$140,000,000
PAMIDA, INC.
11 3/4% Senior Subordinated Notes Due 2003
_______________
The 11 3/4% Senior Subordinated Notes due 2003 (the "Notes") offered
hereby were issued by Pamida, Inc., a Delaware corporation ("Pamida" or
the "Company"), in March 1993 pursuant to a registered public offering
(the "Original Offering") of $140,000,000 aggregate principal amount of
the Notes. Interest on the Notes is payable semi-annually on March 15 and
September 15 of each year, commencing September 15, 1993, at the rate of
111/2% per annum. The Notes are redeemable, in whole or in part, at the
option of the Company, on or after March 15, 1998, at the redemption
prices set forth herein plus accrued interest.
In the event of a Change of Control (as defined), the Company is obligated
to make an offer to purchase all outstanding Notes at a redemption price
of 101% of the principal amount thereof plus accrued interest. See
"Description of Notes--Change of Control." In addition, the Company is
obligated in certain instances to make offers to purchase Notes at a
redemption price of 100% of the principal amount thereof plus accrued
interest with the net cash proceeds of certain sales or other dispositions
of assets.
The Notes are general unsecured obligations of the Company, are
subordinated in right of payment to all Senior Indebtedness of the Company
(which is limited to indebtedness under the Company's Credit Agreement, as
defined) and rank pari passu with or senior in right of payment to all
other existing and future indebtedness of the Company. The Company has
not issued, and has no present plans or arrangements to issue, any
indebtedness with respect to which the Notes are or would be senior in
right of payment. As of January 28, 1996, approximately $31.6 million of
Senior Indebtedness (excluding letters of credit) was outstanding.
The Notes are unconditionally guaranteed (the "Guarantee") on a senior
subordinated basis by the Company's parent, Pamida Holdings Corporation
("Holdings"). The Guarantee is subordinated to the guarantee by Holdings
of the Company's obligations under the Credit Agreement but senior to the
subordinated indebtedness of Holdings. The Guarantee is secured by a
pledge of all of the common stock of the Company, which is the only
significant asset of Holdings. Such stock is also pledged to secure the
guarantee by Holdings of the Company's obligations under the Credit
Agreement. The pledge securing the guarantee by Holdings of the Company's
obligations under the Credit Agreement ranks prior to the pledge securing
the Guarantee. Holdings has no material operations of its own and
currently has no source of cash other than dividends and certain other
payments from the Company; accordingly, if Holdings were called upon to
honor the Guarantee, it is unlikely that it would have funds available for
such purpose.
See "Investment Considerations" for a discussion of certain risks
associated with an investment in the Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________
This prospectus is to be used by Citicorp Securities, Inc. ("CSI") in
connection with offers and sales of the Notes in market-making
transactions at negotiated prices related to prevailing market prices at
the time of sale. CSI or its affiliates may act as principal or agent in
such transactions.
_______________
Citicorp Securities, Inc.
_______________
The date of this Prospectus is May 14, 1996
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus in connection with the offer made by this Prospectus, and,
if given or made, such information or representations must not be relied
upon as having been authorized by the Company or Citicorp Securities, Inc.
This Prospectus does not constitute an offer to sell or the solicitation
of any offer to buy any security other than the Senior Subordinated Notes
offered by this Prospectus, nor does it constitute an offer to sell or a
solicitation of any offer to buy the Senior Subordinated Notes by anyone
in any jurisdiction in which such offer or solicitation is not authorized,
or in which the person making such offer or solicitation is not qualified
to do so, or to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date
hereof.
_______________
TABLE OF CONTENTS
Available Information 1
Incorporation of Certain Documents by Reference2
Investment Considerations 3
The Company and Holdings 8
Ratio of Earnings to Fixed Charges 10
Use of Proceeds 10
Description of Notes 10
Description of Certain Indebtedness 39
Plan of Distribution 41
Legal Matters 42
Experts 42
Prospectus Appendix 43
AVAILABLE INFORMATION
Holdings and Pamida are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports (and, in
the case of Holdings, proxy and information statements) and other
information filed by Holdings or Pamida with the Commission pursuant to
the informational requirements of the Exchange Act may be inspected
without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may
be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Reports, proxy statements and other information can
also be inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York 10006, on which exchange the Common
Stock of Holdings is listed.
The Company and Holdings have filed with the Commission a registration
statement (the "Registration Statement") under the Securities Act of 1933,
as amended, with respect to the Notes offered hereby and the Guarantee.
This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further
information, reference is hereby made to the Registration Statement, which
may be obtained from the Public Reference Section of the Commission at the
address set forth above. Statements contained in this Prospectus
regarding the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy
of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Indenture relating to the Notes requires the Company to file periodic
reports and other information pursuant to the informational requirements
of the Exchange Act referred to above, regardless of the number of persons
holding Notes.
The Company will furnish holders of the Notes with annual audited
financial statements certified by an independent public accounting firm
and quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year. The Company also will furnish
such other reports as it may determine to be appropriate or as may be
required by law. Both the Company and Holdings maintain their principal
executive offices at 8800 "F" Street, Omaha, Nebraska 68127 (telephone
(402) 339-2400).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company and by
Holdings pursuant to the Exchange Act are incorporated herein by
reference:
1. The Annual Report of the Company on Form 10-K for the fiscal year
ended January 28, 1996.
2. The Annual Report of Holdings on Form 10-K for the fiscal year ended
January 28, 1996.
Each of the above-referenced documents is included in the appendix (the
"Prospectus Appendix") which forms a part of this prospectus and is being
delivered to each recipient of this prospectus.
All other reports filed by the Company or Holdings pursuant to the
Exchange Act since the filing of their respective Form 10-K for the fiscal
year ended January 28, 1996, also are incorporated herein by this
reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
_______________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
INVESTMENT CONSIDERATIONS
Prospective purchasers of the Notes should consider the factors set forth
below, as well as all other information contained in this Prospectus, in
evaluating an investment in the Notes.
High Leverage; Liquidity
Pamida is highly leveraged. At January 28, 1996, Pamida had consolidated
indebtedness of approximately $211.7 million as compared to a common
stockholder's deficit of approximately ($61.2) million.
Pamida will require substantial cash flow to meet its interest and
principal repayment obligations under the Notes, the Credit Agreement (as
defined) and its other debt obligations. See "Description of Notes" and
"Description of Certain Indebtedness." For the fiscal year ended
January 28, 1996, Pamida had an excess of fixed charges over earnings of
$98,939,000, and Holdings' had an excess of fixed charges over earnings of
$103,393,000. See "Ratio of Earnings to Fixed Charges."
In the past, Pamida has relied upon funds from operations and borrowings
under its bank credit facilities to fund its business activities and meet
its debt service obligations. The ability of Pamida to make principal and
interest payments on the Notes and its other debt obligations will be
dependent largely upon the results of Pamida's future business operations.
Pamida's business operations are subject to and affected by economic
conditions and other factors, many of which are beyond its control. The
highly leveraged position of Pamida and the restrictive covenants
contained in the Indenture and in the instruments governing its other debt
obligations could limit Pamida's ability to withstand competitive
pressures or adverse economic conditions.
Ranking
The Notes are general unsecured obligations of the Company and
subordinated in right of payment to all Senior Indebtedness of the Company
(which is limited to indebtedness under the Credit Agreement, as defined).
As of January 28, 1996, approximately $31.6 million of Senior Indebtedness
(excluding letters of credit) was outstanding.
The Company's indebtedness under the Credit Agreement is secured by all of
the Company's current assets (including inventory) and by liens on certain
real estate interests and other property of the Company, and the Company
may grant security interests in or liens on its other assets and property
to further secure its obligations under the Credit Agreement.
The Guarantee of the Notes by Holdings is subordinated in right of payment
to the guarantee by Holdings of the obligations of the Company under the
Credit Agreement. See "Description of Notes -- Guarantee and Pledge
Agreement." The Guarantee of the Notes is secured by a pledge of all of
the common stock of the Company; however, the guarantee by Holdings of the
obligations of the Company under the Credit Agreement is secured by a
first and prior security interest in the common stock of the Company which
ranks ahead of any security interest in such stock securing the Guarantee
of the Notes.
In the event of bankruptcy, liquidation or reorganization of the Company
or Holdings, as the case may be, the assets of the Company or Holdings, as
the case may be, will be available to pay obligations on the Notes and the
Guarantee, respectively, only after all Senior Indebtedness of the Company
or Holdings, as the case may be, has been paid in full; and there may not
be sufficient assets remaining to pay amounts due on any or all of the
Notes or Guarantee then outstanding.
Operating and Financial Restrictions
The Credit Agreement contains provisions imposing substantial operating
and financial restrictions on the Company. Certain provisions of the
Credit Agreement require the maintenance of specified amounts of
Consolidated Tangible Net Worth and Consolidated Working Capital and the
achievement of specified minimum amounts of Adjusted Cash Flow, as such
terms are defined in the Credit Agreement. The Credit Agreement requires
the Company to have Consolidated Tangible Net Worth of $96,000,000 at the
end of each fiscal quarter subsequent to December 31, 1995. The
definition of Consolidated Tangible Net Worth in the Credit Agreement
includes, as an addition to the specified net book value of the assets of
the Company and its subsidiaries, indebtedness of the Company and its
subsidiaries (including but not limited to the Notes) which is
subordinated in right of payment to the payment in full of all obligations
under the Credit Agreement on terms and conditions acceptable to the agent
for the lenders under the Credit Agreement. The Credit Agreement requires
the Company to have Consolidated Working Capital of $57,000,000 at the end
of each fiscal quarter subsequent to December 31, 1995. The Credit
Agreement requires the Company to have Consolidated Adjusted Cash Flow of
not less than negative $3,000,000 for each fiscal quarter other than the
fourth quarter of a fiscal year and to have Consolidated Adjusted Cash
Flow of not less than $4,000,000 for each fiscal year ending after January
29, 1995. For the purpose of determining the Company's compliance with
the Consolidated Tangible Net Worth, Consolidated Working Capital, and
Consolidated Adjusted Cash Flow requirements referred to above and the
capital expenditure limitation referred to below as of or at any time
after January 28, 1996, the Company is permitted by the Credit Agreement
to exclude from the relevant calculations the effects of the one-time
special charges taken by the Company as of January 28, 1996, in respect of
the closing of 40 stores and the write-off or write-down of the value of
certain of the Company's goodwill. The Credit Agreement gives the agent
for the lenders the right to establish the general criteria for inventory
advance rates and to determine, in its discretion, the amounts to be
loaned to the Company from time to time. In addition, the Credit
Agreement requires the Company to maintain a cash collateral account into
which the proceeds of sales of the Company's inventory will be deposited
daily and applied to service the Credit Agreement on a daily basis. Other
restrictions in the Credit Agreement and those provided under the
Indenture affect, among other things, the ability of the Company to incur
additional indebtedness, pay dividends, repay indebtedness prior to its
stated maturity, create liens, enter into leases, sell assets or engage in
mergers or acquisitions, make capital expenditures and make investments in
subsidiaries. The Credit Agreement limits the Company to not more than
$12,000,000 of capital expenditures (other than capitalized lease
payments) in any fiscal year, with a carryover to future fiscal years of
any portion of such maximum amount which is not expended in a particular
fiscal year. The ability of the Company to satisfy the foregoing
requirements and comply with the foregoing restrictions will depend upon
prevailing economic conditions and other factors, including factors beyond
the control of the Company, such as interest rates. A failure by the
Company to comply with any of these or other requirements or restrictions
could lead to a default under the terms of the Credit Agreement or the
Indenture and give the lenders under the Credit Agreement or the holders
of the Notes the right to declare all of the funds borrowed pursuant
thereto to be immediately due and payable together with accrued and unpaid
interest. The insecurity (without further definition) of the lenders or
their agent with respect to the obligations of the Company under the
Credit Agreement or with respect to the collateral for such obligations
also may constitute an event of default under the Credit Agreement and
result in an acceleration of the Company's obligations under the Credit
Agreement. Any such default on the Company's indebtedness would be likely
to have a material adverse effect on the Company and on the market value
and marketability of securities issued by the Company, including the
Notes. At January 28, 1996, the Company was in compliance with all
applicable covenants contained in the Credit Agreement and the Indenture.
See "Description of Certain Indebtedness -- Credit Agreement."
Limited Assets and Liquidity of Holdings
Holdings has guaranteed the payment of amounts due under the Notes.
Holdings has no material operations of its own, and its only significant
asset is the common stock of the Company which has been pledged on a first
priority basis to secure the obligations of the Company under the Credit
Agreement. Holdings currently has no source of cash other than dividends
and certain other payments from the Company. Accordingly, if Holdings
were called upon to honor the Guarantee, it is unlikely that it would have
funds available for such purpose. If permitted by applicable corporate
law, the Company presently intends to make periodic dividend payments to
Holdings to enable Holdings to pay cash dividends on its preferred stock.
Certain outstanding promissory notes of Holdings (the "Holdings Notes") do
not presently require or permit the payment of interest on such notes in
cash. However, subject to certain restrictions in the Indenture as well
as in the instruments governing the Company's other debt obligations, at
some future time the Company also may pay dividends to Holdings to enable
Holdings to pay interest in cash on the Holdings Notes. See "Description
of Notes -- Certain Covenants" and "Description of Certain Indebtedness --
Holdings Promissory Notes." To the extent that Holdings is unable to
obtain cash sufficient to meet its cash dividend requirements with respect
to its preferred stock and any cash interest requirements with respect to
the Holdings Notes, Holdings may be in noncompliance or default under the
instruments reflecting such obligations. An event of noncompliance with
respect to the payment of cash dividends on the preferred stock of
Holdings may result in an increase in the applicable dividend rate on such
preferred stock, and an event of default with respect to the payment of
cash interest on the Holdings Notes may result in an increase in the
applicable interest rate on and an acceleration of the maturity of the
Holdings Notes. Holdings did not declare or pay the February 29, 1996,
dividend on its preferred stock because it had no funds with which to do
so and, in any event, would have been prevented by applicable corporate
law from making such declaration or payment; and the Company also is
currently prevented by applicable corporate law from paying a dividend to
Holdings. As a result of such nonpayment by Holdings, the cumulative
dividend rate on the preferred stock of Holdings automatically increased
by one-half of one percent and will increase by an additional one-half of
one percent (up to a maximum aggregate increase of 5%) on each subsequent
quarterly dividend payment date on which the Holdings preferred stock
dividends are not paid currently on a cumulative basis.
Competition
Pamida operates in a highly competitive environment, competing with
supermarkets, drug and specialty stores, mail-order and catalog merchants
and, in some communities, department stores and other general merchandise
retailers. Competitors consist both of independent stores and of regional
and national chains, some of which have substantially greater resources
than Pamida. Of Pamida's 144 stores operating at January 28, 1996
(excluding 40 stores whose closing during 1996 was announced in January
1996), 27 stores encountered direct local competition from other major
general merchandise retailers such as Wal-Mart, Kmart, Alco, ShopKo and
Target. When such competitors enter a community where Pamida operates,
there typically is an immediate adverse impact on the sales and
profitability of the Pamida store in that community, and such adverse
impact may continue indefinitely. In such cases, sales decline as some
customers of the Company's store shift some or all of their purchases to
the competitor's store; and profitability declines because of the reduced
sales volume in the Company's store, lower gross margins resulting from
the need for competitive price adjustments, and the Company's inability to
reduce its store operating expenses in direct proportion to the decline in
store sales. Because of the adverse impact of new competition in a
community in which a Pamida store is located, in recent years the
Company's business strategy has been to focus its store expansion program
on communities with less likelihood of the entry of a new major
competitor. However, there can be no assurance that in the future major
competitors will not open additional stores in the Company's markets. See
"The Company and Holdings."
Expansion Program
Pamida currently plans to continue its program of new store openings
during the next several years. Because Pamida intends to continue leasing
most of its stores, any delays or other difficulties in the negotiation of
satisfactory store leases or the inability on the part of prospective
landlords to obtain financing for new store buildings may delay or
interfere with such new store openings. In addition, there is no
assurance that the sites which Pamida identifies for new store locations
actually will be available to the Company; and various zoning, site
acquisition, environmental, traffic, construction and other contingencies
also may delay or prevent the opening of a new store in a particular
location. There can be no assurance that any new stores which Pamida may
open will be profitable. Certain of the restrictive covenants in the
Credit Agreement or in the Indenture relating to the Notes, such as those
which restrict the ability of the Company to incur indebtedness, encumber
its property or make capital expenditures or which impose certain
restrictions on or otherwise limit the Company's ability to engage in
sale-leaseback transactions, may prevent the Company from pursuing its
store expansion program at the rate that the Company desires.
Relationship With Suppliers
Like most retailers, the Company depends upon the regular extension of
credit from its suppliers to finance the acquisition of a portion of its
inventory. Prior to the sale of the Notes and the implementation of the
Credit Agreement in March 1993, because of the Company's highly leveraged
financial position and conditions in the retail industry generally, Pamida
experienced some reductions in or eliminations of the credit lines then
made available to it by certain of its suppliers. However, since mid-1993
the Company generally has been able to obtain needed lines of credit from
its suppliers. The Company believes, therefore, that the credit lines
presently provided by its suppliers, together with its working capital
credit facilities, will be adequate to finance its inventory purchases for
the foreseeable future; but, because of the Company's financial position
and because of conditions in the retail industry generally, there can be
no assurance that this will continue to be the case.
Absence of Public Market
There currently is no established trading market for the Notes. Pamida
has been advised by CSI that CSI presently intends to make a market in the
Notes. However, CSI is not obligated to do so, and any market-making
activities with respect to the Notes may be discontinued at any time
without notice. There can be no assurance that an active market for the
Notes will exist at any particular time. If the Notes are traded, they
may be traded at a discount from their face amount or the price paid for
such Notes, depending upon prevailing interest rates, the market for
similar securities and other factors. Pamida does not intend to list the
Notes for trading on any securities exchange or on any automated dealer
quotation system. No assurance can be given that a holder of Notes will
be able to sell the Notes in the future or that such sale will be at a
price equal to or higher than the price paid for such Notes. The level of
activity in any market for the Notes will depend upon the number of
holders of Notes, the continuing interest of securities dealers in making
a market in the Notes and other factors. The absence of an active market
for the Notes would adversely affect the liquidity of the Notes.
THE COMPANY AND HOLDINGS
On January 19, 1996, the Company announced its intention to close 40
stores located in unprofitable or highly competitive markets. Store
closing sales began on January 29, 1996, and the Company expects to
complete substantially all of such store closings during the second
quarter of the current fiscal year. References in the following
paragraphs to the "Closed Stores" mean such 40 stores.
Excluding the Closed Stores, at January 28, 1996, Pamida operated 144
general merchandise retail stores located in 144 small towns (having an
average population of approximately 5,500) in 14 Midwestern, North Central
and Rocky Mountain states. Pamida's strategic objective is to be the
dominant general merchandise retailer in the communities it serves.
Excluding the Closed Stores, the Company believes that it holds the
leading market position in 82% of the communities in which its stores are
located.
Pamida stores generally are located in small towns, normally county seats,
where there often is little or no competition from another major general
merchandise retailer and which the Company considers to be either too
small to support more than one major general merchandise retailer (thereby
creating a potential barrier to entry by a major competitor) or too small
to attract competitors whose stores generally are designed to serve larger
populations. Excluding the Closed Stores, at January 28, 1996, 117 of the
Company's 144 stores faced no direct local competition from other major
general merchandise retailers.
Excluding the Closed Stores, the Company's stores average approximately
29,000 square feet of sales area and range in size from approximately
6,000 to 51,000 square feet of sales area. Excluding the Closed Stores,
at January 28, 1996, Pamida's stores had an aggregate sales area of
approximately 4,132,000 square feet.
The Company was incorporated in Delaware in 1980. In January 1981 the
Company, which then was owned by an employee stock ownership plan (the
"ESOP"), acquired substantially all of the assets and assumed
substantially all of the liabilities of a Nebraska corporation which
previously had carried on the general merchandise retail business of
Pamida described above. The Company's predecessor had been engaged in
such business since 1963, and its stock was publicly owned and listed on
the New York Stock Exchange at the time of the 1981 sale to the Company.
In July 1986 Holdings acquired the stock of the Company from the ESOP, and
the Company became a wholly owned subsidiary of Holdings. The only
significant asset of Holdings is the common stock of the Company, and
Holdings conducts no operations separate from those of the Company. An
initial public offering of shares of Common Stock of Holdings occurred in
September 1990, and the Common Stock of Holdings has been listed on the
American Stock Exchange and publicly traded since then.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
The following table sets forth the ratios of earnings to fixed charges for
the Company and Holdings:
<CAPTION>
Fiscal Years Ended
February 2, January 31, January 30, January 29, January 28,
1992 1993 1994 1995 1996
<S> <C>
PAMIDA, INC.:
Ratio of earnings to
fixed charges 1.13 1.29 1.05 1.34 -
Excess of fixed charges
over earnings - - - - $98,939,000
PAMIDA HOLDINGS
CORPORATION AND
SUBSIDIARY:
Ratio of earnings to
fixed charges - 1.15 - 1.18 -
Excess of fixed charges
over earnings $806,000 - $2,114,000 - 103,393,000
</TABLE>
USE OF PROCEEDS
This prospectus is being used by Citicorp Securities, Inc. in connection
with offers and sales of the Notes in market-making transactions in the
secondary trading market. Sales of Notes being offered by this market-
making prospectus will not result in any proceeds to the Company or to
Holdings.
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of March 15, 1993 (the
"Indenture") among the Company, Holdings as guarantor and State Street
Bank and Trust Company as trustee (the "Trustee"). A copy of the form of
the Indenture has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The following summary of certain
provisions of the Indenture does not purport to be a complete statement of
such provisions and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and to all of the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part of
the Indenture by reference to the Trust Indenture Act, as in effect on the
date of the Indenture. While this summary does not discuss all of the
provisions of the Indenture, the Company believes that the summary does
contain information with respect to those provisions of the Indenture
which a prospective purchaser of Notes might reasonably consider to be
material to an investment decision with respect to the Notes. The
definitions of certain capitalized terms used in the following summary are
set forth below under "Certain Definitions."
General
The Notes were issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Notes may
be presented for transfer at the office of an affiliate of the Trustee in
the City of New York maintained for such purposes at 61 Broadway, New
York, New York. Interest may be paid by wire transfer or check mailed to
the person entitled thereto as shown on the register for the Notes. No
service charge will be made for any registration of transfer or exchange
of the Notes, except for any tax or other governmental charge that may be
imposed in connection therewith.
Maturity, Interest and Principal
The Notes are general unsecured obligations of the Company, limited to
$140,000,000 aggregate principal amount, and will mature on March 15,
2003. Interest on the Notes accrues at the rate of 111/2% per annum and is
payable semi-annually on each March 15 and September 15, commencing
September 15, 1993, to the holders of record of Notes at the close of
business on March 1 and September 1 immediately preceding such interest
payment date. Interest on the Notes accrues from the most recent date to
which interest has been paid or, if no interest has been paid, from the
original date of issuance (the "Issue Date"). Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months. Interest on
overdue principal and (to the extent permitted by law) on overdue
installments of interest accrues at the rate of 111/2% per annum.
Redemption
Optional Redemption. The Notes are redeemable, in whole or in part, at
the option of the Company, at any time on or after March 15, 1998 at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest to the date of redemption, if
redeemed during the 12-month period beginning on March 15 of the years
indicated below:
Year Percentage
1998 . . . . . . . . . . . . . . . . . . . 105.875%
1999 . . . . . . . . . . . . . . . . . . . 103.917%
2000 . . . . . . . . . . . . . . . . . . . 101.958%
2001 and thereafter. . . . . . . . . . . . 100.000%
Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of Notes for redemption will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the
Notes are not listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and
appropriate, provided, however, that no Note of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first-class
mail at least 30 days but not more than 60 days before the date of
redemption to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Note. On and after the
date of redemption, interest will cease to accrue on Notes or portions
thereof called for redemption.
Change of Control
In the event of a Change of Control (the date of such occurrence, the
"Change of Control Date"), the Company shall notify the holders of Notes
in writing of such occurrence and shall make an offer to purchase (the
"Change of Control Offer") on a business day (the "Change of Control
Payment Date") not later than 60 days following the Change of Control
Date, all Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the
Change of Control Payment Date.
Notice of a Change of Control Offer shall be mailed by the Company to the
holders of Notes not less than 30 days nor more than 45 days before the
Change of Control Payment Date. The Change of Control Offer is required
to remain open for at least 20 business days and until the close of
business on the business day next preceding the Change of Control Payment
Date.
The Company must comply with any tender offer rules under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which may then be
applicable, including but not limited to Rule 14e-1, in connection with
any Change of Control Offer required to be made by the Company as a result
of a Change of Control.
Guarantee and Pledge Agreement
The Notes are unconditionally guaranteed on a senior subordinated basis by
Holdings. The obligations of Holdings under its Guarantee of the Notes is
subordinated in right of payment to all existing and future Senior
Indebtedness of Holdings (which is limited to the obligations of Holdings
in respect of the Credit Agreement). See "Subordination" below.
The obligations of Holdings under its Guarantee of the Notes is secured by
a pledge of all the Common Stock of the Company. Such stock is also
pledged to secure the obligations of Holdings under its guarantee of the
Credit Agreement. The security interest securing the guarantee by
Holdings of the Credit Agreement ranks prior to that securing Holdings'
Guarantee of the Notes.
The Indenture provides that Holdings may permit other Indebtedness to be
secured by a Lien on the shares of Common Stock of the Company so long as
such Lien ranks pari passu with or is subordinate in right of payment to
the Lien securing the obligations of Holdings pursuant to its Guarantee of
the Notes. Amendments to the Pledge Agreement necessary to permit the
incurrence of such additional Indebtedness secured by the pledged stock
and to add additional secured parties thereto may be made without the
consent of the Trustee, provided that the Indebtedness owing to such
secured party and the Liens securing such Indebtedness are permitted under
the Indenture.
Upon repayment of all Indebtedness under the Credit Agreement and any
other Indebtedness then secured by the collateral under the Pledge
Agreement, the Pledge Agreement may be terminated and the collateral
thereunder released upon demand by Holdings. No such release of
collateral under the Pledge Agreement will constitute a default under the
Indenture. Subsequent to any such termination of the Pledge Agreement and
release of collateral thereunder, Holdings shall not create, incur or
suffer to exist any lien of any kind upon the Common Stock of the Company
unless the Notes are equally and ratably secured by such lien.
Subordination
The indebtedness of the Company evidenced by the Notes is subordinated in
right of payment to all Senior Indebtedness of the Company. Only
obligations of the Company under the Credit Agreement can constitute
Senior Indebtedness with respect to the Notes. As of January 28, 1996,
approximately $31.6 million of Senior Indebtedness (excluding letters of
credit) was outstanding. The maximum principal amount of Senior
Indebtedness is limited to the amount of Indebtedness permitted to be
incurred under the Credit Agreement pursuant to clause (b) of "Limitation
on Additional Indebtedness" discussed under "Certain Covenants" below.
The Indenture provides that no payment or distribution of cash, property
or securities of the Company (or of Holdings pursuant to the Guarantee)
will be made on account of principal of, premium, if any, or interest on
the Notes, or to defease or acquire any of the Notes, or on account of the
redemption provisions of the Notes (a) upon the maturity of any Senior
Indebtedness by lapse of time, acceleration or otherwise, unless and until
all Senior Indebtedness shall first be paid in full in cash or cash
equivalents, or provisions for such payments have been duly made in a
manner satisfactory to the holders of such Senior Indebtedness or (b) upon
the default in the payment of any principal of, premium, if any, or
interest on or other amounts payable on or in connection with any
obligations in respect of any Senior Indebtedness when such amounts become
due and payable, whether at maturity or at a date fixed for prepayment or
by declaration or otherwise, unless and until such default has been cured
or waived or has ceased to exist.
Upon the happening of an event of default (or if an event of default would
result upon any payment with respect to the Notes) with respect to any
Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (if the event of default relates to a default other than a
default in the payment of principal of, premium, if any, or interest on or
other amounts due in connection with such Senior Indebtedness) and upon
receipt by the Trustee and the Company of written notice from the Senior
Representative of such Senior Indebtedness, then, unless and until such
event of default has been cured or waived or has ceased to exist or the
benefit of this sentence has been waived, no payment or distribution will
be made by or on behalf of the Company on account of or with respect to
the Notes; provided, that nothing in the above-described provision will
prevent the making of any payment for a period of more than 179 days after
the date written notice of the event of default is received by the Trustee
or the Company (the "Payment Blockage Period"). Not more than one Payment
Blockage Period may be commenced with respect to the Notes during any
period of 365 consecutive days. In no event will a Payment Blockage
Period extend beyond 179 days from the date of the receipt of the notice
initiating such Payment Blockage Period, and there must be a
180-consecutive-day period in any 365-consecutive-day period during which
no Payment Blockage Period is in effect. No default or event of default
that existed or was continuing on the date of commencement of any Payment
Blockage Period with respect to the Senior Indebtedness initiating such
Payment Blockage Period may be, or be made, the basis for the commencement
of a subsequent Payment Blockage Period by the Senior Representative for
or the holders of such Senior Indebtedness, whether or not within a period
of 365 consecutive days, unless such default or event of default has been
cured or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of assets or securities of the Company
(or of Holdings pursuant to the Guarantee) of any kind or character,
whether in cash, property or securities, upon any dissolution or winding-
up or total or partial liquidation or reorganization of the Company or
Holdings, as the case may be, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due
or to become due with respect to all obligations in respect of Senior
Indebtedness shall first be paid in full in cash or Cash Equivalents
before the Holders of the Notes or the Trustee on behalf of such Holders
shall be entitled to receive any payment by the Company (or by Holdings
pursuant to the Guarantee) of the principal of, premium, if any, or
interest on the Notes, or any payment to acquire any of the Notes for
cash, property or securities, or any distribution with respect to the
Notes of any cash, property or securities. Before any payment may be made
by or on behalf of the Company (or by Holdings pursuant to the Guarantee)
of the principal of, premium, if any, or interest on the Notes upon any
such dissolution or winding-up or liquidation or reorganization, any
payment or distribution of assets or securities of the Company (or of
Holdings pursuant to the Guarantee) of any kind or character, whether in
cash, property or securities, to which the Holders of the Notes or the
Trustee on their behalf would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Company (or by Holdings
pursuant to the Guarantee) or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or
distribution directly to the holders of the Senior Indebtedness (pro rata
to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to the
trustee or trustees under any indenture pursuant to which any of such
Senior Indebtedness may have been issued, as their respective interests
may appear, to the extent necessary to pay all such Senior Indebtedness in
full in cash or Cash Equivalents after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such
Senior Indebtedness. Nothing in the Indenture or in the Notes, however,
affects the unconditional absolute obligations of the Company (or of
Holdings pursuant to the Guarantee) to pay the principal of and interest
on the Notes as and when they become due and payable in accordance with
their terms.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination" section will not be construed as preventing the occurrence
of an Event of Default described in clause (i) or (ii) of the first
paragraph under "Events of Default" below.
By reason of the subordination provisions described above, in certain
events funds which would otherwise be payable to holders of the Notes will
be paid to the holders of Senior Indebtedness to the extent necessary to
pay the Senior Indebtedness in full, and the Company and Holdings may be
unable to fully meet their obligations with respect to the Notes and the
Guarantee, respectively.
Certain Covenants
Set forth below are certain covenants which are contained in the
Indenture. While the covenants which are discussed below do not include
all of the covenants contained in the Indenture, the Company believes that
the covenants which are discussed include those covenants which a
prospective purchaser of Notes might reasonably consider to be material to
an investment decision with respect to the Notes.
Limitation on Additional Indebtedness. The Indenture provides that the
Company shall not, and shall not permit any of its Subsidiaries to,
create, incur, assume or issue, directly or indirectly, or guarantee or in
any manner become, directly or indirectly, liable for or with respect to
the payment of any Indebtedness (including Acquired Indebtedness) except
for:
(a) Indebtedness under the Notes and the Indenture;
(b) Indebtedness (including letters of credit) outstanding from time to
time pursuant to the Credit Agreement in an amount not to exceed the
aggregate of 90% of the net book value of the accounts receivable and 60%
of the net book value of the inventory (on a FIFO basis) of the Company
and its Subsidiaries, in each case calculated on a consolidated basis in
accordance with GAAP;
(c) Indebtedness not otherwise referred to in this covenant outstanding on
the Issue Date (including standby letters of credit existing on the Issue
Date);
(d) Indebtedness if, immediately after giving pro forma effect to the
incurrence thereof, the Fixed Charge Coverage Ratio of the Company would
be greater than or equal to 2.25:1 on or prior to March 15, 1995 and
2.50:1 thereafter;
(e) Indebtedness in respect of Interest Rate Protection Obligations
incurred in the ordinary course of business;
(f) Indebtedness or Disqualified Stock of a Wholly-Owned Subsidiary issued
to and held by the Company or a Wholly-Owned Subsidiary or Indebtedness of
the Company to a Wholly-Owned Subsidiary in respect of intercompany
advances or transactions;
(g) Indebtedness in connection with or arising out of Capitalized Lease
Obligations or Purchase Money Indebtedness incurred after the Issue Date
with respect to the acquisition or construction of assets by the Company
after the Issue Date in the ordinary course of the Company's business;
(h) contingent liabilities for (i) guarantees resulting from endorsement
of negotiable instruments for collection in the ordinary course of
business and (ii) guarantees by the Company of obligations or liabilities
of its Subsidiaries permitted under the Indenture;
(i) other Indebtedness that does not exceed $10,000,000 in the aggregate
at any one time outstanding; and
(j) any deferrals, renewals, extensions, replacements, refinancings or
refundings of, amendments, modifications or supplements to, Indebtedness
incurred under clauses (c) and (d) above, whether involving the same or
any other lender or creditor or group of lenders or creditors; provided,
that any such deferrals, renewals, extensions, replacements, refinancings,
refundings, amendments, modifications or supplements (i) shall not provide
for any mandatory redemption, amortization or sinking fund requirement in
an amount greater than or at a time prior to the amounts and times
specified in the Indebtedness being deferred, renewed, extended, replaced,
refinanced, refunded, amended, modified or supplemented, (ii) shall not
exceed the principal amount (plus accrued interest and prepayment premium,
if any) of the Indebtedness being deferred, renewed, extended, replaced,
refinanced, refunded, amended, modified or supplemented; and (iii) shall
be subordinated to the Notes at least to the extent and in the manner, if
at all, that the Indebtedness being deferred, renewed, extended, replaced,
refinanced, refunded, amended, modified or supplemented is subordinated to
the Notes.
Limitation on Investments, Loans and Advances. The Indenture provides
that the Company shall not make and shall not permit any of its
Subsidiaries to make any capital contributions, advances or loans to
(including any guarantees of loans to), or investments in or purchases of
Capital Stock in, any Person (collectively, "Investments"), except:
(i) Investments by the Company in any Wholly-Owned Subsidiary and
Investments or loans in or to the Company or a Wholly-Owned Subsidiary by
any Subsidiary (provided, that such Investments in any Wholly-Owned
Subsidiary shall not exceed, individually or in the aggregate, 10% of the
total assets of the Company and its Subsidiaries determined on a
consolidated basis at the time such Investment is made); (ii) Investments
represented by accounts receivable created or acquired in the ordinary
course of business; (iii) advances to employees in the ordinary course of
business not to exceed an aggregate of $250,000 outstanding at any one
time; (iv) Investments under or pursuant to Interest Rate Protection
Obligations; (v) Investments in promissory notes in an aggregate principal
amount not to exceed $2,000,000 at any one time outstanding representing
portions of the purchase prices of property sold or transferred by the
Company or its Subsidiaries in connection with sale and lease-back
transactions permitted by the Indenture or other asset sales permitted by
the Indenture; (vi) Cash Equivalents; (vii) other Investments not to
exceed $2,000,000 outstanding at any one time; and (viii) Investments
permitted to be made under the "Limitation on Restricted Payments"
covenant described below.
Limitation on Restricted Payments. The Indenture provides that the
Company shall not make, and shall not permit any of its Subsidiaries to,
directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Restricted Payment;
(b) at the time of and after giving effect to such Restricted Payment, the
Company could incur at least $1 of Indebtedness pursuant to clause (d) of
the "Limitation on Additional Indebtedness" covenant; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after January 31,
1993 through and including the date of such Restricted Payment (the "Base
Period") does not exceed the sum of (i) 50% of the Company's Consolidated
Net Income (or in the event such Consolidated Net Income shall be a
deficit, minus 100% of such deficit) during the Base Period, and (ii) 100%
of the aggregate Net Proceeds and the Fair Market Value of marketable
securities and property received by the Company from the issue or sale,
after January 31, 1993, of Capital Stock (other than Disqualified Stock)
of the Company or of any Indebtedness or other securities of the Company
convertible into or exercisable or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company which has been so converted,
exercised or exchanged, as the case may be. For purposes of determining
under this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
The provisions of this covenant do not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture; (ii) the retirement of any shares of Capital Stock or
subordinated Indebtedness of the Company in exchange for, by conversion
into, or out of the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Capital
Stock of the Company (other than Disqualified Stock); (iii) the redemption
or retirement of subordinated Indebtedness of the Company in exchange for,
by conversion into, or out of the Net Proceeds of the substantially
concurrent incurrence of subordinated Indebtedness of the Company (other
than any such subordinated Indebtedness owing to a Subsidiary of the
Company) that is contractually subordinated in right of payment to the
Notes and that is permitted to be incurred in accordance with the covenant
described under "Limitation on Additional Indebtedness" above;
(iv) Restricted Payments to Holdings after the third anniversary of the
Issue Date in an amount necessary to meet the cash requirements of
Holdings to pay scheduled interest and principal payments on the
Promissory Notes at the time such interest and principal becomes due and
payable; provided that the Fixed Charge Coverage Ratio of the Company and
Holdings on a consolidated basis is greater than 2.0:1 at the time of and
after giving pro forma effect to such Restricted Payment (as if such
Restricted Payment were interest paid by the Company); (v) Restricted
Payments to Holdings in an amount not to exceed $316,000 per year to meet
the cash requirements of Holdings to pay scheduled dividend payments on
the Holdings Preferred Stock at the time such dividend payments become due
and payable; (vi) advances or dividends by the Company to Holdings to
enable Holdings to pay administrative and operating expenses in an amount
not to exceed $100,000 in any one fiscal year; and (vii) payments by the
Company and its Subsidiaries in respect of their obligations pursuant to
any tax-sharing agreement among the Company, any Subsidiary of the Company
and Holdings; provided that such payments by the Company and its
Subsidiaries do not exceed the amounts which would be payable by the
Company and its Subsidiaries assuming the Company and its Subsidiaries
paid the taxes subject to such tax-sharing agreement on a stand-alone
basis. Notwithstanding the foregoing, if an Event of Default shall have
occurred and be continuing, a Restricted Payment pursuant to clauses (iv),
(v) and (vi) above shall not be permitted.
In determining the amount of Restricted Payments permissible under
subparagraph (c) above, the amounts expended pursuant to clauses (i),
(ii), (iv), (v) and (vi) above shall be included as Restricted Payments.
Limitation on Liens. The Indenture provides that the Company shall not,
and shall not permit, cause or suffer any of its Subsidiaries to, create,
incur, assume or suffer to exist any Lien of any kind upon any of its
property or assets now owned or hereafter acquired by it, except for:
(a) Liens existing as of the Issue Date;
(b) Permitted Liens;
(c) Liens on the assets or property of a Subsidiary of the Company
existing at the time such Subsidiary became a Subsidiary of the Company
and not incurred as a result of (or in connection with or in anticipation
of) such Subsidiary's becoming a Subsidiary of the Company; provided that
such Liens do not extend to or cover any property or assets of the Company
or any of its Subsidiaries (other than the property or assets of the
Subsidiary so acquired);
(d) Liens securing obligations of the Company and its Subsidiaries in
respect of the Credit Agreement;
(e) any Lien securing Capitalized Lease Obligations and Purchase Money
Indebtedness, provided that such Capitalized Lease Obligations and
Purchase Money Indebtedness are incurred in compliance with the
"Limitations on Additional Indebtedness" covenant and provided that such
Liens do not extend to or cover any property or assets of the Company or
any of its Subsidiaries other than the property or assets subject to such
Capitalized Lease Obligations and Purchase Money Indebtedness;
(f) leases and subleases of real property which do not interfere with the
ordinary conduct of the business of the Company or any of its Subsidiaries
and which are made on customary and usual terms applicable to similar
properties;
(g) Liens securing Indebtedness which is incurred to refinance or replace
Indebtedness which has been secured by a Lien permitted under the
Indenture and is permitted to be refinanced or replaced under the
Indenture; provided that such Liens do not extend to or cover any property
or assets of the Company or any of its Subsidiaries not securing the
Indebtedness so refinanced or replaced, except to the extent permitted
under (d) above;
(h) Liens securing reimbursement obligations under letters of credit but
only in or upon the goods, the purchase of which was financed by such
letters of credit; and
(i) other Liens securing obligations which may be discharged by the
payment in the aggregate at any one time of not more than $15,000,000.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company shall not, and
shall not permit any Subsidiary of the Company to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective, or enter
into any agreement with any Person that would cause or create any
consensual encumbrance or restriction of any kind on the ability of any
Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or
make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits owned by the Company or a
Subsidiary of the Company, (b) make any loans or advances to, or pay any
Indebtedness owed to, the Company or any Subsidiary of the Company or
(c) transfer any of its properties or assets to the Company or to any
Subsidiary of the Company, except, in each case, for such encumbrances or
restrictions existing under or contemplated by or by reason of (i) the
Notes or the Indenture, (ii) any restrictions existing under or
contemplated by agreements in effect on the Issue Date, including, without
limitation, restrictions under the Credit Agreement, (iii) any
restrictions, with respect to a Subsidiary of the Company that is not a
Subsidiary of the Company on the Issue Date, in existence at the time such
Person becomes a Subsidiary of the Company (but not created in
contemplation of such Person becoming a Subsidiary) and (iv) any
restrictions existing under any agreement that refinances or replaces an
agreement containing a restriction permitted by clause (i), (ii) or
(iii) above, provided that the terms and conditions of any such
restrictions are not materially less favorable in the aggregate to the
holders of the Notes than those under or pursuant to the agreement being
replaced or the agreement evidencing the Indebtedness being refinanced or
replaced.
Limitation on Sale-Leaseback Transactions. The Indenture provides that
the Company shall not, and shall not permit any of its Subsidiaries to,
enter into any Sale-Leaseback Transaction unless either (i) after giving
effect to such Sale-Leaseback Transaction, the aggregate sale prices with
respect to the property subject to all Sale-Leaseback Transactions
consummated by the Company and its Subsidiaries after the Issue Date will
not exceed $10,000,000 or (ii) the Indebtedness in the form of Capitalized
Lease Obligations resulting from such Sale-Leaseback Transaction is then
permitted to be incurred pursuant to clause (i) of the covenant described
under "Limitations on Additional Indebtedness" above. Notwithstanding the
foregoing, the Company and its Subsidiaries may enter into Sale-Leaseback
Transactions if (i) after giving pro forma effect to any such Sale-
Leaseback Transaction, the Company shall be in compliance with paragraph
(d) of the covenant described under "Limitation on Additional
Indebtedness" above, (ii) the sale price in such Sale-Leaseback
Transaction is at least equal to the Fair Market Value of such property,
and (iii) the Company or such Subsidiary shall apply the Net Cash Proceeds
of the sale as provided under "Disposition of Proceeds of Asset Sales"
below, to the extent required by such provision.
Disposition of Proceeds of Asset Sales. The Indenture provides that the
Company shall not, and shall not permit any of its Subsidiaries to, make
any Asset Sale unless (a) such Asset Sale is for Fair Market Value,
(b) the net proceeds therefrom consist of at least 85% cash or Cash
Equivalents and (c) the Company shall commit to apply or to cause its
Subsidiaries to apply the Net Cash Proceeds of such Asset Sale within 270
days of receipt thereof, and shall apply such Net Cash Proceeds within 360
days of receipt thereof, as follows:
(i) first, to satisfy all mandatory repayment obligations under the Credit
Agreement;
(ii) second, out of any Net Cash Proceeds remaining after application of
Net Cash Proceeds pursuant to the preceding paragraph (i) (the "Available
Amount"), the Company shall make an offer to purchase (the "Asset Sale
Offer") from all Holders of Notes, up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to the Available
Amount, at a purchase price equal to 100% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of purchase;
provided, that the Company will not be required to apply pursuant to this
paragraph (ii) Net Cash Proceeds received from any Asset Sale if, and only
to the extent that, such Net Cash Proceeds are committed in writing to be
applied to acquire or construct property or assets in lines of business
related to the Company's and its Subsidiaries' businesses within 270 days
after the consummation of such Asset Sale and are so applied within 360
days after the consummation of such Asset Sale, and, provided further,
that the Company may defer the Asset Sale Offer until there is an
aggregate unutilized Available Amount equal to or in excess of $5,000,000
resulting from one or more Asset Sales consummated in any consecutive four
fiscal quarters (at which time the entire unutilized Available Amount from
the immediately preceding four fiscal quarters, and not just the amount in
excess of $5,000,000, shall be applied as required pursuant to this
paragraph). The Asset Sale Offer shall remain open for a period of 20
business days or such longer period as may be required by law. To the
extent the Asset Sale Offer is not fully subscribed to by the holders of
the Notes, the Company may retain any unutilized portion of the Net Cash
Proceeds.
Whenever Net Cash Proceeds in excess of $5,000,000 resulting from one or
more Asset Sales consummated in any consecutive four fiscal quarters are
received by the Company and not applied to acquire or construct property
or assets in lines of business related to the Company's and its
Subsidiaries' businesses, as provided in the preceding paragraph, and such
Net Cash Proceeds may, through the passage of time or otherwise, be
required to be applied to the purchase of Notes pursuant to this covenant,
the Company shall invest such Net Cash Proceeds in Cash Equivalents. The
Company or its relevant Subsidiary, as applicable, shall be entitled to
any interest or dividends accrued, earned or paid on such Cash
Equivalents.
Ownership of Stock of Wholly-Owned Subsidiaries. The Indenture provides
that the Company shall at all times maintain, or cause each Material
Subsidiary to maintain, ownership of 100% of each class of voting
securities and all other equity securities of each Material Subsidiary
existing on the Issue Date, except for any Material Subsidiary that shall
be disposed of in its entirety or consolidated or merged with or into the
Company or another Subsidiary, in each case in accordance with the
provisions described below under "Consolidation, Merger, Conveyance,
Transfer or Lease" and above under "Disposition of Proceeds of Asset
Sales."
Limitation on Transactions with Affiliates. The Indenture provides that
the Company shall not, and the Company shall not permit, cause, or suffer
any Subsidiary of the Company to, conduct any business or enter into any
transaction or series of transactions with or for the benefit of any
Affiliate of the Company or any of its Subsidiaries or any holder of 5% or
more of any class of Capital Stock of the Company (each an "Affiliate
Transaction"), except in good faith and on terms that are, in the
aggregate, no less favorable to the Company or such Subsidiary, as the
case may be, than those that could have been obtained in a comparable
transaction on an arm's-length basis from a Person not an Affiliate of the
Company or such Subsidiary. All Affiliate Transactions (and each series
of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other market value in excess of
$500,000 shall be approved by the Board of Directors of the Company, such
approval to be evidenced by a Board Resolution stating that such Board of
Directors has, in good faith, determined that such transaction complies
with the foregoing provisions. Notwithstanding the foregoing, the
restrictions set forth in this covenant shall not apply to customary
directors' fees, consulting fees, indemnification and similar arrangements
and employee salaries and bonuses and to transactions between the Company
and any of its Wholly-Owned Subsidiaries or among Wholly-Owned
Subsidiaries of the Company.
Consolidation, Merger, Conveyance, Transfer or Lease
The Company shall not consolidate with or merge with or into or sell,
assign, convey, lease or transfer all or substantially all of its
properties and assets as an entirety to any Person or group of affiliated
Persons in a single transaction or through a series of transactions,
unless after giving effect thereto: (a) the Company shall be the
continuing Person, or the resulting, surviving or transferee Person (the
"surviving entity") shall be a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia; (b) the surviving entity shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee in form and
substance reasonably satisfactory to the Trustee, all of the obligations
of the Company under the Notes and the Indenture; (c) immediately before
and immediately after giving effect to such transaction or series of
transactions (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), no Default or Event of Default
shall have occurred and be continuing; (d) the Company or the surviving
entity shall, immediately before and immediately after giving effect to
such transaction or series of transactions, have a Consolidated Net Worth
(including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or
series of transactions) equal to or greater than the Consolidated Net
Worth of the Company immediately prior to such transaction or series of
transactions; (e) immediately after giving effect to such transaction or
series of transactions, the Company or the surviving entity could incur $1
of Indebtedness pursuant to clause (d) of the "Limitation on Additional
Indebtedness" covenant above; (f) Holdings by supplemental indenture shall
have confirmed that its Guarantee and its obligations under the Pledge
Agreement shall apply to such surviving entity's obligations under the
Indenture and the Notes; (g) all of the Capital Stock of the Company or
such surviving entity shall be pledged to the same extent as provided in
the Indenture and Pledge Agreement; (h) the Company or the surviving
entity shall have delivered to the Trustee an Officer's Certificate
stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in connection with such
transaction or series of transactions, such supplemental indenture
complies with this covenant and that all conditions precedent in the
Indenture relating to such transaction or series of transactions have been
satisfied; and (i) neither the Company nor any Subsidiary would thereupon
become obligated with respect to any Indebtedness, nor any of its property
become subject to any Lien, unless the Company or such Subsidiary could
incur such Indebtedness or create such Lien under the Indenture. If the
Company is permitted by the Indenture to consummate a transaction
described in this paragraph, the Indenture does not provide any protection
from a decline in credit quality as a result of such transaction.
Events of Default
The following are Events of Default under the Indenture:
(i) default in the payment of any interest on the Notes when it becomes
due and payable or of the principal of or premium, if any, on the Notes
pursuant to an offer to purchase required under the Indenture, and the
continuance of any such default for a period of 30 days; or
(ii) default in the payment of the principal of or premium, if any, on the
Notes when due and payable (other than by reason of a default in payment
upon an offer to purchase); or
(iii) the Guarantee ceases to be in full force and effect; or
(iv) default in the performance, or breach, of any covenant in the
Indenture, the Guarantee (other than defaults specified in clause (i) or
(ii) above) or the Pledge Agreement, and the continuance of such default
or breach for a period of 30 days after written notice thereof has been
given to the Company by the Trustee or to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding Notes; or
(v) failure by the Company, any of its Material Subsidiaries or Holdings
to perform any term, covenant, condition or provision of one or more
classes or issues of other Indebtedness in an aggregate principal amount
of $5,000,000 or more, which failure results in an acceleration of the
maturity thereof; or
(vi) one or more judgments, orders or decrees for the payment of money in
excess of $5,000,000, either individually or in an aggregate amount, not
adequately covered by insurance shall be entered against the Company, any
of its Material Subsidiaries or Holdings or any of their respective
properties and shall not be discharged, and there shall have been a period
of 60 days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect;
(vii) certain events of bankruptcy or insolvency with respect to the
Guarantor, the Company or any Material Subsidiary shall have occurred; or
(viii) the Pledge Agreement shall cease to be in full force and effect
(other than pursuant to the terms thereof) or shall cease to give the
Trustee in any material respect the Liens, rights, powers and privileges
purported to be created thereby (including, without limitation, the
security interest in and Lien on all of the Collateral (as defined in the
Pledge Agreement), to the extent provided for in the Indenture or in the
Pledge Agreement) in favor of the Trustee for the benefit of the Holders
subject to no other Liens (except as permitted by the Pledge Agreement).
If an Event of Default (other than an Event of Default specified in clause
(vii) above with respect to the Company) occurs and is continuing, then
the holders of at least 25% in principal amount of the outstanding Notes
may, by written notice to the Company and the Trustee, and the Trustee
upon the request of the holders of not less than 25% in principal amount
of the outstanding Notes shall declare the principal of, premium, if any,
and accrued interest on all the Notes to be due and payable immediately.
Upon any such declaration such principal, premium, if any, and accrued
interest shall become due and payable immediately. If an Event of Default
specified in (vii) occurs with respect to the Company and is continuing,
then the principal of, premium, if any, and accrued interest on all the
Notes shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holder.
After a declaration of acceleration, the holders of a majority in
aggregate principal amount of the outstanding Notes may, by written notice
to the Trustee, rescind such declaration of acceleration if all existing
Events of Default have been cured or waived, other than non-payment of
principal of and accrued interest on the Notes that has become due solely
as a result of such acceleration and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority
in principal amount of the outstanding Notes also have the right to waive
past defaults under the Indenture except a default in the payment of the
principal of, premium, if any, or interest on any Note or in respect of a
covenant or a provision which cannot be modified or amended without the
consent of all holders.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder unless the holders
of at least 25% in principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee, the Trustee does not commence and
diligently pursue the remedy addressed in such request within 20 days
after receipt of such notice and offer and the Trustee has not within such
20-day period received directions inconsistent with such written request
from holders of a majority in principal amount of the outstanding Notes.
Such limitations do not apply, however, to a suit instituted by a holder
of a Note for the enforcement of the payment of the principal of, premium,
if any, or accrued interest on such Note on or after the due date
expressed in such Note.
During the existence of an Event of Default known to a Trust Officer of
the Trustee, the Trustee is required to exercise such rights and powers
vested in it under the Indenture and use the same degree of care and skill
in its exercise thereof as a prudent Person would exercise under the
circumstances in the conduct of such Person's own affairs. Subject to the
provisions of the Indenture relating to the duties of the Trustee, in case
an Event of Default shall occur and be continuing, the Trustee is not
under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such
holders shall have offered the Trustee reasonable indemnity. Subject to
certain provisions concerning the rights of the Trustee, the holders of a
majority in principal amount of the outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred
on the Trustee.
Defeasance
The Company may at any time terminate all of its obligations with respect
to the Notes ("legal defeasance"), except for certain obligations,
including those regarding any trust established for a defeasance and
obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain agencies in
respect of the Notes. The Company may at any time terminate its
obligations under certain covenants set forth in the Indenture, some of
which are described under "Certain Covenants" above, and any omission to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes issued under the Indenture ("covenant
defeasance"). In order to exercise either legal defeasance or covenant
defeasance, the Company must irrevocably deposit in trust with the
Trustee, for the benefit of the holders of the Notes, money or U.S.
government obligations, or a combination thereof, in such amounts as will
be sufficient to pay the principal of, premium, if any, and interest on
the Notes to redemption or maturity and comply with certain other
conditions, including the delivery of an opinion as to certain tax
matters; provided that the subordination provisions of the Indenture
permit payments with respect to the Notes and that such deposit will not
result in a default under the Credit Agreement or other Indebtedness of
the Company.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to certain surviving rights or registration of transfer or
exchange of Notes) as to all outstanding Notes when either (a) all such
Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to
the Trustee for cancellation and the Company has paid all sums payable by
it under the Indenture or (b)(i) all such Notes not theretofore delivered
to the Trustee for cancellation have become due and payable pursuant to
the redemption provisions of the Indenture and the Company has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount of money sufficient to pay and discharge
the entire indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation for principal, premium, if any, and accrued
interest to the date of maturity or redemption and (ii) the Company has
delivered irrevocable instructions to the Trustee to apply the deposited
money toward the payment of the Notes at maturity or on the redemption
date, as the case may be; provided that the subordination provisions of
the Indenture permit payments with respect to the Notes and that such
deposit will not result in a default under the Credit Agreement. In
addition, the Company must deliver an Officers' Certificate and an Opinion
of Counsel stating that all conditions precedent to satisfaction and
discharge have been complied with.
Amendments and Waivers
From time to time the Company, when authorized by a Board Resolution, and
the Trustee may, without the consent of the holders of the Notes, amend,
waive or supplement the Indenture or the Notes for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, maintaining the qualification of the Indenture under the
Trust Indenture Act or making any change that does not adversely affect
the rights of any holder. Other amendments and modifications of the
Indenture or the Notes may be made by the Company and the Trustee with the
consent of the holders of not less than a majority of the aggregate
principal amount of the outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby, (i) reduce the principal amount
outstanding, extend the fixed maturity or alter the redemption provisions
of the Notes, (ii) change the currency in which any Notes or any premium
or accrued interest thereon is payable, (iii) reduce the percentage in
principal amount outstanding of Notes necessary for consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture, the Notes or the Pledge Agreement, (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to
the Notes, (v) waive a default in payment with respect to the Notes,
(vi) reduce the rate or extend the time for payment of interest on the
Notes, (vii) upon the occurrence of a Change of Control or an Asset Sale,
alter the Company's obligation to purchase Notes in accordance with the
Indenture or waive any default in the performance thereof, (viii) release
Holdings from its obligations under the Guarantee, the Indenture or the
Pledge Agreement, or (ix) affect the ranking of the Notes; provided,
however, that any amendment which adversely affects the holders of Senior
Indebtedness must have the consent of the Senior Representative.
Certain Definitions
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of
all such terms, as well as any other capitalized terms used herein for
which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company or assumed in
connection with an Asset Acquisition of such Person, including, without
limitation, Indebtedness incurred in connection with, or in anticipation
of, such Person's becoming a Subsidiary of the Company or such
acquisition.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or otherwise) or purchase or
acquisition of Capital Stock by the Company or any of its Subsidiaries to
or in any other Person, in either case as a result of which such Person
shall become a Subsidiary of the Company or any of its Subsidiaries or
shall be merged with or into the Company or any of its Subsidiaries or
(ii) any acquisition by the Company or any of its Subsidiaries of the
assets of any Person which constitute substantially all of an operating
unit or business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease (including by means of sale-leaseback) or other disposition to any
Person other than the Company or a Subsidiary of the Company, in one
transaction or a series of related transactions, of (i) any Capital Stock
of any Subsidiary of the Company or (ii) any other property or asset of
the Company or any Subsidiary of the Company, in each case other than
inventory in the ordinary course of business and obsolete equipment and
other than isolated transactions which do not exceed $500,000
individually. For the purposes of this definition, the term "Asset Sale"
shall not include (i) sales of Cash Equivalents which are reinvested in
Cash Equivalents within 30 days of such sale, (ii) sales of receivables
not a part of a sale of the business from which they arose or any
disposition of properties and assets of the Company or any Subsidiary that
is governed under and complies with the "Consolidation, Merger,
Conveyance, Transfer or Lease" covenant described above or (iii) exchanges
of properties and assets of the Company or any Subsidiary for similar
properties and assets of any Person other than the Company or a Subsidiary
of the Company.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person
and to be in full force and effect on the date of such certification and
delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however
designated and whether voting or non-voting) of such Person's capital
stock, whether outstanding on the Issue Date or issued after the Issue
Date, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP;
and, for the purposes of the Indenture, the amount of such obligation at
any date shall be the capitalized amount thereof at such date, determined
in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided, that the full faith and credit of the
United States of America is pledged in support thereof); (ii) certificates
of deposit or acceptances with a maturity of 180 days or less of any
financial institution that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits, according to
its most recent published annual report of condition, of not less than
$250,000,000; (iii) commercial paper with a maturity of 180 days or less
issued by a corporation (except an Affiliate of the Company) organized
under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by Standard & Poor's Corporation or at
least P-1 by Moody's Investors Service, Inc.; and (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United States of
America or issued by any agency thereof and backed by the full faith and
credit of the United States of America, in each case maturing within one
year from the date of acquisition; provided, however, that the terms of
such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions with Securities Dealers
and Others, as adopted by the Comptroller of the Currency.
"Change of Control" means (i) the direct or indirect sale, lease, exchange
or other transfer of all or substantially all of the assets of Holdings to
any Person or entity or group of Persons or entities acting in concert as
a partnership or other group (a "Group of Persons") other than an
Affiliate of Holdings, (ii) the merger or consolidation of Holdings with
or into another corporation with the effect that the then existing
shareholders of Holdings hold less than 50% of the combined voting power
of the then outstanding securities of the surviving corporation in such
merger or the corporation resulting from such consolidation ordinarily
(and apart from rights arising under special circumstances) having the
right to vote in the election of directors, (iii) the replacement of a
majority of the Board of Directors of Holdings, over a two-year period,
from the directors who constituted the Board of Directors at the beginning
of such period, and such replacement shall not have been approved by a
vote of at least a majority of the Board of Directors then still in office
who either were members of the Board of Directors at the beginning of such
period or whose election as a member of the Board of Directors was
previously so approved, (iv) a Person or Group of Persons shall, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, have become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of
Holdings representing 30% or more of the combined voting power of the then
outstanding securities of Holdings ordinarily (and apart from rights
arising under special circumstances) having the right to vote in the
election of directors or (v) Holdings fails to own a majority of the
combined voting power of the outstanding voting stock of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred if one or more of the above events occur or circumstances
exist and, after giving effect thereto, the Notes are rated BBB- or better
by Standard & Poor's Corporation or Baa3 or better by Moody's Investors
Service, Inc.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period increased (to
the extent deducted in determining Consolidated Net Income) by the sum of
the following items of such Person and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP: (i) all United
States Federal, state and foreign income taxes paid or accrued (other than
income taxes attributable to extraordinary, unusual or non-recurring gains
or losses); (ii) all interest expense paid or accrued in accordance with
GAAP (net of any interest income and including amortization of original
issue discount and the interest portion of deferred payment obligations);
(iii) depreciation; (iv) amortization, including, without limitation,
amortization of capitalized debt issuance costs; (v) increases (or minus
any decreases) in the LIFO reserve; and (vi) any other non-cash charges to
the extent deducted from Consolidated Net Income (including non-cash
expenses recognized in accordance with Financial Accounting Standards
Bulletin Number 106).
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided, however, that (a) the Net Income of any
Person (the "Other Person") in which the Person in question or any of its
Subsidiaries has a joint interest with a third party (which interest does
not allow the net income of such Other Person to be consolidated into the
net income of the Person in question in accordance with GAAP) shall be
included only to the extent of the amount of dividends or distributions
paid to the Person in question or the Subsidiary, (b) the Net Income of
any Subsidiary of the Person in question that is subject to any
contractual restriction or limitation on the payment of dividends or the
making of other distributions shall be excluded to the extent of such
restriction or limitation, (c)(i) the Net Income (or loss) of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition and (ii) any net gain (but not loss) resulting
from an Asset Sale by the Person in question or any of its Subsidiaries
other than in the ordinary course of business shall be excluded and
(d) extraordinary gains and losses shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the consolidated stockholders' equity represented by the
shares of such Person's Capital Stock (other than Disqualified Stock)
outstanding at such date, as determined on a consolidated basis in
accordance with GAAP.
"Credit Agreement" means the Loan and Security Agreement dated as of March
30, 1993, by and among Congress Financial Corporation (Southwest) and BA
Business Credit Inc. as Lenders, Congress Financial Corporation
(Southwest) as agent for the Lenders, and the Company and Seaway Importing
Company as the Borrowers providing for working capital and other
financing, as the same may at any time be amended, amended and restated,
supplemented or otherwise modified, including any deferral, refinancing,
renewal, refunding, replacement or extension thereof and whether by the
same or any other lender or group of lenders.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is
redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the maturity date of the Notes.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length free
market transaction, for cash, between a willing seller and a willing
buyer, neither of whom is under undue pressure or compulsion to complete
the transaction. Fair Market Value shall be determined by the Board of
Directors of the Company acting in good faith and shall be evidenced by a
Board Resolution delivered to the Trustee.
"Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio
of (i) Consolidated Cash Flow of such Person for the four full fiscal
quarters for which financial statements are available that immediately
precede the date of the transaction or other circumstances giving rise to
the need to calculate the Fixed Charge Coverage Ratio (the "Transaction
Date") to (ii) all cash and non-cash interest expense (including
capitalized interest) of such Person and its Subsidiaries determined in
accordance with GAAP (net of any interest income of such Person and its
Subsidiaries and exclusive of deferred financing fees of such Person and
its Subsidiaries) and the aggregate amount of cash dividends or other
distributions declared or paid on Capital Stock (other than Common Stock)
of such Person and its Subsidiaries, in each case for such four full
fiscal quarter period. For purposes of this definition, if the
Transaction Date occurs prior to the date on which the Company's
consolidated financial statements for the four full fiscal quarters
subsequent to the Issue Date are first available, then "Consolidated Cash
Flow" and the items referred to in the preceding clause (ii) shall be
calculated, in the case of the Company, after giving effect on a pro forma
basis as if the Notes outstanding on the Transaction Date were issued on
the first day of such four-full-fiscal-quarter period. In addition to and
without limitation of the foregoing two sentences, for purposes of this
definition, "Consolidated Cash Flow" and the items referred to in the
preceding clause (ii) shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence of
any Indebtedness of such Person or any of its Subsidiaries at any time
during the period (the "Reference Period") (A) commencing on the first day
of the four-full-fiscal-quarter period for which financial statements are
available that precedes the Transaction Date and (B) ending on and
including the Transaction Date, including, without limitation, the
incurrence of the Indebtedness giving rise to the need to make such
calculation, as if such incurrence occurred on the first day of the
Reference Period; provided, that if such Person or any of its Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the
above clause shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or Subsidiary had directly incurred such
guaranteed Indebtedness and (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of the Company or any of its
Subsidiaries (including any Person who becomes a Subsidiary as a result of
the Asset Acquisition) incurring Acquired Indebtedness) occurring during
the Reference Period and any retirement of Indebtedness in connection with
such Asset Sales, as if such Asset Sale or Asset Acquisition and/ or
retirement occurred on the first day of the Reference Period.
Furthermore, in calculating the denominator (but not the numerator) of
this "Fixed Charge Coverage Ratio," (1) subject to clause (3) below,
interest on Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter
shall be deemed to accrue at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; (2) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate based upon a factor of a prime or similar
rate shall be deemed to have been in effect; and (3) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating
basis, to the extent such interest is covered by agreements relating to
Interest Rate Protection Obligations, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.
"GAAP" means generally accepted accounting principles in effect on the
Issue Date as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the
United States.
"Guarantee" means the guarantee of the Notes by Holdings.
"Holdings Preferred Stock" means the 16 1/4% Senior Cumulative Preferred
Stock, $1.00 par value, and 14 1/4% Junior Cumulative Preferred Stock, $1.00
par value, of Holdings.
"Indebtedness" means, with respect to any Person, without duplication,
(i) any liability, contingent or otherwise, of such Person (A) for
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), (B) evidenced
by a note, debenture or similar instrument, letter of credit or draft
accepted (including a purchase money obligation) representing extensions
of credit whether or not representing obligations for borrowed money or
(C) for the payment of money relating to a Capitalized Lease Obligation or
other obligation relating to the deferred purchase price of property or
services (other than property or services purchased on ordinary trade
terms therefor) which purchase price is payable over a period in excess of
six months or is evidenced by a note, invoice or similar written
instrument with a maturity in excess of six months; (ii) any liability of
others of the kind described in the preceding clause (i) which the Person
has guaranteed or which is otherwise its legal liability; (iii) any
obligation secured by a lien to which the property or assets of such
Person are subject, whether or not the obligations secured thereby shall
have been assumed by or shall otherwise be such Person's legal liability;
and (iv) any and all deferrals, renewals, extensions, replacements,
refinancings and refundings of, or amendments, modifications or
supplements to, any liability of the kind described in any of the
preceding clauses (i), (ii) or (iii).
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount in exchange for periodic payments
made by such Person calculated by applying a fixed or a floating rate of
interest on the same notional amount and shall include, without
limitation, interest rate swaps, caps, floors, collars and similar
agreements.
"Junior Subordinated Promissory Notes" means the 14.25% Junior
Subordinated Promissory Notes Due 2001 of Holdings.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other
security agreement of any kind or nature whatsoever. For purposes of the
Indenture, a Person shall be deemed to own subject to a Lien any property
which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such Person.
"Material Subsidiary" means a Subsidiary of the Company which would
constitute a "significant subsidiary" of the Company within the meaning of
Regulation S-X of the Securities and Exchange Commission. For purposes of
the Indenture, Pamida Transportation Company and Seaway Importing Company
shall be deemed to be Material Subsidiaries of the Company.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations when received in the form of cash
or Cash Equivalents (except to the extent that such obligations with
respect to Indebtedness are financed or sold with recourse to the Company
or any of its Subsidiaries) net of (i) brokerage commissions and other
reasonable fees and expenses (including fees and expenses of counsel and
investment bankers) related to such Asset Sale; (ii) provisions for all
taxes payable as a result of such Asset Sale; (iii) payments made to
retire Indebtedness secured by the assets subject to such Asset Sale
(including retirements of Indebtedness under the Credit Agreement) to the
extent required pursuant to the terms of such Indebtedness; and
(iv) appropriate amounts to be provided by the Company or any of its
Subsidiaries, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by
the Company or any of its Subsidiaries, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock (other
than Disqualified Stock) by the Company, the aggregate net proceeds
received by the Company, after payment of expenses, commissions and the
like incurred in connection therewith, whether such proceeds are in cash
or in property (valued at the Fair Market Value thereof, as determined in
good faith by the Board of Directors of the Company, at the time of
receipt), (b) in the case of any exchange, exercise, conversion or
surrender of outstanding securities of any kind of the Company for or into
shares of Capital Stock of the Company which is not Disqualified Stock,
the net book value of such outstanding securities on the date of such
exchange, exercise, conversion or surrender (plus any additional amount
required to be paid by the holder to the Company upon such exchange,
exercise, conversion or surrender, less any and all payments made to the
holders, e.g., on account of fractional shares, and less all expenses
incurred by the Company in connection therewith) and (c) in the case of
the issuance of any Indebtedness by the Company, the aggregate net cash
proceeds received by the Company, after payment of expenses, commissions
and the like incurred therewith.
"Permitted Liens" means, with respect to any Person, any lien arising by
reason of (a) any attachment, judgment, decree or order of any court, so
long as such lien is being contested in good faith and is either
adequately bonded or execution thereon has been stayed pending appeal or
review and any appropriate legal proceedings which may have been duly
initiated for the review of such attachment, judgment, decree or order
shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired; (b) taxes,
assessments or governmental charges not yet delinquent or which are being
contested in good faith; (c) security for payment of workers' compensation
or other insurance; (d) security for the performance of tenders, bids,
leases and contracts (other than contracts for the payment of money);
(e) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds or to secure permitted contracts for the purchase
or sale of any currency entered into in the ordinary course of business;
(f) operation of law in favor of carriers, warehousemen, landlords,
mechanics, materialmen, laborers, employees or suppliers, incurred in the
ordinary course of business for sums which are not yet delinquent or are
being contested in good faith by negotiations or by appropriate
proceedings which suspend the collection thereof; (g) any interest or
title of a lessor under any lease; (h) security for surety or appeal
bonds; and (i) easements, rights-of-way, zoning and similar covenants and
restrictions and other similar encumbrances or title defects which, in the
aggregate, are not substantial in amount and which do not in any case
materially interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Pledge Agreement" means the Holdings Pledge Agreement providing, among
other things, that the obligations of Holdings in respect of the Guarantee
shall be secured under the Pledge Agreement.
"Promissory Notes" means the Senior Subordinated Promissory Notes,
Subordinated Promissory Notes and Junior Subordinated Promissory Notes.
"Public Offering" means the first offer and sale to the public by Holdings
or the Company of shares of any class of the Capital Stock (other than
Disqualified Stock) of Holdings or the Company pursuant to a registration
statement declared effective by the Securities and Exchange Commission
after the Issue Date.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Subsidiary (i) issued to finance or refinance (including any extensions or
renewals) the purchase or construction of any assets of the Company or any
Subsidiary or (ii) secured by a Lien on any assets of the Company or any
Subsidiary where the lender's sole recourse is to the assets so
encumbered, in either case (a) to the extent the purchase or construction
costs for such assets are or should be included in "additions to property,
plant and equipment" in accordance with GAAP, (b) if the purchase or
construction of such assets is not part of the acquisition of a Person or
business unit and (c) so long as the aggregate principal amount of such
Indebtedness does not exceed the lesser of cost or Fair Market Value of
the assets so purchased or constructed.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct
or indirect holders (in their capacities as such) of Capital Stock of the
Company or any Subsidiary of the Company (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to purchase Capital Stock
(other than Disqualified Stock) and (y) in the case of Subsidiaries of the
Company, dividends or distributions payable to the Company or to a
Subsidiary of the Company), (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company or
any of its Subsidiaries, (iii) the making of any principal payment on, or
the purchase, defeasance, repurchase, redemption or other acquisition or
retirement for value, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, of, any Indebtedness which is
subordinated in right of payment to the Notes (other than Indebtedness
acquired in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition) and (iv) the making of any Investment in any
Person other than pursuant to clauses (i) through (vii) of the "Limitation
on Investments, Loans and Advances" covenant described above.
"Sale-Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company
of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Subsidiary to such Person
in contemplation of such leasing.
"Senior Indebtedness" means, at any date, all obligations of the Company
under the Credit Agreement, including obligations to pay principal,
premium, if any, and interest (including, in the case of the following
sentence only, interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not
such claim for post-petition interest is allowed in such proceeding).
Notwithstanding the foregoing, the maximum principal amount of Senior
Indebtedness permitted to be incurred is the amount of Indebtedness
permitted to be incurred under the Credit Agreement pursuant to clause (b)
of "Limitation on Additional Indebtedness" above, and any Indebtedness
under the Credit Agreement in excess of such amount shall not be Senior
Indebtedness. Senior Indebtedness shall not include Indebtedness which is
subordinated or junior in right of payment to any other Indebtedness of
the Company.
"Senior Representative" means any agent, trustee or other representative
of the holders of any Senior Indebtedness, and if there is no such agent,
trustee or other representative with respect to any such Senior
Indebtedness, "Senior Representative" shall mean, collectively, the
holders of at least a majority in dollar amount of such Senior
Indebtedness.
"Senior Subordinated Promissory Notes" means the 13.5% Senior Subordinated
Promissory Notes Due 2001 of Holdings.
"Subordinated Promissory Notes" means the 14% Subordinated Promissory
Notes Due 2001 of Holdings.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which the outstanding Capital Stock having at least a majority of the
votes entitled to be cast in the election of directors shall at the time
be owned, directly or indirectly, by such Person, by a Subsidiary of such
Person or by such Person and a Subsidiary of such Person, or (ii) any
other Person (other than a corporation) of which at least a majority of
voting interest is at the time, directly or indirectly, owned by such
Person, by a Subsidiary of such Person or by such Person and a Subsidiary
of such Person.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, 100% of the
Capital Stock of which (other than shares of Capital Stock representing
any director's qualifying shares or investments by foreign nationals
mandated by applicable law) is owned by the Company, by a Wholly-Owned
Subsidiary of the Company or by the Company and a Wholly-Owned Subsidiary
of the Company.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain terms of the Credit Agreement and of
certain promissory notes of Holdings. For more complete information
regarding the Credit Agreement and the promissory notes of Holdings,
reference is made to the Credit Agreement and the agreements and
instruments governing such promissory notes, copies of which have been
filed as exhibits to the Registration Statement and which are incorporated
by reference herein. The descriptions contained herein of such agreements
and instruments do not purport to be complete and are qualified in their
entirety by the provisions thereof; however, the Company believes that the
matters discussed or referred to in such descriptions are those matters
which a prospective purchaser of Notes might reasonably consider to be
material to an investment decision with respect to the Notes.
Credit Agreement
On March 30, 1993, Pamida entered into a Loan and Security Agreement with
Congress Financial Corporation (Southwest) and BA Business Credit Inc.
under which new revolving credit facilities (including letter of credit
facilities) in an aggregate amount of up to $60,000,000 were established
(the "Credit Agreement"). Such credit facilities replaced certain
previously existing bank credit facilities. On January 23, 1995, such
amount was increased to $80,000,000 by an amendment of the Credit
Agreement. On January 28, 1996, at the Company's request, such amount was
decreased to $70,000,000 by an amendment of the Credit Agreement.
The Credit Agreement presently has a term extending to March 30, 1998, and
loans thereunder bear interest at a rate which is 0.75% per annum greater
than the applicable prime rate. The amounts which the Company is
permitted to borrow under the Credit Agreement are determined by a formula
based upon the amount of the Company's eligible inventory from time to
time and are subject to the discretion of the agent for the lenders.
Obligations of the Company under the Credit Agreement are secured by
security interests in all of the current assets (including inventory) of
the Company and by liens on certain real estate interests and other
property of the Company, and the Company may grant security interests in
or liens on its other assets and property to further secure its
obligations under the Credit Agreement. Holdings and two subsidiaries of
the Company (Pamida Transportation Company and Seaway Importing Company)
have guaranteed payment and performance of the Company's obligations under
the Credit Agreement and have pledged some or all of their respective
assets (including the stock of the Company owned by Holdings) to secure
such guarantees.
See "Investment Considerations -- Operating and Financial Restrictions"
and "Description of Notes -- Guarantee and Pledge Agreement" for other
important information concerning the Credit Agreement.
Holdings Promissory Notes
At January 28, 1996, Holdings had outstanding approximately $4.2 million
principal amount of 13.5% Senior Promissory Notes, approximately $11.5
million principal amount of 14% Subordinated Promissory Notes and
approximately $8.6 million principal amount of 14.25% Junior Subordinated
Promissory Notes (collectively, the "Holdings Notes"). The Senior
Promissory Notes originally were to mature on August 31, 2001, the
Subordinated Promissory Notes originally were to mature on September 30,
2001 and the Junior Subordinated Promissory Notes originally were to
mature on December 31, 2001; as discussed below, the maturity of the
Holdings Notes has been extended for two years. Except as described in
the following paragraph, interest on the Holdings Notes is payable
quarterly in cash at the rates indicated above, but such rates are subject
to increase as provided in the Holdings Notes in the event a default (as
defined in the Holdings Notes) occurs.
On December 18, 1992, the Holdings Notes were amended to provide that,
effective as of December 1, 1992, and continuing thereafter until certain
then existing bank credit facilities had terminated and all obligations
thereunder were paid in full, Holdings was to pay interest on the Holdings
Notes in kind (rather than in cash) by increasing the principal amount of
each note on the applicable quarterly interest payment date by the amount
of accrued interest then being paid in kind. Thereafter, for a specified
period, Holdings may, at its option, continue to pay interest on the
Holdings Notes in kind; following such period, Holdings may pay interest
on the Holdings Notes in kind only with the consent of the holder or
holders of more than 50% of the aggregate principal balances of the
respective note issues then outstanding. Interest paid in kind accrues at
a rate which, in each case, is two percentage points higher than the
applicable cash interest rate. The effect of the Credit Agreement is to
require Holdings to continue in-kind interest payments on the Holdings
Notes. The Indenture restricts the Company's ability to pay dividends to
Holdings for the purpose of enabling Holdings to pay cash interest on the
Holdings Notes. Pursuant to an agreement between Holdings and the holder
of a majority of the principal amount of the Holdings Notes, effective
March 30, 1993, the Holdings Notes were subordinated to the Guarantee and
the maturity of the Holdings Notes was extended by two years.
The Senior Promissory Notes of Holdings are subordinated in right of
payment, to the extent set forth in such notes, to the prior payment of or
provision for all amounts then due under Holdings' guarantees of Pamida's
obligations under the Credit Agreement and under the Notes and all
renewals, extensions, deferrals, restructurings, amendments, replacements
and modifications thereof. The Subordinated Promissory Notes of Holdings
are subordinated in right of payment, to the extent set forth in such
notes, to the prior payment of the amounts referred to in the preceding
sentence and also to the prior payment of the principal of and interest on
the Senior Promissory Notes of Holdings. The Junior Subordinated
Promissory Notes of Holdings are subordinated in right of payment, to the
extent set forth in such notes, to the prior payment of the amounts
referred to in the first sentence of this paragraph and also to the prior
payment of the principal of and interest on the Senior Promissory Notes
and the Subordinated Promissory Notes of Holdings.
The following holder of Holdings Notes has a material relationship with
the Company and/or Holdings:
Affiliation with the
Company and/or Holdings
Approximate principal amount of Holdings Notes
as of January 28, 1996
399 Venture Partners, Inc.
399 Venture Partners, Inc. is an affiliate of Citicorp Securities, Inc.,
underwriter of the Original Offering of the Notes offered by this
prospectus. M. Saleem Muqaddam is a director of Holdings and a Vice
President of 399 Venture Partners, Inc.
$3,177,028 of Senior Promissory Notes, $8,400,461 of Subordinated
Promissory Notes and $8,642,302 of Junior Subordinated Promissory Notes
PLAN OF DISTRIBUTION
This prospectus is to be used by Citicorp Securities, Inc. ("CSI") in
connection with offers and sales of the Notes in market-making
transactions at negotiated prices related to prevailing market prices at
the time of sale. CSI may act as principal or agent in such transactions.
CSI has no obligation to make a market in the Notes and may discontinue
market-making activities at any time without notice at its sole
discretion. The Notes are not listed on any stock exchange nor are they
quoted on any automated quotation system.
CSI acted as underwriter of the Original Offering of the Notes and
received underwriter discounts and commissions totalling $4.2 million.
399 Venture Partners, Inc., an affiliate of CSI, owns common stock of
Holdings which represents approximately 18.13% of the aggregate common
equity of Holdings.
M. Saleem Muqaddam, a director of Holdings, is a Vice President of
Citicorp Venture Capital, Ltd. and 399 Venture Partners, Inc., which are
affiliates of CSI.
LEGAL MATTERS
Certain legal matters regarding the Notes have been passed upon for Pamida
and Holdings by Abrahams, Kaslow & Cassman, Omaha, Nebraska.
EXPERTS
The financial statements and schedule of Pamida and Holdings as of
January 28, 1996, and for the year then ended incorporated by reference in
this Prospectus have been audited by Coopers & Lybrand L.L.P., independent
auditors, to the extent stated in its report which is incorporated herein
by reference and have been so incorporated in reliance upon the report of
such firm given upon the authority of such firm as experts in accounting
and auditing.
The financial statements and schedule of Pamida and Holdings as of January
29, 1995, and for each of the two years in the period ended January 29,
1995, incorporated by reference in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, to the extent stated in its
report which is incorporated herein by reference and have been so
incorporated in reliance upon the report of such firm given upon the
authority of such firm as experts in accounting and auditing.
_______________
P R O S P E C T U S A P P E N D I X
To Prospectus dated May 14, 1996
_______________
$140,000,000
PAMIDA, INC.
11 3/4% Senior Subordinated
Notes Due 2003
This Prospectus Appendix contains the following documents which are
required to be delivered with each copy of the Prospectus:
The Annual Report of the Company on Form 10-K for the fiscal year ended
January 28, 1996.
The Annual Report of Holdings on Form 10-K for the fiscal year ended
January 28, 1996.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 28, 1996
Commission File Number 33-57990
PAMIDA, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0626426
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
8800 "F" Street, Omaha, Nebraska 68127
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 339-2400
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Outstanding at
Class of Stock March 29, 1996
Common Stock 1,000 shares
PART I
Item 1. Business.
General.
Pamida, Inc. (the "Company" or "Pamida") was incorporated in Delaware in
1980. In January 1981 the Company, which then was owned by an employee
stock ownership plan (the "ESOP"), acquired substantially all of the
assets and assumed substantially all of the liabilities of a Nebraska
corporation which previously had carried on the general merchandise retail
business of the Company described below. The Company's predecessor had
been engaged in such business since 1963, and its stock was publicly owned
and listed on the New York Stock Exchange at the time of the 1981 sale to
the Company.
In July 1986 Pamida Holdings Corporation ("Holdings") acquired the stock
of the Company from the ESOP, and the Company became a wholly owned
subsidiary of Holdings. The only significant asset of Holdings is the
common stock of the Company, and Holdings conducts no operations separate
from those of the Company. An initial public offering of shares of Common
Stock of Holdings occurred in September 1990, and the Common Stock of
Holdings has been listed on the American Stock Exchange and publicly
traded since then.
On January 19, 1996, the Company announced its intention to close 40
stores located in unprofitable or highly competitive markets. Store
closing sales began on January 29, 1996, and the Company expects to
complete substantially all of such store closings during the second
quarter of the current fiscal year. References in this Annual Report to
the "Closed Stores" mean such 40 stores.
Stores.
Excluding the Closed Stores, at January 28, 1996, Pamida operated 144
general merchandise retail stores located in 144 small towns (having an
average population of approximately 5,500) in 14 Midwestern, North Central
and Rocky Mountain states. Pamida's strategic objective is to be the
dominant general merchandise retailer in the communities it serves.
Excluding the Closed Stores, the Company believes that it holds the
leading market position in 82% of the communities in which its stores are
located.
Pamida stores generally are located in small towns, normally county seats,
where there often is little or no competition from another major general
merchandise retailer and which the Company considers to be either too
small to support more than one major general merchandise retailer (thereby
creating a potential barrier to entry by a major competitor) or too small
to attract competitors whose stores generally are designed to serve larger
populations. Excluding the Closed Stores, at January 28, 1996, 117 of the
Company's 144 stores faced no direct local competition from other major
general merchandise retailers.
Excluding the Closed Stores, the Company's stores average approximately
29,000 square feet of sales area and range in size from approximately
6,000 to 51,000 square feet of sales area. Excluding the Closed Stores,
at January 28, 1996, Pamida's stores had an aggregate sales area of
approximately 4,132,000 square feet.
The following table indicates the states in which Pamida's stores (other
than the Closed Stores) were located as of January 28, 1996:
State Total
Minnesota 28
Iowa 26
Wisconsin 14
Nebraska 14
Michigan 11
Ohio 10
Wyoming 9
North Dakota7
South Dakota7
Montana 7
Indiana 4
Kentucky 3
Illinois 2
Kansas 2
---
144
===
The following tables show the number of the Company's store openings,
relocations and closings and the aggregate year-end store sales area by
fiscal year since fiscal 1992:
Fiscal Year Ended
1996 1995 1994 1993 1992
Beginning of year 184 173 178 178 177
Stores opened in
new markets 7 17 8 9 7
Stores relocated in
existing markets 3 -- -- -- 1
Stores closed (10) (6) (13) (9) (7)
End of year 184 184 173 178 178
Less Closed Stores (40) === === === ===
144
===
Fiscal Year Ended
1996 1995 1994 1993 1992
Square feet of
store sales area
at year-end (in
millions) 5.22 5.09 4.68 4.75 4.62
Less Closed Stores (1.09)
4.13
====
Pamida regularly evaluates all of its stores and from time to time closes
stores which no longer meet its standards for sales, profitability,
selling area or other applicable criteria.
Store Expansion Program.
Pamida presently plans to open an average of approximately eight stores
per year during the next several years, primarily in new markets. Newly
constructed stores generally will be the Company's current prototype.
Pamida also anticipates opening new stores in existing facilities which
have been vacated by their former occupants if such facilities satisfy the
Company's size, location and other requirements and favorable lease terms
can be negotiated. Pamida's store expansion program is subject to the
Company's ability to negotiate satisfactory leases, to the ability of
prospective landlords to obtain financing for new store buildings and to
various zoning, site acquisition, environmental, traffic, construction and
other contingencies.
Pamida has identified numerous communities which are potential sites for
the Company's prototype stores and in which Pamida believes it can achieve
a leading market position, although there is no assurance that Pamida will
open stores in such communities or on any particular time schedule.
Pamida believes that its existing distribution facilities, senior and
middle management staff and corporate infrastructure are sufficient to
accommodate the Company's planned expansion program. During February
1995, the Company began the use of an additional warehouse facility in
Milwaukee, Wisconsin, to more efficiently distribute inventory to its
stores.
The Company typically invests approximately $1,450,000 to $1,750,000 in a
new prototype store. Such expenditures consist primarily of approximately
$1,000,000 to $1,200,000 for the initial store inventory, a portion of
which is financed by vendor trade credit, and approximately $450,000 to
$550,000 for store fixtures and equipment. Because of the redeployment of
store fixtures and equipment from the Closed Stores to new stores, the
Company expects store fixture and equipment expense to be limited to
approximately $250,000 per new store for fiscal 1997 and 1998. In most
cases, building and land costs of approximately $1,400,000 to $1,600,000
per store are financed by unaffiliated developers who lease the real
estate to Pamida. To expedite the construction process, Pamida
occasionally may construct stores on sites which it acquires, with the
expectation that it subsequently will enter into sale-leaseback
transactions with respect to such stores with unaffiliated investors.
Sales and Merchandising.
Pamida's merchandising policy is to provide customers with one-stop family
shopping convenience and to feature nationally advertised brand-name
products as well as some private-label merchandise at attractive prices.
Pamida operates its stores on a self-service, primarily cash-and-carry
basis and runs frequent promotions throughout the year. All of Pamida's
stores accept bank credit cards, which accounted for 13.3% of total store
sales during the fiscal year ended January 28, 1996.
Pamida's typical customers are price-conscious families across the income
spectrum. To effectively serve such customers, the Company's stores are
open seven days a week for an average of at least 75 hours per week.
Pamida's two basic merchandise divisions are apparel and hardlines. The
apparel division includes men's, women's, children's and infants'
clothing, footwear, accessories and jewelry. The hardlines division
includes categories such as health and beauty aids, automotive
accessories, housewares, cleaning supplies, hardware, paint, sporting
goods, toys, stationery, small appliances and electronic items, videos,
compact discs and tapes, lawn and garden supplies, linens and other
domestics, cameras and accessories, pet supplies and some food and candy
items.
Excluding the Closed Stores, the Company currently owns and operates
pharmacies in 40 of its larger stores, and eight of Pamida's other stores
contain prescription pharmacies leased to and operated by independent
pharmacists. The pharmacies have proved to be effective in building
customer loyalty and attracting customers who are likely to purchase other
items in addition to prescription drugs. Pamida intends, whenever
feasible in light of regulatory and personnel considerations and where
space permits, to include a pharmacy in each of its new prototype stores
and to add pharmacies to existing stores.
During the fiscal year ended January 28, 1996, the hardlines division
accounted for approximately 73% of Pamida's total sales, while the apparel
division and the pharmacies accounted for 23% and 4%, respectively, of
Pamida's total sales.
Among the methods that the Company employs to build customer loyalty and
satisfaction are weekly advertised specials, competitive pricing, clean
and orderly stores, friendly well-trained personnel, a liberal return
policy and a wide variety of special customer services (such as
wheelchairs for the elderly and handicapped, restroom facilities and water
fountains, seating benches, speedy check-out lanes and expedited check
cashing and raincheck and layaway processing) offered under various
customer-oriented themes such as "We Care" and "We're Listening". Pamida
places special emphasis on maintaining an in-stock position in all
merchandise categories, particularly with respect to sale items.
Pamida's business, like that of most other general merchandise retailers,
is seasonal. First quarter sales (February through April) are lower than
sales during the other three fiscal quarters, while fourth quarter sales
(November through January) in recent years have increased to approximately
29% of the full year's sales and normally involve a greater proportion of
higher margin merchandise.
Advertising and Promotion.
The Company's extensive advertising primarily utilizes colorful weekly
circulars developed by a centralized advertising department at Pamida's
headquarters. Such circulars advertise brand-name and other merchandise
at significant price reductions and are inserted into local newspapers or
mailed directly to customers. Pamida also uses local shoppers
publications and coupon books. During fiscal 1996, Pamida spent
approximately $16,340,000 (net of promotional allowances provided by
vendors) on advertising, which represented approximately 2.2% of fiscal
1996 sales.
Purchasing and Distribution.
Pamida maintains a centralized buying, merchandising and store planning
staff at its executive offices. The merchandising department includes two
general merchandise managers, four hardlines divisional merchandise
managers and three apparel divisional merchandise managers. Each of the
divisional merchandise managers supervises from five to seven buyers.
Members of the Company's experienced buying staff regularly attend major
trade shows, visit both domestic and overseas markets and meet with vendor
representatives at the Company's headquarters.
The merchandise in the Company's stores is purchased from over 3,000
primary manufacturers and suppliers and numerous other vendors.
Centralized purchasing enables Pamida to more effectively control
inventory shrinkage and to take advantage of promotional programs and
volume discounts offered by certain vendors. The Company continuously
seeks to optimize merchandise costs including promotional allowances
offered by its suppliers. Pamida also has centralized the management of
returned merchandise, which enables the Company to most effectively secure
vendor credits and refunds with respect to such merchandise.
The Company's point-of-sale data capture equipment located in its stores
provides current information to Pamida's buyers to assist them in managing
inventories, effecting prompt reorders of popular items, eliminating slow-
selling merchandise and reducing markdowns.
Seaway Importing Company, a wholly owned subsidiary of Pamida, Inc.,
imports a wide variety of merchandise, including sporting goods, pet
supplies, toys, electronic items, apparel, hair care items, painting
supplies, automotive items and hardware, for sale in Pamida's stores.
During fiscal 1996, approximately 80% of Pamida's merchandise was supplied
to the stores through Pamida's own distribution centers, while the
remaining merchandise was supplied directly to the stores by manufacturers
or distributors.
Competition.
The general merchandise retail business is highly competitive. The
Company's stores generally compete with supermarkets, drug and specialty
stores, mail order and catalog merchants and, in some communities,
department stores and other general merchandise retailers. Competitors
consist both of independent stores and of regional and national chains,
some of which have substantially greater resources than the Company. The
type and degree of competition and the number of competitors which
Pamida's stores face vary significantly by market.
Pamida believes that the principal areas of competition in the general
merchandise retail industry are store location, price, merchandise variety
and quality and customer service, although numerous other factors also
affect the competitive position of any particular store. Among the
methods that the Company employs to build customer loyalty and
satisfaction are weekly advertised specials, competitive pricing, clean
and orderly stores, friendly well-trained personnel, a liberal return
policy and a wide variety of special customer services offered under
themes such as "We Care" and "We're Listening".
Pamida stores generally are located in small towns, normally county seats,
where there often is little or no competition from another major general
merchandise retailer and which may be either too small to support more
than one major general merchandise retailer (thereby creating a potential
barrier to entry by a major competitor) or too small to attract
competitors whose stores generally are designed to serve larger
populations. The Company believes that, in terms of sales, it is the
leading general merchandise retailer in 82% of the communities in which
its stores are located.
Excluding the Closed Stores, at January 28, 1996, 117 of Pamida's 144
stores were located in communities in which there was no direct local
competition from other major general merchandise retailers. As of that
date, Kmart, Alco, Wal-Mart, Target and ShopKo had stores in 16, 9, 6, 2
and 1 communities, respectively, where Pamida stores are located; however,
because some of these communities have more than one of such competitors,
only 27 Pamida stores face direct local competition from such retail
chains. In recent years the Company's business strategy has been to focus
its store expansion program on communities with less likelihood of the
entry of a new major competitor, but there can be no assurance that in the
future major competitors will not open additional stores in the Company's
markets.
Merchandise prices generally are established on a zone basis at Pamida's
executive offices, although store managers are given discretion to adjust
prices of key items to meet local competition and to match a competitor's
advertised prices. Zone pricing allows the Company to establish prices at
different levels in different trade territories, based primarily on
competitive conditions within such territories, rather than having a
uniform pricing structure throughout the entire chain. Pamida conducts a
continuous program of competitor price comparisons that enables the
Company to make merchandise price adjustments, when necessary, to assure
that the Company maintains a competitive position.
Employees.
Excluding the employees at the Closed Stores, as of January 28, 1996,
Pamida had approximately 6,100 employees, of whom approximately 3,000 were
full-time and 3,100 were part-time. The number of employees varies on a
seasonal basis. None of Pamida's employees are represented by a labor
union, and the Company believes that its relations with its employees are
good.
Excluding the managers of the Closed Stores, at January 28, 1996, the
Company's 14 Senior Vice Presidents and Vice Presidents, 12 District
Managers and 144 store managers averaged 6, 21 and 10 years, respectively,
of employment with Pamida.
Pamida's human resources department is responsible for company-wide salary
and wage administration, as well as all benefit-plan administration. The
human resources department works closely with store operations in the
development and administration of Pamida's store-level employee training
programs. In addition, Pamida has an ongoing program for the development
of management personnel to fill positions in all facets of the Company's
operations and makes a concerted effort to identify and train potential
successors for all of its key middle and senior managers.
Item 2. Properties.
At January 28, 1996, including the Closed Stores, the Company owned 15 of
its 184 store buildings, while its remaining 169 stores operated in leased
premises. Thirty-six of the Closed Stores operated in leased premises,
while Pamida owns and intends to dispose of properties in which four of
the Closed Stores operated.
A substantial majority of the Company's leases have renewal options, with
approximately 52% of the leases having unexpired current terms of five
years or more. The following table provides information relating to the
remaining lease terms for the Company's leased stores at January 28, 1996
(excluding the Closed Stores):
Lease Expiring Number of Leased Stores
During the Period (1) 1/28/96
1/96 to 12/97 8
1/98 to 12/99 7
1/00 to 12/01 5
1/02 to 12/03 7
After 12/03 106
Total 133
===
_______________
(1) Includes renewal options.
Pamida's management believes that the physical condition of the Company's
stores generally is very good. All of the Company's stores are
continuously updated to conform to Pamida's operating and merchandising
standards.
The Company's general offices and one of its three distribution centers
are located in a 215,000 square foot building in Omaha, Nebraska, owned by
the Company. This facility contains approximately 135,000 square feet of
warehouse space and approximately 80,000 square feet of office space.
Pamida's primary distribution center is a 336,000 square foot "flow-
through" facility situated on a 22-acre tract of land in Omaha
approximately one mile from the distribution center described above.
Pamida leases this facility from a local governmental subdivision as an
industrial development bond project and has an option to acquire the
facility for a nominal amount at the expiration of the lease term. This
facility serves primarily as a redistribution center for bulk shipments
and promotional merchandise on which cost savings can be realized through
quantity purchasing. Pamida owns an additional 10-acre tract of land
adjacent to such distribution center which would permit that facility to
be further expanded by almost 60%.
During February 1995, the Company began the use of a an additional
warehouse facility in Milwaukee, Wisconsin, to more efficiently distribute
inventory to its stores. The Company presently leases 100,000 square feet
of space in such facility for a remaining term of one year with a one-year
renewal option and an option to lease up to an additional 200,000 square
feet. This facility serves approximately 50 Pamida stores primarily as a
redistribution center for certain ad merchandise.
Pamida also has a warehouse facility in Omaha which contains approximately
41,000 square feet of space and is located immediately adjacent to the
Company's general offices. This warehouse, which is owned by Pamida, is
used for the processing of merchandise to be returned to vendors and by
the advertising department in connection with its printing operations.
In addition to its retail stores, distribution centers and warehouse
facility, Pamida's tangible assets include inventories, warehouse and
store fixtures and equipment, merchandise handling equipment, office and
data processing equipment, motor vehicles and an airplane.
Item 3. Legal Proceedings.
The Company is a party to a number of lawsuits incidental to its business,
the outcome of which, both individually and in the aggregate, is not
expected to have a material adverse effect on the Company's operations or
financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company is a wholly owned subsidiary of Holdings. There is no market
for the Company's common equity. Because the Company pays dividends on
its common stock only to its parent corporation, no information is
provided concerning past dividend payments or anticipated future dividend
payments.
Item 6. Selected Financial Data.
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
Pamida, Inc. and Subsidiaries
<CAPTION>
Fiscal Years Ended
January 28, January 29, January 30, January 31, February 2,
1996 1995 1994 1993 1992 (1)
(In thousands, except other data)
<S> <C>
INCOME STATEMENT DATA:
Sales $736,315 $711,019 $656,910 $622,941 $636,364
Gross profit 177,688 177,367 158,906 154,695 150,460
Selling, general
and administrative
expenses 151,063 143,551 133,887 124,195 122,362
Operating income 26,625 33,816 25,019 30,500 28,098
Interest expense 25,616 23,904 23,515 22,608 24,410
Long-lived asset
write-off 78,551 - - - -
Store closing
costs 21,397 - - - -
(Loss) income before
provision for income taxes
and extraordinary
item (98,939) 9,912 1,504 7,892 3,688
Income tax (benefit)
provision (6,412) 4,782 1,562 3,992 2,196
(Loss) income before
extraordinary
item (92,527) 5,130 (58) 3,900 1,492
Extraordinary item - - (4,943) - -
Net (loss) income $(92,527) $ 5,130 $ (5,001) $ 3,900 $ 1,492
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital $ 34,422 $ 46,684 $ 41,145 $ 17,047 $ 29,346
Total assets 258,470 354,309 314,816 309,790 326,205
Long-term debt 140,411 141,745 141,938 116,632 135,922
Obligations under capital
leases 36,559 43,050 35,618 37,164 36,205
Common stockholder's
(deficit) equity (61,226) 31,301 26,171 31,172 28,748
OTHER DATA:
Team members 7,200 7,200 6,100 5,900 6,300
Number of stores 184 184 173 178 178
Retail square feet
(in millions) 5.22 5.09 4.68 4.75 4.62
(1)Represents a 53-week year.
</TABLE>
Item 7.
MANAGEMENTS DISCUSSION AND ANALYSIS - ($ amounts in thousands)
PAMIDA, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
Year Ended January 28, 1996 Compared to Year Ended January 29, 1995
Write-off of long-lived assets and store closing charge.
During fiscal 1996, emerging weak trends in retail combined with
increasing competition lowered the operating results of the Company.
While operating results in the first three quarters of the year were
behind plan, management focused on strategies to achieve its plan during
the important fourth quarter season.
During the fourth quarter, management reviewed its expectations for near
and long-term performance for the Company and revised its earnings
projections and reassessed the recoverability of the Companys long-lived
assets.
As explained in Note B to the financial statements, in the fourth quarter
of fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 Accounting For the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed of (SFAS 121). This financial accounting
standard requires the Company to perform an analysis of the recoverability
of the net book value of long-lived assets. The Company analyzed cash
flows on an individual store basis to assess recoverability of store level
long-lived assets including allocated goodwill. As a result of this
analysis impairment totaling $27,228 on a pre-tax basis was indicated at
certain stores.
The Company also analyzed the value of its remaining goodwill and
favorable leasehold interests not impaired under the store-level SFAS 121
analysis using its historical method under Accounting Principles Board
Opinion No. 17 (APB 17) and determined that such remaining amounts were
also impaired. The APB 17 analysis projected a fifteen year forecast
period and produced $5,186 of aggregate undiscounted adjusted net income
for the Companys parent, Pamida Holdings Corporation ( Holdings), which
included projected adjusted net losses for fiscal 1997 of $4,522, which
includes interest expense of $26,242 paid in cash and interest payable in
kind (PIK) of $4,453, and for fiscal 1998 of $2,863, which includes cash
interest expense of $26,581 and PIK interest of $5,121. For fiscal 1999,
Holdings projected adjusted net income of approximately $967, which
included cash interest expense of approximately $26,581 and PIK interest
of 5,889. Due to the uncertainty of projections beyond 1999, this level
of adjusted net income was assumed to continue for each of the remaining
fiscal years in the projection period. Accordingly, a non-cash pre-tax
charge totaling $51,323 was recorded as indicated in Note B to the
financial statements.
Also, managements fourth quarter review of individual stores operations
and cash flows resulted in the identification of forty unprofitable or
competitive market stores which do not fit the Companys niche market
strategy. Consequently, a pre-tax charge totaling $21,397 was recorded at
January 28, 1996 to cover the costs necessary to close these stores as
indicated in Note C to the financial statements. Subsequent to January
28, 1996 the Company has received in excess of $5 million positive net
cash flow due to cash generated from the disposition of inventories at the
closing stores.
MANAGEMENTS DISCUSSION AND ANALYSIS - ($ amounts in
thousands) - (Continued)
PAMIDA, INC. AND SUBSIDIARIES
Sales for fiscal 1996 increased $25,300 or 3.6% compared to fiscal 1995.
Comparable store sales decreased $4,160 or .7%. Excluding the forty
stores to be closed, comparable store sales increased by .1%. During
fiscal 1996 the Company opened ten new prototype stores of which seven are
located in new markets and three were relocations. The Company also
closed ten stores, resulting in a net increase in selling area of
approximately 126,000 square feet. The openings and closings of stores
over the last two fiscal years has resulted in a net increase in sales of
$33,662.
The modest overall sales increases were affected by generally weak
consumer demand which was experienced throughout the retail industry.
Management believes that the Companys geographical niche market
positioning combined with its ability to distribute quality merchandise on
a more timely basis tempered the generally weak retail trends. The
Company experienced substantial sales increases in several merchandise
categories, the most dramatic of which were in the housewares,
prescriptions, junior apparel and bath and floor areas. Substantial sales
gains were also generated in paper, cleaning and seasonal categories. The
Company experienced sales declines in several softlines categories,
primarily womens apparel. Management believes that subtle adjustments
made to the Companys softlines strategy to meet customer demand for a
deeper selection of basic apparel will have a positive impact on sales and
margins in these and other softlines categories beginning in the second
half of fiscal 1997.
The initial operating results of the seven new prototype stores and three
relocated stores opened during fiscal 1996 have exceeded the Companys
original sales projections and reflect the success of the Companys niche
market positioning and merchandising strategies. Currently, twenty-seven
stores with the new format are in operation, and eight additional openings
are planned for fiscal 1997. Modifications have been and are being made
to the Companys other stores to take advantage of the benefits observed
in the new prototype stores.
Gross profit increased $321 or .2% in fiscal 1996 compared to fiscal 1995
and, as a percentage of sales, decreased from 24.9% in fiscal 1995 to
24.1% in fiscal 1996. The decline in gross profit percent in fiscal 1996
compared to fiscal 1995 was attributable primarily to the increased
markdown activity which was necessary to counter sluggish customer demand
during most of the year and to meet customers pricing expectations during
this difficult period for the retail industry. Markdown expense increased
by 23.8% as compared to fiscal 1995. During fiscal 1996, the Company
experienced margin dollar increases due to higher sales in several
merchandise categories, most notably stationery, prescriptions, bath and
floor and seasonal. While the Company experienced margin dollar decreases
in several softlines categories, they were concentrated primarily in the
womens apparel and fashion areas.
MANAGEMENTS DISCUSSION AND ANALYSIS - ($ amounts in thousands) -
(Continued)
PAMIDA, INC. AND SUBSIDIARIES
The gross profit percentage and gross margin dollars were favorably
impacted by a substantial increase in promotional allowances and markdown
offsets received from suppliers. Margins were also positively impacted by
a decrease in inventory shrinkage of approximately $1,948. Warehouse and
distribution expenses as a percent of sales increased from 2.3% to 2.6% as
a result of increased payroll and equipment rental expenses, attributable
largely to the start-up of the new Milwaukee warehouse, and volume-related
increases in transportation.
Selling, general and administrative expense increased $7,512 or 5.2% from
fiscal 1995. As a percentage of sales, selling, general and
administrative expenses increased from 20.2% in fiscal 1995 to 20.5% in
fiscal 1996. Approximately 40% of the total gross increase in selling,
general and administrative expense was attributable to increases in
corporate general administrative costs. Payroll and fringe benefits costs
increased by approximately 13% due to the effect of a full years salary
for the merchandising, real estate and other corporate personnel added in
fiscal 1995 as well as the costs related to information systems personnel
added during fiscal 1996 to support the systems implementations currently
underway to enhance efficiencies in warehouse, distribution and
merchandising. In addition, professional fees increased approximately 54%
due primarily to information systems and strategic planning consulting
costs as well as increases in legal fees related to new store construction
and financing.
In addition to the corporate general and administrative cost changes,
advertising expenses as a percent of sales increased from 2.0% to 2.2% due
to increases in the costs of paper and postage. This accounted for
approximately 25% of the gross increase in selling, general and
administrative costs. Store controllable expenses increased by 8%, which
also accounted for approximately 25% of the gross increase in selling,
general and administrative costs. The change in store controllable
expense was due primarily to increases in the costs of security equipment
rentals, charge card processing fees (due to increased credit card sales
volume), utilities and inventory counting (as a result of changes in
procedures to allow for detailed SKU level counts). Store controllable
costs were partially reduced by decreases in supplies, travel and
entertainment costs. Store fixed costs as a percent of sales increased
from 2.8% to 3.0% due primarily to increases in rent expense. These
increases in selling, general and administrative expense were offset in
part by an increase in other income resulting primarily from the sale of
idle transportation assets. Selling, general and administrative expense
was also favorably impacted by a reduction in incentive compensation
expense and the benefit of job creation tax credits totaling approximately
$700.
The Company is continuing to challenge selling, general and administrative
expenses. Store operating expenses as a percent of sales are anticipated
to remain relatively constant in fiscal 1997. Corporate administrative
costs are anticipated to increase somewhat as a percent of sales until the
Company completes certain logistics systems improvements currently being
implemented. The Company expects to begin to realize operating
efficiencies from systems enhancements in the warehouse and distribution
areas in the second half of fiscal 1997 and in the merchandising areas
beginning in fiscal 1998. Further expense leveraging is expected in
future years through the addition of new stores.
MANAGEMENTS DISCUSSION AND ANALYSIS - ($ amounts in thousands) -
(Continued)
PAMIDA, INC. AND SUBSIDIARIES
Interest expense increased $1,712 or 7.2% for fiscal 1996 compared to
fiscal 1995. The increase in interest expense for fiscal 1996 was
attributable primarily to higher usage of the revolving line of credit in
fiscal 1996 and to higher average outstanding capitalized lease
obligations in fiscal 1996 compared to fiscal 1995.
Income tax provision - The effective tax rate was 6.5% in fiscal 1996
compared to 48.2% in fiscal 1995. The effective tax rate for fiscal 1996
was impacted by the non-deductible amortization and write-off of goodwill
and the reserve recorded to offset the deferred tax assets. In fiscal
1995, the effective tax rate was higher than the normal statutory rates
primarily as a result of non-deductible goodwill amortization.
Year Ended January 29, 1995 Compared To Year Ended January 30, 1994
Sales for fiscal 1995 increased $54,109 or 8.2% compared to fiscal 1994.
Comparable store sales increased $30,461 or 5.2%. During fiscal 1995 the
Company opened seventeen stores in new markets and closed six stores,
resulting in a net increase in selling area of 412,000 square feet. The
openings and closings of stores over the last two fiscal years resulted in
a net increase in sales of $23,647.
The increase in sales in comparable stores during fiscal 1995 is
attributable to several complementary factors, including the Companys
ability to acquire new merchandise on a more timely basis as a result of
its enhanced credit facility, continued improvement in the merchandising
programs implemented in fiscal 1994 and an emphasis on merchandise quality
and an improved selection of merchandise and brands in response to
preferences expressed by customers. The Company achieved its sixth
consecutive quarterly increase in comparable store sales in the fourth
quarter of fiscal 1995. The increase in sales in comparable stores
occurred primarily in mens and womens apparel, domestics, stationery,
home furnishings, seasonal goods, toys and pharmacy.
The initial operating results of the seventeen new stores opened during
1995 were positive. These new prototype stores exceeded the Companys
original sales projections and reflected the success of the Companys new
merchandising strategies.
MANAGEMENTS DISCUSSION AND ANALYSIS - ($ amounts in thousands) -
(Continued)
PAMIDA, INC. AND SUBSIDIARIES
Gross profit increased $18,461 or 11.6% in fiscal 1995 compared to fiscal
1994 and, as a percentage of sales, increased from 24.2% in fiscal 1994 to
24.9% in fiscal 1995. The improvement in gross profit percent and dollars
in fiscal 1995 compared to fiscal 1994 was attributable to a sales mix
that emphasized increased sales volumes in higher gross margin
departments, such as apparel and home furnishings, and reduced sales
volumes in certain lower gross margin commodity categories such as
consumable products. Additionally, the gross profit percentage and gross
margin dollars were favorably impacted by an 85% increase in promotional
allowances and markdown offsets received from suppliers while the
Companys inventory shrinkage was reduced by approximately 5%. These
improvements were partially offset by an 11% increase in markdown expense
due to the effect of a stronger fourth-quarter promotional program and an
8% increase in warehouse and distribution expenses incurred to handle a
higher volume of merchandise.
Selling, general and administrative expense increased $9,664 or 7.2% from
fiscal 1994. As a percentage of sales, selling, general and
administrative expenses decreased from 20.4% in fiscal 1994 to 20.2% in
fiscal 1995. Approximately 46% and 33%, respectively, of the total
increase in selling, general and administrative expense was attributable
to store payroll, which increased 8%, and store controllable expense,
which increased 17%. These areas of expense were impacted by the
seventeen new stores opened in fiscal 1995. In addition, 22% of the
increase in total selling, general and administrative expense was
attributable to corporate expense, which increased 10% primarily as a
result of the addition of new personnel in the merchandising, real estate
and asset protection departments and higher incentive compensation because
of the higher earnings of the Company. These expenses were partially
offset by a reduction of amortization expense of $1,191 which related
primarily to the write-off of intangible costs pertaining to certain
stores that were closed in fiscal 1994.
Interest expense increased $389 or 1.7% for fiscal 1995 compared to fiscal
1994. The increase in interest expense for fiscal 1995 was attributable
primarily to the higher usage of the revolving line of credit in fiscal
1995 and to higher outstanding capitalized lease obligations in fiscal
1995 compared to fiscal 1994. These increases were partially offset by
the elimination of interest expense on certain industrial development
bonds which were retired in fiscal 1994.
Income tax provision - The effective tax rate was 48.2% in fiscal 1995
compared to 103.9% in fiscal 1994. In fiscal 1995, the effective tax rate
was higher than the normal statutory rates primarily as a result of the
impact of non-deductible goodwill amortization on the pre-tax book income
of the Company. The decrease in the effective tax rate in fiscal 1995 was
primarily attributable to the increase in the Companys earnings and the
reduced impact that certain non-deductible expenses had on those higher
earnings.
MANAGEMENTS DISCUSSION AND ANALYSIS - ($ amounts in thousands) -
(Continued)
PAMIDA, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Companys business is seasonal with first quarter sales (February
through April) being lower than sales during the other three quarters,
while fourth quarter sales (November through January) have represented
approximately 29% of the full years retail sales in recent years and
normally involve a greater proportion of higher margin sales.
The Company has satisfied its seasonal liquidity requirements primarily
through a combination of funds provided from operations and from a
revolving credit facility. Funds provided by operating activities were
$4,029 in fiscal 1996 and $2,471 in fiscal 1995. The positive change in
cash flow from operating activities from fiscal 1995 to fiscal 1996 was
primarily the result of net decreases in inventory and accounts payable.
These increases were offset primarily by current and deferred tax payable
changes, principally as a result of the store closing charge, the changes
in profitability of the continuing operations and changes in other
operating assets and liabilities. The decrease in net cash provided by
operating activities from fiscal 1994 to fiscal 1995 resulted primarily
from a higher investment in inventory of $19,610 net of trade payables.
Such decrease was partly offset by increased earnings and by an increase
in certain other current liabilities.
Effective January 19, 1996, the term of the Companys committed Loan and
Security Agreement (the Agreement) was extended by one year to March 1998.
The maximum borrowing limit of the facility was reduced at that time to
$70,000 from $80,000 in line with lower expected peak borrowings during
the remainder of the term of the Agreement. Concurrently, certain
covenants were modified to reflect the financial effects of closing forty
stores. Borrowings under the Agreement bear interest at a rate which is
.75% per annum greater than the applicable prime rate. The amounts the
Company is permitted to borrow are determined by a formula based upon the
amount of the Companys eligible inventory from time to time. Such
borrowings are secured by security interests in all of the current assets
(including inventory) of the Company and by liens on certain real estate
interests and other property of the Company. Holdings and two
subsidiaries of the Company have guaranteed the payment and performance of
the Companys obligations under the Loan and Security Agreement and have
pledged some or all of their respective assets, including the stock of the
Company owned by Holdings, to secure such guarantees.
MANAGEMENTS DISCUSSION AND ANALYSIS - ($ amounts in thousands) -
(Continued)
PAMIDA, INC. AND SUBSIDIARIES
The Agreement contains provisions imposing operating and financial
restrictions on the Company. Certain provisions of the Agreement require
the maintenance of specified amounts of tangible net worth (as defined)
and working capital and the achievement of specified minimum amounts of
cash flow. Other restrictions in the Agreement and those provided under
the Indenture relating to the Senior Subordinated Notes will affect, among
other things, the ability of the Company to incur additional indebtedness,
pay dividends, repay indebtedness prior to its stated maturity, create
liens, enter into leases, sell assets or engage in mergers or
acquisitions, make capital expenditures and make investments. These
covenants currently have not had an impact on the Companys ability to
fully utilize the revolving credit facility. However, certain of the
covenants, such as those which restrict the ability of the Company to
incur indebtedness or encumber its property or which impose restrictions
on or otherwise limit the Companys ability to engage in sale-lease-back
transactions, may at some future time prevent the Company from pursuing
its store expansion program at the rate that the Company desires.
Obligations under the Agreement were $31,588 at January 28, 1996 and
$20,602 million at January 29, 1995. In previous years financial
statements, revolving borrowings under the Agreement were included in
long-term debt. At January 28, 1996 the Company was required to adopt new
guidance provided by the FASBs Emerging Issues Task Force in Abstract 95-
22. This Abstract requires classification of the outstanding borrowings
under the Companys committed revolving credit facility as a current
liability on the Companys balance sheets. As noted above, this facility
expires in March 1998, and the Company intends to refinance any
outstanding balance by such date. Borrowings under the Agreement are
senior to the Senior Subordinated Notes of the Company. The Company had
long-term debt and obligations under capital leases of $176,970 at January
28, 1996 and $184,795 at January 29, 1995. The Companys ability to
satisfy scheduled principal and interest payments under such obligations
in the ordinary course of business is dependent primarily upon the
sufficiency of the Companys operating cash flow. At January 28, 1996,
the Company was in compliance with all covenants contained in its various
financing agreements.
The Company paid Holdings $315 and $316 in fiscal 1996 and 1995,
respectively, under a tax-sharing agreement to enable Holdings to pay
quarterly dividends to its preferred stockholders. During fiscal 1996,
Holdings received $967 from the Company under a tax-sharing agreement as
a reimbursement for certain tax benefits derived by the Company. Such
remittance, along with $18 from the exercise of certain stock options, was
used by Holdings to redeem promissory notes, to repay intercompany
balances totaling $29, and to pay quarterly dividends on Holdings
preferred stock. During fiscal 1995, the Company also had paid Holdings
$1,316 under the tax-sharing agreement, which Holdings used to make a
principal payment on Holdings promissory notes of $1,029 and to repay to
the Company certain intercompany advances aggregating $287. Since
Holdings conducts no operations of its own, the only cash requirement of
Holdings relates to preferred stock dividends in the aggregate annual
amount of approximately $316; and the Company is expressly permitted under
its existing credit facilities to pay dividends to Holdings to fund such
preferred stock dividends. However, the laws of the State of Delaware,
under which
MANAGEMENTS DISCUSSION AND ANALYSIS - ($ amounts in thousands) -
(Continued)
PAMIDA, INC. AND SUBSIDIARIES
Holdings is incorporated, allow Holdings to pay dividends only from
retained or current earnings. Due to the retained deficit resulting from
the store closings and the impairment of goodwill and other long-lived
assets, Holdings may pay cash dividends in fiscal 1997 and in ensuing
years only to the extent that Holdings has profitable operations.
Holdings did not declare or pay the preferred stock dividends payable on
February 29, 1996. The cumulative dividend rate on the preferred stock
increases by 0.5% per quarter (with a maximum aggregate increase of 5%) on
each quarterly dividend payment date on which the preferred stock
dividends are not paid currently on a cumulative basis. Any unpaid
dividends are added to the liquidation value until paid in cash.
The Company made capital expenditures of $9,265 during fiscal 1996
compared to $12,888 during fiscal 1995. The Company plans to open eight
new stores in fiscal 1997 and will consider additional opportunities for
new store locations as they arise. Total capital expenditures are
expected to be approximately $5,300 in fiscal 1997. The Company expects
to fund these expenditures from cash flow from its operations. The costs
of buildings and land for new store locations are expected to be financed
by operating or capital leases with unaffiliated landlords. The Companys
expansion program also will require inventory of approximately $1,000 to
$1,200 per each new market store, which the Company expects to finance
through trade credit, borrowings under the Agreement and cash flow from
operations.
On a long-term basis, the Companys expansion will require continued
investments in store locations, working capital and distribution and
infrastructure enhancements. The Company expects to continue to finance
some of these investments through leases from unaffiliated landlords,
trade credit, borrowings under the Agreement and cash flow from operations
but ultimately will need to explore additional sources of funds which may
include both debt (mid-term to long-term) and equity capitalization.
Currently, it is not possible for the Company to predict with any
certainty either the timing or the availability of such additional
financing.
INFLATION
The Company uses the LIFO method of inventory valuation in its financial
statements; as a result, the cost of merchandise sold approximates current
costs. The Companys rental expense is generally fixed and, except for
small amounts of percentage rents and rentals adjusted by cost-of-living
increases tied to the Consumer Price Index or interest rates, has not been
affected by inflation.
Item 8. Financial Statements and Supplementary Data.
The financial statements listed in Item 14(a) are filed as a part of this
report pursuant to this Item 8. Such financial statements are attached to
this report and incorporated herein by this reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
The information required by this item has been previously reported in the
Form 8-K Current Report of the Company dated June 16, 1995.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The directors of the Company are Steven S. Fishman and Frank A. Washburn.
The term of office of the directors of the Company is for one year and
until their respective successors are elected. Messrs. Fishman and
Washburn have been directors of the Company since 1993. Messrs. Fishman
and Washburn receive no compensation other than their regular compensation
as officers and employees of the Company for serving as directors of the
Company.
Set forth below are the names, ages and positions with the Company of the
directors and executive officers of the Company:
Name Age Position
Steven S. Fishman45Chairman of the Board, President,
Chief Executive Officer and
Director
Frank A. Washburn47Executive Vice President-Corporate
Operations and Director
George R. Mihalko41Senior Vice President, Treasurer
and Chief Financial Officer
Stephen D. Robinson40Senior Vice President-General
Merchandise Manager
Donald Hendricksen45Senior Vice President-Store
Operations
Steven S. Fishman has served as President and Chief Executive Officer of
the Company since April 1993 and as Chairman of the Board of the Company
since August 1993. From 1988 to March 1993, Mr. Fishman was employed by
Caldor, Inc. as Senior Vice President and General Merchandise Manager-
Homelines.
Frank A. Washburn has served as Executive Vice President-Corporate
Operations of the Company since February 1995, having previously served as
Senior Vice President-Human Resources of the Company since 1993 and as
Vice President-Human Resources of the Company from 1987 to 1993. Mr.
Washburn joined the Company's predecessor in 1965.
George R. Mihalko has served as Senior Vice President, Treasurer and Chief
Financial Officer of the Company since September 1995. From February 1993
to September 1995, Mr. Mihalko was employed by Pier I Imports, Inc. as
Vice President and Treasurer. From July 1990 to February 1993, Mr.
Mihalko was employed by Burlington Northern Railroad as Assistant
Treasurer.
Stephen D. Robinson has served as Senior Vice President-General
Merchandise Manager of the Company since he joined the Company in
September 1993. From February 1992 to September 1993, Mr. Robinson served
as Vice President of Sales and Marketing for Benchmark Home Products; from
January 1991 to February 1992, Mr. Robinson was employed by Caldor, Inc.
as an Operating Vice President and Divisional Merchandise Manager.
Donald Hendricksen has served as Senior Vice President-Store Operations of
the Company since January 1996. From 1986 to January 1996, Mr.
Hendricksen served as a Vice President and Divisional Merchandise Manager
of the Company. Mr. Hendricksen joined the Company's predecessor in 1969.
All executive officers of the Company may be removed from their positions
as such officers at any time by the board of directors of the Company.
However, Mr. Fishman has an employment agreement with the Company which
provides for the continuation of his employment with the Company (see Item
11).
Item 11. Executive Compensation.
Annual Executive Compensation. The following table shows the annual
compensation paid by the Company for services rendered during the fiscal
years ended January 28, 1996, January 29, 1995 and January 30, 1994 to the
chief executive officer of the Company during fiscal 1996 and to certain
other executive officers of the Company:
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
Stock
Options
Other (Number
Name and Fiscal Annual of All Other
Principal Position Year Salary Bonus Compensation Shares) Compensation(1)
Steven S. Fishman, 1996 $444,088 $ $ - 2,778 $24,310
Chairman of the 1995 $419,135 $239,787 $ - 75,000 $ 3,700
Board, President 1994 $307,692 $147,533 $93,903 (2) 75,000 $ -
and Chief
Executive Officer
Frank A. Washburn, 1996 $194,281 $ 25,000 $ - 14,667 $12,877
Executive Vice 1995 $134,819 $ 31,468 $ _ _ $ 3,369
Corporate 1994 $121,704 $ 24,487 $ _ 6,000 $ 3,041
Operations
George R. Mihalko, 1996 $ 58,385 $ 35,000 $29,836 (4) 10,000 $ 2,856
Senior Vice
President,
Treasurer and
Chief Financial
Officer (3)
Michael Edmonds, 1996 $164,904 $ - $53,841 (6) 10,000 $ 8,034
Senior Vice
President-General
Merchandise
Manager (5)
Cary C. Perell, 1996 $145,218 $ - $ - 14,667 $ 2,804
Senior Vice
President-Store
Operations (7)
Stephen D. 1996 $182,358 $ - $ - 14,667 $12,071
Robinson, Senior 1995 $172,896 $ 39,335 $ - - $ 1,010
Vice President- 1994 $103,413 $ 13,187 $ 58,211 (9) 6,000 $ -
General
Merchandise
Manager (8)
Donald 1996 $118,358 $ - $ - 471 $ 8,122
Hendricksen,
Senior Vice
President-Store
Operations (10)
(1) All Other Compensation for fiscal 1996 generally consists only of
contributions by the Company to its 401(k) plan and 1995 Deferred
Compensation Plan ($3,745 and $20,565 for Mr. Fishman, $3,702 and $9,175
for Mr. Washburn, $0 and $2,856 for Mr. Mihalko, $0 and $8,034 for Mr.
Edmonds, $0 and $112 for Mr. Perell, $3,668 and $8,403 for Mr. Robinson,
and $2,958 and $5,164 for Mr. Hendricksen). Mr. Perell also received a
termination payment of $2,692 included in his All Other Compensation for
fiscal 1996. All Other Compensation for fiscal 1994 and 1995 consists of
contributions by the Company to its 401(k) plan.
(2) $78,171 of this amount reflects various payments by the Company
relating to the relocation of Mr. Fishman and his family from Connecticut
to Nebraska in connection with Mr. Fishman's employment by the Company,
including $51,000 which represents the difference between the purchase
price and the fair market value of Mr. Fishman's Connecticut residence.
(3) Mr. Mihalko became an executive officer of the Company in September
1995. Prior to that time he was not employed by the Company.
(4) $16,849 of this amount was a sign-on bonus in connection with Mr.
Mihalko's initial employment by the Company, and $11,873 of this amount
was reimbursement of various moving and relocation expenses.
(5) Mr. Edmonds became an executive officer of the Company in February
1995. Prior to that time he was not employed by the Company. Mr.
Edmonds' employment with the Company terminated in March 1996.
(6) $25,274 of this amount was a sign-on bonus in connection with Mr.
Edmonds' initial employment by the Company, and $24,537 of this amount was
reimbursement of various moving and relocation expenses.
(7) Mr. Perell's employment with the Company terminated in January 1996.
(8) Mr. Robinson became an executive officer of the Company in September
1993. Prior to that time he was not employed by the Company.
(9) $57,703 of this amount reflects various payments by the Company
relating to the relocation of Mr. Robinson and his family from Connecticut
to Nebraska in connection with Mr. Robinson's employment by the Company,
including $19,000 which represents the difference between the purchase
price and the fair market value of Mr. Robinson's Connecticut residence.
(10) Mr. Hendricksen became an executive officer of the Company in
January 1996. His compensation is shown for the full fiscal year.
<TABLE>
Option Grants in Last Fiscal Year
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants (1) for Option Term
% of
Total
Options
Options Granted to
Granted Employees Exercise
(Number of in Fiscal Price Expiration
Name Shares) Year ($/Sh) Date 5% 10%
<S> <C>
Steven S. Fishman 2,778(2) 2.3% $7.1875 2-29-96 -
- -
Frank A. Washburn 667(2) 0.5% $7.1875 2-29-96 -
- -
Frank A. Washburn 14,000(3) 11.5% $7.1875 2-23-05 $63,282
$160,370
George R. Mihalko 10,000(3) 8.2% $4.0625 9-26-05 $25,549 $
64,746
Michael Edmonds 10,000(3) 8.2% $7.1875 2-23-05 $45,202
$114,550
Cary C. Perell 667(2) 0.5% $7.1875 1-03-96 -
- -
Cary C. Perell 14,000(2) 11.5% $7.1875 4-03-96 -
- -
Stephen D. Robinson 667(2) 0.5% $7.1875 2-29-96 -
- -
Stephen D. Robinson 14,000(3) 11.5% $7.1875 2-23-05 $63,282
$160,370
Donald Hendricksen 417(2) 0.3% $7.1875 2-29-96 -
-
</TABLE>
___________________
(1) The options granted during fiscal 1996 were granted under the Pamida
Holdings Corporation 1992 Stock Option Plan (the "Plan") by the Stock
Option Committee of the Board of Directors of Holdings. Such options
relate to shares of the Common Stock of Holdings, were granted at prices
equal to the average of the high and low prices of such Common Stock on
the American Stock Exchange on the dates of the grants, and are intended
to be incentive stock options for federal income tax purposes.
(2) These options expired with no value and without having become
exercisable.
(3) These options are exercisable in five equal annual installments
beginning February 23, 1996, in the case of Messrs. Washburn, Edmonds and
Robinson and September 26, 1996, in the case of Mr. Mihalko, subject in
each case to the terms of the Plan and the applicable stock option
agreement.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal-Year-End Option
Values
<CAPTION>
Number of
Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
1-28-96 (1) 1-28-96 (2)
Number of
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
<S> <C>
Steven S. Fishman 0 - 58,056 $ 0
89,166 $ 0
Frank A. Washburn 0 - 2,333 $ 0
17,000 $ 0
George R. Mihalko 0 - 0 $ 0
10,000 $ 0
Michael Edmonds 0 - 0 $ 0
10,000 $ 0
Cary C. Perell 0 - 2,333 $ 0
0 $ 0
Stephen D. Robinson 0 - 2,333 $ 0
17,000 $ 0
Donald Hendricksen 0 - 1,458 $ 0
1,875 $ 0
</TABLE>
______________________
(1) All options relate to shares of the Common Stock of Holdings and were
granted under the Pamida Holdings Corporation 1992 Stock Option Plan.
(2) In each case, the option exercise price exceeded the fair market
value of the underlying Common Stock on January 26, 1996, the last day of
the fiscal year on which trading in the Common Stock occurred.
Employment Agreements. Mr. Fishman was employed by the Company as its
President and Chief Executive Officer, effective April 19, 1993, pursuant
to an employment agreement having a three-year term ending on April 18,
1996. The agreement provided for a base salary for Mr. Fishman at an
annual rate of not less than $450,000 for the third year and for certain
incentive bonuses and fringe benefits. On September 22, 1995, the Company
and Holdings entered into a new employment agreement with Mr. Fishman
which superseded the 1993 agreement except as otherwise described in this
paragraph. The term of the new agreement extends through April 18, 2001.
Through April 18, 1996, Mr. Fishman is entitled to received a base salary
at an annual rate of $450,000 (the rate for such period provided for in
the 1993 agreement); thereafter, Mr. Fishman is entitled to receive a base
salary at an annual rate of not less than $500,000 for the remaining term
of the new agreement. Mr. Fishman was entitled to receive an incentive
bonus for fiscal 1996 under both the 1993 and 1995 agreements if a
specified minimum earnings test was met; however, such test was not met,
and Mr. Fishman received no incentive bonus for fiscal 1996. The 1995
agreement requires the Board of Directors and Mr. Fishman to agree
periodically upon incentive bonus programs for Mr. Fishman for fiscal 1997
through 2001. Mr. Fishman also is entitled to customary fringe benefits
under the 1995 agreement. In the event of Mr. Fishman's death, his base
salary would continue for 90 days, and his estate would be entitled to a
pro rata portion of his incentive bonus (if any) for the fiscal year in
which his death occurs. If Mr. Fishman's employment terminates for cause
or by reason of his disability for a continuous period of six months, then
he would be entitled to his base salary to the termination date, a pro
rata portion of his incentive bonus (if any) for the fiscal year in which
such termination occurs, and (only in the case of his disability) the
continuation of certain fringe benefits until not later than his
attainment of age 65. If Mr. Fishman's employment is terminated by the
Corporation or Pamida without cause prior to a Significant Corporate Event
(as defined in the 1995 agreement), then he would be entitled to the
continuation of his base salary through April 18, 2001 (less amounts which
Mr. Fishman might receive from other employment), a pro rata portion of
his incentive bonus (if any) for the fiscal year in which such termination
occurs, the continuation of certain fringe benefits until the earlier of
April 18, 2001, or his receipt of such benefits from another employer, and
the equivalent of certain deferred compensation and 401(k) benefits which
Mr. Fishman would lose as a result of his termination without cause. If
the termination without cause occurs after a Significant Corporate Event,
then Mr. Fishman also would be entitled to receive an incentive bonus for
each of the next two twelve-month periods (but not beyond April 18, 2001)
in an amount equal to the average amount of the incentive bonuses (if any)
which he received for the three fiscal years prior to the fiscal year
during which such termination occurs. Significant Corporate Events are
Holdings' ceasing to own all of the capital stock of the Company, the
merger of the Company into a corporation of which Holdings does not own a
majority of the voting shares, the merger of Holdings into another
corporation a majority of whose voting shares are owned by persons other
than the previous majority owners of Holdings, the acquisition by a person
or group (other than 399 Venture Partners, Inc. or its affiliates) of 30%
or more of the voting shares of Holdings, and a stockholder vote to
dissolve the Company or dispose of all of its property and assets. The
1995 agreement also provides that Mr. Fishman is entitled to at least
twelve months advance notice if the Company and Holdings do not intend to
continue his employment after April 18, 2001, with at least the same base
salary as then in effect and with a substantially similar incentive bonus
program and fringe benefits; in the absence of such notice, Mr. Fishman
would be entitled to certain compensation through the end of a 12-month
period beginning when such notice is given.
Pamida has agreements with Messrs. Washburn, Mihalko and Robinson which
provide in each case that if such person's employment is terminated by
Pamida without cause (as defined in the agreement), then such person will
be entitled to receive severance pay in an amount equal to his then
current annual base salary, payable over the 12-month period following the
termination and with any remaining payments reduced by any wages earned by
him during such 12-month period. If Mr. Fishman is not the Chief
Executive Officer of Pamida at the time of such termination, then the
severance pay of Messrs. Washburn and Robinson will be an amount equal to
twice such person's then current annual base salary, payable over the 24-
month period following the termination and with any remaining payments
reduced by any wages earned by such person during such 24-month period.
Mr. Washburn's current annual base salary is $200,000, Mr. Mihalko's
current annual base salary is $165,000, and Mr. Robinson's current annual
base salary is $185,000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Holdings owns 100% of the outstanding capital stock of the Company. Its
address is the same as that of the Company.
The following table sets forth information as to each class of equity
securities of Holdings beneficially owned as of March 29, 1996, by each
director of the Company, by certain executive officers of the Company and
by all directors and executive officers of the Company as a group:
Beneficial Owner Number of Percent
Shares of Common of
Stock Beneficially class
Owned (1)
Steven S. Fishman 113,222 (2) 2.23%
Frank A. Washburn 8,233 (3) 0.16%
George R. Mihalko 0 -
Stephen D. Robinson 36,977 (4) 0.74%
Donald Hendricksen 6,558 (5) 0.13%
All directors and executive
officers
as a group (5 persons) 164,990 (6) 3.24%
__________________
(1) Each person named in the table above has sole voting power and sole
investment power with respect to the shares set forth after his or her
name, except for the shares referred to in notes (2) and (4).
(2) Mr. Fishman disclaims beneficial ownership of 28,500 of these shares
which are held by him (10,500) or his wife (18,000) as custodian for his
children. Mr. Fishman has the right to acquire beneficial ownership of
74,722 of these shares pursuant to options exercisable currently or within
60 days.
(3) Mr. Washburn has the right to acquire beneficial ownership of 5,133
of these shares pursuant to currently exercisable options.
(4)Mr. Robinson has the right to acquire beneficial ownership of 5,133 of
these shares pursuant to a currently exercisable option. 19,000 of these
shares are owned jointly by Mr. Robinson and his wife, who have shared
voting and investment power with respect to such shares. Mr. Robinson
disclaims beneficial ownership of 300 of these shares which are held by
him as custodian for his son and 1,244 of these shares which are held in
an IRA account of his wife.
(5)Mr. Hendricksen has the right to acquire beneficial ownership of 1,458
of these shares pursuant to currently exercisable options.
(6)See notes (2) through (5) above.
Item 13. Certain Relationships and Related Transactions.
None
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements.
Pamida, Inc. and Subsidiaries
-Consolidated Statements of Operations for the Years Ended January 28,
1996, January 29, 1995 and January 30, 1994
-Consolidated Balance Sheets at January 28, 1996 and January 29, 1995
-Consolidated Statements of Common Stockholder's Equity for the Years
Ended January 28, 1996, January 29, 1995 and January 30, 1994
-Consolidated Statements of Cash Flows for the Years Ended January 30,
1996, January 29, 1995 and January 30, 1994
-Notes to Consolidated Financial Statements for the Years Ended January
30, 1996, January 29, 1995 and January 30, 1994
-Independent Auditors' Report
2. Financial Statement Schedules.
None
All schedules of the registrant for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions, are
inapplicable or have been disclosed in the Notes to Consolidated Financial
Statements and, therefore, have been omitted.
3. Exhibits.
(2) 3.1-Restated Certificate of Incorporation of Pamida, Inc.
(2) 3.2-Second Revised By-Laws of Pamida, Inc.
(4) 4.1-Indenture dated as of March 15, 1993, among Pamida, Inc. as
Issuer, Pamida Holdings Corporation as Guarantor, and State Street Bank
and Trust Company as Trustee relating to 11 3/4% Senior Subordinated Notes
due 2003 of Pamida, Inc.
(4) 4.2-Specimen form of 11 3/4% Senior Subordinated Note due 2003 of
Pamida, Inc.
(3) 10.1-Tax-Sharing Agreement dated as of February 2, 1992, among Pamida
Holdings Corporation, Pamida, Inc., Seaway Importing company, and Pamida
Transportation Company.
(4) 10.2-Loan and Security Agreement dated March 30, 1993, by and among
Congress Financial Corporation (Southwest) and BA Business Credit, Inc. as
Lenders, Congress Financial Corporation (Southwest) as Agent for the
Lenders, and Pamida, Inc. and Seaway Importing Company as Borrowers.
(10) 10.3-Amendment No. 1 to Loan and Security Agreement, dated January
28, 1996, among Pamida, Inc. and Seaway Importing Company as Borrowers,
Congress Financial Corporation (Southwest) as Lender and Agent and
BankAmerica Business Credit as a Lender (amends Exhibit 10.16).
10.4-Amendment No. 2 to Loan and Security Agreement, dated January
28, 1996, among Pamida, Inc. and Seaway Importing Company as Borrowers,
Congress Financial Corporation (Southwest) as Lender and Agent and
BankAmerica Business Credit as a Lender (amends Exhibit 10.16).
(6) 10.5-Pamida Holdings Corporation 1992 Stock Option Plan.
(5) 10.6-Employment Agreement dated April 19, 1993, between Pamida, Inc.
and Steven S. Fishman.
(8) 10.7-Amendment No. 1 to Employment Agreement, dated January 3, 1994,
between Pamida, Inc. and Steven S. Fishman (amends Exhibit 10.6).
(9) 10.8-Amendment No. 2 to Employment Agreement, dated January 23, 1995,
between Pamida, Inc. and Steven S. Fishman (amends Exhibit 10.6).
(10) 10.9-Employment Agreement dated September 22, 1995, among Pamida
Holdings Corporation, Pamida, Inc. and Steven S. Fishman.
10.10-Retention and Confidentiality Agreement dated January 12, 1995,
between Pamida, Inc. and Frank A. Washburn and First Amendment thereto
dated February 21, 1996.
10.11-Retention and Confidentiality Agreement dated February 21, 1996,
between Pamida, Inc. and George R. Mihalko.
10.12-Retention and Confidentiality Agreement dated August 31, 1993,
between Pamida, Inc. and Steven Robinson, Amendment thereto dated January
___, 1995, and Second Amendment thereto dated February 21, 1996.
(9) 10.13-Pamida, Inc. 1995 Deferred Compensation Plan.
(7) 22.1-Subsidiaries of Pamida, Inc.
23.1-Consent of Deloitte & Touche LLP.
23.2-Consent of Coopers & Lybrand L.L.P.
_________________________
(1)Previously filed as an exhibit to Registration Statement of Pamida
Holdings Corporation on Form S-1 (Registration No. 33-35324) and
incorporated herein by this reference.
(2)Previously filed as an exhibit to Registration Statement of Pamida,
Inc. on Form S-l (Registration No. 33-10980) and incorporated herein by
this reference.
(3)Previously filed as an exhibit to Registration Statement of Pamida,
Inc. and Pamida Holdings Corporation on Form S-1 (Registration No. 33-
57990) and incorporated herein by this reference.
(4)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation (File No. 1-10619) for the period ended May 2, 1993,
and incorporated herein by this reference.
(5)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida,
Inc. (File No. 33-57990) for the period ended August 1, 1993, and
incorporated herein by this reference.
(6)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation (File No. 1-10619) for the period ended August 1,
1993, and incorporated herein by this reference.
(7)Previously filed as an exhibit to Registration Statement of Pamida,
Inc. on Form S-1 (Registration No. 33-57990) and incorporated herein by
this reference.
(8)Previously filed as an exhibit to Form 10-K Annual Report of Pamida,
Inc. for the fiscal year ended January 30, 1994, and incorporated herein
by this reference.
(9)Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended January 29, 1995, and
incorporated herein by this reference.
(10)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 29, 1995, and
incorporated herein by this reference.
* * *
(b)During the last quarter of the period covered by this report, a Form 8-
K was filed by the registrant. The items reported were Items 5 and 7.
The date of such report was January 19, 1996. No financial statements
were filed as part of such report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 18, 1996PAMIDA, INC.
By: /S/ Steven S. Fishman
Steven S. Fishman, Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/S/ Steven S. FishmanChairman of the Board,April 18, 1996
Steven S. Fishman President, Chief Executive
Officer and Director
/S/ George R. MihalkoSenior Vice President,April 18, 1996
George R. MihalkoTreasurer and Chief
Financial Officer
/S/ Todd D. Weyhrich Principal AccountingApril 18, 1996
Todd D. WeyhrichOfficer
/S/ Frank A. WashburnDirectorApril 18, 1996
Frank A. Washburn
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended
January 28, 1996, January 29, 1995
and January 30, 1994
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pamida, Inc.
Omaha, Nebraska
We have audited the consolidated balance sheet of Pamida, Inc. (a wholly-
owned subsidiary of Pamida Holdings Corporation) and subsidiaries as of
January 29, 1995, and the related consolidated statements of operations,
stockholder's equity and cash flows for each of the two years in the
period ended January 29, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Pamida, Inc. and subsidiaries as of January 29, 1995, and the results of
their operations and their cash flows for each of the two years in the
period ended January 29, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note I to the financial statements, the Company changed
its method of accounting for postretirement medical benefits effective
February 1, 1993 to conform with Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions.
DELOITTE & TOUCHE LLP
March 1, 1995
Omaha, Nebraska
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Pamida, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheet of Pamida,
Inc. and Subsidiaries as of January 28, 1996, and the related consolidated
statements of operations, common stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated balance
sheet of Pamida, Inc. and Subsidiaries as of January 29, 1995, and the
related consolidated statements of operations, common stockholders' equity
and cash flows for each of the two years in the period ended January 29,
1995, were audited by other auditors, whose report, dated March 1, 1995,
expressed an unqualified opinion on those statements and included an
explanatory paragraph that described the adoption of Statement of
Financial Accounting Standards No. 106, as discussed in Note I to the
financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Pamida, Inc. and Subsidiaries as of January 28, 1996, and the results of
their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
As discussed in Note B to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1996
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 28, 1996 and January 29, 1995
(dollar amounts in thousands)
ASSETS 1996 1995
Current assets:
Cash $7,298 $7,059
Accounts receivable,
less allowance for
doubtful accounts of
$50 in both years 11,824 6,951
Merchandise inventories 150,837 163,697
Prepaid expenses 2,953 2,757
Total current assets 172,912 180,464
Property, buildings and
equipment, net 46,371 47,951
Leased property under capital
leases, less accumulated
amortization of $13,496 and
$14,148, respectively 30,977 38,204
Deferred financing costs 3,746 4,727
Excess of cost over net assets
acquired, less accumulated
amortization of $19,496
in 1995 - 72,250
Other assets 4,464 10,713
$258,470 $354,309
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $63,087 $69,811
Loan and security agreement 31,588 20,602
Accrued compensation 5,923 6,190
Accrued interest 6,353 6,321
Store closing reserve 7,818 -
Other accrued expenses 10,823 11,175
Income taxes - deferred and
current payable 9,716 17,417
Current maturities of
long-term debt 1,334 193
Current obligations under
capital leases 1,847 2,071
Total current liabilities 138,489 133,780
Long-term debt, less current
maturities 140,411 141,745
Obligations under capital
leases, less current obligations 36,559 43,050
Other long-term liabilities 4,237 4,433
Commitments and contingencies - -
Common stockholder's equity:
Common stock, $.01 par value;
10,000 shares authorized;
1,000 shares issued and
outstanding, respectively - -
Additional paid-in capital 17,000 17,000
Retained (deficit) earnings (78,226) 14,301
Total common stockholder's
(deficit) equity (61,226) 31,301
$258,470 $354,309
The accompanying notes are an integral part
of the consolidated financial statements.
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
years ended January 28, 1996, January 29, 1995 and January 30, 1994
(dollar amounts in thousands)
1996 1995 1994
Sales $ 736,315 $711,019 $656,910
Cost of goods sold 558,627 533,652 498,004
Gross profit 177,688 177,367 158,906
Expenses:
Selling, general and
administrative 151,063 143,551 133,887
Interest 25,616 23,904 23,515
Long-lived asset write-off 78,551 - -
Store closing costs 21,397 - -
276,627 167,455 157,402
(Loss) income before provision
for income taxes
and extraordinary item (98,939) 9,912 1,504
Income tax (benefit) provision (6,412) 4,782 1,562
(Loss) income before
extraordinary item (92,527) 5,130 (58)
Extraordinary item - - (4,943)
Net (loss) income $ (92,527) $ 5,130 $(5,001)
The accompanying notes are an integral part
of the consolidated financial statements.PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
for the years ended January 28, 1996, January 29, 1995 and January 30, 1994
(dollar amounts in thousands)
Additional
Common Paid-in Retained
Stock Capital Earnings
Balance at January 31, 1993 $ - $17,000 $ 14,172
Net loss - - (5,001)
Balance at January 30, 1994 - 17,000 9,171
Net income - - 5,130
Balance at January 29, 1995 - 17,000 14,301
Net loss - - (92,527)
Balance at January 28, 1996 $ - $17,000 $(78,226)
The accompanying notes are an integral part
of the consolidated financial statements.
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended January 28, 1996, January 29, 1995 and January 30, 1994
(dollar amounts in thousands)
1996 1995 1994
Cash flows from operating activities:
Net (loss) income $(92,527)$ 5,130$ (5,001)
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 15,335 14,951 16,116
Credit for LIFO inventory valuation (585) (675) (728)
Credit for deferred income taxes (6,647) (1,555) (1,457)
Accretion of original issue debt discount - - 44
Gain on disposal of assets (982) (58) (260)
Stock incentive benefits - 84 -
Deferred retirement benefits 13 37 568
Extraordinary item - - 4,943
Long-lived assets write-off 78,551 - -
Store closing costs 21,397 - -
(Increase) decrease in merchandise
inventories 4,532 (30,951) (12,388)
Increase in other operating assets (3,840) (222) (292)
Increase (decrease) in accounts payable (6,749) 8,153 9,200
Increase (decrease) in income taxes payable (4,124) 3,593 2,884
Increase (decrease) in other operating
liabilities (345) 3,984 (566)
Total adjustments 96,556 (2,659) 18,064
Net cash provided by operating activities 4,029 2,471 13,063
Cash flows from investing activities:
Proceeds from disposal of assets 1,163 980 567
Principal payments received on notes receivable 15 14 5
Capital expenditures (9,265) (12,888) (5,200)
Construction notes receivable (4,412) - (420)
Net cash used in investing activities (12,499) (11,894) (5,048)
Cash flows from financing activities:
Borrowings under loan and security agreement, net 10,986 12,417 8,185
Principal payments on other long-term debt (193) (177) (2,210)
Payments for deferred finance costs (13) (200) (5,581)
Principal payments on capital lease obligations (2,071) (1,894) (1,660)
Proceeds from sale of senior subordinated notes - - 140,000
Borrowings under working capital facility, net - - 10,063
Early extinguishment of debt:
Series A, B and subordinated debentures - - (113,500)
Bank debt consisting of working capital facility,
revolving line of credit and term loan - - (38,488)
Redemption premiums and other transaction costs - - (3,328)
Industrial development bonds - - (2,105)
Net cash provided by (used in) financing activities 8,709 10,146 (8,624)
Net increase (decrease) in cash 239 723 (609)
Cash at beginning of year 7,059 6,336 6,945
Cash at end of year $ 7,298 $ 7,059 $ 6,336
(Continued)
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended January 28, 1996, January 29, 1995 and January 30, 1994
(dollar amounts in thousands)
1996 1995 1994
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $25,584 $23,918 $24,405
Income taxes:
Payments to taxing authorities 3,622 1,785 173
Payments to Pamida Holdings Corporation for
benefit of loss from operations 967 1,631 315
Refunds received from taxing authorities (231) (672) (353)
Supplemental schedule of noncash investing
and financing activities:
Capital lease obligations incurred when the
Company entered into lease agreements for
new store facilities and equipment $ 620 $ 9,721 $ 2,257
Capital lease obligations terminated 154 - -
Capital lease asset and obligation assigned
to third party - - (2,083)
The accompanying notes are an integral part
of the consolidated financial statements.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pamida, Inc. (the "Company") became a wholly-owned subsidiary of Pamida
Holdings Corporation ("Holdings") through a merger in a leveraged buy-out
transaction which was consummated on July 29, 1986.
Consolidation - The consolidated financial statements include the results
of operations, account balances and cash flows of the Company and its
wholly-owned subsidiaries, Seaway Importing Company ("Seaway") and Pamida
Transportation Company. All material intercompany accounts and
transactions have been eliminated in consolidation.
Fiscal Year - All references in these financial statements to fiscal years
are to the calendar year in which the fiscal year ends.
Line of Business - The Company is engaged in the operation of retail
discount stores in a 15-state Midwestern, North Central and Rocky Mountain
area. Seaway imports primarily seasonal merchandise for sale to Pamida.
Pamida Transportation Company operated as a contract carrier for Pamida
until July 1995, at which time independent contractors were engaged to
provide all transportation needs of the Company. Due to the similarity in
nature of the Company's businesses, the Company considers itself to be a
single business segment.
Cash Flow Reporting - For purposes of the statement of cash flows, the
Company considers all temporary cash investments purchased with a maturity
of three months or less to be cash equivalents. There were no temporary
investments at January 28, 1996 and January 29, 1995.
Merchandise Inventories - Substantially all of the Company's inventory is
stated at the lower of cost (last-in, first-out) or market.
Property, Buildings and Equipment - Property, buildings and equipment are
stated at cost and depreciated on the straight-line method over the
estimated useful lives. Buildings and building improvements are generally
depreciated over 8 - 40 years, while store, warehouse and office
equipment, vehicles and aircraft equipment are generally depreciated over
3 - 10 years. Leasehold improvements are depreciated over the life of the
lease or the estimated life of the asset, whichever is shorter.
Leased Property Under Capital Leases - Noncancellable financing leases are
capitalized at the estimated fair value of the leasehold interest and are
amortized on the straight-line method over the terms of the leases.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Long-Lived Assets - When facts and circumstances indicate potential
impairment, the Company evaluates the recoverability of asset carrying
values, including associated goodwill, using estimates of future cash
flows over remaining asset lives. When impairment is indicated, any
impairment loss is measured by the excess of carrying values over fair
values.
Deferred Financing Costs - Deferred financing costs are being amortized on
the straight-line method over the terms of the issues which approximates
the effective interest method.
Pre-Opening Expenses - Costs related to opening new stores are expensed as
incurred.
Management's Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications - Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
B.IMPAIRMENT OF LONG-LIVED ASSETS
During fiscal 1996, emerging weak trends in retail combined with
increasing competition lowered the operating results of the Company.
While operating results in the first three quarters of the year were
behind plan, management focused on strategies to achieve its plan during
the important fourth quarter season.
Therefore, during the fourth quarter, management reviewed its expectations
for near and long-term performance of the Company and revised its earnings
projections to reflect developing and projected trends, primarily in
comparable-store-sales growth, gross margins, operating expenses and
interest expenses. Consequently, the recoverability of the Company's
long-lived assets was also reassessed.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
B.IMPAIRMENT OF LONG-LIVED ASSETS, Continued
In the fourth quarter of fiscal 1996, the Company adopted 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 121).
This financial accounting standard requires the Company to perform an
analysis of the recoverability of the net book value of long-lived assets.
The Company analyzed cash flows on an individual store basis to assess
recoverability of store level long-lived assets including allocated
goodwill.
As a result of this analysis, impairment was indicated at certain stores
and a non-cash pre-tax charge was recorded as illustrated in the table
below. The impairment losses were based on fair value which was
determined through discounted cash flows for the particular stores
utilizing a rate commensurate with the associated risks. The effect of
this accounting change was to increase the net loss for the year by
$24,693.
The Company also analyzed the value of its remaining goodwill and
favorable leasehold interests not impaired under the store-level SFAS 121
analysis using its historical method under Accounting Principles Board
Opinion No. 17 (APB 17) and determined that such remaining amounts were
also impaired. For this analysis, the value of the goodwill and favorable
leasehold interests was determined by projecting aggregate net income of
Holdings and adjusting it by adding back amortization of intangible
assets. With respect to the projections of net income used to evaluate
intangible assets impairment, management made several assumptions in
projecting their best estimate of the results of future operations of
Holdings. The most significant assumptions were an estimated remaining
useful life of goodwill of fifteen years, modest annual comparable store
sales growth, gross margin rates consistent with those experienced over
the past fiscal year in the stores not to be closed, an annual expense
escalation consistent with recent inflation trends and the ability to
refinance debt maturities as they come due.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
B.IMPAIRMENT OF LONG-LIVED ASSETS, Continued
These assumptions resulted in aggregate undiscounted adjusted net income
of Holdings for the fifteen year forecast period of approximately $5,186,
which reflects aggregate pre-tax interest expense of approximately
$398,000 payable in cash and, at the Holdings level, $86,000 payable "in
kind" (PIK). The $5,186 of aggregate adjusted net income for the fifteen
year forecast period also reflects projected adjusted net losses for
Holdings for fiscal 1997 of $4,522, which includes cash interest expense
of $26,242 and PIK interest of $4,453, and for fiscal 1998 of $2,863,
which includes cash interest expense of $26,581 and PIK interest of
$5,121. For fiscal 1999, Holdings projected adjusted net income of
approximately $967, which included cash interest expense of approximately
$26,581 and PIK interest of $5,889. Due to the uncertainty of projections
beyond 1999, this level of adjusted net income was assumed to continue for
each of the remaining fiscal years in the projection period. As a result
of this evaluation, management concluded that the remaining goodwill and
favorable leasehold interests were fully impaired.
Pre-Tax Components of Long-Lived Asset Write-off As Reflected in the
Statement of Operations:
SFAS 121 APB 17 Total
Goodwill $20,607 $49,406 $70,013
Favorable leasehold interests 4,245 1,917 6,162
Property, buildings and
equipment 2,376 - 2,376
Total $27,228 $51,323 $78,551
The goodwill was originally recorded in July 1986 when the Company was
acquired by Pamida Holdings Corporation through a leveraged buy-out and
represented the excess of the purchase price over the fair value of the
net assets acquired. Goodwill had been amortized on a straight-line basis
over a forty-year period but due to the trends cited above, its estimated
remaining useful life was adjusted to fifteen years during the fourth
quarter of fiscal 1996.
C.STORE CLOSINGS
As discussed in Note B above, the Company's operating performance during
fiscal 1996 was below plan. Management's analysis of individual stores'
operations and cash flows resulted in the identification of forty
unprofitable or competitive market stores which do not fit the Company's
niche market strategy. Consequently, a charge was recorded at January 28,
1996 as indicated below to cover the costs necessary to close these
stores. The Company has received positive net cash flow from closing the
stores due to cash generated from the disposition of related inventories.
The amounts the Company will ultimately realize from the disposal of
assets or pay on the resolution of liabilities may differ from the
estimated amounts utilized in arriving at the income statement
effect.PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
C.STORE CLOSINGS, continued
Pre-Tax Components of Store Closing Costs
Unaudited
Income Estimated
Statement Cash Inflow
Effect (Outflow)
Real estate exit costs and write-off
of property, buildings, and equipment $11,455 $(7,150)
Inventory liquidation 9,080 13,344
Professional charges 314 (314)
Severance and other costs and fees 548 (548)
Totals $21,397 $ 5,332
D.MERCHANDISE INVENTORIES
Total inventories would have been higher at January 28, 1996 and
January 29, 1995 by $5,700 and $6,285, respectively, had the FIFO (first-
in, first-out) method been used to determine the cost of all inventories.
On a FIFO basis, net (loss) income before extraordinary item would have
been $(93,112), $4,887 and $(507), respectively, for fiscal years 1996,
1995 and 1994. During fiscal years 1996, 1995 and 1994, certain inventory
quantities were reduced resulting in a liquidation of certain LIFO layers
carried at costs which were lower than the cost of current purchases, the
effect of which increased net income by $125, $102 and $29, respectively.
E.PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consists of:
January 28, January 29,
1996 1995
Land and land improvements $ 4,789 $ 4,812
Buildings and building improvements 24,468 23,696
Store, warehouse and office equipment 55,638 52,860
Vehicles and aircraft equipment 1,578 1,412
Leasehold improvements 15,362 20,389
101,835 103,169
Less accumulated depreciation
and amortization 55,464 55,218
$ 46,371 $ 47,951
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
F.FINANCING AGREEMENTS
Effective January 19, 1996, the term of the Loan and Security Agreement
(the "Agreement") was extended by one year to March 1998. The maximum
borrowings available under the facility were reduced at that time to
$70,000 from $80,000 to coincide with management's expectation of lower
peak borrowings during the remainder of the term of the Agreement.
Borrowings under the Agreement bear interest at a rate which is .75% per
annum greater than the applicable prime rate. The amounts the Company is
permitted to borrow under the Agreement are determined by a formula based
upon the amount of the Company's eligible inventory from time to time.
Such borrowings of the Company under the Agreement are secured by security
interests in substantially all of the current assets (including inventory)
of the Company and by liens on certain real estate interests and other
property of the Company. Pamida Holdings Corporation and two subsidiaries
of the Company have guaranteed payment and performance of the Company's
obligations under the Agreement and have pledged some or all of their
respective assets, including the stock of the Company owned by Pamida
Holdings Corporation, to secure such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. Certain provisions of the Agreement require
the maintenance of specified amounts of tangible net worth (as defined)
and working capital and the achievement of specified minimum amounts of
cash flow. Other restrictions in the Agreement and those provided under
the Indenture relating to the Senior Subordinated Notes will affect, among
other things, the ability of the Company to incur additional indebtedness,
pay dividends, repay indebtedness prior to its stated maturity, create
liens, enter into leases, sell assets or engage in mergers or
acquisitions, make capital expenditures and make investments.
The maximum amount of borrowings under the Agreement during fiscal 1996
and 1995 was $63,884 and $58,777, respectively. The weighted average
amounts of borrowings under the Agreement for fiscal 1996 and 1995 were
$35,544 and $23,942, respectively; and the weighted average interest rates
were 10.4% and 9.1%, respectively.
As of January 28, 1996, the Company was required to adopt new guidance
issued by the Financial Accounting Standards Board Emerging Issues Task
Force in Abstract 95-22. This Abstract requires classification of the
outstanding borrowings under the Agreement as a current liability.
Accordingly, borrowings under the Agreement are included in current
liabilities in the balance sheet as of January 28, 1996. Prior year's
outstanding borrowings under the Agreement have been reclassified to
current liabilities for consistent presentation.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
F.FINANCING AGREEMENTS, Continued
Long-term debt consists of:
January 28, January 29,
1996 1995
Senior Subordinated Notes, 11.75%,
due March 2003 $140,000 $140,000
Industrial development bonds, due
in monthly installments through
2005. Interest rates vary from
8.5% to 13.25% 1,745 1,938
141,745 141,938
Less current maturities 1,334 193
$140,411 $141,745
As of January 28, 1996, the fair value of long-term debt was approximately
$105,300 compared to its recorded value of $140,411. The fair value of
long-term debt was estimated based on quoted market values for the same or
similar debt issues or rates currently available for debt with similar
terms. The aggregate maturities of long-term debt in each of the next
five fiscal years are as follows: 1997 - $1,334; 1998 - $47; 1999 - $47;
2000 - $47; and 2001 - $47.
The Senior Subordinated Notes are unsecured and are subordinate borrowings
under the Agreement. Presently, under the most restrictive debt
covenants, the Company is not permitted to pay dividends on its common
stock.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
G.INCOME TAXES
Components of the income tax provision (benefit) are as follows:
Years Ended
January 28, January 29, January 30,
1996 1995 1994
Current:
Federal $ 212 $ 5,121 $ 2,657
State 23 1,216 362
235 6,337 3,019
Deferred:
Federal (5,865) (679) (1,356)
State (782) (876) (101)
(6,647) (1,555) (1,457)
Total provision $(6,412) $ 4,782 $ 1,562
The differences between the U.S. Federal statutory tax rate and the Company's
effective tax rate are as follows:
Years Ended
January 28, January 29, January 30,
1996 1995 1994
Statutory rate (34.0)% 34.2% 34.0%
State income tax effect (1.2) 4.8 11.4
Amortization of the excess of
cost over net assets acquired 24.8 7.9 51.9
Valuation allowance 3.8 0.1 2.9
Targeted jobs tax credit - (1.1) ( 5.2)
Other 0.1 2.3 8.9
(6.5)% 48.2% 103.9%
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
G.INCOME TAXES, Continued
Significant temporary differences between reported and taxable earnings
that give rise to deferred tax assets and liabilities were as follows:
January 28, January 29,
1996 1995
Net current deferred tax liabilities:
Inventories $13,681 $14,649
Valuation allowance 3,869 -
Prepaid insurance 514 499
Other 366 192
Supplier allowances - (822)
Post employment health costs (237) (232)
Accrued expenses (1,300) (975)
Store exit costs (7,159) -
Net current deferred tax liabilities 9,734 13,311
Net long-term deferred tax liabilities:
Property, buildings, and equipment 3,109 3,102
Other 438 66
Valuation allowance 5 769
Leasehold interests - 3,577
Capital loss carryforward (5) (769)
Capital leases (2,602) (2,730)
Net long-term deferred tax
liabilities 945 4,015
Net total deferred tax liabilities $10,679 $17,326
Net long-term deferred tax liabilities are classified with other long-term
liabilities in the consolidated balance sheets of the Company.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
H.LEASES
The majority of store facilities are leased under non-cancellable leases.
Substantially all of the leases are net leases which require the payment
of property taxes, insurance and maintenance costs in addition to rental
payments. Certain leases provide for additional rentals based on a
percentage of sales and have renewal options for one or more periods
totaling from one to 20 years. Leases have been categorized as capital or
operating leases in conformity with the definition in Statement of
Financial Accounting Standards No. 13, Accounting for Leases.
Other assets include leasehold interests at January 29, 1995 of $9,406,
net of accumulated amortization of $4,242. Leasehold interests had been
amortized over the terms of the underlying leases, but were written off
due to the impairment described in Note B.
At January 28, 1996, the future minimum lease payments under capital and
operating leases with rental terms of more than one year amounted to:
Capital Operating
Fiscal Year Ending Leases Leases
1997 $ 6,156 $ 9,085
1998 5,922 7,928
1999 5,779 7,246
2000 5,566 5,729
2001 5,476 4,839
Later years 47,354 43,085
Total minimum
obligations 76,253 $77,912
Less amount
representing
interest 37,847
Present value
of net minimum
lease payments 38,406
Less current portion 1,847
Long-term
obligations $36,559
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
H.LEASES, Continued
The minimum rentals under operating leases have not been reduced by
minimum sublease rentals of $861 due in the future under noncancellable
subleases.
Total rental expense related to all operating leases (including those with
terms less than one year) is as follows:
Years Ended
January 28, January 29, January 30,
1996 1995 1994
Minimum rentals $11,715 $9,585 $8,646
Contingent rentals 399 477 421
Less sublease rentals (852) (918) (983)
$11,262 $9,144 $8,084
I.SAVINGS AND OTHER POSTEMPLOYMENT BENEFIT PLANS
The Company has adopted a 401(k) savings plan that covers all employees
who are 21 years of age with one or more years of service. Participants
can contribute from 1% to 15% of their pre-tax compensation. The Company
has currently elected to match 50% of the participant's contribution up to
5% of compensation. The Company's savings plan contribution expenses for
fiscal years 1996, 1995 and 1994 were $749, $716 and $722, respectively.
On February 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions. At that time, the Company had agreed to continue to
provide health insurance coverage and pay a portion of the health
insurance premiums until age 65 for individuals who retire provided the
individual was eligible to participate in the plan, had attained age 55,
had completed 10 or more consecutive years of service and elected to
continue on the Company plan. The plan is unfunded and the Company had
the right to modify or terminate these benefits. In December 1993, the
Company amended the plan to no longer offer postretirement health benefits
for employees retiring after February 1, 1994.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
I.SAVINGS AND OTHER POSTEMPLOYMENT BENEFIT PLANS, Continued
The components of periodic expense for postretirement benefits in fiscal
1996 and 1995 were as follows:
January 28, January 29, January 30,
1996 1995 1994
Annual postretirement
benefit expense:
Service cost $ - $ - $252
Interest cost 13 37 210
Amortization of
unrecognized net
obligations - - 142
Annual postretirement
benefit expense $ 13 $ 37 $604
The accumulated postretirement benefit obligation consists of:
January 28, January 29,
1996 1995
Accumulated postretirement
benefit obligation $395 $535
Unrecognized transition
obligation - -
Unrecognized gain 223 70
Accrued expense $618 $605
A 10% and an 11% increase in the cost of covered health care benefits was
assumed for fiscal 1996 and 1995, respectively. This rate is assumed to
decrease incrementally to 5% after five years and remain level thereafter.
Assuming a 1% increase in the health care trend rate, the annual
postretirement benefit expense would increase by $1 for both fiscal 1996
and 1995, and the unfunded accumulated postretirement benefit obligation
would increase by $13 and $20 for fiscal 1996 and 1995, respectively. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% for fiscal 1996 and 7.5% for
fiscal 1995.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
J.EXTRAORDINARY ITEMS
In the first quarter of fiscal 1994, the Company incurred an extraordinary
charge of $4,943, net of income tax benefit of $3,095, for the write-offs
of unamortized deferred financing costs and unamortized original issue
discount and the payment of redemption premiums relating to the early
extinguishment of the Series A and Series B Senior Subordinated Debentures
and the Subordinated Debentures of Pamida. This charge further included
the write-off of unamortized deferred financing costs relating to the
early extinguishment of amounts outstanding under Pamida's former bank
credit agreement.
K.COMMITMENTS AND CONTINGENCIES
The Company has an employment agreement with one key executive officer
which expires in the year 2001. In addition to a base salary, the
agreement provides for a bonus to be paid if certain Company performance
goals are achieved.
Through January 28, 1996, the Company provided Holdings with $315 annually
to enable Holdings to pay preferred stock dividends. The laws of the
State of Delaware, under which Holdings is incorporated, allow Holdings to
pay dividends only from retained or current earnings. Due to the retained
deficit resulting from the store closings and the impairment of goodwill
and other long-lived assets as described in Notes C and B, respectively,
Holdings will pay dividends in fiscal year 1997 and in ensuing years only
to the extent that Holdings has profitable operations. Holdings did not
declare or pay the preferred stock dividends payable on February 29, 1996.
The cumulative dividend rate on the preferred stock increases by 0.5% per
quarter (with a maximum aggregate increase of 5%) on each quarterly
dividend payment date on which the preferred stock dividends are not paid
currently on a cumulative basis. Any unpaid dividends are added to the
liquidation value until paid.
During fiscal 1996, the Company paid $967 to Holdings under a tax-sharing
agreement as a reimbursement for certain tax benefits derived by the
Company. Such remittance, along with $18 from the exercise of certain
stock options, was used by Holdings to redeem promissory notes, to repay
intercompany balances totaling $29, and to pay quarterly dividends on
Holdings preferred stock. In June 1994, the Company paid $1,316 to
Holdings as a reimbursement for certain tax benefits derived by Pamida.
Such remittance was used by Holdings to make a principal payment on its
outstanding promissory notes of $1,029 and to repay the Company certain
intercompany advances aggregating $287. The Company expects to continue
to provide Holdings with up to $315 annually, solely for the purpose of
enabling Holdings to pay preferred stock dividends.
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands)
L.SUPPLEMENTAL FINANCIAL INFORMATION - CAPITALIZATION OF PAMIDA HOLDINGS
CORPORATION
The capitalization of Pamida Holdings Corporation is as follows:
1996 1995
Long-term debt:
Senior promissory notes, 15.5%, due in 2003,
interest paid in kind quarterly, unsecured $4,231 $3,634
Subordinated promissory notes, 16%, due
in 2003,
interest paid in kind quarterly, unsecured 11,500 10,949
Junior subordinated promissory notes, 16.25%,
net of unamortized discount of $1,038 and
$1,192, due in 2003, interest paid in kind
quarterly, unsecured 7,604 6,177
23,335 20,760
Preferred stock subject to mandatory redemption:
Senior cumulative preferred stock, 16.25%,
$1 par value; 514 shares authorized,
issued and outstanding 514 514
Junior cumulative preferred stock, 14.25%, $1
par value; 6,986 shares authorized; 1,627
shares issued and outstanding; redemption
amount of $1,627 less unamortized discount 1,312 1,265
1,826 1,779
Common stockholders' equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 5,004,942 and 4,999,984
shares issued and outstanding 50 50
Additional paid-in capital 968 950
Retained (deficit) earnings (87,134) 7,876
(86,116) 8,876
Total capitalization $(60,955)$31,415
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
L.SUPPLEMENTAL FINANCIAL INFORMATION - CAPITALIZATION OF PAMIDA HOLDINGS
CORPORATION, Continued
The promissory notes were amended effective December 1, 1992 to provide
that until the obligations of Holdings and the Company under the certain
credit agreement have been paid in full the quarterly interest payments on
the notes will be paid in kind by increasing the principal amount of each
note on the applicable quarterly payment date by the amount of accrued
interest then being paid in kind. Interest on the notes paid in kind
accrues at a rate which, in each case, is two percentage points higher
than the applicable cash interest rate.
Both series of preferred stock provide for mandatory redemption in 2001 at
a price per share not to exceed the liquidation value which is $1,000 per
share. Subject to certain loan restrictions, there are also optional
redemption provisions available at the discretion of Holdings. The
original fair value of the junior cumulative preferred stock is less than
the redemption value and is therefore being increased by periodic
accretions of the difference between fair value and redemption value.
Both series of preferred stock are nonvoting and call for payment of
dividends on a quarterly basis. Any unpaid dividends are added to the
liquidation value until paid. Certain limitations on the payment of
dividends are discussed in Note K.
M.QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended January 28, 1996 and January 29, 1995:
April 30,July 30,October 29,January 28,
Fiscal 1996 1995 1995 1995 1996 Year
Sales $153,961 $186,953 $176,206 $219,195 $736,315
Gross profit $ 36,813 $ 44,638 $ 42,802 $ 53,435 $177,688
Net (loss)
income $ (2,037)$ 642 $ 86 $(91,218) $(92,527)
May 1, July 31, October 30, January 29,
Fiscal 1995 1994 1994 1994 1995 Year
Sales $142,574 $179,998 $177,534 $210,913 $711,019
Gross profit $ 34,021 $ 44,499 $ 44,749 $ 54,098 $177,367
Net (loss)
income $ (1,677)$ 1,528 $ 1,059 $ 4,220 $ 5,130
Fourth quarter fiscal 1995 earnings were favorably impacted by a credit in
the LIFO provision of $1,425.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 28, 1996
Commission File Number 1-10619
PAMIDA HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 47-0696125
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
8800 "F" Street, Omaha, Nebraska 68127
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 339-2400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Name of Each Exchange
Class on Which Registered
Common StockAmerican Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of April 4, 1996, was $11,392,164 based upon the closing
price for such stock on the American Stock Exchange on such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Outstanding at
Class of Stock April 4, 1996
Common Stock 5,004,942 shares
Documents Incorporated by Reference: Portions of the registrant's annual
report to its stockholders for the fiscal year ended January 28, 1996, are
incorporated by reference into Items 6, 7, and 8 of Part II. Portions of
the registrant's proxy statement dated March 27, 1996, for the annual
meeting of the registrant's stockholders to be held on May 23, 1996, are
incorporated by reference into Part III.
PART I
Item 1. Business.
General.
Pamida Holdings Corporation conducts its general merchandise retail
business through its wholly owned subsidiary, Pamida, Inc., a Delaware
corporation. Unless the context indicates otherwise, the terms "Pamida"
and "Company" refer collectively to Pamida Holdings Corporation, its
direct and indirect subsidiaries and their predecessors, and "Holdings"
refers only to Pamida Holdings Corporation.
Holdings is a Delaware corporation incorporated in 1986 to acquire all of
the capital stock of Pamida, Inc. which, directly since 1981 and through
a predecessor prior to 1981, had been engaged in the general merchandise
retail business since 1963. The capital stock of Pamida, Inc. is the only
significant asset of Holdings, and Holdings has no material operations of
its own.
On January 19, 1996, the Company announced its intention to close 40
stores located in unprofitable or highly competitive markets. Store
closing sales began on January 29, 1996, and the Company expects to
complete substantially all of such store closings during the second
quarter of the current fiscal year. References in this Annual Report to
the "Closed Stores" mean such 40 stores.
Stores.
Excluding the Closed Stores, at January 28, 1996, Pamida operated 144
general merchandise retail stores located in 144 small towns (having an
average population of approximately 5,500) in 14 Midwestern, North Central
and Rocky Mountain states. Pamida's strategic objective is to be the
dominant general merchandise retailer in the communities it serves.
Excluding the Closed Stores, the Company believes that it holds the
leading market position in 82% of the communities in which its stores are
located.
Pamida stores generally are located in small towns, normally county seats,
where there often is little or no competition from another major general
merchandise retailer and which the Company considers to be either too
small to support more than one major general merchandise retailer (thereby
creating a potential barrier to entry by a major competitor) or too small
to attract competitors whose stores generally are designed to serve larger
populations. Excluding the Closed Stores, at January 28, 1996, 117 of the
Company's 144 stores faced no direct local competition from other major
general merchandise retailers.
Excluding the Closed Stores, the Company's stores average approximately
29,000 square feet of sales area and range in size from approximately
6,000 to 51,000 square feet of sales area. Excluding the Closed Stores,
at January 28, 1996, Pamida's stores had an aggregate sales area of
approximately 4,132,000 square feet.
The following table indicates the states in which Pamida's stores (other
than the Closed Stores) were located as of January 28, 1996:
StateTotal
Minnesota 28
Iowa 26
Wisconsin 14
Nebraska 14
Michigan 11
Ohio 10
Wyoming 9
North Dakota 7
South Dakota 7
Montana 7
Indiana 4
Kentucky 3
Illinois 2
Kansas 2
---
144
===
The following tables show the number of the Company's store openings,
relocations and closings and the aggregate year-end store sales area by
fiscal year since fiscal 1992:
Fiscal Year Ended
1996 1995 1994 1993 1992
Beginning of year 184 173 178 178 177
Stores opened in
new markets 7 17 8 9 7
Stores relocated in
existing markets 3 -- -- -- 1
Stores closed (10) (6) (13) (9) (7)
End of year 184 184 173 178 178
Less Closed Stores (40) === === === ===
144
===
Fiscal Year Ended
1996 1995 1994 1993 1992
Square feet of
store sales area
at year-end (in
millions) 5.22 5.09 4.68 4.75 4.62
Less Closed Stores (1.09)
4.13
====
Pamida regularly evaluates all of its stores and from time to time closes
stores which no longer meet its standards for sales, profitability,
selling area or other applicable criteria.
Store Expansion Program.
Pamida presently plans to open an average of approximately eight stores
per year during the next several years, primarily in new markets. Newly
constructed stores generally will be the Company's current prototype.
Pamida also anticipates opening new stores in existing facilities which
have been vacated by their former occupants if such facilities satisfy the
Company's size, location and other requirements and favorable lease terms
can be negotiated. Pamida's store expansion program is subject to the
Company's ability to negotiate satisfactory leases, to the ability of
prospective landlords to obtain financing for new store buildings and to
various zoning, site acquisition, environmental, traffic, construction and
other contingencies.
Pamida has identified numerous communities which are potential sites for
the Company's prototype stores and in which Pamida believes it can achieve
a leading market position, although there is no assurance that Pamida will
open stores in such communities or on any particular time schedule.
Pamida believes that its existing distribution facilities, senior and
middle management staff and corporate infrastructure are sufficient to
accommodate the Company's planned expansion program. During February
1995, the Company began the use of an additional warehouse facility in
Milwaukee, Wisconsin, to more efficiently distribute inventory to its
stores.
The Company typically invests approximately $1,450,000 to $1,750,000 in a
new prototype store. Such expenditures consist primarily of approximately
$1,000,000 to $1,200,000 for the initial store inventory, a portion of
which is financed by vendor trade credit, and approximately $450,000 to
$550,000 for store fixtures and equipment. Because of the redeployment of
store fixtures and equipment from the Closed Stores to new stores, the
Company expects store fixture and equipment expense to be limited to
approximately $250,000 per new store for fiscal 1997 and 1998. In most
cases, building and land costs of approximately $1,400,000 to $1,600,000
per store are financed by unaffiliated developers who lease the real
estate to Pamida. To expedite the construction process, Pamida
occasionally may construct stores on sites which it acquires, with the
expectation that it subsequently will enter into sale-leaseback
transactions with respect to such stores with unaffiliated investors.
Sales and Merchandising.
Pamida's merchandising policy is to provide customers with one-stop family
shopping convenience and to feature nationally advertised brand-name
products as well as some private-label merchandise at attractive prices.
Pamida operates its stores on a self-service, primarily cash-and-carry
basis and runs frequent promotions throughout the year. All of Pamida's
stores accept bank credit cards, which accounted for 13.3% of total store
sales during the fiscal year ended January 28, 1996.
Pamida's typical customers are price-conscious families across the income
spectrum. To effectively serve such customers, the Company's stores are
open seven days a week for an average of at least 75 hours per week.
Pamida's two basic merchandise divisions are apparel and hardlines. The
apparel division includes men's, women's, children's and infants'
clothing, footwear, accessories and jewelry. The hardlines division
includes categories such as health and beauty aids, automotive
accessories, housewares, cleaning supplies, hardware, paint, sporting
goods, toys, stationery, small appliances and electronic items, videos,
compact discs and tapes, lawn and garden supplies, linens and other
domestics, cameras and accessories, pet supplies and some food and candy
items.
Excluding the Closed Stores, the Company currently owns and operates
pharmacies in 40 of its larger stores, and eight of Pamida's other stores
contain prescription pharmacies leased to and operated by independent
pharmacists. The pharmacies have proved to be effective in building
customer loyalty and attracting customers who are likely to purchase other
items in addition to prescription drugs. Pamida intends, whenever
feasible in light of regulatory and personnel considerations and where
space permits, to include a pharmacy in each of its new prototype stores
and to add pharmacies to existing stores.
During the fiscal year ended January 28, 1996, the hardlines division
accounted for approximately 73% of Pamida's total sales, while the apparel
division and the pharmacies accounted for 23% and 4%, respectively, of
Pamida's total sales.
Among the methods that the Company employs to build customer loyalty and
satisfaction are weekly advertised specials, competitive
pricing, clean and orderly stores, friendly well-trained personnel, a
liberal return policy and a wide variety of special customer services
(such as wheelchairs for the elderly and handicapped, restroom facilities
and water fountains, seating benches, speedy check-out lanes and expedited
check cashing and raincheck and layaway processing) offered under various
customer-oriented themes such as "We Care" and "We're Listening". Pamida
places special emphasis on maintaining an in-stock position in all
merchandise categories, particularly with respect to sale items.
Pamida's business, like that of most other general merchandise retailers,
is seasonal. First quarter sales (February through April) are lower than
sales during the other three fiscal quarters, while fourth quarter sales
(November through January) in recent years have increased to approximately
29% of the full year's sales and normally involve a greater proportion of
higher margin merchandise.
Advertising and Promotion.
The Company's extensive advertising primarily utilizes colorful weekly
circulars developed by a centralized advertising department at Pamida's
headquarters. Such circulars advertise brand-name and other merchandise
at significant price reductions and are inserted into local newspapers or
mailed directly to customers. Pamida also uses local shoppers
publications and coupon books. During fiscal 1996, Pamida spent
approximately $16,340,000 (net of promotional allowances provided by
vendors) on advertising, which represented approximately 2.2% of fiscal
1996 sales.
Purchasing and Distribution.
Pamida maintains a centralized buying, merchandising and store planning
staff at its executive offices. The merchandising department includes two
general merchandise managers, four hardlines divisional merchandise
managers and three apparel divisional merchandise managers. Each of the
divisional merchandise managers supervises from five to seven buyers.
Members of the Company's experienced buying staff regularly attend major
trade shows, visit both domestic and overseas markets and meet with vendor
representatives at the Company's headquarters.
The merchandise in the Company's stores is purchased from over 3,000
primary manufacturers and suppliers and numerous other vendors.
Centralized purchasing enables Pamida to more effectively control
inventory shrinkage and to take advantage of promotional programs and
volume discounts offered by certain vendors. The Company continuously
seeks to optimize merchandise costs including promotional allowances
offered by its suppliers. Pamida also has centralized the management of
returned merchandise, which enables the Company to most effectively secure
vendor credits and refunds with respect to such merchandise.
The Company's point-of-sale data capture equipment located in its stores
provides current information to Pamida's buyers to assist them in managing
inventories, effecting prompt reorders of popular items, eliminating slow-
selling merchandise and reducing markdowns.
Seaway Importing Company, a wholly owned subsidiary of Pamida, Inc.,
imports a wide variety of merchandise, including sporting goods, pet
supplies, toys, electronic items, apparel, hair care items, painting
supplies, automotive items and hardware, for sale in Pamida's stores.
During fiscal 1996, approximately 80% of Pamida's merchandise was supplied
to the stores through Pamida's own distribution centers, while the
remaining merchandise was supplied directly to the stores by manufacturers
or distributors.
Competition.
The general merchandise retail business is highly competitive. The
Company's stores generally compete with supermarkets, drug and specialty
stores, mail order and catalog merchants and, in some communities,
department stores and other general merchandise retailers. Competitors
consist both of independent stores and of regional and national chains,
some of which have substantially greater resources than the Company. The
type and degree of competition and the number of competitors which
Pamida's stores face vary significantly by market.
Pamida believes that the principal areas of competition in the general
merchandise retail industry are store location, price, merchandise variety
and quality and customer service, although numerous other factors also
affect the competitive position of any particular store. Among the
methods that the Company employs to build customer loyalty and
satisfaction are weekly advertised specials, competitive pricing, clean
and orderly stores, friendly well-trained personnel, a liberal return
policy and a wide variety of special customer services offered under
themes such as "We Care" and "We're Listening".
Pamida stores generally are located in small towns, normally county seats,
where there often is little or no competition from another major general
merchandise retailer and which may be either too small to support more
than one major general merchandise retailer (thereby creating a potential
barrier to entry by a major competitor) or too small to attract
competitors whose stores generally are designed to serve larger
populations. The Company believes that, in terms of sales, it is the
leading general merchandise retailer in 82% of the communities in which
its stores are located.
Excluding the Closed Stores, at January 28, 1996, 117 of Pamida's 144
stores were located in communities in which there was no direct local
competition from other major general merchandise retailers. As of that
date, Kmart, Alco, Wal-Mart, Target and ShopKo had stores in 16, 9, 6, 2
and 1 communities, respectively, where Pamida stores are located; however,
because some of these communities have more than one of such competitors,
only 27 Pamida stores face direct local competition from such retail
chains. In recent years the Company's business strategy has been to focus
its store expansion program on communities with less likelihood of the
entry of a new major competitor, but there can be no assurance that in the
future major competitors will not open additional stores in the Company's
markets.
Merchandise prices generally are established on a zone basis at Pamida's
executive offices, although store managers are given discretion to adjust
prices of key items to meet local competition and to match a competitor's
advertised prices. Zone pricing allows the Company to establish prices at
different levels in different trade territories, based primarily on
competitive conditions within such territories, rather than having a
uniform pricing structure throughout the entire chain. Pamida conducts a
continuous program of competitor price comparisons that enables the
Company to make merchandise price adjustments, when necessary, to assure
that the Company maintains a competitive position.
Employees.
Excluding the employees at the Closed Stores, as of January 28, 1996,
Pamida had approximately 6,100 employees, of whom approximately 3,000 were
full-time and 3,100 were part-time. The number of employees varies on a
seasonal basis. None of Pamida's employees are represented by a labor
union, and the Company believes that its relations with its employees are
good.
Excluding the managers of the Closed Stores, at January 28, 1996, the
Company's 14 Senior Vice Presidents and Vice Presidents, 12 District
Managers and 144 store managers averaged 6, 21 and 10 years, respectively,
of employment with Pamida.
Pamida's human resources department is responsible for company-wide salary
and wage administration, as well as all benefit-plan administration. The
human resources department works closely with store operations in the
development and administration of Pamida's store-level employee training
programs. In addition, Pamida has an ongoing program for the development
of management personnel to fill positions in all facets of the Company's
operations and makes a concerted effort to identify and train potential
successors for all of its key middle and senior managers.
Item 2. Properties.
At January 28, 1996, including the Closed Stores, the Company owned 15 of
its 184 store buildings, while its remaining 169 stores operated in leased
premises. Thirty-six of the Closed Stores operated in leased premises,
while Pamida owns and intends to dispose of properties in which four of
the Closed Stores operated.
A substantial majority of the Company's leases have renewal options, with
approximately 52% of the leases having unexpired current terms of five
years or more. The following table provides information relating to the
remaining lease terms for the Company's leased stores at January 28, 1996
(excluding the Closed Stores):
Lease Expiring Number of Leased Stores
During the Period (1) 1/28/96
1/96 to 12/97 8
1/98 to 12/99 7
1/00 to 12/01 5
1/02 to 12/03 7
After 12/03 106
Total 133
===
_______________
(1) Includes renewal options.
Pamida's management believes that the physical condition of the Company's
stores generally is very good. All of the Company's stores are
continuously updated to conform to Pamida's operating and merchandising
standards.
The Company's general offices and one of its three distribution centers
are located in a 215,000 square foot building in Omaha, Nebraska, owned by
the Company. This facility contains approximately 135,000 square feet of
warehouse space and approximately 80,000 square feet of office space.
Pamida's primary distribution center is a 336,000 square foot "flow-
through" facility situated on a 22-acre tract of land in Omaha
approximately one mile from the distribution center described above.
Pamida leases this facility from a local governmental subdivision as an
industrial development bond project and has an option to acquire the
facility for a nominal amount at the expiration of the lease term. This
facility serves primarily as a redistribution center for bulk shipments
and promotional merchandise on which cost savings can be realized through
quantity purchasing. Pamida owns an additional 10-acre tract of land
adjacent to such distribution center which would permit that facility to
be further expanded by almost 60%.
During February 1995, the Company began the use of a an additional
warehouse facility in Milwaukee, Wisconsin, to more efficiently distribute
inventory to its stores. The Company presently leases 100,000 square feet
of space in such facility for a remaining term of one year with a one-year
renewal option and an option to lease up to an additional 200,000 square
feet. This facility serves approximately 50 Pamida stores primarily as a
redistribution center for certain ad merchandise.
Pamida also has a warehouse facility in Omaha which contains approximately
41,000 square feet of space and is located immediately adjacent to the
Company's general offices. This warehouse, which is owned by Pamida, is
used for the processing of merchandise to be returned to vendors and by
the advertising department in connection with its printing operations.
In addition to its retail stores, distribution centers and warehouse
facility, Pamida's tangible assets include inventories, warehouse and
store fixtures and equipment, merchandise handling equipment, office and
data processing equipment, motor vehicles and an airplane.
Item 3. Legal Proceedings.
Pamida is a party to a number of lawsuits incidental to its business, the
outcome of which, both individually and in the aggregate, is not expected
to have a material adverse effect on the Company's operations or financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
* * *
Executive Officers of the Registrant.
The present executive officers of Holdings are Steven S. Fishman (Chairman
of the Board, President and Chief Executive Officer) Frank A. Washburn
(Executive Vice President), and George R. Mihalko (Senior Vice President,
Treasurer, and Chief Financial Officer). Information concerning such
executive officers appears in the following paragraphs:
Mr. Fishman, age 45, has served as President and Chief Executive Officer
of Holdings and Pamida, Inc. since April 1993 and as Chairman of the Board
of Holdings and Pamida, Inc. since August 1993. From 1988 to March 1993,
Mr. Fishman was employed by Caldor, Inc. as Senior Vice President and
General Merchandise Manager-Homelines. Mr. Fishman has been a director of
Holdings since 1993 and also is a director of Pamida, Inc.
Mr. Washburn, age 47, has served as Executive Vice President of Holdings
since September 1995 and as Executive Vice President - Corporate
Operations of Pamida, Inc. since February 1995 having previously served as
Senior Vice President - Human Resources of Pamida, Inc. since 1993 and as
Vice President - Human Resources of Pamida, Inc. since 1987. Mr. Washburn
also serves as Secretary of Holdings and Pamida Inc. Mr. Washburn joined
Pamida's predecessor in 1965. Mr. Washburn has been a director of
Holdings since 1995 and also is a director of Pamida, Inc.
Mr. Mihalko, age 41, has served as Senior Vice President, Treasurer, and
Chief Financial Officer of Holdings and Pamida, Inc. since September 1995.
From February 1993 to September 1995, Mr. Mihalko was employed by Pier 1
Imports, Inc. as Vice President and Treasurer. From July 1990 to February
1993, Mr. Mihalko was employed by Burlington Northern Railroad as
Assistant Treasurer.
The executive officers of Holdings may be removed from their respective
positions as such officers at any time by the Board of Directors of
Holdings.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Common Stock of Holdings has been listed and traded on the American
Stock Exchange since September 18, 1990. Prior to that date, no market
existed for such Common Stock.
The high and low sales prices for the Common Stock of Holdings on the
American Stock Exchange for fiscal 1996 and fiscal 1995 are as follows:
Fiscal 1996: High Low
1st Quarter 7 3/4 6
2nd Quarter 6 4
3rd Quarter 4 5/8 2 1/4
4th Quarter 4 3/16 2 1/2
Fiscal 1995: High Low
1st Quarter 5 3/8 2 13/16
2nd Quarter 7 3/8 4 3/4
3rd Quarter 7 7/8 6 1/4
4th Quarter 7 5 1/2
As of April 3, 1996, there were 304 record holders of the Common Stock of
Holdings.
Holdings has never declared or paid any cash dividends on its Common Stock
and does not intend to pay any such dividends in the foreseeable future.
The obligations of Pamida, Inc. under certain of its financing
arrangements are guaranteed by Holdings. Such financing arrangements
presently prohibit the payment of dividends by Holdings on its Common
Stock and also significantly restrict the ability of Pamida, Inc. to pay
dividends or make other distributions to Holdings.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference from
the registrant's annual report to its stockholders for the fiscal year
ended January 28, 1996, which is attached to this Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this item is incorporated by reference from
the registrant's annual report to its stockholders for the fiscal year
ended January 28, 1996, which is attached to this Form 10-K.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is incorporated by reference from
the registrant's annual report to its stockholders for the fiscal year
ended January 28, 1996, which is attached to this Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
The information required by this item has been previously reported in the
Form 8-K Current Report of the registrant dated June 16, 1995.
PART III
The information required by this Part III is incorporated by reference
from the registrant's definitive proxy statement for the 1996 annual
meeting of the registrant's stockholders to be held on May 23, 1996, which
involves the election of directors. Such definitive proxy statement will
be filed with the Securities and Exchange Commission not later than 120
days after the end of the fiscal year covered by this Form 10-K. However,
information concerning the registrant's executive officers will be omitted
from such proxy statement and is furnished in a separate item captioned
"Executive Officers of the Registrant" included in Part I of this Form 10-
K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements.
Pamida Holdings Corporation and Subsidiary
-Consolidated Statements of Operations for the Years Ended January 28,
1996, January 29, 1995 and January 30, 1994
-Consolidated Balance Sheets at January 28, 1996 and January 29, 1995
-Consolidated Statements of Common Stockholders' Equity for the Years
Ended January 28, 1996, January 29, 1995 and January 30, 1994
-Consolidated Statements of Cash Flows for the Years Ended January 28,
1996, January 29, 1995 and January 30, 1994
-Notes to Consolidated Financial Statements for the Years Ended January
28, 1996, January 29, 1995 and January 30, 1994
-Independent Auditors' Report
2. Financial Statement Schedules.
-Independent Auditors' Report on Schedule
-Schedule I - Condensed Financial Information of Registrant
All other schedules of the registrant for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions, are
inapplicable or have been disclosed in the Notes to Consolidated Financial
Statements and, therefore, have been omitted.
3. Exhibits.
(1) 3.1-Restated Certificate of Incorporation of Pamida Holdings
Corporation, as amended.
(2) 3.2-Revised By-Laws of Pamida Holdings Corporation.
(1) 3.3-Certificate of Amendment of Certificate of Incorporation of
Pamida Holdings Corporation (amends Exhibit 3.1).
(9) 3.4-Certificate of Amendment of Certificate of Incorporation of
Pamida Holdings Corporation (amends Exhibit 3.1).
(2) 4.1-Form of certificate representing shares of the Common Stock of
Pamida Holdings Corporation.
(6) 4.2-Indenture dated as of March 15, 1993, among Pamida, Inc. as
Issuer, Pamida Holdings Corporation as Guarantor, and State Street Bank
and Trust Company as Trustee relating to 11 3/4% Senior Subordinated Notes
due 2003 of Pamida, Inc.
(6) 4.3-Specimen form of 11 3/4% Senior Subordinated Note due 2003 of
Pamida, Inc.
(3) 10.1-Stock and Note Purchase Agreement dated as of July 29, 1986,
among Pamida Holdings Corporation, Citicorp Venture Capital, Ltd.,
Citicorp Capital Investors, Ltd., and the individual purchasers who are
parties thereto.
(1) 10.2-Amendment to Stock and Note Purchase Agreement, dated July 31,
1990 (amends Exhibit 10.1).
(1) 10.3-Second Amendment to Stock and Note Purchase Agreement, dated
August 10, 1990 (amends Exhibit 10.1).
(1) 10.4-Third Amendment to Stock and Note Purchase Agreement, dated
September 13, 1990 (amends Exhibit 10.1).
(1) 10.5-Registration Agreement dated July 29, 1986, among Pamida Holdings
Corporation and the persons listed on the signature pages thereof.
(1) 10.6-Amendment No. 1 to Registration Agreement, dated August 10, 1990,
among Pamida Holdings Corporation, Citicorp Venture Capital, Ltd. and C.
Clayton Burkstrand (amends Exhibit 10.6).
(1) 10.7-Exchange Agreement dated August 10, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court Square Capital
Limited.
(1) 10.8-Agreement dated September 13, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court Square Capital
Limited.
(2) 10.9-Agreement dated September 20, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court Square Capital
Limited.
(4)10.10-Exchange Agreement dated as of December 1, 1990 between Pamida
Holdings Corporation, Citicorp Venture Capital, Ltd. and Court Square
Capital Limited.
(4)10.11-Form of 14.25% Junior Subordinated Promissory Note of Pamida
Holdings Corporation.
(4)10.12-Form of Indemnification Agreement between Pamida Holdings
Corporation and its officers and directors.
(5)10.13-Note Amendment Agreement dated as of December 18, 1992, between
Pamida Holdings Corporation and Court Square Capital Limited.
(5)10.14-Note Amendment Agreement No. 2 dated as of March 1, 1993, between
Pamida Holdings Corporation and Citicorp Investments Inc.
(5)10.15-Tax-Sharing Agreement dated as of February 2, 1992, among Pamida
Holdings Corporation, Pamida, Inc., Seaway Importing company, and Pamida
Transportation Company.
(6)10.16-Loan and Security Agreement dated March 30, 1993, by and among
Congress Financial Corporation (Southwest) and BA Business Credit, Inc. as
Lenders, Congress Financial Corporation (Southwest) as Agent for the
Lenders, and Pamida, Inc. and Seaway Importing Company as Borrowers.
(12)10.17-Amendment No. 1 to Loan and Security Agreement, dated January
23, 1995, among Pamida, Inc. and Seaway Importing Company as Borrowers,
Congress Financial Corporation (Southwest) as a Lender and Agent, and BA
Business Credit Inc. as a Lender (amends Exhibit 10.16).
10.18-Amendment No. 2 to Loan and Security Agreement, dated January 28,
1996, among Pamida, Inc. and Seaway Importing Company as Borrowers,
Congress Financial Corporation (Southwest) as a Lender and Agent, and
BankAmerica Business Credit as a Lender (amends Exhibit 10.16).
(8)10.19-Pamida Holdings Corporation 1992 Stock Option Plan.
(7)10.20-Employment Agreement dated April 19, 1993, between Pamida, Inc.
and Steven S. Fishman.
(10)10.21-Amendment No. 1 to Employment Agreement, dated January 3, 1994,
between Pamida, Inc. and Steven S. Fishman (amends Exhibit 10.20).
(11)10.22-Amendment No. 2 to Employment Agreement, dated January 23, 1995,
between Pamida, Inc. and Steven S. Fishman (amends Exhibit 10.20).
(12)10.23-Employment Agreement dated September 22, 1995, among Pamida
Holdings Corporation, Pamida, Inc. and Steven S. Fishman.
10.24-Retention and Confidentiality Agreement dated January 12, 1995,
between Pamida, Inc. and Frank A. Washburn and First Amendment thereto
dated February 21, 1996.
10.25-Retention and Confidentiality Agreement dated February 21, 1996,
between Pamida, Inc. and George R. Mihalko.
(11)10.26-Pamida, Inc. 1995 Deferred Compensation Plan.
11.1-Computation of Earnings Per Share.
(1) 22.1-Subsidiaries of Pamida Holdings Corporation.
23.1-Consent of Deloitte & Touche LLP.
23.2-Consent of Coopers & Lybrand L.L.P.
_________________________
(1)Previously filed as an exhibit to Registration Statement of Pamida
Holdings Corporation on Form S-1 (Registration No. 33-35324) and
incorporated herein by this reference.
(2)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 28, 1990, and
incorporated herein by this reference.
(3)Previously filed as an exhibit to Registration Statement of Pamida,
Inc. on Form S-l (Registration No. 33-10980) and incorporated herein by
this reference.
(4)Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended February 3, 1991, and
incorporated herein by this reference.
(5)Previously filed as an exhibit to Registration Statement of Pamida,
Inc. and Pamida Holdings Corporation on Form S-1 (Registration No. 33-
57990) and incorporated herein by this reference.
(6)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended May 2, 1993, and incorporated
herein by this reference.
(7)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida,
Inc. (File No. 33-57990) for the period ended August 1, 1993, and
incorporated herein by this reference.
(8)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended August 1, 1993, and incorporated
herein by this reference.
(9)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended July 31, 1994, and incorporated
herein by this reference.
(10)Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended January 30, 1994, and
incorporated herein by this reference.
(11)Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended January 29, 1995, and
incorporated herein by this reference.
(12)Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 29, 1995, and
incorporated herein by this reference.
* * *
(b)During the last quarter of the period covered by this report, a Form 8-
K was filed by the registrant. The items reported were Items 5 and 7.
The date of such report was January 19, 1996. No financial statements
were filed as part of such report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 18, 1996PAMIDA HOLDINGS CORPORATION
By: /S/ Steven S. Fishman
Steven S. Fishman, Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/S/ Steven S. FishmanChairman of the Board,April 18, 1996
Steven S. Fishman President, Chief Executive
Officer and Director
/S/ George R. MihalkoSenior Vice President,April 18, 1996
George R. Mihalko Treasurer and Chief
Financial Officer
/S/ Todd D. Weyhrich Principal AccountingApril 18, 1996
Todd D. Weyhrich Officer
/S/ Frank A. WashburnDirectorApril 18, 1996
Frank A. Washburn
*
______________________DirectorApril 18, 1996
L. David Callaway, III
*
______________________DirectorApril 18, 1996
Stuyvesant P. Comfort
*
______________________Director April 18, 1996
Robert D. Gordman
*
______________________Director April 18, 1996
M. Saleem Muqaddam
______________________Director April 18, 1996
Peter J. Sodini
* By: /S/ George R. Mihalko
George R. Mihalko,
Attorney-in-Fact
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pamida Holdings Corporation
We have audited the consolidated balance sheet of Pamida Holdings
Corporation and subsidiary as of January 29, 1995, and the related
consolidated statements of operations, stockholder's equity and cash flows
for each of the two years in the period ended January 29, 1995, and have
issued our report thereon dated March 1, 1995 (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to the
Company's adoption, effective February 1, 1993, of Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions); such financial statements are included in
your 1996 Annual Report to Stockholders which is incorporated herein by
reference and our report thereon is included herein. Our audits also
included the financial statement schedule of Pamida Holdings Corporation
and subsidiary as of January 29, 1995, and for each of the two years in
the period ended January 29, 1995 listed in Item 14(a)2. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 1, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Pamida Holdings
Corporation and Subsidiary for fiscal 1996 has been incorporated by
reference in this Form 10-K from page 27 of the 1996 Annual Report to
Shareholders of Pamida Holdings Corporation and Subsidiary. In connection
with our audit of such financial statements, we have also audited the
related financial statement Schedule I Condensed Financial Information of
Registrant included in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1996
PAMIDA HOLDINGS CORPORATION
(Parent Company Only)
(Dollar amounts in thousands)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS
- - JANUARY 29, 1996 AND JANUARY 29, 1995
ASSETS 1996 1995
Current assets:
Refundable income taxes $ 855 $ 641
Investment in subsidiary (61,226) 31,301
Deferred financing costs 63 73
$(60,308) $ 32,015
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8 $ 15
Accrued interest 639 585
Total current liabilities 647 600
Long-term debt 23,335 20,760
Preferred stock subject to
mandatory redemption:
16-1/4% senior cumulative
preferred stock, $1 par
value; 514 shares authorized,
issued and outstanding
514 514
14-1/4% junior cumulative
preferred stock, $1 par value;
6,986 shares authorized;
1,627 shares issued and
outstanding; redemption amount
of $1,627 less unamortized
discount 1,312 1,265
Common stockholders' equity:
Common stock, $.01 par value;
10,000,000 shares authorized;
5,004,942 and 4,999,984
shares issued and outstanding,
respectively 50 50
Additional paid-in capital 968 950
Retained (deficit) earning (87,134) 7,876
Total common stockholders'
equity (86,116) 8,876
$(60,308) $32,015
PAMIDA HOLDINGS CORPORATION
(Parent Company Only)
(Dollar amount in thousands except for per share data)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT) EARNINGS
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
1996 1995 1994
Equity in (loss) earnings
of subsidiary $ (92,527) $ 5,130 $ (58)
Expenses:
General and administrative 33 34 34
Interest 3,910 3,463 3,073
3,943 3,497 3,107
(Loss) income before income
tax benefit and
extraordinary item (96,470) 1,633 (3,165)
Equity in extraordinary
item of subsidiary -- -- (4,943)
Extraordinary item 371 -- --
(Loss) income before
income tax benefit (96,099) 1,633 (8,108)
Income tax benefit 1,451 1,282 1,135
Net (loss) income (94,648) 2,915 (6,973)
Amortization of
discount on 14-1/4%
junior cumulative
preferred (47) (45) (44)
Cash dividends paid to
preferred stockholders (315) (316) (315)
Retained earnings -
beginning of year 7,876 5,322 12,654
Retained earnings -
end of year $ (87,134) $ 7,876 $ 5,322
(Loss) earnings per
common share $ (18.87) $ .51 $ (1.47)
PAMIDA HOLDINGS CORPORATION
(Parent Company Only)
(Dollar amounts in thousands)
<TABLE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 29, 1996, JANUARY 29, 1995, AND JANUARY 30, 1994
<CAPTION>
1996 1995 1994
<S> <C>
Cash flows from operating activities:
Net (loss) income $ (94,648) $ 2,915 $ (6,973)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Equity in loss (earnings) of subsidiary 92,527 (5,130) 58
Noncash interest expenses 3,756 3,315 2,929
Accretion of original issue debt discount 154 149 144
Amortization of intangible assets 10 11 10
Increase in deferred finance costs - - (16)
Extraordinary item related to retirement of
debt (371) - -
Equity in extraordinary item of subsidiary - - 4,943
(Increase) decrease in refundable income tax (483) 349 (820)
Increase (decrease) in operating liabilities (7) (264) 40
Total adjustments 95,586 (1,570) 7,288
Net cash provided by operating activities 938 1,345 315
Cash flows from investing activities:
Dividends received from subsidiary - - -
Cash flows from financing activities:
Proceeds from sale of stock 18 - -
Principal payments on promissory notes - (1,029) -
Payments to redeem subordinated notes (641) - -
Dividends paid to preferred stockholders (315) (316) (315)
Net cash used in financing activities (938) (1,345) (315)
Net change in cash - - -
Cash at beginning of year - - -
Cash at end of year $ - $ - $
-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ - $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
Amortization of discount on junior cumulative
preferred stock recorded as a direct charge to
retained earnings $ 47 $ 45 $ 44
Payment of interest in kind by increasing the
principal amount of the notes 3,702 3,263 2,859
Conversion on nonvoting common stock to
common stock
Common stock - 9 -
Nonvoting stock - (9) -
</TABLE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Pamida Holdings Corporation
Omaha, Nebraska
We have audited the consolidated balance sheet of Pamida Holdings
Corporation and subsidiary as of January 29, 1995, and the related
consolidated statements of operations, common stockholders' equity and
cash flows for each of the two years in the period ended January 29, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pamida
Holdings Corporation and subsidiary as of January 29, 1995, and the
results of their operations and their cash flows for each of the two years
in the period ended January 29, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note I to the financial statements, the Company changed
its method of accounting for postretirement medical benefits effective
February 1, 1993 to conform with Statement of Financial Accounting
Standards No. 106, Employers' Accounting for PostRetirement Benefits Other
Than Pensions.
DELOITTE & TOUCHE LLP
March 1, 1995
Omaha, Nebraska
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Pamida Holdings Corporation
Omaha, Nebraska
We have audited the accompanying consolidated balance sheet of Pamida
Holdings Corporation and Subsidiary as of January 28, 1996, and the
related consolidated statements of operations, common stockholders' equity
and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
consolidated balance sheet of Pamida Holdings Corporation and Subsidiary
as of January 29, 1995, and the related consolidated statements of
operations, common stockholders' equity and cash flows for each of the two
years in the period ended January 29, 1995, were audited by other
auditors, whose report, dated March 1, 1995, expressed an unqualified
opinion on those statements and included an explanatory paragraph that
described the adoption of Statement of Financial Accounting Standards No.
106, as discussed in Note I to the financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pamida
Holdings Corporation and Subsidiary as of January 28, 1996, and the
results of their operations and their cash flows for the year then ended,
in conformity with generally accepted accounting principles.
As discussed in Note B to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be disposed Of".
COOPERS & LYBRAND LLP
Chicago, Illinois
March 26, 1996
PAMIDA
ANNUAL REPORT
Pamida Holdings Corporation (ASE: PAM), through its primary operating
subsidiary, Pamida, Inc., operates 144* general merchandise retail stores
in 15 Midwestern, North Central, and Rocky Mountain states. A typical
store carries a broad assortment of value-priced hardlines and softlines
merchandise, and offers one-stop shopping convenience to small, rural
communities.
* Excluding forty stores being closed.
HOMETOWN VALUES
Established as part of our Pamida corporate logo, this image relates to
the value-oriented merchandise being offered to our customer. Equally
important, it serves as a constant reminder of the way we conduct our
business.
Pamida stores are located in small, rural communities. Pamida customers
are our friends and neighbors and they're right in expecting a pleasant
and positive shopping experience, one neighbor to another. "Hometown
Values" means being part of the community and placing great emphasis on
meeting the value needs of our customers.
Financial Highlights
Pamida Holdings Corporation and Subsidiary
<TABLE>
Dollar Amounts in Thousands
Except Per Share Data
<CAPTION>
Years Ended
January 28,1996 January 29,1995 January 29,1994
<S> <C>
Fiscal year
Total sales $ 736,315 $ 711,019 $ 656,910
Total sales % increase 3.6% 8.2% 5.5%
Comparable store sales
% increase (0.7%) 5.2% 2.6%
Gross margin 177,688 177,367 158,906
% to sales 24.1% 24.9% 24.2%
Selling, general and
administrative expenses 151,096 143,585 133,921
% to sales 20.5% 20.2% 20.4%
FIFO EBITDA 41,391 48,484 41,011
% to sales 5.6% 6.8% 6.2%
(Loss) income before
provision for income tax
as special charges, and
extraordinary item (2,934) 6,415 (1,603)
Long-lived asset write-off*78,551 - -
Store closing costs* 21,397 - -
Net (loss) income available
for common stock $ (95,010) $ 2,554 $ (7,332)
Net (loss) income per
common share:
(Loss) income before
extraordinary item $ (18.94) $ 0.51 $ (.48)
Extraordinary item 0.07 - (.99)
(Loss) income $ (18.87) $ 0.51 $ (1.47)
Number of common shares 5,035 5,025 5,000
</TABLE>
* These items are included in the operating expenses of the Company in the
Consolidated Statements of Operations
CHAIRMAN'S LETTER
TO OUR SHAREHOLDERS, BUSINESS PARTNERS & TEAM MEMBERS
Fiscal 1996 was a challenging year for the retail industry. Frugal
customers and heightened competition made it difficult to maintain margins
and achieve sales increases over the prior year. Pamida's geographical
market strategy, which differentiates us from other regional general
merchandise retailers, combined with our employee team members' ability to
react to changing market trends, enabled us to weather fiscal 1996's
stormy retail environment. We finished the year with record sales of
$736.3 million and maintained essentially flat comparative store sales.
During periods like this it is important for a company to control its own
destiny. After evaluating the changing trends in the retail industry, we
made some difficult decisions and took certain far-reaching actions. On
January 19, 1996 we announced plans to close forty under performing stores
by May 15, 1996. The resulting before-tax, store closing charge against
earnings amounted to $21.4 million but generated a net cash inflow after
expenses of over $5.0 million from the related inventory liquidation. In
addition, we absorbed a $78.6 million before-tax, non-cash charge for the
impairment of long-lived assets, primarily goodwill generated in the 1986
ESOP leveraged buyout. At the same time we fortified our financial
position by extending our committed revolving line of credit to March
1998.
The decision to close the forty stores was in effect an acceleration of
our existing long-term strategy. Our original plan of repositioning
Pamida's store portfolio had called for us to exit these markets over the
next three to four years. All of the stores which are closing have one
overriding limitation: they are in markets which do not fit our strategy
of serving customers in small, rural hometown markets.
After closing the forty stores, the remaining chain of Pamida stores will
clearly reflect our strategy of operating in trade areas with total
population of less than 20,000. Of the ongoing 144 stores, 91 percent are
located in these targeted markets, and 82 percent of the stores do not
face direct competition from another general merchandiser.
Our original repositioning strategy also called for the opening of eight
to ten new stores on an annual basis. During fiscal 1996, Pamida opened
ten new 42,500 square foot prototype stores and will open an additional
eight new prototype stores in fiscal 1997. This will bring the number of
new prototype stores to 35, or approximately one quarter of the total
chain. The new prototype stores have consistently matched or exceeded our
expectations.
In last year's annual report, I told our shareholders that fiscal 1996
would be a year of repositioning and transformation for their company.
The closing of these forty stores has allowed us to accomplish in one year
what would have taken three or four under our prior strategy. Although
this was a difficult decision to make, we believe it was absolutely the
right decision and are confident about the opportunities that it presents
for the future of our company.
During fiscal 1996 we continued to make investments in upgrading the
management information systems of our organization. By July 1996 we will
have completed the major enhancements to our logistics network. The
Manugistics transportation package was implemented in 1995, and our
warehouse management system is coming on-line in March 1996.
For fiscal 1997, MIS developments will focus on merchandising-related
systems. By July 1996, we will have all of our stores converted to a
stock-keeping unit (SKU) level inventory system. Shortly thereafter, we
will convert to a Min./Max. ordering system which will automatically
resupply the stores with key merchandise. Throughout the year, we will
develop a new client-server based merchandise management system (Retek)
that will be implemented in the spring of 1997.
We stand firm in our commitment to the future of our company. Most
importantly, we realize that our ability to thrive in a competitive retail
environment hinges on our ability to provide our customers with the same
convenience and value for their dollar in rural America that is available
in large metropolitan shopping areas. Satisfying our customers directly
translates into the long-term growth of our company and into an acceptable
return to our shareholders. Every Pamida team member is committed to this
objective. As a convenience general merchandise store in small, rural
communities, it is absolutely imperative that we provide our customers
What they want, When they want it, and Where they want it! All of our
initiatives-from merchandise selection, to logistics, to customer service,
and to investment of capital-are based on this commitment. In the pages
to follow, we will highlight some of our current initiatives.
We at Pamida appreciate the confidence our business partners and investors
have placed in us during this past year and are optimistic about the
prospects for fiscal 1997 and the years ahead. I extend a sincere thank
you to all Pamida team members for their extraordinary efforts during the
past year and for their continued commitment to our mission: To always
satisfy our customers, thereby enabling us to be the leading general
merchandise retailer in their hometown.
Wishing the best to you and your family,
Steven S. Fishman
Chairman,
Chief Executive Officer & President
Initiatives
For over 30 years, Pamida has developed its competitive advantage by
satisfying basic consumer needs and delivering value-priced merchandise to
smaller, rural communities. In doing so, we also have contributed an
economic stimulus to our hometown communities by sharing revenues and
providing employment opportunities to over 5,700 local store team members.
Today, we are the leading general merchandiser in 82 percent of the
hometown markets we serve. By providing our customers with convenient,
value-priced shopping for WHAT they want, WHEN they want it, WHERE they
want it, we have earned their trust and loyalty.
We fully recognize the tremendous sales opportunities offered by our
existing customer base and are targeting an even broader segment of our
trade area population. The key to harvesting these opportunities is to
offer a fresh merchandise assortment at fair prices with friendly service
and an enhanced in-stock position. This is what today's time-constrained
customer expects, and all Pamida team members are committed to meeting
this expectation.
Throughout fiscal 1996 and continuing into fiscal 1997, we have
implemented or commenced a number of initiatives to fulfill this
commitment.
The most important of these initiatives are:
- -Team Member Development
- -Investments in Technology
- -Merchandising
- -Real Estate Repositioning
TEAM MEMBER DEVELOPMENT
The success of a chain of retail stores is directly dependent on the
balancing of consistent chain-wide execution with local market dynamics.
Our team members are the key to achieving this balance. We have carefully
studied the attributes and techniques of our most successful store
managers in terms of team leadership, operational proficiency and bottom-
line impact. We are sharing these "Best Practices" with all team members
and in implementing them are eliminating inefficiencies and costs which do
not directly add value for our customers or shareholders.
In addition, we are continuing to train all team members in the use of and
benefits derived from the investments in technology described below.
INVESTMENTS IN TECHNOLOGY
In 1993, management commenced a major multiyear initiative to
substantially update and upgrade the information systems supporting all
operational and administrative facets of our business process. Critical
components identified include:
- -Stock-Keeping Unit (SKU) Inventory Control
- -Transportation and Warehouse Optimization Systems
- -Financial Planning and Controls
- -Merchant Support Systems
During fiscal 1996, over $2 million was dedicated to this effort. In
terms of results, by fiscal year end, 74 stores had been converted to SKU
inventories, and the remaining stores will be converted by July 1996.
This will enable us to specifically monitor on a real-time basis the over
35,000 SKUs in each of our stores, resulting in a substantially improved
merchandise in-stock position and overall inventory efficiencies.
Also, in November 1995 we completed the implementation of a new
transportation optimization system (Manugistics), which allows us to more
efficiently control all inbound and outbound warehouse shipments. This
was augmented in March 1996 with a real-time warehouse management system
(Catalyst) that streamlines work flow, expedites store replenishment and
reduces associated handling expense.
Our investments in technology will continue in fiscal 1997, with over $4
million earmarked for systems enhancements. We have already tested,
selected and are currently installing a broad-based client server
merchandise management system. This merchandising tool will provide us
with the ability to develop assortments market-by-market and, in
combination with planogram profitability modeling, will enable us to
maximize store-by-store margin returns. Completion of this system is
expected in the spring of 1997.
Once fully operational, these information systems initiatives will enable
us to enhance our position as a highly productive, low-cost general
merchandiser.
MERCHANDISING
In fiscal 1996, merchandising initiatives in Housewares and Domestics
stood out with double-digit sales increases. As a result, our Hardlines
segment continued to perform well, generating 76.9 percent of total
company sales and producing slightly higher gross margin percentages than
in the prior year.
The Softlines division suffered from industry-wide lackluster consumer
spending on fashions, which caused sales and margins to fall short of our
expectations. We have, therefore, carefully reviewed the balance of basic
versus fashion softlines merchandise in our stores and, through a subtle
shift of emphasis to basics, will not only reduce fashion risk but also
provide our customer with the basic softlines values they have
consistently voted for with their dollars.
In addition, our investments in technology for merchandise planning,
distribution and inventory controls will dramatically increase our ability
to identify and react to changing trends, thereby reducing exposure to
markdown risks.
REAL ESTATE REPOSITIONING
"We have chosen to operate stores only in locations that make strategic
and economic sense and to exit markets which no longer produce the returns
that we and our shareholders require." This statement in last year's
annual report concisely summarizes our actions during fiscal 1996.
We analyzed the profit performance, geographic location and customer base
of all of our stores and identified forty markets which do not fit within
our targeted niche. After completing the closure of these stores, we are
planning the addition of eight new stores during fiscal 1997, two of which
will be relocations in existing markets. We expect to end fiscal 1997
with 150 stores, 35 of which will be the 42,500 square foot prototype
first introduced in 1994. These new prototypes allow us to focus on
previously underdeveloped merchandise categories with strong gross margin
potential. In addition to the merchandising and operating efficiencies
provided by the new prototype stores, square foot returns at all locations
will be enhanced through the full utilization of SKU inventory data
coupled with store-by-store planogram profit modeling.
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA - (Dollar amounts in thousands-except
per share and other data)
<CAPTION>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
January 28, January 29, January 30, January 31, February 2,
1996 1995 1994 1993 1992
<S> <C>
INCOME STATEMENT DATA:
Sales $ 736,315 $ 711,019 $ 656,910 $ 622,941 $ 636,364
Gross profit 177,688 177,367 158,906 154,695 150,460
Selling, general and
administrative
expenses 151,096 143,585 133,921 124,225 122,398
Operating income 26,592 33,782 24,985 30,470 28,062
Interest expense 29,526 27,367 26,588 25,147 26,893
Long-lived asset write-off 78,551 - - - -
Store closing costs 21,397 - - - -
(Loss) income before
provision for income
taxes and
extraordinary item (102,882) 6,415 (1,603) 5,323 1,169
Income tax (benefit)
provision (7,863) 3,500 427 3,061 1,282
(Loss) income become
extraordinary item (95,019) 2,915 (2,030) 2,262 (113)
Extraordinary item 371 - (4,943) - -
Net (loss) income (94,648) 2,915 (6,973) 2,262 (113)
Less preferred
dividends and
discount amortization 362 361 359 357 357
Net (loss) income
available for
common stock$ (95,010)$ 2,554$ (7,332)$ 1,905$ (470)
Average common
shares
outstanding 5,034,536 5,024,745 4,999,984 4,999,984 4,999,984
(Loss) earnings
per common share:
(Loss) earnings
before extraordinary
item $ (18.94)$ .51$ (.48)$ .38$ (.09)
Extraordinary item .07 - (.99) - -
(Loss) earnings per
common share $ (18.87)$ .51$ (1.47)$ .38$ (.09)
Dividends paid on
Common Stock - - - - -
BALANCE SHEET DATA:
Working capital $ 34,631$ 46,725$ 41,323$ 16,515$ 29,144
Total assets 258,525 354,367 314,621 309,629 326,074
Long-term debt 163,746 162,505 160,315 132,006 151,158
Obligations under
capital leases 36,559 43,050 35,618 37,164 36,205
Redeemable preferred
stock 1,826 1,779 1,734 1,690 1,648
Common stockholders'
(deficit) equity (86,116) 8,876 6,322 13,654 11,749
OTHER DATA:
Team Members 7,200 7,200 6,100 5,900 6,300
Number of stores 184 184 173 178 178
Retail square feet
(in millions) 5.22 5.09 4.68 4.75 4.62
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - (Dollar amounts in thousands)
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
RESULTS OF OPERATIONS
Year Ended January 28, 1996 Compared to Year Ended January 29, 1995
Write-off of long-lived assets and store closing charge.
During fiscal 1996, emerging weak trends in retail combined with
increasing competition lowered the operating results of the Company.
While operating results in the first three quarters of the year were
behind plan, management focused on strategies to achieve its plan during
the important fourth quarter season.
During the fourth quarter, management reviewed its expectations for near
and long-term performance for the Company and revised its earnings
projections and reassessed the recoverability of the Company's long-lived
assets.
As explained in Note B to the financial statements, in the fourth quarter
of fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 Accounting For the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of (SFAS 121). This financial accounting
standard requires the Company to perform an analysis of the recoverability
of the net book value of long-lived assets. The Company analyzed cash
flows on an individual store basis to assess recoverability of store level
long-lived assets including allocated goodwill. As a result of this
analysis impairment totaling $27,228 on a pre-tax basis was indicated at
certain stores.
The Company also analyzed the value of its remaining goodwill and
favorable leasehold interests not impaired under the store-level SFAS 121
analysis using its historical method under Accounting Principles Board
Opinion No. 17 (APB 17) and determined that such remaining amounts were
also impaired. The APB 17 analysis projected a fifteen-year forecast
period and produced $5,186 of aggregate undiscounted adjusted net income
which included projected adjusted net losses for fiscal 1997 of $4,522,
which includes interest expense of $26,242 paid in cash and interest
payable "in kind" (PIK) of $4,453, and for fiscal 1998 of $2,863, which
includes cash interest expense of $26,581 and PIK interest of $5,121. For
fiscal 1999, the Company projected adjusted net income of approximately
$967, which included cash interest expense of approximately $26,581 and
PIK interest of $5,889. Due to the uncertainty of projections beyond
1999, this level of adjusted net income was assumed to continue for each
of the remaining fiscal years in the projection period. Accordingly, a
non-cash pre-tax charge totaling $51,323 was recorded as indicated in Note
B to the financial statements.
Also, management's fourth quarter review of individual stores' operations
and cash flows resulted in the identification of forty unprofitable or
competitive market stores which do not fit the Company's niche market
strategy. Consequently, a pre-tax charge totaling $21,397 was recorded at
January 28, 1996 to cover the costs necessary to close these stores as
indicated in Note C to the financial statements. Subsequent to January
28, 1996 the Company has received in excess of $5 million positive net
cash flow due to cash generated from the disposition of inventories at the
closing stores.
Sales for fiscal 1996 increased $25,300 or 3.6% compared to fiscal 1995.
Comparable store sales decreased $4,160 or .7%. Excluding the forty
stores to be closed, comparable store sales increased by .1%. During
fiscal 1996 the Company opened ten new prototype stores of which seven are
located in new markets and three were relocations. The Company also
closed ten stores, resulting in a net increase in selling area of
approximately 126,000 square feet. The openings and closings of stores
over the last two fiscal years has resulted in a net increase in sales of
$33,662.
The modest overall sales increases were affected by generally weak
consumer demand which was experienced throughout the retail industry.
Management believes that the Company's geographical niche market
positioning combined with its ability to distribute quality merchandise on
a more timely basis tempered generally weak retail trends. The Company
experienced substantial sales increases in several merchandise categories,
the most dramatic of which were in the housewares, prescriptions, junior
apparel and bath and floor areas. Substantial sales gains were also
generated in paper, cleaning and seasonal categories. The Company
experienced sales declines in several softlines categories, primarily
women's apparel. Management believes that subtle adjustments made to the
Company's softlines strategy to meet customer demand for a deeper
selection of basic apparel will have a positive impact on sales and
margins in these and other softlines categories beginning in the second
half of fiscal 1997.
The initial operating results of the seven new prototype stores and three
relocated stores opened during fiscal 1996 have exceeded the Company's
original sales projections and reflect the success of the Company's niche
market positioning and merchandising strategies. Currently, twenty-seven
stores with the new format are in operation, and eight additional openings
are planned for fiscal 1997. Modifications have been and are being made
to the Company's other stores to take advantage of the benefits observed
in the new prototype stores.
Gross profit increased $321 or .2% in fiscal 1996 compared to fiscal 1995
and, as a percentage of sales, decreased from 24.9% in fiscal 1995 to
24.1% in fiscal 1996. The decline in gross profit percent in fiscal 1996
compared to fiscal 1995 was attributable primarily to the increased
markdown activity which was necessary to counter sluggish customer demand
during most of the year and to meet customers' pricing expectations during
this difficult period for the retail industry. Markdown expense increased
by 23.8% as compared to fiscal 1995. During fiscal 1996, the Company
experienced margin dollar increases due to higher sales in several
merchandise categories most notably stationery, prescriptions, bath and
floor and seasonal. While the Company experienced margin dollar decreases
in several softlines categories, they were concentrated primarily in the
women's apparel and fashion areas.
The gross profit percentage and gross margin dollars were favorably
impacted by a substantial increase in promotional allowances and markdown
offsets received from suppliers. Margins were also positively impacted by
a decrease in inventory shrinkage of approximately $1,948. Warehouse and
distribution expenses as a percent of sales increased from 2.3% to 2.6% as
a result of increased payroll and equipment rental expenses, attributable
largely to the startup of the new Milwaukee warehouse, and volume-related
increases in transportation.
Selling, general and administrative expense increased $7,511 or 5.2% from
fiscal 1995. As a percentage of sales, selling, general and
administrative expenses increased from 20.2% in fiscal 1995 to 20.5% in
fiscal 1996. Approximately 40% of the total gross increase in selling,
general and administrative expense was attributable to increases in
corporate general and administrative costs. Payroll and fringe benefits
costs increased by approximately 13% due to the effect of a full year's
salary for the merchandising, real estate and other corporate personnel
added in fiscal 1995, as well as the costs related to information systems
personnel added during fiscal 1996, to support the systems implementations
currently underway to enhance efficiencies in warehouse, distribution and
merchandising. In addition, professional fees increased approximately 54%
due primarily to information systems and strategic planning consulting
costs, as well as increases in legal fees related to new store
construction and financing.
In addition to the corporate general and administrative cost changes,
advertising expenses as a percent of sales increased from 2.0% to 2.2% due
to increases in the costs of paper and postage. This accounted for
approximately 25% of the gross increase in selling, general and
administrative costs. Store controllable expense increased by 8%, which
also accounted for approximately 25% of the gross increase in selling,
general and administrative costs. The change in store controllable
expense was due primarily to increases in the costs of security equipment
rentals, charge card processing fees (due to increased credit card sales
volume), utilities and inventory counting (as a result of changes in
procedures to allow for detailed SKU level counts). Store controllable
costs were partially reduced by decreases in supplies, travel and
entertainment costs. Store fixed costs as a percent of sales increased
from 2.8% to 3.0% due primarily to increases in rent expense. These
increases in selling, general and administrative were offset in part by an
increase in other income resulting primarily from the sale of idle
transportation assets. Selling, general and administrative expense was
also favorably impacted by a reduction in incentive compensation expense
and the benefit of job creation tax credits totaling approximately $700.
The Company is continuing to challenge selling, general and administrative
expenses. Store operating expenses as a percent of sales are anticipated
to remain relatively constant in fiscal 1997. Corporate administrative
costs are anticipated to increase somewhat as a percent of sales until the
Company completes certain logistics systems improvements currently being
implemented. The Company expects to begin to realize operating
efficiencies from systems enhancements in the warehouse and distribution
areas in the second half of fiscal 1997 and in the merchandising areas
beginning in fiscal 1998. Further expense leveraging is expected in
future years through the addition of new stores.
Interest expense increased $2,159 or 7.9% for fiscal 1996 compared to
fiscal 1995. The increase in interest expense for fiscal 1996 was
attributable primarily to higher usage of the revolving line of credit in
fiscal 1996 and to the outstanding promissory notes of the Company which
require quarterly compounding interest payments to be paid in kind. The
Company also had higher average outstanding capitalized lease obligations
in fiscal 1996 compared to fiscal 1995.
The income tax provision - The effective tax rate was 7.6% in fiscal 1996
compared to 54.6% in fiscal 1995. The effective tax rate for fiscal 1996
was impacted by the non-deductible amortization and write-off of goodwill
and the reserve recorded to offset the deferred tax assets. In fiscal
1995, the effective tax rate was higher than the normal statutory rates
primarily as a result of non-deductible goodwill amortization.
Year Ended January 29, 1995 Compared to Year Ended January 30, 1994
Sales for fiscal 1995 increased $54,109 or 8.2% compared to fiscal 1994.
Comparable store sales increased $30,461 or 5.2%. During fiscal 1995 the
Company opened seventeen stores in new markets and closed six stores,
resulting in a net increase in selling area of 412,000 square feet. The
openings and closings of stores over the last two fiscal years resulted in
a net increase in sales of $23,647.
The increase in sales in comparable stores during fiscal 1995 is
attributable to several complementary factors, including the Company's
ability to acquire new merchandise on a more timely basis as a result of
its enhanced credit facility continued improvement in the merchandising
programs implemented in fiscal 1994, and an emphasis on merchandise
quality and an improved selection of merchandise and brands in response to
preferences expressed by customers. The Company achieved its sixth
consecutive quarterly increase in comparable store sales in the fourth
quarter of fiscal 1995. The increase in sales in comparable stores
occurred primarily in men's and women's apparel, domestics, stationery,
home furnishings, seasonal goods, toys and pharmacy.
The initial operating results of the seventeen new stores opened during
fiscal 1995 were positive. These new prototype stores exceeded the
Company's original sales projections and reflected the success of the
Company's new merchandising strategies.
Gross profit increased $18,461 or 11.6% in fiscal 1995 compared to fiscal
1994 and, as a percentage of sales, increased from 24.2% in fiscal 1994 to
24.9% in fiscal 1995. The improvement in gross profit percent and dollars
in fiscal 1995 compared to fiscal 1994 was attributable to a sales mix
that emphasized increased sales volumes in higher gross margin
departments, such as apparel and home furnishings, and reduced sales
volumes in certain lower gross margin commodity categories such as
consumable products. Additionally, the gross profit percentage and gross
margin dollars were favorably impacted by an 85% increase in promotional
allowances and markdown offsets received from suppliers while the
Company's inventory shrinkage was reduced by approximately 5%. These
improvements were partially offset by an 11% increase in markdown expense
due to the effect of a stronger fourth-quarter promotional program and an
8% increase in warehouse and distribution expenses incurred to handle a
higher volume of merchandise.
Selling, general and administrative expense increased $9,634 or 7.1% from
fiscal 1994. As a percentage of sales, selling, general and
administrative expenses decreased from 20.4% in fiscal 1994 to 20.2% in
fiscal 1995. Approximately 46% and 33%, respectively, of the total
increase in selling, general and administrative expense was attributable
to store payroll, which increased 8%, and store controllable expense,
which increased 17%. These areas of expense were impacted by the
seventeen new stores opened in fiscal 1995. In addition, 22% of the
increase in total selling, general and administrative expense was
attributable to corporate expense, which increased 10% primarily as a
result of the addition of new personnel in the merchandising, real estate
and asset protection departments and higher incentive compensation because
of the higher earnings of the Company. These expenses were partially
offset by a reduction of amortization expense of $1,191 which related
primarily to the write-off of intangible costs pertaining to certain
stores that were closed in fiscal 1994.
Interest expense increased $779 or 2.9% for fiscal 1995 compared to fiscal
1994. The increase in interest expense for fiscal 1995 was attributable
in part to the outstanding promissory notes of the Company which require
quarterly compounding interest payments to be paid in kind, to the higher
usage of the revolving line of credit in fiscal 1995 and to higher
outstanding capitalized lease obligations in fiscal 1995 compared to
fiscal 1994. These increases were partially offset by the elimination of
interest expense on certain industrial development bonds which were
retired in fiscal 1994.
Income tax provision - The effective tax rate was 54.6% in fiscal 1995
compared to 26.6% in fiscal 1994. In fiscal 1995, the effective tax rate
was higher than the normal statutory rates primarily as a result of the
impact of non-deductible goodwill amortization on the pre-tax book income
of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is seasonal with first quarter sales (February
through April) being lower than sales during the other three quarters,
while fourth quarter sales (November through January) have represented
approximately 29% of the full year's retail sales in recent years and
normally involve a greater proportion of higher margin sales.
The Company has satisfied its seasonal liquidity requirements primarily
through a combination of funds provided from operations and from a
revolving credit facility. Funds provided by operating activities were
$4,967 in fiscal 1996 and $3,816 in fiscal 1995. The positive change in
cash flow from operating activities from fiscal 1995 to fiscal 1996 was
primarily the result of net decreases in inventory and accounts payable.
These increases were offset primarily by current and deferred tax payable
changes, principally as a result of the store closing charge, the changes
in profitability of the continuing operations and changes in other
operating assets and liabilities. The decrease in net cash provided by
operating activities from fiscal 1994 to fiscal 1995 resulted primarily
from a higher investment in inventory of $19,610 net of trade payables.
Such decrease was partly offset by increased earnings and by an increase
in certain other current liabilities.
Effective January 19, 1996, the term of Pamida, Inc's (Pamida) committed
Loan and Security Agreement (the Agreement) was extended by one year to
March 1998. The maximum borrowing limit of the facility was reduced at
that time to $70,000 from $80,000 in line with lower expected peak
borrowings during the remainder of the term of the Agreement.
Concurrently, certain covenants were modified to reflect the financial
effects of closing forty stores. Borrowings under the Agreement bear
interest at a rate which is .75% per annum greater than the applicable
prime rate. The amounts Pamida is permitted to borrow are determined by
a formula based upon the amount of Pamida's eligible inventory from time
to time. Such borrowings are secured by security interests in all of the
current assets (including inventory) of Pamida and by liens on certain
real estate interests and other property of Pamida. The Company and two
subsidiaries of Pamida have guaranteed the payment and performance of
Pamida's obligations under the Loan and Security Agreement and have
pledged some or all of their respective assets, including the stock of
Pamida owned by the Company, to secure such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. Certain provisions of the Agreement require
the maintenance of specified amounts of tangible net worth (as defined)
and working capital and the achievement of specified minimum amounts of
cash flow. Other restrictions in the Agreement and those provided under
the Indenture relating to the Senior Subordinated Notes will affect, among
other things, the ability of Pamida to incur additional indebtedness, pay
dividends, repay indebtedness prior to its stated maturity, create liens,
enter into leases, sell assets or engage in mergers or acquisitions, make
capital expenditures and make investments. These covenants currently have
not had an impact on the Company's ability to fully utilize the revolving
credit facility. However, certain of the covenants, such as those which
restrict the ability of the Company to incur indebtedness or encumber its
property or which impose restrictions on or otherwise limit the Company's
ability to engage in sale-leaseback transactions, may at some future time
prevent the Company from pursuing its store expansion program at the rate
that the Company desires.
Obligations under the Agreement were $31,588 at January 28, 1996 and
$20,602 million at January 29, 1995. In previous years' financial
statements, revolving borrowings under the Agreement were included in
long-term debt. At January 28, 1996, the Company was required to adopt
new guidance provided by the FASB's Emerging Issues Task Force in Abstract
95-22. This Abstract requires classification of the outstanding
borrowings under the Company's committed revolving credit facility as a
current liability on the Company's balance sheets. As noted above, this
facility expires March 1998, and the Company intends to refinance any
outstanding balance by such date. Borrowings under the Agreement are
senior to the Senior Subordinated Notes of the Company. The Company had
long-term debt and obligations under capital leases of $200,305 at January
28, 1996, and $205,555 at January 29, 1995. The Company's ability to
satisfy scheduled principal and interest payments under such obligations
in the ordinary course of business is dependent primarily upon the
sufficiency of the Company's operating cash flow. At January 28, 1996,
the Company was in compliance with all covenants contained in its various
financing agreements.
On December 18, 1992, the promissory notes of Pamida Holdings Corporation
(Holdings) were amended effective as of December 1, 1992, to provide that,
until the obligations of Pamida and Holdings under certain of Pamida's
credit agreements have been repaid, the quarterly interest payments on the
promissory notes of Holdings will be paid in kind. Pamida paid Holdings
$315 and $316 in fiscal 1996 and 1995, respectively under a tax-sharing
agreement to enable Holdings to pay quarterly dividends to its preferred
stockholders. During fiscal 1996, Holdings received $967 from Pamida
under a tax-sharing agreement as a reimbursement for certain tax benefits
derived by Pamida. Such remittance, along with $18 from the exercise of
certain stock options, was used by Holdings to redeem Subordinated
Promissory Notes as described in Note M to the financial statements, to
repay intercompany balances totaling $29, and to pay quarterly dividends
on preferred stock. During fiscal 1995, Pamida also had paid Holdings
$1,316 under the tax-sharing agreement, which Holdings used to make a
principal payment on Holdings' promissory notes of $1,029 and to repay to
Pamida certain intercompany advances aggregating $287. Since Holdings
conducts no operations of its own, the only cash requirement of Holdings
relates to preferred stock dividends in the aggregate annual amount of
approximately $316; and Pamida is expressly permitted under its existing
credit facilities to pay dividends to Holdings to fund such preferred
stock dividends. However, the laws of the State of Delaware, under which
Holdings is incorporated, allow Holdings to pay dividends only from
retained or current earnings. Due to the retained deficit resulting from
the store closings and the impairment of goodwill and other long-lived
assets, Holdings may pay cash dividends in fiscal 1997 and in ensuing
years only to the extent that Holdings has profitable operations.
Holdings did not declare or pay the preferred stock dividends payable on
February 29, 1996. The cumulative dividend rate on the preferred stock
increases by 0.5% per quarter (with a maximum aggregate increase of 5%) on
each quarterly dividend payment date on which the preferred stock
dividends are not paid currently on a cumulative basis. Any unpaid
dividends are added to the liquidation value until paid in cash as
described in Note J to the financial statements.
The Company made capital expenditures of $9,265 during fiscal 1996
compared to $12,888 during fiscal 1995. The Company plans to open eight
new stores in fiscal 1997 and will consider additional opportunities for
new store locations as they arise. Total capital expenditures are
expected to be approximately $5,300 in fiscal 1997. The Company expects
to fund these expenditures from cash flow from its operations. The costs
of buildings and land for new store locations are expected to be financed
by operating or capital leases with unaffiliated landlords. The Company's
expansion program also will require inventory of approximately $1,000 to
$1,200 per each new market store, which the Company expects to finance
through trade credit, borrowings under the Agreement and cash flow from
operations.
On a long-term basis, the Company's expansion will require continued
investments in store locations, working capital and distribution and
infrastructure enhancements. The Company expects to continue to finance
some of these investments through leases from unaffiliated landlords,
trade credit, borrowings under the Agreement and cash flow from
operations, but ultimately will need to explore additional sources of
funds which may include both debt (mid-term to long-term) and equity
capitalization. Currently, it is not possible for the Company to predict
with any certainty either the timing or the availability of such
additional financing.
INFLATION
The Company uses the LIFO method of inventory valuation in its financial
statements; as a result, the cost of merchandise sold approximates current
costs. The Company's rental expense is generally fixed and, except for
small amounts of percentage rents and rentals adjusted by cost-of-living
increases tied to the Consumer Price Index or interest rates, has not been
affected by inflation.
<TABLE>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
years ended January 28, 1996, January 29, 1995 and January 30, 1994
(dollar amounts in thousands, except per share data)
<CAPTION>
Years Ended
January 28, January 29, January 30,
1996 1995 1994
(52 Weeks) (52 Weeks) (52 Weeks)
<S> <C>
Sales $ 736,315 $711,019 $656,910
Cost of goods sold 558,627 533,652 498,004
Gross profit 177,688 177,367 158,906
Expenses:
Selling, general
and administrative 151,096 143,585 133,921
Interest 29,526 27,367 26,588
Long-lived asset
write-off 78,551 - -
Store closing costs 21,397 - -
280,570 170,952 160,509
(Loss) income before
provision for income
taxes and extraordinary
item (102,882) 6,415 (1,603)
Income tax (benefit)
provision (7,863) 3,500 427
(Loss) income before
extraordinary item (95,019) 2,915 (2,030)
Extraordinary item 371 - (4,943)
Net (loss) income (94,648) 2,915 (6,973)
Less preferred
dividends and discount
amortization 362 361 359
Net (loss) income
available for common
stock $ (95,010) $ 2,554 $ (7,332)
(Loss) earnings per
common share:
(Loss) earnings
before extraordinary
item $ (18.94) $ .51 $ (.48)
Extraordinary item 0.07 - (.99)
(Loss) earnings per
common share $ (18.87) $ .51 $ (1.47)
</TABLE>
<TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<CAPTION>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
January 28, 1996 and January 29, 1995
(dollar amounts in thousands, except per share data)
January 28, January 29,
ASSETS 1996 1995
<S> <C>
Current assets:
Cash $ 7,298 $ 7,059
Accounts receivable,
less allowance for
doubtful accounts of
$50 in both years 11,816 6,936
Merchandise inventories 150,837 163,697
Prepaid expenses 2,953 2,757
Total current assets 172,904 180,449
Property, buildings and
equipment (net) 46,371 47,951
Leased property under
capital leases, less
accumulated amortization
of $13,496 and $14,148,
respectively 30,977 38,204
Deferred financing costs 3,809 4,800
Excess of cost over net
assets acquired, less
accumulated amortization
of $19,496 in 1995 - 72,250
Other assets 4,464 10,713
$258,525 $354,367
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 63,087 $ 69,811
Loan and security agreement 31,588 20,602
Accrued compensation 5,923 6,190
Accrued interest 6,992 6,906
Store closing reserve 7,818 -
Other accrued expenses 10,823 11,175
Income taxes - deferred and
current payable 8,861 16,776
Current maturities of
long-term debt 1,334 193
Current obligations under
capital leases 1,847 2,071
Total current liabilities 138,273 133,724
Long-term debt, less current
maturities 163,746 162,505
Obligations under capital
leases, less current
obligations 36,559 43,050
Other long-term liabilities 4,237 4,433
Commitments and contingencies - -
Preferred stock subject to
mandatory redemption:
16-1/4% senior cumulative
preferred stock, $1,000 par value;
514 shares authorized,
issued and outstanding 514 514
14-1/4% junior cumulative
preferred stock, $1,000 par value;
6,986 shares authorized;
1,627 shares issued and outstanding;
redemption amount of $1,627,
less unamortized discount 1,312 1,265
Common stockholders' equity:
Common stock, $.01 par value;
10,000,000 shares authorized;
5,004,942 and 4,999,984 shares
issued and outstanding,
respectively 50 50
Additional paid-in capital 968 950
Retained (deficit) earnings (87,134) 7,876
Total common stockholders'
(deficit) equity (86,116) 8,876
$258,525 $354,367
</TABLE>
<TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<CAPTION>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
for the years ended January 28, 1996, January 29, 1995 and January 30,
1994
(dollar amounts in thousands, except per share data)
Nonvoting Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
<S> <C>
Balance at January 31, 1993 $41 $ 9 $950 $ 12,654
Net loss - - - (6,973)
Amortization of discount on
14-1/4% junior cumulative
preferred - - - (44)
Cash dividends to preferred
stockholders - - - (315)
Balance at January 30, 1994 41 9 950 5,322
Net income - - - 2,915
Amortization of discount on
14-1/4% junior cumulative
preferred - - - (45)
Cash dividends to preferred
stockholders - - - (316)
Conversion of nonvoting common
stock to common stock 9 (9) - -
Balance at January 29, 1995 50 - 950 7,876
Net loss - - - (94,648)
Amortization of discount on
14-1/4% junior cumulative
preferred - - - (47)
Cash dividends to preferred
stockholders - - - (315)
Stock sold under incentive
stock option plan - - 18 -
Balance at January 28, 1996 $50 $- $968$(87,134)
</TABLE>
<TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<CAPTION>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended January 28, 1996, January 29, 1995 and January 30,
1994
(dollar amounts in thousands, except per share data)
Years Ended
January 28,January 29,January 30,
1996 1995 1994
(52 Weeks) (52 Weeks) (52 Weeks)
<S> <C>
Cash flows from operating
activities:
Net (loss) income $(94,648) $ 2,915 $ (6,973)
Adjustments to reconcile
net (loss) income to net
cash provided by operating
activities:
Depreciation and
amortization 15,345 14,962 16,126
Credit for LIFO inventory
valuation (585) (675) (728)
Credit for deferred income
taxes (6,647) (1,555) (1,457)
Noncash interest expense 3,756 3,315 2,929
Accretion of original
issue debt discount 154 149 188
Gain on disposal of assets (982) (58) (260)
Stock incentive benefits - 84 -
Deferred retirement benefits 13 37 568
Extraordinary item (371) - 4,943
Long-lived assets write-off 78,551 - -
Store closing costs 21,397 - -
(Increase) decrease in
merchandise inventories 4,532 (30,951) (12,388)
Increase in other operating
assets (3,847) (486) (252)
Increase (decrease) in
accounts payable (6,749) 8,153 9,200
Increase (decrease) in
income taxes payable (4,607) 3,942 2,064
Increase (decrease) in
other operating liabilities (345) 3,984 (566)
Total adjustments 99,615 901 20,367
Net cash provided by operating activities 4,967 3,816 13,394
Cash flows from investing activities:
Proceeds from disposal of assets 1,163 980 567
Principal payments received on
notes receivable 15 14 5
Capital expenditures (9,265) (12,888) (5,200)
Construction notes receivable (4,412) - (420)
Net cash used in investing
activities (12,499) (11,894) (5,048)
Cash flows from financing activities:
Borrowings under loan and
security agreement, net 10,986 12,417 8,185
Principal payments on other
long-term debt (193) (177) (2,210)
Dividends paid on preferred stock (315) (316) (315)
Principal payments on promissory
notes (641) (1,029) -
Payments for deferred finance costs (13) (200) (5,597)
Principal payments on capital lease
obligations (2,071) (1,894) (1,660)
Proceeds from sale of senior
subordinated notes - - 140,000
Proceeds from sale of stock 18 - -
Borrowings under working capital
facility, net - - 10,063
Early extinguishment of debt:
Series A, B and subordinated
debentures - - (113,500)
Bank debt consisting of
working capital facility,
revolving line of credit
and term loan - - (38,488)
Redemption premiums and
other transaction costs - - (3,328)
Industrial development bonds - - (2,105)
Net cash provided by
(used in) financing
activities 7,771 8,801 (8,955)
Net increase (decrease) in cash 239 723 (609)
Cash at beginning of year 7,059 6,336 6,945
Cash at end of year$ 7,298 $ 7,059 $ 6,336
</TABLE>
<TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<CAPTION>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended January 28, 1996, January 29, 1995 and January 30,
1994
(dollar amounts in thousands, except per share data)
Years Ended
January 28,January 29,January 30,
1996 1995 1994
(52 Weeks) (52 Weeks) (52 Weeks)
<S> <C>
Supplemental disclosures of
cash flow information:
Cash paid (received)
during the year for:
Interest $25,691 $24,021 $24,405
Income taxes:
Payments to taxing
authorities 3,622 1,785 173
Refunds received
from taxing authorities (231) (672) (353)
Supplemental schedule of noncash
investing and financing activities:
Capital lease obligations
incurred when the Company
entered into lease agreements
for new store facilities
and equipment $ 620 $ 9,721 $ 2,257
Capital lease obligations
terminated 154 - -
Capital lease asset and
obligation assigned to
third party - - (2,083)
Amortization of discount
on junior cumulative
preferred stock recorded
as a direct charge
to retained earnings 47 45 44
Payment of interest in
kind by increasing
the principal amount
of the notes 3,702 3,263 2,859
Conversion of 919,587
shares of nonvoting common
stock, $.01 par value,
to common stock:
Common stock - 9 -
Nonvoting common stock - (9) -
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share data)
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pamida Holdings Corporation (the "Company") was formed for the sole
purpose of acquiring Pamida, Inc. ("Pamida") through a merger in a
leveraged buy-out transaction which was consummated on July 29, 1986.
Consolidation - The consolidated financial statements include the results
of operations, account balances and cash flows of the Company and its
wholly-owned subsidiary, Pamida, and of Seaway Importing Company
("Seaway") and Pamida Transportation Company, wholly-owned subsidiaries of
Pamida. All material intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal Year - All references in these financial statements to fiscal years
are to the calendar year in which the fiscal year ends.
Line of Business - Through Pamida, the Company is engaged in the operation
of retail discount stores in a fifteen-state Midwestern, North Central and
Rocky Mountain area. Seaway imports primarily seasonal merchandise for
sale to Pamida. Pamida Transportation Company operated as a contract
carrier for Pamida until July 1995, at which time independent contractors
were engaged to provide all transportation needs of the Company. Due to
the similarity in nature of the Company's businesses, the Company
considers itself to be a single business segment.
Cash Flow Reporting - For purposes of the statement of cash flows, the
Company considers all temporary cash investments purchased with a maturity
of three months or less to be cash equivalents. There were no temporary
investments at January 28, 1996 and January 29, 1995.
Merchandise Inventories - Substantially all of the Company's inventory is
stated at the lower of cost (last-in, first-out) or market.
Property, Buildings and Equipment - Property, buildings and equipment are
stated at cost and depreciated on the straight-line method over the
estimated useful lives. Buildings and building improvements are generally
depreciated over 8 - 40 years, while store, warehouse and office
equipment, vehicles and aircraft equipment are generally depreciated over
3 - 10 years. Leasehold improvements are depreciated over the life of the
lease or the estimated life of the asset, whichever is shorter.
Leased Property Under Capital Leases - Noncancellable financing leases are
capitalized at the estimated fair value of the leasehold interest and are
amortized on the straight-line method over the terms of the leases.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Long-Lived Assets - When facts and circumstances indicate potential
impairment, the Company evaluates the recoverability of asset carrying
values, including associated goodwill, using estimates of future cash
flows over remaining asset lives. When impairment is indicated, any
impairment loss is measured by the excess of carrying values over fair
values.
Deferred Financing Costs and Original Issue Debt Discount - Deferred
financing costs are being amortized on the straight-line method over the
terms of the issues which approximates the effective interest method.
Original issue debt discount is being amortized on the effective interest
method over the terms of the issues.
Pre-Opening Expenses - Costs related to opening new stores are expensed as
incurred.
Earnings Per Share - Earnings per share were calculated using the weighted
average common shares and dilutive common share equivalents outstanding
during the year using the treasury stock method.
Management's Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications - Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
B.IMPAIRMENT OF LONG-LIVED ASSETS
During fiscal 1996, emerging weak trends in retail combined with
increasing competition lowered the operating results of the Company.
While operating results in the first three quarters of the year were
behind plan, management focused on strategies to achieve its plan during
the important fourth quarter season.
Therefore, during the fourth quarter, management reviewed its expectations
for near- and long-term performance of the Company and revised its
earnings projections to reflect developing and projected trends, primarily
in comparable-store-sales growth, gross margins, operating expenses and
interest expenses. Consequently, the recoverability of the Company's
long-lived assets was also reassessed.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
B.IMPAIRMENT OF LONG-LIVED ASSETS, Continued
In the fourth quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of (SFAS 121).
This financial accounting standard requires the Company to perform an
analysis of the recoverability of the net book value of long-lived assets.
The Company analyzed cash flows on an individual store basis to assess
recoverability of store level long-lived assets including allocated
goodwill.
As a result of this analysis, impairment was indicated at certain stores
and a non-cash pre-tax charge was recorded as illustrated in the table
following. The impairment losses were based on fair value which was
determined through discounted cash flows for the particular stores
utilizing a rate commensurate with the associated risks. The effect of
this accounting change was to increase the net loss for the year by
$24,693 or $4.90 per common share.
The Company also analyzed the value of its remaining goodwill and
favorable leasehold interests not impaired under the store-level SFAS 121
analysis using its historical method under Accounting Principles Board
Opinion No. 17 (APB 17) and determined that such remaining amounts were
also impaired. For this analysis, the value of the goodwill and favorable
leasehold interests was determined by projecting aggregate net income and
adjusting it by adding back amortization of intangible assets. With
respect to the projections of net income used to evaluate intangible
assets impairment, management made several assumptions in projecting their
best estimate of the results of future operations of the Company. The
most significant assumptions were an estimated remaining useful life of
goodwill of fifteen years, modest annual comparable store sales growth,
gross margin rates consistent with those experienced over the past fiscal
year in the stores not to be closed, an annual expense escalation
consistent with recent inflation trends and the ability to refinance debt
maturities as they come due.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
B.IMPAIRMENT OF LONG-LIVED ASSETS, Continued
These assumptions resulted in aggregate undiscounted adjusted net income
for the fifteen year forecast period of approximately $5,186, which
reflects aggregate pre-tax interest expense of approximately $398,000
payable in cash and $86,000 payable "in kind" (PIK). The $5,186 of
aggregate adjusted net income for the fifteen year forecast period also
reflects projected adjusted net losses for fiscal 1997 of $4,522, which
includes cash interest expense of $26,242 and PIK interest of $4,453, and
for fiscal 1998 of $2,863, which includes cash interest expense of $26,581
and PIK interest of $5,121. For fiscal 1999, the Company projected
adjusted net income of approximately $967, which includes cash interest
expense of approximately $26,581 and PIK interest of $5,889. Due to the
uncertainty of projections beyond 1999, this level of adjusted net income
was assumed to continue for each of the remaining fiscal years in the
projection period. As a result of this evaluation, management concluded
that the remaining goodwill and favorable leasehold interests were fully
impaired.
Pre-Tax Components of Long-Lived Asset Write-off As Reflected in the
Statement of Operations:
SFAS 121 APB 17 Total
Goodwill $20,607$49,406$70,013
Favorable leasehold interests 4,245 1,917 6,162
Property, buildings and equipment 2,376 - 2,376
Total $27,228$51,323$78,551
The goodwill was originally recorded in July 1986 when Pamida Holdings
Corporation acquired Pamida, Inc. through a leveraged buy-out and
represented the excess of the purchase price over the fair value of the
net assets acquired. Goodwill had been amortized on a straight-line basis
over a forty year period but due to the trends cited above, its estimated
remaining useful life was adjusted to fifteen years during the fourth
quarter of fiscal 1996.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
C.STORE CLOSINGS
As discussed in Note B above, the Company's operating performance during
fiscal 1996 was below plan. Management's analysis of individual stores'
operations and cash flows resulted in the identification of forty
unprofitable or competitive market stores which do not fit the Company's
niche market strategy. Consequently, a charge was recorded at January 28,
1996 as indicated below to cover the costs necessary to close these
stores. The Company has received positive net cash flow from closing the
stores due to cash generated from the disposition of related inventories.
The amounts the Company will ultimately realize from the disposal of
assets or pay on the resolution of liabilities may differ from the
estimated amounts utilized in arriving at the income statement effect.
Pre-Tax Components of Store Closing Costs
Unaudited
Income Estimated
StatementCash Inflow
Effect (Outflow)
Real estate exit costs and write-off
of property, buildings, and equipment $11,455 $(7,150)
Inventory liquidation 9,080 13,344
Professional charges 314 (314)
Severance and other costs and fees 548 (548)
Totals $21,397 $ 5,332
D.MERCHANDISE INVENTORIES
Total inventories would have been higher at January 28, 1996 and
January 29, 1995 by $5,700 and $6,285, respectively, had the FIFO (first-
in, first-out) method been used to determine the cost of all inventories.
On a FIFO basis, net (loss) income before extraordinary item would have
been $(95,604), $2,666, and $(2,479), respectively, for fiscal years 1996,
1995, and 1994. During fiscal years 1996, 1995, and 1994, certain
inventory quantities were reduced resulting in a liquidation of certain
LIFO layers carried at costs which were lower than the cost of current
purchases, the effect of which increased net income by $125, $102, and
$29, respectively.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
E.PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consists of:
January 28,January 29,
1996 1995
Land and land improvements $ 4,789 $ 4,812
Buildings and building improvements 24,468 23,696
Store, warehouse and office equipment 55,638 52,860
Vehicles and aircraft equipment 1,578 1,412
Leasehold improvements 15,362 20,389
101,835 103,169
Less accumulated depreciation
and amortization 55,464 55,218
$ 46,371 $ 47,951
F.FINANCING AGREEMENTS
Effective January 19, 1996, the term of the Loan and Security Agreement
(the Agreement) was extended by one year to March 1998. The maximum
borrowings available under the facility were reduced at that time to
$70,000 from $80,000 to coincide with management's expectation of lower
peak borrowings during the remainder of the term of the Agreement.
Borrowings under the Agreement bear interest at a rate which is .75% per
annum greater than the applicable prime rate. The amounts Pamida is
permitted to borrow under the Agreement are determined by a formula based
upon the amount of Pamida's eligible inventory from time to time. Such
borrowings of Pamida under the Agreement are secured by security interests
in substantially all of the current assets (including inventory) of Pamida
and by liens on certain real estate interests and other property of
Pamida. The Company and two subsidiaries of Pamida have guaranteed
payment and performance of Pamida's obligations under the Agreement and
have pledged some or all of their respective assets, including the stock
of Pamida owned by the Company, to secure such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. Certain provisions of the Agreement require
the maintenance of specified amounts of tangible net worth (as defined)
and working capital and the achievement of specified minimum amounts of
cash flow. Other restrictions in the Agreement and those provided under
the Indenture relating to the Senior Subordinated Notes will affect, among
other things, the ability of Pamida to incur additional indebtedness, pay
dividends, repay indebtedness prior to its stated maturity, create liens,
enter into leases, sell assets or engage in mergers or acquisitions, make
capital expenditures and make investments.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
F.FINANCING AGREEMENTS, Continued
The maximum amount of borrowings under the Agreement during fiscal 1996
and 1995 was $63,884 and $58,777, respectively. The weighted average
amounts of borrowings under the Agreement for fiscal 1996 and 1995 were
$35,544 and $23,942, respectively; and the weighted average interest rates
were 10.4% and 9.1%, respectively.
As of January 28, 1996, the Company was required to adopt new guidance
issued by the Financial Accounting Standards Board Emerging Issues Task
Force in Abstract 95-22. This Abstract requires classification of the
outstanding borrowings under the Agreement as a current liability.
Accordingly, borrowings under the Agreement are included in current
liabilities in the balance sheet as of January 28, 1996. Prior year's
outstanding borrowings under the Agreement have been reclassified to
current liabilities for consistent presentation.
Long-term debt consists of:
January 28,January 29,
1996 1995
Senior Subordinated Notes, 11.75%,
due March 2003 $140,000 $140,000
Industrial development bonds, due
in monthly installments through
2005. Interest rates vary from
8.5% to 13.25% 1,745 1,938
Senior promissory notes, 15.5%, due
in 2003, interest paid in kind quarterly 4,231 3,634
Subordinated promissory notes, 16%,
due in 2003, interest paid in
kind quarterly 11,500 10,949
Junior subordinated promissory notes,
16.25%, net of unamortized discount
of $1,038 and $1,192, due in 2003,
interest paid in kind quarterly 7,604 6,177
165,080 162,698
Less current maturities 1,334 193
$163,746 $162,505
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
F.FINANCING AGREEMENTS, Continued
As of January 28, 1996, the fair value of long-term debt was $122,800
compared to its recorded value of $163,746. The fair value of long-term
debt was estimated based on quoted market values for the same or similar
debt issues or rates currently available for debt with similar terms. The
aggregate maturities of long-term debt in each of the next five fiscal
years are as follows: 1997 - $1,334; 1998 - $47; 1999 - $47; 2000 -$47;
and 2001 - $47.
The Senior Subordinated Notes and the promissory notes are unsecured and
are subordinate borrowings under the Agreement. Presently, under the most
restrictive debt covenants, the Company is not permitted to pay dividends
on its common stock.
The senior subordinated, subordinated and junior subordinated promissory
notes of the Company were amended to provide that until the obligations of
the Company and Pamida under certain loan agreements have been paid in
full, the quarterly interest payments on the notes will be paid in kind by
increasing the principal amount of each note on the applicable quarterly
payment date by the amount of accrued interest then being paid in kind.
Interest on the notes paid in kind accrues at a rate which, in each case,
is two percentage points higher than the applicable cash interest rate.
G.INCOME TAXES
Components of the income tax provision (benefit) are as follows:
Years Ended
January 28,January 29,January 30,
1996 1995 1994
Current:
Federal $ (993) $ 4,048 $ 1,714
State (223) 1,007 170
(1,216) 5,055 1,884
Deferred:
Federal (5,865) (679) (1,356)
State (782) (876) (101)
(6,647) (1,555) (1,457)
Total provision $(7,863) $ 3,500 $ 427
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
G.INCOME TAXES, Continued
The differences between the U.S. Federal statutory tax rate and the
Company's effective tax rate are as follows:
Years Ended
January 28,January 29,January 30,
1996 1995 1994
Statutory rate (34.0)% 34.0% (34.0)%
State income tax effect (1.3) 5.5 2.8
Amortization of the excess of
cost over net assets acquired 23.9 12.2 48.7
Valuation allowance 3.6 0.1 2.8
Targeted jobs tax credit - (1.8) (4.9)
Other 0.2 4.6 11.2
(7.6)% 54.6% 26.6%
Significant temporary differences between reported and taxable earnings
that give rise to deferred tax assets and liabilities were as follows:
January 28,January 29,
1996 1995
Net Current Deferred Tax Liabilities:
Inventories $13,681 $14,649
Valuation allowance 3,869 -
Prepaid insurance 514 499
Other 366 192
Supplier allowances - (822)
Post employment health costs (237) (232)
Accrued expenses (1,300) (975)
Store closing costs (7,159) -
Net Current Deferred Tax Liabilities 9,734 13,311
Net Long-Term Deferred Tax Liabilities:
Property, buildings and equipment 3,109 3,102
Other 438 66
Valuation allowance 5 769
Leasehold interests - 3,577
Capital loss carryforward (5) (769)
Capital leases (2,602) (2,730)
Net Long-Term Deferred Tax Liabilities 945 4,015
Net Total Deferred Tax Liabilities $10,679 $17,326
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
G.INCOME TAXES, Continued
Net long-term deferred tax liabilities are classified with other long-term
liabilities in the consolidated balance sheets of the Company.
H.LEASES
The majority of store facilities are leased under noncancellable leases.
Substantially all of the leases are net leases which require the payment
of property taxes, insurance and maintenance costs in addition to rental
payments. Certain leases provide for additional rentals based on a
percentage of sales and have renewal options for one or more periods
totaling from one to 20 years. Leases have been categorized as capital or
operating leases in conformity with the definition in Statement of
Financial Accounting Standards No. 13, Accounting for Leases.
Other assets include leasehold interests at January 29, 1995 of $9,406,
net of accumulated amortization of $4,242. Leasehold interests had been
amortized over the terms of the underlying leases, but were written off
due to the impairment described in Note B.
At January 28, 1996 the future minimum lease payments under capital and
operating leases with rental terms of more than one year amounted to:
CapitalOperating
Fiscal Year Ending Leases Leases
1997$ 6,156 $ 9,085
1998 5,922 7,928
1999 5,779 7,246
2000 5,566 5,729
2001 5,476 4,839
Later years 47,354 43,085
Total minimum obligations 76,253 $77,912
Less amount representing interest 37,847
Present value of net minimum
lease payments 38,406
Less current portion 1,847
Long-term obligations$36,559
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
H.LEASES, Continued
The minimum rentals under operating leases have not been reduced by
minimum sublease rentals of $861 due in the future under noncancellable
subleases.
Total rental expense related to all operating leases (including those with
terms less than one year) is as follows:
Years Ended
January 28,January 29,January 30,
1996 1995 1994
Minimum rentals $11,715 $9,585 $8,646
Contingent rentals 399 477 421
Less sublease rentals (852) (918) (983)
$11,262 $9,144 $8,084
I.SAVINGS AND OTHER POSTEMPLOYMENT BENEFIT PLANS
Pamida has adopted a 401(k) savings plan that covers all employees who are
21 years of age with one or more years of service. Participants can
contribute from 1% to 15% of their pre-tax compensation. Pamida has
currently elected to match 50% of the participant's contribution up to 5%
of compensation. Pamida's savings plan contribution expenses for fiscal
years 1996, 1995, and 1994 were $749, $716, and $722, respectively.
On February 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions. At that time, the Company had agreed to continue to
provide health insurance coverage and pay a portion of the health
insurance premiums until age 65 for individuals who retire provided the
individual was eligible to participate in the plan, had attained age 55,
had completed 10 or more consecutive years of service and elected to
continue on the Company plan. The plan is unfunded and the Company had
the right to modify or terminate these benefits. In December 1993, the
Company amended the plan to no longer offer postretirement health benefits
for employees retiring after February 1, 1994.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
I.SAVINGS AND OTHER POSTEMPLOYMENT BENEFIT PLANS, Continued
The components of periodic expense for postretirement benefits in fiscal
1996 and 1995 were as follows:
January 28,January 29,January 30,
1996 1995 1996
Annual postretirement benefit expense:
Service cost $ - $ - $252
Interest cost 13 37 210
Amortization of unrecognized
net obligations - - 142
Annual postretirement benefit
expense $13 $37 $604
The accumulated postretirement benefit obligation consists of:
January 28,January 29,
1996 1995
Accumulated postretirement benefit obligation $395 $535
Unrecognized transition obligation - -
Unrecognized gain 223 70
Accrued expense $618 $605
A 10% and an 11% increase in the cost of covered health care benefits was
assumed for fiscal 1996 and 1995, respectively. This rate is assumed to
decrease incrementally to 5% after five years and remain level thereafter.
Assuming a 1% increase in the health care trend rate, the annual
postretirement benefit expense would increase by $1 for both fiscal 1996
and 1995, and the unfunded accumulated postretirement benefit obligation
would increase by $13 and $20 for fiscal 1996 and 1995, respectively. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% for fiscal 1996 and 7.5% for
fiscal 1995.
J.PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
The Company is obligated to redeem all outstanding shares of senior
cumulative and junior cumulative preferred stock on December 31, 2001, at
a price not to exceed the liquidation value which is $1,000 per share plus
any accrued dividends. Subject to certain loan restrictions, the Company
may, at any time, redeem all or any portion of the preferred shares
outstanding at a price of $1,000 per share plus any accrued dividends.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
J.PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION, Continued
Each share of senior cumulative and junior cumulative preferred stock
entitles its holder to receive a quarterly dividend of 16.25% and 14.25%
per annum, respectively, of the liquidation value from the date of
issuance until redeemed. Both series of preferred stock are non-voting,
and any unpaid dividends are added to the liquidation value until paid.
The difference between the fair value of the junior cumulative preferred
stock at issuance and the mandatory redemption value is being recorded
through periodic accretions, using the effective interest method with a
related charge to retained earnings.
K.STOCK OPTIONS
On November 24, 1992, the Board of Directors of the Company adopted the
Pamida Holdings Corporation 1992 Stock Option Plan (the "Plan"), which was
approved by the Company's stockholders in May 1993. The Plan,
administered by a Committee of the Board of Directors, provides for the
granting of options to key employees of the Company and its subsidiaries
to purchase up to an aggregate of 350,000 shares of Common Stock of the
Company. Options granted under the Plan may be either incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code,
or nonqualified options. Options granted under the Plan will be
exercisable during the period fixed by the Committee for each option;
however, in general, no option will be exercisable earlier than one year
after the date of its grant, and no incentive stock option will be
exercisable more than 10 years after the date of its grant. The option
exercise price must be at least 100% of the fair market value of the
Common Stock on the date of the option grant. Accordingly, no
compensation expense related to stock options was recorded during fiscal
1996.
On May 27, 1993 and September 9, 1993, the Stock Option Committee of the
Board of Directors granted incentive stock options to key employees to
purchase under the Plan an aggregate of 171,750 shares of Common Stock of
the Company at $3.625 per share. An additional 75,000 options were
granted to a key employee at $5.75 per share on December 13, 1994. These
options become exercisable in varying amounts on various dates beginning
on May 27, 1994, with certain of such options subject to the Company's
attainment of certain levels of earnings per share. An additional 107,205
options were issued on February 23, 1995 at $7.1875 per share and 15,000
options were issued on September 26, 1995 at $4.0625 per share, to several
members of management. These options become exercisable in varying
amounts on various dates beginning February 23, 1996. As of January 28,
1996, shares available for grant under the Plan totaled 48,496.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
K.STOCK OPTIONS, Continued
The following summarizes the stock option transactions under the 1992
stock option plan for the fiscal years ended January 28, 1996, January 29,
1995 and January 30, 1994:
Outstanding Option Price
Options Per Share
Options outstanding January 31, 1993 - -
Granted 171,750 $3.625
Exercised - -
Surrendered - -
Options outstanding January 30, 1994 171,750 $3.625
Granted 75,000 $5.750
Exercised - -
Surrendered (19,205) $3.625
Options outstanding January 29, 1995 227,545$3.625 to $5.750
Granted 122,205$4.0625 to $7.1875
Exercised (4,958) $3.625
Surrendered (48,246)$3.625 to $7.1875
Options outstanding January 28, 1996 296,546$3.625 to $7.1875
Options exercisable at:
January 30, 1994 - -
January 29, 1995 61,681 $3.625
January 28, 1996 85,474$3.625 to $5.75
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans and
transactions in which goods or services are the consideration received for
the issuance of equity instruments. This statement requires that an
employer's financial statements include certain disclosures about stock-
based employee compensation regardless of the method used to account for
them. Adoption is required for fiscal years beginning after December 15,
1995. The Company expects to continue its accounting in accordance with
Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to
Employees.
L.CAPITAL STOCK
In October 1994, 919,587 shares of nonvoting common stock of the Company
were converted into the same number of shares of common stock. After
giving effect to such conversion, the Company had 5,004,942 and 4,999,984
shares of common stock and no shares of nonvoting common stock outstanding
at the end of fiscal 1996 and 1995, respectively.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
M.EXTRAORDINARY ITEMS
On July 31, 1995, the Company made an offer to purchase for cash 39.5% of
the aggregate outstanding principal amount of 14% Subordinated Promissory
Notes (the Notes) of Pamida Holdings Corporation. The offered purchase
price was 50% of the principal amount to be purchased. In the third
quarter of fiscal 1996, the Company redeemed Notes tendered in the
aggregate principal amount of $1,281 and made cash payments of $641,
resulting in an after-tax gain of $371.
In the first quarter of fiscal 1994, Pamida incurred an extraordinary
charge of $4,943, net of income tax benefit of $3,095, for the write-offs
of unamortized deferred financing costs and unamortized original issue
discount and the payment of redemption premiums relating to the early
extinguishment of the Series A and Series B Senior Subordinated Debentures
and the Subordinated Debentures of Pamida. This charge further included
the write-off of unamortized deferred financing costs relating to the
early extinguishment of amounts outstanding under Pamida's former bank
credit agreement.
N.COMMITMENTS AND CONTINGENCIES
Pamida has an employment agreement with one key executive officer which
expires in the year 2001. In addition to a base salary, the agreement
provides for a bonus to be paid if certain Company performance goals are
achieved.
Through January 28, 1996, Pamida provided the Company with $315 annually
to enable the Company to pay preferred stock dividends. The laws of the
State of Delaware, under which the Company is incorporated, allow the
Company to pay dividends only from retained or current earnings. Due to
the retained deficit resulting from the store closings and the impairment
of goodwill and other long-lived assets as described in Notes C and B,
respectively, the Company will pay dividends in fiscal year 1997 and in
ensuing years only to the extent that the Company has profitable
operations. The Company did not declare or pay the preferred stock
dividends payable on February 29, 1996. The cumulative dividend rate on
the preferred stock increases by 0.5% per quarter (with a maximum
aggregate increase of 5%) on each quarterly dividend payment date on which
the preferred stock dividends are not paid currently on a cumulative
basis. Any unpaid dividends are added to the liquidation value until paid
as described in Note J.
The terms of the senior and junior preferred stock and the senior
subordinated and junior subordinated promissory notes provide that, upon
the occurrence of an event of noncompliance with respect to the preferred
stock or event of default with respect to the promissory notes, the
Company is required to pay higher dividend and interest rates with the
amount of the increase depending on the nature of the event of
noncompliance or default. No such events occurred during fiscal 1996,
1995 or 1994.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(dollar amounts in thousands, except per share data)
N.COMMITMENTS AND CONTINGENCIES, Continued
During fiscal 1996, the Company received $967 from Pamida as a
reimbursement for certain tax benefits derived by Pamida. Such
remittance, along with $18 from the exercise of certain stock options, was
used by the Company to redeem Subordinated Promissory Notes as described
in Note M, to repay to Pamida intercompany balances totaling $29, and to
pay quarterly dividends on preferred stock totaling $315.
In June 1994, the Company received $1,316 from Pamida as a reimbursement
for certain tax benefits derived by Pamida. Such remittance was used by
the Company to make a principal payment on its outstanding promissory
notes of $1,029 and to repay to Pamida certain intercompany advances
aggregating $287.
O.QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended January 28, 1996 and January 29, 1995:
April 30,July 30,October 29,January 28,
Fiscal 1996 1995 1995 1995 1996 Year
Sales$153,961$186,953 $176,206 $219,195$736,315
Gross profit 36,813 44,638 42,802 53,435 177,688
Net (loss) income before
extraordinary item (2,179) 608 130 (93,578) (95,019)
Extraordinary item - - 371 - 371
Net (loss) income (2,179) 608 501 (93,578) (94,648)
Less preferred dividends
and discount amortization 91 90 90 91 362
Net (loss) income available
for common stock$ (2,270)$ 518 $ 411 $(93,669)$(95,010)
(Loss) earnings
per common share$ (.45)$ .10 $ .08 $ (18.60)$ (18.87)
May 1,July 31,October 30,January 29,
Fiscal 1995 1994 1994 1994 1995 Year
Sales$142,574$179,998 $177,534 $210,913$711,019
Gross profit 34,021 44,499 44,749 54,098 177,367
Net (loss) income (1,632) 842 486 3,219 2,915
Less preferred dividends
and discount amortization 90 90 90 91 361
Net (loss) income available
for common stock$ (1,722)$ 752 $ 396 $ 3,128$ 2,554
(Loss) earnings
per common share$ (.34)$ .15 $ .08 $ .62$ .51
Fourth quarter fiscal 1995 earnings were favorably impacted by a credit in
the LIFO provision of $1,425.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Pamida Holdings Corporation
Omaha, Nebraska
We have audited the accompanying consolidated balance sheet of Pamida
Holdings Corporation and Subsidiary as of January 28, 1996, and the
related consolidated statements of operations, common stockholders' equity
and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
consolidated balance sheet of Pamida Holdings Corporation and Subsidiary
as of January 29, 1995, and the related consolidated statements of
operations, common stockholders' equity and cash flows for each of the two
years in the period ended January 29, 1995, were audited by other
auditors, whose report, dated March 1, 1995, expressed an unqualified
opinion on those statements and included an explanatory paragraph that
described the adoption of Statement of Financial Accounting Standards No.
106, as discussed in Note I to the financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pamida
Holdings Corporation and Subsidiary as of January 28, 1996, and the
results of their operations and their cash flows for the year then ended,
in conformity with generally accepted accounting principles.
As discussed in Note B to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1996
CORPORATE INFORMATION
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CORPORATE OFFICES
8800 "F" Street, Omaha, Nebraska 68127-1574
FORM 10-K
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K may be obtained by writing to Pamida Holdings
Corporation, Attn: Investor Relations, P.O. Box 3856, Omaha, Nebraska
68103-0856.
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Thursday, May 23, 1996,
at 8:30 a.m. at the Omaha Marriott, 10220 Regency Circle, Omaha, Nebraska
68114.
MARKET PRICE OF COMMON STOCK
The Common Stock of Pamida Holdings Corporation is listed and traded on
the American Stock Exchange under the "PAM" ticker symbol. The high and
low selling prices for the Common Stock on the American Stock Exchange for
fiscal 1996 and fiscal 1995 were as follows:
HighLow
FISCAL 1996:
1stQuarter7 3/46
2ndQuarter64
3rdQuarter4 5/82 1/4
4thQuarter4 3/162 1/2
FISCAL 1995:
1stQuarter5 3/82 13/16
2ndQuarter7 3/84 3/4
3rdQuarter7 7/86 1/4
4thQuarter75 1/2
As of April 3, 1996, there were approximately 304 record holders of the
Company's Common Stock.
STOCK TRANSFER AGENT
American Stock Transfer & Trust Company, New York, New York.
