SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
[X] 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 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
incorporation or organization) Identification Number)
8800 "F" Street, Omaha, Nebraska 68127
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(402) 339-2400
----------------------------------------------------
(Registrant's telephone number, including area code)
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 issuer's classes of
common stock, as of the latest practicable date:
Class of Common Stock Outstanding at November 14, 1997
- --------------------- --------------------------------
Common Stock 5,004,942 Shares
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<S> <C> <C>
November 2, February 2,
1997 1997
------------ -------
ASSETS:
Current assets:
Cash $ 9,022 $ 6,973
Accounts receivable, less allowance for
doubtful accounts of $50 10,276 6,919
Merchandise inventories 187,243 157,490
Prepaid expenses 3,620 2,993
Property held for sale -- 1,748
-------- ---------
Total current assets 210,161 176,123
Property, buildings and equipment, less accumulated
depreciation and amortization of $66,639 and $61,634 42,922 42,403
Leased property under capital leases, less accumulated
amortization of $16,548 and $14,604 25,769 27,713
Deferred financing costs 2,948 3,176
Other assets 21,059 19,773
--------- ---------
$ 302,859 $ 269,188
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 85,232 $ 54,245
Loan and security agreement 57,111 57,115
Accrued compensation 5,802 3,860
Accrued interest 3,573 7,668
Store closing reserve 1,532 4,521
Other accrued expenses 15,795 10,112
Income taxes - deferred and current payable 11,857 8,101
Current maturities of long-term debt 47 47
Current obligations under capital leases 1,733 1,781
--------- ---------
Total current liabilities 182,682 147,450
Long-term debt, less current maturities 171,650 168,000
Obligations under capital leases, less current obligations 32,711 33,999
Other long-term liabilities 5,458 4,825
Commitments and contingencies -- --
Preferred stock subject to mandatory redemption
and reserve for dividends payable 2,624 2,217
Common stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares authorized;
5,004,942 shares issued and outstanding 50 50
Additional paid-in capital 968 968
Accumulated deficit (93,284) (88,321)
--------- ---------
Total common stockholders' equity (92,266) (87,303)
--------- ---------
$ 302,859 $ 269,188
========= =========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
----------- ----------- ----------- -------
Sales $ 158,749 $ 151,980 $ 466,530 $ 439,583
Cost of goods sold 120,895 115,534 353,906 334,466
--------- --------- --------- ---------
Gross profit 37,854 36,446 112,624 105,117
--------- --------- --------- ---------
Expenses:
Selling, general and
administrative 29,882 28,822 94,131 89,295
Interest 7,632 7,435 23,049 21,669
--------- --------- --------- ---------
37,514 36,257 117,180 110,964
--------- --------- --------- ---------
Income (loss) before income
tax provision 340 189 (4,556) (5,847)
Income tax provision -- -- -- --
---------- ---------- --------- ---------
Net income (loss) 340 189 (4,556) (5,847)
Less provision for preferred
dividends and discount
amortization 137 99 407 289
--------- --------- --------- ---------
Net income (loss) available
for common stock $ 203 $ 90 $ (4,963) $ (6,136)
========= ========= ========= =========
Income (loss) per share $ .04 $ .02 $ (.98) $ (1.23)
========= ========= ========= =========
Weighted average common and
common equivalent shares 5,098,894 5,004,942 5,047,192 5,004,942
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<S> <C> <C>
Nine Months Ended
November 2, October 27,
1997 1996
------------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,556) $ (5,847)
-------- --------
Adjustments to reconcile net loss to net cash
from operations:
Depreciation and amortization 8,888 8,435
Provision for LIFO inventory valuation 716 450
Non-cash interest expense 3,639 3,092
Gain on disposal of assets (139) (40)
Other 124 119
Decrease in store closing reserve (2,654) (4,663)
Increase in merchandise inventories (30,469) (33,246)
Increase in other operating assets (8,038) (6,306)
Increase in accounts payable 30,987 27,440
Increase (decrease) in accrued compensation 1,942 (3,164)
Increase (decrease)in other operating liabilities 5,564 (2,835)
-------- ------
Total adjustments 10,560 (10,718)
-------- -------
Net cash from operating activities 6,004 (16,565)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets 1,969 795
Assets acquired for sale, net -- (391)
Constructed stores to be refinanced through
lease financing 1,794 (5,207)
Capital expenditures (6,131) (4,521)
Other 13 12
-------- --------
Net cash from investing activities (2,355) (9,312)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under loan and security agreement, net (4) 31,209
Principal payments on capital lease obligations (1,336) (1,367)
Principal payments on long-term debt (35) (1,323)
Payments for deferred finance costs (225) (50)
-------- --------
Net cash from financing activities (1,600) 28,469
-------- --------
Net increase in cash 2,049 2,592
Cash at beginning of year 6,973 7,298
-------- --------
Cash at end of period $ 9,022 $ 9,890
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(1) Cash paid (received) during the period for:
Interest $ 23,460 $ 22,317
Income taxes:
Payments to taxing authorities 42 312
Refunds received from taxing authorities (3,798) (170)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITY:
(1) Amortization of discount on junior cumulative preferred
stock recorded as a direct charge to retained earnings 38 36
(2) Provision for dividends payable 369 253
(3) In-kind payment of accrued interest on promissory notes:
Promissory notes 3,561 3,044
Accrued interest (3,561) (3,044)
</TABLE>
See notes to consolidated financial statements.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 2, 1997 AND OCTOBER 27, 1996
(Unaudited)
(Dollars in Thousands)
1. MANAGEMENT REPRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all
adjustments necessary for a fair presentation of the results of operations
for the interim periods have been included. All such adjustments are of a
normal recurring nature. Because of the seasonal nature of the business,
results for interim periods are not necessarily indicative of a full year's
operations. The accounting policies followed by Pamida Holdings Corporation
(the Company) and additional footnotes are reflected in the consolidated
financial statements contained in the Form 10-K Annual Report of the
Company for the fiscal year ended February 2, 1997.
2. INVENTORIES
Substantially all inventories are stated at the lower of cost (last-in,
first-out) or market. Total inventories would have been higher at November
2, 1997 and February 2, 1997 by $7,290 and $6,574 respectively, had the
FIFO (first-in, first-out) method been used to determine the cost of all
inventories. Quarterly LIFO inventory determinations reflect assumptions
regarding fiscal year-end inventory levels and the estimated impact of
annual inflation. Actual inventory levels and annual inflation could vary
from estimates made on a quarterly basis.
3. INCOME (LOSS) PER COMMON SHARE
Income(loss) per common share was calculated using the weighted average
common shares and dilutive common share equivalents outstanding during the
period using the treasury stock method.
4. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" which specifies the computation, presentation and
disclosure requirements for earnings per share. The objective of the
statement is to simplify the computation of earnings per share. The impact
on the Company's earnings per share is not materially different than
earnings per share determined in accordance with current guidance. SFAS No.
128 is applicable for fiscal years ending after December 15, 1997.
5. RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
The following is management's discussion and analysis of certain significant
factors which have affected the Company's results of operations and financial
condition for the periods included in the accompanying consolidated financial
statements.
RESULTS OF OPERATIONS
The following table sets forth an analysis of various components of the
Consolidated Statements of Operations as a percentage of sales for the three and
nine months ended November 2, 1997 and October 27, 1996:
Three Months Ended Nine Months Ended
-----------------------------------------
Nov. 2, Oct.27, Nov. 2, Oct.27,
1997 1996 1997 1996
Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 76.2% 76.0% 75.9% 76.1%
--------- --------- -------- --------
Gross profit 23.8% 24.0% 24.1% 23.9%
Selling, general and
administrative expenses 18.8% 19.0% 20.2% 20.3%
--------- --------- -------- --------
Operating income 5.0% 5.0% 3.9% 3.6%
Interest expense 4.8% 4.9% 4.9% 4.9%
--------- --------- -------- --------
Income (loss) before income taxes 0.2% 0.1% (1.0%) (1.3%)
Income taxes -- -- -- --
--------- --------- -------- --------
Net income (loss) 0.2% 0.1% (1.0%) (1.3%)
========= ========= ======== ========
SALES - During the third quarter and first nine months of fiscal 1998, sales in
comparable stores increased $6,071 or 4.1% and $19,849 or 4.7%, respectively, as
compared to the third quarter and first nine months last year. Total sales for
the third quarter and the first nine months of fiscal 1998 increased by $6,769
or 4.5% and $26,947 or 6.1%, respectively, as compared to the same periods last
year.
The Company operated 149 stores at the end of the third quarter of both fiscal
1998 and 1997. Since October 27, 1996, the Company has opened one store in a new
market, relocated two stores and closed one store.
The Company experienced sales increases in most merchandise categories during
the third quarter of fiscal 1998 even though sales were adversely affected by an
unseasonably warm September. The largest dollar increases were in the pharmacy
prescriptions, candy, women's shoes, housewares, seasonal, appliances,
electrical and groceries categories. The Company experienced sales declines in
several categories, with men's fashions, automotive, boy's fashions and lawn and
garden experiencing the largest decreases.
GROSS PROFIT increased $1,408 or 3.9% and $7,507 or 7.1% for the third quarter
and first nine months, respectively, of fiscal 1998 compared to the same periods
last year. As a percentage of sales, gross profit decreased to 23.8% from 24.0%
for the third quarter and increased to 24.1% from 23.9% for the first nine
months of fiscal 1998 compared to the same periods last year. The Company
improved its in-stock positions in most merchandise categories during the third
quarter of fiscal 1998 as compared with the third quarter of fiscal 1997. Sales
improved in most merchandise categories during the first nine months of the year
as compared with the same period last year, with a marked increase in sales of
higher margin basic goods which experienced substantial out-of-stocks during the
second and third quarters last year. Also, the Company realized substantial
decreases in warehousing and distribution costs during the first nine months of
fiscal 1998 compared to last year. During the second and third quarters last
year, the Company incurred higher than normal labor costs in the warehouse and
distribution areas due to implementation issues related to a warehouse
management system. The decrease in gross profit as a percent of sales during the
third quarter was due primarily to an increased LIFO provision this year
compared to last year's third quarter. No other items contributed significantly
to the decrease.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) expense increased $1,060 or 3.7% for
the third quarter of fiscal 1998 compared to the third quarter of fiscal 1997
and increased $4,836 or 5.4% for the first nine months of fiscal 1998 compared
to the same period last year. As a percentage of sales, SG&A expense was 18.8%
and 19.0%, respectively, for the third quarter of fiscal 1998 and 1997. As a
percentage of sales, SG&A expense was 20.2% and 20.3%, respectively, for the
first nine months of fiscal 1998 and 1997.
Most of the total net increase in SG&A expense for the third quarter of fiscal
1998 as compared to the third quarter last year was attributable to higher
corporate general and administrative expenses, primarily involving planned
increases in payroll and incentive compensation. Store occupancy costs also
increased over last year to accommodate the higher sales activity.
Most of the total net increase in SG&A expense for the first nine months of
fiscal 1998 as compared to the first nine months of last year was attributable
to higher corporate general and administrative expenses, primarily involving
increases in payroll, incentive compensation expenses and professional fees.
Store payroll, occupancy and controllable costs also increased over last year to
accommodate the higher sales activity. These increases were offset partially by
a $183 increase in other income primarily due to a gain on the sale of a parcel
of land and business interruption insurance settlements related to two stores.
INTEREST expense increased $197 or 2.7% for the third quarter of fiscal 1998
compared to the same period of fiscal 1997 and increased $1,380 or 6.4% for the
first nine months of fiscal 1998 compared to the same period of fiscal 1997. The
increases were due primarily to increased revolver borrowings to support higher
investments in basic inventory and the Company's seasonal operating pattern.
There also was an increase in interest expense attributable to the promissory
notes which require quarterly interest to be paid in kind.
INCOME TAX BENEFIT - No income tax benefit on losses will be recorded until the
Company can establish with a reasonable degree of certainty the potential
utilization of certain tax loss carryforwards from prior year store closing
charges.
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. Fourth quarter
sales (November through January) have represented approximately 30% of the full
year's sales in recent years and normally involve a greater proportion of higher
margin sales. Funds provided by operating activities were $6,004 in the first
nine months of fiscal 1998 compared to funds used totaling $16,565 in the first
nine months of fiscal 1997. This $22,569 improvement in net cash generated by
operating activities during the first nine months of fiscal 1998 resulted
primarily from changes in other operating liabilities, accrued compensation, and
accounts payable as well as increases in inventories and improvements in
operations.
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. Prior to March 17,
1997, borrowings under the Agreement bore interest at a rate of 0.75% per annum
greater than the applicable prime rate. Effective March 17, 1997, borrowings
under the Agreement bear interest at a rate 0.50% per annum greater than the
applicable prime rate or a rate which is tied to 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. 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 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 of Pamida 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 $57,111 at November 2, 1997 and $62,797 at
October 27, 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 Pamida. The
Company had long-term debt and obligations under capital leases of $204,361 at
November 2, 1997 and $202,299 at October 27, 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 and continued access to financial markets. At
November 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. 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 for fiscal 1998 totaling approximately $503; 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, generally 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 or the first nine months of fiscal 1998. See
"Subsequent Event" below for a discussion of the payment of the promissory notes
with common stock and nonvoting common stock and the reclassification of the
preferred stock into common stock, effective November 18, 1997.
The Company made capital expenditures of $6,131 in the first nine months of
fiscal 1998 compared to $4,521 during the first nine months of fiscal 1997. The
Company has opened one store in a new market and relocated two stores in fiscal
1998 and will consider additional opportunities for new store locations as they
arise. Total capital expenditures are expected to total approximately $10,500 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.
SUBSEQUENT EVENT - On July 22, 1997, the Company announced that it had entered
into an agreement with 399 Venture Partners, Inc., a Citicorp subsidiary,
providing for the payment of all of the outstanding Senior Promissory Notes,
Subordinated Promissory Notes and Junior Subordinated Promissory Notes (the
Notes) of the Company with shares of newly issued common stock and nonvoting
common stock of the Company at the rate of one share for each $9.00 of principal
and accrued interest as of the effective date of the transaction. 399 Venture
Partners, Inc. owned approximately 82.75% of such Notes. In connection with such
agreement, the preferred stockholders of the Company agreed to simultaneously
change and reclassify all of the outstanding shares of preferred stock of the
Company into shares of common stock at the rate of one share of common stock for
each $9.00 of preferred stock liquidation value plus accrued dividends as of the
effective date. The details of these agreements, proposals and related items are
described in the definitive Proxy Statement filed by the Company dated October
14, 1997. On November 14, 1997, the Company's stockholders approved the
foregoing transactions, an increase in the total number of authorized shares of
common stock from 10 million to 25 million, and an increase in the total number
of authorized shares of nonvoting common stock from 2 million to 4 million. Such
transactions became effective on November 18, 1997.
Accordingly, the Company has been relieved of the obligation to repay the Notes
in 2003 and to redeem the preferred stock (including the payment of accrued
dividends) in December 2001. The transactions also relieve the Company of
substantial amounts of compounding non-cash interest expense on the Notes and
from earnings per share dilution caused both by the preferred stock dividends
and by discount amortization. Approximately $1.2 million of interest expense,
preferred stock dividends and discount amortization will be eliminated during
the fourth quarter of the current fiscal year. Scheduled interest and discount
amortization on the Notes would have amounted to $5,981,000, $6,958,000 and
$8,119,000 for the fiscal years ending in 1999, 2000 and 2001, respectively. The
scheduled provision for dividends and discount amortization on the preferred
stock would have amounted to $705,000, $845,000 and $1,016,000 for the fiscal
years ending in 1999, 2000 and 2001, respectively.
The Company will issue a total of approximately 965,000 additional shares of
common stock and approximately 3,050,000 shares of nonvoting common stock in
payment of the Notes and in connection with the change and reclassification of
the preferred stock. The nonvoting common stock is being issued to 399 Venture
Partners, Inc. and may be converted into the same number of shares of common
stock under certain conditions. The remaining note holders and all preferred
stockholders are receiving the 965,000 shares of common stock. As of November 2,
1997, the Company had outstanding 5,004,942 shares of common stock. As a result
of the transactions, outstanding shares of voting and nonvoting common stock
will increase to approximately 9,020,000.
For financial statement purposes, the Company will realize a gain on
extinguishment of the Notes held by persons other than 399 Venture Partners
which will be reflected on the Company's Statement of Operations in the fourth
quarter as an extraordinary item (net of related taxes), separate from the
operating results of the Corporation. The gain to be recorded will be calculated
as the number of such shares issued times the difference between the $9/share
exchange value of the stock and the quoted trading value of the common stock on
the effective date of the transaction ($5.50/share). The gain related to the
payment of Notes held by 399 Venture Partners with nonvoting common stock is
considered a capital transaction. Accordingly, such gain, net of taxes, will be
recorded directly to additional paid-in capital on the Company's financial
statements. The gain on the preferred stock exchange for common stock will be
accounted for as a capital transaction.
For tax purposes, the reclassification of the Company's preferred stock into
common stock is a tax-free reorganization for the Company and will have no
direct tax impact on the Company. However, with respect to the payment of the
Notes, the difference, if any, between the recorded value of the Notes and the
fair value of the common stock and nonvoting common stock issued in payment of
the Notes as of November 18, 1997 will result in a taxable gain or loss for the
Company which will be taxed as ordinary income or loss for federal income tax
purposes. The amount of income taxes attributable to the taxable income or loss
which may result from this transaction would increase or reduce the Company's
existing net operating loss and tax credit carryforwards. For tax purposes, the
quoted trading price of the Company's stock on the effective date of the
transaction would normally serve as the primary reference for the fair value of
the stock issued in this type of transaction. However, due to factors such as
the low number of shares of the Company's stock available for purchase, the
related low trading volume of the stock and the magnitude of the number of new
shares issued in this transaction, management believes that, in the Company's
circumstances, fair value should be determined by other means. Accordingly, an
independent appraiser will be engaged to determine an appropriate value of the
stock issued in this transaction. If the valuation of the stock issued in this
transaction is determined to be substantially less than the $9/share exchange
value utilized for the transaction, or if the Company is unsuccessful in
supporting its valuation position, the issuance of common stock and nonvoting
common stock of the Company in payment of the Notes may require a substantial
portion of the Company's tax loss carryforwards to be utilized, and therefore
such tax loss carryforwards would not be available to offset taxable income in
future periods. Until this valuation issue is resolved, the impact of the tax
consequences of the Note payment transaction cannot be determined.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Effectively, the transactions described in the "Subsequent Event" section above
reduce interest expense and dividends in future periods and substantially
improve the equity position of the Company. The following Unaudited Pro Forma
Consolidated Financial Data (the "Pro Forma Financial Data") reflect (i) the
issuance of shares of Common Stock and Nonvoting Common Stock in payment of the
Notes at the rate of one share for each $9.00 of outstanding principal of and
accrued interest on the Notes (the Note Payment Transaction) and (ii) the effect
of changing and reclassifying all of the Preferred Stock into shares of Common
Stock at the rate of one share for each $9.00 of liquidation value and accrued
dividends (the Reclassification Transaction). The Unaudited Pro Forma
Consolidated Statements of Operations for the year ended February 2, 1997 and
the nine months ended November 2, 1997 give effect to the Note Payment
Transaction and Reclassification Transaction (collectively, the "Transactions")
as if they had occurred at the beginning of the respective fiscal year presented
and exclude the one-time extraordinary gain to be recognized on the effective
date of the Transactions. The Unaudited Pro Forma Balance Sheet gives effect to
the Transactions as if they had occurred on November 2, 1997 and includes the
one-time extraordinary gain to be recognized on the effective date of the
Transactions.
The actual effective date of the Transactions was November 18, 1997, and
therefore the principal of and accrued interest on the Notes and the liquidation
value of and accrued dividends on the Preferred Stock were greater than the
amounts assumed in the Pro Forma Financial Data by a total of $212,000.
The Pro Forma Financial Data do not purport to represent what the Corporation's
results of operations actually would have been if the Transactions had occurred
as of the dates indicated or what such results will be for any future periods.
The Pro Forma Financial Data is based upon assumptions that the Corporation
believes are reasonable and should be read in conjunction with the Consolidated
Financial Statements of the Corporation for the fiscal year ended February 2,
1997 and the accompanying notes thereto contained in the Corporation's Form 10-K
Annual Report for such fiscal year.
<TABLE>
<CAPTION>
Unaudited Pro Forma Financial Data
(In thousands, except per share data)
STATEMENT OF OPERATIONS
Year Ended, February 2, 1997 Nine Months Ended August 3, 1997
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Pro Forma
Historical Adjustment Pro Forma Historical Adjustment Pro Forma
---------- ---------- --------- ---------- ---------- ---------
Sales ................................... $ 633,189 $ 633,189 $ 466,530 $ 466,530
Cost of goods sold ...................... 479,099 479,099 353,906 353,906
---------- --------- ---------- ---------- ---------
Gross profit ............................ 154,090 154,090 112,624 112,624
Expenses
Selling, general and administrative ... 125,105 125,105 94,131 94,131
Interest .............................. 29,781 (4,473)(1) 25,308 23,049 (3,762)(1) 19,287
---------- ---------- --------- ---------- ---------- ---------
154,886 (4,473) 150,413 117,180 (3,762) 113,418
---------- ---------- --------- ---------- ---------- ---------
(Loss) income before provision for
income taxes .......................... (796) 4,473 3,677 (4,556) 3,762 (794)
Income tax (provision) benefit .......... -- (1,408)(2) (1,408) -- 304(2) 304
---------- ---------- ---------- ---------- ---------- ---------
Net (loss) income ....................... (796) 3,065 2,269 (4,556) 4,066 (490)
Less provision for preferred dividends
and discount amortization ............. 391 (391)(1) -- 407 (407)(1) --
---------- ---------- ---------- ---------- ---------- ---------
Net (loss) income available for
common shares ......................... $ ($1,187) $ 3,456 $ 2,269 $ (4,963) $ 4,473 (490)
========== ========== ========== ========== ========== =========
Net(loss) earnings per common share: .... ($0.24) $0.25 ($0.98) ($0.05)
Weighted average shares outstanding 5,004,942 3,989,848(3) 8,994,790 5,047,192 3,989,848(3) 9,037,040
========== ========== ========== ========== ========== =========
</TABLE>
(1) To reflect the reduction of interest expense, preferred dividends and
discount amortization resulting from the Transactions as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Interest Expense
--------------------------------------
Year Ended, Nine Months Ended,
February 2, 1997 November 2, 1997
---------------- ------------------
13.50% Senior Promissory Notes $ 723 $ 608
14.00% Subordinated Promissory Notes 2,035 1,716
14.25% Junior Subordinated Promissory Notes 1,555 1,314
Discount amortization 160 124
------ ------
$4,473 $3,762
====== ======
Preferred Dividends and
Discount Amortization
--------------------------
16.25% Senior Cumulative Preferred Stock $ 90 $ 98
14.25% Junior Cumulative Preferred Stock 252 271
Discount amortization 49 38
------ ------
$ 391 $ 407
====== ======
</TABLE>
(2) To reflect pro forma income tax expense at the expected effective rate. No
income tax benefit on losses was recorded for the year ended February 2,
1997 and the nine months ended November 2, 1997 due to uncertainty
regarding the potential utilization of certain tax loss carryforwards. Had
the Transactions occurred on January 29, 1996, a substantial portion of the
Company's net operating loss and tax credit carryforwards would have been
utilized at that time. Therefore, on a pro forma basis, income tax
(provision) benefit is shown at the expected effective rate.
(3) To reflect the issuance of Common Stock and Nonvoting Common Stock in
payment of the Notes and from reclassification of the Preferred Stock at
face or liquidation value and including accrued interest and dividends.
Preferred
Notes Stock Total
--------- ------- ---------
Book value as of November 2, 1997 $31,321 $1,912
Accrued interest and dividends 888 712
Unamortized discount 754 321
--------- -------
Redemption value as of November 2, 1997 32,963 2,945
Transaction value per common share /$9 /$9
--------- -------
Common shares to be issued 3,662,644 327,204 3,989,848
========= ======= =========
<TABLE>
<CAPTION>
Unaudited Pro Forma Financial Data
Balance Sheet
(In thousands)
<S> <C> <C> <C>
November 3, Pro Forma
Assets 1997 Adjustments Pro Forma
----------- ----------- ---------
Current assets:
Cash ................................................. $ 9,022 $ (500) $ 8,522
Accounts receivable, less allowance
for doubtful accounts of $50 in both years ......... 10,276 10,276
Merchandise inventories .............................. 187,243 187,243
Prepaid expense ...................................... 3,620 3,620
--------- ----------- ---------
Total current assets .............................. 210,161 (500) 209,661
Property, buildings and equipment, net ............... 42,922 42,922
Leased property under capital leases, net ............ 25,769 25,769
Deferred financing costs ............................. 2,948 (44) 2,904
Other assets ......................................... 21,059 21,059
--------- ----------- ---------
302,859 (544) 302,315
========= =========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ..................................... 85,232 85,232
Loan and security agreement .......................... 57,111 57,111
Accrued compensation ................................. 5,802 5,802
Accrued interest ..................................... 3,573 (888) 2,685
Store closing reserve ................................ 1,532 1,532
Other accrued expenses ............................... 15,795 15,795
Income taxes - deferred and current payable .......... 11,857 11,857
Current maturities of long-term debt ................. 47 47
Current obligations under capital leases ............. 1,733 1,733
--------- ----------- ---------
Total current liabilities ......................... 182,682 (888) 181,794
Long-term debt, less current maturities .............. 171,650 (31,321) 140,329
Obligations under capital leases,
less current obligations ........................... 32,711 32,711
Other long-term liabilities .......................... 5,458 5,458
Commitments and contingencies -- --
Preferred stock subject to mandatory redemption
and reserve for dividends payable .................. 2,624 (2,624) --
Common shareholders' equity:
Common stock, $.01 par value; ...................... 50 40 90
Additional paid-in capital ........................... 968 32,538 33,506
(500) (500)
Accumulated deficit .................................. (93,284) 2,211 (91,073)
--------- ----------- ---------
Total common shareholders' deficit ................... (92,266) 34,289 (57,977)
--------- ----------- ---------
$ 302,859 $ (544) $ 302,315
========= =========== =========
</TABLE>
(1) To reflect the issuance of Common Stock and Nonvoting Common Stock in
payment of the Notes and from reclassification of the Preferred Stock at
face or liquidation value and including accrued interest and dividends, and
the extraordinary gain on the extinguishment of debt, net of the related
income tax effect. The extraordinary gain is based upon the trading value
of the Corporation's Common Stock on November 18, 1997 ($5.50 per share).
Preferred
Notes Stock Total
------- ------ -------
Carrying value at November 2, 1997 $32,209 $2,624 $34,833
Fair value of common stock at
$5.50 per share 20,145 1,800 21,945
------- ------ -------
Pre-tax gain 12,064 824 12,888
Less: Income taxes -- -- --
------- ------ -------
Net gain 12,064 824 12,888
Less: Capital transaction 9,853 824 10,677
------- ------ -------
Extraordinary gain $ 2,211 $ - $ 2,211
======= ====== =======
A majority of the Notes is held by an entity (399 Venture Partners) having a
significant equity interest in the Corporation. In accordance with APB No. 26,
"Early Extinquishment of Debt" the gain on such portion of the transactions is
considered a capital transaction recorded directly to Additional Paid-In
Capital, net of tax. The income tax effect of the note payment transaction is
calculated assuming the utilization of the net operating loss and tax credit
carryforwards. The reclassification of the Preferred Stock is a tax-free
reorganization.
(2) Reflects transaction costs of $500.
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 for the Company.
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.
PART II - OTHER INFORMATION
ITEMS 1-2:
None
ITEM 3:
The General Corporation Law of Delaware, under which the
registrant is incorporated, generally 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 retained deficit resulting primarily
from store closings and the write-off of goodwill and other long-lived
assets in the fourth quarter of fiscal 1996, the registrant was not
permitted to pay dividends in fiscal 1997 or the first three quarters
of fiscal 1998. Accordingly, the registrant was restricted from
declaring or paying the quarterly dividends payable during fiscal 1997
and on February 28, May 31, and August 31, 1997, with respect to the
outstanding 16.25% Senior Cumulative Preferred Stock and 14.25% Junior
Cumulative Preferred Stock of the registrant. Pursuant to the
Certificate of Incorporation of the registrant, the dividend rate on
the registrant's preferred stock increased cumulatively by 0.5% per
quarter on each quarterly dividend payment date on which the preferred
stock dividends were not paid currently on a cumulative basis. On
November 18, 1997, all of the registrant's outstanding preferred stock
was changed and reclassified into common stock of the registrant. See
"Subsequent Event" in Part I, Item 2 of this Quarterly Report.
ITEM 4-5:
None
ITEM 6:
(a) Exhibits.
- 27.0 Financial Data Schedule (EDGAR version only)
(b) No Reports on Form 8-K were filed during the quarter for
which this Form 10-Q is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAMIDA HOLDINGS CORPORATION
(Registrant)
Date: December 17, 1997 By: /s/ Steven S. Fishman
Steven S. Fishman, Chairman of the
Board, President and Chief Executive
Officer
Date: December 17, 1997 By: /s/ Todd D. Weyhrich
Todd D. Weyhrich,
Chief Accounting Officer
PART II - OTHER INFORMATION
ITEMS 1-2:
None
ITEM 3:
The General Corporation Law of Delaware, under which the registrant is
incorporated, generally 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 retained deficit resulting primarily from store closings and the
write-off of goodwill and other long-lived assets in the fourth quarter of
fiscal 1996, the registrant was not permitted to pay dividends in fiscal
1997 or the first three quarters of fiscal 1998. Accordingly, the
registrant was restricted from declaring or paying the quarterly dividends
payable during fiscal 1997 and on February 28, May 31, and August 31, 1997,
with respect to the outstanding 16.25% Senior Cumulative Preferred Stock
and 14.25% Junior Cumulative Preferred Stock of the registrant. Pursuant to
the Certificate of Incorporation of the registrant, the dividend rate on
the registrant's preferred stock increased cumulatively by 0.5% per quarter
on each quarterly dividend payment date on which the preferred stock
dividends were not paid currently on a cumulative basis. On November 18,
1997, all of the registrant's outstanding preferred stock was changed and
reclassified into common stock of the registrant. See "Subsequent Event" in
Part I, Item 2 of this Quarterly Report.
ITEM 4-5:
None
ITEM 6:
(a) Exhibits.
- 27.0 Financial Data Schedule (EDGAR version only)
(b) No Reports on Form 8-K were filed during the quarter for
which this Form 10-Q is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAMIDA HOLDINGS CORPORATION
(Registrant)
Date: December 17, 1997 By: /s/ Steven S. Fishman
Steven S. Fishman, Chairman of the
Board, President and Chief Executive
Officer
Date: December 17, 1997 By: /s/ Todd D. Weyhrich
Todd D. Weyhrich,
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet of Pamida Holdings Corporation and Subsidiary as of
November 3, 1997 and the related Consolidated Statement of Operations for the 13
weeks then ended and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000864760
<NAME> Pamida Holdings Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-END> NOV-02-1998
<CASH> 9,022
<SECURITIES> 0
<RECEIVABLES> 10,326
<ALLOWANCES> 50
<INVENTORY> 187,243
<CURRENT-ASSETS> 210,161
<PP&E> 109,561
<DEPRECIATION> 66,639
<TOTAL-ASSETS> 302,859
<CURRENT-LIABILITIES> 182,682
<BONDS> 204,361
2,624
0
<COMMON> 50
<OTHER-SE> (94,252)
<TOTAL-LIABILITY-AND-EQUITY> 302,859
<SALES> 158,749
<TOTAL-REVENUES> 158,749
<CGS> 120,895
<TOTAL-COSTS> 29,882
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,632
<INCOME-PRETAX> 340
<INCOME-TAX> 0
<INCOME-CONTINUING> 340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
