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 31, 1999
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 ororganization) 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 22, 1999
-------------- --------------
Common Stock 1,000 shares
PART I
ITEM 1. BUSINESS.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Such statements are made in good faith by the Company pursuant to the
safe-harbor provisions of the 1995 Act. In connection with these safe-harbor
provisions, this Form 10-K contains certain forward-looking statements which
reflect management's current views and estimates of future economic
circumstances, industry conditions, customer buying preferences and patterns,
competitive conditions, Company performance, Year 2000 compliance and Company
financial results. The statements are based on many assumptions and factors
including sales results, expense levels, competition and interest rates as well
as other risks and uncertainties inherent in the Company's business, capital
structure and the retail industry in general. Any changes in these factors could
result in significantly different results. Plans for new stores are subject to
numerous contingencies discussed below in this Form 10-K. The Company further
cautions that the forward-looking information contained in this Form 10-K is not
exhaustive or exclusive. The Company does not undertake to update any
forward-looking statements which may be made from time to time by or on behalf
of the Company.
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 mass 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 completed all of such store closings during
the second quarter of the fiscal year ended February 2, 1997. References in this
Form 10-K to the "40 Closed Stores" mean such 40 stores.
Except for the discussion in the final section of this Item 1, the
information contained in this Item 1 relates only to Pamida's general
merchandise retail stores.
STORES.
At January 31, 1999, Pamida operated 146 general merchandise retail stores
located in 146 small towns (having an average population of approximately 5,500)
in 15 Midwestern, North Central and Rocky Mountain states. Pamida's strategic
objective is to be the dominant general merchandise retailer in the communities
it serves. The Company believes that it holds the leading market position in
over 80% of the communities in which its stores are located.
Pamida stores generally are located in small towns where there often is
less 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. At January 31, 1999, 117 of the Company's
146 stores faced no direct local competition from other general merchandise
retailers.
The Company's stores average approximately 30,000 square feet of sales area
and range in size from approximately 6,000 to 51,000 square feet of sales area.
At January 31, 1999, the Company's stores had an aggregate sales area of
approximately 4,413,000 square feet.
The following table indicates the states in which the Company's general
merchandise stores were located as of January 31, 1999:
No. of
State Stores Percent
- ----- ------ -------
Minnesota................................................... 28 19.2%
Iowa........................................................ 26 17.8
Wisconsin................................................... 15 10.3
Nebraska.................................................... 14 9.6
Michigan.................................................... 12 8.2
Ohio........................................................ 10 6.8
Wyoming..................................................... 9 6.1
North Dakota................................................ 7 4.8
South Dakota................................................ 6 4.1
Montana..................................................... 6 4.1
Indiana..................................................... 4 2.7
Kansas...................................................... 3 2.1
Illinois.................................................... 3 2.1
Kentucky ................................................... 2 1.4
Missouri ................................................... 1 0.7
--- -----
146 100.0%
The following tables show the number of the Company's general merchandise
store openings, relocations and closings and the aggregate year-end store sales
area by fiscal year since fiscal 1995:
Fiscal Year Ended
--------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Beginning of year 148 148 144 184 173
Stores opened in new markets 4 1 6 7 17
Stores relocated in existing markets 2 2 2 3 -
Stores closed (includes relocated stores) (8) (3) (4) (10) (6)
---- ---- ---- ---- ----
End of year 146 148 148 184 184
Less 40 Closed Stores ==== ==== ==== ---- ====
(40)
----
144
====
Fiscal Year Ended
--------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Square feet of store sales area at
year-end (in millions) 4.41 4.41 4.35 5.22 5.09
Less 40 Closed Stores ----
(1.09)
4.13
====
The Company 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.
The Company's store expansion program is subject to the Company's ability
to access financing or negotiate satisfactory leases, as well as 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. Up to fifteen new stores, none of which are replacement stores,
are expected to commence operations during the fiscal year ending January 30,
2000.
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.
The Company began operations in a new 200,000 square foot distribution
center in Lebanon, Indiana, during the second quarter of fiscal 1998. Pamida
believes that its existing distribution facilities (including the expandable
Lebanon, Indiana, facility), senior and middle management staff and corporate
infrastructure should allow the Company to accommodate its currently anticipated
growth.
The Company typically invests approximately $1,550,000 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 $500,000 for
store fixtures and equipment. In most cases, building and land costs of
approximately $1,550,000 to $1,750,000 per store are financed by unaffiliated
developers who lease the real estate to Pamida. To expedite the construction
process because of construction financing constraints, Pamida frequently
constructs stores on sites which it acquires, with the expectation that it
subsequently will enter into sale-leaseback transactions involving such stores
with unaffiliated investors. At January 31, 1999, the Company has built, or is
building, twelve stores which the Company expects to sell and lease back within
the next twelve to eighteen months.
SALES AND MERCHANDISING.
Pamida's merchandising policy is to provide customers with reliable and
convenient family shopping and to feature nationally advertised brand-name
products as well as select private-label merchandise at attractive prices.
Pamida operates its stores on a self-service, primarily cash-and-carry basis and
runs weekly advertised promotions throughout the year. All of Pamida's stores
accept bank credit cards, which accounted for 15.4% of total store sales during
the fiscal year ended January 31, 1999.
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 three basic merchandise divisions are softlines, hardlines and
pharmacies. The softlines division includes mens', womens', childrens' and
infants' clothing, footwear, accessories and jewelry. The hardlines division
includes categories such as health and beauty aids, automotive accessories,
housewares, paper and 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, consumables and candy items.
The Company currently owns and operates pharmacies in 54 of its larger
stores, and five 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,
subject to 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 31, 1999, the hardlines division
accounted for approximately 72% of Pamida's total sales, while the apparel
division and the pharmacies accounted for approximately 21% and 7%,
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 "Hometown
Values", "We Care" and "We're Listening". Pamida places special emphasis on
maintaining a strong in-stock position in all merchandise categories,
particularly with respect to advertised 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) amount 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 1999, Pamida spent approximately $11,936,000 (net of
promotional allowances provided by vendors) on advertising, which represented
approximately 1.8% of fiscal 1999 sales.
PURCHASING AND DISTRIBUTION.
Pamida maintains a centralized purchasing, merchandise allocation and store
planning staff at its central offices. The merchandising department includes two
general merchandise managers, three hardlines divisional merchandise managers
and two 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 approximately
2,400 primary manufacturers, suppliers and other vendors. Centralized purchasing
enables Pamida to more effectively control the cost of merchandise 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, 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 1999, approximately 77% of Pamida's merchandise was
distributed 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 other general merchandise retailers,
supermarkets, drug and specialty stores, mail order and catalog merchants and,
in some communities, department stores. Competitors consist both of independent
stores and of regional and national chains, some of which have substantially
greater financial 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, merchandise selection and
quality, customer service and price, 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, reliable in-stocks, 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 "Hometown Values", "We
Care" and "We're Listening".
Pamida stores generally are located in small towns where there is no direct
local 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 approximately 80% of the communities in which
its stores are located.
At January 31, 1999, 117 of Pamida's 146 general merchandise 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 13, 13, 7, 3 and 1 communities, respectively,
where Pamida stores are located; however, because some of these communities have
more than one of such competitors, only 29 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
central office, 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.
As of January 31, 1999, Pamida had approximately 6,000 employees, of whom
approximately 2,900 were full-time and 3,100 were part-time. The number of
employees varies on a seasonal basis. Pamida's employees are not represented by
a labor union, and the Company believes that its relations with its employees
are good.
At January 31, 1999, the average length of service of the Company's
management staff was as follows:
Average
Years
Number of Service
------ ----------
Chief Executive and Operating Officers 2 17.2
Senior Vice Presidents and Vice Presidents 19 7.2
District Managers 12 20.9
Pharmacy District Supervisors 4 6.2
Store Managers 147 11.8
Pharmacy Managers 54 3.2
Pamida's human resources department is responsible for company-wide salary
and wage administration, as well as all employee benefits. 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.
HEARTLAND HOME FURNISHINGS.
During the third quarter of fiscal 1999, the Company converted a former
general merchandise store, which had substantial direct competition from a
national discount chain store, to a "Heartland Home Furnishings" (Heartland)
store, which sells furniture, rugs, lamps, accessories and other home
furnishings items. This new concept is currently being tested as a potential
alternative use for certain of the Company's general merchandise store
properties which are not performing to management's standards. The Company plans
to open four additional Heartland stores in the first quarter of fiscal 2000 and
will consider a very limited number of additional Heartland stores during the
year. The Company will continue to assess the results of this test concept on a
going forward basis, and there can be no assurance that the Company will either
continue or expand this retail store concept.
ITEM 2. PROPERTIES.
At January 31, 1999, the Company owned 14 of its 147 store buildings, while
its remaining 133 stores (including the Heartland Home Furnishings store)
operated in leased premises. A substantial majority of the Company's leases have
renewal options, with approximately 65% 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 31,
1999:
Lease Expiring Number of Leased Stores
During the Fiscal Year Ending(1) 1/31/99
-------------------------------- -----------------------
2000............................. 16
2001............................. 14
2002............................. 8
2003............................. 6
2004............................. 4
Thereafter....................... 85
---
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
distribution center 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. This
facility, which is owned by Pamida, serves primarily as a redistribution center
for bulk shipments and promotional merchandise on which cost savings can be
realized through quantity purchasing. Pamida also 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%.
In July 1997, the Company began operations in a new 200,000 square foot
distribution center in Lebanon, Indiana. The facility, which is leased through
April 2007, redistributes bulk shipments and promotional merchandise to stores
in the Company's eastern sales districts. Future expansion of the facility is
being considered.
Pamida also has a facility in Omaha which contains approximately 41,000
square feet of space and is located immediately adjacent to the Company's
corporate office. This facility, which is owned by Pamida, is used for
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 corporate
facilities, 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
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 any 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>
<CAPTION>
PAMIDA, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except other data)
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended
--------------------------------------------------------------
January 31, February 1, February 2, January 28, January 29,
1999 1998 1997(1) 1996 1995
---------- ---------- ---------- ---------- ----------
INCOME STATEMENT DATA:
Sales $ 672,394 $ 657,017 $ 633,189 $ 736,315 $ 711,019
Gross profit 167,568 161,935 154,090 177,688 177,367
Selling, general and
administrative expenses 134,358 128,419 124,410 150,069 142,656
Interest expense 25,847 26,239 25,984 26,610 24,799
Long-lived asset write-off - - - 78,551 -
Store closing costs - - - 21,397 -
---------- ---------- ---------- ---------- ----------
Income (loss) before
provision for income taxes 7,363 7,277 3,696 (98,939) 9,912
Income tax provision
(benefit) 2,860 644 - (6,412) 4,782
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 4,503 $ 6,633 $ 3,696 $ (92,527) $ 5,130
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Working capital $ 40,874 $ 35,199 $ 28,645 $ 33,874 $ 46,684
Total assets 298,618 260,843 269,152 258,470 354,309
Long-term debt (less current portion) 140,242 140,289 140,364 140,411 141,745
Obligations under capital
leases (less current portion) 35,925 32,156 33,999 36,559 43,050
Stockholder's
(deficit) equity (46,394) (50,897) (57,530) (61,226) 31,301
OTHER DATA:
Team members 6,000 5,600 5,700 7,200 7,200
Number of stores 147 148 148 184 184
Retail square feet
(in millions) 4.45 4.41 4.35 5.22 5.09
(1) Represents a 53-week year.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PAMIDA, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollar amounts in thousands)
YEAR ENDED JANUARY 31, 1999 COMPARED TO YEAR ENDED FEBRUARY 1, 1998
SALES - Total sales during fiscal 1999 increased by $15,377, or 2.3%, from
1998. During fiscal 1999, sales in comparable stores increased by $18,826, or
3.0%. During fiscal 1999, the Company opened six new stores, of which four are
located in new markets and two were relocations; the Company also closed seven
stores during fiscal 1999, resulting in a net increase in selling area during
the fiscal year of approximately 43,000 square feet. At January 31, 1999, the
Company had a total of approximately 4,451,000 square feet of sales area.
Sales during the second half of the year were adversely affected by
economic weaknesses in the agricultural communities in which many of the
Company's stores are located. Also, unseasonably warm weather during much of the
fall and early winter season further tempered sales, especially in the winter
clothing and other seasonal sales categories. The Company's in-stock position in
basic merchandise suffered during the third quarter and the early part of the
fourth quarter due to implementation issues related to a comprehensive new
merchandising and inventory replenishment system installed late in the second
quarter. Sales increased dramatically during the period from Christmas to the
end of the fiscal year due to improved in-stock positions and normal seasonal
weather conditions. Comparable store sales for the month of January increased by
more than 17%.
The Company experienced sales increases in many merchandise categories
during fiscal 1999. The most significant increases occurred in pharmacy and
prescriptions, which increased 27.4% or $10,685, and in the yarns and crafts,
lawn and garden, bath and floor care, pet supplies and furniture categories
which increased by lesser amounts. Other categories experiencing gains were
athletic shoes, boys' toys, bedding, grocery, beauty aids, audio and video,
junior apparel, appliances, team sports and electronics. The Company experienced
sales decreases in several categories. The largest dollar decreases were in the
automotive, hosiery, paint and electric, paper and cleaning, misses apparel and
infants and toddlers categories.
During the third quarter, the Company converted a former general
merchandise store, which had substantial direct competition from a national
discount chain store, to a "Heartland Home Furnishings" (Heartland) store, which
sells furniture, rugs, lamps, accessories and other home furnishings items. This
new concept is currently being tested as a potential alternative use for certain
of the Company's general merchandise store properties which are not performing
to management's standards. The Company plans to open four additional Heartland
stores in the first quarter of fiscal 2000 and will consider a very limited
number of additional Heartland stores during the year. The Company will continue
to assess the results of this test concept on a going forward basis, and there
can be no assurance that the Company will either continue or expand this retail
store concept.
GROSS PROFIT - Gross profit for fiscal 1999 increased by $5,633, or 3.5%,
compared to fiscal 1998. As a percent of sales, gross profit improved to 24.9%
from 24.6%. The Company's merchandise gross margin as a percent of sales
increased to 27.9% in fiscal 1999 from 27.6% in fiscal 1998. Total warehouse and
distribution costs amounted to 2.9% of sales compared to 2.8% last year.
Markdowns were substantially lower for the year due to lower inventory
investment in most softlines categories, especially in fashions and other
categories which have higher potential for markdowns. The Company also
implemented more competitive pricing on many softlines goods which also
contributed to a reduced need for markdowns due to greater sell-through. Most
sales categories experienced increases in gross margin dollars for the year.
Categories with the largest increases in gross margin dollars were pharmacy and
prescriptions, groceries, yarns and crafts, housewares, junior apparel, beauty
aids, pet supplies and furniture. The largest dollar decreases in gross margin
were in the automotive, hosiery, misses apparel, cameras and candy categories.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) expense increased $5,939, or
4.6%, to $134,358 in fiscal 1999 from $128,419 in fiscal 1998. As a percentage
of sales, SG&A expense increased to 19.9% from 19.5% last year. Over half of the
total net increase in SG&A expense for the year was attributable to higher store
payroll due primarily to normal wage increases and the effects of federally
mandated minimum wage increases. Corporate general and administrative costs
increased by $1,859, or 6.6%, due primarily to increased depreciation and
amortization costs related to financial and merchandising systems implemented
within the last year. General and administrative payroll also increased with the
largest increase being incurred in the information systems area to support the
implementation and maintenance of the various new systems which have been, and
are being, implemented. Store controllable expenses increased $1,558, or 8.2%.
The largest increases in these expenses related to supplies, janitorial costs
and charge card fees. Advertising expenses increased $1,468, or 14.0%, due to a
significant increase in the number and cost of special advertising events and
increased costs of advertising circulars. Store fixed costs increased $813, or
3.2%, primarily due to the effect of higher costs of new store locations. These
increases in costs were offset by other income which increased by approximately
$2,685 and included 1) the favorable settlement of a lawsuit related to pharmacy
operations which netted $1,333 in income, 2) a gain on the sale of the Polson,
Montana store property of $999, 3) the partial reversal of a reserve established
in fiscal 1996 (related to the 40 store closings) totaling $535 to reflect the
impact of the planned conversion of two of the leased properties to Heartland
stores in fiscal 2000 and 4) the partial reversal of a reserve established in
fiscal 1998 for a long-term incentive plan, the value of which is determined by
the trading price of the stock, totaling $575 to reflect the liability indicated
by the actual price of the common stock at year end.
INTEREST expense decreased by $392, or 1.5%, for fiscal 1999 compared to
fiscal 1998. Interest expense related to the revolving line of credit decreased
by $859 in fiscal 1999 compared to fiscal 1998 due to lower average borrowings,
especially during the early part of fiscal 1999, and a reduced interest rate.
These decreases in expense were offset somewhat by higher interest expense
related to capital leases.
INCOME TAX PROVISION - The Company had deferred tax assets, initially
recorded at the end of fiscal 1996, related to certain tax credit carryforwards
which resulted from prior year store closing charges. The Company had also
recorded a valuation allowance related to these assets. The Company's valuation
allowance was utilized during fiscal 1998 to partially offset income taxes from
normal operating activities of the Company. Accordingly, a tax provision was
recorded related to operations during fiscal 1999, and the Company expects that
operations in future periods will continue to be taxed at a normal tax rate.
YEAR ENDED FEBRUARY 1, 1998 COMPARED TO YEAR ENDED FEBRUARY 2, 1997
SALES - Total sales during the 52-week fiscal 1998 period increased by
$23,828, or 3.8%, from the 53-week fiscal 1997 period. On a 52 to 52-week basis,
total net sales increased by 5.2%. During fiscal 1998, sales in comparable
stores increased by $24,135, or 4.0%.
During fiscal 1998, the Company opened three new stores, of which one is
located in a new market and two were relocations; the Company also closed one
store (which was replaced during fiscal 1999 by a new store in the same market),
resulting in a net increase in selling area during the fiscal year of
approximately 61,000 square feet and a year-end total of approximately 4,408,000
square feet.
The Company experienced sales increases in most merchandise categories
during fiscal 1998. The most significant increases occurred in pharmacy
prescriptions, housewares, toys, athletic shoes and team sports apparel. Other
categories experiencing notable gains were stationery, sporting goods,
appliances, paper and cleaning supplies and pet supplies. The Company
experienced sales decreases in several categories. The largest dollar decreases
were in the automotive, mens' fashion apparel, jewelry and watches and juniors'
apparel categories.
GROSS PROFIT - Gross profit for the 52-week fiscal 1998 period increased by
$7,845, or 5.1%, compared to the 53-week fiscal 1997 period. As a percentage of
sales, gross profit improved to 24.6% from 24.3%. The Company's merchandise
gross margin as a percentage of sales decreased to 27.6% in fiscal 1998 from
27.8% in fiscal 1997. The decrease in merchandise gross margin percent of sales
was offset by substantial expense reductions in the distribution and
transportation areas made possible by operating efficiencies gained largely from
a new distribution center management system implemented during fiscal 1997.
During the prior fiscal year, the Company incurred higher than normal labor cost
in its distribution and transportation areas due to implementation issues
related to the distribution center management system. Total distribution and
transportation costs amounted to 2.8% of sales compared to 3.3% last year.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) expense increased $4,009, or
3.2%, to $129,419 in fiscal 1998 from $124,410 in fiscal 1997. As a percentage
of sales, SG&A expense decreased to 19.5% from 19.6% last year. Most of the
total net increase in SG&A expense for the year was attributable to higher
corporate general and administrative expenses, primarily involving planned
increases in payroll and incentive compensation expenses. Store occupancy costs
increased by $989, but remained at 3.9% as a percentage of net sales for both
fiscal 1998 and 1997.
Store payroll costs and controllable costs decreased by $392 and $121,
respectively, during fiscal 1998 as compared to last year. As a percentage of
net sales, store payroll costs and controllable costs decreased from 8.0% to
7.7% and 3.0% to 2.9% for the fiscal periods ended 1998 and 1997, respectively.
INTEREST expense increased by $255, or 1.0%, for fiscal 1998 compared to
fiscal 1997 because of higher outstanding balances on the revolving line of
credit resulting from higher investments in basic inventory during the year as
well as the funding of certain of the Company's information systems initiatives.
This increase was offset in part by decreased interest related to lower average
outstanding capitalized lease obligations in fiscal 1998 compared to fiscal
1997.
INCOME TAX PROVISION - The Company had deferred tax assets, initially
recorded at the end of fiscal 1996, related to certain tax credit carryforwards
which resulted from prior year store closing charges. The Company had also
recorded a valuation allowance related to these assets. The Company's valuation
allowance was utilized during fiscal 1998 to partially offset income taxes from
normal operating activities of the Company. The Company expects that operations
in future periods will be taxed at a normal tax rate. No provision for income
taxes was recorded during fiscal 1997 as this expense was offset by the reversal
of a portion of the valuation allowance.
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 used in operating activities totaled $5,544 in fiscal
1999, and funds provided by operating activities totaled $20,838 in fiscal 1998.
Funds used in operations totaled $7,897 in fiscal 1997. The change in cash flow
from operating activities from fiscal 1998 to fiscal 1999 was primarily the
result of increases in inventory and changes in income taxes payable, offset
somewhat by increases in accounts payable, primarily related to the Company's
higher inventory levels. The positive change in cash flow from operating
activities from fiscal 1997 to fiscal 1998 was primarily the result of improved
operating results, a net decrease in inventory and increases in operating and
tax liabilities.
The Company's committed Loan and Security Agreement (the Agreement) was
amended and restated on July 2, 1998 and extended to July 2001. The amendment
increased the maximum borrowing limit to $125,000 from $95,000 and reduced
interest rate spreads by 75 basis points. The amended $125,000 facility includes
a $25,000 supplemental facility primarily intended for real estate development
activities, which the Company is using to accelerate its new store opening
program in fiscal 2000.
Borrowings under the Agreement bear interest at a rate which is tied to the
prime rate (as defined) or the London Interbank Offered Rate (LIBOR), generally
at the Company's discretion. Included in the July 2, 1998 amendment to the
Agreement were provisions substantially increasing the maximum permitted
borrowings available to the Company. The amounts Pamida is permitted to borrow
are determined by a formula based upon the amount of the Company's 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. Pamida
Holdings Corporation ("Holdings") and two subsidiaries of the Company have
guaranteed the 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 the Holdings, to secure such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. The Agreement requires the achievement of specified
minimum amounts of cash flow (as defined). 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 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, engage in
sale/leaseback transactions, or encumber its property, may at some future time,
unless waived or amended, prevent the Company from pursuing its store expansion
program at the rate that the Company desires.
Obligations under the Agreement were $66,497 at January 31, 1999 and
$45,194 at February 1, 1998. Included in this amount is $9,590 of borrowings
under the $25,000 supplemental facility. Total unused borrowing availability
under the Agreement as of January 31, 1999 totaled $49,568 compared to $31,288
at the end of the prior fiscal year. As noted above, this facility expires in
July 2001, 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 $176,167 at January 31, 1999 and $172,445 at February 1, 1998. 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 and refinancings. At
January 31, 1999, the Company was in compliance with all covenants contained in
its various financing agreements.
Holdings reclassified all preferred stock into common stock effective
November 18, 1997. Accordingly, Holdings had no remaining obligations related to
the preferred stock as of the end of fiscal 1998. Since Holdings conducts no
operations of its own, prior to the November 18, 1997, reclassification of the
preferred stock, the only cash requirement of Holdings related to preferred
stock dividends in the aggregate annual amount of approximately $316; and the
Company was expressly permitted under its then existing credit facilities to pay
dividends to Holdings to fund such preferred stock dividends. Because of the
accumulated deficit which resulted primarily from the store closings and the
write-off of goodwill and other long-lived assets recognized in the fourth
quarter of fiscal 1996, applicable corporate law did not permit the Company or
Holdings to declare or pay any cash dividends in fiscal 1999, 1998 and 1997.
The Company made capital expenditures of $8,328 in fiscal 1999 compared to
$6,654 during fiscal 1998. The Company also made expenditures of $6,435 and
$3,848 in fiscal 1999 and 1998, respectively, related to information systems
software. In addition, the Company incurred construction costs related to new
stores opened during fiscal 1999 totaling $8,720. Capital expenditures and
information systems software costs are expected to total approximately $20,000
in fiscal 2000. 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, as well as borrowings under the Agreement. The Company's expansion
program also will require inventory of approximately $1,000 to $1,200 for each
new market store, which the Company expects to finance through trade credit,
borrowings under the Agreement and cash flow from operations. In the first half
of fiscal 1999, the Company sold and leased back six store properties with net
cash proceeds totaling $8,475. The leases are classified as capital and
operating leases for four and two store properties, respectively. The annual
lease payments for the six store properties for each of the next five years
total $933. Proceeds from the sales were used to reduce outstanding indebtedness
under the Company's revolving line of credit.
The Company's cash flow from operations, along with the Agreement, should
provide adequate resources to meet the Company's near-term liquidity
requirements. On a long-term basis, the Company's expansion will require
continued investments in store locations, distribution and infrastructure
enhancements, systems and working capital. The Company expects to continue to
finance these investments through cash flow from operations, leases from
unaffiliated landlords, trade credit and borrowings under the Agreement. The
Company is also exploring additional sources of funds which may include
additional capital structure changes. Currently, it is not possible for the
Company to predict with any certainty either the timing or the availability of
such additional financing.
YEAR 2000 READINESS DISCLOSURE
The information in this Year 2000 section is a Year 2000 Readiness
Disclosure under the Year 2000 Information Readiness and Disclosure Act.
The Company has developed and begun execution of a plan to mitigate the
Company's exposure to risks emanating from computer software and hardware being
potentially unable to properly process data beyond the calendar year 1999, which
is commonly referred to as Year 2000 compliance. This plan includes addressing
three major elements of risk both within, and external to, the Company: 1)
information technology (IT) systems, 2) non-IT, or embedded technology, systems
and 3) relationships with its key business partners. The plan is further divided
into four phases related to each of the elements of risk: assessment,
remediation planning, solutions implementation, and validation (testing) of
compliance. The Company has substantially completed the assessment phase for all
three elements and currently is at varying points of completion of the other
phases as described more fully below.
INTERNAL CONSIDERATIONS:
The Company's IT systems include proprietary and third-party software and
related hardware as well as data and telephone networks. Since 1994, the Company
has modernized its information technology by replacing five of its
mission-critical legacy systems (inventory, distribution center management,
logistics, store operations and financial systems) with purchased and leased
software and hardware. While the primary impetus for replacing the legacy
systems was to substantially improve each system's functionality, an additional
expected benefit is that the new systems are designed to be Year 2000 compliant.
The two most recent implementations, financial and inventory systems, are each
approximately 85% complete. The remaining 15% of these projects is planned to be
completed by the end of August 1999. The logistics, distribution management and
store operations systems implementations are complete and, as needed, will be
upgraded further. The Company's other major system, human resources (including
payroll processing), is being replaced currently and is planned for completion
by the end of October 1999. Each of these systems has been certified as being
Year 2000 compliant by the respective vendors.
In addition to the aforementioned systems, the Company has numerous other
systems applications and interfaces between systems which are maintained by the
Company. Approximately 25% of these systems and interfaces have been modified to
address the Year 2000 issue. Those remaining systems and interfaces which are
believed to have potentially material adverse effects on the Company's
operations or financial results in the event of failure are planned for
necessary modifications to be completed and tested by July 1999. The hardware
supporting these systems is planned to be replaced with Year 2000 compliant
hardware before July 1999.
The Company plans to extensively test its key operating systems and mission
critical systems, through simulation of Year 2000 transactions, in the first
half of 1999 and anticipates completion of the testing phase for all of the
Company's software by October 1999.
The Company has recently begun to address its non-IT systems, or embedded
technology risks. While assessment is not yet complete, the Company plans to
complete any necessary remediation by the end of July 1999. Validation is
planned for completion by the end of October 1999.
EXTERNAL CONSIDERATIONS:
The Company has identified its key business partners and will take prudent
steps to assess their Year 2000 readiness and mitigate the risk if they are not
prepared for the Year 2000. Accordingly, the Company is participating in the
International Mass Retail Association (IMRA) task force's efforts to obtain
assurances from vendors and service providers related to their Year 2000
compliance. If certain vendors are unable to deliver product on a timely basis,
due to their own Year 2000 issues, the Company anticipates there will be others
who will be able to deliver similar goods. The Company also recognizes the risks
to the Company if other key suppliers in utilities, communications,
transportation, banking and government areas are not ready for the Year 2000,
and therefore is beginning to develop contingency plans to mitigate the
potential adverse effects of these risks, and intends to have such plans
completed before December 1999.
COSTS RELATED TO YEAR 2000:
The majority of the systems the Company has recently implemented, and those
new systems yet to be implemented, have substantially improved functionality
over the Company's legacy systems which they replace. Accordingly, most of the
costs associated with these systems have been, and will continue to be,
capitalized. Thus far in fiscal 1999, the Company has expensed less than $50
related directly to Year 2000 readiness, and prior to fiscal 1999 the amounts
expensed were similarly immaterial. The cost of directly addressing Year 2000
compliance for legacy systems which are not planned to be replaced by new
systems is being charged to expense as incurred and is expected to total
approximately $500 to $1,000. All expenditures related to the Company's Year
2000 readiness initiatives will be funded by cash flow from operations and the
Agreement and are included in the Company's operating plans.
SUMMARY:
The Company anticipates that the most reasonably likely worst-case
scenarios include, but are not limited to, loss of communications with stores,
loss of electric power and other utility services, inability to process
transactions or engage in normal business activity, and delayed receipt of
merchandise from vendors. In planning for the most likely worst-case scenarios,
the Company is addressing all three major elements in its plan. The Company
believes its IT systems will be ready for the Year 2000, but the Company may
experience some incidences of non-compliance. The Company plans to allocate
internal resources and, if possible, retain dedicated consultants and vendor
representatives to be ready to take action if these events occur. Development of
contingency plans for non-IT systems is currently in process, and the Company is
prepared to dedicate the required resources to carry out those plans for key
non-IT systems, such as store and phone communications systems.
In addition to the risks previously described, the Company must also be
successful in retaining numerous key employees and external service providers
involved with systems implementation and validation. Failure by the Company to
complete implementation of all mission-critical systems, inability of the
Company to properly address significant system interface issues or failure of
the vendors of the aforementioned software and hardware to have eliminated the
potential Year 2000 issues within the software and hardware could materially and
adversely affect the Company's ability to execute various aspects of its
operations, its ability to generate sales and ultimately its operations'
financial results.
Although the Company is taking the steps it deems reasonable to mitigate
external Year 2000 issues, many elements of these risks, and the ability to
definitively mitigate them, are outside the control the Company. Given the
importance of certain key vendors and service providers, the inability of these
business partners to provide their goods or services to the Company on a timely
basis could also have material adverse effects on the Company's operations and
financial results.
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 except for some
percentage rents and periodic rental adjustments.
FORWARD-LOOKING STATEMENTS
This management's discussion and analysis contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "1995 Act"). Such statements are made in good faith by the Company
pursuant to the safe-harbor provisions of the 1995 Act. In connection with these
safe-harbor provisions, this management's discussion and analysis contains
certain forward-looking statements which reflect management's current views and
estimates of future economic circumstances, industry conditions, customer buying
preferences and patterns, competitive conditions, Company performance, Year 2000
compliance and Company financial results. The statements are based on many
assumptions and factors including sales results, expense levels, competition and
interest rates as well as other risks and uncertainties inherent in the
Company's business, capital structure and the retail industry in general. Any
changes in these factors could result in significantly different results for the
Company. Plans for new stores are subject to numerous contingencies discussed in
the Company's Form 10-K Annual Report. The Company further cautions that the
forward-looking information contained herein is not exhaustive or exclusive. The
Company does not undertake to update any forward-looking statements which may be
made from time to time by or on behalf of the Company.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion of the Company's exposure to various market risks
contains "forward-looking statements" that involve risks and uncertainties.
These projected results have been prepared utilizing certain assumptions
considered reasonable in the circumstances and in light of information currently
available to the Company. Actual results could differ materially from those
projected in the forward-looking statements.
INTEREST RATE RISK
At January 31, 1999, the Company had fixed-rate long-term debt totaling
$140,289 and having a fair value of $134,992. These instruments are fixed-rate
and therefore do not expose the Company to the possibility of earnings loss or
gain due to changes in market interest rates. However, the fair value of these
instruments would fluctuate by approximately $12,263 if interest rates were to
increase or decrease by 10% from their levels at January 31, 1999. In general,
such a change in fair value would impact earnings and cash flows only if the
Company were to reacquire all or a portion of these instruments prior to their
maturity.
At January 31, 1999, the Company had floating rate obligations of $66,497
which expose the Company to the possibility of increased or decreased interest
expense in the event of changes in short-term interest rates. If the floating
rates were to change by 10% from the January 31, 1999 levels, the Company's
consolidated interest expense for floating-rate obligations would increase or
decrease by approximately $49 during each month in which such change continued
based upon January 31, 1999 principal balances.
The Company's practice is not to hold or issue financial instruments for
trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAMIDA, INC.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Pamida, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Pamida, Inc. (a
wholly-owned subsidiary of Pamida Holdings Corporation) and subsidiaries as of
January 31, 1999 and February 1, 1998, and the related consolidated statements
of operations, stockholder's equity and cash flows for each of the three years
in the period ended January 31, 1999. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Pamida, Inc. and subsidiaries as of
January 31, 1999 and February 1, 1998, and the results of their operations and
their cash flows for each of the three years in the period ended January 31,
1999 in conformity with generally accepted accounting principles.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 9, 1999
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
Fiscal Year Ended
------------------------------------
January 31, February 1, February 2,
1999 1998 1997
(52 Weeks) (52 Weeks) (53 Weeks)
---------- ---------- ----------
Sales................................ $ 672,394 $ 657,017 $ 633,189
Cost of goods sold................... 504,826 495,082 479,099
---------- ---------- ----------
Gross profit......................... 167,568 161,935 154,090
---------- ---------- ----------
Expenses:
Selling, general and administrative 134,358 128,419 124,410
Interest.......................... 25,847 26,239 25,984
---------- ---------- ----------
160,205 154,658 150,394
---------- ---------- ----------
Income before income taxes........... 7,363 7,277 3,696
Income tax provision................. 2,860 644 -
---------- ---------- ----------
Net income........................... $ 4,503 $ 6,633 $ 3,696
========== ========== ==========
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<S> <C> <C>
January 31, February 1,
ASSETS 1999 1998
Current assets: --------- ----------
Cash....................................................... $ 7,588 $ 6,816
Accounts receivable, less allowance for doubtful accounts
of $50 in both years..................................... 10,528 8,901
Merchandise inventories.................................... 180,063 152,927
Prepaid expenses........................................... 3,698 2,838
--------- ----------
Total current assets................................... 201,877 171,482
Property, buildings and equipment, net....................... 38,411 40,812
Leased property under capital leases, less accumulated
amortization of $18,024 and $15,387, respectively.......... 28,254 25,181
Deferred financing costs..................................... 2,301 2,755
Other assets................................................. 27,775 20,613
--------- ----------
$ 298,618 $ 260,843
========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................... $ 53,772 $ 47,687
Loan and security agreement................................ 66,497 45,194
Accrued compensation....................................... 5,405 5,768
Accrued interest........................................... 6,614 6,668
Other accrued expenses..................................... 12,182 13,631
Income taxes - deferred and current payable................ 14,612 15,445
Current maturities of long-term debt....................... 47 47
Current obligations under capital leases................... 1,874 1,843
--------- ----------
Total current liabilities.............................. 161,003 136,283
Long-term debt, less current maturities...................... 140,242 140,289
Obligations under capital leases, less current obligations... 35,925 32,156
Other long-term liabilities.................................. 7,842 3,012
Commitments and contingencies (Note K)....................... - -
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
Accumulated deficit........................................ (63,394) (67,897)
--------- ----------
Total stockholder's deficit............................ (46,394) (50,897)
--------- ----------
$ 298,618 $ 260,843
========= ==========
See notes to consolidated financial statements.
</TABLE>
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollar amounts in thousands)
Additional
Common Paid-in (Accumulated
Stock Capital Deficit)
------ ---------- ------------
Balance at February 2, 1997... $ - $ 17,000 $ (74,530)
Net income - - 6,633
------ ---------- ------------
Balance at February 1, 1998... - 17,000 (67,897)
Net income................. - - 4,503
------ ---------- ------------
Balance at January 31, 1999... $ - $ 17,000 $ (63,394)
====== ========== ============
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
PAMIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<S> <C> <C> <C>
Fiscal Year Ended
------------------------------------
January 31, February 1, February 2,
1999 1998 1997
(52 Weeks) (52 Weeks) (53 Weeks)
---------- ---------- ----------
Cash flows from operating activities:
Net income.................................................. $ 4,503 $ 6,633 $ 3,696
---------- ---------- ----------
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization......................... 13,456 12,660 11,762
Provision for LIFO inventory valuation................ 385 606 874
Provision (benefit) for deferred income taxes......... (2,738) (3,297) 3,305
Gain on disposal of assets............................ (1,032) (150) (56)
Deferred retirement benefits.......................... (129) (142) (125)
Decrease in store closing reserves.................... (1,967) (3,457) (3,726)
Changes in operating assets and liabilities:
(Increase) decrease in merchandise inventories...... (27,521) 3,957 (7,527)
Increase in other operating assets.................. (3,796) (1,458) (2,065)
Increase (decrease) in accounts payable............. 6,085 (6,558) (8,842)
(Decrease) increase in income taxes payable......... (321) 7,781 (3,250)
Increase (decrease) in other operating liabilities.. 7,531 4,263 (1,943)
---------- ---------- ----------
Total adjustments......................................... (10,047) 14,205 (11,593)
---------- ---------- ----------
Net cash from operating activities........................ (5,544) 20,838 (7,897)
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures........................................ (8,328) (6,654) (4,947)
Capitalized software costs.................................. (6,435) (3,848) (3,680)
Proceeds from sale/leaseback of store facilities............ 8,475 - -
Proceeds from disposal of assets............................ 2,095 1,701 917
Principal payments received on notes receivable............. 52 18 16
Changes in constructed stores to be refinanced
through lease financing................................... (8,720) 1,790 (5,845)
Assets acquired for sale.................................... - - (391)
---------- ---------- ----------
Net cash from investing activities............................ (12,861) (6,993) (13,930)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings (payments) under loan and security agreement, net 21,303 (11,921) 25,527
Principal payments on other long-term debt.................. (47) (75) (1,335)
Payments for deferred finance costs......................... (169) (225) (54)
Principal payments on capital lease obligations............. (1,910) (1,781) (2,636)
---------- ---------- ----------
Net cash from financing activities........................ 19,177 (14,002) 21,502
---------- ---------- ----------
Net increase (decrease) in cash............................. 772 (157) (325)
Cash at beginning of year................................... 6,816 6,973 7,298
---------- ---------- ----------
Cash at end of year......................................... $ 7,588 $ 6,816 $ 6,973
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest.................................................. $ 25,278 $ 25,834 $ 24,804
Income taxes:
Payments to taxing authorities.......................... 1,608 112 386
Refunds received from taxing authorities................ (141) (3,952) (442)
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 $ 5,710 $ - $ 11
See notes to consolidated financial statements.
</TABLE>
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pamida, Inc. (the "Company" or "Pamida") 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 general
merchandise retail 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. Because of the similarity in nature of the
Company's businesses, the Company operates as a single business segment.
REVENUE RECOGNITION - Pamida operates its stores on a self-service,
primarily cash-and-carry basis. Because of the insignificance of sales returns,
revenue is recognized at the point-of-sale without allowance for returns.
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 31, 1999 and February 1, 1998.
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, distribution center 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.
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 using the straight-line method over the
terms of the issues which approximates the effective interest method. Original
issue debt discount is being amortized using the effective interest method over
the terms of the issues.
ADVERTISING COSTS - Advertising costs are expensed as incurred and netted
to $11,936, $10,468 and $11,653 for fiscal years 1999, 1998 and 1997,
respectively.
PRE-OPENING EXPENSES - Costs related to opening new stores are expensed as
incurred.
SOFTWARE COSTS - The Company capitalizes internally developed software
costs, which then are amortized on a straight-line basis over three to five
years.
STOCK-BASED COMPENSATION - Employees of the Company participate in
stock-based compensation plans sponsored by Holdings. The Company accounts for
its stock-based compensation under the provisions of Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25), which utilizes
the intrinsic value method.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The historical cost of financial
instruments (cash, accounts receivable, accounts payable and the Company's
committed line of credit) as presented in the financial statements approximates
their fair value in all instances, except for long-term debt, the fair value of
which is disclosed in Note E.
RECLASSIFICATIONS - Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
B. MERCHANDISE INVENTORIES
Total inventories would have been higher at January 31, 1999 and February
1, 1998 by $7,565 and $7,180, respectively, had the FIFO (first-in, first-out)
method been used to determine the cost of all inventories. On a FIFO basis, net
income before extraordinary item would have been $4,931, $3,892 and $78
respectively, for fiscal years 1999, 1998, and 1997. During fiscal years 1999,
1998, and 1997, 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 $33,
$263, and $116, respectively.
C. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consists of:
Jan. 31, Feb. 1,
1999 1998
-------- --------
Land and land improvements...................... $ 3,504 $ 4,030
Buildings and building improvements............. 18,807 22,183
Store, warehouse and office equipment........... 65,349 59,842
Vehicles and aircraft equipment................. 1,658 1,551
Leasehold improvements.......................... 18,186 16,944
-------- --------
107,504 104,550
Less accumulated depreciation and amortization 69,093 63,738
-------- --------
$ 38,411 $ 40,812
======== ========
D. OTHER ASSETS
Other assets consist of:
Jan. 31, Feb. 1,
1999 1998
-------- --------
Constructed stores to be refinanced through
lease financing.............................. $ 10,084 $ 7,969
Unamortized software costs, net............... 14,568 10,435
Other......................................... 3,123 2,209
-------- --------
$ 27,775 $ 20,613
======== ========
The Company contracted for the construction of five and eleven stores
during the periods ended February 1, 1998 and January 31, 1999, respectively.
The construction costs capitalized are recorded as other long-term assets during
the period of construction and for the period following completion of
construction to the date of sale of such stores through lease financing
arrangements. The construction costs for twelve stores remain in Other Assets at
January 31, 1999. The cost of construction has been financed through the
Company's working capital including the Company's committed line of credit and
cash flow from operations. In the first half of fiscal 1999, the Company sold
and leased back six store properties with net cash proceeds totaling $8,475.
Proceeds from the sales were used to reduce outstanding indebtedness under the
Company's committed line of credit.
E. FINANCING AGREEMENTS
Pamida's committed Loan and Security Agreement (the Agreement) was amended
and restated on July 2, 1998 and extended to July 2001. The amendment increased
the maximum borrowing limit to $125,000 from $95,000 and reduced interest rate
spreads by 75 basis points. The amended $125,000 facility includes a $25,000
supplemental facility primarily intended for real estate development activities.
Borrowings under the Agreement bear interest at a rate which is tied to the
prime rate (as defined) or the London Interbank Offered Rate (LIBOR), generally
at the Company's discretion. Included in the July 2, 1998 amendment to the
Agreement were provisions substantially increasing the maximum permitted
borrowings available to the Company. The amounts the Company is permitted to
borrow are determined by a formula based upon the amount of the Company's
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 Company's obligations under the Agreement and have pledged
some or all of their respective assets, including the stock of the Company owned
by Holdings, to secure such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. The Agreement requires the achievement of specified
minimum amounts of cash flow (as defined). 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 1999 and
1998 was $66,469 and $66,461, respectively. The weighted average amounts of
borrowings under the Agreement for fiscal 1999 and 1998 were $48,414 and
$52,869, respectively; and the weighted average interest rates were 8.9% and
9.8%, respectively.
Long-term debt consists of:
Jan. 31, Feb. 1,
1999 1998
-------- --------
Senior Subordinated Notes, 11.75%, due March 2003 $140,000 $140,000
Industrial development bond, 5.5%, due in monthly
installments through 2005...................... 289 336
-------- --------
140,289 140,336
Less current maturities.......................... 47 47
-------- --------
$140,242 $140,289
======== ========
As of January 31, 1999 and February 1, 1998, the fair value of long-term
debt was $134,992 and $144,489, respectively. The fair value of long-term debt
was estimated based on quoted market values for the notes. The aggregate
maturities of long-term debt in each of the next five fiscal years are $47, $47,
$47, $47 and $140,047.
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.
F. INCOME TAXES
Components of the income tax provision (benefit) from continuing operations
are as follows:
Year Ended
----------------------------
Jan. 31, Feb. 1, Feb. 2,
1999 1998 1997
-------- ------- -------
Current:
Federal...................................... $ (34) $ 3,132 $(3,436)
State........................................ 156 809 131
-------- ------- -------
122 3,941 (3,305)
-------- ------- -------
Deferred:
Federal...................................... 2,409 (1,616) 3,189
State........................................ 329 (330) 116
Utilization of tax benefit carryforward........ - 1,059 -
Change in beginning of year valuation allowance - (2,410) -
-------- ------- -------
2,738 (3,297) 3,305
-------- ------- -------
Total provision from continuing operations..... $ 2,860 $ 644 $ -
======== ======= =======
The differences between the U.S. Federal statutory tax rate and the
Company's effective tax rate are as follows:
Year Ended
----------------------------
Jan. 31, Feb. 1, Feb. 2,
1999 1998 1997
-------- ------- -------
Statutory rate................................. 34.0% 34.0% 34.0%
State income tax effect........................ 4.4 4.3 4.4
Valuation allowance............................ - (29.9) (39.5)
Other.......................................... .4 .4 1.1
-------- ------- -------
38.8% 8.8% -
In fiscal 1998, income tax expense allocated to the extraordinary item was
$379 and income tax expense charged directly to stockholders' equity was $1,821.
These amounts are net of a change in the beginning of year valuation allowance
of $2,495.
Significant temporary differences between reported and taxable income that
give rise to deferred tax assets and liabilities were as follows:
Jan. 31, Feb. 1,
1999 1998
-------- -------
Net current deferred tax liabilities:
Inventories.................................. $ 14,155 $13,910
Prepaid insurance............................ 240 172
Other........................................ 790 423
Post employment health costs................. (85) (135)
Accrued expenses............................. (3,034) (2,192)
Store closing costs.......................... (623) (1,246)
-------- -------
Net current deferred tax liabilities....... 11,443 10,932
-------- -------
Jan. 31, Feb. 1,
1999 1998
-------- -------
Net long-term deferred tax liabilities:
Property, buildings and equipment............ 1,957 2,096
Other........................................ 3,680 1,836
Capital leases............................... (3,655) (3,377)
Tax benefit carryforward..................... - (800)
-------- -------
Net long-term deferred tax
(asset) liabilities...................... 1,982 (245)
-------- -------
Net total deferred tax liabilities............. $ 13,425 $10,687
======== =======
Net long-term deferred tax (asset) liabilities are classified with other
assets or other long-term liabilities in the consolidated balance sheets of the
Company.
G. LEASES
The majority of store facilities are leased under noncancelable leases.
Substantially all of the store 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
twenty years.
At January 31, 1999, the future minimum lease payments under all capital
and operating leases with rental terms of more than one year amounted to:
Fiscal Year Ending Capital Operating
Leases Leases
------- ---------
2000...................................... $ 6,100 $ 11,207
2001...................................... 6,010 9,635
2002...................................... 5,925 8,602
2003...................................... 5,913 7,566
2004...................................... 5,915 6,880
Later years............................... 43,994 64,292
------- ---------
Total minimum obligations................. 73,857 $ 108,182
=========
Less amount representing interest......... 36,058
-------
Present value of net minimum lease payments 37,799
Less current portion...................... 1,874
-------
Long-term obligations..................... $35,925
=======
The minimum rentals under operating leases have not been reduced by minimum
sublease rental income of $89 due in the future under noncancelable subleases of
stores.
Total rental expense related to all operating leases (including those with
terms less than one year) is as follows:
Year Ended
---------------------------
Jan. 31, Feb. 1, Feb. 2,
1999 1998 1997
-------- ------- -------
Minimum rentals........................... $ 13,086 $11,669 $10,938
Contingent rentals........................ 292 272 258
Less sublease rental income............... (532) (705) (735)
-------- ------- -------
$ 12,846 $11,236 $10,461
======== ======= =======
H. OTHER INCOME
The following non-recurring other income items reduced selling, general and
administrative costs during the:
Year Ended
----------------------------
Jan. 31, Feb. 1, Feb. 2,
1999 1998 1997
-------- ------- -------
Legal settlements........................ $ 1,333 $ - $ 207
Gain on sale of closed store properties.. 999 - -
Gain on sale of idle assets.............. - 103 -
Reduction of store closing reserve....... 535 - -
-------- ------- -------
$ 2,867 $ 103 $ 207
======== ======= =======
I. EMPLOYEE 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 1999, 1998, and 1997 were
$792, $765, and $770, respectively.
Prior to December 1993, 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 if the individual was eligible to
participate in the plan, had attained age 55, had completed ten 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.
The accumulated postretirement benefit obligations as of January 31, 1999 and
February 1, 1998 and the components of periodic expense for postretirement
benefits in fiscal 1999, 1998 and 1997 were insignificant.
J. STOCK OPTIONS
Employees of the Company participate in the 1992 Stock Option Plan (the
"1992 Plan") and the 1998 Stock Incentive Plan (the "1998 Plan") of Holdings.
The plans are administered by a Committee of the Board of Directors of Holdings
and provide for the granting of options to key employees of the Company and its
subsidiaries to purchase up to an aggregate of 350,000 and 500,000 shares of
Common Stock of Holdings under the 1992 Plan and the 1998 Plan, respectively.
The 1998 Plan also permits the granting of other types of awards in the form of
shares of Common Stock of Holdings; none have been granted. Options granted
under the 1992 Plan and the 1998 Plan may be either incentive stock options,
within the meaning of Section 422 of the Internal Revenue Code, or non-qualified
options.
Options granted under the 1992 Plan and the 1998 Plan will be exercisable
during the period fixed by the Committee for each option at the time of its
grant; 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 ten 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. No compensation expense related to stock options was recorded
during fiscal 1999, 1998 or 1997.
A summary of the Company's stock-based compensation activity related to
Holdings stock options for the last three fiscal years is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Jan. 31, 1999 Feb. 1, 1998 Feb. 2, 1997
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------- -------- ------- -------- ------- --------
Outstanding - beginning of year 322,433 $ 4.19 302,816 $ 4.39 296,546 $ 5.05
Granted 190,200 6.18 40,700 3.06 86,800 2.37
Expired/terminated 2,100 2.94 21,083 4.93 80,530 4.66
Exercised 55,156 3.45 - - - -
------- -------- ------- -------- ------- --------
Outstanding - end of year 455,377 $ 5.11 322,433 $ 4.19 302,816 $ 4.39
======= ======== ======= ======== ======= ========
</TABLE>
Options covering 154,337, 161,093 and 123,616 shares were exercisable at
January 31, 1999, February 1, 1998 and February 2, 1997, respectively.
The following table summarizes information about Holdings stock options
outstanding as of January 31, 1999:
Options Outstanding Options Exercisable
- ------------------------------------------------------ ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
$1.94 - $2.78 68,240 7.5 Years $2.34 22,760 $2.32
3.06 37,137 8.1 Years 3.06 6,977 3.06
3.63 - 5.75 144,400 5.6 Years 5.02 101,800 4.91
6.31 - 7.19 205,600 8.9 Years 6.47 22,800 7.19
- --------------- ----------- ----------- -------- ----------- --------
$1.94 - $7.19 455,377 7.8 Years $5.11 154,337 $4.78
=============== =========== =========== ======== =========== ========
If compensation cost for these Plans had been determined based on the fair
value at the grant dates of awards under the Plans consistent with the method of
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:
Jan. 31, Feb. 1, Feb. 2,
1999 1998 1997
-------- ------- -------
Net income As reported $ 4,503 $ 6,633 $ 3,696
Pro forma $ 4,359 $ 6,589 $ 3,648
The weighted average fair value of options granted during the year was
$2.07, $1.43 and $0.70 per option for fiscal 1999, 1998 and 1997, respectively.
The fair value of options granted under the Plans was estimated at the date of
grant using a binomial option pricing model with the following assumptions:
Jan. 31, Feb. 1, Feb. 2,
1999 1998 1997
--------- --------- ---------
Risk-free interest rate 5.2% 6.5% 6.0%
Dividend yield - - -
Expected volatility 8.3% 8.4% 8.1%
Expected life (years) 7.5 years 6.0 years 6.6 years
K. COMMITMENTS AND CONTINGENCIES
Pamida has employment agreements with three key executive officers which
expire in 2000 and 2001. In addition to a base salary, the agreements provide
for a bonus to be paid if certain Company performance goals are achieved. Also,
in March 1997, the Board of Directors approved a long-term incentive
compensation program in order to enhance retention of certain key members of
management. Payout under such program is tied to continued employment and future
Company common stock price appreciation.
On January 31, 1999, the Company had standby letters of credit outstanding
totaling $4,879 related to the Company's self-insured retention of workers'
compensation and general liabilities as well as future rental payments on a
distribution center. Additional letters of credit outstanding totaling $4,057
were committed for purchases of merchandise inventory.
L. STORE CLOSING RESERVES
During fiscal 1996, the Company recognized a $21,397 charge reflecting
management's best estimate of total costs to close forty unprofitable or
competitive market stores which did not fit the Company's niche market strategy.
Remaining expected future charges are recorded in the store closing reserve. 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
established in the 1996 store closing reserve.
The 1996 store closing reserve balance, as of January 28, 1996, included
amounts related to real estate, inventory, severance, professional fees and
other costs of closing the forty stores. The liquidation of the closed stores'
inventory was completed in the second quarter of fiscal 1997. As of January 31,
1999, all known ancillary costs of the store closings have been paid except
those related to the remaining real estate. During fiscal 1997, 1998 and 1999
the Company negotiated settlements on twenty-seven closed store properties which
had been leased, three of which have been subleased, and sold eight closed store
properties which had been owned. As of January 31, 1999, the Company remains
liable for lease obligations on five closed store properties. The Company
anticipates that final disposition of the remaining obligations will be
accomplished in fiscal 2000 and 2001.
The 1996 store closing reserve activity and amounts included in the balance
sheets are as follows:
1996 Store Closing Reserves
-------------------------------------------
Amount included Amount included
in other accrued in other long-
expenses term liabilities Total
---------------- ---------------- -------
Balance at January 28, 1996 $ 7,818 $ 2,619 $10,437
Payments applied to reserve 3,297 429 3,726
---------------- ---------------- -------
Balance at February 2, 1997 4,521 2,190 6,711
Payments applied to reserve 2,957 500 3,457
---------------- ---------------- -------
Balance at February 1, 1998 1,564 1,690 3,254
Payments applied to reserve 477 955 1,432
Reduction in the required reserve - 535 535
---------------- ---------------- -------
Balance at January 31, 1999 $ 1,087 $ 200 $ 1,287
================ ================ =======
M. SUPPLEMENTAL FINANCIAL INFORMATION - CAPITALIZATION OF PAMIDA HOLDINGS
CORPORATION
The capitalization of Pamida Holdings Corporation is as follows:
Jan. 31, Feb. 1,
1999 1998
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000
shares authorized; 6,025,595
and 5,970,439 shares issued and outstanding.. $ 60 $ 60
Nonvoting common stock, $.01 par value;
4,000,000 shares authorized; 3,050,473 shares
issued and outstanding....................... 30 30
Additional paid-in capital..................... 30,776 30,586
Accumulated deficit............................ (78,405) (82,951)
-------- --------
Total capitalization....................... $(47,539) $(52,275)
======== ========
Pamida Holdings Corporation has no operations other than ownership of the
Company.
N. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended January 31, 1999 and February 1, 1998:
May 3, August 2, November 1, January 31,
Fiscal 1999 1998 1998 1998 1999 Year
----------- -------- -------- ---------- ---------- --------
Sales............ $144,532 $170,169 $ 157,585 $ 200,108 $672,394
Gross profit..... $ 34,360 $ 43,308 $ 37,306 $ 52,594 $167,568
Net (loss) income $ (2,301) $ 1,483 $ 492 $ 4,829 $ 4,503
May 4, August 3, November 2, February 1,
Fiscal 1998 1997 1997 1997 1998 Year
----------- -------- -------- ---------- ---------- --------
Sales............ $144,564 $163,217 $ 158,749 $ 190,487 $657,017
Gross profit..... $ 33,268 $ 41,502 $ 37,854 $ 49,311 $161,935
Net (loss) income $ (4,246) $ 1,816 $ 1,651 $ 7,412 $ 6,633
Fourth quarter fiscal 1999 and 1998 net income was favorably impacted by a
LIFO benefit of $365 and $110.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors of the Company are Steven S. Fishman, Frank A. Washburn, and
George R. Mihalko. 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. Mr. Mihalko has been a
director of the Company since 1996. Messrs. Fishman, Washburn, and Mihalko
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. Fishman 48 Chairman of the Board, President,
Chief Executive Officer,
and Director
Frank A. Washburn 50 Executive Vice President , Chief
Operating Officer, and Director
Stephen D. Robinson 44 Senior Vice President-General
Merchandise Manager (Hardlines)
George R. Mihalko 44 Senior Vice President, Chief
Financial Officer, Treasurer,
and Director
Donald Hendricksen 48 Senior Vice President- Merchandising
Administration and Field Operations
Paul L. Knutson 41 Senior Vice President -
Human Resources
Kurt Streitz 50 Senior Vice President -
Chief Information Officer
Robert C. Hafner 43 Senior Vice President -
Marketing and Business Development
Kathy M. Hurley 52 Senior Vice President - General
Merchandise Manager (Softlines)
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. Mr. Fishman
also is a director of Holdings.
Frank A. Washburn has served as Chief Operating Officer of the Company
since March 1997, and Executive Vice President-Corporate Operations of the
Company since February 1995, having previously served as Senior Vice
President-Human Resources, Real Estate and Store Development 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. Mr. Washburn also
is a director of Holdings.
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.
George R. Mihalko has served as Senior Vice President, Chief Financial
Officer and Treasurer 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.
Donald Hendricksen has served as Senior Vice President-Merchandising
Administration and Field Operations of the Company since November 1998. From
January 1996 to November 1998, Mr. Hendricksen served successively as Senior
Vice President - Store Operations and Senior Vice President - General
Merchandise Manager of the Company. 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.
Paul L. Knutson has served as Senior Vice President - Human Resources since
March 1997. From July 1994 to March 1997, Mr. Knutson served as Vice President -
Human Resources of the Company. Mr. Knutson was Manager of Benefits,
Compensation and Human Resources Information Services at Lands' End from
February 1992 to July 1994. Mr. Knutson served as Manager of Compensation and
Benefits at Pamida before February 1992. He originally joined the Company in
1983.
Kurt Streitz has served as Senior Vice President - Chief Information
Officer of the Company since March 1997. Mr. Streitz was Principal
Organizational and Technology Transformation of Telluride Consulting Group from
1993 to 1995. He served as Vice President of Operational Development and
Information Services at Arvida/JMB Partners from 1991 to 1993.
Robert C. Hafner has served as Senior Vice President - Marketing and
Business Development of the Company since November 24, 1997. From 1992 to 1995
Mr. Hafner was employed as a retail consultant by Integrated Marketing
Solutions, and from 1995 to November 1997 he provided consulting services
through his own company, Hafner & Associates, Inc.
Kathy M. Hurley has served as Senior Vice President - General Merchandise
Manager of the Company since November 1998. From 1996 until joining the Company
in November 1998, Ms. Hurley was a Vice President and General Merchandise
Manager of Montgomery Ward & Co., Inc. From 1992 to 1996 Ms. Hurley was Senior
Vice President, Merchandising of Rose's Stores, Inc.
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,
Messrs. Fishman, Washburn and Mihalko have employment agreements with the
Company which provide for the continuation of their 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 31, 1999, February 1,
1998, and February 2, 1997 to the Chief Executive Officer of the Company and to
the next four most highly compensated executive officers of the Company:
<TABLE>
<CAPTION>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Summary Compensation Table
<S> <C> <C> <C> <C> <C>
Long-Term
Compensation
Annual Compensation(1) Awards
---------------------- -------------
Name and Stock Options
Principal Fiscal (Number of All Other
Position Year Salary Bonus Shares) Compensation(2)
- ------------------- ------ -------- -------- ------------- ---------------
Steven S. Fishman, 1999 $522,935 $241,957 45,000 $ 41,053
Chairman of the 1998 $500,050 $234,242 6,200 $ 40,099
Board, President, 1997 $506,973 $ - 25,800 $ 34,427
and Chief Executive
Officer
Frank A. Washburn, 1999 $331,588 $152,555 20,000 $ 24,691
Executive Vice 1998 $270,185 $128,833 3,000 $ 21,037
President and Chief 1997 $223,127 $ - 13,000 $ 16,013
Operating Officer
Stephen D. 1999 $282,742 $ 70,139 10,000 $ 21,867
Robinson, 1998 $248,512 $100,000 1,500 $ 19,586
Senior Vice 1997 $199,858 $ 20,000 6,500 $ 15,268
President-General
Merchandise
Manager,
Hardlines
George R. Mihalko, 1999 $228,358 $ 56,603 15,000 $ 22,538
Senior Vice 1998 $207,396 $ 55,873 1,500 $ 18,665
President and 1997 $182,935 $ 15,000 6,500 $ 11,515
Chief Financial
Officer
Donald 1999 $223,127 $ 56,603 10,000 $ 9,649
Hendricksen, 1998 $171,877 $ 53,213 9,000 $ 9,069
Senior Vice 1997 $149,281 $ 25,000 6,500 $ 8,122
President-
Merchandising
Administration
and Field
Operations
- -------------------
</TABLE>
(1) Perquisites and other benefits, securities, or property for any of the
named persons did not exceed the lesser of $50,000 or 10% of the total
amount of annual salary and bonus.
(2) All Other Compensation for fiscal 1999 consists of contributions by the
Company to its 401(k) plan and 1995 Deferred Compensation Plan ($4,000 and
$37,053 for Mr. Fishman, $4,000 and $20,691 for Mr. Washburn, $4,000 and
$17,867 for Mr. Robinson, $4,000 and $15,043 for Mr. Mihalko, and $3,808
and $5,841 for Mr. Hendricksen) and $3,495 of imputed interest on an
interest-free loan of $50,000 made to Mr. Mihalko during fiscal 1998. The
Company's Deferred Compensation Plan provides for elective salary deferrals
by participants (not less than 2% and not more than 10% of base salary);
the Company matches a participant's deferral quarterly up to 5% of base
salary and credits certain components of a participant's deferral account
quarterly with an interest equivalent at the rate of 7% per annum.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
<S> <C> <C> <C> <C> <C> <C> <C>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants(1) for Option Term(2)
- --------------------------------------------------------------------- --------------------
% of Total
Options
Options Granted to
Granted Employees Exercise
(Number of in Fiscal Price Expiration
Name Shares)(3) Year ($/Sh) Date 5% 10%
- ------------------- ---------- ---------- -------- ---------- -------- --------
Steven S. Fishman 45,000 23.7% $ 6.3125 8-25-05 $115,642 $260,495
Frank A. Washburn 20,000 10.5% $ 6.3125 8-25-05 $ 51,396 $119,776
Stephen D. Robinson 10,000 5.3% $ 6.3125 8-25-05 $ 25,698 $ 59,888
George R. Mihalko 15,000 7.9% $ 6.3125 8-25-05 $ 38,547 $ 89,832
Donald Hendricksen 10,000 5.3% $ 6.3125 8-25-05 $ 25,698 $ 59,888
- -------------------
</TABLE>
(1) The options granted during fiscal 1999 were granted under the Pamida
Holdings Corporation 1998 Stock Incentive 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 and were granted with an exercise
price equal to the closing price of such Common Stock on the American Stock
Exchange on the date of the grants.
(2) The calculations are made at the 5% and 10% rates prescribed by Securities
and Exchange Commission regulation and are not intended to forecast
possible future appreciation of the Common Stock of Holdings. The
calculations assume the indicated annual rates of appreciation of the
exercise price for seven years on a compounded basis for all of the shares
covered by the option, minus the aggregate exercise price.
(3) These options become exercisable in four equal annual installments
beginning on August 25, 1999, subject to the terms of the Plan and the
applicable stock option agreement.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR-END OPTION VALUES
Number of
Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
1-31-99(1) 1-31-99(2)
Number of ---------------- -------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable(2) Unexercisable
- ------------------- --------------- -------- ---------------- -------------
Steven S. Fishman 52,798 $147,619 78,484 $ 4,723
80,440 $ 22,838
Frank A. Washburn - - 16,533 $ 7,088
35,800 $ 11,475
Stephen D. Robinson - - 13,633 $ 3,545
20,700 $ 5,738
George R. Mihalko - - 8,900 $ 3,545
24,100 $ 5,738
Donald Hendricksen - - 5,858 $ 4,389
21,100 $ 9,113
(1) All options relate to shares of the Common Stock of Holdings and were
granted under the Pamida Holdings Corporation 1992 Stock Option Plan and
1998 Stock Incentive Plan.
(2) Based upon the $3.625 market value of the underlying Common Stock of
Holdings on January 29, 1999, the last day of the fiscal year on which
trading in the Common Stock of Holdings occurred, minus the option exercise
price for the shares covered by the option.
EMPLOYMENT AND OTHER 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. 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 1995 agreement extends through April 18, 2001.
Through April 18, 1996, Mr. Fishman was entitled to receive 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 1995
agreement. Under the 1995 agreement, Mr. Fishman was entitled to and did receive
incentive bonuses for fiscal 1998 and 1999 based upon the financial performance
of Holdings and its subsidiaries on a consolidated basis and the comparable
store sales performance of the Company's stores. The 1995 agreement requires the
Board of Directors of Holdings and Mr. Fishman to agree periodically upon
incentive bonus programs for Mr. Fishman for fiscal 2000 and 2001. Mr. Fishman's
fiscal 2000 incentive bonus program provides for a potential incentive bonus
based upon the financial performance of Holdings and its subsidiaries on a
consolidated basis and the comparable store sales performance of the Company's
stores. 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 Holdings 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) plan 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 12-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 the 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, as amended, also provides that Mr. Fishman is
entitled to at least 12 months advance notice if Holdings and the Company
determine not to continue his employment after the agreement expires with at
least the same base salary as in effect on April 18, 2001, and with a
substantially similar incentive bonus program and fringe benefits; in the
absence of such advance notice, Mr. Fishman would be entitled to certain
compensation through the end of a 12-month period beginning when such notice
actually is given. Mr. Fishman's current annual base salary is $525,000.
Mr. Washburn has an employment agreement with Holdings and the Company,
providing for his employment as Executive Vice President and Chief Operating
Officer, which became effective on March 6, 1997, and has a term of three years.
The agreement provides for a base salary at an annual rate of not less than
$275,000 and in other material respects is substantially identical to Mr.
Fishman's 1995 agreement described above. Mr. Washburn's current annual base
salary is $350,000.
Mr. Mihalko has an employment agreement with Holdings and the Company,
providing for his employment as Senior Vice President and Chief Financial
Officer, which became effective on March 6, 1997, and has a term of three years.
The agreement provides for a base salary at an annual rate of not less than
$210,000. In most other material respects, Mr. Mihalko's agreement is
substantially similar to Mr. Fishman's 1995 agreement described above; however,
Mr. Mihalko's agreement does not include provisions for certain bonus payments
or certain continued salary payments and benefits in the event of the
termination of Mr. Mihalko's employment for various reasons prior to the
expiration of the three-year term or without at least 12 months' advance notice.
Mr. Mihalko's current annual base salary is $230,000.
The Company has an agreement with Mr. Robinson which provides that if Mr.
Robinson's employment is terminated by the Company without cause (as defined in
the agreement), then he will be entitled to receive severance pay in an amount
equal to twice his 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 him during such 24-month period. Mr. Robinson's current annual
base salary is $285,000.
The Company has an agreement with Mr. Hendricksen which provides that if
Mr. Hendricksen's employment is terminated by the Company without cause (as
defined in the agreement), then he 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 the Company at the time of such
termination or ceases to be the Chief Executive Officer of the Company within
three months after the time of such termination, then the severance pay of Mr.
Hendricksen will be an amount equal to twice his 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 him during such 24-month
period. Mr. Hendricksen's current annual base salary is $230,000.
During April 1999, Pamida entered into Retention Bonus Agreements with
Messrs. Fishman, Washburn, Mihalko, Robinson, and Hendricksen and certain other
senior executives of Pamida which provide for potential payments to such persons
following the occurrence of any one of several specified Retention Events. If a
Retention Event occurs while the executive is employed by Pamida and the
executive remains in the employ of Pamida (or a successor to the business of
Pamida) for six months after the effective date of the Retention Event, then the
executive is entitled to receive a specified retention bonus. The executive also
is entitled to receive the retention bonus if a Retention Event occurs, the
executive is employed by Pamida immediately prior to the time the Retention
Event occurs, and either upon the occurrence of the Retention Event or within
six months thereafter the executive's employment with Pamida (or a successor to
Pamida's business) is terminated without cause. Retention Events are similar to
the Significant Corporate Events described in the preceding discussion of Mr.
Fishman's employment agreement. The retention bonuses which are potentially
payable to Messrs. Fishman, Washburn, Mihalko, Robinson, and Hendricksen are
$400,000, $200,000, $160,000, $125,000, and $125,000, respectively.
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 January 31, 1999, 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:
Number of
Shares of Common Percent
Stock Beneficially of
Beneficial Owner Owned(1) Class
------------------ ------------------ -------
Steven S. Fishman 187,922(2) 3.08%
Frank A. Washburn 34,233(3) *
Stephen D. Robinson 17,333(4) *
George R. Mihalko 21,075(5) *
Donald Hendricksen 13,358(6) *
All directors and executive officers 307,665(7) 4.98%
as a group (9 persons)
- ------------------
* Less than 1% of the outstanding Common Stock of Holdings.
(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 40,000 of these shares, which
are held by his wife as custodian for their children. Mr. Fishman has the
right to acquire beneficial ownership of 82,124 of these shares pursuant to
options which are currently exercisable or become exercisable within 60
days after January 31, 1999.
(3) Mr. Washburn has the right to acquire beneficial ownership of 21,133 of
these shares pursuant to options which are currently exercisable or become
exercisable within 60 days after January 31, 1999.
(4) Mr. Robinson has the right to acquire beneficial ownership of these shares
pursuant to options which are currently exercisable or become exercisable
within 60 days after January 31, 1999.
(5) Mr. Mihalko has the right to acquire beneficial ownership of 9,800 of these
shares pursuant to options which are currently exercisable or become
exercisable within 60 days after January 31, 1999.
(6) Mr. Hendricksen has the right to acquire beneficial ownership of 8,258 of
these shares pursuant to options which are currently exercisable or become
exercisable within 60 days after January 31, 1999.
(7) 154,068 of these shares may be acquired pursuant to options which are
currently exercisable or become exercisable within 60 days after January
31, 1999.
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 in Item 8:
1. FINANCIAL STATEMENTS.
Pamida, Inc., and Subsidiaries
- Independent Auditors' Report
- Consolidated Statements of Operations for the Years Ended January 31,
1999, February 1, 1998 and February 2, 1997
- Consolidated Balance Sheets at January 31, 1999 and February 1, 1998
- Consolidated Statements of Stockholder's Equity for the Years Ended
January 31, 1999, February 1, 1998 and February 2, 1997
- Consolidated Statements of Cash Flows for the Years Ended January 31,
1999, February 1, 1998 and February 2, 1997
- Notes to Consolidated Financial Statements for the Years Ended January
31, 1999, February 1, 1998 and February 2, 1997
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.
(1) 3.1 - Restated Certificate of Incorporation of Pamida, Inc.
(1) 3.2 - Second Revised By-Laws of Pamida, Inc.
(2) 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.
(2) 4.2 - Specimen form of 11 3/4% Senior Subordinated Note due 2003 of
Pamida, Inc.
(2) 10.1 - Tax-Sharing Agreement dated as of February 2, 1992, among
Pamida Holdings Corporation, Pamida, Inc., Seaway Importing
Company, and Pamida Transportation Company.
(3) 10.2 - Pamida Holdings Corporation 1992 Stock Option Plan.
(5) 10.3 - Employment Agreement dated September 22, 1995, among Pamida
Holdings Corporation, Pamida, Inc., and Steven S. Fishman.
(6) 10.4 - Amendment No. 1 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and Steven S. Fishman dated
August 29, 1996 (amends Exhibit 10.3).
(7) 10.5 - Amendment No. 2 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and Steven S. Fishman dated March
6, 1997 (amends Exhibit 10.3).
(8) 10.6 - Amendment No. 3. to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and Steven S. Fishman dated May
22, 1997 (amends Exhibit 10.3).
(8) 10.7 - Amendment No. 4 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and Steven S. Fishman dated March
5, 1998 (amends Exhibit 10.3).
(8) 10.8 - Severance Pay, Confidentiality, and Non-Solicitation Agreement
dated November 17,1997, between Pamida, Inc., and Stephen Robinson.
(8) 10.9 - Severance Pay, Confidentiality, and Non-Solicitation Agreement
between Pamida, Inc., and Donald Hendricksen dated November 18,1997.
(7) 10.10 - Employment Agreement dated as of March 6, 1997, among Pamida
Holdings Corporation, Pamida, Inc., and Frank A. Washburn.
(8) 10.11 - Amendment No. 1 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and Frank A. Washburn
dated March 5, 1998 (amends Exhibit 10.10).
(7) 10.12 - Employment Agreement dated as of March 6, 1997, among Pamida
Holdings Corporation, Pamida, Inc., and George R. Mihalko.
(8) 10.13 - Amendment No. 1 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and George R. Mihalko dated March 5,
1998 (amends Exhibit 10.12).
(7) 10.14 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc. and Steven S. Fishman.
(7) 10.15 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc. and Frank A. Washburn.
(7) 10.16 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc. and George R. Mihalko.
(7) 10.17 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc. and Stephen Robinson.
(7) 10.18 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc. and Donald Hendricksen.
(4) 10.19 - Pamida, Inc. 1995 Deferred Compensation Plan.
(9) 10.20 - Amended and Restated Loan and Security Agreement by and among
Congress Financial Corporation (Southwest) and BankAmerica Business
Credit, Inc., as Lenders, Congress Financial Corporation
(Southwest), as Agent for Lenders, and Pamida, Inc. and Seaway
Importing Company, as Borrowers, dated July 2, 1998.
(9) 10.21 - Reaffirmation of Guarantee and Security Agreement by Pamida
Holdings Corporation dated July 2, 1998, and original Guarantee of
Holdings Corporation dated March 30, 1993 (relates to Exhibit
10.17).
(10)10.22 - Pamida Holdings Corporation 1998 Stock Incentive Plan.
(11)10.23 - Amendment No. 6 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and Steven S. Fishman dated March 25,
1999 (amends Exhibit 10.3).
(11)10.24 - Amendment No. 2 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and Frank A. Washburn dated March 25,
1999 (amends Exhibit 10.10).
(11)10.25 - Amendment No. 3 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and George R. Mihalko dated March 25,
1999 (amends Exhibit 10.12).
(11)10.26 - Retention Bonus Agreement between Pamida, Inc., and Steven S.
Fishman dated April 2, 1999.
(11)10.27 - Retention Bonus Agreement between Pamida, Inc . and Frank A.
Washburn dated April 2, 1999.
(11)10.28 - Retention Bonus Agreement between Pamida, Inc. and George R.
Mihalko dated April 2, 1999.
10.29 - Retention Bonus Agreement between Pamida, Inc. and Stephen
Robinson dated April 2, 1999.
10.30 - Retention Bonus Agreement between Pamida, Inc. and Donald G.
Hendricksen dated April 2, 1999.
(2) 22.1 - Subsidiaries of Pamida, Inc.
27.1 - Financial Data Schedule (EDGAR filing only).
- -------------------------
(1) 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.
(2) Previously filed as an exhibit to Registration Statement of Pamida, Inc.
and Pamida Holdings Corporation Form S-1 (Registration No. 33-57990) and
incorporated herein by this reference.
(3) 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.
(4) 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.
(5) 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.
(6) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 27, 1996, and
incorporated herein by this reference.
(7) Previously filed as an exhibit to Form 10-K Annual Report of Pamida, Inc.
for the fiscal year ended February 2, 1997, and incorporated herein by this
reference.
(8) Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended February 1, 1998, 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 August 2, 1998, 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 November 1, 1998, 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 31, 1999, and
incorporated herein by this reference.
* * *
(b) No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this 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 20, 1999 PAMIDA, INC.
By: /s/ Steven S. Fishman
Steven S. Fishman, Chairman of
the Board, President, Chief
Executive Officer and Director
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. Fishman Chairman of the Board, April 20, 1999
Steven S. Fishman President, Chief Executive
Officer and Director
/s/ George R. Mihalko Senior Vice President, April 20, 1999
George R. Mihalko Chief Financial Officer,
Treasurer and Director
/s/ Todd D. Weyhrich Vice President, Controller April 20, 1999
Todd D. Weyhrich and Principal Accounting
Officer
/s/ Frank A. Washburn Director April 20, 1999
Frank A. Washburn
PAMIDA , INC.
FORM 10-K -- JANUARY 31, 1999
EXHIBIT INDEX
Exhibit # Description
- --------------==================================================================
(1) 3.1 Restated Certificate of Incorporation of Pamida, Inc.
- --------------==================================================================
(1) 3.2 Second Revised By-Laws of Pamida, Inc.
- --------------==================================================================
(2) 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.
- --------------==================================================================
(2) 4.2 Specimen form of 11 3/4% Senior Subordinated Note due
2003 of Pamida, Inc.
- --------------==================================================================
(2) 10.1 Tax-Sharing Agreement dated as of February 2, 1992,
among Pamida Holdings Corporation, Pamida, Inc.,
Seaway Importing Company, and Pamida Transportation
Company.
- --------------==================================================================
(3) 10.2 Pamida Holdings Corporation 1992 Stock Option Plan.
- --------------==================================================================
(5) 10.3 Employment Agreement dated September 22, 1995, among
Pamida Holdings Corporation, Pamida, Inc., and Steven
S. Fishman.
- --------------==================================================================
(6) 10.4 Amendment No. 1 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and Steven S.
Fishman dated August 29, 1996 (amends Exhibit 10.10).
- --------------==================================================================
(7) 10.5 Amendment No. 2 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and Steven S.
Fishman dated March 6, 1997 (amends Exhibit 10.3).
- --------------==================================================================
(8) 10.6 Amendment No. 3 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and Steven S.
Fishman dated Mary 22, 1997 (amends Exhibit 10.3).
- --------------==================================================================
(8) 10.7 Amendment No. 4 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and Steven S.
Fishman dated March 5, 1998 (amends Exhibit 10.3).
- --------------==================================================================
(8) 10.8 Severence Pay, Confidentiality, and Non-Solicitation
Agreement dated November 17, 1997, between Pamida,
Inc., and Stephen Robinson
- --------------==================================================================
(8) 10.9 Severence Pay, Confidentiality, and Non-Solicitation
Agreement between Pamida, Inc., and Donald Hendricksen
dated November 18, 1997.
- --------------==================================================================
(7) 10.10 Employment Agreement dated as of March 6, 1997, among
Pamida Holdings Corporation, Pamida, Inc., and Frank
A. Washburn.
- --------------==================================================================
(8) 10.11 Amendment No. 1 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and Frank A.
Washburn dated March 5, 1998 (amends Exhibit 10.17).
- --------------==================================================================
(7) 10.12 Employment Agreement dated as of March 6, 1997, among
Pamida Holdings Corporation, Pamida, Inc., and George
R. Mihalko.
- --------------==================================================================
(8) 10.13 Amendment No. 1 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and George R.
Mihalko dated March 5, 1998 (amends Exhibit 10.19).
- --------------==================================================================
(7) 10.14 Long-Term Incentive Award Agreement dated as of March
6, 1997, between Pamida, Inc. and Steven S. Fishman
- --------------==================================================================
(7) 10.15 Long-Term Incentive Award Agreement dated as of March
6, 1997, between Pamida, Inc. and Frank A. Washburn.
- --------------==================================================================
(7) 10.16 Long-Term Incentive Award Agreement dated as of March
6, 1997, between Pamida, Inc. and George R. Mihalko.
- --------------==================================================================
(7) 10.17 Long-Term Incentive Award Agreement dated as of March
6, 1997, between Pamida, Inc. and Stephen Robinson.
- --------------==================================================================
(7) 10.18 Long-Term Incentive Award Agreement dated as of March
6, 1997, between Pamida, Inc. and Donald Hendricksen.
- --------------==================================================================
(4) 10.19 Pamida, Inc. 1995 Deferred Compensation Plan.
- --------------==================================================================
(9) 10.20 Amended and Restated Loan and Security Agreement by
and among Congress Financial Corporation (Southwest)
and BankAmerica Business Credit, Inc., as Lenders,
Congress Financial Corporation (Southwest), as Agent
for Lenders, and Pamida, Inc. and Seaway Importing
Company, as Borrowers, dated July 2, 1998.
- --------------==================================================================
(9) 10.21 Reaffirmation of Guarantee and Security Agreement by
Pamida Holdings Corporation dated July 2, 1998, and
original Guarantee of Holdings Corporation dated March
30, 1993 (relates to Exhibit 10.17).
- --------------==================================================================
(10) 10.22 Pamida Holdings Corporation 1998 Stock Incentive Plan.
- --------------==================================================================
(11) 10.23 Amendment No. 6 to Employment Agreement among Pamida
Holdings Corporation, Pamida Inc., and Steven S.
Fishman dated March 25, 1999 (amends Exhibit 10.4).
- --------------==================================================================
(11) 10.24 Amendment No. 2 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and Frank A.
Washburn dated March 25, 1999 (amends Exhibit 10.10).
- --------------==================================================================
(11) 10.25 Amendment No. 3 to Employment Agreement among Pamida
Holdings Corporation, Pamida, Inc., and George R.
Mihalko dated March , 1999 (amends Exhibit 10.12).
- --------------==================================================================
(11) 10.26 Retention Bonus Agreement between Pamida, Inc., and
Steven S. Fishman dated April 2, 1999.
- --------------==================================================================
(11) 10.27 Retention Bonus Agreement between Pamida, Inc. and
Frank A. Washburn dated April 2, 1999.
- --------------==================================================================
(11) 10.28 Retention Bonus Agreement between Pamida, Inc. and
George R. Mihalko dated April 2, 1999.
- --------------==================================================================
10.29 Retention Bonus Agreement between Pamida, Inc. and
Stephen Robinson dated April 2, 1999.
- --------------==================================================================
10.30 Retention Bonus Agreement between Pamida, Inc. and
Donald G. Hendricksen dated April 2, 1999.
- --------------==================================================================
(2) 22.1 Subsidiaries of Pamida, Inc.
- --------------==================================================================
27.1 Financial Data Schedule (EDGAR filing only).
- --------------==================================================================
______________________
(1) Previously filed as an exhibit to Registration Statement of Pamida, Inc. on
Form S-1 (Registration No. 33- 10980) and incorporated herein by this
reference.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 27, 1996, and
incorporated herein by this reference.
(7) Previously filed as an exhibit to Form 10-K Annual Report of Pamida, Inc.
for the fiscal year ended February 2, 1997, and incorporated herein by this
reference.
(8) Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended February 1, 1998, 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 August 2, 1998, 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 November 1, 1998, and
incorporated herin 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 31, 1999, and
incorporated herein by this reference.
***
(b) No report on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.
RETENTION BONUS AGREEMENT
This Retention Bonus Agreement is entered into this 2nd day of April, 1999,
by and between PAMIDA, INC. ("Pamida"), a Delaware corporation, and STEPHEN
ROBINSON (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee currently is a key executive of Pamida; and
WHEREAS, an entity which might have an interest in acquiring the business
of Pamida would be more likely to pursue such a transaction and to pay full
value for such business if such entity could reasonably expect the Employee to
remain in the employ of Pamida or Pamida's successor following such acquisition;
and
WHEREAS, Pamida desires to induce the Employee to remain in the employ of
Pamida or Pamida's successor if a Retention Event (as defined below) occurs;
NOW, THEREFORE, in consideration of the premises and of the covenants set
forth in this agreement, the parties hereto, intending to be legally bound,
agree as follows:
1. For purposes of this agreement, a "Retention Event" shall be deemed to
have occurred upon the happening of any of the following events:
(a) Pamida Holdings Corporation ("Holdings") is merged or
consolidated into another corporation, and immediately after
such merger or consolidation becomes effective the holders
of a majority of the outstanding shares of capital stock of
Holdings immediately prior to the effectiveness of such
merger or consolidation do not own (directly or indirectly)
a majority of the outstanding shares of voting capital stock
of the surviving or resulting corporation in such merger or
consolidation.
(b) Holdings ceases to own (directly or indirectly) a majority
of the outstanding shares of voting capital stock of Pamida
(unless such event results from the merger of Pamida into
Holdings, with no material change in the ownership of the
voting capital stock of Holdings, or from the dissolution of
Pamida and the continuation of its business by Holdings).
(c) Pamida is merged or consolidated into a corporation other
than Holdings, and at any time after such merger or
consolidation becomes effective Holdings does not own
(directly or indirectly) a majority of the outstanding
shares of voting capital stock of the surviving or resulting
corporation in such merger or consolidation.
(d) Pamida sells or otherwise disposes of all or substantially
all of the property and assets of Pamida, other than to an
entity or group of entities which immediately prior to such
transaction is under common ownership (directly or
indirectly) with Pamida.
(e) Any person, entity, or group of persons within the meaning
of Sections 13(d) or 14(d) of the Securities Exchange Act of
1934 (the "1934 Act") and the rules promulgated thereunder,
other than 399 Venture Partners, Inc. or any of its
affiliates (as defined in Rule 12b-2 under the 1934 Act),
becomes the beneficial owner (within the meaning of Rule
13d-3 under the 1934 Act) of thirty percent (30%) or more of
the outstanding voting capital stock of Holdings, and 399
Venture Partners, Inc. and its affiliates then collectively
own less than twenty percent (20%) of the aggregate number
of shares of Common Stock and Nonvoting Common Stock of
Holdings then outstanding (unless 399 Venture Partners, Inc.
and/or its affiliates are part of the group owning such 30%
or more).
(f) During any period of two consecutive years or less,
individuals who at the beginning of such period constituted
the Board of Directors of Holdings cease, for any reason, to
constitute at least a majority of the Board of Directors of
Holdings, unless the election or nomination for election of
each new director of Holdings who took office during such
period was approved by a vote of at least two-thirds of the
directors of Holdings still in office at the time of such
election or nomination for election who were directors of
Holdings at the beginning of such period or unless 399
Venture Partners, Inc. or Citicorp Venture Capital, Inc.
approves any such replacement director.
2. If (i) a Retention Event occurs, (ii) the Employee is employed by Pamida
at the time the Retention Event occurs, and (iii) the Employee remains in the
employ of Pamida (or of the entity which succeeds to the business of Pamida upon
the occurrence of the Retention Event) for a continuous period of six (6) months
after the effective date of the Retention Event, then within ten (10) days after
the elapse of such 6-month period Pamida agrees to pay the Employee the sum of
$125,000.00 as a retention bonus in consideration of such continued employment.
3. If (i) a Retention Event occurs, (ii) the Employee is employed by Pamida
immediately prior to the time the Retention Event occurs, and (iii) either upon
the effective date of the Retention Event or within six (6) months after the
effective date of the Retention Event Pamida (or the entity which succeeds to
the business of Pamida upon the occurrence of the Retention Event) terminates
the employment of the Employee without cause, then within ten (10) days after
the effective date of such termination of employment Pamida agrees to pay the
Employee the sum of $125,000.00 in consideration of the Employee's willingness
to remain in the employ of Pamida or such successor after the occurrence of a
Retention Event.
4. For purposes of this agreement, "cause" shall mean only (i) the
Employee's confession or conviction of theft, fraud, embezzlement, or any other
crime involving dishonesty with respect to Pamida or any parent, subsidiary, or
affiliate of Pamida, (ii) the Employee's excessive absenteeism (other than by
reason of physical injury, disease, or mental illness) without reasonable cause,
(iii) the Employee's material violation of the provisions of any confidentiality
or nondisclosure agreement with Pamida or any parent, subsidiary, or affiliate
of Pamida, (iv) habitual and material negligence by the Employee in the
performance of the Employee's duties and responsibilities as an employee of
Pamida and the Employee's failure to cure such negligence within thirty (30)
days after the Employee's receipt of a written notice from the Board of
Directors or Chief Executive Officer of Pamida setting forth in reasonable
detail the particulars of such negligence, (v) material noncompliance by the
Employee with the Employee's obligations under any employment agreement with
Pamida to which the Employee is a party and the Employee's failure to correct
such non-compliance within thirty (30) days after the Employee's receipt of a
written notice from the Board of Directors or Chief Executive Officer of Pamida
setting forth in reasonable detail the particulars of such non-compliance, or
(vi) material failure by the Employee to comply with a lawful directive of the
Board of Directors or Chief Executive Officer of Pamida and the Employee's
failure to cure such non-compliance within thirty (30) days after the Employee's
receipt of a written notice from the Board of Directors or Chief Executive
Officer of Pamida setting forth in reasonable detail the particulars of such
non-compliance. For purposes of this Paragraph 4, neither the results of the
operations of Pamida nor any business judgment made in good faith by the
Employee shall constitute an independent basis for termination for cause of the
Employee's employment by Pamida. For purposes of this Paragraph 4, references to
"Pamida" shall include an entity which succeeds to the business of Pamida upon
the occurrence of a Retention Event. The provisions of this Paragraph 4 are
subject in all events to the provisions of Paragraph 8.
5. If the employment of the Employee by Pamida (or by the entity which
succeeds to the business of Pamida upon the occurrence of a Retention Event)
terminates either upon the effective date of the Retention Event or within six
(6) months after the Effective Date of the Retention Event for a reason other
than the termination of such employment by Pamida or such successor entity
without cause, then the Employee shall not be entitled to any payment under this
agreement.
6. If no Retention Event has occurred by the close of business on March 11,
2000, then this agreement automatically will terminate at such time; and, in
such event, Pamida will have no further obligation to the Employee under this
agreement.
7. This agreement shall be binding upon Pamida and Pamida's successors and
assigns and shall inure to the benefit of the Employee and the Employee's heirs
and personal representatives. In connection with any Retention Event, Pamida
shall take such actions as may be necessary to assure either that a sufficient
amount of its unencumbered funds will remain available to fully satisfy the
obligations of Pamida under this agreement or that such obligations are assumed
by a financially responsible entity whose creditworthiness is at least equal to
that of Pamida.
8. This agreement is not, and shall not for any purpose be deemed to
constitute, an employment or severance agreement between Pamida and the
Employee. Nothing in this agreement shall confer upon the Employee the right to
remain in the employ of Pamida for any particular period of time or in any
particular capacity or affect any right which Pamida or the Employee may have to
terminate the employment relationship between Pamida and the Employee at any
time, for any reason, with or without cause.
9. This agreement shall be governed by and construed in accordance with the
laws of Nebraska.
10. The Employee understands that Pamida desires to maintain the
confidentiality of this agreement and its terms and further desires to maintain
the confidentiality of any discussions or negotiations that Pamida may undertake
with respect to a possible Retention Event. Accordingly, the Employee agrees not
to disclose to or discuss with anyone the existence of this agreement or any of
the terms of this agreement without the prior written approval of the Chief
Executive Officer of Pamida prior to the written public disclosure of this
agreement and its terms by Pamida or Holdings, except that the Employee may
discuss this agreement with the Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, and Senior Vice President-Human Resources of
Pamida. The Employee further agrees not to disclose to or discuss with anyone
the existence or possible existence of any discussions or negotiations that
Pamida has undertaken or may undertake with respect to a possible Retention
Event so long as such discussions or negotiations have not been publicly
disclosed in writing by Pamida or Holdings; provided, that, at the direction of
the Chief Executive Officer, Chief Operating Officer, or Chief Financial Officer
of Pamida, the Employee may discuss matters relating to a possible Retention
Event with such persons and to such extent as may be specified by any such
executive officer of Pamida in such directions. If the Employee violates any of
the confidentiality provisions of this Paragraph 10 at any time prior to the
consummation of a Retention Event, then the Board of Directors of Pamida, in its
sole and absolute discretion, may terminate this agreement, and Pamida thereupon
shall have no further obligation or liability to the Employee under this
agreement.
IN WITNESS WHEREOF, Pamida and the Employee have executed this agreement on
the day and year first above written.
PAMIDA, INC., a Delaware corporation
By: /s/Steven S. Fishman
--------------------
Title: Chairman of the Board and Chief
Executive Officer
/s/Stephen Robinson
--------------------
Stephen Robinson, Employee
RETENTION BONUS AGREEMENT
This Retention Bonus Agreement is entered into this 2nd day of April, 1999,
by and between PAMIDA, INC. ("Pamida"), a Delaware corporation, and DONALD G.
HENDRICKSEN (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee currently is a key executive of Pamida; and
WHEREAS, an entity which might have an interest in acquiring the business
of Pamida would be more likely to pursue such a transaction and to pay full
value for such business if such entity could reasonably expect the Employee to
remain in the employ of Pamida or Pamida's successor following such acquisition;
and
WHEREAS, Pamida desires to induce the Employee to remain in the employ of
Pamida or Pamida's successor if a Retention Event (as defined below) occurs;
NOW, THEREFORE, in consideration of the premises and of the covenants set
forth in this agreement, the parties hereto, intending to be legally bound,
agree as follows:
1. For purposes of this agreement, a "Retention Event" shall be deemed to
have occurred upon the happening of any of the following events:
(a) Pamida Holdings Corporation ("Holdings") is merged or
consolidated into another corporation, and immediately after
such merger or consolidation becomes effective the holders
of a majority of the outstanding shares of capital stock of
Holdings immediately prior to the effectiveness of such
merger or consolidation do not own (directly or indirectly)
a majority of the outstanding shares of voting capital stock
of the surviving or resulting corporation in such merger or
consolidation.
(b) Holdings ceases to own (directly or indirectly) a majority
of the outstanding shares of voting capital stock of Pamida
(unless such event results from the merger of Pamida into
Holdings, with no material change in the ownership of the
voting capital stock of Holdings, or from the dissolution of
Pamida and the continuation of its business by Holdings).
(c) Pamida is merged or consolidated into a corporation other
than Holdings, and at any time after such merger or
consolidation becomes effective Holdings does not own
(directly or indirectly) a majority of the outstanding
shares of voting capital stock of the surviving or resulting
corporation in such merger or consolidation.
(d) Pamida sells or otherwise disposes of all or substantially
all of the property and assets of Pamida, other than to an
entity or group of entities which immediately prior to such
transaction is under common ownership (directly or
indirectly) with Pamida.
(e) Any person, entity, or group of persons within the meaning
of Sections 13(d) or 14(d) of the Securities Exchange Act of
1934 (the "1934 Act") and the rules promulgated thereunder,
other than 399 Venture Partners, Inc. or any of its
affiliates (as defined in Rule 12b-2 under the 1934 Act),
becomes the beneficial owner (within the meaning of Rule
13d-3 under the 1934 Act) of thirty percent (30%) or more of
the outstanding voting capital stock of Holdings, and 399
Venture Partners, Inc. and its affiliates then collectively
own less than twenty percent (20%) of the aggregate number
of shares of Common Stock and Nonvoting Common Stock of
Holdings then outstanding (unless 399 Venture Partners, Inc.
and/or its affiliates are part of the group owning such 30%
or more).
(f) During any period of two consecutive years or less,
individuals who at the beginning of such period constituted
the Board of Directors of Holdings cease, for any reason, to
constitute at least a majority of the Board of Directors of
Holdings, unless the election or nomination for election of
each new director of Holdings who took office during such
period was approved by a vote of at least two-thirds of the
directors of Holdings still in office at the time of such
election or nomination for election who were directors of
Holdings at the beginning of such period or unless 399
Venture Partners, Inc. or Citicorp Venture Capital, Inc.
approves any such replacement director.
2. If (i) a Retention Event occurs, (ii) the Employee is employed by Pamida
at the time the Retention Event occurs, and (iii) the Employee remains in the
employ of Pamida (or of the entity which succeeds to the business of Pamida upon
the occurrence of the Retention Event) for a continuous period of six (6) months
after the effective date of the Retention Event, then within ten (10) days after
the elapse of such 6-month period Pamida agrees to pay the Employee the sum of
$125,000.00 as a retention bonus in consideration of such continued employment.
3. If (i) a Retention Event occurs, (ii) the Employee is employed by Pamida
immediately prior to the time the Retention Event occurs, and (iii) either upon
the effective date of the Retention Event or within six (6) months after the
effective date of the Retention Event Pamida (or the entity which succeeds to
the business of Pamida upon the occurrence of the Retention Event) terminates
the employment of the Employee without cause, then within ten (10) days after
the effective date of such termination of employment Pamida agrees to pay the
Employee the sum of $125,000.00 in consideration of the Employee's willingness
to remain in the employ of Pamida or such successor after the occurrence of a
Retention Event.
4. For purposes of this agreement, "cause" shall mean only (i) the
Employee's confession or conviction of theft, fraud, embezzlement, or any other
crime involving dishonesty with respect to Pamida or any parent, subsidiary, or
affiliate of Pamida, (ii) the Employee's excessive absenteeism (other than by
reason of physical injury, disease, or mental illness) without reasonable cause,
(iii) the Employee's material violation of the provisions of any confidentiality
or nondisclosure agreement with Pamida or any parent, subsidiary, or affiliate
of Pamida, (iv) habitual and material negligence by the Employee in the
performance of the Employee's duties and responsibilities as an employee of
Pamida and the Employee's failure to cure such negligence within thirty (30)
days after the Employee's receipt of a written notice from the Board of
Directors or Chief Executive Officer of Pamida setting forth in reasonable
detail the particulars of such negligence, (v) material noncompliance by the
Employee with the Employee's obligations under any employment agreement with
Pamida to which the Employee is a party and the Employee's failure to correct
such non-compliance within thirty (30) days after the Employee's receipt of a
written notice from the Board of Directors or Chief Executive Officer of Pamida
setting forth in reasonable detail the particulars of such non-compliance, or
(vi) material failure by the Employee to comply with a lawful directive of the
Board of Directors or Chief Executive Officer of Pamida and the Employee's
failure to cure such non-compliance within thirty (30) days after the Employee's
receipt of a written notice from the Board of Directors or Chief Executive
Officer of Pamida setting forth in reasonable detail the particulars of such
non-compliance. For purposes of this Paragraph 4, neither the results of the
operations of Pamida nor any business judgment made in good faith by the
Employee shall constitute an independent basis for termination for cause of the
Employee's employment by Pamida. For purposes of this Paragraph 4, references to
"Pamida" shall include an entity which succeeds to the business of Pamida upon
the occurrence of a Retention Event. The provisions of this Paragraph 4 are
subject in all events to the provisions of Paragraph 8.
5. If the employment of the Employee by Pamida (or by the entity which
succeeds to the business of Pamida upon the occurrence of a Retention Event)
terminates either upon the effective date of the Retention Event or within six
(6) months after the Effective Date of the Retention Event for a reason other
than the termination of such employment by Pamida or such successor entity
without cause, then the Employee shall not be entitled to any payment under this
agreement.
6. If no Retention Event has occurred by the close of business on March 11,
2000, then this agreement automatically will terminate at such time; and, in
such event, Pamida will have no further obligation to the Employee under this
agreement.
7. This agreement shall be binding upon Pamida and Pamida's successors and
assigns and shall inure to the benefit of the Employee and the Employee's heirs
and personal representatives. In connection with any Retention Event, Pamida
shall take such actions as may be necessary to assure either that a sufficient
amount of its unencumbered funds will remain available to fully satisfy the
obligations of Pamida under this agreement or that such obligations are assumed
by a financially responsible entity whose creditworthiness is at least equal to
that of Pamida.
8. This agreement is not, and shall not for any purpose be deemed to
constitute, an employment or severance agreement between Pamida and the
Employee. Nothing in this agreement shall confer upon the Employee the right to
remain in the employ of Pamida for any particular period of time or in any
particular capacity or affect any right which Pamida or the Employee may have to
terminate the employment relationship between Pamida and the Employee at any
time, for any reason, with or without cause.
9. This agreement shall be governed by and construed in accordance with the
laws of Nebraska.
10. The Employee understands that Pamida desires to maintain the
confidentiality of this agreement and its terms and further desires to maintain
the confidentiality of any discussions or negotiations that Pamida may undertake
with respect to a possible Retention Event. Accordingly, the Employee agrees not
to disclose to or discuss with anyone the existence of this agreement or any of
the terms of this agreement without the prior written approval of the Chief
Executive Officer of Pamida prior to the written public disclosure of this
agreement and its terms by Pamida or Holdings, except that the Employee may
discuss this agreement with the Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, and Senior Vice President-Human Resources of
Pamida. The Employee further agrees not to disclose to or discuss with anyone
the existence or possible existence of any discussions or negotiations that
Pamida has undertaken or may undertake with respect to a possible Retention
Event so long as such discussions or negotiations have not been publicly
disclosed in writing by Pamida or Holdings; provided, that, at the direction of
the Chief Executive Officer, Chief Operating Officer, or Chief Financial Officer
of Pamida, the Employee may discuss matters relating to a possible Retention
Event with such persons and to such extent as may be specified by any such
executive officer of Pamida in such directions. If the Employee violates any of
the confidentiality provisions of this Paragraph 10 at any time prior to the
consummation of a Retention Event, then the Board of Directors of Pamida, in its
sole and absolute discretion, may terminate this agreement, and Pamida thereupon
shall have no further obligation or liability to the Employee under this
agreement.
IN WITNESS WHEREOF, Pamida and the Employee have executed this agreement on
the day and year first above written.
PAMIDA, INC., a Delaware corporation
By: /s/Steven S. Fishman
--------------------
Title: Chairman of the Board and Chief
Executive Officer
/s/Donald G. Hendricksen
------------------------
Donald G. Hendricksen, Employee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule
Item 601(c) of Regulation S-K Commercial and
Industrial Companies Article 5 of Regulation S-X
(Dollars is thousands, except per share amounts)
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of Pamida, Inc. and Subsidiaries as of January 31,
1999 and the related Consolidated Statement of Operations for the 52 weeks then
ended and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000808304
<NAME> Pamida, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-02-1999
<PERIOD-END> JAN-31-1999
<CASH> 7,588
<SECURITIES> 0
<RECEIVABLES> 10,578
<ALLOWANCES> 50
<INVENTORY> 180,063
<CURRENT-ASSETS> 201,877
<PP&E> 46,278
<DEPRECIATION> 18,024
<TOTAL-ASSETS> 298,618
<CURRENT-LIABILITIES> 161,003
<BONDS> 176,167
0
0
<COMMON> 0
<OTHER-SE> (46,394)
<TOTAL-LIABILITY-AND-EQUITY> 298,618
<SALES> 672,394
<TOTAL-REVENUES> 672,394
<CGS> 504,826
<TOTAL-COSTS> 639,184
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,847
<INCOME-PRETAX> 7,363
<INCOME-TAX> 2,860
<INCOME-CONTINUING> 4,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,503
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
