REGISTRATION NO. 33-57990
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 5
On
FORM S-2
To
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PAMIDA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5331 47-0626426
(State or other (Primary Standard (I.R.S. Employer Identification No.)
jurisdiction of Industrial
incorporation or Classification
organization) Code Number)
PAMIDA HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5331 47-0696125
(State or other (Primary Standard (I.R.S. Employer Identification No.)
jurisdiction of Industrial
incorporation or Classification
organization) Code Number)
8800 "F" STREET
OMAHA, NEBRASKA 68127
TELEPHONE: (402) 339-2400
(Address, including zip code, and telephone number,
including area code, of registrants' principal executive offices)
GEORGE R. MIHALKO
SENIOR VICE PRESIDENT
PAMIDA, INC.
8800 "F" STREET
OMAHA, NEBRASKA 68127 (402) 339-2400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
Howard J. Kaslow, Esq.
Abrahams, Kaslow & Cassman
8712 West Dodge Road, Suite 300
Omaha, Nebraska 68114
(402) 392-1250
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Approximate date of commencement of proposed sale to the public: From time
to time after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible copy thereof, pursuant to Item 11(a)(1) of
this Form, check the following box: [ ]
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The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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$140,000,000
PAMIDA, INC.
11 3/4% Senior Subordinated Notes Due 2003
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THE 11 3/4% SENIOR SUBORDINATED NOTES DUE 2003 (THE "NOTES") OFFERED HEREBY
WERE ISSUED BY PAMIDA, INC., A DELAWARE CORPORATION ("PAMIDA" OR THE "COMPANY"),
IN MARCH 1993 PURSUANT TO A REGISTERED PUBLIC OFFERING (THE "ORIGINAL OFFERING")
OF $140,000,000 AGGREGATE PRINCIPAL AMOUNT OF THE NOTES. INTEREST ON THE NOTES
IS PAYABLE SEMI-ANNUALLY ON MARCH 15 AND SEPTEMBER 15 OF EACH YEAR, COMMENCING
SEPTEMBER 15, 1993, AT THE RATE OF 11 3/4% PER ANNUM. THE NOTES ARE REDEEMABLE,
IN WHOLE OR IN PART, AT THE OPTION OF THE COMPANY, ON OR AFTER MARCH 15, 1998,
AT THE REDEMPTION PRICES SET FORTH HEREIN PLUS ACCRUED INTEREST.
IN THE EVENT OF A CHANGE OF CONTROL (AS DEFINED), THE COMPANY IS OBLIGATED
TO MAKE AN OFFER TO PURCHASE ALL OUTSTANDING NOTES AT A REDEMPTION PRICE OF 101%
OF THE PRINCIPAL AMOUNT THEREOF PLUS ACCRUED INTEREST. SEE "DESCRIPTION OF
NOTES--CHANGE OF CONTROL." IN ADDITION, THE COMPANY IS OBLIGATED IN CERTAIN
INSTANCES TO MAKE OFFERS TO PURCHASE NOTES AT A REDEMPTION PRICE OF 100% OF THE
PRINCIPAL AMOUNT THEREOF PLUS ACCRUED INTEREST WITH THE NET CASH PROCEEDS OF
CERTAIN SALES OR OTHER DISPOSITIONS OF ASSETS.
THE NOTES ARE GENERAL UNSECURED OBLIGATIONS OF THE COMPANY, ARE
SUBORDINATED IN RIGHT OF PAYMENT TO ALL SENIOR INDEBTEDNESS OF THE COMPANY
(WHICH IS LIMITED TO INDEBTEDNESS UNDER THE COMPANY'S CREDIT AGREEMENT, AS
DEFINED) AND RANK pari passu WITH OR SENIOR IN RIGHT OF PAYMENT TO ALL OTHER
EXISTING AND FUTURE INDEBTEDNESS OF THE COMPANY. THE COMPANY HAS NOT ISSUED, AND
HAS NO PRESENT PLANS OR ARRANGEMENTS TO ISSUE, ANY INDEBTEDNESS WITH RESPECT TO
WHICH THE NOTES ARE OR WOULD BE SENIOR IN RIGHT OF PAYMENT. AS OF FEBRUARY 2,
1997, APPROXIMATELY $57.1 MILLION OF SENIOR INDEBTEDNESS (EXCLUDING LETTERS OF
CREDIT) WAS OUTSTANDING.
THE NOTES ARE UNCONDITIONALLY GUARANTEED (THE "GUARANTEE") ON A SENIOR
SUBORDINATED BASIS BY THE COMPANY'S PARENT, PAMIDA HOLDINGS CORPORATION
("HOLDINGS"). THE GUARANTEE IS SUBORDINATED TO THE GUARANTEE BY HOLDINGS OF THE
COMPANY'S OBLIGATIONS UNDER THE CREDIT AGREEMENT BUT SENIOR TO THE SUBORDINATED
INDEBTEDNESS OF HOLDINGS. THE GUARANTEE IS SECURED BY A PLEDGE OF ALL OF THE
COMMON STOCK OF THE COMPANY, WHICH IS THE ONLY SIGNIFICANT ASSET OF HOLDINGS.
SUCH STOCK IS ALSO PLEDGED TO SECURE THE GUARANTEE BY HOLDINGS OF THE COMPANY'S
OBLIGATIONS UNDER THE CREDIT AGREEMENT. THE PLEDGE SECURING THE GUARANTEE BY
HOLDINGS OF THE COMPANY'S OBLIGATIONS UNDER THE CREDIT AGREEMENT RANKS PRIOR TO
THE PLEDGE SECURING THE GUARANTEE. HOLDINGS HAS NO MATERIAL OPERATIONS OF ITS
OWN AND CURRENTLY HAS NO SOURCE OF CASH OTHER THAN DIVIDENDS AND CERTAIN OTHER
PAYMENTS FROM THE COMPANY; ACCORDINGLY, IF HOLDINGS WERE CALLED UPON TO HONOR
THE GUARANTEE, IT IS UNLIKELY THAT IT WOULD HAVE FUNDS AVAILABLE FOR SUCH
PURPOSE.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN
INVESTMENT IN THE NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This prospectus is to be used by Citicorp Securities, Inc. ("CSI") in
connection with offers and sales of the Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale. CSI
or its affiliates may act as principal or agent in such transactions.
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CITICORP SECURITIES, INC.
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The date of this Prospectus is May 5, 1997
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR CITICORP SECURITIES, INC. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SENIOR SUBORDINATED NOTES OFFERED BY THIS PROSPECTUS,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
THE SENIOR SUBORDINATED NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
Page
----
Available Information.................................................... 1
Incorporation of Certain Documents by Reference.......................... 2
Risk Factors............................................................. 4
The Company and Holdings................................................. 10
Ratio of Earnings to Fixed Charges....................................... 12
Use of Proceeds.......................................................... 12
Description of Notes..................................................... 12
Description of Certain Indebtedness...................................... 47
Plan of Distribution..................................................... 50
Legal Matters............................................................ 51
Experts.................................................................. 51
Prospectus Appendix...................................................... 52
AVAILABLE INFORMATION
Holdings and Pamida are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports (and, in the case of Holdings,
proxy and information statements) and other information filed by Holdings or
Pamida with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1204,
Washington, D.C. 20549, and at the Regional Offices of the Commission located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
Web site that contains reports, proxy and information statements (in the case of
Holdings), and other information regarding Holdings and Pamida; the address of
such Web site is http://www.sec.gov. Reports, proxy statements and other
information relating to Holdings also can be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006, on which
exchange the Common Stock of Holdings is listed.
The Company and Holdings have filed with the Commission a registration
statement (the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to the Notes offered hereby and the Guarantee. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information, reference is hereby
made to the Registration Statement, which may be obtained from the Public
Reference Section of the Commission at the address set forth above. Statements
contained in this Prospectus regarding the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Indenture relating to the Notes requires the Company to file periodic
reports and other information pursuant to the
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informational requirements of the Exchange Act referred to above, regardless of
the number of persons holding Notes.
The Company will furnish holders of the Notes with annual financial
statements that have been examined and reported upon, with an opinion expressed
by, an independent public accounting firm and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. The Company also will furnish such other reports as it may determine to be
appropriate or as may be required by law. Both the Company and Holdings maintain
their principal executive offices at 8800 "F" Street, Omaha, Nebraska 68127
(telephone (402) 339-2400).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company and by
Holdings pursuant to the Exchange Act are incorporated herein by reference:
1. The Annual Report of the Company on Form 10-K for the fiscal year ended
February 2, 1997.
2. The Annual Report of Holdings on Form 10-K for the fiscal year ended
February 2, 1997.
Each of the above-referenced documents is included in the appendix (the
"Prospectus Appendix") which forms a part of this prospectus and is being
delivered to each recipient of this prospectus.
All other reports filed by the Company or Holdings pursuant to the Exchange
Act since the filing of their respective Form 10-K Annual Report for the fiscal
year ended February 2, 1997, also are incorporated herein by this reference. The
Company and Holdings will provide without charge to each person, including any
beneficial owner of the Notes, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of such reports; such request
should be directed to the Company or Holdings at their address or telephone
number appearing in the preceding section of this Prospectus.
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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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RISK FACTORS
Prospective purchasers of the Notes should carefully consider the risk
factors set forth below, as well as all other information contained in this
Prospectus, in evaluating an investment in the Notes.
HIGH LEVERAGE; LIQUIDITY
Pamida is highly leveraged. At February 2, 1997, Pamida had consolidated
indebtedness of approximately $233.3 million as compared to a common
stockholder's deficit of approximately ($59.2) million.
Pamida will require substantial cash flow to meet its interest and
principal repayment obligations under the Notes, the Credit Agreement (as
defined) and its other debt obligations. See "Description of Notes" and
"Description of Certain Indebtedness." For the fiscal year ended February 2,
1997, Pamida had a ratio of earnings to fixed charges of 1.12, and Holdings had
an excess of fixed charges over earnings of $1,350,000. See "Ratio of Earnings
to Fixed Charges."
In the past, Pamida has relied upon funds from operations and borrowings
under its bank credit facilities to fund its business activities and meet its
debt service obligations. The ability of Pamida to make principal and interest
payments on the Notes and its other debt obligations will be dependent largely
upon the results of Pamida's future business operations. Pamida's business
operations are subject to and affected by economic conditions and other factors,
many of which are beyond its control. The highly leveraged position of Pamida
and the restrictive covenants contained in the Indenture and in the instruments
governing its other debt obligations could limit Pamida's ability to withstand
competitive pressures or adverse economic conditions.
RANKING
The Notes are general unsecured obligations of the Company and subordinated
in right of payment to all Senior Indebtedness of the Company (which is limited
to indebtedness under the Credit Agreement, as defined). As of February 2, 1997,
approximately $57.1 million of Senior Indebtedness (excluding letters of credit)
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was outstanding.
The Company's indebtedness under the Credit Agreement is secured by all of
the Company's current assets (including inventory) and by liens on certain real
estate interests and other property of the Company, and the Company may grant
securityinterests in or liens on its other assets and property to further secure
its obligations under the Credit Agreement.
The Guarantee of the Notes by Holdings is subordinated in right of payment
to the guarantee by Holdings of the obligations of the Company under the Credit
Agreement. See "Description of Notes -- Guarantee and Pledge Agreement." The
Guarantee of the Notes is secured by a pledge of all of the common stock of the
Company; however, the guarantee by Holdings of the obligations of the Company
under the Credit Agreement is secured by a first and prior security interest in
the common stock of the Company which ranks ahead of any security interest in
such stock securing the Guarantee of the Notes.
In the event of bankruptcy, liquidation or reorganization of the Company or
Holdings, as the case may be, the assets of the Company or Holdings, as the case
may be, will be available to pay obligations on the Notes and the Guarantee,
respectively, only after all Senior Indebtedness of the Company or Holdings, as
the case may be, has been paid in full; and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes or Guarantee then
outstanding.
OPERATING AND FINANCIAL RESTRICTIONS
The Credit Agreement contains provisions imposing substantial operating and
financial restrictions on the Company. Certain provisions of the Credit
Agreement require the maintenance of specified amounts of Consolidated Tangible
Net Worth and Consolidated Working Capital and the achievement of specified
minimum amounts of Consolidated Adjusted Cash Flow, as such terms are defined in
the Credit Agreement. The Credit Agreement currently requires the Company to
have Consolidated Tangible Net Worth of $70,000,000 through May 3, 1998,
$75,000,000 from May 4, 1998, through May 2, 1999, and $80,000,000 thereafter.
The definition of Consolidated Tangible Net Worth in the Credit Agreement
includes, as an addition to the specified net book value
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of the assets of the Company and its subsidiaries, indebtedness of the Company
and its subsidiaries (including but not limited to the Notes) which is
subordinated in right of payment to the payment in full of all obligations under
the Credit Agreement on terms and conditions acceptable to the agent for the
lenders under the Credit Agreement. The Credit Agreement currently requires the
Company to have Consolidated Working Capital of $22,500,000 through May 3, 1998,
$27,500,000 from May 4, 1998, through May 2, 1999, and $32,500,000 thereafter.
The Credit Agreement currently requires the Company to have Consolidated
Adjusted Cash Flow of not less than negative $10,000,000 for each fiscal quarter
ending on or about April 30, negative $8,500,000 for each two fiscal quarters,
cumulatively, ending on or about July 31, negative $5,000,000 for each three
fiscal quarters, cumulatively, ending on or about October 31, and $5,000,000 for
each four fiscal quarters, cumulatively, ending on or about January 31. The
Credit Agreement gives the agent for the lenders the right to establish the
general criteria for inventory advance rates and to determine, in its
discretion, the amounts to be loaned to the Company from time to time. In
addition, the Credit Agreement requires the Company to maintain a cash
collateral account into which the proceeds of sales of the Company's inventory
will be deposited daily and applied to service the Credit Agreement on a daily
basis. Other restrictions in the Credit Agreement and those provided under the
Indenture affect, among other things, the ability of the Company to incur
additional indebtedness, pay dividends, repay indebtedness prior to its stated
maturity, create liens, enter into leases, sell assets or engage in mergers or
acquisitions, make capital expenditures and make investments in subsidiaries.
The Credit Agreement limits the Company to not more than $12,000,000 of capital
expenditures (other than capitalized lease payments) in any fiscal year, with a
carryover to future fiscal years of any portion of such maximum amount which is
not expended in a particular fiscal year. The ability of the Company to satisfy
the foregoing requirements and comply with the foregoing restrictions will
depend upon prevailing economic conditions and other factors, including factors
beyond the control of the Company, such as interest rates. A failure by the
Company to comply with any of these or other requirements or restrictions could
lead to a default under the terms of the Credit Agreement or the Indenture and
give the lenders under the Credit Agreement or the holders of the Notes the
right to declare all of the funds borrowed pursuant thereto to be immediately
due and payable
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together with accrued and unpaid interest. The insecurity (without further
definition) of the lenders or their agent with respect to the obligations of the
Company under the Credit Agreement or with respect to the collateral for such
obligations also may constitute an event of default under the Credit Agreement
and result in an acceleration of the Company's obligations under the Credit
Agreement. Any such default on the Company's indebtedness would be likely to
have a material adverse effect on the Company and on the market value and
marketability of securities issued by the Company, including the Notes. At
February 2, 1997, the Company was in compliance with all applicable covenants
then contained in the Credit Agreement and the Indenture. The Credit Agreement
was amended on March 17, 1997, and now contains the Consolidated Tangible Net
Worth, Consolidated Working Capital, and Consolidated Adjusted Cash Flow
requirements described in this paragraph for periods after that date. See
"Description of Certain Indebtedness -- Credit Agreement."
LIMITED ASSETS AND LIQUIDITY OF HOLDINGS
Holdings has guaranteed the payment of amounts due under the Notes.
Holdings has no material operations of its own, and its only significant asset
is the common stock of the Company which has been pledged on a first priority
basis to secure the obligations of the Company under the Credit Agreement.
Holdings currently has no source of cash other than dividends and certain other
payments from the Company. Accordingly, if Holdings were called upon to honor
the Guarantee, it is unlikely that it would have funds available for such
purpose. If permitted by applicable corporate law, the Company presently intends
to make periodic dividend payments to Holdings to enable Holdings to pay cash
dividends on its preferred stock. Certain outstanding promissory notes of
Holdings (the "Holdings Notes") do not presently require or permit the payment
of interest on such notes in cash. However, subject to certain restrictions in
the Indenture as well as in the instruments governing the Company's other debt
obligations, at some future time the Company also may pay dividends to Holdings
to enable Holdings to pay interest in cash on the Holdings Notes. See
"Description of Notes -- Certain Covenants" and "Description of Certain
Indebtedness -- Holdings Promissory Notes." To the extent that Holdings is
unable to obtain cash sufficient to meet its cash dividend requirements with
respect to its preferred stock
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and any cash interest requirements with respect to the Holdings Notes, Holdings
may be in noncompliance or default under the instruments reflecting such
obligations. An event of noncompliance with respect to the payment of cash
dividends on the preferred stock of Holdings may result in an increase in the
applicable dividend rate on such preferred stock, and an event of default with
respect to the payment of cash interest on the Holdings Notes may result in an
increase in the applicable interest rate on and an acceleration of the maturity
of the Holdings Notes. Holdings did not declare or pay the February 29, 1996,
and subsequent quarterly dividends on its preferred stock because it had no
funds with which to do so and, in any event, would have been prevented by
applicable corporate law from making such declaration or payment; and the
Company also is currently prevented by applicable corporate law from paying a
dividend to Holdings. As a result of such nonpayment by Holdings, the cumulative
dividend rate on the preferred stock of Holdings automatically has increased by
one-half of one percent on each quarterly dividend payment date beginning
February 29, 1996, and will increase by an additional one-half of one percent
(up to a maximum aggregate increase of 5%) on each subsequent quarterly dividend
payment date on which the Holdings preferred stock dividends are not paid
currently on a cumulative basis.
COMPETITION
Pamida operates in a highly competitive environment, competing with
supermarkets, drug and specialty stores, mail-order and catalog merchants and,
in some communities, department stores and other general merchandise retailers.
Competitors consist both of independent stores and of regional and national
chains, some of which have substantially greater resources than Pamida. The type
and degree of competition and the number of competitors which Pamida's stores
face vary significantly by market. Of Pamida's 148 stores operating at February
2, 1997, 29 stores encountered direct local competition from other major general
merchandise retailers such as Wal-Mart, Kmart, Alco, ShopKo and Target. When
such competitors enter a community where Pamida operates, there typically is an
immediate adverse impact on the sales and profitability of the Pamida store in
that community, and such adverse impact may continue indefinitely. In such
cases, sales decline as some customers of the Company's store shift some or all
of their purchases to the competitor's store; and profitability
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declines because of the reduced sales volume in the Company's store, lower gross
margins resulting from the need for competitive price adjustments, and the
Company's inability to reduce its store operating expenses in direct proportion
to the decline in store sales. Because of the adverse impact of new competition
in a community in which a Pamida store is located, in recent years the Company's
business strategy has been to focus its store expansion program on communities
with less likelihood of the entry of a new major competitor. However, there can
be no assurance that in the future major competitors will not open additional
stores in the Company's markets. See "The Company and Holdings."
EXPANSION PROGRAM
Pamida currently plans to continue its program of new store openings during
the next several years. Because Pamida intends to continue leasing most of its
stores, any delays or other difficulties in the negotiation of satisfactory
store leases or the inability on the part of prospective landlords to obtain
financing for new store buildings may delay or interfere with such new store
openings. In addition, there is no assurance that the sites which Pamida
identifies for new store locations actually will be available to the Company;
and various zoning, site acquisition, environmental, traffic, construction and
other contingencies also may delay or prevent the opening of a new store in a
particular location. There can be no assurance that any new stores which Pamida
may open will be profitable. Certain of the restrictive covenants in the Credit
Agreement or in the Indenture relating to the Notes, such as those which
restrict the ability of the Company to incur indebtedness, encumber its property
or makecapital expenditures or which impose certain restrictions on or otherwise
limit the Company's ability to engage in sale-leaseback transactions, may
prevent the Company from pursuing its store expansion program at the rate that
the Company desires.
RELATIONSHIP WITH SUPPLIERS
Like most retailers, the Company depends upon the regular extension of
credit from its suppliers to finance the acquisition of a portion of its
inventory. Prior to the sale of the Notes and the implementation of the Credit
Agreement in March 1993, because of the Company's highly leveraged financial
position and conditions in the retail industry generally, Pamida experienced
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some reductions in or eliminations of the credit lines then made available to it
by certain of its suppliers. However, since mid-1993 the Company generally has
been able to obtain needed lines of credit from its suppliers. The Company
believes, therefore, that the credit lines presently provided by its suppliers,
together with its working capital credit facilities, will be adequate to finance
its inventory purchases for the foreseeable future; but, because of the
Company's financial position and because of conditions in the retail industry
generally, there can be no assurance that this will continue to be the case.
ABSENCE OF PUBLIC MARKET
There currently is no established trading market for the Notes. Pamida has
been advised by CSI that CSI presently intends to make a market in the Notes.
However, CSI is not obligated to do so, and any market-making activities with
respect to the Notes may be discontinued at any time without notice. There can
be no assurance that an active market for the Notes will exist at any particular
time. If the Notes are traded, they may be traded at a discount from their face
amount or the price paid for such Notes, depending upon prevailing interest
rates, the market for similar securities and other factors. Pamida does not
intend to list the Notes for trading on any securities exchange or on any
automated dealer quotation system. No assurance can be given that a holder of
Notes will be able to sell the Notes in the future or that such sale will be at
a price equal to or higher than the price paid for such Notes. The level of
activity in any market for the Notes will depend upon the number of holders of
Notes, the continuing interest of securities dealers in making a market in the
Notes and other factors. The absence of an active market for the Notes would
adversely affect the liquidity of the Notes.
THE COMPANY AND HOLDINGS
On January 19, 1996, the Company announced its intentionto 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.
At February 2, 1997, Pamida operated 148 general merchandise retail stores
located in 148 small towns (having an average
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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. Excluding the Closed Stores,
the Company believes that it holds the leading market position in 80% of the
communities in which its stores are located.
Pamida stores generally are located in small towns, normally county seats,
where there often is little or no competition from another major general
merchandise retailer and which the Company considers to be either too small to
support more than one major general merchandise retailer (thereby creating a
potential barrier to entry by a major competitor) or too small to attract
competitors whose stores generally are designed to serve larger populations. At
February 2, 1997, 119 of the Company's 148 stores faced no direct local
competition from other major general merchandise retailers.
The Company's stores average approximately 29,000 square feet of sales area
and range in size from approximately 6,000 to 51,000 square feet of sales area.
At February 2, 1997, Pamida's stores had an aggregate sales area of
approximately 4,348,000 square feet.
The Company was incorporated in Delaware in 1980. In January 1981 the
Company, which then was owned by an employee stock ownership plan (the "ESOP"),
acquired substantially all of the assets and assumed substantially all of the
liabilities of a Nebraska corporation which previously had carried on the
general merchandise retail business of Pamida described above. The Company's
predecessor had been engaged in such business since 1963, and its stock was
publicly owned and listed on the New York Stock Exchange at the time of the 1981
sale to the Company.
In July 1986 Holdings acquired the stock of the Company from the ESOP, and
the Company became a wholly owned subsidiary of Holdings. The only significant
asset of Holdings is the common stock of the Company, and Holdings conducts no
operations separate from those of the Company. An initial public offering of
shares of Common Stock of Holdings occurred in September 1990, and the Common
Stock of Holdings has been listed on the American Stock Exchange and publicly
traded since then.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
the Company and Holdings:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
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January 31, January 30, January 29, January 28, February 2,
1993 1994 1995 1996 1997
----------- ----------- ----------- ------------ -----------
PAMIDA, INC.:
<S> <C> <C> <C> <C> <C>
Ratio of earnings 1.29 1.05 1.34 -- 1.12
to fixed charges
Excess of fixed -- -- -- $ 98,939,000 --
charges over
earnings
PAMIDA HOLDINGS
CORPORATION AND
SUBSIDIARY:
Ratio of earnings 1.15 -- 1.18 -- --
to fixed charges
Excess of fixed -- $ 2,114,000 -- $103,393,000 $ 1,350,000
charges over
earnings
</TABLE>
USE OF PROCEEDS
This prospectus is being used by Citicorp Securities, Inc. in connection
with offers and sales of the Notes in market-making transactions in the
secondary trading market. Sales of Notes being offered by this market-making
prospectus will not result in any proceeds to the Company or to Holdings.
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of March 15, 1993 (the
"Indenture") among the Company, Holdings as guarantor and State Street Bank and
Trust Company as trustee (the "Trustee"). A copy of the form of the Indenture
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summary of certain provisions of the
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<PAGE>
Indenture does not purport to be a complete statement of such provisions and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and to all of the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part of the Indenture by reference to the Trust Indenture
Act, as in effect on the date of the Indenture. While this summary does not
discuss all of the provisions of the Indenture, the Company believes that the
summary does contain information with respect to those provisions of the
Indenture which a prospective purchaser of Notes might reasonably consider to be
material to an investment decision with respect to the Notes. The definitions of
certain capitalized terms used in the following summary are set forth below
under "Certain Definitions."
GENERAL
The Notes were issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Notes may be
presented for transfer at the office of an affiliate of the Trustee in the City
of New York maintained for such purposes at 61 Broadway, New York, New York.
Interest may be paid by wire transfer or check mailed to the person entitled
thereto as shown on the register for the Notes. No service charge will be made
for any registration of transfer or exchange of the Notes, except for any tax or
other governmental charge that may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The Notes are general unsecured obligations of the Company, limited to
$140,000,000 aggregate principal amount, and will mature on March 15, 2003.
Interest on the Notes accrues at the rate of 11 3/4% per annum and is payable
semi-annually on each March 15 and September 15, commencing September 15, 1993,
to the holders of record of Notes at the close of business on March 1 and
September 1 immediately preceding such interest payment date. Interest on the
Notes accrues from the most recent date to which interest has been paid or, if
no interest has been paid, from the original date of issuance (the "Issue
Date"). Interest is computed on the basis of a 360-day year comprised of twelve
30-day months. Interest on overdue principal and (to the extent permitted by
law) on overdue installments of interest accrues at
13
<PAGE>
the rate of 11 3/4% per annum.
REDEMPTION
OPTIONAL REDEMPTION. The Notes are redeemable, in whole or in part, at the
option of the Company, at any time on or after March 15, 1998 at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest to the date of redemption, if redeemed during the
12-month period beginning on March 15 of the years indicated below:
Year Percentage
---- ----------
1998 . . . . . . . . . . . . . . . . . . . 105.875%
1999 . . . . . . . . . . . . . . . . . . . 103.917%
2000 . . . . . . . . . . . . . . . . . . . 101.958%
2001 and thereafter. . . . . . . . . . . . 100.000%
SELECTION AND NOTICE. In the event that less than all of the Notes are to
be redeemed at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed
on a national securities exchange, on a pro rata basis, by lot or by such method
as the Trustee shall deem fair and appropriate, provided, however, that no Note
of $1,000 or less shall be redeemed in part. Notice of redemption shall be
mailed by first-class mail at least 30 days but not more than 60 days before the
date of redemption to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the date of redemption, interest
will cease to accrue on Notes or portions thereof called for redemption.
CHANGE OF CONTROL
In the event of a Change of Control (the date of such
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<PAGE>
occurrence, the "Change of Control Date"), the Company shall notify the holders
of Notes in writing of such occurrence and shall make an offer to purchase (the
"Change of Control Offer") on a business day (the "Change of Control Payment
Date") not later than 60 days following the Change of Control Date, all Notes
then outstanding at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Change of Control
Payment Date.
Notice of a Change of Control Offer shall be mailed by the Company to the
holders of Notes not less than 30 days nor more than 45 days before the Change
of Control Payment Date. The Change of Control Offer is required to remain open
for at least 20 business days and until the close of business on the business
day next preceding the Change of Control Payment Date.
The Company must comply with any tender offer rules under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which may then be
applicable, including but not limited to Rule 14e-1, in connection with any
Change of Control Offer required to be made by the Company as a result of a
Change of Control.
GUARANTEE AND PLEDGE AGREEMENT
The Notes are unconditionally guaranteed on a senior subordinated basis by
Holdings. The obligations of Holdings under its Guarantee of the Notes is
subordinated in right of payment to all existing and future Senior Indebtedness
of Holdings (which is limited to the obligations of Holdings in respect of the
Credit Agreement). See "Subordination" below.
The obligations of Holdings under its Guarantee of the Notes is secured by
a pledge of all the Common Stock of the Company. Such stock is also pledged to
secure the obligations of Holdings under its guarantee of the Credit Agreement.
The security interest securing the guarantee by Holdings of the Credit Agreement
ranks prior to that securing Holdings' Guarantee of the Notes.
The Indenture provides that Holdings may permit other Indebtedness to be
secured by a Lien on the shares of Common Stock of the Company so long as such
Lien ranks pari passu with or is subordinate in right of payment to the Lien
securing the
15
<PAGE>
obligations of Holdings pursuant to its Guarantee of the Notes. Amendments to
the Pledge Agreement necessary to permit the incurrence of such additional
Indebtedness secured by the pledged stock and to add additional secured parties
thereto may be made without the consent of the Trustee, provided that the
Indebtedness owing to such secured party and the Liens securing such
Indebtedness are permitted under the Indenture.
Upon repayment of all Indebtedness under the Credit Agreement and any other
Indebtedness then secured by the collateral under the Pledge Agreement, the
Pledge Agreement may be terminated and the collateral thereunder released upon
demand by Holdings. No such release of collateral under the Pledge Agreement
will constitute a default under the Indenture. Subsequent to any such
termination of the Pledge Agreement and release of collateral thereunder,
Holdings shall not create, incur or suffer to exist any lien of any kind upon
the Common Stock of the Company unless the Notes are equally and ratably secured
by such lien.
SUBORDINATION
The indebtedness of the Company evidenced by the Notes is subordinated in
right of payment to all Senior Indebtedness of the Company. Only obligations of
the Company under the Credit Agreement can constitute Senior Indebtedness with
respect to the Notes. As of February 2, 1997, approximately $57.1 million of
Senior Indebtedness (excluding letters of credit) was outstanding. The maximum
principal amount of Senior Indebtedness is limited to the amount of Indebtedness
permitted to be incurred under the Credit Agreement pursuant to clause (b) of
"Limitation on Additional Indebtedness" discussed under "Certain Covenants"
below.
The Indenture provides that no payment or distribution of cash, property or
securities of the Company (or of Holdings pursuant to the Guarantee) will be
made on account of principal of, premium, if any, or interest on the Notes, or
to defease or acquire any of the Notes, or on account of the redemption
provisions of the Notes (a) upon the maturity of any Senior Indebtedness by
lapse of time, acceleration or otherwise, unless and until all Senior
Indebtedness shall first be paid in full in cash or cash equivalents, or
provisions for such payments have been duly made in a manner satisfactory to the
holders of such
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<PAGE>
Senior Indebtedness or (b) upon the default in the payment of any principal of,
premium, if any, or interest on or other amounts payable on or in connection
with any obligations in respect of any Senior Indebtedness when such amounts
become due and payable, whether at maturity or at a date fixed for prepayment or
by declaration or otherwise, unless and until such default has been cured or
waived or has ceased to exist.
Upon the happening of an event of default (or if an event of default would
result upon any payment with respect to the Notes) with respect to any Senior
Indebtedness pursuant to which the maturity thereof may be accelerated (if the
event of default relates to a default other than a default in the payment of
principal of, premium, if any, or interest on or other amounts due in connection
with such Senior Indebtedness) and upon receipt by the Trustee and the Company
of written notice from the Senior Representative of such Senior Indebtedness,
then, unless and until such event of default has been cured or waived or has
ceased to exist or the benefit of this sentence has been waived, no payment or
distribution will be made by or on behalf of the Company on account of or with
respect to the Notes; provided, that nothing in the above-described provision
will prevent the making of any payment for a period of more than 179 days after
the date written notice of the event of default is received by the Trustee or
the Company (the "Payment Blockage Period"). Not more than one Payment Blockage
Period may be commenced with respect to the Notes during any period of 365
consecutive days. In no event will a Payment Blockage Period extend beyond 179
days from the date of the receipt of the notice initiating such Payment Blockage
Period, and there must be a 180-consecutive-day period in any
365-consecutive-day period during which no Payment Blockage Period is in effect.
No default or event of default that existed or was continuing on the date of
commencement of any Payment Blockage Period with respect to the Senior
Indebtedness initiating such Payment Blockage Period may be, or be made, the
basis for the commencement of a subsequent Payment Blockage Period by the Senior
Representative for or the holders of such Senior Indebtedness, whether or not
within a period of 365 consecutive days, unless such default or event of default
has been cured or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of assets or securities of the Company (or
of Holdings pursuant to the Guarantee) of any kind
17
<PAGE>
or character, whether in cash, property or securities, upon any dissolution
or winding-up or total or partial liquidation or reorganization of the Company
or Holdings, as the case may be, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or to
become due with respect to all obligations in respect of Senior Indebtedness
shall first be paid in full in cash or Cash Equivalents before the Holders of
the Notes or the Trustee on behalf of such Holders shall be entitled to receive
any payment by the Company (or by Holdings pursuant to the Guarantee) of the
principal of, premium, if any, or interest on the Notes, or any payment to
acquire any of the Notes for cash, property or securities, or any distribution
with respect to the Notes of any cash, property or securities. Before any
payment may be made by or on behalf of the Company (or by Holdings pursuant to
the Guarantee) of the principal of, premium, if any, or interest on the Notes
upon any such dissolution or winding-up or liquidation or reorganization, any
payment or distribution of assets or securities of the Company (or of Holdings
pursuant to the Guarantee) of any kind or character, whether in cash, property
or securities, to which the Holders of the Notes or the Trustee on their behalf
would be entitled, but for the subordination provisions of the Indenture, shall
be made by the Company (or by Holdings pursuant to the Guarantee) or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution directly to the holders of the Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders) or their representatives or to the
trustee or trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Senior Indebtedness in full in cash or Cash
Equivalents after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Indebtedness. Nothing in
the Indenture or in the Notes, however, affects the unconditional absolute
obligations of the Company (or of Holdings pursuant to the Guarantee) to pay the
principal of and interest on the Notes as and when they become due and payable
in accordance with their terms.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination" section will not be construed
18
<PAGE>
as preventing the occurrence of an Event of Default described in clause (i) or
(ii) of the first paragraph under "Events of Default" below.
By reason of the subordination provisions described above, in certain
events funds which would otherwise be payable to holders of the Notes will be
paid to the holders of Senior Indebtedness to the extent necessary to pay the
Senior Indebtedness in full, and the Company and Holdings may be unable to fully
meet their obligations with respect to the Notes and the Guarantee,
respectively.
CERTAIN COVENANTS
Set forth below are certain covenants which are contained in the Indenture.
While the covenants which are discussed below do not include all of the
covenants contained in the Indenture, the Company believes that the covenants
which are discussed include those covenants which a prospective purchaser of
Notes might reasonably consider to be material to an investment decision with
respect to the Notes.
LIMITATION ON ADDITIONAL INDEBTEDNESS. The Indenture provides that the
Company shall not, and shall not permit any of its Subsidiaries to, create,
incur, assume or issue, directly or indirectly, or guarantee or in any manner
become, directly or indirectly, liable for or with respect to the payment of any
Indebtedness (including Acquired Indebtedness) except for:
(a) Indebtedness under the Notes and the Indenture;
(b) Indebtedness (including letters of credit) outstanding from time
to time pursuant to the Credit Agreement in an amount not to
exceed the aggregate of 90% of the net book value of the accounts
receivable and 60% of the net book value of the inventory
(on a FIFO basis) of the Company and its Subsidiaries, in each
case calculated on a consolidated basis in accordance with GAAP;
(c) Indebtedness not otherwise referred to in this covenant
outstanding on the Issue Date (including standby letters of
credit existing on the Issue Date);
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<PAGE>
(d) Indebtedness if, immediately after giving pro forma effect to the
incurrence thereof, the Fixed Charge Coverage Ratio of the
Company would be greater than or equal to 2.25:1 on or prior to
March 15, 1995 and 2.50:1 thereafter;
(e) Indebtedness in respect of Interest Rate Protection Obligations
incurred in the ordinary course of business;
(f) Indebtedness or Disqualified Stock of a Wholly-Owned Subsidiary
issued to and held by the Company or a Wholly-Owned Subsidiary or
Indebtedness of the Company to a Wholly-Owned Subsidiary in
respect of intercompany advances or transactions;
(g) Indebtedness in connection with or arising out of Capitalized
Lease Obligations or Purchase Money Indebtedness incurred after
the Issue Date with respect to the acquisition or construction of
assets by the Company after the Issue Date in the ordinary course
of the Company's business;
(h) contingent liabilities for (i) guarantees resulting from
endorsement of negotiable instruments for collection in the
ordinary course of business and (ii) guarantees by the Company of
obligations or liabilities of its Subsidiaries permitted under
the Indenture;
(i) other Indebtedness that does not exceed $10,000,000 in the
aggregate at any one time outstanding; and
(j) any deferrals, renewals, extensions, replacements, refinancings
or refundings of, amendments, modifications or supplements to,
Indebtedness incurred under clauses (c) and (d) above, whether
involving the same or any other lender or creditor or group of
lenders or creditors; provided, that any such deferrals,
renewals, extensions, replacements, refinancings, refundings,
amendments, modifications or supplements (i) shall not provide
for any mandatory redemption, amortization or sinking fund
requirement in an amount greater than or at a time prior to the
amounts and times specified in the Indebtedness being deferred,
renewed, extended, replaced, refinanced, refunded, amended,
modified or supplemented, (ii) shall not exceed the principal
amount (plus accrued interest and prepayment premium, if any) of
the Indebtedness being deferred, renewed, extended, replaced,
refinanced, refunded, amended, modified or supplemented; and
20
<PAGE>
(iii) shall be subordinated to the Notes at least to the extent
and in the manner, if at all, that the Indebtedness being
deferred, renewed, extended, replaced, refinanced, refunded,
amended, modified or supplemented is subordinated to the Notes.
LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. The Indenture provides that
the Company shall not make and shall not permit any of its Subsidiaries to make
any capital contributions, advances or loans to (including any guarantees of
loans to), or investments in or purchases of Capital Stock in, any Person
(collectively, "Investments"), except: (i) Investments by the Company in any
Wholly-Owned Subsidiary and Investments or loans in or to the Company or a
Wholly-Owned Subsidiary by any Subsidiary (provided, that such Investments in
any Wholly-Owned Subsidiary shall not exceed, individually or in the aggregate,
10% of the total assets of the Company and its Subsidiaries determined on a
consolidated basis at the time such Investment is made); (ii) Investments
represented by accounts receivable created or acquired in the ordinary course of
business; (iii) advances to employees in the ordinary course of business not to
exceed an aggregate of $250,000 outstanding at any one time; (iv) Investments
under or pursuant to Interest Rate Protection Obligations; (v) Investments in
promissory notes in an aggregate principal amount not to exceed $2,000,000 at
any one time outstanding representing portions of the purchase prices of
property sold or transferred by the Company or its Subsidiaries in connection
with sale and lease-back transactions permitted by the Indenture or other asset
sales permitted by the Indenture; (vi) Cash Equivalents; (vii) other Investments
not to exceed $2,000,000 outstanding at any one time; and (viii) Investments
permitted to be made under the "Limitation on Restricted Payments" covenant
described below.
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
shall not make, and shall not permit any of its Subsidiaries to, directly or
indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such
Restricted Payment;
(b) at the time of and after giving effect to such Restricted
Payment, the Company could incur at least $1 of Indebtedness
21
<PAGE>
pursuant to clause (d) of the "Limitation on Additional
Indebtedness" covenant; and
(c) immediately after giving effect to such Restricted Payments,
the aggregate of all Restricted Payments declared or made
after January 31, 1993 through and including the date of
such Restricted Payment (the "Base Period") does not exceed the
sum of (i) 50% of the Company's Consolidated Net Income (or in
the event such Consolidated Net Income shall be a deficit, minus
100% of such deficit) during the Base Period, and (ii) 100% of
the aggregate Net Proceeds and the Fair Market Value of
marketable securities and property received by the Company from
the issue or sale, after January 31, 1993, of Capital Stock(other
than Disqualified Stock) of the Company or of any Indebtedness or
other securities of the Company convertible into or exercisable
or exchangeable for Capital Stock (other than Disqualified Stock)
of the Company which has been so converted, exercised or
exchanged, as the case may be. For purposes of determining under
this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market
Value.
The provisions of this covenant do not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at such date
of declaration such payment would comply with the provisions of the Indenture;
(ii) the retirement of any shares of Capital Stock or subordinated Indebtedness
of the Company in exchange for, by conversion into, or out of the Net Proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of other shares of Capital Stock of the Company (other than Disqualified Stock);
(iii) the redemption or retirement of subordinated Indebtedness of the Company
in exchange for, by conversion into, or out of the Net Proceeds of the
substantially concurrent incurrence of subordinated Indebtedness of the Company
(other than any such subordinated Indebtedness owing to a Subsidiary of the
Company) that is contractually subordinated in right of payment to the Notes and
that is permitted to be incurred in accordance with the covenant described under
"Limitation on Additional Indebtedness" above; (iv) Restricted Payments to
Holdings after the third anniversary of the Issue Date in an amount necessary to
meet the cash requirements of Holdings to pay scheduled interest and principal
payments on the Promissory Notes at the time such
22
<PAGE>
interest and principal becomes due and payable; provided that the Fixed Charge
Coverage Ratio of the Company and Holdings on a consolidated basis is greater
than 2.0:1 at the time of and after giving pro forma effect to such Restricted
Payment (as if such Restricted Payment were interest paid by the Company); (v)
Restricted Payments to Holdings in an amount not to exceed $316,000 per year to
meet the cash requirements of Holdings to pay scheduled dividend payments on the
Holdings Preferred Stock at the time such dividend payments become due and
payable; (vi) advances or dividends by the Company to Holdings to enable
Holdings to payadministrative and operating expenses in an amount not to exceed
$100,000 in any one fiscal year; and (vii) payments by the Company and its
Subsidiaries in respect of their obligations pursuant to any tax-sharing
agreement among the Company, any Subsidiary of the Company and Holdings;
provided that such payments by the Company and its Subsidiaries do not exceed
the amounts which would be payable by the Company and its Subsidiaries assuming
the Company and its Subsidiaries paid the taxes subject to such tax-sharing
agreement on a stand-alone basis. Notwithstanding the foregoing, if an Event of
Default shall have occurred and be continuing, a Restricted Payment pursuant to
clauses (iv), (v) and (vi) above shall not be permitted.
In determining the amount of Restricted Payments permissible under
subparagraph (c) above, the amounts expended pursuant to clauses (i), (ii),
(iv), (v) and (vi) above shall be included as Restricted Payments.
LIMITATION ON LIENS. The Indenture provides that the Company shall not, and
shall not permit, cause or suffer any of its Subsidiaries to, create, incur,
assume or suffer to exist any Lien of any kind upon any of its property or
assets now owned or hereafter acquired by it, except for:
(a) Liens existing as of the Issue Date;
(b) Permitted Liens;
(c) Liens on the assets or property of a Subsidiary of the Company
existing at the time such Subsidiary became a Subsidiary of the
Company and not incurred as a result of (or in connection with or
in anticipation of) such Subsidiary's becoming a Subsidiary of
the Company; provided that such Liens do not extend
23
<PAGE>
to or cover any property or assets of the Company or any of its
Subsidiaries (other than the property or assets of the
Subsidiary so acquired);
(d) Liens securing obligations of the Company and its Subsidiaries in
respect of the Credit Agreement;
(e) any Lien securing Capitalized Lease Obligations and Purchase
Money Indebtedness, provided that such Capitalized Lease
Obligations and Purchase Money Indebtedness are incurred in
compliance with the "Limitations on Additional Indebtedness"
covenant and provided that such Liens do not extend to or cover
any property or assets of the Company or any of its Subsidiaries
other than the property or assets subject to such Capitalized
Lease Obligations and Purchase Money Indebtedness;
(f) leases and subleases of real property which do not interfere with
the ordinary conduct of the business of the Company or any of its
Subsidiaries and which are made on customary and usual terms
applicable to similar properties;
(g) Liens securing Indebtedness which is incurred to refinance or
replace Indebtedness which has been secured by a Lien permitted
under the Indenture and is permitted to be refinanced or replaced
under the Indenture; provided that such Liens do not extend to or
cover any property or assets of the Company or any of its
Subsidiaries not securing the Indebtedness so refinanced or
replaced, except to the extent permitted under (d) above;
(h) Liens securing reimbursement obligations under letters of credit
but only in or upon the goods, the purchase of which was financed
by such letters of credit; and
(i) other Liens securing obligations which may be discharged by the
payment in the aggregate at any one time of not more than
$15,000,000.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Indenture provides that the Company shall not, and shall not
permit any Subsidiary of the Company to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective, or enter into any
agreement with any Person that would cause or create any consensual encumbrance
or
24
<PAGE>
restriction of any kind on the ability of any Subsidiary of the Company to (a)
pay dividends, in cash or otherwise, or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by the Company or a Subsidiary of the Company, (b) make any loans
or advances to, or pay any Indebtedness owed to, the Company or any Subsidiary
of the Company or (c) transfer any of its properties or assets to the Company or
to any Subsidiary of the Company, except, in each case, for such encumbrances or
restrictions existing under or contemplated by or by reason of (i) the Notes or
the Indenture, (ii) any restrictions existing under or contemplated by
agreements in effect on the Issue Date, including, without limitation,
restrictions under the Credit Agreement, (iii) any restrictions, with respect to
a Subsidiary of the Company that is not a Subsidiary of the Company on the Issue
Date, in existence at the time such Person becomes a Subsidiary of the Company
(but not created in contemplation of such Person becoming a Subsidiary) and (iv)
any restrictions existing under any agreement that refinances or replaces an
agreement containing a restriction permitted by clause (i), (ii) or (iii) above,
provided that the terms and conditions of any such restrictions are not
materially less favorable in the aggregate to the holders of the Notes than
those under or pursuant to the agreement being replaced or the agreement
evidencing the Indebtedness being refinanced or replaced.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS. The Indenture provides that the
Company shall not, and shall not permit any of its Subsidiaries to, enter into
any Sale-Leaseback Transaction unless either (i) after giving effect to such
Sale-Leaseback Transaction, the aggregate sale prices with respect to the
property subject to all Sale-Leaseback Transactions consummated by the Company
and its Subsidiaries after the Issue Date will not exceed $10,000,000 or (ii)
the Indebtedness in the form of Capitalized Lease Obligations resulting from
such Sale-Leaseback Transaction is then permitted to be incurred pursuant to
clause (i) of the covenant described under "Limitations on Additional
Indebtedness" above. Notwithstanding the foregoing, the Company and its
Subsidiaries may enter into Sale-Leaseback Transactions if (i) after giving pro
forma effect to any such Sale-Leaseback Transaction, the Company shall be in
compliance with paragraph (d) of the covenant described under "Limitation on
Additional Indebtedness" above, (ii) the sale price in such Sale-Leaseback
Transaction is at least equal to the Fair Market Value of such
25
<PAGE>
property, and (iii) the Company or such Subsidiary shall apply the Net Cash
Proceeds of the sale as provided under "Disposition of Proceeds of Asset Sales"
below, to the extent required by such provision.
DISPOSITION OF PROCEEDS OF ASSET SALES. The Indenture provides that the
Company shall not, and shall not permit any of its Subsidiaries to, make any
Asset Sale unless (a) such Asset Sale is for Fair Market Value, (b) the net
proceeds therefrom consist of at least 85% cash or Cash Equivalents and (c) the
Company shall commit to apply or to cause its Subsidiaries to apply the Net Cash
Proceeds of such Asset Sale within 270 days of receipt thereof, and shall apply
such Net Cash Proceeds within 360 days of receipt thereof, as follows:
(i) first, to satisfy all mandatory repayment obligations under the
Credit Agreement;
(ii) second, out of any Net Cash Proceeds remaining after application
of Net Cash Proceeds pursuant to the preceding paragraph (i) (the
"Available Amount"), the Company shall make an offer to purchase
(the "Asset Sale Offer") from all Holders of Notes, up to a
maximum principal amount (expressed as a multiple of $1,000) of
Notes equal to the Available Amount, at a purchase price equal to
100% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, that
the Company will not be required to apply pursuant to this
paragraph (ii) Net Cash Proceeds received from any Asset Sale
if, and only to the extent that, such Net Cash Proceeds are
committed in writing to be applied to acquire or construct
property or assets in lines of business related to the Company's
and its Subsidiaries' businesses within 270 days after the
consummation of such Asset Sale and are so applied within 360
days after the consummation of such Asset Sale, and, provided
further, that the Company may defer the Asset Sale Offer until
there is an aggregate unutilized Available Amount equal to or in
excess of $5,000,000 resulting from one or more Asset Sales
consummated in any consecutive four fiscal quarters (at which
time the entire unutilized Available Amount from the immediately
preceding four fiscal quarters, and not just the amount in excess
of $5,000,000, shall be applied as required pursuant to this
paragraph). The Asset Sale Offer shall remain open for a period
of 20 business days or such longer period as may be required by
law. To the
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extent the Asset Sale Offer is not fully subscribed to by the
holders of the Notes, the Company may retain any unutilized
portion of the Net Cash Proceeds.
Whenever Net Cash Proceeds in excess of $5,000,000 resulting from one or
more Asset Sales consummated in any consecutive four fiscal quarters are
received by the Company and not applied to acquire or construct property or
assets in lines of business related to the Company's and its Subsidiaries'
businesses, as provided in the preceding paragraph, and such Net Cash Proceeds
may, through the passage of time or otherwise, be required to be applied to the
purchase of Notes pursuant to this covenant, the Company shall invest such Net
Cash Proceeds in Cash Equivalents. The Company or its relevant Subsidiary, as
applicable, shall be entitled to any interest or dividends accrued, earned or
paid on such Cash Equivalents.
OWNERSHIP OF STOCK OF WHOLLY-OWNED SUBSIDIARIES. The Indenture provides
that the Company shall at all times maintain, or cause each Material Subsidiary
to maintain, ownership of 100% of each class of voting securities and all other
equity securities of each Material Subsidiary existing on the Issue Date, except
for any Material Subsidiary that shall be disposed of in its entirety or
consolidated or merged with or into the Company or another Subsidiary, in each
case in accordance with the provisions described below under "Consolidation,
Merger, Conveyance, Transfer or Lease" and above under "Disposition of Proceeds
of Asset Sales."
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indenture provides that the
Company shall not, and the Company shall not permit, cause, or suffer any
Subsidiary of the Company to, conduct any business or enter into any transaction
or series of transactions with or for the benefit of any Affiliate of the
Company or any of its Subsidiaries or any holder of 5% or more of any class of
Capital Stock of the Company (each an "Affiliate Transaction"), except in good
faith and on terms that are, in the aggregate, no less favorable to the Company
or such Subsidiary, as the case may be, than those that could have been obtained
in a comparable transaction on an arm's-length basis from a Person not an
Affiliate of the Company or such Subsidiary. All Affiliate Transactions (and
each series of related Affiliate Transactions which are similar or part of a
common plan) involving aggregate
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payments or other market value in excess of $500,000 shall be approved by the
Board of Directors of the Company, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has, in good faith, determined
that such transaction complies with the foregoing provisions. Notwithstanding
the foregoing, the restrictions set forth in this covenant shall not apply to
customary directors' fees, consulting fees, indemnification and similar
arrangements and employee salaries and bonuses and to transactions between the
Company and any of its Wholly-Owned Subsidiaries or among Wholly-Owned
Subsidiaries of the Company.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company shall not consolidate with or merge with or into or sell,
assign, convey, lease or transfer all or substantially all of its properties and
assets as an entirety to any Person or group of affiliated Persons in a single
transaction or through a series of transactions, unless after giving effect
thereto: (a) the Company shall be the continuing Person, or the resulting,
surviving or transferee Person (the "surviving entity") shall be a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (b) the surviving entity shall expressly assume, by
a supplemental indenture executed and delivered to the Trustee in form and
substance reasonably satisfactory to the Trustee, all of the obligations of the
Company under the Notes and the Indenture; (c) immediately before and
immediately after giving effect to such transaction or series of transactions
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing; (d) the Company or the surviving entity shall, immediately before
and immediately after giving effect to such transaction or series of
transactions, have a Consolidated Net Worth (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions) equal to or greater than
the Consolidated Net Worth of the Company immediately prior to such transaction
or series of transactions; (e) immediately after giving effect to such
transaction or series of transactions, the Company or the surviving entity could
incur $1 of Indebtedness pursuant to clause (d) of the "Limitation on Additional
Indebtedness" covenant above; (f) Holdings by supplemental
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indenture shall have confirmed that its Guarantee and its obligations under the
Pledge Agreement shall apply to such surviving entity's obligations under the
Indenture and the Notes; (g) all of the Capital Stock of the Company or such
surviving entity shall be pledged to the same extent as provided in the
Indenture and Pledge Agreement; (h) the Company or the surviving entity shall
have delivered to the Trustee an Officer's Certificate stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction or series of
transactions, such supplemental indenture complies with this covenant and that
all conditions precedent in the Indenture relating to such transaction or series
of transactions have been satisfied; and (i) neither the Company nor any
Subsidiary would thereupon become obligated with respect to any Indebtedness,
nor any of its property become subject to any Lien, unless the Company or such
Subsidiary could incur such Indebtedness or create such Lien under the
Indenture. If the Company is permitted by the Indenture to consummate a
transaction described in this paragraph, the Indenture does not provide any
protection from a decline in credit quality as a result of such transaction.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(i) default in the payment of any interest on the Notes when it
becomes due and payable or of the principal of or premium, if
any, on the Notes pursuant to an offer to purchase required under
the Indenture, and the continuance of any such default for a
period of 30 days; or
(ii) default in the payment of the principal of or premium, if any, on
the Notes when due and payable (other than by reason of a default
in payment upon an offer to purchase); or
(iii) the Guarantee ceases to be in full force and effect; or
(iv) default in the performance, or breach, of any covenant in the
Indenture, the Guarantee (other than defaults specified in clause
(i) or (ii) above) or the Pledge
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Agreement, and the continuance of such default or breach for a
period of 30 days after written notice thereof has been given to
the Company by the Trustee or to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding Notes; or
(v) failure by the Company, any of its Material Subsidiaries or
Holdings to perform any term, covenant, condition or provision of
one or more classes or issues of other Indebtedness in an
aggregate principal amount of $5,000,000 or more, which failure
results in an acceleration of the maturity thereof; or
(vi) one or more judgments, orders or decrees for the payment of money
in excess of $5,000,000, either individually or in an aggregate
amount, not adequately covered by insurance shall be entered
against the Company, any of its Material Subsidiaries or Holdings
or any of their respective properties and shall not be
discharged, and there shall have been a period of 60 days during
which a stay of enforcement of such judgment or order, by reason
of a pending appeal or otherwise, shall not be in effect;
(vii)certain events of bankruptcy or insolvency with respect to the
Guarantor, the Company or any Material Subsidiary shall have
occurred; or
(viii) the Pledge Agreement shall cease to be in full force and effect
(other than pursuant to the terms thereof) or shall cease to give
the Trustee in any material respect the Liens, rights, powers and
privileges purported to be created thereby (including, without
limitation, the security interest in and Lien on all of the
Collateral (as defined in the Pledge Agreement), to the extent
provided for in the Indenture or in the Pledge Agreement) in
favor of the Trustee for the benefit of the Holders subject to no
other Liens (except as permitted by the Pledge Agreement).
If an Event of Default (other than an Event of Default specified in clause
(vii) above with respect to the Company) occurs and is continuing, then the
holders of at least 25% in principal amount of the outstanding Notes may, by
written notice to the Company and the Trustee, and the Trustee upon the request
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of the holders of not less than 25% in principal amount of the outstanding Notes
shall declare the principal of, premium, if any, and accrued interest on all the
Notes to be due and payable immediately. Upon any such declaration such
principal, premium, if any, and accrued interest shall become due and payable
immediately. If an Event of Default specified in (vii) occurs with respect to
the Company and is continuing, then the principal of, premium, if any, and
accrued interest on all the Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any holder.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount of the outstanding Notes may, by written notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default have
been cured or waived, other than non-payment of principal of and accrued
interest on the Notes that has become due solely as a result of such
acceleration and if the rescission of acceleration would not conflict with any
judgment or decree. The holders of a majority in principal amount of the
outstanding Notes also have the right to waive past defaults under the Indenture
except a default in the payment of the principal of, premium, if any, or
interest on any Note or in respect of a covenant or a provision which cannot be
modified or amended without the consent of all holders.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder unless the holders of at
least 25% in principal amount of the outstanding Notes have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as Trustee, the Trustee does not commence and diligently pursue the
remedy addressed in such request within 20 days after receipt of such notice and
offer and the Trustee has not within such 20-day period received directions
inconsistent with such written request from holders of a majority in principal
amount of the outstanding Notes. Such limitations do not apply, however, to a
suit instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or accrued interest on such Note on or after the
due date expressed in such Note.
During the existence of an Event of Default known to a Trust Officer of the
Trustee, the Trustee is required to exercise such rights and powers vested in it
under the Indenture and use the
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same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such holders
shall have offered the Trustee reasonable indemnity. Subject to certain
provisions concerning the rights of the Trustee, the holders of a majority in
principal amount of the outstanding Notes have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect
to the Notes ("legal defeasance"), except for certain obligations, including
those regarding any trust established for a defeasance and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain agencies in respect of the Notes. The
Company may at any time terminate its obligations under certain covenants set
forth in the Indenture, some of which are described under "Certain Covenants"
above, and any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Notes issued under the
Indenture ("covenant defeasance"). In order to exercise either legal defeasance
or covenant defeasance, the Company must irrevocably deposit in trust with the
Trustee, for the benefit of the holders of the Notes, money or U.S. government
obligations, or a combination thereof, in such amounts as will be sufficient to
pay the principal of, premium, if any, and interest on the Notes to redemption
or maturity and comply with certain other conditions, including the delivery of
an opinion as to certain tax matters; provided that the subordination provisions
of the Indenture permit payments with respect to the Notes and that such deposit
will not result in a default under the Credit Agreement or other Indebtedness of
the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to certain surviving rights or
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registration of transfer or exchange of Notes) as to all outstanding Notes when
either (a) all such Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid) have been delivered
to the Trustee for cancellation and the Company has paid all sums payable by it
under the Indenture or (b)(i) all such Notes not theretofore delivered to the
Trustee for cancellation have become due and payable pursuant to the redemption
provisions of the Indenture and the Company has irrevocably deposited or caused
to be deposited with the Trustee as trust funds in trust for the purpose an
amount of money sufficient to pay and discharge the entire indebtedness on the
Notes not theretofore delivered to the Trustee for cancellation for principal,
premium, if any, and accrued interest to the date of maturity or redemption and
(ii) the Company has delivered irrevocable instructions to the Trustee to apply
the deposited money toward the payment of the Notes at maturity or on the
redemption date, as the case may be; provided that the subordination provisions
of the Indenture permit payments with respect to the Notes and that such deposit
will not result in a default under the Credit Agreement. In addition, the
Company must deliver an Officers' Certificate and an Opinion of Counsel stating
that all conditions precedent to satisfaction and discharge have been complied
with.
AMENDMENTS AND WAIVERS
From time to time the Company, when authorized by a Board Resolution, and
the Trustee may, without the consent of the holders of the Notes, amend, waive
or supplement the Indenture or the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act or
making any change that does not adversely affect the rights of any holder. Other
amendments and modifications of the Indenture or the Notes may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding Note affected thereby, (i) reduce the principal
amount outstanding, extend the fixed maturity or alter the redemption provisions
of the Notes, (ii) change the currency in which any Notes or any premium or
accrued interest thereon is payable, (iii) reduce the
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percentage in principal amount outstanding of Notes necessary for consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture, the Notes or the Pledge Agreement, (iv) impair the right to institute
suit for the enforcement of any payment on or with respect to the Notes, (v)
waive a default in payment with respect to the Notes, (vi) reduce the rate or
extend the time for payment of interest on the Notes, (vii) upon the occurrence
of a Change of Control or an Asset Sale, alter the Company's obligation to
purchase Notes in accordance with the Indenture or waive any default in the
performance thereof, (viii) release Holdings from its obligations under the
Guarantee, the Indenture or the Pledge Agreement, or (ix) affect the ranking of
the Notes; provided, however, that any amendment which adversely affects the
holders of Senior Indebtedness must have the consent of the Senior
Representative.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary of the Company or assumed in connection with an
Asset Acquisition of such Person, including, without limitation, Indebtedness
incurred in connection with, or in anticipation of, such Person's becoming a
Subsidiary of the Company or such acquisition.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or
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otherwise) or purchase or acquisition of Capital Stock by the Company or any of
its Subsidiaries to or in any other Person, in either case as a result of which
such Person shall become a Subsidiary of the Company or any of its Subsidiaries
or shall be merged with or into the Company or any of its Subsidiaries or (ii)
any acquisition by the Company or any of its Subsidiaries of the assets of any
Person which constitute substantially all of an operating unit or business of
such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(including by means of sale-leaseback) or other disposition to any Person other
than the Company or a Subsidiary of the Company, in one transaction or a series
of related transactions, of (i) any Capital Stock of any Subsidiary of the
Company or (ii) any other property or asset of the Company or any Subsidiary of
the Company, in each case other than inventory in the ordinary course of
business and obsolete equipment and other than isolated transactions which do
not exceed $500,000 individually. For the purposes of this definition, the term
"Asset Sale" shall not include (i) sales of Cash Equivalents which are
reinvested in Cash Equivalents within 30 days of such sale, (ii) sales of
receivables not a part of a sale of the business from which they arose or any
disposition of properties and assets of the Company or any Subsidiary that is
governed under and complies with the "Consolidation, Merger, Conveyance,
Transfer or Lease" covenant described above or (iii) exchanges of properties and
assets of the Company or any Subsidiary for similar properties and assets of any
Person other than the Company or a Subsidiary of the Company.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification and delivered to the
Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
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"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP; and, for the purposes of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided, that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits, according to its most recent published annual report of condition, of
not less than $250,000,000; (iii) commercial paper with a maturity of 180 days
or less issued by a corporation (except an Affiliate of the Company) organized
under the laws of any state of the United States or the District of Columbia and
rated at least A-1 by Standard & Poor's Corporation or at least P-1 by Moody's
Investors Service, Inc.; and (iv) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally
guaranteed by the United States of America or issued by any agency thereof and
backed by the full faith and credit of the United States of America, in each
case maturing within one year from the date of acquisition; provided, however,
that the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions with Securities Dealers
and Others, as adopted by the Comptroller of the Currency.
"Change of Control" means (i) the direct or indirect sale, lease, exchange
or other transfer of all or substantially all of the assets of Holdings to any
Person or entity or group of Persons or entities acting in concert as a
partnership or other group (a "Group of Persons") other than an Affiliate of
Holdings, (ii) the merger or consolidation of Holdings with or into another
corporation with the effect that the then existing shareholders of
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Holdings hold less than 50% of the combined voting power of the then outstanding
securities of the surviving corporation in such merger or the corporation
resulting from such consolidation ordinarily (and apart from rights arising
under special circumstances) having the right to vote in the election of
directors, (iii) the replacement of a majority of the Board of Directors of
Holdings, over a two-year period, from the directors who constituted the Board
of Directors at the beginning of such period, and such replacement shall not
have been approved by a vote of at least a majority of the Board of Directors
then still in office who either were members of the Board of Directors at the
beginning of such period or whose election as a member of the Board of Directors
was previously so approved, (iv) a Person or Group of Persons shall, as a result
of a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, have become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of Holdings representing 30% or
more of the combined voting power of the then outstanding securities of Holdings
ordinarily (and apart from rights arising under special circumstances) having
the right to vote in the election of directors or (v) Holdings fails to own a
majority of the combined voting power of the outstanding voting stock of the
Company. Notwithstanding the foregoing, a Change of Control shall not be deemed
to have occurred if one or more of the above events occur or circumstances exist
and, after giving effect thereto, the Notes are rated BBB- or better by Standard
& Poor's Corporation or Baa3 or better by Moody's Investors Service, Inc.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period increased (to the
extent deducted in determining Consolidated Net Income) by the sum of the
following items of such Person and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP: (i) all United States Federal,
state and foreign income taxes paid or accrued (other than income taxes
attributable to extraordinary, unusual or non-recurring gains or losses); (ii)
all interest expense paid or accrued in accordance with GAAP (net of any
interest income and including amortization of original issue discount and the
interest portion of deferred payment obligations); (iii) depreciation; (iv)
amortization, including, without limitation, amortization of capitalized debt
issuance costs; (v) increases (or minus any decreases) in the LIFO reserve; and
(vi) any other non-cash
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charges to the extent deducted from Consolidated Net Income (including non-cash
expenses recognized in accordance with Financial Accounting Standards Bulletin
Number 106).
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "Other Person") in
which the Person in question or any of its Subsidiaries has a joint interest
with a third party (which interest does not allow the net income of such Other
Person to be consolidated into the net income of the Person in question in
accordance with GAAP) shall be included only to the extent of the amount of
dividends or distributions paid to the Person in question or the Subsidiary, (b)
the Net Income of any Subsidiary of the Person in question that is subject to
any contractual restriction or limitation on the payment of dividends or the
making of other distributions shall be excluded to the extent of such
restriction or limitation, (c)(i) the Net Income (or loss) of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition and (ii) any net gain (but not loss) resulting from an Asset
Sale by the Person in question or any of its Subsidiaries other than in the
ordinary course of business shall be excluded and (d) extraordinary gains and
losses shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the consolidated stockholders' equity represented by the shares
of such Person's Capital Stock (other than Disqualified Stock) outstanding at
such date, as determined on a consolidated basis in accordance with GAAP.
"Credit Agreement" means the Loan and Security Agreement dated as of March
30, 1993, by and among Congress Financial Corporation (Southwest) and BA
Business Credit Inc. as Lenders, Congress Financial Corporation (Southwest) as
agent for the Lenders, and the Company and Seaway Importing Company as the
Borrowers providing for working capital and other financing, as the same may at
any time be amended, amended and restated, supplemented or otherwise modified,
including any deferral, refinancing, renewal, refunding, replacement or
extension thereof and whether by the same or any other lender or group of
lenders.
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"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, in each case on or
prior to the maturity date of the Notes.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value shall be determined by the Board of Directors of the Company acting
in good faith and shall be evidenced by a Board Resolution delivered to the
Trustee.
"Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio
of (i) Consolidated Cash Flow of such Person for the four full fiscal quarters
for which financial statements are available that immediately precede the date
of the transaction or other circumstances giving rise to the need to calculate
the Fixed Charge Coverage Ratio (the "Transaction Date") to (ii) all cash and
non-cash interest expense (including capitalized interest) of such Person and
its Subsidiaries determined in accordance with GAAP (net of any interest income
of such Person and its Subsidiaries and exclusive of deferred financing fees of
such Person and its Subsidiaries) and the aggregate amount of cash dividends or
other distributions declared or paid on Capital Stock (other than Common Stock)
of such Person and its Subsidiaries, in each case for such four full fiscal
quarter period. For purposes of this definition, if the Transaction Date occurs
prior to the date on which the Company's consolidated financial statements for
the four full fiscal quarters subsequent to the Issue Date are first available,
then "Consolidated Cash Flow" and the items referred to in the preceding clause
(ii) shall be calculated, in the case of the Company, after giving effect on a
pro forma basis as if the Notes outstanding on the Transaction Date were issued
on the first day of such four-full-fiscal-quarter period. In
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addition to and without limitation of the foregoing two sentences, for purposes
of this definition, "Consolidated Cash Flow" and the items referred to in the
preceding clause (ii) shall be calculated after giving effect on a pro forma
basis for the period of such calculation to (i) the incurrence of any
Indebtedness of such Person or any of its Subsidiaries at any time during the
period (the "Reference Period") (A) commencing on the first day of the
four-full-fiscal-quarter period for which financial statements are available
that precedes the Transaction Date and (B) ending on and including the
Transaction Date, including, without limitation, the incurrence of the
Indebtedness giving rise to the need to make such calculation, as if such
incurrence occurred on the first day of the Reference Period; provided, that if
such Person or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the above clause shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or Subsidiary had
directly incurred such guaranteed Indebtedness and (ii) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company or any of its
Subsidiaries (including any Person who becomes a Subsidiary as a result of the
Asset Acquisition) incurring Acquired Indebtedness) occurring during the
Reference Period and any retirement of Indebtedness in connection with such
Asset Sales, as if such Asset Sale or Asset Acquisition and/ or retirement
occurred on the first day of the Reference Period. Furthermore, in calculating
the denominator (but not the numerator) of this "Fixed Charge Coverage Ratio,"
(1) subject to clause (3) below, interest on Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to accrue at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction Date
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate based upon a factor of a prime or similar rate shall be deemed to
have been in effect; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Rate Protection Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
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<PAGE>
"GAAP" means generally accepted accounting principles in effect on the
Issue Date as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States.
"Guarantee" means the guarantee of the Notes by Holdings.
"Holdings Preferred Stock" means the 16 1/4% Senior Cumulative Preferred
Stock, $1.00 par value, and 14 1/4% Junior Cumulative Preferred Stock, $1.00 par
value, of Holdings.
"Indebtedness" means, with respect to any Person, without duplication, (i)
any liability, contingent or otherwise, of such Person (A) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (B) evidenced by a note, debenture or
similar instrument, letter of credit or draft accepted (including a purchase
money obligation) representing extensions of credit whether or not representing
obligations for borrowed money or (C) for the payment of money relating to a
Capitalized Lease Obligation or other obligation relating to the deferred
purchase price of property or services (other than property or services
purchased on ordinary trade terms therefor) which purchase price is payable over
a period in excess of six months or is evidenced by a note, invoice or similar
written instrument with a maturity in excess of six months; (ii) any liability
of others of the kind described in the preceding clause (i) which the Person has
guaranteed or which is otherwise its legal liability; (iii) any obligation
secured by a lien to which the property or assets of such Person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such Person's legal liability; and (iv) any and all
deferrals, renewals, extensions, replacements, refinancings and refundings of,
or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (i), (ii) or (iii).
"Interest Rate Protection Obligations" means the obligations
41
<PAGE>
of any Person pursuant to any arrangement with any other Person whereby,
directly or indirectly, such Person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount in exchange for periodic payments made by
such Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Junior Subordinated Promissory Notes" means the 14.25% Junior Subordinated
Promissory Notes Due 2001 of Holdings.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other security
agreement of any kind or nature whatsoever. For purposes of the Indenture, a
Person shall be deemed to own subject to a Lien any property which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such Person.
"Material Subsidiary" means a Subsidiary of the Company which would
constitute a "significant subsidiary" of the Company within the meaning of
Regulation S-X of the Securities and Exchange Commission. For purposes of the
Indenture, Pamida Transportation Company and Seaway Importing Company shall be
deemed to be Material Subsidiaries of the Company.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents, including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations with respect to
Indebtedness are financed or sold with recourse to the Company or any of its
Subsidiaries) net of (i) brokerage commissions and other reasonable fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale; (ii) provisions for all taxes payable as a result of such
Asset Sale; (iii) payments made to retire Indebtedness secured by the assets
subject to such Asset Sale (including retirements of Indebtedness under the
Credit Agreement) to the extent required pursuant to the terms of such
Indebtedness; and (iv) appropriate amounts to be provided by the Company or any
of its Subsidiaries,
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as the case may be, as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by the Company or any
of its Subsidiaries, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock (other
than Disqualified Stock) by the Company, the aggregate net proceeds received by
the Company, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in property (valued
at the Fair Market Value thereof, as determined in good faith by the Board of
Directors of the Company, at the time of receipt), (b) in the case of any
exchange, exercise, conversion or surrender of outstanding securities of any
kind of the Company for or into shares of Capital Stock of the Company which is
not Disqualified Stock, the net book value of such outstanding securities on the
date of such exchange, exercise, conversion or surrender (plus any additional
amount required to be paid by the holder to the Company upon such exchange,
exercise, conversion or surrender, less any and all payments made to the
holders, e.g., on account of fractional shares, and less all expenses incurred
by the Company in connection therewith) and (c) in the case of the issuance of
any Indebtedness by the Company, the aggregate net cash proceeds received by the
Company, after payment of expenses, commissions and the like incurred therewith.
"Permitted Liens" means, with respect to any Person, any lien arising by
reason of (a) any attachment, judgment, decree or order of any court, so long as
such lien is being contested in good faith and is either adequately bonded or
execution thereon has been stayed pending appeal or review and any appropriate
legal proceedings which may have been duly initiated for the review of such
attachment, judgment, decree or order shall not have been finally terminated or
the period within which such proceedings may be initiated shall not have
expired; (b) taxes, assessments or governmental charges not yet delinquent or
which are being
43
<PAGE>
contested in good faith; (c) security for payment of workers' compensation or
other insurance; (d) security for the performance of tenders, bids, leases and
contracts (other than contracts for the payment of money); (e) deposits to
secure public or statutory obligations or in lieu of surety or appeal bonds or
to secure permitted contracts for the purchase or sale of any currency entered
into in the ordinary course of business; (f) operation of law in favor of
carriers, warehousemen, landlords, mechanics, materialmen, laborers, employees
or suppliers, incurred in the ordinary course of business for sums which are not
yet delinquent or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof; (g) any interest
or title of a lessor under any lease; (h) security for surety or appeal bonds;
and (i) easements, rights-of-way, zoning and similar covenants and restrictions
and other similar encumbrances or title defects which, in the aggregate, are not
substantial in amount and which do not in any case materially interfere with the
ordinary conduct of the business of the Company or any of its Subsidiaries.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Agreement" means the Holdings Pledge Agreement providing, among
other things, that the obligations of Holdings in respect of the Guarantee shall
be secured under the Pledge Agreement.
"Promissory Notes" means the Senior Subordinated Promissory Notes,
Subordinated Promissory Notes and Junior Subordinated Promissory Notes.
"Public Offering" means the first offer and sale to the public by Holdings
or the Company of shares of any class of the Capital Stock (other than
Disqualified Stock) of Holdings or the Company pursuant to a registration
statement declared effective by the Securities and Exchange Commission after the
Issue Date.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Subsidiary (i) issued to finance or refinance (including any extensions or
renewals) the purchase or construction of any assets of the Company or any
Subsidiary or
44
<PAGE>
(ii) secured by a Lien on any assets of the Company or any Subsidiary where the
lender's sole recourse is to the assets so encumbered, in either case (a) to the
extent the purchase or construction costs for such assets are or should be
included in "additions to property, plant and equipment" in accordance with
GAAP, (b) if the purchase or construction of such assets is not part of the
acquisition of a Person or business unit and (c) so long as the aggregate
principal amount of such Indebtedness does not exceed the lesser of cost or Fair
Market Value of the assets so purchased or constructed.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock) and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Subsidiary of the Company), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries, (iii) the making of any
principal payment on, or the purchase, defeasance, repurchase, redemption or
other acquisition or retirement for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of, any Indebtedness
which is subordinated in right of payment to the Notes (other than Indebtedness
acquired in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition) and (iv) the making of any Investment in any Person other than
pursuant to clauses (i) through (vii) of the "Limitation on Investments, Loans
and Advances" covenant described above.
"Sale-Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
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"Senior Indebtedness" means, at any date, all obligations of the Company
under the Credit Agreement, including obligations to pay principal, premium, if
any, and interest (including, in the case of the following sentence only,
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not such claim for
post-petition interest is allowed in such proceeding). Notwithstanding the
foregoing, the maximum principal amount of Senior Indebtedness permitted to be
incurred is the amount of Indebtedness permitted to be incurred under the Credit
Agreement pursuant to clause (b) of "Limitation on Additional Indebtedness"
above, and any Indebtedness under the Credit Agreement in excess of such amount
shall not be Senior Indebtedness. Senior Indebtedness shall not include
Indebtedness which is subordinated or junior in right of payment to any other
Indebtedness of the Company.
"Senior Representative" means any agent, trustee or other representative of
the holders of any Senior Indebtedness, and if there is no such agent, trustee
or other representative with respect to any such Senior Indebtedness, "Senior
Representative" shall mean, collectively, the holders of at least a majority in
dollar amount of such Senior Indebtedness.
"Senior Subordinated Promissory Notes" means the 13.5% Senior Subordinated
Promissory Notes Due 2001 of Holdings.
"Subordinated Promissory Notes" means the 14% Subordinated Promissory Notes
Due 2001 of Holdings.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such Person, by a Subsidiary of such Person or by
such Person and a Subsidiary of such Person, or (ii) any other Person (other
than a corporation) of which at least a majority of voting interest is at the
time, directly or indirectly, owned by such Person, by a Subsidiary of such
Person or by such Person and a Subsidiary of such Person.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, 100% of the
Capital Stock of which (other than shares of
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<PAGE>
Capital Stock representing any director's qualifying shares or investments by
foreign nationals mandated by applicable law) is owned by the Company, by a
Wholly-Owned Subsidiary of the Company or by the Company and a Wholly-Owned
Subsidiary of the Company.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain terms of the Credit Agreement and of
certain promissory notes of Holdings. For more complete information regarding
the Credit Agreement and the promissory notes of Holdings, reference is made to
the Credit Agreement and the agreements and instruments governing such
promissory notes, copies of which have been filed as exhibits to the
Registration Statement and which are incorporated by reference herein. The
descriptions contained herein of such agreements and instruments do not purport
to be complete and are qualified in their entirety by the provisions thereof;
however, the Company believes that the matters discussed or referred to in such
descriptions are those matters which a prospective purchaser of Notes might
reasonably consider to be material to an investment decision with respect to the
Notes.
CREDIT AGREEMENT
On March 30, 1993, Pamida entered into a Loan and Security Agreement with
Congress Financial Corporation (Southwest) and BankAmerica Business Credit, Inc.
(then known as BA Business Credit Inc.) under which new revolving credit
facilities (including letter of credit facilities) in an aggregate amount of up
to $60,000,000 were established (the "Credit Agreement"). Such credit facilities
replaced certain previously existing bank credit facilities. On January 23,
1995, such amount was increased to $80,000,000 by an amendment of the Credit
Agreement; on January 28, 1996, at the Company's request, such amount was
decreased to $70,000,000 by an amendment of the Credit Agreement; and on March
17, 1997, such amount was increased to $95,000,000 by an amendment of the Credit
Agreement.
The Credit Agreement presently has a term extending to March 31, 2000, and
loans thereunder bear interest at a rate which is tied either to the applicable
prime rate or to the applicable London Interbank Offered Rate, generally at the
Company's
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<PAGE>
discretion. The amounts which the Company is permitted to borrow under the
Credit Agreement are determined by a formula based upon the amount of the
Company's eligible inventory from time to time and are subject to the discretion
of the agent for the lenders.
Obligations of the Company under the Credit Agreement are secured by
security interests in all of the current assets (including inventory) of the
Company and by liens on certain real estate interests and other property of the
Company, and the Company may grant security interests in or liens on its other
assets and property to further secure its obligations under the Credit
Agreement. Holdings and two subsidiaries of the Company (Pamida Transportation
Company and Seaway Importing Company) have guaranteed payment and performance of
the Company's obligations under the Credit Agreement and have pledged some or
all of their respective assets (including the stock of the Company owned by
Holdings) to secure such guarantees.
See "Investment Considerations -- Operating and Financial Restrictions" and
"Description of Notes -- Guarantee and Pledge Agreement" for other important
information concerning the Credit Agreement.
HOLDINGS PROMISSORY NOTES
At February 2, 1997, Holdings had outstanding approximately $4.9 million
principal amount of 13.5% Senior Promissory Notes, approximately $13.5 million
principal amount of 14% Subordinated Promissory Notes and approximately $10.1
million principal amount of 14.25% Junior Subordinated Promissory Notes
(collectively, the "Holdings Notes"). The Senior Promissory Notes originally
were to mature on August 31, 2001, the Subordinated Promissory Notes originally
were to mature on September 30, 2001 and the Junior Subordinated Promissory
Notes originally were to mature on December 31, 2001; as discussed below, the
maturity of the Holdings Notes has been extended for two years. Except as
described in the following paragraph, interest on the Holdings Notes is payable
quarterly in cash at the rates indicated above, but such rates are subject to
increase as provided in the Holdings Notes in the event a default (as defined in
the Holdings Notes) occurs.
On December 18, 1992, the Holdings Notes were amended to
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<PAGE>
provide that, effective as of December 1, 1992, and continuing thereafter until
certain then existing bank credit facilities had terminated and all obligations
thereunder were paid in full, Holdings was to pay interest on the Holdings Notes
in kind (rather than in cash) by increasing the principal amount of each note on
the applicable quarterly interest payment date by the amount of accrued interest
then being paid in kind. Thereafter, for a specified period, Holdings may, at
its option, continue to pay interest on the Holdings Notes in kind; following
such period, Holdings may pay interest on the Holdings Notes in kind only with
the consent of the holder or holders of more than 50% of the aggregate principal
balances of the respective note issues then outstanding. Interest paid in kind
accrues at a rate which, in each case, is two percentage points higher than the
applicable cash interest rate. The effect of the Credit Agreement is to require
Holdings to continue in-kind interest payments on the Holdings Notes.
Accordingly, the interest rates currently applicable to the Senior Promissory
Notes, the Junior Promissory Notes, and the Junior Subordinated Promissory Notes
are, respectively, 15.5%, 16%, and 16.25%. The Indenture restricts the Company's
ability to pay dividends to Holdings for the purpose of enabling Holdings to pay
cash interest on the Holdings Notes. Pursuant to an agreement between Holdings
and the holder of a majority of the principal amount of the Holdings Notes,
effective March 30, 1993, the Holdings Notes were subordinated to the Guarantee
and the maturity of the Holdings Notes was extended by two years.
The Senior Promissory Notes of Holdings are subordinated in right of
payment, to the extent set forth in such notes, to the prior payment of or
provision for all amounts then due under Holdings' guarantees of Pamida's
obligations under the Credit Agreement and under the Notes and all renewals,
extensions, deferrals, restructurings, amendments, replacements and
modifications thereof. The Subordinated Promissory Notes of Holdings are
subordinated in right of payment, to the extent set forth in such notes, to the
prior payment of the amounts referred to in the preceding sentence and also to
the prior payment of the principal of and interest on the Senior Promissory
Notes of Holdings. The Junior Subordinated Promissory Notes of Holdings are
subordinated in right of payment, to the extent set forth in such notes, to the
prior payment of the amounts referred to in the first sentence of this paragraph
and also to the prior payment of
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<PAGE>
the principal of and interest on the Senior Promissory Notes and the
Subordinated Promissory Notes of Holdings.
The following holder of Holdings Notes has a material relationship with the
Company and/or Holdings:
Approximate principal
Affiliation with the amount of Holdings Notes
COMPANY AND/OR HOLDINGS AS OF MARCH 1, 1997
399 Venture 399 Venture Partners, Inc. $3,769,605 of Senior
Partners, Inc. is an affiliate of Citicorp Promissory Notes,
Securities, Inc., underwriter $10,220,446 of
of the Original Offering of Subordinated Promissory
The Notes offered by this Notes and $10,546,315 of
prospectus. M. Saleem Junior Subordinated
Muqaddam is a director of Promissory Notes
Holdings and a Vice President
of 399 Venture Partners, Inc.
PLAN OF DISTRIBUTION
This prospectus is to be used by Citicorp Securities, Inc. ("CSI") in
connection with offers and sales of the Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale. CSI
may act as principal or agent in such transactions. CSI has no obligation to
make a market in the Notes and may discontinue market-making activities at any
time without notice at its sole discretion. The Notes are not listed on any
stock exchange nor are they quoted on any automated quotation system.
CSI acted as underwriter of the Original Offering of the Notes and received
underwriter discounts and commissions totalling $4.2 million.
399 Venture Partners, Inc., an affiliate of CSI, owns common stock of
Holdings which represents approximately 18.13% of the aggregate common equity of
Holdings.
M. Saleem Muqaddam, a director of Holdings, is a Vice President of Citicorp
Venture Capital, Ltd. and 399 Venture Partners, Inc., which are affiliates of
CSI.
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LEGAL MATTERS
Certain legal matters regarding the Notes have been passed upon for Pamida
and Holdings by Abrahams, Kaslow & Cassman, Omaha, Nebraska.
EXPERTS
The financial statements and schedule of Pamida and Holdings as of February
2, 1997, and January 29, 1995, and for the years then ended included in the
following Prospectus Appendix have been audited by Deloitte & Touche LLP,
independent auditors, to the extent stated in its reports which are included in
the following Prospectus Appendix and have been so incorporated in reliance upon
the reports of such firm given upon the authority of such firm as experts in
accounting and auditing.
The financial statements and schedule of Pamida and Holdings as of January
28, 1996, and for the year then ended included in the following Prospectus
Appendix have been audited by Coopers & Lybrand L.L.P., independent auditors, to
the extent stated in its reports which are included in the following Prospectus
Appendix and have been so incorporated in reliance upon the reports of such firm
given upon the authority of such firm as experts in accounting and auditing.
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---------------
PROSPECTUS APPENDIX
TO PROSPECTUS DATED May 5, 1997
---------------
$140,000,000
PAMIDA, INC.
11 3/4% SENIOR SUBORDINATED
NOTES DUE 2003
This Prospectus Appendix contains the following documents which are
required to be delivered with each copy of the Prospectus:
* The Annual Report of the Company on Form 10-K for the fiscal year ended
February 2, 1997.
* The Annual Report of Holdings on Form 10-K for the fiscal year ended
February 2, 1997.
52
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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 February 2, 1997
Commission File Number 33-57990
PAMIDA, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0626426
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
8800 "F" Street, Omaha, Nebraska 68127
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 339-2400
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Outstanding at
Class of Stock April 15, 1997
-------------- --------------
Common Stock 1,000 shares
PART I
ITEM 1. BUSINESS.
FORWARD-LOOKING STATEMENTS.
This 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 10-K contains certain forward-looking statements which reflect management's
current views and estimates of future economic circumstances, industry
conditions, Company performance and 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.
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.
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.
STORES.
At February 2, 1997, Pamida operated 148 mass merchandise retail stores
located in 148 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 mass 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, normally county seats,
where there often is little or no competition from another major mass
merchandise retailer and which the Company considers to be either too small to
support more than one major mass 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
February 2, 1997, 119 of the Company's 148 stores faced no direct local
competition from other major mass merchandise retailers.
The Company's stores average approximately 29,000 square feet of sales
area and range in size from approximately 6,000 to 51,000 square feet of sales
area. At February 2, 1997, Pamida's stores had an aggregate sales area of
approximately 4,348,000 square feet.
The following table indicates the states in which Pamida's stores were
located as of February 2, 1997:
STATE TOTAL
- ----- -----
Minnesota................................................................. 29
Iowa...................................................................... 26
Nebraska.................................................................. 15
Wisconsin................................................................. 14
Michigan................................................................. 12
Ohio..................................................................... 10
Wyoming................................................................... 9
North Dakota.............................................................. 7
South Dakota.............................................................. 7
Montana................................................................... 7
Indiana................................................................... 4
Kansas.................................................................... 3
Kentucky ................................................................. 2
Illinois.................................................................. 2
Missouri ................................................................. 1
---
148
===
The following tables show the number of the Company's store openings,
relocations and closings and the aggregate year-end store sales area by fiscal
year since fiscal 1993:
Fiscal Year Ended
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Beginning of year ........................... 144 184 173 178 178
Stores opened in new markets ................ 6 7 17 8 9
Stores relocated in existing markets ........ 2 3 - - -
Stores closed ............................... (4) (10) (6) (13) (9)
---- ---- ---- ---- ----
End of year ................................. 148 184 184 173 178
Less 40 Closed Stores ..................... (40)
---
144
===
Fiscal Year Ended
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Square feet of store sales area
at year-end (in millions) ............... 4.35 5.22 5.09 4.68 4.75
Less 40 Closed Stores ..................... (1.09)
----
4.13
====
Pamida regularly evaluates all of its stores and from time to time closes
stores which no longer meet its standards for sales, profitability, selling area
or other applicable criteria.
STORE EXPANSION PROGRAM.
Pamida's store expansion program is subject to the Company's ability to
negotiate satisfactory leases, to the ability of prospective landlords to obtain
financing for new store buildings and to various zoning, site acquisition,
environmental, traffic, construction and other contingencies. Three new stores,
two of which are replacement stores, are expected to commence operations this
year.
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.
In October 1996 the Company agreed to lease a new 200,000 square foot
distribution facility to be located in Lebanon, Indiana. Construction of this
new facility is underway, and the facility is expected to be completed and
operational during the second quarter of the current year.
Pamida believes that its existing distribution facilities (including the
new Lebanon, Indiana facility), senior and middle management staff and corporate
infrastructure are sufficient to accommodate the Company's anticipated growth.
The Company typically invests approximately $1,450,000 to $1,750,000 in a
new prototype store. Such expenditures consist primarily of approximately
$1,000,000 to $1,200,000 for the initial store inventory, a portion of which is
financed by vendor trade credit, and approximately $450,000 to $550,000 for
store fixtures and equipment. Because of the redeployment of store fixtures and
equipment from the 40 Closed Stores to new stores, the Company expects store
fixture and equipment expense to be limited to approximately $250,000 per new
store for fiscal 1998. In most cases, building and land costs of approximately
$1,450,000 to $1,750,000 per store are financed by unaffiliated developers who
lease the real estate to Pamida. To expedite the construction process, Pamida
occasionally may construct stores on sites which it acquires, with the
expectation that it subsequently will enter into sale-leaseback transactions
with respect to such stores with unaffiliated investors.
SALES AND MERCHANDISING.
Pamida's merchandising policy is to provide customers with one-stop family
shopping convenience and to feature nationally advertised brand-name products as
well as some private-label merchandise at attractive prices. Pamida operates its
stores on a self-service, primarily cash-and-carry basis and runs weekly
advertised promotions throughout the year. All of Pamida's stores accept bank
credit cards, which accounted for 14.2% of total store sales during the fiscal
year ended February 2, 1997.
Pamida's typical customers are price-conscious families across the income
spectrum. To effectively serve such customers, the Company's stores are open
seven days a week for an average of at least 75 hours per week.
Pamida's two basic merchandise divisions are softlines and hardlines. The
softlines division includes men's, women's, children's and infants' clothing,
footwear, accessories and jewelry. The hardlines division includes categories
such as health and beauty aids, automotive accessories, housewares, cleaning
supplies, hardware, paint, sporting goods, toys, stationery, small appliances
and electronic items, videos, compact discs and tapes, lawn and garden supplies,
linens and other domestics, cameras and accessories, pet supplies and some food
and candy items.
The Company currently owns and operates pharmacies in 41 of its larger
stores, and eight of Pamida's other stores contain prescription pharmacies
leased to and operated by independent pharmacists. The pharmacies have proved to
be effective in building customer loyalty and attracting customers who are
likely to purchase other items in addition to prescription drugs. Pamida
intends, whenever feasible in light of regulatory and personnel considerations
and where space permits, to include a pharmacy in each of its new prototype
stores and to add pharmacies to existing stores.
During the fiscal year ended February 2, 1997, the hardlines division
accounted for approximately 72% of Pamida's total sales, while the apparel
division and the pharmacies accounted for 23% and 5%, respectively, of Pamida's
total sales.
Among the methods that the Company employs to build customer loyalty and
satisfaction are weekly advertised specials, competitive pricing, clean and
orderly stores, friendly well-trained personnel, a liberal return policy and a
wide variety of special customer services (such as wheelchairs for the elderly
and handicapped, restroom facilities and water fountains, seating benches,
speedy check-out lanes and expedited check cashing and raincheck and layaway
processing) offered under various customer-oriented themes such as "We Care" and
"We're Listening". Pamida places special emphasis on maintaining a strong
in-stock position in all merchandise categories, particularly with respect to
sale items.
Pamida's business, like that of most other mass merchandise retailers, is
seasonal. First quarter sales (February through April) are lower than sales
during the other three fiscal quarters, while fourth quarter sales (November
through January) in recent years have increased to approximately 30% 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 1997, Pamida spent approximately $11,618,000 (net of
promotional allowances provided by vendors) on advertising, which represented
approximately 1.8% of fiscal 1997 sales.
PURCHASING AND DISTRIBUTION.
Pamida maintains a centralized buying, merchandising and store planning
staff at its executive offices. The merchandising department includes two
general merchandise managers, five hardlines divisional merchandise managers and
three apparel divisional merchandise managers. Each of the divisional
merchandise managers supervises from five to seven buyers. Members of the
Company's experienced buying staff regularly attend major trade shows, visit
both domestic and overseas markets and meet with vendor representatives at the
Company's headquarters.
The merchandise in the Company's stores is purchased from over 3,000
primary manufacturers and suppliers and numerous other vendors. Centralized
purchasing enables Pamida to more effectively control inventory shrinkage and to
take advantage of promotional programs and volume discounts offered by certain
vendors. The Company continuously seeks to optimize merchandise costs, including
promotional allowances offered by its suppliers. Pamida also has centralized the
management of returned merchandise, which enables the Company to most
effectively secure vendor credits and refunds with respect to such merchandise.
The Company's point-of-sale data capture equipment located in its stores
provides current information to Pamida's buyers to assist them in managing
inventories, effecting prompt reorders of popular items, eliminating
slow-selling merchandise and reducing markdowns.
Seaway Importing Company, a wholly owned subsidiary of Pamida, Inc.,
imports a wide variety of merchandise, including sporting goods, pet supplies,
toys, electronic items, apparel, hair care items, painting supplies, automotive
items and hardware, for sale in Pamida's stores.
During fiscal 1997, approximately 76% of Pamida's merchandise was supplied
to the stores through Pamida's own distribution centers, while the remaining
merchandise was supplied directly to the stores by manufacturers or
distributors.
COMPETITION.
The mass merchandise retail business is highly competitive. The Company's
stores generally compete with supermarkets, drug and specialty stores, mail
order and catalog merchants and, in some communities, department stores and
other mass merchandise retailers. Competitors consist both of independent stores
and of regional and national chains, some of which have substantially greater
resources than the Company. The type and degree of competition and the number of
competitors which Pamida's stores face vary significantly by market.
Pamida believes that the principal areas of competition in the mass
merchandise retail industry are store location, price, merchandise variety and
quality and customer service, although numerous other factors also affect the
competitive position of any particular store. Among the methods that the Company
employs to build customer loyalty and satisfaction are weekly advertised
specials, competitive pricing, clean and orderly stores, friendly well-trained
personnel, a liberal return policy and a wide variety of special customer
services offered under themes such as "We Care" and "We're Listening".
Pamida stores generally are located in small towns, normally county seats,
where there often is little or no competition from another major mass
merchandise retailer and which may be either too small to support more than one
major mass 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 mass merchandise retailer in over 80% of
the communities in which its stores are located.
At February 2, 1997, 119 of Pamida's 148 stores were located in communities
in which there was no direct local competition from other major mass merchandise
retailers. As of that date, Kmart, Alco, Wal-Mart, Target and ShopKo had stores
in 16, 11, 6, 2 and 1 communities, respectively, where Pamida stores are
located; however, because some of these communities have more than one of such
competitors, only 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
executive offices, although store managers are given discretion to adjust prices
of key items to meet local competition and to match a competitor's advertised
prices. Zone pricing allows the Company to establish prices at different levels
in different trade territories, based primarily on competitive conditions within
such territories, rather than having a uniform pricing structure throughout the
entire chain. Pamida conducts a continuous program of competitor price
comparisons that enables the Company to make merchandise price adjustments, when
necessary, to assure that the Company maintains a competitive position.
EMPLOYEES.
As of February 2, 1997, Pamida had approximately 5,700 employees, of whom
approximately 2,800 were full-time and 2,900 were part-time. The number of
employees varies on a seasonal basis. None of Pamida's employees are represented
by a labor union, and the Company believes that its relations with its employees
are good.
At February 2, 1997, the average length of service of the Company's
management staff was as follows:
Average
Years
Number of Service
------ ----------
Top Management 2 15.3
Senior Vice Presidents and Vice Presidents 16 5.7
District Managers 12 20.3
Pharmacy District Supervisors 3 4.9
Store Managers 148 10.7
Pharmacy Managers 41 3.1
Pamida's human resources department is responsible for company-wide salary
and wage administration, as well as all benefit-plan administration. The human
resources department works closely with store operations in the development and
administration of Pamida's store-level employee training programs. In addition,
Pamida has an ongoing program for the development of management personnel to
fill positions in all facets of the Company's operations and makes a concerted
effort to identify and train potential successors for all of its key middle and
senior managers.
ITEM 2. PROPERTIES.
At February 2, 1997, the Company owned 20 of its 148 store buildings,
while its remaining 128 stores operated in leased premises. A substantial
majority of the Company's leases have renewal options, with approximately 49% 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 February 2, 1997:
Lease Expiring Number of Leased Stores
During the Period(1) 2/02/97
1/97 to 12/98 5
1/99 to 12/00 5
1/01 to 12/02 10
1/03 to 12/04 8
After 12/04 100
---
Total 128
===
- ---------------
(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 two distribution centers are
located in a 215,000 square foot building in Omaha, Nebraska, owned by the
Company. This facility contains approximately 135,000 square feet of warehouse
space and approximately 80,000 square feet of office space.
Pamida's primary distribution center is a 336,000 square foot
"flow-through" facility situated on a 22-acre tract of land in Omaha
approximately one mile from the distribution center described above. This
facility, which is owned by the Company, 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 October 1996, the Company agreed to lease a new 200,000 square foot
distribution facility to be located in Lebanon, Indiana. Construction of this
new facility currently is underway, and the facility is expected to be
operational during the second quarter of the current year. This distribution
facility will replace the 100,000 square foot warehouse facility previously
operated by the Company in the Milwaukee, Wisconsin area, which was closed and
the lease terminated in December 1996 due to eminent domain action by the City
of Glendale, Wisconsin. Under the Wisconsin administrative code, Pamida has up
to two years to file a claim for "Actual and Reasonable Moving Expenses" in
connection with the Company's relocation to Lebanon, Indiana. The Lebanon
facility also will be used as a redistribution center for bulk shipments and
promotional merchandise.
Pamida also has a warehouse facility in Omaha which contains approximately
41,000 square feet of space and is located immediately adjacent to the Company's
general offices. This warehouse, which is owned by Pamida, is used for the
processing of merchandise to be returned to vendors and by the advertising
department in connection with its printing operations.
In addition to its retail stores, distribution centers and warehouse
facility, Pamida's tangible assets include inventories, warehouse and store
fixtures and equipment, merchandise handling equipment, office and data
processing equipment, motor vehicles and an airplane.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to a number of lawsuits incidental to its business,
the outcome of which, both individually and in the aggregate, is not expected to
have a material adverse effect on the Company's operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company is a wholly owned subsidiary of Holdings. There is no market
for the Company's common equity. Because the Company pays dividends on its
common stock only to its parent corporation, no information is provided
concerning past dividend payments or anticipated future dividend payments.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
PAMIDA, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except other data)
Fiscal Years Ended
-------------------------------------------------------------------
February 2, January 28, January 29, January 30, January 31,
1997(1) 1996 1995 1994 1993
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Sales $ 633,189 $ 736,315 $ 711,019 $ 656,910 $ 622,941
Gross profit 154,090 177,688 177,367 158,906 154,695
Selling, general and
administrative expenses 125,086 151,063 143,551 133,887 124,195
Operating income 29,004 26,625 33,816 25,019 30,500
Interest expense 25,308 25,616 23,904 23,515 22,608
Long-lived asset write-off -- 78,551 -- -- --
Store closing costs -- 21,397 -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before
provision for income taxes
and extraordinary item 3,696 (98,939) 9,912 1,504 7,892
Income tax (benefit)
provision -- (6,412) 4,782 1,562 3,992
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item 3,696 (92,527) 5,130 (58) 3,900
Extraordinary item -- -- -- (4,943) --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 3,696 $ (92,527) $ 5,130 $ (5,001) $ 3,900
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Working capital $ 28,645 $ 33,874 $ 46,684 $ 41,145 $ 17,047
Total assets 269,152 258,470 354,309 314,816 309,790
Long-term debt 140,364 140,411 141,745 141,938 116,632
Obligations under capital
leases 33,999 36,559 43,050 35,618 37,164
Common stockholder's
(deficit) equity (57,530) (61,226) 31,301 26,171 31,172
OTHER DATA:
Team members 5,700 7,200 7,200 6,100 5,900
Number of stores 148 184 184 173 178
Retail square feet
(in millions) 4.35 5.22 5.09 4.68 4.75
<FN>
(1) Represents a 53-week year.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS.
PAMIDA , INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollar amounts in thousands)
RESULTS OF OPERATIONS
Year Ended February 2, 1997 Compared to Year Ended January 28, 1996
SALES - As discussed in Note K to the financial statements, the Company
closed forty stores at the end of fiscal 1996 in unprofitable or highly
competitive markets which did not fit the Company's niche market strategy.
Consequently, the Company experienced a planned decrease in total sales for
fiscal 1997 of $103,126 or 14.0% compared to fiscal 1996 due primarily to the
reduced number of stores. During fiscal 1997 the Company opened eight new
prototype stores, of which six are located in new markets and two were
relocations; the Company also closed two stores, resulting in a net increase in
selling area during the fiscal year of approximately 216,000 square feet (not
including changes relating to the forty stores closed as of fiscal year end
1996) to a total of 4,348,000 square feet. As of February 2, 1997, the Company's
store base included 35 of the Company's most recent store prototype, which
represented 28.7% of the Company's total selling square feet.
Comparable store sales during the 53-week fiscal 1997 period decreased by
$8,893 or 1.5% from the 52-week fiscal 1996 period. Comparable store sales on a
53-week to 53-week basis decreased by 2.6%. Sales were affected primarily by
slowed warehouse distributions to stores as a result of the implementation of a
new warehouse inventory management system initiated in the first quarter of
fiscal 1997. The slowed distributions caused a deterioration of merchandise
in-stock positions in most of the Company's stores, resulting in lost sales.
While implementation of the warehouse system was largely completed by August
1996, and in-stock positions at the stores improved thereafter, sales remained
below management expectations due to reduced customer traffic continuing in the
third and fourth quarters. Comparable sales also were affected during much of
the year by low-margin clearance sales in fiscal 1996 which were not necessary
at the same level in fiscal 1997. However, beginning late in the holiday
shopping season and continuing through fiscal year end, sales improved as the
Company demonstrated to customers its improved in-stock position in all product
categories.
The Company experienced substantial comparable store sales increases in
fiscal 1997 in several merchandise categories, the most dramatic of which were
in the pharmacy prescription, junior apparel, grocery and ready-to-wear areas.
Comparable store sales gains also were generated in the hosiery, team sports,
camera, stationery, health aids and bath categories. The Company experienced
comparable store sales decreases in several categories. The largest dollar
decreases on a comparable store basis were in the electronics, automotive,
misses bottoms, men's shoes, electrical and appliance areas. Management believes
that subtle adjustments made to the Company's softlines strategy at the end of
fiscal 1996 to meet customer demand for a deeper selection of basic apparel had
a positive impact on sales and margins in softlines during fiscal 1997.
GROSS PROFIT - Gross profit dollars were affected by the reduced number of
stores in operation during fiscal 1997 as compared to fiscal 1996. The Company's
merchandise gross profit as a percentage of sales improved to 27.8% in fiscal
1997 from 26.8% in fiscal 1996. However, this improvement was diluted by
additional costs related to the implementation of the new warehouse inventory
management system discussed above. Warehouse costs increased to $13,457 from
$11,066 last year and increased as a percent of sales to 2.1% from 1.5% last
year. Delivery costs decreased to $7,637 in fiscal 1997 from $8,845 last year
and amounted to 1.2% of sales in both years. Accordingly, gross profit decreased
by $23,598, or 13.3%, to $154,090 in fiscal 1997 from $177,688 in fiscal 1996
but, as a percentage of sales, increased to 24.3% in fiscal 1997 from 24.1% in
fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE expense decreased $25,977, or 17.2%,
to $125,086 in fiscal 1997 from $151,063 in fiscal 1996. As a percentage of
sales, selling, general and administrative expense decreased to 19.8% from 20.5%
last year. This reduction was largely attributable to reductions in store level
expenses. Store payroll, controllable and occupancy expenses accounted for 64.2%
of the total decrease in selling, general and administrative expense and
decreased by 14.5%, 17.5% and 13.9%, respectively. Selling, general and
administrative expense also was positively impacted by a 28.9% reduction in
advertising costs which accounted for 18.2% of the gross decrease in selling,
general and administrative expense. All of these areas of expense were impacted
by the elimination of costs related to the forty stores which were closed as of
the end of fiscal 1996. Selling, general and administrative expense also was
impacted by an 11.0% decrease in corporate general and administrative costs
which accounted for 11.3% of the gross decreases in selling, general and
administrative expense. The major components of this decrease were decreases in
the net costs of insurance, professional fees, management bonuses and related
fringe benefits.
Selling, general and administrative expense also was positively impacted
by the elimination of amortization of goodwill and favorable leasehold interests
resulting from the write-off of these items in the fourth quarter of fiscal
1996. The decreases in selling, general and administrative expense were offset
by a $1,246 reduction in other income which was attributable largely to one-time
gains realized in fiscal 1996, primarily from the sale of idle transportation
company assets.
The Company is continuing to focus on controlling selling, general and
administrative expenses. Store operating expenses as a percent of sales are
anticipated to remain relatively constant in fiscal 1998. Certain expense
categories are anticipated to increase somewhat as a percent of sales due to
more normal clearance activity and expected increases in interest expense,
information systems costs, store payroll expenses (due to federally mandated
minimum wage increases) and incentive compensation. The Company expects to begin
to realize operating efficiencies from systems enhancements in the warehouse and
distribution areas in fiscal 1998 and in the merchandising areas beginning in
the second half of fiscal 1999. Further expense leveraging is expected in future
years through internal growth as well as the addition of new stores.
INTEREST expense increased marginally by $308 or 1.2% for fiscal 1997
compared to fiscal 1996. The increase in interest expense for fiscal 1997 was
attributable primarily to higher usage of the revolving line of credit. This
increase was largely offset by decreased interest related to lower average
outstanding capitalized lease obligations in fiscal 1997 compared to fiscal
1996.
INCOME TAX PROVISION - The Company has deferred tax assets related to
certain tax loss carryforwards which resulted from prior year store closing
charges. The Company has also recorded a valuation allowance related to these
assets. No provision for income taxes was recorded during fiscal 1997 as this
expense served to reduce the valuation allowance. No income expense is expected
to be recorded until the Company utilizes all of the tax loss carryforwards. The
effective tax rate in fiscal 1996 was 6.5% and was impacted by the
non-deductible amortization and write-off of goodwill and the reserves recorded
to offset the deferred tax assets.
YEAR ENDED JANUARY 28, 1996 COMPARED TO YEAR ENDED JANUARY 29, 1995
WRITE-OFF OF LONG-LIVED ASSETS AND STORE CLOSING CHARGE.
During fiscal 1996, weak trends in the retail industry combined with
increasing competition lowered the operating results of the Company. While
operating results in the first three quarters of the year were behind plan,
management focused on strategies to achieve its plan during the important fourth
quarter season.
During the fourth quarter, management reviewed its expectations for near-
and long-term performance of the Company, revised its earnings projections and
reassessed the recoverability of the Company's long-lived assets.
As explained in Note J to the financial statements, in the fourth quarter
of fiscal 1996, the Company adopted Statement of Financial Accounting Standards
No. 121 "Accounting For the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of" (SFAS 121). This financial accounting standard
requires the Company to perform an analysis of the recoverability of the net
book value of long-lived assets. The Company analyzed cash flows on an
individual store basis to assess recoverability of store level long-lived assets
including allocated goodwill. As a result of this analysis, impairment totaling
$27,228 on a pre-tax basis was indicated at certain stores.
The Company also analyzed the value of its remaining goodwill and
favorable leasehold interests not impaired under the store-level SFAS 121
analysis using its historical method under Accounting Principles Board Opinion
No. 17 (APB 17) and determined that such remaining amounts also were impaired.
The APB 17 analysis projected a fifteen-year forecast period and produced $5,186
of aggregate undiscounted adjusted net income for the Company's parent, Pamida
Holdings Corporation ("Holdings"), including projected adjusted net losses for
fiscal 1997 of $4,522, which included interest expense of $26,242 paid in cash
and interest payable `in kind' (PIK) of $4,453, and for fiscal 1998 of $2,863,
which included cash interest expense of $26,581 and PIK interest of $5,121. For
fiscal 1999, Holdings projected adjusted net income of approximately $967, which
included cash interest expense of approximately $26,581 and PIK interest of
$5,889. Due to the uncertainty of projections beyond 1999, this level of
adjusted net income was assumed to continue for each of the remaining fiscal
years in the projection period. Accordingly, a non-cash pre-tax charge totaling
$51,323 was recorded as indicated in Note J to the financial statements.
Also, management's fourth quarter review of individual stores' operations
and cash flows resulted in the identification of forty unprofitable or
competitive market stores which did not fit the Company's niche market strategy.
Consequently, a pre-tax charge totaling $21,397 was recorded at January 28, 1996
to cover the costs necessary to close these stores as indicated in Note K to the
financial statements.
SALES for fiscal 1996 increased $25,300 or 3.6% compared to fiscal 1995.
Comparable store sales decreased $4,160 or 0.7%. Excluding the forty stores
closed as of the end of fiscal 1996, comparable store sales increased by 0.1%.
During fiscal 1996 the Company opened ten new prototype stores of which seven
were located in new markets and three were relocations. The Company also closed
ten stores (excluding the 40 stores identified to be closed as discussed above),
resulting in a net increase in selling area of approximately 126,000 square
feet. The openings and closings of stores over the last two fiscal years has
resulted in a net increase in sales of $33,662.
The modest overall sales increases were affected by weak consumer demand
which was generally experienced throughout the retail industry. Management
believes that the Company's geographical niche market positioning combined with
its ability to distribute quality merchandise on a more timely basis tempered
these generally weak retail trends. The Company experienced substantial sales
increases in several merchandise categories, the most dramatic of which were in
the housewares, prescriptions, junior apparel and bath and floor areas.
Substantial sales gains also were generated in paper, cleaning and seasonal
categories. The Company experienced sales declines in several softlines
categories, primarily women's apparel.
The initial operating results of the seven new prototype stores and three
relocated prototype stores opened during fiscal 1996 exceeded the Company's
original sales projections and reflected the success of the Company's niche
market positioning and merchandising strategies. At fiscal year end 1996,
twenty-seven new format stores were in operation, representing 14.7% of all
stores and 18.3% of total Company selling square feet.
GROSS PROFIT increased $321 or 0.2% in fiscal 1996 compared to fiscal 1995
and, as a percentage of sales, decreased from 24.9% in fiscal 1995 to 24.1% in
fiscal 1996. The decline in gross profit percent in fiscal 1996 compared to
fiscal 1995 was attributable primarily to the increased markdown activity which
was necessary to counter sluggish customer demand during most of the year and to
meet customers' pricing expectations during this difficult period for theretail
industry. Markdown expense increased by 23.8% over such expense in fiscal 1995.
During fiscal 1996, the Company experienced margin dollar increases due to
higher sales in several merchandise categories, most notably stationery,
prescriptions, bath and floor and seasonal. While the Company experienced margin
dollar decreases in several softlines categories, they were concentrated
primarily in the women's apparel and fashion areas.
SELLING, GENERAL AND ADMINISTRATIVE expense increased $7,512 or 5.2% from
fiscal 1995. As a percentage of sales, selling, general and administrative
expense increased from 20.2% in fiscal 1995 to 20.5% in fiscal 1996.
Approximately 40% of the total gross increase in selling, general and
administrative expense was attributable to increases in corporate general
administrative costs. Payroll and fringe benefits costs increased by
approximately 13% due to the effect of a full year's salary for the
merchandising, real estate and other corporate personnel added in fiscal 1995 as
well as the costs related to information systems personnel added during fiscal
1996 to support the new systems implementations to enhance efficiencies in
warehouse, distribution and merchandising. In addition, professional fees
increased approximately 54% due primarily to information systems and strategic
planning consulting costs as well as increases in legal fees related to new
store construction and financing.
In addition to the corporate general and administrative cost changes,
advertising expenses as a percent of sales increased from 2.0% to 2.2% due to
increases in the costs of paper and postage. This accounted for approximately
25% of the gross increase in selling, general and administrative expense. Store
controllable expenses increased by 8%, which also accounted for approximately
25% of the gross increase in selling, general and administrative expense. The
change in store controllable expense was due primarily to increases in the costs
of security equipment rentals, charge card processing fees (due to increased
credit card sales volume), utilities and inventory counting (as a result of
changes in procedures to allow for detailed SKU level counts). Store
controllable costs were partially reduced by decreases in supplies, travel and
entertainment costs. Store fixed costs as a percent of sales increased from 2.8%
to 3.0% due primarily to increases in rent expense. These increases in selling,
general and administrative expense were offset in part by an increase in other
income resulting primarily from the sale of idle transportation assets.
INTEREST expense increased $1,712 or 7.2% for fiscal 1996 compared to
fiscal 1995. The increase in interest expense for fiscal 1996 was attributable
primarily to higher usage of the revolving line of credit in fiscal 1996 and to
the higher average outstanding capitalized lease obligations in fiscal 1996
compared to fiscal 1995.
INCOME TAX PROVISION - The effective tax rate was 6.5% in fiscal 1996
compared to 48.2% in fiscal 1995. The effective tax rate for fiscal 1996 was
impacted by the non-deductible amortization and write-off of goodwill and the
reserve recorded to offset the deferred tax assets. In fiscal 1995, the
effective tax rate was higher than the normal statutory rates primarily as a
result of non-deductible goodwill amortization.
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
30% 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 by operating activities totaled $11,577 in fiscal
1997, and funds provided from operations totaled $4,029 in fiscal 1996 and
$2,471 in fiscal 1995. The change in cash flow from operating activities from
fiscal 1996 to fiscal 1997 was primarily the result of planned net increases in
inventory and other operating assets and decreases in accounts payable and other
operating liabilities. These decreases in cash flow were offset in part by
changes in deferred income taxes. The positive change in cash flow from
operating activities from fiscal 1995 to fiscal 1996 was primarily the result of
net decreases in inventory and accounts payable. These increases in cash flow
were offset in part by current and deferred tax payable changes, principally as
a result ofthe store closing charge, the changes in profitability of the
continuing operations and changes in other operating assets and liabilities.
Effective March 17, 1997, the term of the Company's committed Loan and
Security Agreement (the Agreement) was extended to March 2000 and the maximum
borrowing limit of the facility was increased to $95,000 from $70,000, which had
been the limit throughout fiscal 1997. Prior to March 17, 1997, borrowings under
the Agreement bore interest at a rate which was 0.75% per annum greater than the
applicable prime rate. Effective March 17, 1997, borrowings under the Agreement
bear interest at a rate which is tied to the applicable prime rate or the London
Interbank Offered Rate (LIBOR), generally at the Company's discretion. 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. Pamida Holdings Corporation
("Holdings") and two subsidiaries of the Company have guaranteed the payment and
performance of the Company's obligations under the Loan and Security Agreement
and have pledged some or all of their respective assets, including the stock of
the Company owned by Holdings, to secure such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. Certain provisions of the Agreement require the
maintenance of specified amounts of tangible net worth (as defined) and working
capital (as defined) and 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 or encumber its property or which impose
restrictions on or otherwise limit the Company's ability to engage in
sale-leaseback transactions, may at some future time prevent the Company from
pursuing its store expansion program at the rate that the Company desires.
Obligations under the Agreement were $57,115 at February 2, 1997 and
$31,588 at January 28, 1996. As noted above, this facility expires in March
2000, 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 $174,363 at February 2, 1997 and $176,970 at January 28, 1996. The Company's
ability to satisfy scheduled principal and interest payments under such
obligations in the ordinary course of business is dependent primarily upon the
sufficiency of the Company's operating cash flow. At February 2, 1997, the
Company was in compliance with all covenants contained in its various financing
agreements.
On December 18, 1992, the promissory notes of Holdings were amended
effective as of December 1, 1992 to provide that, until the obligations of the
Company and Holdings under certain of the Company's credit agreements have been
repaid, the quarterly interest payments on the promissory notes of Holdings will
be paid in kind. The Company paid Holdings $315 in fiscal 1996 under a
tax-sharing agreement to enable Holdings to pay quarterly dividends to its
preferred stockholders. During fiscal 1996, Holdings received $967 from the
Company under a tax-sharing agreement as a reimbursement for certain tax
benefits derived by the Company. Such remittance, along with $18 from the
exercise of certain Holding's stock options, was used by Holdings to redeem
Subordinated Promissory Notes, to repay intercompany balances totaling $29, and
to pay quarterly dividends on preferred stock. Since Holdings conducts no
operations of its own, the only cash requirement of Holdings relates to
preferred stock dividends in the aggregate annual amount of approximately $316;
and the Company is expressly permitted under its existing credit facilities to
pay dividends to Holdings to fund such preferred stock dividends. However, the
General Corporation Law of the State of Delaware, under which Holdings and the
Company are incorporated, allows a corporation to declare or pay a dividend only
from its surplus or from the current or the prior year's earnings. Due to the
accumulated deficit resulting primarily from the store closings and the
write-off of goodwill and other long-lived assets recognized in the fourth
quarter of fiscal 1996, Holdings and the Company did not declare or pay any cash
dividends in fiscal 1997 and may pay cash dividends in ensuing years only to the
extent that Holdings and the Company satisfy the applicable statutory standards
which include Holdings' having a net worth equal to at least the aggregate par
value of the preferred stock which amounts to $2. The cumulative dividend rate
on the preferred stock increases by 0.5% per quarter (with a maximum aggregate
increase of 5%) on each quarterly dividend payment date on which the preferred
stock dividends are not paid currently on a cumulative basis. Any unpaid
dividends are added to the liquidation value until paid in cash. Such nonpayment
of preferred stock dividends does not accelerate the redemption rights of the
preferred stockholders.
The Company made capital expenditures of $4,947 in fiscal 1997 compared to
$9,265 during fiscal 1996. The Company plans to open three new stores in fiscal
1998 and will consider additional opportunities for new store locations as they
arise. Total capital expenditures are expected to be approximately $9,500 in
fiscal 1998. The Company expects to fund these expenditures from cash flow from
its operations. The costs of buildings and land for new store locations are
expected to be financed by operating or capital leases with unaffiliated
landlords. The Company's expansion program also will require inventory of
approximately $1,000 to $1,200 for each new market store, which the Company
expects to finance through trade credit, borrowings under the Agreement and cash
flow from operations.
The recent changes to the Agreement, along with expected improvements in
the Company's cash flow from operations, 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,
working capital and distribution and infrastructure enhancements. The Company
expects to continue to finance some of these investments through leases from
unaffiliated landlords, trade credit, borrowings under the Agreement and cash
flow from operations but ultimately will need to explore additional sources of
funds which may include 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.
INFLATION
The Company uses the LIFO method of inventory valuation in its
financial statements; as a result, the cost of merchandise sold approximates
current costs. The Company's rental expense is generally fixed and, except for
small amounts of percentage rents and rentals adjusted by cost-of-living
increases tied to the Consumer Price Index or interest rates, has not been
affected by inflation.
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, company
performance and 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. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAMIDA , INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pamida , Inc.
Omaha, Nebraska
We have audited the consolidated balance sheet of Pamida, Inc. ( a
wholly-owned subsidiary of Pamida Holdings Corporation) and subsidiaries as of
February 2, 1997, and the related consolidated statements of operations, common
stockholder's equity and cash flows for each of the years ended February 2, 1997
and January 29, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated balance sheet of
Pamida, Inc. and subsidiaries as of January 28, 1996, and the related
consolidated statements of operations, common stockholder's equity and cash
flows for the year ended January 28, 1996, were audited by other auditors, whose
report, dated March 26, 1996, expressed an unqualified opinion on those
statements and included an explanatory paragraph that described the adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pamida, Inc.
and subsidiaries as of February 2, 1997, and the results of their operations and
their cash flows for each of the years ended February 2, 1997 and January 29,
1995 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 7, 1997
(March 17, 1997 as to Note E)
PAMIDA, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pamida, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheet of Pamida, Inc. and
Subsidiaries as of January 28, 1996, and the related consolidated statements of
operations, common stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pamida, Inc. and
Subsidiaries as of January 28, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
As discussed in Note J to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
March 26, 1996
<TABLE>
<CAPTION>
PAMIDA , INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
Years Ended
February 2, January 28, January 29,
1997 1996 1995
(53 Weeks) (52 Weeks) (52 Weeks)
----------- ----------- -----------
<S> <C> <C> <C>
Sales.................................... $ 633,189 $ 736,315 $ 711,019
Cost of goods sold....................... 479,099 558,627 533,652
---------- ----------- -----------
Gross profit............................. 154,090 177,688 177,367
---------- ----------- -----------
Expenses:
Selling, general and administrative... 125,086 151,063 143,551
Interest.............................. 25,308 25,616 23,904
Long-lived asset write-off............ -- 78,551 --
Store closing costs................... -- 21,397 --
---------- ----------- -----------
150,394 276,627 167,455
---------- ----------- -----------
Income loss before provision for income
taxes .............................. 3,696 (98,939) 9,912
Income tax (benefit) provision........... -- (6,412) 4,782
---------- ----------- -----------
Net income (loss)....................... $ 3,696 $ (92,527) $ 5,130
========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
PAMIDA , INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
February 2, January 28,
1997 1996
ASSETS --------- ----------
Current assets:
<S> <C> <C>
Cash ......................................................................... $ 6,973 $ 7,298
Accounts receivable, less allowance for doubtful accounts of $50 in both years 6,935 9,057
Merchandise inventories ...................................................... 157,490 150,837
Prepaid expenses ............................................................. 2,993 2,953
Property held for sale ....................................................... 1,748 2,218
--------- ---------
Total current assets ...................................................... 176,139 172,363
--------- ---------
Property, buildings and equipment, (net) ........................................ 42,403 44,153
Leased property under capital leases, less accumulated
amortization of $14,604 and $13,496, respectively ............................ 27,713 30,977
Deferred financing costs ........................................................ 3,124 3,746
Other assets .................................................................... 19,773 7,231
--------- ---------
$ 269,152 $ 258,470
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ............................................................. $ 54,245 $ 63,087
Loan and security agreement .................................................. 57,115 31,588
Accrued compensation ......................................................... 3,860 5,923
Accrued interest ............................................................. 6,857 6,353
Store closing reserve ........................................................ 4,521 7,818
Other accrued expenses ....................................................... 10,112 10,823
Income taxes - deferred and current payable .................................. 8,956 9,716
Current maturities of long-term debt ......................................... 47 1,334
Current obligations under capital leases ..................................... 1,781 1,847
--------- ---------
Total current liabilities ................................................. 147,494 138,489
--------- ---------
Long-term debt, less current maturities ......................................... 140,364 140,411
Obligations under capital leases, less current obligations ...................... 33,999 36,559
Other long-term liabilities ..................................................... 4,825 4,237
Commitments and contingencies ................................................... -- --
Common stockholder's equity:
Common stock, $.01 par value; 10,000 shares authorized;
1,000 shares issued and outstanding, respectively ........................... -- --
Additional paid-in capital ................................................... 17,000 17,000
Accumulated deficit .......................................................... (74,530) (78,226)
--------- ---------
Total common stockholder's deficit ........................................ (57,530) (61,226)
--------- ---------
$ 269,152 $ 258,470
========= =========
</TABLE>
<TABLE>
<CAPTION>
PAMIDA , INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
(Dollar amounts in thousands)
Retained
Additional Earnings
Common Paid-in (Accumulated
Stock Capital Deficit)
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 30, 1994.............................. $ -- $ 17,000 $ 9,171
Net income............................................ -- -- 5,130
---------- ---------- ----------
Balance at January 29, 1995.............................. -- 17,000 14,301
Net loss.............................................. -- -- (92,527)
---------- ---------- ----------
Balance at January 28, 1996.............................. -- 17,000 (78,226)
Net income............................................ -- -- 3,696
---------- ---------- ----------
Balance at February 2, 1997.............................. $ -- $ 17,000 $ (74,530)
</TABLE>
<TABLE>
<CAPTION>
PAMIDA , INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
Years Ended
------------------------------------
February 2, January 28, January 29,
1997 1996 1995
(53 Weeks) (52 Weeks) (52 Weeks)
-------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) .............................................. $ 3,696 $(92,527) $ 5,130
-------- -------- --------
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization ................................. 11,647 15,335 14,951
Provision (credit) for LIFO inventory valuation ............... 874 (585) (675)
Provision (credit) for deferred income taxes .................. 3,305 (6,647) (1,555)
Gain on disposal of assets .................................... (56) (982) (58)
Stock incentive benefits ...................................... -- -- 84
Deferred retirement benefits .................................. (125) 13 37
Long-lived assets write-off ................................... -- 78,551 --
Store closing costs ........................................... (3,726) 21,397 --
(Increase) decrease in merchandise inventories ................ (7,527) 4,532 (30,951)
Increase in other operating assets ............................ (5,630) (3,840) (222)
Increase (decrease) in accounts payable ....................... (8,842) (6,749) 8,153
Increase (decrease) in income taxes payable ................... (3,250) (4,124) 3,593
Increase (decrease) in other operating liabilities ............ (1,943) (345) 3,984
-------- -------- --------
Total adjustments ........................................... (15,273) 96,556 (2,659)
-------- -------- --------
Net cash from operating activities .......................... (11,577) 4,029 2,471
-------- -------- --------
Cash flows from investing activities:
Proceeds from disposal of assets .............................. 917 1,163 980
Principal payments received on notes receivable ............... 16 15 14
Assets acquired for sale ...................................... (391) -- --
Capital expenditures .......................................... (4,947) (9,265) (12,888)
Construction notes receivable ................................. (5,845) (4,412) --
-------- -------- --------
Net cash from investing activities .......................... (10,250) (12,499) (11,894)
-------- -------- --------
Cash flows from financing activities:
Borrowings under loan and security agreement net .............. 25,527 10,986 12,417
Principal payments on other long-term debt .................... (1,335) (193) (177)
Payments for deferred finance costs ........................... (54) (13) (200)
Principal payments on capital lease obligations ............... (2,636) (2,071) (1,894)
-------- -------- --------
Net cash from financing activities .......................... 21,502 8,709 10,146
-------- -------- --------
Net (decrease) increase in cash ........................... (325) 239 723
Cash at beginning of year ....................................... 7,298 7,059 6,336
-------- -------- --------
Cash at end of year ............................................. $ 6,973 $ 7,298 $ 7,059
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest ...................................................... $ 24,804 $ 25,584 $ 23,918
Income taxes:
Payments to taxing authorities .............................. 386 3,622 1,785
Payments to Pamida Holdings Corporation for
benefit of loss from operations ..................... ..... -- 967 1,631
Refunds received from taxing authorities ...................... (442) (231) (672)
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 $ 11 $ 620 $ 9,721
Capital lease obligations terminated .......................... -- 154 --
</TABLE>
PAMIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pamida, Inc. (the "Company") became a wholly-owned subsidiary of Pamida
Holdings Corporation ("Holdings") through a merger in a leveraged buy-out
transaction which was consummated on July 29, 1986.
CONSOLIDATION - The consolidated financial statements include the results
of operations, account balances and cash flows of the Company and its
wholly-owned subsidiaries, Seaway Importing Company ("Seaway") and Pamida
Transportation Company. All material intercompany accounts and transactions have
been eliminated in consolidation.
FISCAL YEAR - All references in these financial statements to fiscal years
are to the calendar year in which the fiscal year ends.
LINE OF BUSINESS - The Company is engaged in the operation of retail
discount stores in a fifteen-state Midwestern, North Central and Rocky Mountain
area. Seaway imports primarily seasonal merchandise for sale to the Company.
Pamida Transportation Company operated as a contract carrier for the Company
until July 1995, at which time independent contractors were engaged to provide
all transportation needs of the Company. Due to the similarity in nature of the
Company's businesses, the Company considers itself to be a single business
segment.
CASH FLOW REPORTING - For purposes of the statement of cash flows, the
Company considers all temporary cash investments purchased with a maturity of
three months or less to be cash equivalents. There were no temporary investments
at February 2, 1997 and January 28, 1996.
MERCHANDISE INVENTORIES - Substantially all of the Company's inventory is
stated at the lower of cost (last-in, first-out) or market.
PROPERTY, BUILDINGS AND EQUIPMENT - Property, buildings and equipment are
stated at cost and depreciated on the straight-line method over the estimated
useful lives. Buildings and building improvements are generally depreciated over
8-40 years, while store, warehouse and office equipment, vehicles and aircraft
equipment are generally depreciated over 3-10 years. Leasehold improvements are
depreciated over the life of the lease or the estimated life of the asset,
whichever is shorter.
LEASED PROPERTY UNDER CAPITAL LEASES - Noncancellable financing leases are
capitalized at the estimated fair value of the leasehold interest and are
amortized on the straight-line method over the terms of the leases.
LONG-LIVED ASSETS - When facts and circumstances indicate potential
impairment, the Company evaluates the recoverability of asset carrying values,
including associated goodwill, using estimates of future cash flows over
remaining asset lives. When impairment is indicated, any impairment loss is
measured by the excess of carrying values over fair values.
DEFERRED FINANCING COSTS - Deferred financing costs are being amortized
using the straight-line method over the terms of the issues which approximates
the effective interest method.
PRE-OPENING EXPENSES - Costs related to opening new stores are expensed as
incurred.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
B. MERCHANDISE INVENTORIES
Total inventories would have been higher at February 2, 1997 and January
28, 1996 by $6,574 and $5,700, respectively, had the FIFO (first-in, first-out)
method been used to determine the cost of all inventories. On a FIFO basis, net
income (loss) before extraordinary item would have been $2,911, $(93,112) and
$4,887, respectively, for fiscal years 1997, 1996 and 1995. During fiscal years
1997, 1996 and 1995, 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 $116,
$125, and $102, respectively.
C. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consists of:
Feb. 2, Jan. 28,
1997 1996
-------- --------
Land and land improvements ................. $ 4,013 $ 3,943
Buildings and building improvements ........ 22,076 21,578
Store, warehouse and office equipment .... 59,668 55,638
Vehicles and aircraft equipment .......... 1,513 1,578
Leasehold improvements ................... 16,497 15,362
-------- --------
103,767 98,099
Less accumulated depreciation
and amortization ......................... 61,364 53,946
-------- --------
$ 42,403 $ 44,153
======== ========
D. OTHER ASSETS
Other assets consist of: Feb. 2, Jan. 28,
1997 1996
-------- --------
Construction notes receivable ............. $ 10,257 $ 2,767
Unamortized software costs, net ........... 7,541 3,357
Other 1,975 1,107
-------- --------
$ 19,773 $ 7,231
======== ========
E. FINANCING AGREEMENTS
Effective March 17, 1997, the term of the Company's committed Loan and
Security Agreement (the Agreement) was extended to March 2000 and the maximum
borrowing limit of the facility was increased to $95,000 from $70,000, which had
been the limit throughout fiscal 1997. Prior to March 17, 1997, borrowings under
the Agreement bore interest at a rate which was 0.75% per annum greater than the
applicable prime rate. Effective March 17, 1997, borrowings under the Agreement
bear interest at a rate which is tied to the applicable prime rate or the London
Interbank Offered Rate (LIBOR), generally at the Company's discretion. The
amounts the Company is permitted to borrow under the Agreement are determined by
a formula based upon the amount of the Company's eligible inventory from time to
time. Such borrowings of the Company under the Agreement are secured by security
interests insubstantially all of the current assets (including inventory) of the
Company and by liens on certain real estate interests and other property of the
Company. Pamida Holdings Corporation and two subsidiaries of the Company have
guaranteed payment and performance of the Company's obligations under the
Agreement and have pledged some or all of their respective assets, including the
stock of the Company owned by Holdings, to secure such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. Certain provisions of the Agreement require the
maintenance of specified amounts of tangible net worth (as defined) and working
capital (as defined) and 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 1997
and 1996 was $69,256 and $63,884, respectively. The weighted average amounts of
borrowings under the Agreement for fiscal 1997 and 1996 were $43,002 and
$35,544, respectively; and the weighted average interest rates were 10.0% and
10.4%, respectively.
Long-term debt consists of:` Feb. 2, Jan. 28,
1997 1996
-------- --------
Senior Subordinated Notes, 11.75%,
due March 2003 .................................. $140,000 $140,000
Industrial development bonds, 8.5%,
due in monthly installments through 2005 ........ 411 1,745
-------- --------
140,411 141,745
Less current maturities ........................... 47 1,334
-------- --------
$140,364 $140,411
======== ========
As of February 2, 1997, the fair value of long-term debt was $125,364
compared to its recorded value of $140,364. The fair value of long-term debt was
estimated based on quoted market values for the same or similar debt issues or
rates currently available for debt with similar terms. The aggregate maturities
of long-term debt in each of the next five fiscal years are as follows: 1998 -
$47; 1999 - $47; 2000 - $47; 2001 - $47; and 2002 - $47.
The Senior Subordinated Notes are unsecured and are subordinate borrowings
under the Agreement. Presently, under the most restrictive debt covenants, the
Company is not permitted to pay dividends on its common stock.
F. INCOME TAXES
Components of the income tax provision (benefit) are as follows:
Years Ended
--------------------------------
Feb. 2, Jan. 28, Jan. 29,
1997 1996 1995
-------- -------- --------
Current:
Federal ............................... $ (3,436) $ (212) $ 5,121
State ................................. 131 (23) 1,216
-------- -------- --------
(3,305) (235) 6,337
-------- -------- --------
Deferred:
Federal ............................... 3,189 (5,865) (679)
State ................................. 116 (782) (876)
-------- -------- --------
3,305 (6,647) (1,555)
-------- -------- --------
Total (benefit) provision ............... $ -- $ (6,412) $ 4,782
======== ======== ========
The differences between the U.S. Federal statutory tax rate and the
Company's effective tax rate are as follows:
Years Ended
--------------------------------
Feb. 2, Jan. 28, Jan. 29,
1997 1996 1995
-------- -------- --------
Statutory rate ......................... 34.0% (34.0)% 34.2%
State income tax effect ................ 4.4 (1.2) 4.8
Amortization of the excess of cost
over net assets acquired ............. -- 24.8 7.9
Valuation allowance .................... (39.5) 3.8 0.1
Other .................................. 1.1 0.1 1.2
-------- -------- --------
0.0% (6.5)% 48.2%
======== ======== ========
Significant temporary differences between reported and taxable
earnings that give rise to deferred tax assets and liabilities were as follows:
Feb. 2, Jan. 28,
1997 1996
-------- --------
Net current deferred tax liabilities:
Inventories................ ..................... $ 15,302 $ 13,681
Valuation allowance.............................. -- 3,869
Prepaid insurance................................ 210 514
Other............................................ 453 366
Supplier allowances.............................. (41) --
Post employment health costs..................... (189) (237)
Accrued expenses................................. (941) (1,300)
Store closing costs.............................. (2,570) (7,159)
Net current deferred tax liabilities............. 12,224 9,734
-------- --------
Net long-term deferred tax liabilities:
Property, buildings and equipment................ 2,862 3,109
Other............................................ 1,436 438
Valuation allowance.............................. 2,410 5
Capital loss carryforward........................ -- (5)
Capital leases................................... (3,089) (2,602)
Tax benefit carryforward......................... (1,859) --
-------- --------
Net long-term deferred tax liabilities ........ 1,760 945
-------- --------
Net total deferred tax liabilities................ $ 13,984 $ 10,679
======== ========
Net long-term deferred tax liabilities are classified with other long-term
liabilities in the consolidated balance sheets of the Company. As of February 2,
1997 the Company had tax credit carryforwards totaling $1,973 which expire in
2006 through 2011.
G. LEASES
The majority of store facilities are leased under noncancelable leases.
Substantially all of the leases are net leases which require the payment of
property taxes, insurance and maintenance costs in addition to rental payments.
Certain leases provide for additional rentals based on a percentage of sales and
have renewal options for one or more periods totaling from one to twenty years.
Leases have been categorized as capital or operating leases in conformity with
the definition in Statement of Financial Accounting Standards No. 13,
"Accounting for Leases".
At February 2, 1997 the future minimum lease payments under capital and
operating leases with rental terms of more than one year amounted to:
Fiscal Year Ending Capital Operating
Leases Leases
---------------------
1998 ...................................... $ 5,802 $ 10,010
1999 ...................................... 5,659 8,800
2000 ...................................... 5,442 6,879
2001 ...................................... 5,352 5,639
2002 ...................................... 5,267 5,103
Later years ............................... 41,384 46,069
-------- --------
Total minimum obligations ................. 68,906 $ 82,500
Less amount representing interest ......... 33,126 ========
--------
Present value of net minimum lease payments 35,780
Less current portion ...................... 1,781
--------
Long-term obligations ..................... $ 33,999
========
The minimum rentals under operating leases have not been reduced by
minimum sublease rentals of $191 due in the future under noncancelable
subleases.
Total rental expense related to all operating leases (including those with
terms less than one year) is as follows:
Years Ended
-----------------------------
Feb. 2, Jan. 28, Jan. 29,
1997 1996 1995
------- ------- -------
Minimum rentals ............ $10,938 $11,715 $ 9,585
Contingent rentals ......... 258 399 477
Less sublease rentals ...... (735) (852) (918)
------- ------- -------
$10,461 $11,262 $ 9,144
======= ======= =======
H. SAVINGS AND OTHER POSTEMPLOYMENT BENEFIT PLANS
The Company has adopted a 401(k) savings plan that covers all employees
who are 21 years of age with one or more years of service. Participants can
contribute from 1% to 15% of their pre-tax compensation. The Company has
currently elected to match 50% of the participant's contribution up to 5% of
compensation. The Company's savings plan contribution expenses for fiscal years
1997, 1996, and 1995 were $770, $749, and $716, 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 components of periodic expense for postretirement benefits in fiscal
1997, 1996 and 1995 were as follows:
Feb. 2, Jan. 28, Jan. 29,
1997 1996 1995
-------- -------- --------
Annual postretirement benefit expense:
Interest cost ............................ 16 32 42
Amortization of unrecognized net obligations (44) (6) --
-------- -------- --------
Annual postretirement benefit expense ...... $ (28) $ 26 $ 42
======== ======== ========
The accumulated postretirement benefit obligation consists of:
Feb. 2, Jan. 28,
1997 1996
-------- --------
Accumulated postretirement benefit obligation $ 194 $ 395
Unrecognized gain............................. 299 223
-------- --------
Accrued expense............................... $ 493 $ 618
======== ========
A 5% and a 10% increase in the cost of covered health care benefits was
assumed for fiscal 1997 and 1996, respectively. The rate of 5% used as of
February 2, 1997 is assumed to remain level after fiscal 1997. At January 28,
1996, the 10% was assumed to decrease incrementally to 5% after five years and
remain level thereafter. Assuming a 1% increase in the health care trend rate,
the annual postretirement benefit expense would remain the same for fiscal 1997
and increase by $1 for fiscal 1996, and the unfunded accumulated postretirement
benefit obligation would increase by $4 and $13 for fiscal 1997 and 1996,
respectively. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.0% for both fiscal 1997 and
1996.
I. COMMITMENTS AND CONTINGENCIES
The Company 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 of Holdings approved a
long-term incentive compensation program in order to enhance retention of
certain key members of management. Payout is tied to continued employment and
future appreciation of Holding's common stock price.
During fiscal 1996, the Company paid $967 to Holdings as a reimbursement
for certain tax benefits derived by the Company. Such remittance, along with $18
from the exercise of certain Holdings stock options, was used by Holdings to
redeem Subordinated Promissory Notes, to repay to the Company intercompany
balances totaling $29, and to pay quarterly dividends on preferred stock
totaling $315.
In June 1994, the Company paid $1,316 to Holdings as a reimbursement for
certain tax benefits derived by the Company. Such remittance was used by
Holdings to make a principal payment on its outstanding promissory notes of
$1,029 and to repay the Company certain intercompany advances aggregating $287.
In connection with the Company's self insured retention of worker's
compensation liabilities and future rental payments on a warehouse, on February
2, 1997, the Company had standby letters of credit outstanding totaling
approximately $1,188.
J. IMPAIRMENT OF LONG-LIVED ASSETS RECORDED IN FISCAL 1996
During fiscal 1996, weak trends in the retail industry combined with
increasing competition lowered the operating results of the Company.
Therefore, during the fourth quarter of fiscal 1996, management reviewed
its expectations for near- and long-term performance of the Company and revised
its earnings projections to reflect developing and projected trends, primarily
in comparable-store-sales growth, gross margins, operating expenses and interest
expenses. Consequently, the recoverability of the Company's long-lived assets
was also reassessed.
In the fourth quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 "Accounting For the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of" (SFAS 121). This
financial accounting standard requires the Company to perform an analysis of the
recoverability of the net book value of long-lived assets. The Company analyzed
cash flows on an individual store basis to assess recoverability of store level
long-lived assets including allocated goodwill.
As a result of this analysis, impairment was indicated at certain stores,
and a noncash pre-tax charge was recorded as illustrated in the table below. The
impairment losses were based on fair value which was determined through
discounted cash flows for the particular stores utilizing a rate commensurate
with the associated risks. The effect of this accounting change was to increase
the net loss for the year by $24,693.
The Company also analyzed the value of its remaining goodwill and
favorable leasehold interests not impaired under the store-level SFAS 121
analysis using its historical method under Accounting Principles Board Opinion
No. 17 (APB 17) and determined that such remaining amounts also were impaired.
For this analysis the value of the goodwill and favorable leasehold interests
was determined by projecting aggregate net income and adjusting it by adding
back amortization of intangible assets. With respect to the projections of net
income used to evaluate intangible assets impairment, management made several
assumptions in projecting their best estimate of the results of future
operations of the Company. The most significant assumptions were an estimated
remaining useful life of goodwill of fifteen years, modest annual comparable
store sales growth, gross margin rates consistent with those experienced over
the past fiscal year in the stores not being closed, an annual expense
escalation consistent with recent inflation trends and the ability to refinance
debt maturities as they come due.
These assumptions resulted in aggregate undiscounted adjusted net income
of Holdings for the fifteen-year forecast period of approximately $5,186, which
reflects aggregate pre-tax interest expense of approximately $398,000 payable in
cash and, at the Holdings level, $86,000 payable "in kind" (PIK). The $5,186 of
aggregate adjusted net income for the fifteen-year forecast period also
reflected projected adjusted net losses for Holdings for fiscal 1997 of $4,522,
which included cash interest expense of $26,242 and PIK interest of $4,453, and
for fiscal 1998 of $2,863, which included cash interest expense of $26,581 and
PIK interest of $5,121. For fiscal 1999, Holdings projected adjusted net income
of approximately $967, which included cash interest expense of approximately
$26,581 and PIK interest of $5,889. Due to the uncertainty of projections beyond
1999, this level of adjusted net income was assumed to continue for each of the
remaining fiscal years in the projection period. As a result of this evaluation
in fiscal 1996, management concluded that the remaining goodwill and favorable
leasehold interests were fully impaired.
Pre-Tax Components of Long-Lived Asset Write-Off As Reflected in the
Statement of Operations for the year ended January 28, 1996:
SFAS APB
121 17 Total
------- ------- -------
Goodwill ........................... $20,607 $49,406 $70,013
Favorable leasehold interests ...... 4,245 1,917 6,162
Property, buildings and equipment .. 2,376 -- 2,376
------- ------- -------
Total .............................. $27,228 $51,323 $78,551
======= ======= =======
The goodwill was originally recorded in July 1986 when The Company was
acquired by Pamida Holdings Corporation through a leveraged buy-out and
represented the excess of the purchase price over the fair value of the net
assets acquired. Goodwill had been amortized on a straight-line basis over a
forty-year period but, due to the trends cited above, its estimated remaining
useful life was adjusted to fifteen years during the fourth quarter of fiscal
1996.
K. STORE CLOSINGS IN FISCAL 1996
As discussed in Note J above, the Company's operating performance during
fiscal 1996 was below plan. Management's analysis of individual stores'
operations and cash flows resulted in the identification of forty unprofitable
or competitive market stores which did not fit the Company's niche market
strategy. Consequently, a charge was recorded at January 28, 1996 as indicated
below to cover the costs necessary to close these stores. The Company received
positive net cash flow from closing the stores due to cash generated from the
disposition of related inventories. The amounts the Company will ultimately
realize from the disposal of assets or pay on the resolution of liabilities may
differ from the estimated amounts utilized in arriving at the income statement
effect.
Income
Statement
Effect
Pre-Tax Components of fiscal 1996 Store Closing Costs: ---------
Real estate exit costs and write-off of property,
buildings, and equipment ......................... $11,455
Inventory liquidation .............................. 9,080
Professional charges ............................... 314
Severance and other costs and fees ................. 548
-------
Totals ............................................. $21,397
=======
The 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 closing stores inventory was
completed in the second quarter of fiscal 1997. All known ancillary costs of the
store closings have been paid except those related to the remaining real estate.
During fiscal 1997, the Company negotiated settlements on twenty closed store
properties which had been leased, two which have been subleased, and sold four
closed store properties which had been owned. As of February 2, 1997, the
Company remains liable for lease obligations on twelve closed store properties
and owns four closed store properties. The Company anticipates that final
disposition of the remaining obligations and properties will be completed in
fiscal 1999. There were no adjustments made during fiscal 1997 to the store
closing reserve other than cash inflows and outflows related to the store
closings.
The store closing reserve is presented in the balance sheets as follows:
Feb. 2, Jan. 28,
1997 1996
------- -------
Store closing reserve (short-term) ........... $ 4,521 $ 7,818
Amount included in other long-term liabilities 2,190 2,619
------- -------
Total ........................................ $ 6,711 $10,437
======= =======
L. SUPPLEMENTAL FINANCIAL INFORMATION - CAPITALIZATION OF PAMIDA
HOLDINGS CORPORATION
The capitalization of Pamida Holdings Corporation is as follows:
1997 1996
Long-term debt: -------- --------
Senior promissory notes, 15.5%, due in 2003,
interest paid in kind quarterly, unsecured .... $ 4,926 $ 4,231
Subordinated promissory notes, 16%, due in 2003,
interest paid in kind quarterly, unsecured .... 13,454 11,500
Junior subordinated promissory notes, 16.25%,
net of unamortized discount of $878 and $1,038,
due in 2003, interest paid in kind quarterly,
unsecured ..................................... 9,256 7,604
-------- --------
27,636 23,335
-------- --------
Preferred stock subject to mandatory redemption:
Senior cumulative preferred stock, 16.25%,
$1 par value; 514 shares authorized,
issued and outstanding ........................ 514 514
Junior cumulative preferred stock, 14.25%, $1
par value, 6,986 shares authorized; 1,627
shares issued and outstanding; redemption
amount of $1,627 less unamortized discount .... 1,361 1,312
-------- --------
1,875 1,826
-------- --------
Common stockholders' equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 5,004,942 shares issued
and outstanding in both years ................. 50 50
Additional paid-in capital ...................... 968 968
Retained deficit ................................ (88,321) (87,134)
-------- --------
(87,303) (86,116)
-------- --------
Total capitalization ......................... $(57,792) $(60,955)
======== ========
The promissory notes were amended effective December 1, 1992 to
provide that until the obligations of Holdings and the Company under the certain
credit agreement have been paid in full the quarterly interest payments on the
notes will be paid in kind by increasing the principal amount of each note on
the applicable quarterly payment date by the amount of accrued interest then
being paid in kind. Interest on the notes paid in kind accrues at a rate which,
in each case, is two percentage points higher than the applicable cash interest
rate.
Both series of preferred stock provide for mandatory redemption in 2001
at a price per share not to exceed the liquidation value which is $1,000 per
share. Subject to certain loan restrictions, there are also optional redemption
provisions available at the discretion of Holdings. The original fair value of
the junior cumulative preferred stock is less than the redemption value and is
therefore being increased by periodic accretions of the difference between fair
value and redemption value. Both series of preferred stock are nonvoting and
call for payment of dividends on a quarterly basis. Any unpaid dividends are
added to the liquidation value until paid. Certain limitations on the payment of
dividends are discussed in Note J.
M. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for
the years ended February 2, 1997 and January 28, 1996:
<TABLE>
<CAPTION>
April 28, July 28, October 27, February 2,
Fiscal 1997 1996 1996 1996 1997 Year
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $ 131,786 $ 155,817 $ 151,980 $ 193,606 $ 633,189
Gross profit $ 31,575 $ 37,096 $ 36,446 $ 48,973 $ 154,090
Net (loss) income $ (3,711) $ (215) $ 1,313 $ 6,309 $ 3,696
April 30, July 30, October 29, January 28,
Fiscal 1996 1995 1995 1995 1996 Year
----------- ----------- ----------- ----------- -----------
Sales $ 153,961 $ 186,953 $ 176,206 $ 219,195 $ 736,315
Gross profit $ 36,813 $ 44,638 $ 42,802 $ 53,435 $ 177,688
Net (loss) income $ (2,037) $ 642 $ 86 $ (91,218) $ (92,527)
</TABLE>
Fourth quarter fiscal 1997 net income was unfavorably impacted by a
LIFO provision of $424 while the fourth quarter fiscal 1996 net income was
favorably impacted by a LIFO benefit of $1,335.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required by this item has been previously reported in the
Form 8-K Current Report of the Company dated October 16, 1996.
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 May 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 46 Chairman of the Board, Chief
Executive Officer, President
and Director
Frank A. Washburn 48 Executive Vice President-Chief
Operating Officer and Director
George R. Mihalko 42 Senior Vice President, Chief
Financial Officer, Treasurer
and Director
Stephen D. Robinson 42 Senior Vice President-General
Merchandise Manager (Hardlines)
Donald Hendricksen 46 Senior Vice President-Store
Operations
Paul L. Knutson 39 Senior Vice President -
Human Resources
Kurt Streitz 48 Senior Vice President -
Chief Information Officer
Steven S. Fishman has served as Chief Executive Officer and President of
the Company since April 1993 and as Chairman of the Board of the Company since
August 1993. From 1988 to March 1993, Mr. Fishman was employed by Caldor, Inc.
as Senior Vice President and General Merchandise Manager-Homelines.
Frank A. Washburn has served as Chief Operating Officer of the Company
since March 6, 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.
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.
Stephen D. Robinson has served as Senior Vice President-General Merchandise
Manager-Hardlines of the Company since he joined the Company in September 1993.
From February 1992 to September 1993, Mr. Robinson served as Vice President of
Sales and Marketing for Benchmark Home Products; from January 1991 to February
1992, Mr. Robinson was employed by Caldor, Inc. as an Operating Vice President
and Divisional Merchandise Manager.
Donald Hendricksen has served as Senior Vice President-Store Operations of
the Company since January 1996. From 1986 to January 1996, Mr. Hendricksen
served as a Vice President and Divisional Merchandise Manager of the Company.
Mr. Hendricksen joined the Company's predecessor in 1969.
Paul L. Knutson has served as Senior Vice President - Human Resources since
March 6, 1997. From July 1994 to March 6, 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 Land's End from
February 1992 to July 1994. Mr Knutson served as Manager of Compensation and
Benefits at Pamida before February 1992. He joined the Company in 1983.
Kurt Streitz has served as Senior Vice President - Chief Information
Officer of the Company since March 6, 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.
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 February 2, 1997, January 28,
1996 and January 29, 1995 to the Chief Executive Officer of the Company and to
certain other executive officers of the Company:
<TABLE>
<CAPTION>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------- -------------
Name and Other Stock Options
Principal Fiscal Annual (Number of All Other
Position Year Salary Bonus Compensation Shares) Compensation (1)
<S> <C> <C> <C> <C> <C> <C>
Steven S. Fishman, 1997 $506,973 $ -- $ -- 25,800 $34,427
Chairman of the 1996 $444,088 $ -- $ -- 2,778 $24,310
Board, President, 1995 $419,135 $239,787 $ -- 75,000 $ 3,700
and Chief Executive
Officer
Frank A. Washburn, 1997 $223,127 $ -- $ -- 13,000 $16,013
Executive Vice 1996 $194,281 $ 25,000 $ -- 14,667 $12,877
President, Chief 1995 $134,819 $ 31,468 $ -- - $ 3,369
Operating Officer
George R. Mihalko, 1997 $182,935 $ 15,000 $ -- 6,500 $11,515
Senior Vice 1996 $ 58,385 $ 35,000 $ 29,836 (3) 10,000 $ 2,856
President and
Chief Financial
Officer (2)
Stephen D. Robinson, 1997 $199,858 $ 20,000 $ -- 6,500 $15,268
Senior Vice 1996 $182,358 $ 15,000 $ -- 14,667 $12,071
President-General 1995 $172,896 $ 39,335 $ -- -- $ 1,010
Merchandise Manager
Donald Hendricksen, 1997 $149,281 $ 25,000 $ -- 6,500 $ 7,564
Senior Vice 1996 $118,358 $ -- $ -- 417 $ 8,122
President-Store
Operations (4)
</TABLE>
- ----------------------
(1) All Other Compensation for fiscal 1997 consists of contributions by the
Company to its 401(k) plan and 1995 Deferred Compensation Plan ($3,750 and
$30,677 for Mr. Fishman, $3,123 and $12,890 for Mr. Washburn, $1,212 and
$10,303 for Mr. Mihalko, $3,692 and $11,576 for Mr. Robinson, and $3,731
and $3,833 for Mr. Hendricksen). 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 a participant's
deferral account quarterly with an interest equivalent at the rate of 7%
per annum.
(2) Mr. Mihalko became an executive officer of the Company in September 1995.
Prior to that time he was not employed by the Company.
(3) $16,849 of this amount was a sign-on bonus in connection with Mr. Mihalko's
initial employment by the Company, and $11,873 of this amount was
reimbursement of various moving and relocation expenses.
(4) Mr. Hendricksen became an executive officer of the Company in January 1996.
Information concerning his prior employment by the Company appears on a
previous page of this Form 10-K.
- ----------------------
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants (1) for Option Term (2)
- -------------------------------------------------------------------------- ---------------------
% of Total
Options
Options Granted to
Granted Employees Exercise
(Number of in Fiscal Price Expiration
Name Shares) Year ($/Sh) Date 5% 10%
- ------------------- ---------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Steven S. Fishman 12,000 (3) 13.8% $2.7813 02-28-06 $20,990 $53,192
Steven S. Fishman 13,800 (4) 15.9% $1.9375 12-11-06 $16,815 $42,613
Frank A. Washburn 6,000 (3) 6.9% $2.7813 02-28-06 $10,495 $26,596
Frank A. Washburn 7,000 (4) 8.1% $1.9375 12-11-06 $ 8,529 $21,615
George R. Mihalko 3,000 (3) 3.5% $2.7813 02-28-06 $ 5,247 $13,298
George R. Mihalko 3,500 (4) 4.0% $1.9375 12-11-06 $ 4,265 $10,808
Stephen D. Robinson 3,000 (3) 3.5% $2.7813 02-28-06 $ 5,247 $13,298
Stephen D. Robinson 3,500 (4) 4.0% $1.9375 12-11-06 $ 4,265 $10,808
Donald Hendricksen 3,000 (3) 3.5% $2.7813 02-28-06 $ 5,247 $13,298
Donald Hendricksen 3,500 (4) 4.0% $1.9375 12-11-06 $ 4,265 $10,808
</TABLE>
(1) The options granted during fiscal 1997 were granted under the Pamida
Holdings Corporation 1992 Stock Option Plan (the "Plan") by the Stock
Option Committee of the Board of Directors of Holdings. Such options relate
to shares of the Common Stock of Holdings, were granted at prices equal to
the average of the high and low prices of such Common Stock on the American
Stock Exchange on the dates of the grants, and are intended to be incentive
stock options for federal income tax purposes to the extent permitted by
the Internal Revenue Code of 1986.
(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 ten 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 five equal annual installments
beginning February 28, 1997, subject to the terms of the Plan and the
applicable stock option agreement.
(4) These options become exercisable in five equal annual installments
beginning December 11, 1997, 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
<TABLE>
<CAPTION>
Number of
Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
02-02-97 (1) 02-02-97 (2)
Number of
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable(2) Unexercisable
<S> <C> <C> <C> <C>
Steven S. Fishman -- -- 92,122 --
68,400 $4,313
Frank A. Washburn -- -- 9,133 --
20,200 $2,188
George R. Mihalko -- -- 2,600 --
13,900 $1,094
Stephen D. Robinson -- -- 8,533 --
14,300 $1,094
Donald Hendricksen -- -- 2,058 --
5,900 $1,094
</TABLE>
(1) All options relate to shares of the Common Stock of Holdings and were
granted under the Pamida Holdings Corporation 1992 Stock Option Plan.
(2) Based upon the $2.25 market value of the underlying Common Stock of
Holdings on January 31, 1997, 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. Mr. Fishman was entitled to receive an incentive bonus for fiscal
1997 under the 1995 agreement if a specified minimum earnings test was met;
however, such test was not met, and Mr. Fishman received no incentive bonus for
fiscal 1997. 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 1998 through 2001. Mr. Fishman's fiscal 1998 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 also provides that Mr. Fishman is entitled to at
least 12 months advance notice if Holdings and the Company do not intend to
continue his employment after April 18, 2001, with at least the same base salary
as then in effect and with a substantially similar incentive bonus program and
fringe benefits; in the absence of such notice prior to April 18, 2000, Mr.
Fishman would be entitled to certain compensation through the end of a 12-month
period beginning when such notice actually is given.
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. 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.
Pamida has agreements with Messrs. Robinson and Hendricksen which provide
in each case that if such person's employment is terminated by Pamida without
cause (as defined in the agreement), then such person will be entitled to
receive severance pay in an amount equal to his then current annual base salary,
payable over the 12-month period following the termination and with any
remaining payments reduced by any wages earned by him during such 12-month
period. If Mr. Fishman is not the Chief Executive Officer of Pamida at the time
of such termination, then the severance pay of Mr. Robinson 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. Robinson's current annual
base salary is $195,000, and Mr. Hendricksen's current annual base salary is
$145,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Holdings owns 100% of the outstanding capital stock of the Company. Its
address is the same as that of the Company.
The following table sets forth information as to each class of equity
securities of Holdings beneficially owned as of March 29, 1996, by each director
of the Company, by certain executive officers of the Company and by all
directors and executive officers of the Company as a group:
Number of
Shares of Common Percent
Stock Beneficially of
Beneficial Owner Owned (1) Class
------------------ ------------------ -------
Steven S. Fishman 135,622 (2) 2.66%
Frank A. Washburn 22,233 (3) 0.44%
George R. Mihalko 4,675 (4) 0.09%
Stephen D. Robinson 33,177 (5) 0.66%
Donald Hendricksen 7,158 (6) 0.14%
All directors and executive officers
as a group (5 persons) 208,865 (7) 4.08%
- ------------------
(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 33,500 of these shares, which
are held by him (15,500) or his wife (18,000) as custodian for his
children. Mr. Fishman has the right to acquire beneficial ownership of
92,122 of these shares pursuant to currently exercisable options.
(3) Mr. Washburn has the right to acquire beneficial ownership of 9,133 of
these shares pursuant to currently exercisable options.
(4) Mr. Mihalko has the right to acquire beneficial ownership of 2,600 of these
shares pursuant to currently exercisable options.
(5) Mr. Robinson has the right to acquire beneficial ownership of 8,533 of
these shares pursuant to a currently exercisable option. 14,100 of these
shares are owned jointly by Mr. Robinson and his wife, who have shared
voting and investment power with respect to such shares. Mr. Robinson
disclaims beneficial ownership of 300 of these shares which are held by him
as custodian for his son and 1,244 of these shares which are held in an IRA
account of his wife.
(6) Mr. Hendricksen has the right to acquire beneficial ownership of 2,058 of
these shares pursuant to currently exercisable options.
(7) See notes (2) through (6) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report in Item 8:
1. FINANCIAL STATEMENTS.
Pamida, Inc. and Subsidiaries
- Independent Auditors' Report
- Consolidated Statements of Operations for the Years Ended February
2, 1997, January 28, 1996 and January 29, 1995
- Consolidated Balance Sheets at February 2, 1997 and January 28,
1996
- Consolidated Statements of Common Stockholder's Equity for the Years
Ended February 2, 1997, January 28, 1996 and January 29, 1995
- Consolidated Statements of Cash Flows for the Years Ended February
2, 1997, January 28, 1996 and January 29, 1995
- Notes to Consolidated Financial Statements for the Years Ended
February 2, 1997, January 28, 1996 and January 29, 1995
2. FINANCIAL STATEMENT SCHEDULES.
None
All schedules of the registrant for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission
are not required under the related instructions, are inapplicable or have
been disclosed in the Notes to Consolidated Financial Statements and,
therefore, have been omitted.
3. EXHIBITS.
(2) 3.1 - Restated Certificate of Incorporation of Pamida, Inc.
(2) 3.2 - Second Revised By-Laws of Pamida, Inc.
(4) 4.1 - Indenture dated as of March 15, 1993, among Pamida, Inc. as
Issuer, Pamida Holdings Corporation as Guarantor, and State
Street Bank and Trust Company as Trustee relating to 11 3/4%
Senior Subordinated Notes due 2003 of Pamida, Inc.
(4) 4.2 - Specimen form of 11 3/4% Senior Subordinated Note due 2003 of
Pamida, Inc.
(3) 10.1 - Tax-Sharing Agreement dated as of February 2, 1992, among
Pamida Holdings Corporation, Pamida, Inc., Seaway Importing
company, and Pamida Transportation Company.
(4) 10.2 - Loan and Security Agreement dated March 30, 1993, by and among
Congress Financial Corporation (Southwest) and BA Business
Credit, Inc. as Lenders, Congress Financial Corporation
(Southwest) as Agent for the Lenders, and Pamida, Inc. and
Seaway Importing Company as Borrowers.
(10) 10.3 - Amendment No. 1 to Loan and Security Agreement, dated January
28, 1996, among Pamida, Inc. and Seaway Importing Company as
Borrowers, Congress Financial Corporation (Southwest) as Lender
and Agent and BankAmerica Business Credit as a Lender (amends
Exhibit 10.2).
(11) 10.4 - Amendment No. 2 to Loan and Security Agreement, dated January 28,
1996, among Pamida, Inc. and Seaway Importing Company as
Borrowers, Congress Financial Corporation (Southwest) as Lender
and Agent and BankAmerica Business Credit as a Lender (amends
Exhibit 10.2).
(12) 10.5 - Amendment No. 3 to Loan and Security Agreement among Pamida,
Inc. and Seaway Importing Company, as Borrowers, Congress
Financial Corporation (Southwest) and BankAmerica Business
Credit, Inc., as Lenders, and Congress Financial Corporation
(Southwest), as Agent, dated September 16, 1996 (amends
Exhibit 10.2).
10.6 - Amendment No. 4 to Loan and Security Agreement among Pamida,
Inc. and Seaway Importing Company, as Borrowers, Congress
Financial Corporation (Southwest) and BankAmerica Business
Credit, Inc., as Lenders, and Congress Financial Corporation
(Southwest), as Agent, dated January 31, 1997 (amends Exhibit
10.2).
10.7 - Amendment No. 5 to Loan and Security Agreement among Pamida,
Inc. and Seaway Importing Company, as Borrowers, Congress
Financial Corporation (Southwest) and BankAmerica Business
Credit, Inc., as Lenders, and Congress Financial Corporation
(Southwest), as Agent, dated March 17, 1997 (amends Exhibit
10.2).
(6) 10.8 - Pamida Holdings Corporation 1992 Stock Option Plan.
(5) 10.9 - Employment Agreement dated April 19, 1993, between Pamida, Inc.
and Steven S. Fishman.
(8) 10.10 - Amendment No. 1 to Employment Agreement, dated January 3, 1994,
between Pamida, Inc. and Steven S. Fishman (amends Exhibit
10.9).
(9) 10.11 - Amendment No. 2 to Employment Agreement, dated January 23,
1995, between Pamida, Inc. and Steven S. Fishman (amends
Exhibit 10.9).
(10) 10.12 - Employment Agreement dated September 22, 1995, among Pamida
Holdings Corporation, Pamida, Inc. and Steven S. Fishman.
(12) 10.13 - Amendment No. 1 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc. , and Steven S. Fishman dated August
29, 1996 (amends Exhibit 10.12).
10.14 - Amendment No. 2 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and Steven S. Fishman dated March
6, 1997 (amends Exhibit 10.12).
(13) 10.15 - Retention and Confidentiality Agreement dated August 31, 1993,
between Pamida, Inc. and Stephen Robinson, Amendment thereto
dated January 1995, and Second Amendment thereto dated
February 21, 1996.
10.16 - Severance Pay, Confidentiality, and Non-Solicitation Agreement
between Pamida, Inc. and Donald Hendricksen dated April 7,
1997.
10.17 - Employment Agreement dated as of March 6, 1997, among Pamida
Holdings Corporation, Pamida, Inc., and Frank A. Washburn.
10.18 - Employment Agreement dated as of March 6, 1997, among Pamida
Holdings Corporation, Pamida, Inc., and George R. Mihalko.
10.19 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc. and Steven S. Fishman.
10.20 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc., and Frank A. Washburn.
10.21 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc., and George R. Mihalko.
10.22 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc., and Stephen Robinson.
10.23 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc., and Donald Hendricksen.
(9) 10.24 - Pamida, Inc. 1995 Deferred Compensation Plan.
(7) 22.1 - Subsidiaries of Pamida, Inc.
- -------------------------
(1) Previously filed as an exhibit to Registration Statement of Pamida Holdings
Corporation on Form S-1 (Registration No. 33-35324) and incorporated herein
by this reference.
(2) Previously filed as an exhibit to Registration Statement of Pamida, Inc. on
Form S-l (Registration No. 33-10980) and incorporated herein by this
reference.
(3) Previously filed as an exhibit to Registration Statement of Pamida, Inc.
and Pamida Holdings Corporation on Form S-1 (Registration No. 33-57990) and
incorporated herein by this reference.
(4) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation (File No. 1-10619) for the period ended May 2, 1993,
and incorporated herein by this reference.
(5) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida,
Inc. (File No. 33-57990) for the period ended August 1, 1993, and
incorporated herein by this reference.
(6) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation (File No. 1-10619) for the period ended August 1,
1993, and incorporated herein by this reference.
(7) Previously filed as an exhibit to Registration Statement of Pamida, Inc. on
Form S-1 (Registration No. 33-57990) and incorporated herein by this
reference.
(8) Previously filed as an exhibit to Form 10-K Annual Report of Pamida, Inc.
for the fiscal year ended January 30, 1994, and incorporated herein by this
reference.
(9) Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended January 29, 1995, and
incorporated herein by this reference.
(10) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 29, 1995, and
incorporated herein by this reference.
(11) Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the period ended January 28, 1996, and
incorporated herein by this reference.
(12) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 27, 1996, and
incorporated herein by this reference.
(13) Previously filed as an exhibit to Form 10-K Annual Report of Pamida, Inc.
for the fiscal year ended January 28, 1996, 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.
<PAGE>
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 15, 1997 PAMIDA, INC.
By: /S/ STEVEN S. FISHMAN
Steven S. Fishman, Chairman of
the Board, President and 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 15, 1997
Steven S. Fishman President, Chief Executive
Officer and Director
/S/ GEORGE R. MIHALKO Senior Vice President, April 15, 1997
George R. Mihalko Chief Financial Officer
Treasurer and Director
/S/ TODD D. WEYHRICH Principal Accounting April 15, 1997
Todd D. Weyhrich Officer
/S/ FRANK A. WASHBURN Director April 15, 1997
Frank A. Washburn
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 February 2, 1997
Commission File Number 1-10619
PAMIDA HOLDINGS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 47-0696125
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
8800 "F" Street, Omaha, Nebraska 68127
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 339-2400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Name of Each Exchange
Class on Which Registered
------------- -----------------------
Common Stock American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of April 15, 1997, was $10,899,162 based upon the closing
price for such stock on the American Stock Exchange on such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Outstanding at
Class of Stock April 15, 1997
-------------- ----------------
Common Stock 5,004,942 shares
Documents Incorporated by Reference: Portions of the registrant's proxy
statement dated March 26, 1997, for the annual meeting of the registrant's
stockholders to be held on May 22, 1997, are incorporated by reference into Part
III.
PART I
Item 1. BUSINESS.
FORWARD-LOOKING STATEMENTS
This 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 10-K contains certain forward-looking statements which reflect management's
current views and estimates of future economic circumstances, industry
conditions, Company performance and 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.
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.
GENERAL.
Pamida Holdings Corporation conducts its mass merchandise retail business
through its wholly owned subsidiary, Pamida, Inc., a Delaware corporation.
Unless the context indicates otherwise, the terms "Pamida" and "Company" refer
collectively to Pamida Holdings Corporation, its direct and indirect
subsidiaries and their predecessors, and "Holdings" refers only to Pamida
Holdings Corporation.
Holdings is a Delaware corporation incorporated in 1986 to acquire all of
the capital stock of Pamida, Inc. which, directly since 1981 and through a
predecessor prior to 1981, had been engaged in the mass merchandise retail
business since 1963. The capital stock of Pamida, Inc. is the only significant
asset of Holdings, and Holdings has no material operations of its own.
On January 19, 1996, the Company announced its intention to close 40 stores
located in unprofitable or highly competitive markets. Store closing sales began
on January 29, 1996, and the Company 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.
STORES.
At February 2, 1997, Pamida operated 148 mass merchandise retail stores
located in 148 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 mass 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, normally county seats,
where there often is little or no competition from another major mass
merchandise retailer and which the Company considers to be either too small to
support more than one major mass 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
February 2, 1997, 119 of the Company's 148 stores faced no direct local
competition from other major mass merchandise retailers.
The Company's stores average approximately 29,000 square feet of sales area
and range in size from approximately 6,000 to 51,000 square feet of sales area.
At February 2, 1997, Pamida's stores had an aggregate sales area of
approximately 4,348,000 square feet.
The following table indicates the states in which Pamida's stores were
located as of February 2, 1997:
STATE TOTAL
----- -----
Minnesota..................................................... 29
Iowa.......................................................... 26
Nebraska...................................................... 15
Wisconsin..................................................... 14
Michigan..................................................... 12
Ohio......................................................... 10
Wyoming....................................................... 9
North Dakota.................................................. 7
South Dakota.................................................. 7
Montana....................................................... 7
Indiana....................................................... 4
Kansas........................................................ 3
Kentucky ..................................................... 2
Illinois...................................................... 2
Missouri ..................................................... 1
---
148
===
The following tables show the number of the Company's store openings,
relocations and closings and the aggregate year-end store sales area by fiscal
year since fiscal 1993:
Fiscal Year Ended
1997 1996 1995 1994 1993
Beginning of year ... 144 184 173 178 178
Stores opened in
new markets ..... 6 7 17 8 9
Stores relocated in
existing markets 2 3 -- -- --
Stores closed ..... (4) (10) (6) (13) (9)
--- --- --- --- ---
End of year ......... 148 184 184 173 178
Less 40 Closed Stores === (40) === === ===
---
144
===
Fiscal Year Ended
1997 1996 1995 1994 1993
Square feet of
store sales area
at year-end (in
millions) 4.35 5.22 5.09 4.68 4.75
Less 40 Closed Stores (1.09)
------
4.13
Pamida regularly evaluates all of its stores and from time to time closes
stores which no longer meet its standards for sales, profitability, selling area
or other applicable criteria.
STORE EXPANSION PROGRAM.
Pamida's store expansion program is subject to the Company's ability to
negotiate satisfactory leases, to the ability of prospective landlords to obtain
financing for new store buildings and to various zoning, site acquisition,
environmental, traffic, construction and other contingencies. Three new stores,
two of which are replacement stores, are expected to commence operations this
year.
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.
In October 1996 the Company agreed to lease a new 200,000 square foot
distribution facility to be located in Lebanon, Indiana. Construction of this
new facility is underway, and the facility is expected to be completed and
operational during the second quarter of the current year.
Pamida believes that its existing distribution facilities (including the
new Lebanon, Indiana facility), senior and middle management staff and corporate
infrastructure are sufficient to accommodate the Company's anticipated growth.
The Company typically invests approximately $1,450,000 to $1,750,000 in a
new prototype store. Such expenditures consist primarily of approximately
$1,000,000 to $1,200,000 for the initial store inventory, a portion of which is
financed by vendor trade credit, and approximately $450,000 to $550,000 for
store fixtures and equipment. Because of the redeployment of store fixtures and
equipment from the 40 Closed Stores to new stores, the Company expects store
fixture and equipment expense to be limited to approximately $250,000 per new
store for fiscal 1998. In most cases, building and land costs of approximately
$1,450,000 to $1,750,000 per store are financed by unaffiliated developers who
lease the real estate to Pamida. To expedite the construction process, Pamida
occasionally may construct stores on sites which it acquires, with the
expectation that it subsequently will enter into sale-leaseback transactions
with respect to such stores with unaffiliated investors.
SALES AND MERCHANDISING.
Pamida's merchandising policy is to provide customers with one-stop family
shopping convenience and to feature nationally advertised brand-name products as
well as some private-label merchandise at attractive prices. Pamida operates its
stores on a self-service, primarily cash-and-carry basis and runs weekly
advertised promotions throughout the year. All of Pamida's stores accept bank
credit cards, which accounted for 14.2% of total store sales during the fiscal
year ended February 2, 1997.
Pamida's typical customers are price-conscious families across the income
spectrum. To effectively serve such customers, the Company's stores are open
seven days a week for an average of at least 75 hours per week.
Pamida's two basic merchandise divisions are softlines and hardlines. The
softlines division includes men's, women's, children's and infants' clothing,
footwear, accessories and jewelry. The hardlines division includes categories
such as health and beauty aids, automotive accessories, housewares, cleaning
supplies, hardware, paint, sporting goods, toys, stationery, small appliances
and electronic items, videos, compact discs and tapes, lawn and garden supplies,
linens and other domestics, cameras and accessories, pet supplies and some food
and candy items.
The Company currently owns and operates pharmacies in 41 of its larger
stores, and eight of Pamida's other stores contain prescription pharmacies
leased to and operated by independent pharmacists. The pharmacies have proved to
be effective in building customer loyalty and attracting customers who are
likely to purchase other items in addition to prescription drugs. Pamida
intends, whenever feasible in light of regulatory and personnel considerations
and where space permits, to include a pharmacy in each of its new prototype
stores and to add pharmacies to existing stores.
During the fiscal year ended February 2, 1997, the hardlines division
accounted for approximately 72% of Pamida's total sales, while the apparel
division and the pharmacies accounted for 23% and 5%, respectively, of Pamida's
total sales.
Among the methods that the Company employs to build customer loyalty and
satisfaction are weekly advertised specials, competitive pricing, clean and
orderly stores, friendly well-trained personnel, a liberal return policy and a
wide variety of special customer services (such as wheelchairs for the elderly
and handicapped, restroom facilities and water fountains, seating benches,
speedy check-out lanes and expedited check cashing and raincheck and layaway
processing) offered under various customer-oriented themes such as "We Care" and
"We're Listening". Pamida places special emphasis on maintaining a strong
in-stock position in all merchandise categories, particularly with respect to
sale items.
Pamida's business, like that of most other mass merchandise retailers, is
seasonal. First quarter sales (February through April) are lower than sales
during the other three fiscal quarters, while fourth quarter sales (November
through January) in recent years have increased to approximately 30% 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 1997, Pamida spent approximately $11,618,000 (net of
promotional allowances provided by vendors) on advertising, which represented
approximately 1.8% of fiscal 1997 sales.
PURCHASING AND DISTRIBUTION.
Pamida maintains a centralized buying, merchandising and store planning
staff at its executive offices. The merchandising department includes two
general merchandise managers, five hardlines divisional merchandise managers and
three apparel divisional merchandise managers. Each of the divisional
merchandise managers supervises from five to seven buyers. Members of the
Company's experienced buying staff regularly attend major trade shows, visit
both domestic and overseas markets and meet with vendor representatives at the
Company's headquarters.
The merchandise in the Company's stores is purchased from over 3,000
primary manufacturers and suppliers and numerous other vendors. Centralized
purchasing enables Pamida to more effectively control inventory shrinkage and to
take advantage of promotional programs and volume discounts offered by certain
vendors. The Company continuously seeks to optimize merchandise costs, including
promotional allowances offered by its suppliers. Pamida also has centralized the
management of returned merchandise, which enables the Company to most
effectively secure vendor credits and refunds with respect to such merchandise.
The Company's point-of-sale data capture equipment located in its stores
provides current information to Pamida's buyers to assist them in managing
inventories, effecting prompt reorders of popular items, eliminating
slow-selling merchandise and reducing markdowns.
Seaway Importing Company, a wholly owned subsidiary of Pamida, Inc.,
imports a wide variety of merchandise, including sporting goods, pet supplies,
toys, electronic items, apparel, hair care items, painting supplies, automotive
items and hardware, for sale in Pamida's stores.
During fiscal 1997, approximately 76% of Pamida's merchandise was supplied
to the stores through Pamida's own distribution centers, while the remaining
merchandise was supplied directly to the stores by manufacturers or
distributors.
COMPETITION.
The mass merchandise retail business is highly competitive. The Company's
stores generally compete with supermarkets, drug and specialty stores, mail
order and catalog merchants and, in some communities, department stores and
other mass merchandise retailers. Competitors consist both of independent stores
and of regional and national chains, some of which have substantially greater
resources than the Company. The type and degree of competition and the number of
competitors which Pamida's stores face vary significantly by market.
Pamida believes that the principal areas of competition in the mass
merchandise retail industry are store location, price, merchandise variety and
quality and customer service, although numerous other factors also affect the
competitive position of any particular store. Among the methods that the Company
employs to build customer loyalty and satisfaction are weekly advertised
specials, competitive pricing, clean and orderly stores, friendly well-trained
personnel, a liberal return policy and a wide variety of special customer
services offered under themes such as "We Care" and "We're Listening".
Pamida stores generally are located in small towns, normally county seats,
where there often is little or no competition from another major mass
merchandise retailer and which may be either too small to support more than one
major mass 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 mass merchandise retailer in over 80% of
the communities in which its stores are located.
At February 2, 1997, 119 of Pamida's 148 stores were located in communities
in which there was no direct local competition from other major mass merchandise
retailers. As of that date, Kmart, Alco, Wal-Mart, Target and ShopKo had stores
in 16, 11, 6, 2 and 1 communities, respectively, where Pamida stores are
located; however, because some of these communities have more than one of such
competitors, only 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
executive offices, although store managers are given discretion to adjust prices
of key items to meet local competition and to match a competitor's advertised
prices. Zone pricing allows the Company to establish prices at different levels
in different trade territories, based primarily on competitive conditions within
such territories, rather than having a uniform pricing structure throughout the
entire chain. Pamida conducts a continuous program of competitor price
comparisons that enables the Company to make merchandise price adjustments, when
necessary, to assure that the Company maintains a competitive position.
EMPLOYEES.
As of February 2, 1997, Pamida had approximately 5,700 employees, of whom
approximately 2,800 were full-time and 2,900 were part-time. The number of
employees varies on a seasonal basis. None of Pamida's employees are represented
by a labor union, and the Company believes that its relations with its employees
are good.
At February 2, 1997, the average length of service of the Company's
management staff was as follows:
Average
Years
Number of Service
------ ----------
Top Management 2 15.3
Senior Vice Presidents and Vice Presidents 16 5.7
District Managers 12 20.3
Pharmacy District Supervisors 3 4.9
Store Managers 148 10.7
Pharmacy Managers 41 3.1
Pamida's human resources department is responsible for company-wide salary
and wage administration, as well as all benefit-plan administration. The human
resources department works closely with store operations in the development and
administration of Pamida's store-level employee training programs. In addition,
Pamida has an ongoing program for the development of management personnel to
fill positions in all facets of the Company's operations and makes a concerted
effort to identify and train potential successors for all of its key middle and
senior managers.
Item 2. PROPERTIES.
At February 2, 1997, the Company owned 20 of its 148 store buildings, while
its remaining 128 stores operated in leased premises. A substantial majority of
the Company's leases have renewal options, with approximately 49% 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 February 2, 1997:
Lease Expiring Number of Leased Stores
During the Period (1) 2/02/97
1/97 to 12/98 5
1/99 to 12/00 5
1/01 to 12/02 10
1/03 to 12/04 8
After 12/04 100
---
Total 128
===
- ---------------
(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 two distribution centers are
located in a 215,000 square foot building in Omaha, Nebraska, owned by the
Company. This facility contains approximately 135,000 square feet of warehouse
space and approximately 80,000 square feet of office space.
Pamida's primary distribution center is a 336,000 square foot
"flow-through" facility situated on a 22-acre tract of land in Omaha
approximately one mile from the distribution center described above. 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 October 1996, the Company agreed to lease a new 200,000 square foot
distribution facility to be located in Lebanon, Indiana. Construction of this
new facility, currently is underway, and the facility is expected to be
operational during the second quarter of the current year. This distribution
facility will replace the 100,000 square foot warehouse facility previously
operated by the Company in the Milwaukee, Wisconsin area, which was closed and
the lease terminated in December 1996 due to eminent domain action by the City
of Glendale, Wisconsin. Under the Wisconsin administrative code, Pamida has up
to two years to file a claim for "Actual and Reasonable Moving Expenses" in
connection with the Company's relocation to Lebanon, Indiana. The Lebanon
facility also will be used as a redistribution center for bulk shipments and
promotional merchandise.
Pamida also has a warehouse facility in Omaha which contains approximately
41,000 square feet of space and is located immediately adjacent to the Company's
general offices. This warehouse, which is owned by Pamida, is used for the
processing of merchandise to be returned to vendors and by the advertising
department in connection with its printing operations.
In addition to its retail stores, distribution centers and warehouse
facility, Pamida's tangible assets include inventories, warehouse and store
fixtures and equipment, merchandise handling equipment, office and data
processing equipment, motor vehicles and an airplane.
Item 3. LEGAL PROCEEDINGS.
Pamida is a party to a number of lawsuits incidental to its business, the
outcome of which, both individually and in the aggregate, is not expected to
have a material adverse effect on the Company's operations or financial
condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
* * *
EXECUTIVE OFFICERS OF THE REGISTRANT.
The present executive officers of Holdings are Steven S. Fishman (Chairman
of the Board, President and Chief Executive Officer) Frank A. Washburn
(Executive Vice President, Chief Operating Officer and Secretary), and George R.
Mihalko (Senior Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary). Information concerning such executive officers appears in the
following paragraphs:
Mr. Fishman, age 46, has served as President and Chief Executive Officer of
Holdings and Pamida, Inc. since April 1993 and as Chairman of the Board of
Holdings and Pamida, Inc. since August 1993. From 1988 to March 1993, Mr.
Fishman was employed by Caldor, Inc. as Senior Vice President and General
Merchandise Manager-Homelines. Mr. Fishman has been a director of Holdings since
1993 and also is a director of Pamida, Inc.
Mr. Washburn, age 48, has served as Chief Operating Officer of Holdings and
Pamida, Inc. since March 1997, Executive Vice President of Holdings since
September 1995 and Executive Vice President of Pamida, Inc. since February 1995.
Mr. Washburn previously served as Senior Vice President - Human Resources of
Pamida, Inc. from 1993 to 1995 and as Vice President - Human Resources of
Pamida, Inc. from 1987 to 1993. Mr. Washburn also serves as Secretary of
Holdings and Pamida Inc. Mr. Washburn joined Pamida's predecessor in 1965. Mr.
Washburn has been a director of Holdings since 1995 and also is a director of
Pamida, Inc.
Mr. Mihalko, age 42, has served as Senior Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary of Holdings and Pamida, Inc. since
September 1995. From February 1993 to September 1995, Mr. Mihalko was employed
by Pier 1 Imports, Inc. as Vice President and Treasurer. From July 1990 to
February 1993, Mr. Mihalko was employed by Burlington Northern Railroad as
Assistant Treasurer.
The executive officers of Holdings may be removed from their respective
positions as such officers at any time by the Board of Directors of Holdings,
subject to any rights which they may have under employment agreements with the
Company.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Common Stock of Holdings has been listed and traded on the American
Stock Exchange since September 18, 1990. Prior to that date, no market existed
for such Common Stock.
The high and low sales prices for the Common Stock of Holdings on the
American Stock Exchange for fiscal 1997 and fiscal 1996 are as follows:
Fiscal 1997: High Low
4th Quarter 2 5/16 1 1/2
3rd Quarter 2 3/8 1 5/8
2nd Quarter 3 1/4 2 1/8
1st Quarter 3 1/4 2 1/8
Fiscal 1996: High Low
4th Quarter 4 3/16 2 1/2
3rd Quarter 4 5/8 2 1/4
2nd Quarter 6 4
1st Quarter 7 3/4 6
As of March 24, 1997 there were 297 record holders of the Common Stock of
Holdings.
Holdings has never declared or paid any cash dividends on its Common Stock
and does not intend to pay any such dividends in the foreseeable future. The
obligations of Pamida, Inc. under certain of its financing arrangements are
guaranteed by Holdings. Such financing arrangements presently prohibit the
payment of dividends by Holdings on its Common Stock and also significantly
restrict the ability of Pamida, Inc. to pay dividends or make other
distributions to Holdings.
Item 6. SELECTED FINANCIAL DATA.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollar amounts in thousands - except per share and other data)
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------------------------
February 2, January 28, January 29, January 30, January 31,
1997 (1) 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales ................................... $ 633,189 $ 736,315 $ 711,019 $ 656,910 $ 622,941
Gross profit ............................ 154,090 177,688 177,367 158,906 154,695
Selling, general and
administrative expenses .............. 125,105 151,096 143,585 133,921 124,225
--------- --------- --------- --------- ---------
Operating income ........................ 28,985 26,592 33,782 24,985 30,470
Interest expense ........................ 29,781 29,526 27,367 26,588 25,147
Long-lived asset write-off .............. -- 78,551 -- -- --
Store closing costs ..................... -- 21,397 -- -- --
--------- --------- --------- --------- ---------
(Loss) income before provision for income
taxes and extraordinary item ......... (796) (102,882) 6,415 (1,603) 5,323
Income tax (benefit) provision .......... -- (7,863) 3,500 427 3,061
--------- --------- --------- --------- ---------
(Loss) income before extraordinary item . (796) (95,019) 2,915 (2,030) 2,262
Extraordinary item ...................... -- 371 -- (4,943) --
--------- --------- --------- --------- ---------
Net (loss) income ....................... (796) (94,648) 2,915 (6,973) 2,262
Less preferred dividends
and discount amortization ............ 391 362 361 359 357
--------- --------- --------- --------- ---------
Net (loss) income available
for common shares .................... $ (1,187) $ (95,010) $ 2,554 $ (7,332) $ 1,905
========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding 5,004,942 5,034,536 5,024,745 4,999,984 4,999,984
========= ========= ========= ========= =========
Net (loss) earnings per common share:
(Loss) earnings before extraordinary
item ............................. $ (.24) $ (18.94) $ .51 $ (.48) $ .38
Extraordinary item ................. -- $ .07 -- (.99) --
--------- --------- --------- --------- ---------
Net (loss) earnings per common share $ (.24) $ (18.87) $ .51 $ (1.47) $ .38
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working capital ..................... $ 28,673 $ 34,082 $ 46,725 $ 41,323 $ 16,515
Total assets ........................ 269,188 258,525 354,367 314,621 309,629
Long-term debt ...................... 168,000 163,746 162,505 160,315 132,006
Obligations under capital leases .... 33,999 36,559 43,050 35,618 37,164
Redeemable preferred stock .......... 1,875 1,826 1,779 1,734 1,690
Common shareholders' (deficit) equity (87,303) (86,116) 8,876 6,322 13,654
OTHER DATA:
Team Members ........................ 5,700 7,200 7,200 6,100 5,900
Number of stores .................... 148 184 184 173 178
Retail square feet (in millions) .... 4.35 5.22 5.09 4.68 4.75
(1) Represents a 53 week year.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollar amounts in thousands)
YEAR ENDED FEBRUARY 2, 1997 COMPARED TO YEAR ENDED JANUARY 28, 1996
SALES - As discussed in Note O to the financial statements, the Company
closed forty stores at the end of fiscal 1996 in unprofitable or highly
competitive markets which did not fit the Company's niche market strategy.
Consequently, the Company experienced a planned decrease in total sales for
fiscal 1997 of $103,126 or 14.0% compared to fiscal 1996 due primarily to the
reduced number of stores. During fiscal 1997 the Company opened eight new
prototype stores, of which six are located in new markets and two were
relocations; the Company also closed two stores, resulting in a net increase in
selling area during the fiscal year of approximately 216,000 square feet (not
including changes relating to the forty stores closed as of fiscal year end
1996) to a total of 4,348,000 square feet. As of February 2, 1997, the Company's
store base included 35 of the Company's most recent store prototype, which
represented 28.7% of the Company's total selling square feet.
Comparable store sales during the 53-week fiscal 1997 period decreased by
$8,893 or 1.5% from the 52-week fiscal 1996 period. Comparable store sales on a
53-week to 53-week basis decreased by 2.6%. Sales were affected primarily by
slowed warehouse distributions to stores as a result of the implementation of a
new warehouse inventory management system initiated in the first quarter of
fiscal 1997. The slowed distributions caused a deterioration of merchandise
in-stock positions in most of the Company's stores, resulting in lost sales.
While implementation of the warehouse system was largely completed by August
1996, and in-stock positions at the stores improved thereafter, sales remained
below management expectations due to reduced customer traffic continuing in the
third and fourth quarters. Comparable sales also were affected during much of
the year by low-margin clearance sales in fiscal 1996 which were not necessary
at the same level in fiscal 1997. However, beginning late in the holiday
shopping season and continuing through fiscal year end, sales improved as the
Company demonstrated to customers its improved in-stock position in all product
categories.
The Company experienced substantial comparable store sales increases in
fiscal 1997 in several merchandise categories, the most dramatic of which were
in the pharmacy prescription, junior apparel, grocery and ready-to-wear areas.
Comparable store sales gains also were generated in the hosiery, team sports,
camera, stationery, health aids and bath categories. The Company experienced
comparable store sales decreases in several categories. The largest dollar
decreases on a comparable store basis were in the electronics, automotive,
misses bottoms, men's shoes, electrical and appliance areas. Management believes
that subtle adjustments made to the Company's softlines strategy at the end of
fiscal 1996 to meet customer demand for a deeper selection of basic apparel had
a positive impact on sales and margins in softlines during fiscal 1997.
GROSS PROFIT - Gross profit dollars were affected by the reduced number of
stores in operation during fiscal 1997 as compared to fiscal 1996. The Company's
merchandise gross profit as a percentage of sales improved to 27.8% in fiscal
1997 from 26.8% in fiscal 1996. However, this improvement was diluted by
additional costs related to the implementation of the new warehouse inventory
management system discussed above. Warehouse costs increased to $13,457 from
$11,066 last year and increased as a percent of sales to 2.1% from 1.5% last
year. Delivery costs decreased to $7,637 in fiscal 1997 from $8,845 last year
and amounted to 1.2% of sales in both years. Accordingly, gross profit decreased
by $23,598, or 13.3%, to $154,090 in fiscal 1997 from $177,688 in fiscal 1996
but, as a percentage of sales, increased to 24.3% in fiscal 1997 from 24.1% in
fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE expense decreased $25,991, or 17.2%, to
$125,105 in fiscal 1997 from $151,096 in fiscal 1996. As a percentage of sales,
selling, general and administrative expense decreased to 19.8% from 20.5% last
year. This reduction was largely attributable to reductions in store level
expenses. Store payroll, controllable and occupancy expenses accounted for 64.2%
of the total decrease in selling, general and administrative expense and
decreased by 14.5%, 17.5% and 13.9%, respectively. Selling, general and
administrative expense also was positively impacted by a 28.9% reduction in
advertising costs which accounted for 18.2% of the gross decrease in selling,
general and administrative expense. All of these areas of expense were impacted
by the elimination of costs related to the forty stores which were closed as of
the end of fiscal 1996. Selling, general and administrative expense also was
impacted by an 11.0% decrease in corporate general and administrative costs
which accounted for 11.3% of the gross decreases in selling, general and
administrative expense. The major components of this decrease were decreases in
the net costs of insurance, professional fees, management bonuses and related
fringe benefits.
Selling, general and administrative expense also was positively impacted by
the elimination of amortization of goodwill and favorable leasehold interests
resulting from the write-off of these items in the fourth quarter of fiscal
1996. The decreases in selling, general and administrative expense were offset
by a $1,246 reduction in other income which was attributable largely to one-time
gains realized in fiscal 1996, primarily from the sale of idle transportation
company assets.
The Company is continuing to focus on controlling selling, general and
administrative expenses. Store operating expenses as a percent of sales are
anticipated to remain relatively constant in fiscal 1998. Certain expense
categories are anticipated to increase somewhat as a percent of sales due to
more normal clearance activity and expected increases in interest expense,
information systems costs, store payroll expenses (due to federally mandated
minimum wage increases) and incentive compensation. The Company expects to begin
to realize operating efficiencies from systems enhancements in the warehouse and
distribution areas in fiscal 1998 and in the merchandising areas beginning in
the second half of fiscal 1999. Further expense leveraging is expected in future
years through internal growth as well as the addition of new stores.
INTEREST expense increased marginally by $255 or 0.9% for fiscal 1997
compared to fiscal 1996. The increase in interest expense for fiscal 1997 was
attributable primarily to higher usage of the revolving line of credit and to
the outstanding promissory notes of the Company which require quarterly
compounding interest payments to be paid in kind. These increases were largely
offset by decreased interest related to lower average outstanding capitalized
lease obligations in fiscal 1997 compared to fiscal 1996.
INCOME TAX PROVISION - No income tax benefit on losses for fiscal 1997 will
be recorded until the Company can establish with a reasonable degree of
certainty the potential utilization of certain tax loss carry forwards from
prior year store closing charges. The effective tax rate in fiscal 1996 was 7.6%
and was impacted by the non-deductible amortization and write-off of goodwill
and the reserves recorded to offset the deferred tax assets.
YEAR ENDED JANUARY 28, 1996 COMPARED TO YEAR ENDED JANUARY 29, 1995
WRITE-OFF OF LONG-LIVED ASSETS AND STORE CLOSING CHARGE.
During fiscal 1996, weak trends in the retail industry combined with
increasing competition lowered the operating results of the Company. While
operating results in the first three quarters of the year were behind plan,
management focused on strategies to achieve its plan during the important fourth
quarter season.
During the fourth quarter, management reviewed its expectations for near-
and long-term performance of the Company, revised its earnings projections and
reassessed the recoverability of the Company's long-lived assets.
As explained in Note N to the financial statements, in the fourth quarter
of fiscal 1996, the Company adopted Statement of Financial Accounting Standards
No.121 "Accounting For the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of" (SFAS 121). This financial accounting standard requires the
Company to perform an analysis of the recoverability of the net book value of
long-lived assets. The Company analyzed cash flows on an individual store basis
to assess recoverability of store level long-lived assets including allocated
goodwill. As a result of this analysis, impairment totaling $27,228 on a pre-tax
basis was indicated at certain stores.
The Company also analyzed the value of its remaining goodwill and favorable
leasehold interests not impaired under the store-level SFAS 121 analysis using
its historical method under Accounting Principles Board Opinion No. 17 (APB 17)
and determined that such remaining amounts also were impaired. The APB 17
analysis projected a fifteen-year forecast period and produced $5,186 of
aggregate undiscounted adjusted net income, including projected adjusted net
losses for fiscal 1997 of $4,522, which included interest expense of $26,242
paid in cash and interest payable `in kind' (PIK) of $4,453, and for fiscal 1998
of $2,863, which included cash interest expense of $26,581 and PIK interest of
$5,121. For fiscal 1999, the Company projected adjusted net income of
approximately $967, which included cash interest expense of approximately
$26,581 and PIK interest of $5,889. Due to the uncertainty of projections beyond
1999, this level of adjusted net income was assumed to continue for each of the
remaining fiscal years in the projection period. Accordingly, a non-cash pre-tax
charge totaling $51,323 was recorded as indicated in Note N to the financial
statements.
Also, management's fourth quarter review of individual stores' operations
and cash flows resulted in the identification of forty unprofitable or
competitive market stores which did not fit the Company's niche market strategy.
Consequently, a pre-tax charge totaling $21,397 was recorded at January 28, 1996
to cover the costs necessary to close these stores as indicated in Note O to the
financial statements.
SALES for fiscal 1996 increased $25,300 or 3.6% compared to fiscal 1995.
Comparable store sales decreased $4,160 or 0.7%. Excluding the forty stores
closed as of the end of fiscal 1996, comparable store sales increased by 0.1%.
During fiscal 1996 the Company opened ten new prototype stores of which seven
were located in new markets and three were relocations. The Company also closed
ten stores (excluding the 40 stores identified to be closed as discussed above),
resulting in a net increase in selling area of approximately 126,000 square
feet. The openings and closings of stores over the last two fiscal years has
resulted in a net increase in sales of $33,662.
The modest overall sales increases were affected by weak consumer demand
which was generally experienced throughout the retail industry. Management
believes that the Company's geographical niche market positioning combined with
its ability to distribute quality merchandise on a more timely basis tempered
these generally weak retail trends. The Company experienced substantial sales
increases in several merchandise categories, the most dramatic of which were in
the housewares, prescriptions, junior apparel and bath and floor areas.
Substantial sales gains also were generated in paper, cleaning and seasonal
categories. The Company experienced sales declines in several softlines
categories, primarily women's apparel.
The initial operating results of the seven new prototype stores and three
relocated prototype stores opened during fiscal 1996 exceeded the Company's
original sales projections and reflected the success of the Company's niche
market positioning and merchandising strategies. At fiscal year end 1996,
twenty-seven new format stores were in operation, representing 14.7% of all
stores and 18.3% of total Company selling square feet.
GROSS PROFIT increased $321 or 0.2% in fiscal 1996 compared to fiscal 1995
and, as a percentage of sales, decreased from 24.9% in fiscal 1995 to 24.1% in
fiscal 1996. The decline in gross profit percent in fiscal 1996 compared to
fiscal 1995 was attributable primarily to the increased markdown activity which
was necessary to counter sluggish customer demand during most of the year and to
meet customers' pricing expectations during this difficult period for the retail
industry. Markdown expense increased by 23.8% over such expense in fiscal 1995.
During fiscal 1996, the Company experienced margin dollar increases due to
higher sales in several merchandise categories, most notably stationery,
prescriptions, bath and floor and seasonal. While the Company experienced margin
dollar decreases in several softlines categories, they were concentrated
primarily in the women's apparel and fashion areas.
SELLING, GENERAL AND ADMINISTRATIVE expense increased $7,511 or 5.2% from
fiscal 1995. As a percentage of sales, selling, general and administrative
expense increased from 20.2% in fiscal 1995 to 20.5% in fiscal 1996.
Approximately 40% of the total gross increase in selling, general and
administrative expense was attributable to increases in corporate general
administrative costs. Payroll and fringe benefits costs increased by
approximately 13% due to the effect of a full year's salary for the
merchandising, real estate and other corporate personnel added in fiscal 1995 as
well as the costs related to information systems personnel added during fiscal
1996 to support the new systems implementations to enhance efficiencies in
warehouse, distribution and merchandising. In addition, professional fees
increased approximately 54% due primarily to information systems and strategic
planning consulting costs as well as increases in legal fees related to new
store construction and financing.
In addition to the corporate general and administrative cost changes,
advertising expenses as a percent of sales increased from 2.0% to 2.2% due to
increases in the costs of paper and postage. This accounted for approximately
25% of the gross increase in selling, general and administrative expense. Store
controllable expenses increased by 8%, which also accounted for approximately
25% of the gross increase in selling, general and administrative expense. The
change in store controllable expense was due primarily to increases in the costs
of security equipment rentals, charge card processing fees (due to increased
credit card sales volume), utilities and inventory counting (as a result of
changes in procedures to allow for detailed SKU level counts). Store
controllable costs were partially reduced by decreases in supplies, travel and
entertainment costs. Store fixed costs as a percent of sales increased from 2.8%
to 3.0% due primarily to increases in rent expense. These increases in selling,
general and administrative expense were offset in part by an increase in other
income resulting primarily from the sale of idle transportation assets.
INTEREST expense increased $2,159 or 7.9% for fiscal 1996 compared to
fiscal 1995. The increase in interest expense for fiscal 1996 was attributable
primarily to higher usage of the revolving line of credit in fiscal 1996 and to
the outstanding promissory notes of the Company which require quarterly
compounding interest payments to be paid in kind. The Company also had higher
average outstanding capitalized lease obligations in fiscal 1996 compared to
fiscal 1995.
INCOME TAX PROVISION - The effective tax rate was 7.6% in fiscal 1996
compared to 54.6% in fiscal 1995. The effective tax rate for fiscal 1996 was
impacted by the non-deductible amortization and write-off of goodwill and the
reserve recorded to offset the deferred tax assets. In fiscal 1995, the
effective tax rate was higher than the normal statutory rates primarily as a
result of non-deductible goodwill amortization.
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
30% 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 by operating activities totaled $11,577 in fiscal
1997, and funds provided from operations totaled $4,967 in fiscal 1996 and
$3,816 in fiscal 1995. The change in cash flow from operating activities from
fiscal 1996 to fiscal 1997 was primarily the result of planned net increases in
inventory and other operating assets and decreases in accounts payable and other
operating liabilities. These decreases in cash flow were offset in part by
changes in deferred income taxes. The positive change in cash flow from
operating activities from fiscal 1995 to fiscal 1996 was primarily the result of
net decreases in inventory and accounts payable. These increases in cash flow
were offset in part by current and deferred tax payable changes, principally as
a result of the store closing charge, the changes in profitability of the
continuing operations and changes in other operating assets and liabilities.
Effective March 17, 1997, the term of Pamida, Inc.'s (Pamida) committed
Loan and Security Agreement (the Agreement) was extended to March 2000 and the
maximum borrowing limit of the facility was increased to $95,000 from $70,000,
which had been the limit throughout fiscal 1997. Prior to March 17, 1997,
borrowings under the Agreement bore interest at a rate which was 0.75% per annum
greater than the applicable prime rate. Effective March 17, 1997, borrowings
under the Agreement bear interest at a rate which is tied to the applicable
prime rate or the London Interbank Offered Rate (LIBOR), generally at Pamida's
discretion. The amounts Pamida is permitted to borrow are determined by a
formula based upon the amount of Pamida's eligible inventory from time to time.
Such borrowings are secured by security interests in all of the current assets
(including inventory) of Pamida and by liens on certain real estate interests
and other property of Pamida. The Company and two subsidiaries of Pamida have
guaranteed the payment and performance of Pamida's obligations under the Loan
and Security Agreement and have pledged some or all of their respective assets,
including the stock of Pamida owned by the Company, to secure such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. Certain provisions of the Agreement require the
maintenance of specified amounts of tangible net worth (as defined) and working
capital (as defined) and 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 Pamida to incur additional indebtedness, pay dividends,
repay indebtedness prior to its stated maturity, create liens, enter into
leases, sell assets or engage in mergers or acquisitions, make capital
expenditures and make investments. These covenants currently have not had an
impact on the Company's ability to fully utilize the revolving credit facility.
However, certain of the covenants, such as those which restrict the ability of
the Company to incur indebtedness or encumber its property or which impose
restrictions on or otherwise limit the Company's ability to engage in
sale-leaseback transactions, may at some future time prevent the Company from
pursuing its store expansion program at the rate that the Company desires.
Obligations under the Agreement were $57,115 at February 2, 1997 and
$31,588 at January 28, 1996. As noted above, this facility expires in March
2000, 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 $201,999 at February 2, 1997 and $200,305 at January 28, 1996. The Company's
ability to satisfy scheduled principal and interest payments under such
obligations in the ordinary course of business is dependent primarily upon the
sufficiency of the Company's operating cash flow. At February 2, 1997, the
Company was in compliance with all covenants contained in its various financing
agreements.
On December 18, 1992, the promissory notes of the Company were amended
effective as of December 1, 1992 to provide that, until the obligations of
Pamida and the Company under certain of Pamida's credit agreements have been
repaid, the quarterly interest payments on the promissory notes of the Company
will be paid in kind. Pamida paid the Company $315 in fiscal 1996 under a
tax-sharing agreement to enable the Company to pay quarterly dividends to its
preferred stockholders. During fiscal 1996, the Company received $967 from
Pamida under a tax-sharing agreement as a reimbursement for certain tax benefits
derived by Pamida. Such remittance, along with $18 from the exercise of certain
stock options, was used by the Company to redeem Subordinated Promissory Notes
as described in Note L to the financial statements, to repay intercompany
balances totaling $29, and to pay quarterly dividends on preferred stock. Since
the Company conducts no operations of its own, the only cash requirement of the
Company relates to preferred stock dividends in the aggregate annual amount of
approximately $316; and Pamida is expressly permitted under its existing credit
facilities to pay dividends to the Company to fund such preferred stock
dividends. However, the General Corporation Law of the State of Delaware, under
which the Company and Pamida are incorporated, allows a corporation to declare
or pay a dividend only from its surplus or from the current or the prior year's
earnings. Due to the accumulated deficit resulting primarily from the store
closings and the write-off of goodwill and other long-lived assets recognized in
the fourth quarter of fiscal 1996, the Company and Pamida did not declare or pay
any cash dividends in fiscal 1997 and may pay cash dividends in ensuing years
only to the extent that the Company and Pamida satisfy the applicable statutory
standards which include the Company's having a net worth equal to at least the
aggregate par value of the preferred stock which amounts to $2. The cumulative
dividend rate on the preferred stock increases by 0.5% per quarter (with a
maximum aggregate increase of 5%) on each quarterly dividend payment date on
which the preferred stock dividends are not paid currently on a cumulative
basis. Any unpaid dividends are added to the liquidation value until paid in
cash. Such nonpayment of preferred stock dividends does not accelerate the
redemption rights of the preferred stockholders.
The Company made capital expenditures of $4,947 in fiscal 1997 compared to
$9,265 during fiscal 1996. The Company plans to open three new stores in fiscal
1998 and will consider additional opportunities for new store locations as they
arise. Total capital expenditures are expected to be approximately $9,500 in
fiscal 1998. The Company expects to fund these expenditures from cash flow from
its operations. The costs of buildings and land for new store locations are
expected to be financed by operating or capital leases with unaffiliated
landlords. The Company's expansion program also will require inventory of
approximately $1,000 to $1,200 for each new market store, which the Company
expects to finance through trade credit, borrowings under the Agreement and cash
flow from operations.
The recent changes to the Agreement, along with expected improvements in
the Company's cash flow from operations, 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,
working capital and distribution and infrastructure enhancements. The Company
expects to continue to finance some of these investments through leases from
unaffiliated landlords, trade credit, borrowings under the Agreement and cash
flow from operations but ultimately will need to explore additional sources of
funds which may include 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.
INFLATION
The Company uses the LIFO method of inventory valuation in its financial
statements; as a result, the cost of merchandise sold approximates current
costs. The Company's rental expense is generally fixed and, except for small
amounts of percentage rents and rentals adjusted by cost-of-living increases
tied to the Consumer Price Index or interest rates, has not been affected by
inflation.
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, company
performance and 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. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pamida Holdings Corporation
Omaha, Nebraska
We have audited the consolidated balance sheet of Pamida Holdings
Corporation and subsidiary as of February 2, 1997, and the related consolidated
statements of operations, common stockholders' equity and cash flows for each of
the years ended February 2, 1997 and January 29, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated balance sheet of Pamida Holdings Corporation and
subsidiary as of January 28, 1996, and the related consolidated statements of
operations, common stockholders' equity and cash flows for the year ended
January 28, 1996, were audited by other auditors, whose report, dated March 26,
1996, expressed an unqualified opinion on those statements and included an
explanatory paragraph that described the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pamida
Holdings Corporation and subsidiary as of February 2, 1997, and the results of
their operations and their cash flows for each of the years ended February 2,
1997 and January 29, 1995 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 7, 1997
(March 17, 1997 as to Note E)
16
<PAGE>
REPORT OF INDENPENDENT ACCOUNTANTS
Board of Directors
Pamida Holdings Corporation
Omaha, Nebraska
We have audited the accompanying consolidated balance sheet of Pamida Holdings
Corporation and Subsidiary as of January 28, 1996, and the related consolidated
statements of operations, common stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pamida Holdings
Corporation and Subsidiary as of January 28, 1996, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
As discussed in Note N to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
March 26, 1996
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
February 2, January 28, January 29,
1997 1996 1995
(53 Weeks) (52 Weeks) (52 Weeks)
----------- ----------- -----------
<S> <C> <C> <C>
Sales ......................................... $ 633,189 $ 736,315 $ 711,019
Cost of goods sold ............................ 479,099 558,627 533,652
----------- ----------- -----------
Gross profit .................................. 154,090 177,688 177,367
----------- ----------- -----------
Expenses:
Selling, general and administrative ....... 125,105 151,096 143,585
Interest .................................. 29,781 29,526 27,367
Long-lived asset write-off ................ -- 78,551 --
Store closing costs ....................... -- 21,397 --
----------- ----------- -----------
154,886 280,570 170,952
----------- ----------- -----------
(Loss) income before provision for income
taxes and extraordinary item .............. (796) (102,882) 6,415
Income tax (benefit) provision ................ -- (7,863) 3,500
----------- ----------- -----------
(Loss) income before extraordinary item ....... (796) (95,019) 2,915
Extraordinary item ............................ -- 371 --
----------- ----------- -----------
Net (loss) income ............................. (796) (94,648) 2,915
Less provision for preferred dividends and
discount amortization ..................... 391 362 361
----------- ----------- -----------
Net (loss) income available for
common shares ............................. $ (1,187) $ (95,010) $ 2,554
=========== =========== ===========
Net (loss) earnings per common share:
(Loss) earnings before extraordinary item. $ (.24) $ (18.94) $ 0.51
Extraordinary item......................... -- .07 --
----------- ----------- -----------
Net (loss) earnings per common share....... $ (.24) $ (18.87) $ 0.51
----------- ----------- -----------
</TABLE>
17
<PAGE>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
February 2, January 28,
ASSETS 1997 1996
---------- -----------
<S> <C> <C>
Current assets:
Cash ......................................................................... $ 6,973 $ 7,298
Accounts receivable, less allowance for doubtful accounts of $50 in both years 6,919 9,049
Merchandise inventories ...................................................... 157,490 150,837
Prepaid expenses ............................................................. 2,993 2,953
Property held for sale ....................................................... 1,748 2,218
----------- -----------
Total current assets ...................................................... $ 176,123 $ 172,355
Property, buildings and equipment, (net) ......................................... 42,403 44,153
Leased property under capital leases, less accumulated
amortization of $14,604 and $13,496, respectively ............................ 27,713 30,977
Deferred financing costs ......................................................... 3,176 3,809
Other assets ..................................................................... 19,773 7,231
----------- -----------
$ 269,188 $ 258,525
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 54,245 $ 63,087
Loan and security agreement .................................................. 57,115 31,588
Accrued compensation ......................................................... 3,860 5,923
Accrued interest ............................................................. 7,668 6,992
Store closing reserve ........................................................ 4,521 7,818
Other accrued expenses ....................................................... 10,112 10,823
Income taxes - deferred and current payable .................................. 8,101 8,861
Current maturities of long-term debt ......................................... 47 1,334
Current obligations under capital leases ..................................... 1,781 1,847
----------- -----------
Total current liabilities ................................................. 147,450 138,273
Long-term debt, less current maturities .......................................... 168,000 163,746
Obligations under capital leases, less current obligations ....................... 33,999 36,559
Reserve for dividends ............................................................ 342 --
Other long-term liabilities ...................................................... 4,825 4,237
Commitments and contingencies .................................................... -- --
Preferred stock subject to mandatory redemption:
16-1/4% senior cumulative preferred stock, $1 par value;
514 shares authorized, issued and outstanding ............................. 514 514
14-1/4% junior cumulative preferred stock, $1 par value;
6,986 shares authorized; 1,627 shares issued and outstanding;
redemption amount of $1,627, less unamortized discount .................... 1,361 1,312
Common shareholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 5,004,942
shares issued and outstanding in both years ............................... 50 50
Additional paid-in capital ................................................... 968 968
Accumulated deficit .......................................................... (88,321) (87,134)
----------- -----------
Total common shareholders' deficit ........................................ (87,303) (86,116)
----------- -----------
$ 269,188 $ 258,525
=========== ===========
</TABLE>
18
<PAGE>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Retained
Nonvoting Additional Earnings
Common Common Paid-in (Accumulated
Shares Stock Capital Deficit)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at January 30, 1994 ........... $ 41 $ 9 $ 950 $ 15,322
Net income ........................ -- -- -- 2,915
Amortization of discount on 14-1/4%
junior cumulative preferred .... -- -- -- (45)
Cash dividends to preferred
stockholders ................... -- -- -- (316)
Conversion of nonvoting common
stock to common shares ......... 9 (9) -- --
---------- ---------- ---------- ----------
Balance at January 29, 1995 ........... 50 -- 950 7,876
Net loss .......................... -- -- -- (94,648)
Amortization of discount on 14-1/4%
junior cumulative preferred .... -- -- -- (47)
Cash dividends to preferred
stockholders ................... -- -- -- (315)
Stock sold under incentive stock
option plan .................... -- -- 18 --
---------- ----------- --------- ----------
Balance at January 28, 1996 ........... 50 -- 968 (87,134)
Net loss .......................... -- -- -- (796)
Amortization of discount on 14-1/4%
junior cumulative preferred .... -- -- -- (49)
Accrued dividends for preferred
stockholders ................... -- -- -- (342)
---------- ---------- ---------- ----------
Balance at February 2, 1997 ........... $ 50 $ -- $ 968 $ (88,321)
========== ========== ========== ==========
</TABLE>
19
<PAGE>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
February 2, January 28, January 29,
1997 1996 1995
(53 Weeks) (52 Weeks) (52 Weeks)
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ................................................. $ (796) $ (94,648) $ 2,915
Adjustments to reconcile net (loss) income to net cash
from operating activities:
Depreciation and amortization .......................... 11,658 15,345 14,962
Provision (credit) for LIFO inventory valuation ........ 874 (585) (675)
Provision (credit) for deferred income taxes ........... 3,305 (6,647) (1,555)
Noncash interest expense ............................... 4,313 3,756 3,315
Accretion of original issue debt discount .............. 160 154 149
Gain on disposal of assets ............................. (56) (982) (58)
Stock incentive benefits ............................... -- -- 84
Deferred retirement benefits ........................... (125) 13 37
Extraordinary item ..................................... -- (371) --
Long-lived assets write-off ............................ -- 78,551 --
Store closing costs .................................... (3,726) 21,397 --
(Increase) decrease in merchandise inventories ......... (7,527) 4,532 (30,951)
Increase in other operating assets ..................... (5,622) (3,847) (486)
Increase (decrease) in accounts payable ................ (8,842) (6,749) 8,153
Increase (decrease) in income taxes payable ............ (3,250) (4,607) 3,942
Increase (decrease) in other operating liabilities...... (1,943) (345) 3,984
----------- ----------- -----------
Total adjustments .......................................... (10,781) 99,615 901
----------- ----------- -----------
Net cash from operating activities ......................... (11,577) 4,967 3,816
Cash flows from investing activities:
Proceeds from disposal of assets .............................. 917 1,163 980
Principal payments received on notes receivable ............... 16 15 14
Assets acquired for sale ...................................... (391) -- --
Capital expenditures .......................................... (4,947) (9,265) (12,888)
Construction notes receivable ................................. (5,845) (4,412) --
----------- ----------- -----------
Net cash from investing activities ......................... (10,250) (12,499) (11,894)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings under loan and security agreement net .............. 25,527 10,986 12,417
Principal payments on other long-term debt .................... (1,335) (193) (177)
Dividends paid on preferred stock ............................. -- (315) (316)
Principal payments on promissory notes ........................ -- (641) (1,029)
Payments for deferred finance costs ........................... (54) (13) (200)
Principal payments on capital lease obligations ............... (2,636) (2,071) (1,894)
Proceeds from sale of stock ................................... -- 18 --
----------- ----------- -----------
Net cash from financing activities ..................... 21,502 7,771 8,801
----------- ----------- -----------
Net (decrease) increase in cash ............................... (325) 239 723
Cash at beginning of year ..................................... 7,298 7,059 6,336
----------- ----------- -----------
Cash at end of year ........................................... $ 6,973 $ 7,298 $ 7,059
=========== =========== ===========
20
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest..................................................... $ 24,804 $ 25,691 $ 24,021
Income taxes:
Payments to taxing authorities........................... 386 3,622 1,785
Refunds received from taxing authorities................. (442) (231) (672)
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. $ 11 $ 620 $ 9,721
Capital lease obligations terminated............................ -- 154 --
Amortization of discount on junior cumulative preferred stock
recorded as a direct charge to retained earnings............. 49 47 45
Payment of interest in kind by increasing the
principal amount of the notes................................ 4,313 3,702 3,263
Provision for dividends payable................................. 342 -- --
Conversion of 919,587 shares of nonvoting common
stock, $.01 par value, to common stock
Common stock............................................. -- -- 9
Nonvoting common stock................................... -- -- (9)
</TABLE>
21
<PAGE>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands - except per share data)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pamida Holdings Corporation (the "Company") was formed for the sole purpose
of acquiring Pamida, Inc. ("Pamida") through a merger in a leveraged buy-out
transaction which was consummated on July 29, 1986.
CONSOLIDATION - The consolidated financial statements include the results
of operations, account balances and cash flows of the Company and its
wholly-owned subsidiary, Pamida, and of Seaway Importing Company ("Seaway") and
Pamida Transportation Company, wholly-owned subsidiaries of Pamida. All material
intercompany accounts and transactions have been eliminated in consolidation.
FISCAL YEAR - All references in these financial statements to fiscal years
are to the calendar year in which the fiscal year ends.
LINE OF BUSINESS - Through Pamida, the Company is engaged in the operation
of retail discount stores in a fifteen-state Midwestern, North Central and Rocky
Mountain area. Seaway imports primarily seasonal merchandise for sale to Pamida.
Pamida Transportation Company operated as a contract carrier for Pamida until
July 1995, at which time independent contractors were engaged to provide all
transportation needs of the Company. Due to the similarity in nature of the
Company's businesses, the Company considers itself to be a single business
segment.
CASH FLOW REPORTING - For purposes of the statement of cash flows, the
Company considers all temporary cash investments purchased with a maturity of
three months or less to be cash equivalents. There were no temporary investments
at February 2, 1997 and January 28, 1996.
MERCHANDISE INVENTORIES - Substantially all of the Company's inventory is
stated at the lower of cost (last-in, first-out) or market.
PROPERTY, BUILDINGS AND EQUIPMENT - Property, buildings and equipment are
stated at cost and depreciated on the straight-line method over the estimated
useful lives. Buildings and building improvements are generally depreciated over
8-40 years, while store, warehouse and office equipment, vehicles and aircraft
equipment are generally depreciated over 3-10 years. Leasehold improvements are
depreciated over the life of the lease or the estimated life of the asset,
whichever is shorter.
LEASED PROPERTY UNDER CAPITAL LEASES - Noncancellable financing leases are
capitalized at the estimated fair value of the leasehold interest and are
amortized on the straight-line method over the terms of the leases.
LONG-LIVED ASSETS - When facts and circumstances indicated potential
impairment, the Company evaluates the recoverability of assets carrying values,
including goodwill, using estimates of future cash flows over remaining assets
lives. When impairment is indicated, any impairment loss in 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.
PRE-OPENING EXPENSES - Costs related to opening new stores are expensed as
incurred.
EARNINGS PER SHARE - Earnings per share were calculated using the weighted
average common shares and dilutive common share equivalents outstanding during
the year using the treasury stock method.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION - 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).
RECLASSIFICATIONS - Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
22
<PAGE>
B. MERCHANDISE INVENTORIES
Total inventories would have been higher at February 2, 1997 and January
28, 1996 by $6,574 and $5,700, respectively, had the FIFO (first-in, first-out)
method been used to determine the cost of all inventories. On a FIFO basis, net
income (loss) before extraordinary item would have been $78, $(95,604) and
$2,666, respectively, for fiscal years 1997, 1996, and 1995. During fiscal years
1997, 1996, and 1995, 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 $116,
$125, and $102, respectively.
C. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consists of:
Feb. 2, Jan. 28,
1997 1996
-------- --------
Land and land improvements .. $ 4,013 $ 3,943
Buildings and building
improvements............... 22,076 21,578
Store, warehouse and office
equipment.................. 59,668 55,638
Vehicles and aircraft
equipment.................. 1,513 1,578
Leasehold improvements ...... 16,497 15,362
103,767 98,099
Less accumulated depreciation
and amortization .......... 61,364 53,946
-------- --------
$ 42,403 $ 44,153
======== ========
D. OTHER ASSETS
Other assets consist of:
Feb. 2, Jan. 28,
1997 1996
-------- --------
Construction notes receivable. $ 10,257 $ 2,767
Unamortized software
costs, net ................. 7,541 3,357
Other ........................ 1,975 1,107
-------- --------
$ 19,773 $ 7,231
======== ========
E. FINANCING AGREEMENTS
Effective March 17, 1997, the term of Pamida's committed Loan and Security
Agreement (the Agreement) was extended to March 2000 and the maximum borrowing
limit of the facility was increased to $95,000 from $70,000, which had been the
limit throughout fiscal 1997. Prior to March 17, 1997, borrowings under the
Agreement bore interest at a rate which was 0.75% per annum greater than the
applicable prime rate. Effective March 17, 1997, borrowings under the Agreement
bear interest at a rate which is tied to the applicable prime rate or the London
Interbank Offered Rate (LIBOR), generally at Pamida's discretion. The amounts
Pamida is permitted to borrow under the Agreement are determined by a formula
based upon the amount of Pamida's eligible inventory from time to time. Such
borrowings of Pamida under the Agreement are secured by security interests in
substantially all of the current assets (including inventory) of Pamida and by
liens on certain real estate interests and other property of Pamida. The Company
and two subsidiaries of Pamida have guaranteed payment and performance of
Pamida's obligations under the Agreement and have pledged some or all of their
respective assets, including the stock of Pamida owned by the Company, to secure
such guarantees.
The Agreement contains provisions imposing operating and financial
restrictions on the Company. Certain provisions of the Agreement require the
maintenance of specified amounts of tangible net worth (as defined) and working
capital (as defined) and 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 Pamida to incur additional indebtedness, pay dividends,
repay indebtedness prior to its stated maturity, create liens, enter into
leases, sell assets or engage in mergers or acquisitions, make capital
expenditures and make investments.
The maximum amount of borrowings under the Agreement during fiscal 1997 and
1996 was $69,256 and $63,884, respectively. The weighted average amounts of
borrowings under the Agreement for fiscal 1997 and 1996 were $43,002 and
$35,544, respectively; and the weighted average interest rates were 10.0% and
10.4%, respectively.
23
<PAGE>
Long-term debt consists of:
Feb. 2, Jan. 28,
1997 1996
------- --------
Senior Subordinated Notes,
11.75%, due March 2003 ...... $140,000 $140,000
Industrial development bonds,
8.5%, due in monthly install-
ments through 2005 .......... 411 1,745
Senior promissory notes, 15.5%,
due in 2003, interest paid
in kind quarterly ........... 4,926 4,231
Subordinated promissory notes,
16%, due in 2003, interest
paid in kind quarterly ...... 13,454 11,500
Junior subordinated promissory
notes, 16.25%, net of
unamortized discount of $878
and $1,038, due in 2003,
interest paid in kind quarterly 9,256 7,604
-------- -------
168,047 165,080
Less current maturities ....... 47 1,334
-------- --------
$168,000 $163,746
======== ========
As of February 2, 1997, the fair value of long-term debt was $153,900
compared to its recorded value of $168,000. The fair value of long-term debt was
estimated based on quoted market values for the same or similar debt issues or
rates currently available for debt with similar terms. The aggregate maturities
of long-term debt in each of the next five fiscal years are as follows: 1998 -
$47; 1999 - $47; 2000 - $47; 2001 - $47; and 2002 - $47.
The Senior Subordinated Notes and the promissory notes are unsecured and
are subordinate borrowings under the Agreement. Presently, under the most
restrictive debt covenants, the Company is not permitted to pay dividends on its
common stock.
The senior subordinated and junior subordinated promissory notes of the
Company were amended to provide that until the obligations of the Company and
Pamida under certain loan agreements have been paid in full, the quarterly
interest payments on the notes will be paid in kind by increasing the principal
amount of each note on the applicable quarterly payment date by the amount of
accrued interest then being paid in kind. Interest on the notes paid in kind
accrues at a rate which, in each case, is two percentage points higher than the
applicable cash interest rate.
F. INCOME TAXES
Components of the income tax provision (benefit) are as follows:
Years Ended
--------------------------------
Feb. 2, Jan. 28, Jan. 29,
1997 1996 1995
-------- -------- --------
Current:
Federal .... $ (3,155) $ (993) $ 4,048
State ...... (150) (223) 1,007
-------- -------- --------
(3,305) (1,216) 5,055
-------- -------- --------
Deferred:
Federal ..... 3,189 (5,865) (679)
State ....... 116 (782) (876)
-------- -------- --------
3,305 (6,647) (1,555)
-------- -------- --------
Total (benefit)
provision ... $ -- $ (7,863) $ 3,500
======== ======== ========
The differences between the U.S. Federal statutory tax rate and the
Company's effective tax rate are as follows:
Years Ended
---------------------------
Feb. 2, Jan. 28, Jan. 29,
1997 1996 1995
-------- -------- --------
Statutory rate ......... (34.0)% (34.0)% 34.0%
State income tax effect. (2.8) (1.3) 5.5
Amortization of the excess
of cost over net assets
acquired ............. -- 23.9 12.2
Valuation allowance ....... 25.1 3.6 0.1
Accretion of discount on
junior subordinated debt 6.8 0.1 0.8
Other ..................... 4.9 0.1 2.0
-------- -------- --------
0.0% (7.6)% 54.6%
======== ======== ========
24
<PAGE>
Significant temporary differences between reported and taxable earnings
that give rise to deferred tax assets and liabilities were as follows:
Feb. 2, Jan. 28,
1997 1996
--------- --------
Net current deferred tax liabilities:
Inventories ......................... $ 15,302 $ 13,681
Valuation allowance ................. -- 3,869
Prepaid insurance ................... 210 514
Other ............................... 453 366
Supplier allowances ................. (41) --
Post employment health costs ........ (189) (237)
Accrued expenses .................... (941) (1,300)
Store closing costs ................. (2,570) (7,159)
--------- ---------
Net current deferred
tax liabilities ................ 12,224 9,734
--------- ---------
Net long-term deferred tax liabilities:
Property, buildings and
equipment ...................... 2,862 3,109
Other ............................. 1,436 438
Valuation allowance ............... 4,069 5
Capital loss carryforward ......... -- (5)
Capital leases .................... (3,089) (2,602)
Tax benefit carryforward .......... (3,518) --
--------- ---------
Net long-term deferred
tax liabilities ..................... 1,760 945
--------- ---------
Net total deferred tax
liabilities ...................... $ 13,984 $ 10,679
========= =========
Net long-term deferred tax liabilities are classified with other long-term
liabilities in the consolidated balance sheets of the Company. As of February 2,
1997 the Company had net operating loss carryforwards totaling $4,034 which
expire in 2012 and the Company had tax credit carryforwards totaling $1,973
which expire in 2006 through 2011.
G. LEASES
The majority of store facilities are leased under noncancelable leases.
Substantially all of the leases are net leases which require the payment of
property taxes, insurance and maintenance costs in addition to rental payments.
Certain leases provide for additional rentals based on a percentage of sales and
have renewal options for one or more periods totaling from one to twenty years.
Leases have been categorized as capital or operating leases in conformity with
the definition in Statement of Financial Accounting Standards No. 13, Accounting
for Leases.
At February 2, 1997 the future minimum lease payments under capital and
operating leases with rental terms of more than one year amounted to:
Fiscal Year Ending Capital Operating
Leases Leases
--------- ---------
1998..................... $ 5,802 $ 10,010
1999..................... 5,659 8,800
2000..................... 5,442 6,879
2001..................... 5,352 5,639
2002..................... 5,267 5,103
Later years.............. 41,384 46,069
--------- ---------
Total minimum obligations $ 68,906 $ 82,500
--------- ---------
Less amount representing
interest................ 33,126
---------
Present value of net minimum
lease payments.......... 35,780
Less current portion..... 1,781
---------
Long-term obligations..... $ 33,999
=========
The minimum rentals under operating leases have not been reduced by minimum
sublease rentals of $191 due in the future under noncancelable subleases.
Total rental expense related to all operating leases (including those with
terms less than one year) is as follows:
Years Ended
-------------------------------
Feb. 2, Jan. 28, Jan. 29,
1997 1996 1995
-------- -------- --------
Minimum rentals ..... $ 10,938 $ 11,715 $ 9,585
Contingent rentals .. 258 399 477
Less sublease rentals (735) (852) (918)
-------- -------- --------
$ 10,461 $ 11,262 $ 9,144
======== ======== ========
H. 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 1997, 1996, and 1995 were
$770, $749, and $716, 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
25
<PAGE>
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 components of periodic expense for postretirement benefits in fiscal
1997, 1996 and 1995 were as follows:
Feb. 2, Jan. 28, Jan. 29,
1997 1996 1995
-------- -------- --------
Annual postretirement benefit expense:
Interest cost ....................... 16 32 42
Amortization of
unrecognized
net obligations ...................... (44) (6) --
-------- -------- --------
Annual postretirement
benefit expense ...................... $ (28) $ 26 $ 42
======== ======== ========
The accumulated postretirement benefit obligation consists of:
Feb. 2, Jan. 28,
1997 1996
-------- --------
Accumulated postretirement
benefit obligation ......... $ 194 $ 395
Unrecognized gain ............ 299 223
-------- --------
Accrued expense .............. $ 493 $ 618
======== ========
A 5% and a 10% increase in the cost of covered health care benefits was
assumed for fiscal 1997 and 1996, respectively. The rate of 5% used as of
February 2, 1997 is assumed to remain level after fiscal 1997. At January 28,
1996, the 10% was assumed to decrease incrementally to 5% after five years and
remain level thereafter. Assuming a 1% increase in the health care trend rate,
the annual postretirement benefit expense would remain the same for fiscal 1997
and increase by $1 for fiscal 1996, and the unfunded accumulated postretirement
benefit obligation would increase by $4 and $13 for fiscal 1997 and 1996,
respectively. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.0% for both fiscal 1997 and
1996.
I. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
The Company is obligated to redeem all outstanding shares of senior
cumulative and junior cumulative preferred stock on December 31, 2001, at a
price not to exceed the liquidation value which is $1,000 per share plus any
accrued dividends. Subject to certain loan restrictions, the Company may, at any
time, redeem all or any portion of the preferred shares outstanding at a price
of $1,000 per share plus any accrued dividends.
Each share of senior cumulative and junior cumulative preferred stock
entitles its holder to receive a quarterly dividend of 16.25% and 14.25% per
annum, respectively, of the liquidation value from the date of issuance until
redeemed. Both series of preferred stock are non-voting, and any unpaid
dividends are added to the liquidation value until paid.
The General Corporation Law of the State of Delaware, under which the
Company and Pamida are incorporated, allows a corporation to declare or pay a
dividend only from its surplus or from the current or the prior year's earnings.
Due to the accumulated deficit resulting primarily from the store closings and
the write-off of goodwill and other long-lived assets recognized in the fourth
quarter of fiscal 1996, the Company and Pamida did not declare or pay any cash
dividends in fiscal 1997 and may pay cash dividends in ensuing years only to the
extent that the Company and Pamida satisfy the applicable statutory standards
which include the Company's having a net worth equal to at least the aggregate
par value of the preferred stock which amounts to $2. A liability and provision
for preferred stock dividends have been recorded in the fiscal 1997 financial
statements. The cumulative dividend rate on the preferred stock increases by
0.5% per quarter (with a maximum aggregate increase of 5%) on each quarterly
dividend payment date on which the preferred stock dividends are not paid
currently on a cumulative basis.
The difference between the fair value of the junior cumulative preferred
stock at issuance and the mandatory redemption value is being recorded through
periodic accretions, using the effective interest method with a related charge
to retained earnings.
J. STOCK OPTIONS
On November 24, 1992, the Board of Directors of the Company adopted the
Pamida Holdings Corporation 1992 Stock Option Plan (the "Plan"), which was
approved by the Company's stockholders in May 1993. The Plan, administered by a
Committee of the Board of
26
<PAGE>
Directors, provides for the granting of options to key employees of the Company
and its subsidiaries to purchase up to an aggregate of 350,000 shares of Common
Stock of the Company. Options granted under the Plan may be either incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code,
or non-qualified options. Options granted under the Plan will be exercisable
during the period fixed by the Committee for each option; however, in general,
no option will be exercisable earlier than one year after the date of its grant,
and no incentive stock option will be exercisable more than 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 1997,
1996 or 1995.
The Company accounts for its stock-based compensation under the provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB Opinion No. 25), which utilizes the intrinsic value method. The
effect on 1997 and 1996 net income and earnings per share of accounting for
stock-based compensation using the fair value method required by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123) is immaterial.
The weighted average fair value of options granted during the year was
$0.70 and $2.86 per option for fiscal 1997 and 1996, respectively. The fair
value of options granted under the Plan was estimated at the date of grant using
a binomial options pricing model with the following assumptions:
Feb. 2, Jan. 28,
1997 1996
-------- --------
Risk-free interest rate............... 6.0% 7.0%
Dividend yield........................ 0.0% 0.0%
Expected Volatility................... 8.1% 8.1%
Expected life (years) ................ 6.6 years 6.7 years
A summary of the Company's stock-based compensation activity related to
stock options for the last three fiscal years is as follows:
<TABLE>
<CAPTION>
February 2, 1997 January 28, 1996 January 29, 1995
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 296,546 $ 5.05 227,545 $ 4.33 171,750 $ 3.63
Granted ..................... 86,800 2.37 122,205 6.80 75,000 5.75
Expired/terminated .......... (80,530) 4.66 (48,246) 6.22 (19,205) 3.63
Exercised ................... -- -- (4,958) 3.63 -- --
Outstanding-end of year ..... 302,816 $ 4.39 296,546 $ 5.05 227,545 $ 4.33
</TABLE>
There were 123,616, 85,474 and 61,681 options exercisable at February 2,
1997, January 28, 1996 and Janaury 29, 1995, respectively.
The following table summarizes information about stock options outstanding
as at February 2, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------ -------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Excercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$1.94-$2.78 83,800 9.5 Years $ 2.36 -- $ --
3.63-5.75 171,016 7.3 Years 4.60 114,016 4.20
7.19 48,000 8.1 Years 7.19 9,600 7.19
----------- ----------- ----------- ----------- ----------- -----------
Totals $1.94-$7.19 302,816 8.0 Years $ 4.39 123,616 $ 4.43
</TABLE>
27
<PAGE>
K. CAPITAL STOCK
In October 1994, 919,587 shares of nonvoting common stock of the Company
were converted into the same number of shares of common stock. After giving
effect to such conversion, the Company had 5,004,942 shares of common stock and
no shares of nonvoting common stock outstanding at the end of fiscal 1997 and
1996.
L. EXTRAORDINARY ITEMS
On July 31, 1995, the Company made an offer to purchase for cash 39.5% of
the aggregate outstanding principal amount of 14% Subordinated Promissory Notes
(Notes) of Pamida Holdings Corporation. The offered purchase price was 50% of
the principal amount to be purchased. In the third quarter of fiscal 1996, the
Company redeemed Notes tendered in the aggregate principal amount of $1,281 and
made cash payments of $641, resulting in an after-tax gain of $371.
M. 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 is tied to continued employment and future Company common
stock price appreciation.
The terms of the senior and junior preferred stock and the senior,
subordinated and junior subordinated promissory notes provide that, upon the
occurrence of an event of noncompliance with respect to the preferred stock or
event of default with respect to the promissory notes, the Company is required
to pay higher dividend and interest rates with the amount of the increase
depending on the nature of the event of noncompliance or default.
During fiscal 1996, the Company received $967 from Pamida as a
reimbursement for certain tax benefits derived by Pamida. Such remittance, along
with $18 from the exercise of certain stock options, was used by the Company to
redeem Subordinated Promissory Notes as described in Note L, to repay to Pamida
intercompany balances totaling $29, and to pay quarterly dividends on preferred
stock totaling $315.
In June 1994, the Company received $1,316 from Pamida as a reimbursement
for certain tax benefits derived by Pamida. Such remittance was used by the
Company to make a principal payment on its outstanding promissory notes of
$1,029 and to repay Pamida certain intercompany advances aggregating $287.
In connection with the Company's self insured retention of worker's
compensation liabilities and future rental payments on a warehouse, on February
2, 1997, the Company had standby letters of credit outstanding totaling
approximately $1,188.
N. IMPAIRMENT OF LONG-LIVED ASSETS RECORDED IN FISCAL 1996
During fiscal 1996, weak trends in the retail industry combined with
increasing competition lowered the operating results of the Company.
Therefore, during the fourth quarter of fiscal 1996, management reviewed
its expectations for near- and long-term performance of the Company and revised
its earnings projections to reflect developing and projected trends, primarily
in comparable-store-sales growth, gross margins, operating expenses and interest
expenses. Consequently, the recoverability of the Company's long-lived assets
was also reassessed.
In the fourth quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 "Accounting For the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of" (SFAS 121). This
financial accounting standard requires the Company to perform an analysis of the
recoverability of the net book value of long-lived assets. The Company analyzed
cash flows on an individual store basis to assess recoverability of store level
long-lived assets including allocated goodwill.
As a result of this analysis, impairment was indicated at certain stores,
and a noncash pre-tax charge was recorded as illustrated in the table below. The
impairment losses were based on fair value which was determined through
discounted cash flows for the particular stores utilizing a rate commensurate
with the associated risks. The effect of this accounting change was to increase
the net loss for the year by $24,693 or $4.90 per common share.
The Company also analyzed the value of its remaining goodwill and favorable
leasehold interests not impaired
28
<PAGE>
under the store-level SFAS 121 analysis using its historical method under
Accounting Principles Board Opinion No. 17 (APB 17) and determined that such
remaining amounts also were impaired. For this analysis the value of the
goodwill and favorable leasehold interests was determined by projecting
aggregate net income and adjusting it by adding back amortization of intangible
assets. With respect to the projections of net income used to evaluate
intangible assets impairment, management made several assumptions in projecting
their best estimate of the results of future operations of the Company. The most
significant assumptions were an estimated remaining useful life of goodwill of
fifteen years, modest annual comparable store sales growth, gross margin rates
consistent with those experienced over the past fiscal year in the stores not
being closed, an annual expense escalation consistent with recent inflation
trends and the ability to refinance debt maturities as they come due.
These assumptions resulted in aggregate undiscounted adjusted net income
for the fifteen-year forecast period of approximately $5,186, which reflects
aggregate pre-tax interest expense of approximately $398,000 payable in cash and
$86,000 payable "in kind" (PIK). The $5,186 of aggregate adjusted net income for
the fifteen-year forecast period also reflected projected adjusted net losses
for fiscal 1997 of $4,522, which included cash interest expense of $26,242 and
PIK interest of $4,453, and for fiscal 1998 of $2,863, which included cash
interest expense of $26,581 and PIK interest of $5,121. For fiscal 1999, the
Company projected adjusted net income of approximately $967, which included cash
interest expense of approximately $26,581 and PIK interest of $5,889. Due to the
uncertainty of projections beyond 1999, this level of adjusted net income was
assumed to continue for each of the remaining fiscal years in the projection
period. As a result of this evaluation in fiscal 1996, management concluded that
the remaining goodwill and favorable leasehold interests were fully impaired.
Pre-Tax Components of Long-Lived Asset Write-Off As Reflected in the
Statement of Operations for the year ended January 28, 1996:
SFAS APB
121 17 Total
-------- -------- --------
Goodwill $ 20,607 $ 49,406 $ 70,013
Favorable leasehold
interests 4,245 1,917 6,162
Property, buildings
and equipment 2,376 -- 2,376
-------- -------- --------
Total $ 27,228 $ 51,323 $ 78,551
======== ======== ========
The goodwill was originally recorded in July 1986 when Pamida Holdings
Corporation acquired Pamida, Inc. through a leveraged buy-out and represented
the excess of the purchase price over the fair value of the net assets acquired.
Goodwill had been amortized on a straight-line basis over a forty-year period
but, due to the trends cited above, its estimated remaining useful life was
adjusted to fifteen years during the fourth quarter of fiscal 1996.
29
<PAGE>
O. STORE CLOSINGS IN FISCAL 1996
As discussed in Note N above, the Company's operating performance during
fiscal 1996 was below plan. Management's analysis of individual stores'
operations and cash flows resulted in the identification of forty unprofitable
or competitive market stores which did not fit the Company's niche market
strategy. Consequently, a charge was recorded at January 28, 1996 as indicated
below to cover the costs necessary to close these stores. The Company received
positive net cash flow from closing the stores due to cash generated from the
disposition of related inventories. The amounts the Company will ultimately
realize from the disposal of assets or pay on the resolution of liabilities may
differ from the estimated amounts utilized in arriving at the income statement
effect.
Pre-Tax Income
Components of fiscal 1996 Statement
Store Closing Costs Effect
--------
Real estate exit costs and
write-off of property,
buildings, and equipment ........... $ 11,455
Inventory liquidation ................ 9,080
Professional charges ................. 314
Severance and other costs and fees ... 548
--------
Totals ............................... $ 21,397
========
The 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 closing stores inventory was
completed in the second quarter of fiscal 1997. All known ancillary costs of the
store closings have been paid except those related to the remaining real estate.
During fiscal 1997, the Company negotiated settlements on twenty closed store
properties which had been leased, two which have been subleased, and sold four
closed store properties which had been owned. As of February 2, 1997, the
Company remains liable for lease obligations on twelve closed store properties
and owns four closed store properties. The Company anticipates that final
disposition of the remaining obligations and properties will be completed in
fiscal 1999. There were no adjustments made during fiscal 1997 to the store
closing reserve other than cash inflows and outflows related to the store
closings.
The store closing reserve is presented in the balance sheets as follows:
Feb. 2, Jan. 28,
1997 1996
-------- --------
Store closing reserve
(short-term) $ 4,521 $ 7,818
Amount included in other
long-term liabilities 2,190 2,619
-------- --------
Total $ 6,711 $ 10,437
======== ========
30
<PAGE>
P. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended February 2, 1997 and January 28, 1996:
<TABLE>
<CAPTION>
April 28, July 28, October 27, February 2,
Fiscal 1997 1996 1996 1996 1997 Year
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales ................................. $ 131,786 $ 155,817 $ 151,980 $ 193,606 $ 633,189
Gross profit .......................... 31,575 37,096 36,446 48,973 154,090
Net (loss) income ..................... (4,742) (1,294) 189 5,051 (796)
Less provision for preferred
dividends and discount
amortization ..................... 93 97 99 102 391
----------- ----------- ----------- ----------- -----------
Net (loss) income available
for common shares ................ $ (4,835) $ (1,391) $ 90 $ 4,949 $ (1,187)
=========== =========== =========== =========== ===========
Net (loss) earnings
per common share .................. $ (.97) $ (.28) $ .02 $ .99 $ (.24)
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
April 30, July 30, October 29, January 28,
Fiscal 1996 1995 1995 1995 1996 Year
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales................................... $ 153,961 $ 186,953 $ 176,206 $ 219,195 $ 736,315
Gross profit............................ 36,813 44,638 42,802 53,435 177,688
Net (loss) income before
Extraordinary item.................. (2,179) 608 130 (93,578) (95,019)
Extraordinary item...................... -- -- 371 -- 371
----------- ----------- ----------- ----------- -----------
Net (loss) income....................... (2,179) 608 501 (93,578) (94,648)
Less preferred dividends and
discount amortization............... 91 90 90 91 362
----------- ----------- ----------- ----------- -----------
Net (loss) income available
for common shares................... $ (2,270) $ 518 $ 411 $ (93,669) $ (95,010)
=========== =========== =========== =========== ===========
Net (loss) earnings
per common share $ (.45) $ .10 $ .08 $ (18.60) $ (18.87)
=========== =========== =========== =========== ===========
</TABLE>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pamida Holdings Corporation
Omaha, Nebraska
We have audited the consolidated balance sheet of Pamida Holdings Corporation
and subsidiary as of February 2, 1997, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years ended
February 2, 1997 and January 29, 1995 and have issued our report thereon dated
March 7, 1997 (March 17, 1997 as to Note E). Such financial statements and
report are included in this Annual Report on Form 10-K. Our audits also included
the financial statement schedule of Pamida Holdings Corporation and subsidiary
as of February 2, 1997, and for each of the years ended February 2, 1997 and
January 29, 1995 listed in Item 14(a)2. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 7, 1997
PAMIDA HOLDINGS CORPORATION
(Parent Company Only)
(Dollar amounts in thousands)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS - FEBRUARY 2, 1997 AND JANUARY 28, 1996
ASSETS 1997 1996
Current assets: -------- --------
Refundable income taxes ............................ $ 855 $ 855
Investment in subsidiary ........................... (57,531) (61,226)
Deferred financing costs ........................... 52 63
-------- --------
$(56,624) $(60,308)
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ -- $ 8
Accrued interest ................................... 811 639
Payable to Pamida, Inc. ............................ 16 --
-------- --------
Total current liabilities ...................... 827 647
Long-term debt ....................................... 27,636 23,335
Dividends payable .................................... 342 --
Preferred stock subject to mandatory redemption:
16-1/4% senior cumulative preferred stock, $1
par value; 514 shares authorized, issued and
outstanding ...................................... 514 514
14-1/4% junior cumulative preferred stock, $1
par value; 6,986 shares authorized;
1,627 shares issued and outstanding;
redemption amount of $1,627 less
unamortized discount ............................. 1,360 1,312
Common stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 5,004,942 shares issued and
outstanding, in both years ....................... 50 50
Additional paid-in capital ......................... 968 968
Accumulated deficit ................................ (88,321) (87,134)
-------- --------
Total common stockholders' equity .............. (87,303) (86,116)
-------- --------
$(56,624) $(60,308)
======== ========
PAMIDA HOLDINGS CORPORATION
(Parent Company Only)
(Dollar amount in thousands except for per share data)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT) EARNINGS
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
1997 1996 1995
-------- -------- --------
Equity in earnings (loss) of subsidiary .... $ 3,696 $(92,527) $ 5,130
Expenses:
General and administrative ............... 19 33 34
Interest ................................. 4,473 3,910 3,463
-------- -------- --------
4,492 3,943 3,497
-------- -------- --------
(Loss) income before income tax benefit
and extraordinary item ................... (796) (96,470) 1,633
Extraordinary item ......................... -- 371 --
-------- -------- --------
(Loss) income before income tax benefit .... (796) (96,099) 1,633
Income tax benefit ......................... -- 1,451 1,282
-------- -------- --------
Net (loss) income .......................... (796) (94,648) 2,915
Amortization of discount on 14-1/4%
junior cumulative preferred .............. (49) (47) (45)
Cash dividends paid to preferred
stockholders ............................. -- (315) (316)
Accrued dividends for
preferred stockholders .................. (342) -- --
Retained earnings (accumulated deficit) -
beginning of year ....................... (87,134) 7,876 5,322
-------- -------- --------
Retained earnings (accumulated deficit) -
end of year ............................. $(88,321) $(87,134) $ 7,876
======== ======== ========
(Loss) earnings per common share ........... $ (.24) $ (18.87) $ .51
======== ======== ========
<TABLE>
<CAPTION>
PAMIDA HOLDINGS CORPORATION
(Parent Company Only)
(Dollar amounts in thousands)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
1997 1996 1995
Cash flows from operating activities: -------- -------- --------
<S> <C> <C> <C>
Net (loss) income ........................................ $ (796) $(94,648) $ 2,915
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in (earnings) loss of subsidiary .............. (3,696) 92,527 (5,130)
Noncash interest expense ............................. 4,313 3,756 3,315
Accretion of original issue debt discount ............ 160 154 149
Amortization of intangible assets .................... 11 10 11
Extraordinary item related to retirement of debt ..... -- (371) --
(Increase) decrease in refundable income tax ......... -- (483) 349
Increase (decrease) in operating liabilities ......... 8 (7) (264)
-------- -------- --------
Total adjustments ............................... 796 95,586 (1,570)
-------- -------- --------
Net cash provided by operating activities ....... -- 938 1,345
-------- -------- --------
Cash flows from investing activities:
Dividends received from subsidiary ....................... -- -- --
Cash flows from financing activities:
Proceeds from sale of stock .............................. -- 18 --
Principal payments on promissory notes ................... -- -- (1,029)
Payments to redeem subordinated notes .................... -- (641) --
Dividends paid to preferred stockholders ................. -- (315) (316)
-------- -------- --------
Net cash used in financing activities ........... -- (938) (1,345)
-------- -------- --------
Net change in cash ......................................... -- -- --
Cash at beginning of year .................................. -- -- --
-------- -------- --------
Cash at end of year ........................................ $ -- $ -- $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest ................. $ -- $ -- $ --
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITY:
Amortization of discount on junior cumulative preferred
stock recorded as a direct charge to retained earnings $ 49 $ 47 $ 45
Payment of interest in kind by increasing the
principal amount of the notes ........................ 4,141 3,702 3,263
Conversion on nonvoting common stock to common stock:
Common stock ......................................... -- -- 9
Nonvoting stock ...................................... -- -- (9)
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required by this item has been previously reported in the
Form 8-K Current Report of the registrant dated October 16, 1996.
PART III
The information required by this Part III is incorporated by reference from
the registrant's definitive proxy statement for the 1997 annual meeting of the
registrant's stockholders to be held on May 22, 1997, which involves the
election of directors. Such definitive proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year covered by this Form 10-K. However, information concerning the
registrant's executive officers will be omitted from such proxy statement and is
furnished in a separate item captioned "Executive Officers of the Registrant"
included in Part I of this Form 10-K.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report in Item
8 of Part II:
1. FINANCIAL STATEMENTS.
Pamida Holdings Corporation and Subsidiary
- Independent Auditors' Report
- Consolidated Statements of Operations for the Years Ended February
2, 1997, January 28, 1996 and January 29, 1995
- Consolidated Balance Sheets at February 2, 1997 and January 28, 1996
- Consolidated Statements of Common Stockholders' Equity for the
Years Ended February 2, 1997, January 28, 1996 and January 29,
1995
- Consolidated Statements of Cash Flows for the Years Ended February
2, 1997, January 28, 1996 and January 29, 1995
- Notes to Consolidated Financial Statements for the Years Ended
February 2, 1997, January 28, 1996 and January 29, 1995
2. FINANCIAL STATEMENT SCHEDULES.
- Independent Auditors' Report on Schedule
- Schedule I - Condensed Financial Information of Registrant
All other schedules of the registrant for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable or have been
disclosed in the Notes to Consolidated Financial Statements and, therefore, have
been omitted.
3. EXHIBITS.
(1) 3.1 - Restated Certificate of Incorporation of Pamida Holdings
Corporation, as amended.
(2) 3.2 - Revised By-Laws of Pamida Holdings Corporation.
(1) 3.3 - Certificate of Amendment of Certificate of Incorporation
of Pamida Holdings Corporation (amends Exhibit 3.1).
(9) 3.4 - Certificate of Amendment of Certificate of Incorporation
of Pamida Holdings Corporation (amends Exhibit 3.1).
(2) 4.1 - Form of certificate representing shares of the Common Stock
of Pamida Holdings Corporation.
(6) 4.2 - Indenture dated as of March 15, 1993, among Pamida, Inc. as
Issuer, Pamida Holdings Corporation as Guarantor, and State
Street Bank and Trust Company as Trustee relating to 11 3/4%
Senior Subordinated Notes due 2003 of Pamida, Inc.
(6) 4.3 - Specimen form of 11 3/4% Senior Subordinated Note due 2003 of
Pamida, Inc.
(3) 10.1 - Stock and Note Purchase Agreement dated as of July 29, 1986,
among Pamida Holdings Corporation, Citicorp Venture Capital,
Ltd., Citicorp Capital Investors, Ltd., and the individual
purchasers who are parties thereto.
(1) 10.2 - Amendment to Stock and Note Purchase Agreement, dated July 31,
1990 (amends Exhibit 10.1).
(1) 10.3 - Second Amendment to Stock and Note Purchase Agreement, dated
August 10, 1990 (amends Exhibit 10.1).
(1) 10.4 - Third Amendment to Stock and Note Purchase Agreement, dated
September 13, 1990 (amends Exhibit 10.1).
(1) 10.5 - Registration Agreement dated July 29, 1986, among Pamida Holdings
Corporation and the persons listed on the signature pages
thereof.
(1) 10.6 - Amendment No.1 to Registration Agreement, dated August 10, 1990,
among Pamida Holdings Corporation, Citicorp Venture Capital,
Ltd. and C. Clayton Burkstrand (amends Exhibit 10.5).
(1) 10.7 - Exchange Agreement dated August 10, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court Square
Capital Limited.
(1) 10.8 - Agreement dated September 13, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court Square
Capital Limited.
(2) 10.9 - Agreement dated September 20, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court Square
Capital Limited.
(4) 10.10 - Exchange Agreement dated as of December 1, 1990 between Pamida
Holdings Corporation, Citicorp Venture Capital, Ltd. and
Court Square Capital Limited.
(4) 10.11 - Form of 14.25% Junior Subordinated Promissory Note of Pamida
Holdings Corporation.
(4) 10.12 - Form of Indemnification Agreement between Pamida Holdings
Corporation and its officers and directors.
(5) 10.13 - Note Amendment Agreement dated as of December 18, 1992, between
Pamida Holdings Corporation and Court Square Capital Limited.
(5) 10.14 - Note Amendment Agreement No. 2 dated as of March 1, 1993, between
Pamida Holdings Corporation and Citicorp Investments Inc.
(5) 10.15 - Tax-Sharing Agreement dated as of February 2, 1992, among Pamida
Holdings Corporation, Pamida, Inc., Seaway Importing company,
and Pamida Transportation Company.
(6) 10.16 - Loan and Security Agreement dated March 30, 1993, by and among
Congress Financial Corporation (Southwest) and BA Business
Credit, Inc. as Lenders, Congress Financial Corporation
(Southwest)as Agent for the Lenders, and Pamida, Inc. and
Seaway Importing Company as Borrowers.
(12) 10.17 - Amendment No. 1 to Loan and Security Agreement, dated January 23,
1995, among Pamida, Inc. and Seaway Importing Company as
Borrowers, Congress Financial Corporation (Southwest) as a
Lender and Agent, and BA Business Credit Inc. as a Lender
(amends Exhibit 10.16).
(13) 10.18 - Amendment No. 2 to Loan and Security Agreement, dated January 28,
1996, among Pamida, Inc. and Seaway Importing Company as
Borrowers, Congress Financial Corporation (Southwest) as a
Lender and Agent, and BankAmerica Business Credit as a Lender
(amends Exhibit 10.16).
(14) 10.19 - Amendment No. 3 to Loan and Security Agreement among Pamida,
Inc. and Seaway Importing Company, as Borrowers, Congress
Financial Corporation (Southwest) and BankAmerica Business
Credit, Inc., as Lenders, and Congress Financial Corporation
(Southwest), as Agent, dated September 16, 1996 (amends
Exhibit 10.16).
10.20 - Amendment No. 4 to Loan and Security Agreement among Pamida,
Inc. and Seaway Importing Company, as Borrowers, Congress
Financial Corporation (Southwest) and BankAmerica Business
Credit, Inc., as Lenders, and Congress Financial Corporation
(Southwest), as Agent, dated January 31, 1997 (amends
Exhibit 10.16).
10.21 - Amendment No. 5 to Loan and Security Agreement among Pamida,
Inc. and Seaway Importing Company, as Borrowers, Congress
Financial Corporation (Southwest) and BankAmerica Business
Credit, Inc., as Lenders, and Congress Financial Corporation
(Southwest), as Agent, dated March 17, 1997 (amends
Exhibit 10.16).
(8) 10.22 - Pamida Holdings Corporation 1992 Stock Option Plan.
(7) 10.23 - Employment Agreement dated April 19, 1993, between
Pamida, Inc. and Steven S. Fishman.
(10) 10.24 - Amendment No. 1 to Employment Agreement, dated January 3, 1994,
between Pamida, Inc. and Steven S. Fishman (amends Exhibit
10.23).
(11) 10.25 - Amendment No. 2 to Employment Agreement, dated January 23, 1995,
between Pamida, Inc. and Steven S. Fishman (amends Exhibit
10.23).
(12) 10.26 - Employment Agreement dated September 22, 1995, among Pamida
Holdings Corporation, Pamida, Inc. and Steven S. Fishman.
(14) 10.27 - Amendment No. 1 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and Steve S. Fishman dated August
29, 1996 (amends Exhibit 10.26).
10.28 - Amendment No. 2 to Employment Agreement among Pamida Holdings
Corporation, Pamida, Inc., and Steven S. Fishman dated March 6,
1997 (amends Exhibit 10.26).
(11) 10.29 - Pamida, Inc. 1995 Deferred Compensation Plan.
10.30 - Employment Agreement dated as of March 6, 1997, among Pamida
Holdings Corporation, Pamida, Inc., and Frank A. Washburn.
10.31 - Employment Agreement dated as of March 6, 1997, among Pamida
Holdings Corporation, Pamida, Inc., and George R. Mihalko.
10.32 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc. and, Steven S. Fishman.
10.33 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc., and Frank A. Washburn.
10.34 - Long-Term Incentive Award Agreement dated as of March 6, 1997,
between Pamida, Inc., and George R. Mihalko.
(1) 22.1 - Subsidiaries of Pamida Holdings Corporation.
23.1 - Consent of Deloitte & Touche LLP.
23.2 - Consent of Coopers & Lybrand L.L.P.
24.1 - Power of Attorney
27.1 - Financial Data Schedule (EDGAR filing only)
- -------------------------
(1) Previously filed as an exhibit to Registration Statement of Pamida Holdings
Corporation on Form S-1 (Registration No. 33-35324) and incorporated herein
by this reference.
(2) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 28, 1990, and
incorporated herein by this reference.
(3) Previously filed as an exhibit to Registration Statement of Pamida, Inc. on
Form S-l (Registration No. 33-10980) and incorporated herein by this
reference.
(4) Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended February 3, 1991, and
incorporated herein by this reference.
(5) Previously filed as an exhibit to Registration Statement of Pamida, Inc.
and Pamida Holdings Corporation on Form S-1 (Registration No. 33-57990) and
incorporated herein by this reference.
(6) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended May 2, 1993, and incorporated
herein by this reference.
(7) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida,
Inc. (File No. 33-57990) for the period ended August 1, 1993, and
incorporated herein by this reference.
(8) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended August 1, 1993, and incorporated
herein by this reference.
(9) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended July 31, 1994, and incorporated
herein by this reference.
(10) Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended January 30, 1994, and
incorporated herein by this reference.
(11) Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended January 29, 1995, and
incorporated herein by this reference.
(12) Previously filed as an exhibit to Form 10-Q Quarterly Report of Pamida
Holdings Corporation for the period ended October 29, 1995, and
incorporated herein by this reference.
(13) Previously filed as an exhibit to Form 10-K Annual Report of Pamida
Holdings Corporation for the fiscal year ended January 28, 1996, and
incorporated herein by this reference.
(14) 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.
* * *
(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 15, 1997 PAMIDA HOLDINGS CORPORATION
By:/s/ Steven S. Fishman
Steven S. Fishman, Chairman
of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Steven S. Fishman Chairman of the Board, April 15, 1997
Steven S. Fishman President, Chief Executive
Officer and Director
/s/ George R. Mihalko Senior Vice President, April 15, 1997
George R. Mihalko Chief Financial Officer
and Treasurer
/s/ Todd D. Weyhrich Principal Accounting April 15, 1997
Todd D. Weyhrich Officer
/s/ Frank A. Washburn Director April 15, 1997
Frank A. Washburn
* Director April 15, 1997
L. David Callaway, III
* Director April 15, 1997
Stuyvesant P. Comfort
* Director April 15, 1997
M. Saleem Muqaddam
* Director April 15, 1997
Peter J. Sodini
* By: /s/ George R. Mihalko
George R. Mihalko,
Attorney-in-Fact
II-9
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS.
** 1.1 -- Form of Underwriting Agreement.
(1)3.1 -- Restated Certificate of Incorporation of Pamida, Inc.
(1)3.2 -- Second Revised By-Laws of Pamida, Inc.
(2)3.3 -- Restated Certificate of Incorporation of Pamida Holdings
Corporation, as amended.
(2)3.4 -- Certificate of Amendment of Restated Certificate of
Incorporation of Pamida Holdings Corporation (amends
Exhibit 3.3).
(3)3.5 -- Revised By-Laws of Pamida Holdings Corporation.
(9)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.
(1)4.2 -- Indenture dated as of July 29, 1986, between Pamida
Acquisition Corporation and The First National Bank of
Boston, Trustee, relating to 12 1/8% Series A Senior
Subordinated Debentures due 1998 and 12 1/8% Series B Senior
Subordinated Debentures due 1998; and First Supplement to
Indenture dated as of July 29, 1986, between Pamida, Inc.
and The First National Bank of Boston, Trustee.
(4)4.3 -- Second Supplement to Indenture dated April 3, 1989, between
Pamida, Inc. and The First National Bank of Boston, Trustee
(amends Exhibit 4.2).
**4.4 -- Third Supplement to Indenture dated December 26, 1990,
between Pamida, Inc. and The First National Bank of Boston,
Trustee (amends Exhibit 4.2).
(1)4.5 -- Indenture dated as of July 29, 1986, between Pamida
Acquisition Corporation and Colonial Bank, Trustee, relating
to 13 1/8% Subordinated Debentures due 2001; and First
Supplement to Indenture dated as of July 29, 1986, between
Pamida, Inc. and Colonial Bank, Trustee.
(4)4.6 -- Second Supplement to Indenture dated April 3, 1989, between
Pamida, Inc. and Bank of Boston Connecticut, Trustee
(amends Exhibit 4.5).
** 4.7 -- Third Supplement to Indenture dated December 26, 1990,
between Pamida, Inc. and Bank of Boston Connecticut,
Trustee (amends Exhibit 4.5).
(5)4.8 -- Amended and Restated Credit Agreement dated as of July 29,
1988, among Pamida, Inc., Pamida Holdings Corporation, the
Banks named therein, Bankers Trust Company, as Agent, and
Continental Illinois National Bank and Trust Company of
Chicago, as Co-Agent.
(4)4.9 -- First Amendment to Amended and Restated Credit Agreement
dated January 18, 1989 (amends Exhibit 4.8).
(2)4.10 -- Second Amendment to Amended and Restated Credit Agreement
dated June 1, 1990 (amends Exhibit 4.8).
(6)4.11 -- Third Amendment and Limited Waiver to Amended and Restated
Credit Agreement dated as of December 1, 1990 (amends Exhibit
4.8).
(7)4.12 -- Fourth Amendment to Amended and Restated Credit Agreement
dated as of July 30, 1991 (amends Exhibit 4.8).
(8)4.13 -- Fifth Amendment to Amended and Restated Credit Agreement
dated as of September 3, 1991 (amends Exhibit 4.8).
**4.14 -- Sixth Amendment to Amended and Restated Credit Agreement
dated as of December 16, 1992 (amends Exhibit 4.8).
**4.15 -- Note Amendment Agreement dated as of December 18, 1992,
between Pamida Holdings Corporation and Court Square
Capital Limited.
(1)4.16 -- Specimen form of Pamida, Inc. Series A Senior Subordinated
Debenture due 1998.
(1)4.17 -- Specimen form of Pamida, Inc. Series B Senior Subordinated
Debenture due 1998.
(1)4.18 -- Specimen form of Pamida, Inc. Subordinated Debenture due
2001.
(9)4.19 -- Specimen form of 11 3/4% Senior Subordinated Note due 2003
of Pamida, Inc.
**4.20 -- Note Amendment Agreement No. 2 dated as of March 1, 1993,
between Pamida Holdings Corporation and Citicorp
Investments Inc.
(9)4.21 -- Loan and Security Agreement, dated as of March 30, 1993, by
and among Congress Financial Corporation (Southwest) and
BA Business Credit Inc. as Lenders, Congress Financial
Corporation (Southwest) as Agent for the Lenders, and
Pamida, Inc. and Seaway Importing Company as Borrowers.
**4.22 -- Amendment No. 1 to Loan and Security Agreement dated
January 23, 1995, among Pamida, Inc. and Seaway Importing
Company as Borrowers, Congress Financial Corporation
(Southwest) as a Lender and Agent, and BA Business Credit
Inc. as a Lender (amends Exhibit 4.21).
(10)4.23 -- Amendment No. 2 to Loan and Security Agreement, dated
January 28, 1996, among Pamida, Inc. and Seaway Importing
Company as Borrowers, Congress Financial Corporation
(Southwest) as Lender and Agent and BankAmerica Business
Credit as a Lender (amends Exhibit 4.21).
(11)4.24 -- Amendment No. 3 to Loan and Security Agreement among
Pamida, Inc. and Seaway Importing Company, as Borrowers,
Congress Financial Corporation (Southwest) and BankAmerica
Business Credit, Inc., as Lenders, and Congress Financial
Corporation (Southwest), as Agent, dated September 16, 1996
(amends Exhibit 4.21).
(12)4.25 -- Amendment No. 4 to Loan and Security Agreement among
Pamida, Inc. and Seaway Importing Company, as Borrowers,
Congress Financial Corporation (Southwest) and BankAmerica
Business Credit, Inc., as Lenders, and Congress Financial
Corporation (Southwest), as Agent, dated January 31, 1997
(amends Exhibit 4.21).
(12)4.26 -- Amendment No. 5 to Loan and Security Agreement among
Pamida, Inc. and Seaway Importing Company, as Borrowers,
Congress Financial Corporation (Southwest) and BankAmerica
Business Credit, Inc., as Lenders, and Congress Financial
Corporation (Southwest), as Agent, dated March 17, 1997
(amends Exhibit 4.21).
**5.1 -- Opinion and consent of Abrahams, Kaslow & Cassman, counsel to
the registrants.
(6)10.1 -- Form of Indemnification Agreement between Pamida Holdings
Corporation and its officers and directors.
(1)10.2 -- Stock and Note Purchase Agreement dated as of July 29,
1986, among Pamida Holdings Corporation, Citicorp Venture
Capital, Ltd., Citicorp Capital Investors, Ltd. and the
individual purchasers who are parties thereto.
(2)10.3 -- Amendment to Stock and Note Purchase Agreement dated July
31, 1990 (amends Exhibit 10.6).
(2)10.4 -- Second Amendment to Stock and Note Purchase Agreement dated
August 10, 1990 (amends Exhibit 10.6).
(2)10.5 -- Third Amendment to Stock and Note Purchase Agreement dated
September 13, 1990 (amends Exhibit 10.6).
(2)10.6 -- Agreement dated September 13, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court
Square Capital Limited.
(3)10.7 -- Agreement dated September 20, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court
Square Capital Limited.
**10.8 -- Tax Sharing Agreement dated as of February 3, 1992, among
Pamida Holdings Corporation, Pamida, Inc., Seaway Importing
Company and Pamida Transportation Company.
12.1 -- Computation of Ratio of Earnings to Fixed Charges
-- Pamida, Inc.
12.2 -- Computation of Ratio of Earnings to Fixed Charges
-- Pamida Holdings Corporation.
**21.1 -- Subsidiaries of Pamida Holdings Corporation.
**21.2 -- Subsidiaries of Pamida, Inc.
**23.1 -- Consent of Abrahams, Kaslow & Cassman (included in Exhibit
5.1).
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consents of Coopers & Lybrand L.L.P.
24.1 -- Powers of Attorney.
**26.1 -- Statement of Eligibility and Qualification of State Street
Bank and Trust Company on Form T-1 under the Trust Indenture
Act of 1939, as Trustee under the Indenture relating to the
Senior Subordinated Notes of Pamida, Inc.
- ---------------
(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 Holdings
Corporation on Form S-1 (Registration No. 33-35324) and incorporated herein
by this reference.
(3) Previously filed as an exhibit to Quarterly Report of Pamida Holdings
Corporation on Form 10-Q (File No. 1-10619) for the period ended October
28, 1990, and incorporated herein by this reference.
(4) Previously filed as an exhibit to Annual Report of Pamida, Inc. on Form 10-K
(File No. 33-10980) for the fiscal year ended January 29, 1989, and
incorporated herein by this reference.
(5) Previously filed as an exhibit to Registration Statement of Pamida, Inc. on
Form S-1 (Registration No. 33-22878) and incorporated herein by this
reference.
(6) Previously filed as an exhibit to Annual Report of Pamida Holdings
Corporation on Form 10-K (File No. 1-10619) for the fiscal year ended
February 3, 1991, and incorporated herein by this reference.
(7) Previously filed as an exhibit to Quarterly Report of Pamida Holdings
Corporation on Form 10-Q (File No. 1-10619) for the period ended August 4,
1991, and incorporated herein by this reference.
(8) Previously filed as an exhibit to Quarterly Report of Pamida Holdings
Corporation on Form 10-Q (File No. 1-10619) for the period ended November
3, 1991, and incorporated herein by this reference.
(9) Previously filed as an exhibit to Quarterly Report of Pamida Holdings
Corporation on Form 10-Q (File No. 1-10619) for the period ended May 2,
1993, and incorporated herein by this reference.
(10) Previously filed as an exhibit to Annual Report of Pamida, Inc. on Form
10-K (File No. 33-57990) for the fiscal year ended January 28, 1996, and
incorporated herein by this reference.
(11) Previously filed as an exhibit to Quarterly Report of Pamida, Inc. on Form
10-Q (File No. 33-57990) for the period ended October 27, 1996, and
incorporated herein by this reference.
(12) Previously filed as an exhibit to Annual Report of Pamida, Inc. on Form
10-K (File No. 33-57990) for the fiscal year ended February 2, 1997, and
incorporated herein by this reference.
** Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrants pursuant to the provisions
referred to in Item 15 of this Registration Statement, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrants hereby undertake:
(1) That, for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to
include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Act of 1934) that
is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-Effective Amendment to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Omaha, State of Nebraska, on the 5th day of May, 1997.
PAMIDA, INC.
By: /s/ Steven S. Fishman
Steven S. Fishman, Chairman of
the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed by the following persons in the
capacities indicated on the 5th day of May, 1997.
/s/ Steven S. Fishman
Steven S. Fishman Chairman of the Board, President,
Chief Executive Officer and Director
/s/ George R. Mihalko
George R. Mihalko Senior Vice President, Chief
Financial Officer, Treasurer
and Director
/s/ Todd D. Weyhrich
Todd D. Weyhrich Principal Accounting Officer
/s/ Frank A. Washburn
Frank A. Washburn Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-Effective Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska,
on the 5th day of May, 1997.
PAMIDA HOLDINGS CORPORATION
By: /s/ Steven S. Fishman
Steven S. Fishman, Chairman of
the Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed by the following persons in the
capacities indicated on the 5th day of May, 1997.
/s/ Steven S. Fishman
Steven S. Fishman Chairman of the Board, President,
Chief Executive Officer and Director
/s/ George R. Mihalko
George R. Mihalko Senior Vice President, Treasurer
and Chief Financial Officer
/s/ Todd D. Weyhrich
Todd D. Weyhrich Principal Accounting Officer
/s/ Frank A. Washburn
Frank A. Washburn Director
*
Peter J. Sodini Director
*
M. Saleem Muqaddam Director
*
Stuyvesant P. Comfort Director
*
L. David Callaway, III Director
*By: /s/ Steven S. Fishman
Steven S. Fishman,
Attorney-in-Fact
PAMIDA, INC. AND PAMIDA HOLDINGS
CORPORATION S-2 EXHIBIT TABLE
Exhibit
Number Description
- ------ --------------------------------------------------------------
** 1.1 Form of Underwriting Agreement.
(1)3.1 Restated Certificate of Incorporation of Pamida, Inc.
(1)3.2 Second Revised By-Laws of Pamida, Inc.
(2)3.3 Restated Certificate of Incorporation of Pamida Holdings
Corporation, as amended.
(2)3.4 Certificate of Amendment of Restated Certificate of
Incorporation of Pamida Holdings Corporation (amends
Exhibit 3.3).
(3)3.5 Revised By-Laws of Pamida Holdings Corporation.
(9)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.
(1)4.2 Indenture dated as of July 29, 1986, between Pamida
Acquisition Corporation and The First National Bank of
Boston, Trustee, relating to 12 1/8% Series A Senior
Subordinated Debentures due 1998 and 12 1/8% Series B Senior
Subordinated Debentures due 1998; and First Supplement to
Indenture dated as of July 29, 1986, between Pamida, Inc.
and The First National Bank of Boston, Trustee.
(4)4.3 Second Supplement to Indenture dated April 3, 1989, between
Pamida, Inc. and The First National Bank of Boston, Trustee
(amends Exhibit 4.2).
**4.4 Third Supplement to Indenture dated December 26, 1990,
between Pamida, Inc. and The First National Bank of Boston,
Trustee (amends Exhibit 4.2).
(1)4.5 Indenture dated as of July 29, 1986, between Pamida
Acquisition Corporation and Colonial Bank, Trustee, relating
to 13 1/8% Subordinated Debentures due 2001; and First
Supplement to Indenture dated as of July 29, 1986, between
Pamida, Inc. and Colonial Bank, Trustee.
(4)4.6 Second Supplement to Indenture dated April 3, 1989, between
Pamida, Inc. and Bank of Boston Connecticut, Trustee
(amends Exhibit 4.5).
** 4.7 Third Supplement to Indenture dated December 26, 1990,
between Pamida, Inc. and Bank of Boston Connecticut,
Trustee (amends Exhibit 4.5).
(5)4.8 Amended and Restated Credit Agreement dated as of July 29,
1988, among Pamida, Inc., Pamida Holdings Corporation, the
Banks named therein, Bankers Trust Company, as Agent, and
Continental Illinois National Bank and Trust Company of
Chicago, as Co-Agent.
(4)4.9 First Amendment to Amended and Restated Credit Agreement
dated January 18, 1989 (amends Exhibit 4.8).
(2)4.10 Second Amendment to Amended and Restated Credit Agreement
dated June 1, 1990 (amends Exhibit 4.8).
(6)4.11 Third Amendment and Limited Waiver to Amended and Restated
Credit Agreement dated as of December 1, 1990 (amends Exhibit
4.8).
(7)4.12 Fourth Amendment to Amended and Restated Credit Agreement
dated as of July 30, 1991 (amends Exhibit 4.8).
(8)4.13 Fifth Amendment to Amended and Restated Credit Agreement
dated as of September 3, 1991 (amends Exhibit 4.8).
**4.14 Sixth Amendment to Amended and Restated Credit Agreement
dated as of December 16, 1992 (amends Exhibit 4.8).
**4.15 Note Amendment Agreement dated as of December 18, 1992,
between Pamida Holdings Corporation and Court Square
Capital Limited.
(1)4.16 Specimen form of Pamida, Inc. Series A Senior Subordinated
Debenture due 1998.
(1)4.17 Specimen form of Pamida, Inc. Series B Senior Subordinated
Debenture due 1998.
(1)4.18 Specimen form of Pamida, Inc. Subordinated Debenture due
2001.
(9)4.19 Specimen form of 11 3/4% Senior Subordinated Note due 2003
of Pamida, Inc.
**4.20 Note Amendment Agreement No. 2 dated as of March 1, 1993,
between Pamida Holdings Corporation and Citicorp
Investments Inc.
(9)4.21 Loan and Security Agreement, dated as of March 30, 1993, by
and among Congress Financial Corporation (Southwest) and
BA Business Credit Inc. as Lenders, Congress Financial
Corporation (Southwest) as Agent for the Lenders, and
Pamida, Inc. and Seaway Importing Company as Borrowers.
**4.22 Amendment No. 1 to Loan and Security Agreement dated
January 23, 1995, among Pamida, Inc. and Seaway Importing
Company as Borrowers, Congress Financial Corporation
(Southwest) as a Lender and Agent, and BA Business Credit
Inc. as a Lender (amends Exhibit 4.21).
(10)4.23 Amendment No. 2 to Loan and Security Agreement, dated
January 28, 1996, among Pamida, Inc. and Seaway Importing
Company as Borrowers, Congress Financial Corporation
(Southwest) as Lender and Agent and BankAmerica Business
Credit as a Lender (amends Exhibit 4.21).
(11)4.24 Amendment No. 3 to Loan and Security Agreement among
Pamida, Inc. and Seaway Importing Company, as Borrowers,
Congress Financial Corporation (Southwest) and BankAmerica
Business Credit, Inc., as Lenders, and Congress Financial
Corporation (Southwest), as Agent, dated September 16, 1996
(amends Exhibit 4.21).
(12)4.25 Amendment No. 4 to Loan and Security Agreement among
Pamida, Inc. and Seaway Importing Company, as Borrowers,
Congress Financial Corporation (Southwest) and BankAmerica
Business Credit, Inc., as Lenders, and Congress Financial
Corporation (Southwest), as Agent, dated January 31, 1997
(amends Exhibit 4.21).
(12)4.26 Amendment No. 5 to Loan and Security Agreement among
Pamida, Inc. and Seaway Importing Company, as Borrowers,
Congress Financial Corporation (Southwest) and BankAmerica
Business Credit, Inc., as Lenders, and Congress Financial
Corporation (Southwest), as Agent, dated March 17, 1997
(amends Exhibit 4.21).
**5.1 Opinion and consent of Abrahams, Kaslow & Cassman, counsel to
the registrants.
(6)10.1 Form of Indemnification Agreement between Pamida Holdings
Corporation and its officers and directors.
(1)10.2 Stock and Note Purchase Agreement dated as of July 29,
1986, among Pamida Holdings Corporation, Citicorp Venture
Capital, Ltd., Citicorp Capital Investors, Ltd. and the
individual purchasers who are parties thereto.
(2)10.3 Amendment to Stock and Note Purchase Agreement dated July
31, 1990 (amends Exhibit 10.6).
(2)10.4 Second Amendment to Stock and Note Purchase Agreement dated
August 10, 1990 (amends Exhibit 10.6).
(2)10.5 Third Amendment to Stock and Note Purchase Agreement dated
September 13, 1990 (amends Exhibit 10.6).
(2)10.6 Agreement dated September 13, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court
Square Capital Limited.
(3)10.7 Agreement dated September 20, 1990, among Pamida Holdings
Corporation, Citicorp Venture Capital, Ltd. and Court
Square Capital Limited.
**10.8 Tax Sharing Agreement dated as of February 3, 1992, among
Pamida Holdings Corporation, Pamida, Inc., Seaway Importing
Company and Pamida Transportation Company.
12.1 Computation of Ratio of Earnings to Fixed Charges
Pamida, Inc.
12.2 Computation of Ratio of Earnings to Fixed Charges
Pamida Holdings Corporation.
**21.1 Subsidiaries of Pamida Holdings Corporation.
**21.2 Subsidiaries of Pamida, Inc.
**23.1 Consent of Abrahams, Kaslow & Cassman (included in Exhibit
5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consents of Coopers & Lybrand L.L.P.
24.1 Powers of Attorney.
**26.1 Statement of Eligibility and Qualification of State Street
Bank and Trust Company on Form T-1 under the Trust Indenture
Act of 1939, as Trustee under the Indenture relating to the
Senior Subordinated Notes of Pamida, Inc.
- ---------------
(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 Holdings
Corporation on Form S-1 (Registration No. 33-35324) and incorporated herein
by this reference.
(3) Previously filed as an exhibit to Quarterly Report of Pamida Holdings
Corporation on Form 10-Q (File No. 1-10619) for the period ended October
28, 1990, and incorporated herein by this reference.
(4) Previously filed as an exhibit to Annual Report of Pamida, Inc. on Form 10-K
(File No. 33-10980) for the fiscal year ended January 29, 1989, and
incorporated herein by this reference.
(5) Previously filed as an exhibit to Registration Statement of Pamida, Inc. on
Form S-1 (Registration No. 33-22878) and incorporated herein by this
reference.
(6) Previously filed as an exhibit to Annual Report of Pamida Holdings
Corporation on Form 10-K (File No. 1-10619) for the fiscal year ended
February 3, 1991, and incorporated herein by this reference.
(7) Previously filed as an exhibit to Quarterly Report of Pamida Holdings
Corporation on Form 10-Q (File No. 1-10619) for the period ended August 4,
1991, and incorporated herein by this reference.
(8) Previously filed as an exhibit to Quarterly Report of Pamida Holdings
Corporation on Form 10-Q (File No. 1-10619) for the period ended November
3, 1991, and incorporated herein by this reference.
(9) Previously filed as an exhibit to Quarterly Report of Pamida Holdings
Corporation on Form 10-Q (File No. 1-10619) for the period ended May 2,
1993, and incorporated herein by this reference.
(10) Previously filed as an exhibit to Annual Report of Pamida, Inc. on Form
10-K (File No. 33-57990) for the fiscal year ended January 28, 1996, and
incorporated herein by this reference.
(11) Previously filed as an exhibit to Quarterly Report of Pamida, Inc. on Form
10-Q (File No. 33-57990) for the period ended October 27, 1996, and
incorporated herein by this reference.
(12) Previously filed as an exhibit to Annual Report of Pamida, Inc. on Form
10-K (File No. 33-57990) for the fiscal year ended February 2, 1997, and
incorporated herein by this reference.
<TABLE>
<CAPTION>
PAMIDA , INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
Years Ended
--------------------------------------------------------------------
January 31, January 30, January 29, January 28, February 2,
1993 1994 1995 1996 1997
(52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income (loss) before
taxes and extraordinary item $ 7,892 $ 1,504 $ 9,912 ($98,939) $ 3,696
Add:
Interest expense 22,608 23,515 23,904 25,616 25,308
Amortization of
finance cost 1,001 852 895 994 676
Portion of rentals
representative of
interest factor 4,052 4,042 4,572 5,631 5,231
----------- ----------- ----------- ----------- -----------
Income before taxes and
extra-ordinary items,
as adjusted $35,553 $29,913 $39,283 ($66,698) $34,911
=========== =========== =========== =========== ===========
Fixed
Charges:
Interest expense $22,608 $23,515 $23,904 $ 25,616 $25,308
Amortization of
finance cost 1,001 852 895 994 676
Portion of rentals
representative of
interest factor 4,052 4,042 4,572 5,631 5,231
----------- ----------- ----------- ----------- -----------
Fixed charges
as adjusted $27,661 $28,409 $29,371 $ 32,241 $31,215
=========== =========== =========== =========== ===========
Ratio of earnings
to fixed charges 1.29:1 1.05:1 1.34:1 -- 1.12:1
=========== =========== =========== =========== ===========
Excess of fixed
charges over
earnings -- -- -- $ 98,939 --
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
Years Ended
-------------------------------------------------------------------
January 31, January 30, January 29, January 28, February 2,
1993 1994 1995 1996 1997
(52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income (loss) before
taxes and extraordinary item $ 5,323 ($1,603) $ 6,415 ($102,882) ($796)
Add:
Interest expense 25,147 26,588 27,367 29,526 29,781
Amortization of
finance cost 1,010 862 906 1,004 687
Portion of rentals
representative of
interest factor 4,052 4,042 4,572 5,631 5,231
----------- ----------- ----------- ----------- -----------
Income before taxes and
extra-ordinary items,
as adjusted $35,532 $29,889 $39,260 ($66,721) $34,903
=========== =========== =========== =========== ===========
Fixed
Charges:
Interest expense $25,147 $26,588 $27,367 $29,526 $29,781
Amortization of
finance cost 1,010 862 906 1,004 687
Portion of rentals
representative of
interest factor 4,052 4,042 4,572 5,631 5,231
Preferred dividend
factor on pre-tax basis 788 511 508 511 554
----------- ----------- ----------- ----------- -----------
Fixed charges,
as adjusted $30,997 $32,003 $33,353 $36,672 $36,253
=========== =========== =========== =========== ===========
Ratio of earnings
to fixed charges 1.15:1 -- 1.18:1 -- --
=========== =========== =========== =========== ===========
Excess of fixed
charges over
earnings -- $ 2,114 -- $ 103,393 $1,350
=========== =========== =========== =========== ===========
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Post-Effective Amendment No.5 to
Registration Statement No. 33-57990 of Pamida, Inc. and Pamida Holdings
Corporation of our reports dated March 7, 1997 (March 17, 1997 as to Note E)
appearing in the Annual Reports on Form 10-K of Pamida, Inc. and Pamida Holdings
Corporation for the year ended February 2, 1997, and to the reference to
Deloitte & Touche LLP under the heading "Experts" in the Prospectus, which is
part of such Registration Statement.
/s/Deloitte & Touche LLP
Omaha, Nebraska
April 29, 1997
Consent of Independent Accountants
We consent to the inclusion in this post effective amendment No. 5 on Form
S-2 to the registration statement on Form S-1 (File No. 33-57990) of our report
dated March 26, 1996, on our audit of the consolidated financial statements of
Pamida, Inc. and Subsidiaries as of January 28, 1996 and for the year then
ended. We also consent to the reference to our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
April 29, 1997
Consent of Independent Accountants
We consent to the inclusion in this post effective amendment No. 5 on Form
S-2 to the registration statement on Form S-1 (File No. 33-57990) of our report
dated March 26, 1996, on our audit of the consolidated financial statements and
financial statement schedule of Pamida Holdings Corporation and Subsidiary as of
January 28, 1996 and for the year then ended. We also consent to the reference
to our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
April 29, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I do hereby constitute and appoint
Steven S. Fishman, Frank A. Washburn, and George R. Mihalko, and each or any of
them individually, as my true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution to each of them, for me and in my name,
place, and stead, in any and all capacities (including, if applicable, my
capacity as a director of Pamida Holdings Corporation and my capacity as a
director of Pamida, Inc.), from time to time to sign one or more post-effective
amendments to Registration Statement No. 33-57990 under the Securities Act of
1933, as amended, relating to $140,000,000 principal amount of 11 3/4% Senior
Subordinated Notes due 2003 of Pamida, Inc. and the Guarantee of such Notes by
Pamida Holdings Corporation and to file such post-effective amendments, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them individually, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as I might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 23rd day of
March, 1997.
/s/ L. David Callaway, III
L. David Callaway, III
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I do hereby constitute and appoint
Steven S. Fishman, Frank A. Washburn, and George R. Mihalko, and each or any of
them individually, as my true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution to each of them, for me and in my name,
place, and stead, in any and all capacities (including, if applicable, my
capacity as a director of Pamida Holdings Corporation and my capacity as a
director of Pamida, Inc.), from time to time to sign one or more post-effective
amendments to Registration Statement No. 33-57990 under the Securities Act of
1933, as amended, relating to $140,000,000 principal amount of 11 3/4% Senior
Subordinated Notes due 2003 of Pamida, Inc. and the Guarantee of such Notes by
Pamida Holdings Corporation and to file such post-effective amendments, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them individually, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as I might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 24th day of
March, 1997.
/s/ Stuyvesant P. Comfort
Stuyvesant P. Comfort
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I do hereby constitute and appoint
Steven S. Fishman, Frank A. Washburn, and George R. Mihalko, and each or any of
them individually, as my true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution to each of them, for me and in my name,
place, and stead, in any and all capacities (including, if applicable, my
capacity as a director of Pamida Holdings Corporation and my capacity as a
director of Pamida, Inc.), from time to time to sign one or more post-effective
amendments to Registration Statement No. 33-57990 under the Securities Act of
1933, as amended, relating to $140,000,000 principal amount of 11 3/4% Senior
Subordinated Notes due 2003 of Pamida, Inc. and the Guarantee of such Notes by
Pamida Holdings Corporation and to file such post-effective amendments, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them individually, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as I might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 11th day of
March, 1997.
/s/ Saleem Muqaddam
M. Saleem Muqaddam
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I do hereby constitute and appoint
Steven S. Fishman, Frank A. Washburn, and George R. Mihalko, and each or any of
them individually, as my true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution to each of them, for me and in my name,
place, and stead, in any and all capacities (including, if applicable, my
capacity as a director of Pamida Holdings Corporation and my capacity as a
director of Pamida, Inc.), from time to time to sign one or more post-effective
amendments to Registration Statement No. 33-57990 under the Securities Act of
1933, as amended, relating to $140,000,000 principal amount of 11 3/4% Senior
Subordinated Notes due 2003 of Pamida, Inc. and the Guarantee of such Notes by
Pamida Holdings Corporation and to file such post-effective amendments, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them individually, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as I might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney this 21st day of
March, 1997.
/s/ Peter J. Sodini
Peter J. Sodini
