SYRACUSE, N.Y. - Some investors are growing impatient with Penn Traffic here.
A New York-based hedge fund has demanded Penn Traffic release its financial statements, hold a meeting of its shareholders and explain compensation arrangements for its executives. The request came after Penn Traffic again delayed delivery of its financial reports last month, citing an ongoing accounting investigation.
The demands were detailed in a letter mailed late last month to Penn Traffic's board of directors by Bay Harbour Management, a holder of 3.7% of the company's stock.
Penn Traffic, which emerged from Chapter 11 bankruptcy protection 16 months ago, has said an investigation of the company's promotional practices has delayed finalization of its financial reports for the 2003, 2004 and 2005 fiscal years.
Last month, the company said its lenders have approved an extension of the deadline to file the reports until Dec. 31. It has not released financial statements since a monthly operating report required by the bankruptcy court on Jan. 29, 2005; and quarterly results have not been published since December 2002, before the bankruptcy.
The delays are "completely inappropriate and unacceptable," according to the letter, which was signed by Kurt Cellar, a partner with Bay Harbour, and copied to the Securities and Exchange Commission.
Robert Chapman, Penn Traffic's chief executive officer, told SN last week that the company's attorneys have received the letter. "We will await their advisement," he said.
But according to Scott Sozio, an analyst with Bay Harbour, overly cautious advice is likely behind the delays.
"We are hopeful that management wants to communicate with their shareholders," Sozio told SN in an interview last week. "Our view is that their advisers are telling them that if nobody's complaining, it's just easier not to file anything.
"It's time someone took some action and prompted them."
The letter urges Penn Traffic to make all quarterly income statements and balance sheets available immediately, and to schedule a meeting of shareholders within the next 60 days during which the company presents a discussion of financial results and its outlook, and addresses the financial impact and status of the ongoing investigation.
The letter also asks Penn Traffic to address what it called an "outrageous" compensation package to recently named Senior Vice President Gregory Young, and demands details regarding a consultant contract with Robert Kelly, its chairman of the board. It also noted that Chapman and other executives have refused to return more than 30 phone calls.
The SEC and the office of the U.S. attorney general launched investigations of Penn Traffic's promotion and allowance practices last July. Penn Traffic is cooperating with the investigation. In June, the company said that its audit committee in an internal investigation concluded the company had engaged in certain improper practices but that those practices had "largely ceased" by the time it filed for Chapter 11 protection in May 2003.
The Bay Harbour letter includes examples of several companies that continued to report financial results while an accounting investigation was ongoing. "The company cannot and should not hide behind its prior accounting problems as an excuse to prevent current disclosure of current operating results that are not in any way affected by the old problems."
Attempts to reach several other Penn Traffic stockholders last week were unsuccessful. According to Sozio, however, "we know there are others who feel the same way."
Penn Traffic operates 112 supermarkets under the BiLo, P&C and Quality Food banners in New York, Pennsylvania, Vermont and New Hampshire, and serves as a wholesaler to licensees and independents. Annual sales were estimated to be $1.4 billion in 2005.
"We think the company is doing well and that the stock is undervalued," Sozio said. "We'd just like that proven out with the numbers."