-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FPIn+tyB02eJ4cAyB4+KLf8zSxLUsoLaGZadr/aUiV5MWwm7wcqonwVmNAt8TFlE g0pKp42/FqFqxdaudWGHog== 0000864760-97-000028.txt : 19971218 0000864760-97-000028.hdr.sgml : 19971218 ACCESSION NUMBER: 0000864760-97-000028 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19971217 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAMIDA INC /DE/ CENTRAL INDEX KEY: 0000808304 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 470626426 STATE OF INCORPORATION: DE FISCAL YEAR END: 0202 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 033-57990 FILM NUMBER: 97739833 BUSINESS ADDRESS: STREET 1: 8800 F ST CITY: OMAHA STATE: NE ZIP: 68127 BUSINESS PHONE: 4023392400 MAIL ADDRESS: STREET 1: P O BOX 3856 CITY: OMAHA STATE: NE ZIP: 68103-0856 424B3 1 - -------------------------------------------------------------------------------- ------------------------- PROSPECTUS SUPPLEMENT To Prospectus dated May 16, 1997 ------------------------- $140,000,000 PAMIDA, INC. 11 3/4% Senior Subordinated Notes Due 2003 December 17, 1997 - -------------------------------------------------------------------------------- RECENT DEVELOPMENTS ------------------- Attached hereto and incorporated herein by this reference are copies of the Quarterly Reports on Form 10-Q of Pamida, Inc. and Pamida Holdings Corporation for the quarterly period ended November 2, 1997. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ This Prospectus Supplement, together with the Prospectus dated May 16, 1997 (including the Prospectus Appendix), is to be used by Citicorp Securities, Inc. in connection with offers of the Notes referred to above in market-making transactions at negotiated prices related to prevailing market prices at the time of sale. Citicorp Securities, Inc. may act as principal or agent in such transactions. 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 33-57990 PAMIDA, INC ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 47-0626426 - ------------------------------- ---------------------- (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 1,000 Shares PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
PAMIDA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited) November 2, February 2, 1997 1997 ASSETS: ----------- ----------- Current assets: Cash $ 9,022 $ 6,973 Accounts receivable, less allowance for doubtful accounts of $50 10,302 6,935 Merchandise inventories 187,243 157,490 Prepaid expenses 3,618 2,993 Property held for sale -- 1,748 -------- -------- Total current assets 210,185 176,139 Property, buildings and equipment, less accumulated depreciation and amortization of $66,639 and $61,364 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 2,903 3,124 Other assets 21,059 19,773 -------- -------- $302,838 $269,152 LIABILITIES AND STOCKHOLDER'S 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 2,684 6,857 Store closing reserve 1,532 4,521 Other accrued expenses 15,795 10,112 Income taxes - deferred and current payable 12,713 8,956 Current maturities of long-term debt 47 47 Current obligations under capital leases 1,733 1,781 -------- -------- Total current liabilities 182,649 147,494 Long-term debt, less current maturities 140,329 140,364 Obligations under capital leases, less current obligations 32,711 33,999 Other long-term liabilities 5,458 4,825 Commitments and contingencies -- -- Common stockholder's equity: Common stock, $.01 par value; 10,000 shares authorized; 1,000 shares issued and outstanding, -- -- Additional paid-in capital 17,000 17,000 Accumulated deficit (75,309) (74,530) -------- -------- Total common stockholder's equity (58,309) (57,530) -------- -------- $302,838 $269,152 ======== ========
See notes to consolidated financial statements.
PAMIDA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) 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 29,876 28,815 94,116 89,272 Interest 6,327 6,318 19,287 18,458 -------- -------- -------- -------- 36,203 35,133 113,403 107,730 -------- -------- -------- -------- Income (loss) before income tax provision (credit) 1,651 1,313 (779) (2,613) Income tax provision -- -- -- -- -------- -------- -------- -------- Net income (loss) $ 1,651 $ 1,313 $ (779) $ (2,613) ======== ======== ======== ========
See notes to consolidated financial statements.
PAMIDA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) NINE MONTHS ENDED ------------------------ November 2, October 27, 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (779) $ (2,613) --------- --------- Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization of fixed assets and intangibles 8,881 8,427 Provision for LIFO inventory valuation 716 450 Gain on disposal of assets (139) (40) Increase in merchandise inventories (30,469) (33,246) Increase in other operating assets (8,046) (6,322) Increase in accounts payable 30,987 27,440 Increase (decrease) in other operating liabilities 7,507 (5,998) Decrease in store closing reserve (2,654) (4,663) --------- --------- Total adjustments 6,783 (13,952) --------- --------- Net cash from operating activities 6,004 (16,565) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of assets 1,969 795 (Increase) decrease in constructed stores to be refinanced through lease financing 1,794 (5,207) Capital expenditures (6,131) (4,521) Assets acquired for sale, net -- (391) 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) Payments for deferred finance costs (225) (50) Principal payments on long-term debt (35) (1,323) --------- --------- 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)
See notes to consolidated financial statements. PAMIDA INC. AND SUBSIDIARIES 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 Inc. (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. 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 4.0% 4.1% 4.1% 4.2% --------- --------- -------- -------- Income (loss) before income taxes 1.0% 0.9% (0.02%) (0.6%) Income taxes -- -- -- -- --------- --------- -------- -------- Net income (loss) 1.0% 0.9% (0.02%) (0.6%) ========= ========= ======== ======== 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 $1,061 or 3.7% for the third quarter of fiscal 1998 compared to the third quarter of fiscal 1997 and increased $4,844 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 $9 or 0.1% for the third quarter of fiscal 1998 compared to the same period of fiscal 1997 and increased $829 or 4.5% 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. 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 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. 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 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. Such borrowings are secured by security interests in all of the current assets (including inventory) of the Company and by liens on certain real estate interests and other property of the Company. Pamida Holdings Corporation (Holdings) and two subsidiaries of the Company have guaranteed the payment and performance of the Company's obligations under the Agreement and have pledged some or all of their respective assets, including the stock of the Company owned by 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 of the Company 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 $57,111 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 the Company. The Company had long-term debt and obligations under capital leases of $173,040 at November 2, 1997 and $175,801 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. Since Holdings conducts no operations of its own, the only cash requirement of Holdings relates to preferred stock dividends in the aggregate annual amount for fiscal 1998 totaling approximately $503; 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 the Company and Holdings 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 Holdings 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 of Holdings and the reclassification of the preferred stock of Holdings into common stock of Holdings, 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, Holdings 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 Holdings with shares of newly issued common stock and nonvoting common stock of Holdings 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 Holdings agreed to simultaneously change and reclassify all of the outstanding shares of preferred stock of Holdings 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 Holdings dated October 14, 1997. On November 14, 1997, Holdings' stockholders approved the foregoing transactions. Such transactions became effective on November 18, 1997.Accordingly, Holdings 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. These transactions eliminate any requirement for any funds of the Company to be utilized to pay dividends to Holdings to retire the Notes or to pay dividends on or redeem the preferred stock of Holdings. The Company and Holdings file consolidated tax returns. For tax purposes, the reclassification of Holdings' preferred stock into common stock is a tax-free reorganization for Holdings and will have no direct tax impact on Holdings. 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 Holdings 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 Holdings' 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 Holdings 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 Holdings is unsuccessful in supporting its valuation position, the issuance of common stock and nonvoting common stock of Holdings 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. 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 -5: None. ITEM 6: (a) Exhibits. - 27.1 Financial Data Schedule (EDGAR version only) (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report 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, INC. (Registrant) Date: December 17, 1997 By: /s/ Steven S. Fishman Steven S. Fishman, Chairman, President and Chief Executive Officer Date: December 17, 1997 By: /s/ Todd D. Weyhrich Todd D. Weyhrich Chief Accounting Office 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
PART I - FINANCIAL INFORMATION Item 1. Financial Statements PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited) 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 ========= =========
See notes to consolidated financial statements.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Amounts) (Unaudited) 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 ========= ========= ========= =========
See notes to consolidated financial statements.
PAMIDA HOLDINGS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) 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)
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.
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 ------------------------------------- ------------------------------------- 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 ========== ========== ========== ========== ========== =========
(1) To reflect the reduction of interest expense, preferred dividends and discount amortization resulting from the Transactions as follows:
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 ====== ======
(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 ========= ======= =========
Unaudited Pro Forma Financial Data Balance Sheet (In thousands) 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 ========= =========== =========
(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 -----END PRIVACY-ENHANCED MESSAGE-----