to repurchase its common stock in open
market purchases and the prices at which it repurchases its common stock;
restrictions on the Company's ability to repurchase its shares under its debt
instruments; the outcome of internal and external investigations into the
previously mentioned false accounting entries and the costs of such
investigation; and the outcome of pending or yet-to-be instituted legal
proceedings. Penn Traffic cautions that the foregoing list of important factors
is not exhaustive.
-21-
<Page>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ("THIRD QUARTER FISCAL 2003") AND THIRTY-NINE WEEKS ENDED
NOVEMBER 2, 2002 COMPARED TO THIRTEEN WEEKS ("THIRD QUARTER FISCAL 2002") AND
THIRTY-NINE WEEKS ENDED NOVEMBER 3, 2001.
The following table set forth Consolidated Statement of Operations
components expressed as percentages of revenues for Third Quarter Fiscal 2003
and Third Quarter Fiscal 2002 and for the 39-week periods ended November 2, 2002
and November 3, 2001, respectively:
<Table>
<Caption>
Third Quarter Ended Thirty-nine Weeks Ended
RESTATED RESTATED
NOVEMBER 2, NOVEMBER 3, NOVEMBER 2, NOVEMBER 3,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues 100.0% 100.0% 100.0% 100.0%
Gross profit(1) 26.1 26.8 26.8 26.8
Adjusted gross profit(2) 26.1 26.9 26.8 26.8
Selling and administrative
Expenses 26.1 25.1 25.5 24.7
Adjusted selling and
administrative expenses(3) 25.8 24.7 25.4 24.6
Amortization of excess
reorganization value 4.6 4.6
Operating income (loss) 0.0 (2.9) 1.3 (2.5)
Adjusted operating income(4) 0.3 2.1 1.4 2.2
Interest expense 1.5 1.5 1.5 1.5
Net loss (1.0) (4.5) (0.1) (4.3)
Adjusted net (loss) income(5) (0.8) 0.3 (0.1) 0.3
</Table>
- ----------
See notes below
-22-
<Page>
RESULTS OF OPERATIONS (CONTINUED)
(1) Revenues less cost of sales.
(2) Gross profit for Third Quarter Fiscal 2003 and the 39-week period ended
November 2, 2002. Adjusted gross profit for Third Quarter Fiscal 2002 and
the 39-week period ended November 3, 2001 is gross profit excluding loyalty
card startup costs of $0.4 million.
(3) Adjusted selling and administrative expenses for Third Quarter Fiscal 2003
and the 39-week period ended November 2, 2002 is selling and administrative
expenses excluding $2.0 million of costs incurred in connection with the
investigation of the false accounting entries at the Company's Penny
Curtiss bakery manufacturing subsidiary, the restatement of the Company's
financial results and a review of its internal controls and procedures.
Adjusted selling and administrative expenses for Third Quarter Fiscal 2002
and the 39-week period ended November 3, 2001 is selling and administrative
expenses excluding loyalty card startup costs of $2.0 million.
(4) Adjusted operating income for Third Quarter Fiscal 2003 and the 39-week
period ended November 2, 2002 is operating loss and operating income,
respectively, excluding $2.0 million of costs incurred in connection with
the investigation of the false accounting entries at the Company's Penny
Curtiss bakery manufacturing subsidiary, the restatement of the Company's
financial results and a review of its internal controls and procedures.
Adjusted operating income for Third Quarter Fiscal 2002 is operating loss
excluding loyalty card startup costs of $2.4 million and amortization of
excess reorganization value of $27.5 million. Adjusted operating income for
the 39-week period ended November 3, 2001 is operating loss excluding
loyalty card startup costs of $2.4 million and amortization of excess
reorganization value of $82.4 million.
(5) Adjusted net loss for Third Quarter Fiscal 2003 and the 39-week period
ended November 2, 2002 is net loss excluding $1.2 million (after tax) of
costs incurred in connection with the investigation of the false accounting
entries at the Company's Penny Curtiss bakery manufacturing subsidiary, the
restatement of the Company's financial results and a review of its internal
controls and procedures. Adjusted net income for Third Quarter Fiscal 2002
is net loss excluding loyalty card startup costs of $1.4 million (after
tax) and amortization of excess reorganization value of $27.5 million.
Adjusted net income for the 39-week period ended November 3, 2001 is net
loss excluding loyalty card startup costs of $1.4 million (after tax) and
amortization of excess reorganization value of $82.4 million.
REVENUES
Total revenues for Third Quarter Fiscal 2003 were $580.1 million, a
decrease of 3.1% from $598.6 million in Third Quarter Fiscal 2002. Total
revenues for the 39-week period ended November 2, 2002 were $1.754 billion, a
decrease of 1.9% from $1.789 billion for the 39-week period ended November 3,
2001. The decrease in revenues in Third Quarter Fiscal 2003 and the 39-week
period ended November 2, 2002 is primarily attributable to (1) the reduction in
the number of stores the Company operated in Third Quarter Fiscal 2003 and the
39-week period ended November 2, 2002 as compared to the prior year, (2) a
decrease in same store sales and (3) a decline in wholesale food distribution
revenues.
-23-
<Page>
RESULTS OF OPERATIONS (CONTINUED)
Same store sales for Third Quarter Fiscal 2003 decreased 2.4% from the
comparable prior year period. Same store sales for the 39-week period ended
November 2, 2002 decreased 1.0% from the comparable prior year period. The
Company believes that the decrease in same store sales was due to the
challenging economic and competitive environment and a lack of food inflation.
Wholesale food distribution revenues were $66.3 million in Third Quarter
Fiscal 2003 compared to $70.2 million in Third Quarter Fiscal 2002. Wholesale
food distribution revenues were $199.2 million for the 39-week period ended
November 2, 2002 compared to $205.9 million for the 39-week period ended
November 3, 2001. The decrease in wholesale food distribution revenues in Third
Quarter Fiscal 2003 and the 39-week period ended November 2, 2002 is primarily a
result of a reduction in the average number of customers.
GROSS PROFIT
Gross profit for Third Quarter Fiscal 2003 was 26.1% of revenues compared
to 26.8% of revenues in Third Quarter Fiscal 2002. Adjusted gross profit for
Third Quarter Fiscal 2003 was 26.1% of revenues compared to 26.9% of revenues in
Third Quarter Fiscal 2002. The decrease in gross profit and adjusted gross
profit as a percentage of revenues in Third Quarter Fiscal 2003 is primarily due
to increased promotional spending and reduced retail prices designed to maintain
or improve sales in a challenging economic and competitive environment (as
discussed in greater detail under "Liquidity and Capital Resources" below).
Gross profit and adjusted gross profit for the 39-week period ended
November 2, 2002 and the 39-week period ended November 3, 2001 were 26.8% of
revenues. Gross profit for the 39-week period ended November 2, 2002 was
impacted by increased promotional spending and reduced retail prices designed to
maintain or improve sales in a challenging economic and competitive environment.
This factor reducing gross profits in the 39-week period ended November 2, 2002
was offset by the Company's ability to more effectively promote its offerings
with its new loyalty card, a reduction in inventory shrink expense and a
decrease in the LIFO provision.
-24-
<Page>
RESULTS OF OPERATIONS (CONTINUED)
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for Third Quarter Fiscal 2003 were
26.1% of revenues compared to 25.1% of revenues in Third Quarter Fiscal 2002.
The increase in selling and administrative expenses as a percentage of revenues
in Third Quarter Fiscal 2003 was primarily due to increases in health care,
pension, utilities, insurance and certain fixed costs as a percentage of
revenues during a period with little or no food inflation and decreases in
revenues and same store sales. The costs associated with the investigation of
the false accounting entries at the Company's Penny Curtiss bakery manufacturing
subsidiary, the restatement of the Company's financial results and a review of
its internal controls and procedures also contributed to the increase in selling
and administrative expenses as a percentage of revenues. These factors
increasing selling and administrative expenses were partially offset by the
benefit of the Company's various cost reduction initiatives, a $0.8 million
reduction of compensation expense associated with certain stock options subject
to variable accounting and the fact that selling and administrative expenses in
Third Quarter Fiscal 2002 included loyalty card start-up costs.
Adjusted selling and administrative expenses for Third Quarter Fiscal 2003
were 25.8% of revenues compared to 24.7% of revenues in Third Quarter Fiscal
2002. The increase in adjusted selling and administrative expenses as a
percentage of revenues in Third Quarter Fiscal 2003 was primarily due to
increases in health care, pension, utilities, insurance and certain fixed costs
as a percentage of revenues during a period of little or no food inflation and
decreases in revenues and same store sales. These factors increasing selling and
administrative expenses were partially offset by the benefit of the Company's
various cost reduction initiatives and a $0.8 million reduction of compensation
expense associated with certain stock options subject to variable accounting.
Selling and administrative expenses for the 39-week period ended November
2, 2002 were 25.5% of revenues compared to 24.7% of revenues for the 39-week
period ended November 3, 2001. The increase in selling and administrative
expenses as a percentage of revenues for the 39-week period ended November 2,
2002 was primarily due to increases in wage, health care and pension costs as a
percentage of revenues during a period with little or no food inflation and
decreases in revenues and same store sales. The costs associated with the
investigation of false accounting entries at the Company's Penny Curtiss bakery
manufacturing subsidiary, the restatement of the Company's financial results and
a review of its internal controls and procedures also contributed to the
increase in selling and administrative expenses as a percentage of revenues.
These factors increasing selling and administrative expenses were partially
offset by the benefit of the Company's various cost reduction initiatives and
the fact that selling and administrative expenses in the 39-week period ended
November 3, 2001 included loyalty card start-up costs.
-25-
<Page>
RESULTS OF OPERATIONS (CONTINUED)
Adjusted selling and administrative expenses for the 39-week period ended
November 2, 2002 were 25.4% of revenues compared to 24.6% of revenues for the
39-week period ended November 3, 2001. The increase in adjusted selling and
administrative expenses for the 39-week period ended November 2, 2002 was
primarily due to increases in wage, health care and pension costs as a
percentage of revenues during a period of little or no food inflation and
decreases in revenues and same store sales. These factors were partially offset
by the benefit of the Company's various cost reduction initiatives.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $10.6 million or 1.8% of revenues
in Third Quarter Fiscal 2003 compared to $10.4 million or 1.7% of revenues for
Third Quarter Fiscal 2002. Depreciation and amortization expense was $31.7
million or 1.8% of revenues for the 39-week period ended November 2, 2002
compared to $31.4 million or 1.8% of revenues for the 39-week period ended
November 3, 2001.
Amortization of excess reorganization value for Third Quarter Fiscal 2002
and the 39-week period ended November 3, 2001 was $27.5 million and $82.4
million, respectively. The excess reorganization value asset, which was
established in June 1999 in connection with the implementation of fresh-start
reporting, was being amortized on a straight-line basis over a three-year
period. Beginning in the 13-week period ended May 4, 2002, the Company is no
longer amortizing the excess reorganization value asset in accordance with SFAS
142 (see "--Impact of New Accounting Standards" below).
-26-
<Page>
RESULTS OF OPERATIONS (CONTINUED)
OPERATING (LOSS) INCOME; ADJUSTED OPERATING INCOME
Operating loss for Third Quarter Fiscal 2003 was $0.2 million or 0.0% of
revenues compared to an operating loss of $17.1 million or 2.9% of revenues in
Third Quarter Fiscal 2002. The decrease in the operating loss for Third Quarter
Fiscal 2003 was due to the fact that the Company is no longer amortizing the
excess reorganization value asset partially offset by a decrease in gross profit
as a percentage of revenues and an increase in selling and administrative
expenses as a percentage of revenues.
Adjusted operating income for Third Quarter Fiscal 2003 was $1.8 million or
0.3% of revenues compared to $12.7 million or 2.1% of revenues in Third Quarter
Fiscal 2002. The decrease in adjusted operating income as a percentage of
revenues in Third Quarter Fiscal 2003 was due to a decrease in adjusted gross
profit as a percentage of revenues and an increase in adjusted selling and
administrative expenses as a percentage of revenues.
Operating income for the 39-week period ended November 2, 2002 was $23.4
million or 1.3% of revenues compared to an operating loss of $45.6 million or
2.5% of revenues for the 39-week period ended November 3, 2001. The increase in
operating income for the 39-week period ended November 2, 2002 was due to the
fact that the Company is no longer amortizing the excess reorganization value
asset partially offset by an increase in selling and administrative expenses as
a percentage of revenues.
Adjusted operating income for the 39-week period ended November 2, 2002 was
$25.4 million or 1.4% of revenues compared to $39.1 million or 2.2% of revenues
for the 39-week period ended November 3, 2001. The decrease in adjusted
operating income as a percentage of revenues in the 39-week period ended
November 2, 2002 was due to an increase in adjusted selling and administrative
expenses as a percentage of revenues.
INTEREST EXPENSE
Interest expense for Third Quarter Fiscal 2003 was $8.8 million compared to
$8.9 million in Third Quarter Fiscal 2002. Interest expense for the 39-week
period ended November 2, 2002 was $26.0 million compared to $27.5 million for
the 39-week period ended November 3, 2001. The decrease in interest expense in
Third Quarter Fiscal 2003 and the 39-week period ended November 2, 2002 was due
to a decrease in the interest rate on the Company's variable rate debt from the
prior year partially offset by the higher average debt level outstanding in such
periods as compared to the prior year.
-27-
<Page>
RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES
Income tax benefit was $3.3 million for Third Quarter Fiscal 2003 compared
to an income tax provision of $1.0 million in Third Quarter Fiscal 2002.
Adjusted income tax benefit was $2.5 million for Third Quarter Fiscal 2003
compared to an income tax provision of $2.0 million in Third Quarter Fiscal
2002. Income tax benefit for the 39-week period ended November 2, 2002 was $0.2
million compared to an income tax provision of $4.7 million for the 39-week
period ended November 3, 2001. Adjusted income tax provision for the 39-week
period ended November 2, 2002 was $0.7 million compared to $5.6 million for the
39-week period ended November 3, 2001. The income tax (benefit) provisions for
the Third Quarter Fiscal 2003 and Third Quarter Fiscal 2002 and the 39-week
periods ended November 2, 2002 and November 3, 2001 are not recorded at
statutory rates due to differences between income calculations for financial
reporting and tax reporting purposes.
NET LOSS; ADJUSTED NET (LOSS) INCOME
Net loss for Third Quarter Fiscal 2003 was $5.7 million compared to a net
loss of $27.0 million for Third Quarter Fiscal 2002. Adjusted net loss for Third
Quarter Fiscal 2003 was $4.5 million compared to adjusted net income of $1.9
million in Third Quarter Fiscal 2002.
Net loss for the 39-week period ended November 2, 2002 was $2.5 million
compared to a net loss of $77.7 million for the 39-week period ended November 3,
2001. Adjusted net loss for the 39-week period ended November 2, 2002 was $1.3
million compared to adjusted net income of $6.1 million for the 39-week period
ended November 3, 2001.
-28-
<Page>
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those accounting policies which are very
important to the portrayal of the Company's financial condition and results and
which require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. The Company believes that estimates for reserve for
store closures, impairment of long-lived assets, liabilities for employee
benefit plans and self-insurance liabilities are critical accounting policies.
Materially different amounts could be reported under different conditions or
using different assumptions for these items. These estimates and assumptions are
evaluated on an ongoing basis, based on historical experience and on various
other factors that are believed to be reasonable. There are no significant
changes to these estimates and assumptions since the issuance of the Company's
Form 10-K/A for the 52-week period ended February 2, 2002.
-29-
<Page>
LIQUIDITY AND CAPITAL RESOURCES
The Company's debt (excluding capital leases) consists primarily of $100
million of 11% Senior Notes due June 29, 2009 (the "Senior Notes") and amounts
outstanding under a $320 million secured credit facility that consists of a term
loan and a revolving credit facility (the "Credit Facility") as shown below:
<Table>
<Caption>
NOVEMBER 2, FEBRUARY 2,
2002 2002
----------- -----------
(IN THOUSANDS)
Secured Term Loan $ 103,500 $ 108,250
Secured Revolving Credit Facility 71,100 32,100
Other Secured Debt 12,118 12,362
11% Senior Notes due June 29, 2009 100,000 100,000
----------- -----------
Total Debt $ 286,718 $ 252,712
Less: Current maturities of long-term debt (9,523) (140,666)
----------- -----------
Total Long-Term Debt $ 277,195 $ 112,046
=========== ===========
</Table>
The Credit Facility includes (1) a $205 million revolving credit facility
(the "Revolving Credit Facility") and (2) a $115 million term loan (the "Term
Loan"). The lenders under the Credit Facility have a first priority perfected
security interest in substantially all of the Company's assets. The Credit
Facility contains a variety of operational and financial covenants intended to
restrict the Company's operations. These include, among other things,
restrictions on the Company's ability to incur debt, make capital expenditures
and restricted payments, as well as, requirements that the Company achieve
required levels for Consolidated EBITDA, interest coverage, fixed charge
coverage and funded debt ratio (all as defined in the Credit Facility).
-30-
<Page>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In connection with an amendment to the Credit Facility entered into with
the lenders on October 31, 2002 (the "October Bank Amendment"), the required
levels for the Consolidated EBITDA, interest coverage, fixed charge coverage and
funded debt ratio covenants were amended to make them less restrictive on the
Company. The Company believes that the level of results of operations the
Company achieved during Third Quarter Fiscal 2003 augmented by the expected
increase in profitability the Company has historically achieved in the fourth
quarter associated with higher holiday sales should generate operating results
that enable the Company to be in compliance with all of its financial covenants
in the fourth quarter of Fiscal 2003 (the 13-week period ending February 1,
2003). Although the Company will be required to improve its operating results
from its results of operations in Third Quarter Fiscal 2003 in order to ensure
that the Company remains in compliance with these amended covenants during the
fiscal year ending January 31, 2004 ("Fiscal 2004"), the Company believes that
it will remain in compliance with these financial covenants throughout Fiscal
2004. There can be no assurance however that the Company will generate operating
results in the fourth quarter of Fiscal 2003 that will enable it to remain in
compliance with those financial covenants or that the Company's results of
operations will improve during Fiscal 2004 from its results of operations in
Third Quarter Fiscal 2003 so that the Company remains in compliance with its
financial covenants throughout Fiscal 2004. As a result the Company may be
required to seek further covenant modifications from the lenders under the
Credit Facility.
The Company paid the lenders an amendment fee for entering into the October
Bank Amendment and also agreed to certain increases in the applicable interest
rates and commitment fees payable to the lenders under the Credit Facility. The
October Bank Amendment also further restricted the Company's ability to make
capital expenditures during each of the fiscal years commencing with the first
quarter of Fiscal 2004 through and including the fiscal year ending February 3,
2007. As described below, these new restrictions will place more significant
limitations on the Company's ability to make investments in its store base and
other operating infrastructure which could have a material adverse effect on its
results of operations in the future.
-31-
<Page>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Availability under the Revolving Credit Facility is calculated based on a
specified percentage of eligible inventory and accounts receivable of the
Company. The Revolving Credit Facility is scheduled to mature on June 30, 2005.
As of November 2, 2002, there were approximately $71.1 million of borrowings and
$35.0 million of letters of credit outstanding under the Revolving Credit
Facility. Availability under the Revolving Credit Facility was approximately $86
million as of November 2, 2002.
The Term Loan is scheduled to mature on June 30, 2006. Amounts of the Term
Loan (as of February 2, 2002) scheduled to mature in each fiscal year are
outlined in the following table :
<Table>
<Caption>
Fiscal Year Ending Amount Maturing
------------------ ---------------
(In thousands of dollars)
February 1, 2003 $ 6,750
January 31, 2004 9,750
January 29, 2005 12,750
January 28, 2006 7,750
February 3, 2007 71,250
---------
$ 108,250
=========
</Table>
On August 8, 2002, the Company announced that it had discovered that an
employee of its Penny Curtiss bakery manufacturing subsidiary had made false
accounting entries which primarily involved the overstatement of inventory over
a period of approximately three and one-quarter years. Based on the preliminary
findings of an internal review, the Company's Audit Committee engaged
independent legal counsel to conduct an independent investigation, who in turn
engaged KPMG LLP to assist in this investigation, which is substantially
complete. The Company has concluded that the false accounting entries were
limited to its Penny Curtiss bakery manufacturing subsidiary and that the
aggregate effect of the restatements was to reduce net income over the three and
one-quarter year period ended May 4, 2002 by $7.3 million. In addition, the
restatement reduced operating income for the 21-week period ended June 26, 1999
by $1.1 million; this amount was offset in the Company's Consolidated Statement
of Operations by an adjustment associated with the Company's adoption of
fresh-start reporting in 1999. The aggregate effect of the restatements on
EBITDA was a reduction of $11 million over the three and one-quarter year period
ended May 4, 2002.
-32-
<Page>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Pursuant to the October Bank Amendment, the lenders under the Credit
Facility permanently waived any defaults or events of default arising from the
making of these false accounting entries and the restatement of the Company's
financial statements during the periods in question. The Company is cooperating
with all appropriate regulators with respect to the false accounting entries.
The Company incurred approximately $2.0 million of costs in Third Quarter Fiscal
2003 in connection with the investigation of the false accounting entries, the
restatement of its financial results and a review of its internal controls and
procedures. The Company anticipates incurring additional costs relating to these
matters during the remainder of Fiscal 2003.
The indenture for the Senior Notes contains certain negative covenants
that, among other things, restrict the Company's ability to incur additional
indebtedness, permit additional liens and make certain restricted payments.
The Company's Senior Notes are rated B3 by Moody's Investor Service and B-
(with a negative outlook) by Standard and Poor's Ratings Group as of December
16, 2002. Future rating changes could affect the availability and cost of
financing to the Company.
Cash flows used to meet the Company's operating requirements during the
39-week period ended November 2, 2002 are reported in the Consolidated Statement
of Cash Flows. During the 39-week period ended November 2, 2002, the Company's
net cash used in investing activities was $49.9 million. This amount was
financed by net cash provided by operating activities of $21.5 million, net cash
provided by financing activities of $26.4 million and the Company had a decrease
in cash and cash equivalents of $2.0 million.
During the 39-week period ended November 2, 2002, the Company's internally
generated funds from operations and amounts available under the Revolving Credit
Facility provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs. For the next year, the Company expects to
utilize internally generated funds from operations, amounts available under the
Revolving Credit Facility and new mortgages, capital leases and/or
sale/leasebacks to satisfy its operating, capital expenditure and debt service
needs and to fund any repurchase of shares of its common stock under its stock
repurchase program. Certain external factors, however, such as unfavorable
economic conditions, competition and increases in wage and benefit costs, could
have a significant impact on cash generated from operations. In addition, the
Company's ability to obtain new mortgages, capital leases and/or sale/leasebacks
in order to fund a portion of its capital expenditure program is, in part,
dependent upon the Company's financial performance and overall conditions in the
capital markets.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company competes with several supermarket chains, independent grocery
stores, supercenters (combination supermarket and general merchandise stores)
and other retailers, many of which have greater resources than Penn Traffic. The
number of competitors and the degree of competition encountered by the Company's
supermarkets vary by location. Any significant change in the number of the
Company's competitors, the number or size of competitors' stores, or in the
pricing and promotion practices of the Company's competitors could have an
impact on the Company's results of operations.
In the 52-week period ending February 1, 2003 ("Fiscal 2003"), the Company
has generally encountered an increase in competitive price and promotional
activity. This has resulted from, among other factors, the sluggish sales
environment in the supermarket industry, which the Company believes has been
caused by the current weaker economic conditions and an increase in the
penetration of the retail food industry by alternative channels of trade such as
supercenters. In addition, in Fiscal 2003, a greater number of competitive new
stores (including a greater number of supercenters) have opened in the Company's
markets than in recent years. In this environment, Penn Traffic has been
investing additional amounts in promotions designed to preserve both its market
share and the positive sales momentum the Company established in many of its
markets as a result of its strategic initiatives. These factors have impacted
and may continue to impact the Company's results of operations.
During calendar year 2000, two new competitors entered the central Ohio
market in which Penn Traffic operates a number of stores under the Big Bear
trade name. As a consequence of the entry of these new competitors and the
current challenging retail environment, the Company is facing increased
competition from these new competitors and from the two other established
competitors in the central Ohio market who have reduced prices and/or increased
their level of promotional activity in an attempt to maintain or improve their
sales levels in the market. Because of this increased competitive activity, the
Company's results of operations have been adversely affected and may continue to
be adversely affected. The Company's long-term strategy in the Ohio market is to
(1) emphasize Big Bear's quality perishables, customer service and convenient
locations and (2) implement programs to reduce expenses to help fund the cost of
maintaining competitive pricing and promotion programs.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Penn Traffic is incurring significant increases in employee benefit costs
in Fiscal 2003 comprised of (1) increases in health care costs which the Company
believes are, on a percentage basis, generally consistent with overall
increasing costs in the health care industry and (2) an increase in pension
expense that the Company is recording in Fiscal 2003 as a result of declining
returns in the equity markets over the past two years. The Company also expects
to incur significant increases in employee benefit costs in Fiscal 2004. Penn
Traffic competes against some companies which do not provide the same levels of
employee benefits as the Company does. It is not certain what portion of these
cost increases Penn Traffic will be able to offset through its cost reduction
programs, merchandising enhancements or market pricing adjustments.
Penn Traffic currently sponsors five tax-qualified defined benefit pension
plans (the "Plans"), primarily for its non-union employees, and also contributes
to multi-employer pension funds which cover union employees under collective
bargaining agreements. Due to the strong performance of the equity markets in
the 1990's and the higher prevailing interest rates which were used to measure
pension obligations, Penn Traffic recorded net pension income with respect to
the Plans under Statement of Financial Accounting Standards No. 87 "Employers'
Accounting for Pensions," for the fiscal years ended February 2, 2002, February
3, 2001, the 31-week period ended January 29, 2000, the 21-week period ended
June 26, 1999 and the fiscal year ended January 30, 1999. The Company expects to
record pension income of approximately $0.5 million for these Plans in Fiscal
2003 compared to $2.4 million in fiscal year ended February 2, 2002 ("Fiscal
2002").
As both the aggregate value of the equity markets and long-term interest
rates have declined since early calendar year 2000, the Plans have gone from an
overfunded position to an underfunded position. This change resulted in an
after-tax charge to equity of approximately $20 million at the end of Fiscal
2002. Based on current information, the Company believes that it will need to
record an additional after-tax charge to equity at the end of Fiscal 2003 of
between $30 million and $40 million.
During Fiscal 2002, Penn Traffic began making contributions to the Plans at
higher levels than the current minimum requirements of ERISA. Contributions to
the Plans totaled $5.6 million in Fiscal 2002 compared to $2.3 million and $0.9
million in the preceding two years. In addition, Penn Traffic contributed an
aggregate of $5.8 million to the Plans in the 39-week period ended November 2,
2002. The Company believes that it is likely that the Company's future annual
contributions to the Plans will be greater than contributions made in Fiscal
2002 or to date in Fiscal 2003. Such higher contributions would have an impact
on the Company's cash provided from operations, which, in turn, could impact the
level of the Company's future capital investment.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During 2000, the Company entered into interest rate swap agreements, which
expire in April 2005, that effectively convert $50 million of its variable rate
borrowings into fixed rate obligations. Under the terms of these agreements, the
Company makes payments at a weighted average fixed interest rate of 7.08% per
annum and receives payments at variable interest rates based on the London
InterBank Offered Rate.
During Fiscal 2003, Penn Traffic expects to invest approximately $60
million in capital expenditures (including capital leases). Capital expenditures
will be principally for new stores, store remodels and investments in the
Company's distribution system and technology infrastructure (including new
point-of-sale systems in a number of the Company's stores). The Company expects
to finance such expenditures through cash generated from operations and amounts
available under the Revolving Credit Facility. As noted above, the Company will
be required to significantly reduce its capital expenditure program during
Fiscal 2004 and the foreseeable future because of the new restrictions under its
Credit Facility. The Company currently believes that it will invest $25-35
million during Fiscal 2004 in its store base and other infrastructure.
On June 29, 2000, the Company announced that its Board of Directors had
authorized the Company to repurchase up to an aggregate value of $10 million of
Penn Traffic's common stock from time to time in the open market or privately
negotiated transactions. The timing and amounts of purchases will be governed by
prevailing market conditions and other considerations. To date, the Company has
repurchased 53,000 shares of common stock at an average price of $7.08 per
share.
During the 13-week and 39-week periods ended November 2, 2002, the Company
did not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. In addition, the Company does not engage in trading activities
involving non-exchange traded contracts. As such, the Company is not materially
exposed to any financing, liquidity, market or credit risk that could arise if
the Company had engaged in such relationships. Penn Traffic does not have
relationships or transactions with persons or entities that derive benefits from
their non-independent relationship with the Company or its related parties other
than what is disclosed in Note 15 to the Consolidated Financial Statements in
the Company's Annual Report on Form 10-K/A for the year ended February 2, 2002.
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IMPACT OF NEW ACCOUNTING STANDARDS
Penn Traffic adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), in the 13-week period ended
May 4, 2002 ("First Quarter Fiscal 2003"). SFAS 142 provides that intangible
assets with finite useful lives be amortized, and that goodwill and intangible
assets with indefinite useful lives not be amortized but tested at least
annually for impairment. The Company no longer records amortization of excess
reorganization value or goodwill in its Consolidated Statement of Operations. In
conjunction with the adoption of SFAS 142, Penn Traffic performed a
comprehensive test of the carrying value of the excess reorganization value and
goodwill assets for impairment. As a result of this review, no assets were
deemed impaired. Excess reorganization value and goodwill had a carrying value
of approximately $51 million at the date of adoption of this standard.
In October 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supercedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principle Board
Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." The Company adopted this standard in First
Quarter Fiscal 2003. The adoption of this standard did not have a material
effect on the Company's financial statements.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB
Statement of No. 13, and Technical Corrections," ("SFAS 145"). SFAS 145 becomes
effective for the Company for the fiscal year ending January 31, 2004. The
Company is currently analyzing the effect this standard will have on its
financial statements.
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IMPACT OF NEW ACCOUNTING STANDARDS (CONTINUED)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," ("SFAS 146") which addresses
accounting for restructuring and similar costs, including store closures. SFAS
146 replaces previous accounting guidance, principally Emerging Issues Task
Force Issue No. 94-3 "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)," ("Issue 94-3"). Under Issue 94-3, a liability for an exit
cost was recognized at the date of the company's commitment to an exit plan.
SFAS 146 requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability incurred. SFAS 146 also
established that the liability should initially be measured and recorded at fair
value. Accordingly, SFAS 146 may affect the timing of recognizing future store
closures and restructuring costs, if any, as well as the amounts recognized. The
Company adopted the provisions of SFAS 146 during the Third Quarter Fiscal 2003.
Adoption of this standard did not have a material effect on the Company's
financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See information set forth above in Item 2 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Note 4 to the Interim Consolidated Financial
Statements.
ITEM 4. CONTROLS AND PROCEDURES
The Company's President and Chief Executive Officer and its Executive Vice
President and Chief Financial Officer, after evaluating the effectiveness of the
Company's disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date within 90 days
prior to the filing date of this quarterly report on Form 10-Q (the "Evaluation
date")), have concluded that as of the Evaluation Date, the Company's disclosure
controls and procedures were adequate and effective to ensure that material
information relating to the Company and its consolidated subsidiaries would be
made known to them by others within those entities, particularly during the
period in which this quarterly report on Form 10-Q was being prepared.
In the fiscal quarter ended November 2, 2002, the Company did not make any
significant changes in, nor take any corrective actions regarding, the Company's
internal controls or other factors that could significantly affect these
controls. Penn Traffic periodically reviews its internal controls for
effectiveness and plans to conduct an evaluation of its disclosure controls and
procedures each quarter. In addition, the Company's Audit Committee had made
certain recommendations with respect to the Company's internal controls as a
result of its investigation of the false accounting entries at the Company's
Penny Curtiss bakery manufacturing subsidiary and the resulting investigation by
independent legal counsel and KPMG LLP. The Company began implementing these
recommendations during the current fiscal quarter.
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PART II. OTHER INFORMATION
All items which are not applicable or to which the answer is negative have
been omitted from this report.
ITEM 1. LEGAL PROCEEDINGS.
On May 10, 2001, The Grand Union Company ("Grand Union") instituted an
Adversary Proceeding in the United States Bankruptcy Court for the District of
New Jersey alleging Penn Traffic defaulted as purchaser under the Court-ordered
bankruptcy sale of Grand Union's Plattsburgh, New York store. On August 7, 2002,
the bankruptcy court denied Penn Traffic's motion for summary judgment
dismissing the adversary proceeding of Grand Union to enforce the Company's
purported agreement to buy the Plattsburgh, New York store and granted Grand
Union's motion for partial summary judgment against Penn Traffic as to liability
in respect of such purported agreement. On August 16, 2002, Penn Traffic filed a
notice of appeal with respect to this judgment with the United States District
Court of New Jersey. While Penn Traffic believes that its appeal is meritorious,
it is not able to predict the amount, if any, of Grand Union's damages in the
event the appeal is unsuccessful.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following are filed as Exhibits to this Report:
Exhibit No. Description
- ----------- -----------
10.8D Waiver and Forbearance Agreement by and among Penn Traffic, certain
of its subsidiaries, Fleet Capital Corporation and the lenders
party thereto (incorporated by reference to Exhibit 99.1 to Form
8-K filed on August 30, 2002).
10.8E Amendment No. 4. to the Revolving Credit and Term Loan Agreement by
and among Penn Traffic, certain of its subsidiaries, Fleet Capital
Corporation and the lenders party there to (incorporated by
reference to Exhibit 99.1 to Form 8-K filed on October 31, 2002).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Forms 8-K
1. Form 8-K dated August 8, 2002 was filed pursuant to Item 5 and Item 7 on
August 8, 2002 attaching a press release reporting on the false
accounting entries at the Company's Penny Curtiss bakery manufacturing
subsidiary.
2. Form 8-K dated August 14, 2002 was filed pursuant to Item 5 and Item 7
on August 16, 2002 reporting on and including an interim bank waiver.
3. Form 8-K dated August 29, 2002 was filed pursuant to Item 5 and Item 7
on August 30, 2002 reporting on and including an interim bank waiver.
4. Form 8-K dated October 23, 2002 was filed pursuant to Item 5 and Item 7
on October 23, 2002 attaching a press release announcing the election of
three new board members to fill vacancies created by the retirement of
three former board members.
5. Form 8-K dated October 31, 2002 was filed pursuant to Item 5 and Item 7
on October 31, 2002 reporting on and including an amendment to the
Company's Bank Credit Facility.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PENN TRAFFIC COMPANY
December 17, 2002 /s/- Joseph V. Fisher
------------------------------------
By: Joseph V. Fisher
President and Chief Executive Officer
December 17, 2002 /s/- Martin A. Fox
------------------------------------
By: Martin A. Fox
Executive Vice President and
Chief Financial Officer
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CERTIFICATION
I, Joseph V. Fisher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Penn Traffic
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 17, 2002
/s/ Joseph V. Fisher
- --------------------
Joseph V. Fisher
President and Chief
Executive Officer
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CERTIFICATION
I, Martin A. Fox, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Penn Traffic
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 17, 2002
/s/ Martin A. Fox
- -----------------
Martin A. Fox
Executive Vice President and
Chief Financial Officer
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Exhibit Index
Exhibit No. Description
- ----------- -----------
10.8D Waiver and Forbearance Agreement by and among Penn Traffic, certain
of its subsidiaries, Fleet Capital Corporation and the lenders
party thereto (incorporated by reference to Exhibit 99.1 to Form
8-K filed on August 30, 2002).
10.8E Amendment No. 4. to the Revolving Credit and Term Loan Agreement by
and among Penn Traffic, certain of its subsidiaries, Fleet Capital
Corporation and the lenders party there to (incorporated by
reference to Exhibit 99.1 to Form 8-K filed on October 31, 2002).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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