**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**x****  QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended April 30, 2005**

 

**OR**

 

**o**** 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 PENNTRAFFIC COMPANY**

(Exact name of registrant asspecified 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) |

 

Securitiesregistered pursuant to Section 12(b) of the Act:  **None**

 
| Securities  registered pursuant to Section 12(g) of the Act: |   | **Common  Stock, $.01 par value** |
|------------------------------------------------------------------------|--------|-----------------------------------|

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days. YES  o      NO x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large  accelerated filer o                                            |   | Accelerated  filer o         |
|-----------------------------------------------------------------------|--------|------------------------------|
| Non-accelerated  filer x(Do not check if a smaller reporting company) |   | Smaller  reporting company o |

 

Indicatedby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  YES o     NO x

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court. YES  o     NO  x

 

CommonStock, par value $.01 per share: 8,336,192 shares outstanding as of April 3,2008

 

 

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**FORM 10-Q INDEX**

 
| ** **        | ** **     | ** **                                                                                  | **PAGE** |
|-------------------|----------------|---------------------------------------------------------------------------------------------|----------|
| **PART I.**  |           | **FINANCIAL  INFORMATION**                                                                  |     |
|              |           |                                                                                        |     |
| Item              |   1. | Financial Statements                                                                        | 4        |
|              |           |                                                                                        |     |
| Item              |   2. | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 15       |
|              |           |                                                                                        |     |
| Item              |   3. | Quantitative and Qualitative Disclosures  About Market Risk                                 | 20       |
|              |           |                                                                                        |     |
| Item              |   4. | Controls and Procedures                                                                     | 20       |
|              |           |                                                                                        |     |
| **PART II.** |           | **OTHER INFORMATION**                                                                       |     |
|              |           |                                                                                        |     |
| Item              |   1. | Legal Proceedings                                                                           | 21       |
|              |           |                                                                                        |     |
| Item              | 1A.            | Risk Factors                                                                                | 21       |
|              |           |                                                                                        |     |
| Item              |   6. | Exhibits                                                                                    | 22       |

 

2

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**SPECIAL NOTE REGARDING FORWARD-LOOKINGSTATEMENTS**

 

Certain statements included in this Form 10-Q, including withoutlimitation, statements included in Item 2 - “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” which are notstatements of historical fact, are intended to be, and are hereby identifiedas, “forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995, as amended, reflecting management’s currentanalysis and expectations, based on what management believes to be reasonableassumptions.  These forward-lookingstatements include statements relating to our anticipated financial performanceand business prospects.  Statementspreceded by, followed by or that include words such as “believe,” “anticipate,”“estimate,” “expect,” “could,” and other similar expressions are to beconsidered such forward-looking statements. Forward-looking statements may involve known and unknown risks,uncertainties and other factors, which may cause the actual results to differmaterially from those projected, stated or implied, depending on such factorsas: our ability to improve operating performance and effectuate business plans;our ability to operate pursuant to the terms of our credit facilities and tocomply with the terms of our lending agreements or to amend or modify the termsof such agreements as may be needed from time to time; our ability to generatecash; our ability to attract and maintain adequate capital; our ability torefinance our indebtedness; increases in prevailing interest rates; our abilityto obtain trade credit, and shipments and terms with vendors and serviceproviders for current orders; our ability to maintain contracts that are criticalto our operations; potential adverse developments with respect to our liquidityor results of operations; general economic and business conditions;competition, including increased capital investment and promotional activity byour competitors; availability, location and terms of sites for storedevelopment; the successful implementation of our capital expenditure program;labor relations; labor and employee benefit costs including increases in healthcare and pension costs and the level of contributions to our sponsored pensionplans; the result of our pursuit of strategic alternatives; economic andcompetitive uncertainties; our ability to pursue strategic alternatives;economic and competitive uncertainties; changes in strategies; changes ingenerally accepted accounting principles; adverse changes in economic andpolitical climates around the world, including terrorist activities andinternational hostilities; and the outcome of pending, or the commencement ofany new, legal proceedings against, or governmental investigations of us,including the previously announced SEC and U.S. Attorney’s Officeinvestigations.  We caution that theforegoing list of important factors is not exhaustive.  Accordingly, there can be no assurance thatwe will meet future results, performance or achievements expressed or impliedby such forward-looking statements, which are generally required to be publiclyrevised as circumstances change, and which we do not intend to update.

 

**EXPLANATORYNOTE**

 

ThisQuarterly Report on Form 10-Q is for the period beginning April 17,2005 and ending April 30, 2005 and, except as expressly indicatedotherwise, information in this report speaks as of such date.  As discussed further in this report, weemerged from Chapter 11 bankruptcy reorganization effective April 13,2005.  Although April 13, 2005 wasthe effective date of the Plan, the Company chose April 16, 2005 asthe effective date for accounting purposes to adopt fresh-start reportingbecause of the proximity of that date to the end of an accounting period.  Applying fresh-start reporting as of April 16, 2005rather than the actual effective date of April 13, 2005 did not have amaterial effect on the financial condition or results of operations of theCompany.

 

3

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**PART I**

 

**ITEM 1.****         ****Financial Statements**

 

The PennTraffic Company

Condensed Consolidated Balance Sheets

As of April 30, 2005 and April 16,2005

(In thousands, except share and per sharedata)

(unaudited)

 
| ** **                                                                                               | ** ** | **April 30,** | ** ** | **April 16,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                                                               | ** ** | **2005**           | ** ** | **2005**           | ** ** |
| ** **                                                                                               | ** ** | ** **         | ** ** | **(Note 1)**       | ** ** |
| ** **                                                                                               | ** ** | ** **         | ** ** | ** **         | ** ** |
| **ASSETS**                                                                                               | ** ** | ** **         | ** ** | ** **         | ** ** |
| ** **                                                                                               | ** ** | ** **         | ** ** | ** **         | ** ** |
| **Current Assets:**                                                                                      | ** ** | ** **         | ** ** | ** **         | ** ** |
| Cash                                                                                                     |       | $                  | 40,181     |               | $          | 29,304 |   |
| Accounts and notes receivable (less  allowance for doubtful accounts of $3,279 and $3,243, respectively) |       | 34,751             |       | 40,416             |       |
| Inventories                                                                                              |       | 116,245            |       | 116,518            |       |
| Prepaid expenses and other current assets                                                                |       | 7,888              |       | 11,433             |       |
|                                                                                                     |       | 199,065            |       | 197,671            |       |
|                                                                                                     |       |               |       |               |       |
| **Capital Leases, net**                                                                                  |       | 11,959             |       | 12,023             |       |
|                                                                                                     |       |               |       |               |       |
| **Fixed Assets, net**                                                                                    |       | 102,739            |       | 103,406            |       |
|                                                                                                     |       |               |       |               |       |
| **Other Assets:**                                                                                        | ** ** | ** **         | ** ** | ** **         | ** ** |
| Intangible assets                                                                                        |       | 39,400             |       | 39,612             |       |
| Other assets                                                                                             |       | 6,840              |       | 6,845              |       |
|                                                                                                     |       | 46,240             |       | 46,457             |       |
|                                                                                                     |       |               |       |               |       |
| **Total Assets**                                                                                         |       | $                  | 360,003    |               | $          | 359,557 |   |

 

The accompanying notes are an integral part of these statements.

 

4

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| ** **                                                                                                            | ** ** | **April 30,** | ** ** | **April 16,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                                                                            | ** ** | **2005**           | ** ** | **2005**           | ** ** |
| ** **                                                                                                            | ** ** | ** **         | ** ** | **(Note 1)**       | ** ** |
| ** **                                                                                                            | ** ** | ** **         | ** ** | ** **         | ** ** |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                        | ** ** | ** **         | ** ** | ** **         | ** ** |
| ** **                                                                                                            | ** ** | ** **         | ** ** | ** **         | ** ** |
| **Current Liabilities:**                                                                                              | ** ** | ** **         | ** ** | ** **         | ** ** |
| Current portion of obligations under  capital leases                                                                  |       | $                  | 1,200      |               | $          | 1,200 |   |
| Current maturities of long-term debt                                                                                  |       | 254                |       | 254                |       |
| Accounts payable                                                                                                      |       | 40,300             |       | 35,075             |       |
| Other current liabilities                                                                                             |       | 52,500             |       | 58,576             |       |
| Accrued interest expense                                                                                              |       | 506                |       | 554                |       |
| Deferred income taxes                                                                                                 |       | 8,618              |       | 8,857              |       |
| Liabilities subject to compromise (Note 4)                                                                            |       | 8,497              |       | 8,497              |       |
|                                                                                                                  |       | 111,875            |       | 113,013            |       |
|                                                                                                                  |       |               |       |               |       |
| **Non-current Liabilities:**                                                                                          | ** ** | ** **         | ** ** | ** **         | ** ** |
| Obligations under capital leases                                                                                      |       | 13,425             |       | 13,425             |       |
| Long-term debt                                                                                                        |       | 40,588             |       | 37,967             |       |
| Deferred income taxes                                                                                                 |       | 5,117              |       | 5,142              |       |
| Defined benefit  pension plan liability (Note 5)                                                                      |       | 39,943             |       | 39,959             |       |
| Other non-current  liabilities                                                                                        |       | 31,355             |       | 31,473             |       |
|                                                                                                                  |       | 130,428            |       | 127,966            |       |
|                                                                                                                  |       |               |       |               |       |
| **Total Liabilities**                                                                                                 |       | 242,303            |       | 240,979            |       |
|                                                                                                                  |       |               |       |               |       |
| **Commitments and Contingencies (Notes 4 and  6)**                                                                    | ** ** | ** **         | ** ** | ** **         | ** ** |
| ** **                                                                                                            | ** ** | ** **         | ** ** | ** **         | ** ** |
| **Stockholders’ Equity:**                                                                                        | ** ** | ** **         | ** ** | ** **         | ** ** |
| Preferred stock - authorized 1,000,000  shares,$.01 par value; none issued                                            |       | —             |       | —             |       |
| Common stock - authorized 15,000,000  shares, $.01 par value; issued and to be issued 8,498,752 shares at both  dates |       | 85                 |       | 85                 |       |
| Capital in excess of par value                                                                                        |       | 118,493            |       | 118,493            |       |
| Deficit                                                                                                               |       | (878               | )          | —             |       |
| **Total stockholders’ equity**                                                                                   |       | 117,700            |       | 118,578            |       |
|                                                                                                                  |       |               |       |               |       |
| **Total Liabilities and Stockholders’ Equity**                                                                   |       | $                  | 360,003    |               | $          | 359,557 |   |

 

The accompanying notes are an integral part of these statements.

 

5

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The Penn Traffic Company

Condensed Consolidated Statement ofOperations

For the Period from April 17, 2005 to April 30,2005

(In thousands, except share and per sharedata)

(unaudited)

 
| **Revenues**                                         |       | $          | 46,065     |   |
|------------------------------------------------------|------------|------------|------------|--------|
|                                                 |       |       |       |
| **Cost and  Operating Expenses:**                    | ** ** | ** ** | ** ** |
| Cost of sales                                        |       | 35,954     |       |
| Selling and administrative expenses                  |       | 10,924     |       |
|                                                 |       |       |       |
| **Operating  Loss**                                  |       | (813       | )          |
|                                                 |       |       |       |
| Interest expense                                     |       | 255        |       |
|                                                 |       |       |       |
| **Loss  Before Income Taxes**                        |       | (1,068     | )          |
|                                                 |       |       |       |
| Income tax benefit                                   |       | (190       | )          |
| ** **                                           | ** ** | ** ** | ** ** |
| **Net Loss**                                         |       | $          | (878       | )      |
|                                                 |       |       |       |
| Shares  outstanding and to be issued                 |       | 8,498,752  |       |
|                                                 |       |       |       |
| **Net Loss  Per Share (Basic and Diluted) (Note 3)** |       | $          | (0.10      | )      |

 

The accompanying notes are an integral part of these statements.

 

6

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The Penn Traffic Company

Condensed Consolidated Statement of CashFlows

For the Period from April 17, 2005 to April 30,2005

(In thousands)

(unaudited)

 
| **Operating  Activities:**                                                       | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------|------------|------------|------------|
| Net loss                                                                         |       | $          | (878       | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |       |       |       |
| Depreciation and amortization                                                    |       | 1,192      |       |
| Deferred income taxes                                                            |       | (264       | )          |
| ** **                                                                       | ** ** | ** ** | ** ** |
| **Net  change in operating assets and liabilities:**                             | ** ** | ** ** | ** ** |
| Accounts and notes receivable, net                                               |       | 5,665      |       |
| Prepaid expenses and other current assets                                        |       | 3,545      |       |
| Inventories                                                                      |       | 273        |       |
| Accounts payable and other current  liabilities                                  |       | (899       | )          |
| Other assets                                                                     |       | 5          |       |
| Other noncurrent liabilities                                                     |       | (16        | )          |
| Defined benefit pension plan                                                     |       | (16        | )          |
|                                                                             |       |       |       |
| **Net Cash  Provided by Operating Activities**                                   |       | 8,607      |       |
|                                                                             |       |       |       |
| **Investing  Activities:**                                                       | ** ** | ** ** | ** ** |
| Capital expenditures                                                             |       | (351       | )          |
|                                                                             |       |       |       |
| **Net Cash  Used in Investing Activities**                                       |       | (351       | )          |
|                                                                             |       |       |       |
| **Financing  Activities:**                                                       | ** ** | ** ** | ** ** |
| Payments of mortgages                                                            |       | (15        | )          |
| Net borrowings  under revolving credit facility                                  |       | 2,636      |       |
|                                                                             |       |       |       |
| **Net Cash Provided by Financing Activities**                                    |       | 2,621      |       |
|                                                                             |       |       |       |
| **Net increase in cash**                                                         |       | 10,877     |       |
|                                                                             |       |       |       |
| **Cash at the beginning of period**                                              |       | 29,304     |       |
|                                                                             |       |       |       |
| **Cash at end of period**                                                        |       | $          | 40,181     |   |

 

The accompanying notes are an integral part of these statements.

 

7

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The Penn Traffic Company

Condensed Consolidated Statement ofStockholders’ Equity

For the Period from April 17, 2005 to April 30,2005

(In thousands)

(unaudited)

 
| ** **                                                           | ** ** | **Common  Stock** | ** ** | **Capital in  Excess of  Par Value** | ** ** | **Deficit** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|----------------------------------------------------------------------|------------|-------------------|------------|-----------------------------------------------------|------------|-------------|------------|---------------------------------------|------------|
|                                                                 |       |              |       |                                                |       |        |       |                                  |       |
| Common stock to be issued in connection  with plan of reorganization |       | $                 | 85         |                                                | $          | 118,493     |       | $                                     | 0          |   | $ | 118,578 |   |
|                                                                 |       |              |       |                                                |       |        |       |                                  |       |
| Net loss for the 2-week period ended April 30,  2005            |       |              |       |                                                |       | (878        | )          | (878                                  | )          |
|                                                                 |       |              |       |                                                |       |        |       |                                  |       |
| Balance at April 30, 2005                                       |       | $                 | 85         |                                                | $          | 118,493     |       | $                                     | (878       | ) | $ | 117,700 |   |

 

8

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ThePenn Traffic Company

Notesto Condensed Consolidated Financial Statements

 

**Note 1 – Basis of Presentation**

 

The accompanying unauditedcondensed consolidated financial statements of The Penn Traffic Company andsubsidiaries (the “Company”) have been prepared in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information and the instructions to Form 10-Q and Article 10of Regulation S-X.  Accordingly, they donot include all the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements.

 

In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  Operating results for the interim periodended April 30, 2005 are not necessarily an indication of results that maybe expected for the fiscal year ended January 28, 2006.  For further information, refer to the auditedconsolidated financial statement and footnotes thereto included in the Company’sannual report on Form 10-K for the fiscal year ended January 28,2006.

 

The balance sheet as of April 16,2005 has been derived from the audited consolidated financial statements as ofsuch date, but does not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements.

 

The Company’s fiscal yearends 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 Note 2), to January 28,2006.  The information presented in thisquarterly report on Form 10-Q is for the two-week period beginning April 17,2005 and ending April 30, 2005.

 

Allsignificant intercompany transactions and accounts have been eliminated inconsolidation.

 

**Note 2 – Voluntary Bankruptcy Filing and Reorganization**

 

OnMay 30, 2003, The Penn Traffic Company and all of its subsidiaries filedvoluntary petitions under Chapter 11 of the United States Bankruptcy Codein the United States Bankruptcy Court for the Southern District of NewYork.  The filing was made in response topending defaults under the Company’s then-existing loan agreements and a lackof liquidity to continue operations. Under Chapter 11, the Company continued to operate its businesses asdebtor-in-possession under court protection from its creditors and claimants,while using the Chapter 11 process to substantially reduce its debt obligationsand implement a plan of reorganization.

 

OnFebruary 2, 2005, the Company filed the First Amended Joint Plan ofReorganization (the “Plan”) with the bankruptcy court.  The Plan was confirmed on March 17, 2005and became effective on April 13, 2005 (the “Effective Date”).

 

9

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Pursuantto the terms of the Plan, the following transactions occurred on or around theEffective Date:

 

1.   The Companyentered into new credit agreements providing for borrowings of up to$164 million.  Proceeds from thesenew credit agreements provided funds sufficient to repay a debtor-in-possessioncredit facility and all administrative and priority claims to the extentprovided for in the Plan.

 

2.   The Companysold and leased back its five owned distribution facilities for a sales priceof approximately $37 million.

 

3.   All shares ofcommon stock and all stock options and warrants outstanding prior to theconfirmation of the Plan were cancelled and the holders of such equitysecurities received no distributions under the Plan.

 

4.   The reorganizedCompany was authorized to issue new shares of common stock to unsecuredcreditors, which included holders of $100 million of senior notes, a claimby the Pension Benefit Guaranty Corporation (“PBGC”) of $60 million andtrade claims, all of whom were eligible to receive pro rata distributions ofnew shares of common stock and the right to share in potential proceeds fromcertain causes of action.

 

Theaccompanying condensed consolidated financial statements as of April 16,2005 and April 30, 2005, and for the fiscal period from April 17,2005 to April 30, 2005, have been prepared in accordance with theprovisions of Statement of Position 90-7 “Financial Reporting by Entities inReorganization Under the Bankruptcy Code” (“SOP 90-7”) issued by the AmericanInstitute of Certified Public Accountants. Pursuant to the provisions of SOP 90-7, upon emergence from Chapter 11proceedings, the Company adopted fresh-start reporting which resulted in a newreporting entity and a new basis of accounting.

 

AlthoughApril 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-startreporting because of the proximity of that date to the end of an accountingperiod.  Applying fresh-start reportingas 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 ofoperations of the Company.

 

Thereorganization value of the Company upon emergence from the Chapter 11proceedings was approximately $195 million.  The reorganization value represents the debtand equity value of the Company as of the effective date.  Such value, which was determined with theassistance of the Company’s financial advisors, was based upon variousvaluation methods, including discounted cash flow methodologies and analysis ofcomparable companies.  The equity valueof 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 undercapital leases and defined benefit pension plan liabilities, net of relateddeferred taxes.  In accordance withfresh-start reporting, all assets and liabilities were recorded at theirrespective fair values.  The fair valuesof the Company’s long-lived assets were determined, in part, using informationprovided by third-party appraisers.  Theexcess of the aggregate fair value of the Company’s tangible and identifiableintangible assets less non-interest bearing liabilities over the totalreorganization value of approximately $31.7 million has been recorded as apro rata reduction of non-current assets.

 

10

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**Note 3 –Per Share Data**

 

Basicand diluted net loss per share is based on the number of common shares issuedand estimated to be issued pursuant to the Plan.  Common shares issued and estimated to beissued in settlement of claims filed in the Company’s Chapter 11 proceeding aretreated as outstanding as of the effective date of the Plan.  At April 30, 2005, common shares of201,055 are estimated to be issued in connection with the settlement of remainingclaims.

 

**Note 4 –Liabilities Subject to Compromise**

 

Inconnection with the Chapter 11 proceeding, there are two pending mattersinvolving 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 andfor reserves to pay future claims arising from existing injuries.  The OBWC has also filed claims aggregating $1.8 millionfor alleged non-payment of post-petition premiums and for reserves to payfuture claims arising from existing injuries. The Company disputes the amounts of the claims, and is attempting tonegotiate a settlement.

 

Inanother matter, a claimant has filed a priority claim allegedly arising underan 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 claimand is defending against it.

 

Duringthe two-week period ended April 30, 2005, the Company made no payments insettlement of disputed claims.  TheCompany has established liabilities for the estimated cash payments required tosettle the remaining claims outstanding in the Chapter 11 proceedings.  Estimated shares of common stock to be issuedin settlement of claims have been accounted for as stockholders’ equity.

 

11

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**Note 5 –Pension Plans**

 

TheCompany has four noncontributory defined benefit pension plans covering certainunion personnel.  The Company’s policy isto fund pension benefits to the extent contributions are deductible for taxpurposes and in compliance with federal laws and regulations.

 

Thecomponents of net periodic benefit cost for the two-week period ended April 30,2005 is as follows (in thousands):

 
| Service cost                   |   | $      | 72     |   |
|--------------------------------|--------|--------|--------|--------|
| Interest cost                  |   | 212    |   |
| Expected return on plan assets |   | (194   | )      |
|                           |   |   |   |
|                           |   | $      | 90     |   |

 

Forthe two-week period ended April 30, 2005, the Company did not make any contributionsto the four defined benefit plans.

 

**Note 6 –Commitments and Contingencies**

 

TheUnited States Attorney for the Northern District of New York and the Securitiesand Exchange Commission have been conducting investigations relating to theCompany’s promotional allowance practices and policies.  Such investigations began prior to theCompany’s emergence from bankruptcy in April 2005.  The Company has been cooperating with theseinvestigations and has produced documents and made Company employees availablefor interviews as requested.  The Companyunderstands that these investigations are ongoing.

 

OnJune 1, 2006, the Company announced that the Audit Committee of the Boardof Directors had completed its internal investigation of the Company’s promotionalallowance practices.  The Audit Committeehired independent counsel to perform the investigation.  The Audit Committee found that the Companyhad engaged in certain improper practices principally relating to the prematurerecognition of promotional allowances and that these practices had largelyceased by the time of the Company’s Chapter 11 filing in May 2003.  On February 3, 2006, the Companyannounced that the employment of the Company’s Chief Marketing Officer and theCompany’s Vice President, Non-Perishables Marketing had been terminatedfollowing an interim report to the Audit Committee on the findings of theinvestigation.

 

On September 17, 2007, the SEC filed civil fraud charges againstthe Company’s former Chief Marketing Officer and former Vice-President,Non-Perishables Marketing alleging that such individuals orchestrated a schemeto inflate the Company’s income and other financial results by prematurelyrecognizing promotional allowances received from vendors from approximately thesecond quarter of fiscal year 2001 through at least the fourth quarter offiscal year 2003. The complaint further alleges that the individuals deceivedthe Company’s accounting personnel to carry out their fraudulent scheme andaided and abetted violations of the Securities Exchange Act of 1934 and rules thereunder.In addition, on the same date, the United States Attorney for the Northern 

 

12

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District of New York announced that a federal grand jury has returnedan indictment against the abovementioned individuals on related criminalcharges. Both the SEC and the United States Attorney indicated that theirinvestigations are continuing.

 

Inconnection with these matters, the Company could be subject to damage claims,fines or penalties.  At present, theCompany is unable to estimate the likelihood of an unfavorable outcome or theamount of any damage claims, fines or penalties in the event of an unfavorableoutcome and, accordingly, no liability has been recorded for this contingency.

 

**Note 7 –Segment Information**

 

TheCompany operates in two segments – the retail food business and the wholesalefood distribution business.  At April 30,2005, the retail food business consists of supermarkets which the Companyoperates.  The wholesale fooddistribution business supplies independent supermarkets and other independentwholesale accounts with food, related products, and other services.  The Company has allocated warehouse andtransportation costs based on each segment’s percentage of total shipments.

 

Thetable below presents information with respect to operating segments as well asreconciliations to consolidated information (in thousands).

 
| ** **                                                    | ** ** | **Retail Food** | ** ** | **Wholesale  Food Distribution** | ** ** | **Reconciling  Items** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|----------------------------------|------------|------------------------|------------|-----------|------------|
|                                                          |       |                 |       |                             |       |                   |       |      |       |
| Revenues                                                      |       | $                    | 37,457     |                             | $          | 7,753                  |       | $         | 855        | (1) | $ | 46,065 |   |
|                                                          |       |                 |       |                             |       |                   |       |      |       |
| Cost of sales                                                 |       | (27,637              | )          | (7,584                           | )          | (591                   | )(2)       | (35,812   | )(4)       |
| Selling and administrative expense                            |       | (8,349               | )          | (248                             | )          | (1,277                 | )(3)       | (9,874    | )(4)       |
|                                                          |       |                 |       |                             |       |                   |       |      |       |
| Operating income (loss) before depreciation and amortization  |       | 1,471                |       | (79                              | )          | (1,013                 | )          | 379       |       |
|                                                          |       |                 |       |                             |       |                   |       |      |       |
| Depreciation and amortization                                 |       | (1,128               | )          | (61                              | )          | (3                     | )          | (1,192    | )          |
| Operating income (loss)                                       |       | $                    | 343        |                             | $          | (140                   | )          | $         | (1,016     | ) | (813 | ) |
| Interest expense                                              |       |                 |       |                             |       |                   |       | (255      | )          |
|                                                          |       |                 |       |                             |       |                   |       |      |       |
| Consolidated loss before income taxes                         |       |                 |       |                             |       |                   |       | $         | (1,068     | ) |
|                                                          |       |                 |       |                             |       |                   |       |      |       |
| Total assets as of April 30, 2005                        |       | $                    | 317,380    | (5)                              | $          | 25,965                 | (5)        | $         | 16,658     | (6) | $ | 360,003 |   |
|                                                          |       |                 |       |                             |       |                   |       |      |       |
| Capital expenditures for the period ended April 30, 2005 |       | $                    | 285        |                             | $          | —                 |       | $         | 66         |   | $ | 351 |   |

 

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(1)       Consistsprincipally of approximately $0.5 million for bakery sales to customersother than those of the retail and wholesale segments and approximately$0.3 million for trucking revenues.

 

(2)       Consistsprincipally of approximately $0.5 million for bakery sales andapproximately $0.1 million increase in cost of sales to reconcile segmentinventories on FIFO to consolidated inventories on LIFO.

 

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(3)       Consistsprincipally of approximately $1.0 million of payroll, benefits, andpayroll taxes associated with the administrative staff and approximately$0.1 million of contract hauling costs associated with trucking revenue.

 

(4)       Excludesdepreciation and amortization of $0.1 million for cost of sales and$1.1 million for selling and administrative expenses.

 

(5)       The warehouseand transportation assets have been allocated using the same methodology thatwas used for the warehouse and transportation costs.

 

(6)       Consistsprincipally of fixed assets and inventory of the bakery operation and generalcorporate assets.

 

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**ITEM 2.****         ****Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

**Overview**

 

As discussed in Note 2 tothe accompanying unaudited condensed consolidated financial statements, weemerged from Chapter 11 proceedings on April 13, 2005.  For financial reporting purposes, weaccounted for the consummation of our plan of reorganization as of the close ofbusiness on April 16, 2005.  Inaccordance with SOP 90-7, we have applied fresh-start reporting as of the closeof business on April 16, 2005, which has resulted in significantchanges to the valuation of certain of our assets and liabilities, and tostockholders’ equity.  In connection withthe adoption of fresh-start reporting, a new entity has been deemed to becreated for financial reporting purposes. The periods ended on or prior to April 16, 2005 have beendesignated “Predecessor Company” and the periods subsequent to April 16, 2005have been designated “Successor Company”. For purposes of the discussion of the unaudited Results of Operations,the activities of the Successor Company have been deemed noncomparable to thoseof the Predecessor Company and, accordingly, no comparison was done with thePredecessor Company.

 

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**Results of Operations**

 

Thefollowing table sets forth certain Consolidated Statement of Operationscomponents expressed as percentages of revenues for the 2-week period ended April 30,2005.

 
| ** **                          | ** ** | **Unaudited**           | ** ** |
|-------------------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **Successor   Company** | ** ** |
| ** **                          | ** ** | **2-Weeks**             | ** ** |
| ** **                          | ** ** | **Ended**               | ** ** |
| ** **                          | ** ** | **April 30, 2005** | ** ** |
|                                |       |                    |       |
| Revenues                            |       | 100.0                   | %          |
|                                |       |                    |       |
| Gross profit (1)                    |       | 21.9                    |       |
|                                |       |                    |       |
| Selling and administrative expenses |       | 23.7                    |       |
|                                |       |                    |       |
| Operating loss                      |       | (1.8                    | )          |
|                                |       |                    |       |
| Interest expense                    |       | 0.5                     |       |
|                                |       |                    |       |
| Income tax benefit                  |       | (0.4                    | )          |
|                                |       |                    |       |
| Net loss                            |       | (1.9                    | )          |

 

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(1)                                  Revenues lesscost of sales.

 

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**Analysisof the two-week period ended April 30, 2005**

 

**Revenues**

 

Revenuesfor the two-week period ended April 30, 2005 were $46.1 million and wereprimarily attributable to retail food revenues of $37.5 million and wholesalefood distribution revenues of $7.8 million.

 

**GrossProfit**

 

Grossprofit was $10.1 million, or 21.9% of revenues for the two-week period ended April 30, 2005.

 

**Sellingand Administrative Expenses**

 

Sellingand administrative expenses for the two-week period ended April 30, 2005were $10.9 million, or 23.7% of revenues.

 

**Depreciationand Amortization**

 

Depreciationand amortization expense was $1.2 million, or 2.6% of revenues for thetwo-week period ended April 30, 2005. Depreciation and amortization expense is higher in this period and isexpected to be higher in future periods primarily due to the shortening ofasset life for our property, equipment and machinery, an increase in carryingvalue of favorable leases and the addition of two new intangible assets(Pharmacy Scripts and Software) with the implementation of fresh-startreporting.  The increase in depreciationand amortization expense was partially offset by the amortization ofunfavorable leases associated with the implementation of fresh-start reporting.

 

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**Operating Loss**

 

Operatingloss for the two-week period ended April 30, 2005 was $0.8 million,or 1.8% of revenues.

 

**InterestExpense**

 

Interestexpense for the two-week period ended April 30, 2005 was$0.3 million, or 0.5% of revenues.

 

**IncomeTax Benefit**

 

Theincome tax benefit for the two-week period ended April 30, 2005 was $0.2million or 0.4% of revenues.  Currenttaxes consist of minimal state taxes and capital/franchise tax.

 

The Company had an effective income tax (benefit) rate of (17.8%) forthe two-week period ending April 30, 2005. Differences in the effectiveincome tax rate from the statutory federal income tax rate arise primarily fromstate taxes net of federal benefits and nondeductible expenses.

 

We believe prior net operating loss carryforwards are entirelyeliminated effective January 29, 2006 principally as a result of cancellationof debt in the Chapter 11 proceedings. We also estimate that the Company lost aportion of the tax basis of its long-lived assets, reducing the amount of taxdepreciation and amortization that the Company will be able to utilize on itsfuture tax returns.

 

**Net Loss**

 

Netloss for the two-week period ended April 30, 2005 was $0.9 million.

 

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**Liquidity and Capital Resources**

 

On April 16, 2005, upon emergence from Chapter 11 proceedings, theCompany entered into a revolving credit and term loan facility with a group offinancial institutions providing for a $130 million revolving creditfacility and a $6 million term loan. Also on April 16, 2005, the Company entered into a supplementalreal estate credit facility with another group of lenders, providing forborrowings of up to $28 million. Availability under both credit facilitiesis dependent on levels of accounts receivable, inventory and certain otherassets.  Interest rates on borrowingsunder the revolving credit facility vary depending upon the amount ofavailability.  At April 30, 2005,outstanding borrowings under both facilities aggregated $36 million andoutstanding letters of credit under the revolving credit facility amounted toapproximately $58 million. At such date, availability in excess ofoutstanding borrowings and letters of credit was approximately $57 million.Borrowings under the revolving credit and term loan facility are secured bysubstantially all the assets of the Company, subject to first liens on certainproperty by other lenders. Borrowings under the real estate facility aresecured by a first lien on substantially all leasehold interests of theCompany, and a second lien on realty owned by the Company.

 

Provisions of both credit facilities, among other things, require themaintenance of certain financial covenants (when availability under the creditfacilities is less than $35 million for four consecutive days or less than$30 million for any one day), and limit the amount of capitalexpenditures, the assumption of additional debt and the payment ofdividends.  At no time through April 30,2005 have we been subject to compliance with these financial covenants becausethe amount available for borrowing has not dropped to those levels. However,had such an event occurred, we would not have been in compliance with thefinancial covenants and would have been in default under the terms of the loanagreement at April 30, 2005. Pursuant to our plan of reorganization, we entered into a collateraltrust agreement with the collateral trustee in connection with the securedtrade lien program.  The secured tradelien program is with certain of our vendors and allows us to maintain tradeterms.

 

On December 26, 2006, August 1, 2007 and January 30,2008, both the revolving credit and term loan facility and the supplementalreal estate credit facility were amended to permit the disposal of assets inconnection with the closing of certain stores.

 

We also have $4.7 million of borrowings under mortgages secured by therelated properties as of April 30, 2005.

 

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**ITEM 3.****          QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUTMARKET RISK**

 

Our financial results are subject to risk from interest rate changes ondebt that has variable interest rates. Total variable rate debt outstandingunder our loan agreements at April 30, 2005 was $36.1 million with aweighted average interest rate of 8.52%. A 1% change in interest rates would impact annual pre-tax income by$0.4 million based on the debt outstanding at April 30, 2005.  In addition to the variable rate debt we had$4.7 million of fixed rate debt outstanding at April 30, 2005 with aweighted average interest rate of 7.82%. We view the fixed rate debt as a partial hedge against interest ratefluctuations which should minimize the potential impact on earnings frominterest rate changes.

 

**ITEM 4.****          CONTROLS AND PROCEDURES**

 

Disclosurecontrols and procedures under Rule 13a-15(e) of the SecuritiesExchange Act of 1934 (the “Exchange Act”) are those controls and otherprocedures of a company that are designed to ensure that information requiredto be disclosed by the company in the reports that it files or submits underthe Exchange Act is recorded, processed, summarized and reported, within thetime periods specified in the SEC’s rule and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by an issuer in the reports it files or submits underthe Exchange Act is accumulated and communicated to the issuer’s management,including its principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisionsregarding required disclosure.

 

Pursuant to Rule 13a-15(e) underthe Exchange Act, our management evaluated the effectiveness of the design and operationof our disclosure controls and procedures as of April 30, 2005 with theparticipation of our principal executive and principal financial officers. Ourcurrent President and Chief Executive Officer has been employed by us since July 2006but did not become our President and Chief Executive Officer until October 2007.Our Senior Vice President and Chief Financial Officer was not with us duringfiscal year 2006. Based on their current observations, combined withobservations by members of management, members of the audit committee andexternal counsel, management concluded that our disclosure controls andprocedures were ineffective as of April 30, 2005 in providing reasonableassurance that material information requiring disclosure was brought to management’sattention on a timely basis and that our financial reporting was reliable.

 

**Change in our Internal Control over Financial Reporting**

 

Managementdid not conduct an evaluation of the effectiveness of our internal control overfinancial reporting as of April 30, 2005.

 

InMay 2007, we hired an outside consulting firm to assist management in itsevaluation of the effectiveness of our internal controls over financialreporting, including disclosure controls and procedures.  We have since determined that we will use theframework established in “Internal Control-Integrated Framework”, issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

 

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**PART II– OTHER INFORMATION**

 

**ITEM 1.****          LEGAL PROCEEDINGS**

 

There have been no material changes to the legal proceedings disclosedin the Company’s Annual Report on Form 10-K for the year ended February 3,2007.

 

**ITEM 1A.****       RISKFACTORS**

 

There have been no material changes to the risk factors disclosed inthe Company’s Annual Report on Form 10-K for the year ended February 3,2007.

 

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## **ITEM 6.**          EXHIBITS

 

**Exhibits:**

 

The following are filed as Exhibits to this Report:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                           |
| 31.1                 |       | Certification of CEO  pursuant to Rule 13a-14(a) under the Securities Exchange Act of  1934, as amended.                                                                             |
|                 |       |                                                                                                                                                                                           |
| 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. |

 

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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 theundersigned thereunto duly authorized.

 

**THE PENN TRAFFIC COMPANY**

 
| Date: April 8, 2008 | By:                                                      | /s/ Gregory J. Young |
|--------------------------|----------------------------------------------------------|----------------------|
|                     | Name: Gregory J. Young                                   |
|                     | Title: Chief Executive Officer and President             |
|                     |                                                     |
|                     |                                                     |
| Date: April 8, 2008 | By:                                                      | /s/ Tod A. Nestor    |
|                     | Name: Tod A. Nestor                                      |
|                     | Title: Senior Vice President and Chief Financial Officer |

 

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