<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period (12 weeks) ended November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from to
------------------- -------------------
Commission file number 1-10876
SHOPKO STORES, INC.
(Exact name of registrant as specified in its Charter)
Minnesota 41-0985054
- ---------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 Pilgrim Way, Green Bay, Wisconsin 54304
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 497-2211
-------------------------
Former name, former address and former fiscal year, if changed since last
report:
N/A
- ----------------------------------------------------------------------------
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of each of the issuer's classes of Common
Stock as of November 30, 1996 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 32,149,560
Exhibit Index Page 1 of Page 23
on Page 19
<PAGE> 2
SHOPKO STORES, INC.
FORM 10-Q
FOR THE 12 WEEKS AND 40 WEEKS ENDED NOVEMBER 30, 1996
INDEX
Page
Part I Item 1 - Financial Statements
Consolidated Statements of Earnings for the 12 weeks 3
ended November 30, 1996 and December 2, 1995
Consolidated Statements of Earnings for the 40 weeks 4
ended November 30, 1996 and December 2, 1995
Consolidated Balance Sheets as of November 30, 5
1996, December 2, 1995 and February 24, 1996
Consolidated Statements of Cash Flows for the 40 6
weeks ended November 30, 1996 and December 2,
1995
Consolidated Statements of Shareholders' Equity for 7
the 40 weeks ended November 30, 1996 and for the
year ended February 24, 1996
Notes to Consolidated Financial Statements 8-9
Item 2 - Management's Discussion and Analysis of Financial 10-15
Condition and Results of Operations
Part II Item 2 - Changes in Securities 16
Item 6 - Exhibits and Reports on Form 8-K 17-18
Signatures 18
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Third Quarter (12 Weeks) Ended
- -----------------------------------------------------------------------------------------------------
(In thousands, except per share data)
November 30, December 2, % Increase
1996 1995 (Decrease)
- -----------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 591,208 $ 491,019 20.4
Licensed department rentals and other income 3,168 3,477
--------- ---------
594,376 494,496 20.2
Costs and expenses:
Cost of sales 459,950 368,349
Selling, general and administrative expenses 94,146 88,330
Depreciation and amortization expenses 14,287 13,208
--------- ---------
568,383 469,887 21.0
Income from operations 25,993 24,609 5.6
Interest expense 7,983 8,087
--------- ---------
Earnings before income taxes 18,010 16,522 9.0
Provision for income taxes 7,074 6,390
--------- ---------
Net earnings $ 10,936 $ 10,132 7.9
========= =========
Net earnings per common share $ 0.34 $ 0.32
========= =========
Weighted average number of common shares
outstanding 32,073 32,005
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year To Date (40 Weeks) Ended
- ---------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
November 30, December 2, % Increase
1996 1995 (Decrease)
- ---------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 1,700,636 $ 1,469,656 15.7
Licensed department rentals and other income 9,923 11,211
----------- -----------
1,710,559 1,480,867 15.5
Costs and expenses:
Cost of sales 1,310,013 1,099,882
Selling, general and administrative expenses 295,512 281,617
Depreciation and amortization expenses 46,097 43,857
----------- -----------
1,651,622 1,425,356 15.9
Income from operations 58,937 55,511 6.2
Interest expense 24,983 27,071
----------- -----------
Earnings before income taxes 33,954 28,440 19.4
Provision for income taxes 13,337 11,071
----------- -----------
Net earnings $ 20,617 $ 17,369 18.7
=========== ===========
Net earnings per common share $ 0.64 $ 0.54
=========== ===========
Weighted average number of common shares
outstanding 32,073 32,005
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Third Quarter as of Fiscal Year End
- -------------------------------------------------------------------------------------------------------------------------
(In thousands)
November 30, December 2, February 24,
ASSETS 1996 1995 1996
- -------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 44,058 $ 47,799 $ 89,469
Receivables, less allowance for losses of
$4,460, $2,614 and $3,212, respectively 94,924 63,804 55,514
Merchandise inventories 434,028 397,147 322,433
Other current assets 15,582 16,216 8,775
----------- ----------- -----------
Total current assets 588,592 524,966 476,191
Other assets and deferred charges 56,844 23,224 24,621
Property and equipment at cost:
Land 108,237 108,505 107,915
Buildings 490,862 477,869 479,124
Equipment 304,311 290,321 286,763
Leasehold improvements 49,148 49,034 49,306
Property under construction 988 1,892 10,585
Property under capital leases 21,968 17,539 21,968
----------- ----------- -----------
975,514 945,160 955,661
Less accumulated depreciation and amortization:
Property and equipment 370,989 330,237 331,541
Property under capital leases 8,985 6,636 6,972
----------- ----------- -----------
Net property and equipment 595,540 608,287 617,148
----------- ----------- -----------
Total assets $ 1,240,976 $ 1,156,477 $ 1,117,960
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable - trade $ 229,074 $ 202,031 $ 144,638
Accrued compensation and related taxes 26,969 22,109 25,290
Accrued other liabilities 81,375 69,440 72,943
Accrued income and other taxes 30,538 26,420 16,797
Current portion of long-term obligations 1,096 755 1,127
----------- ----------- -----------
Total current liabilities 369,052 320,755 260,795
Long-term obligations 414,505 413,086 415,138
Deferred income taxes 21,198 18,555 20,396
Shareholders' equity:
Common stock 321 320 320
Additional paid-in capital 244,841 242,843 242,843
Retained earnings 191,059 160,918 178,468
----------- ----------- -----------
Total shareholders' equity 436,221 404,081 421,631
----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,240,976 $ 1,156,477 $ 1,117,960
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year to Date (40 weeks) Ended
- ----------------------------------------------------------------------------------------------------
(In thousands)
November 30, December 2,
1996 1995
- ----------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 20,617 $ 17,369
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 46,097 43,857
Provision for losses on receivables 165 124
Gain on sale of property and equipment (1,847) (1,637)
Deferred income taxes (102) 4,452
Change in assets and liabilities:
Receivables (39,375) (21,861)
Merchandise inventories (111,595) 3,476
Other current assets (5,736) (6,080)
Other assets (3,592) (1,206)
Accounts payable 84,436 52,738
Accrued liabilities 27,373 1,544
---------- ---------
Net cash provided by operating activities 16,441 92,776
---------- ---------
Cash flows from investing activities:
Payments for property and equipment (23,572) (33,852)
Proceeds from the sale of property and equipment 2,566 2,421
Business acquisition, net of cash acquired (30,500)
---------- ---------
Net cash (used in) investing activities (51,506) (31,431)
---------- ---------
Cash flows from financing activities:
Change in short-term debt (15,000)
Proceeds from the sale of common stock
under option plans 987
Dividend payment (10,582) (10,563)
Reduction in capital lease obligations (751) (581)
---------- ---------
Net cash (used in) financing activities (10,346) (26,144)
---------- ---------
Net (decrease) increase in cash and cash equivalents (45,411) 35,201
Cash and cash equivalents at beginning of year 89,469 12,598
---------- ---------
Cash and cash equivalents at end of third quarter $ 44,058 $ 47,799
========== =========
Supplemental cash flow information:
Noncash investing and financial activities -
Restricted stock issued $ 1,012
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Common Stock Capital in
---------------------- Excess of Retained
Shares Amount Par Value Earnings
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES AT FEBRUARY 25, 1995 32,005 $ 320 $ 242,843 $ 154,112
Net earnings 38,439
Cash dividend declared on common
stock - $0.44 per share (14,083)
-----------------------------------------------------------
BALANCES AT FEBRUARY 24, 1996 32,005 320 242,843 178,468
Sale of common stock under
option plans 80 1 987
Issuance of restricted stock 65 1,011 (1,012)
Restricted stock expense 46
Net earnings 20,617
Cash dividend declared on common
stock - $0.22 per share (7,060)
-----------------------------------------------------------
BALANCES AT NOVEMBER 30, 1996 32,150 $ 321 $ 244,841 $ 191,059
===========================================================
</TABLE>
Interim data subject to year end audit.
See notes to consolidated financial statements.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies:
The 1996 annual report contains a summary of significant accounting policies in
the notes to the consolidated financial statements. The same accounting
policies are followed in the preparation of interim reports.
During the current fiscal year, the Company adopted Statements of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The adoption of SFAS No. 123 will have no effect on net earnings.
The Company will continue to measure compensation cost for stock compensation
plans under Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees."
Inventories:
The Company uses the LIFO method for substantially all inventories. If the
first-in, first-out (FIFO) method had been used, these inventories would have
been $42.1 million and $39.8 million higher at November 30, 1996 and at
December 2, 1995, respectively.
Income Taxes:
The $13.3 million provision for income tax expense for the first three quarters
of fiscal 1997 consists of a $13.4 million current expense, offset by a $0.1
million deferred tax credit. Deferred income taxes reflect the net tax effect
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Net Earnings Per Common Share:
Net earnings per common share are computed by dividing net earnings by the
weighted average number of common shares outstanding. Outstanding stock
options do not have a significant dilutive effect on earnings per share.
8
<PAGE> 9
Significant Event:
On September 7, 1996, the Company and Phar-Mor, Inc. signed an agreement to
combine their two companies under a new holding company. The new company will
be called Cabot Noble, Inc. The combination will be accomplished through share
exchanges, and ShopKo and Phar-Mor will continue as separate operating
subsidiaries of Cabot Noble. The transaction will be accounted for as a
purchase of Phar-Mor by the Company. The transaction is subject to a number of
customary closing conditions, including but not limited to financing,
regulatory approvals and shareholder approvals. For more information regarding
this transaction, please see the Company's Current Reports on Form 8-K dated
September 7, 1996 and October 11, 1996 which are incorporated herein by
reference.
Statement of Registrant:
The data presented herein is unaudited, but in the opinion of management,
includes all adjustments (which consist only of normal recurring accruals)
necessary for a fair presentation of the consolidated financial position of the
Company and its subsidiaries at November 30, 1996 and December 2, 1995 and the
results of their operations and cash flows for the periods then ended. These
interim results are not necessarily indicative of the results of the fiscal
years as a whole because the operations of the Company are highly seasonal.
The third and fourth fiscal quarters contribute a significant part of the
Company's earnings due to the Christmas selling season.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth items from the Company's unaudited consolidated
financial statements for the third quarter and first three quarters of fiscal
1997 and 1996 as a percentage of net sales:
<TABLE>
<CAPTION>
Third Quarter Year-to-Date
-------------------- --------------------
Fiscal Fiscal Fiscal Fiscal
1997 1996 1997 1996
------ ------ ------ -------
<S> <C> <C> <C> <C>
Revenues
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Licensed department rentals & other income 0.5 0.7 0.6 0.8
------ ------ ------ -------
100.5 100.7 100.6 100.8
Costs and expenses
Cost of sales 77.8 75.0 77.0 74.8
Selling, general & administrative expenses 15.9 18.0 17.4 19.2
Depreciation & amortization expenses 2.4 2.7 2.7 3.0
------ ------ ------ -------
96.1 95.7 97.1 97.0
Income from operations 4.4 5.0 3.5 3.8
Interest expense 1.4 1.6 1.5 1.8
------ ------ ------ -------
Earnings before income taxes 3.0 3.4 2.0 2.0
Provision for income taxes 1.2 1.3 0.8 0.8
------ ------ ------ -------
Net earnings 1.8 % 2.1 % 1.2 % 1.2 %
====== ====== ====== =======
</TABLE>
Net Sales
The following table presents the Company's consolidated net sales for the third
quarter and first three quarters of fiscal 1997 and fiscal 1996:
<TABLE>
<CAPTION> % INCREASE/
THIRD QUARTER (DECREASE)
---------------- ---------------
FISCAL FISCAL
1997 1996 TOTAL COMP
------- ------- ----- ----
<S> <C> <C> <C> <C>
General Merchandise $399.4 $383.2 4.2 % 3.6 %
Health Services 191.8 107.8 77.9 56.3
------- ------- ----- ----
Consolidated $591.2 $491.0 20.4 % 15.3 %
======= ======= ===== ====
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
% INCREASE/
YEAR-TO-DATE (DECREASE)
---------------------- ----------------
FISCAL FISCAL
1997 1996 TOTAL COMP
-------- -------- ----- ----
<S> <C> <C> <C> <C>
General Merchandise $1,160.2 $1,124.7 3.2 % 2.7 %
Health Services 540.4 345.0 56.7 45.7
-------- -------- ----- ----
Consolidated $1,700.6 $1,469.7 15.7 % 12.9 %
======== ======== ===== ====
</TABLE>
Consolidated comparable sales in the third quarter and the first three quarters
are based upon those facilities (both store and non-store) which were open for
the entire preceding fiscal year. Retail comparable store sales, which are
based on retail facilities which were open the entire preceding fiscal year,
increased 4.5 percent in the third quarter and increased 3.9 percent in the
first three quarters.
Since the third quarter of last year, the Company has opened two new stores
(two in the second quarter of fiscal 1997, one of which is a relocation) and
remodeled seven stores (six in the first quarter of fiscal 1997 and one in the
third quarter of fiscal 1997) under the Vision 2000 format. During the third
quarter, the Company opened two Vision Advantage stores which are stand alone
optical centers of approximately 3,000 square feet.
General merchandise sales had a strong performance in the third quarter and
first three quarters, especially in apparel related categories.
The increase in health services sales in the third quarter and the first three
quarters is primarily due to growth in the prescription benefit management
business and increases in the retail pharmacy and optical centers.
Prescription benefit management business sales were $95.1 million this year
compared to $19.5 million last year for the third quarter, an increase of
388.5%. Prescription benefit management business sales for the first three
quarters increased 291.5% to $227.7 million this year versus $58.2 million last
year. Retail pharmacy and optical center sales increased 9.4% and 9.1% for the
third quarter and first three quarters of this year, respectively. Health
services comparable sales for the third quarter and the first three quarters
are based upon sales from healthcare services provided in retail stores, from
the pharmacy mail service sales, and from prescription benefit management and
claims processing activities in facilities which were open the entire preceding
fiscal year.
11
<PAGE> 12
Gross Margin:
The following table sets forth gross margin as a percent of net sales:
<TABLE>
<CAPTION>
Third Quarter Year-to-Date
----------------- ---------------
Fiscal Fiscal Fiscal Fiscal
1997 1996 1997 1996
------- ------- ------ ------
<S> <C> <C> <C> <C>
Gross margin percent 22.2% 25.0% 23.0% 25.2%
Gross margin percent prior to LIFO
charge 22.4% 25.2% 23.1% 25.4%
</TABLE>
The gross margin percentage decreased 2.8% and 2.2% for the third quarter and
first three quarters, respectively. Continued growth in the lower gross margin
prescription benefit management business accounted for the majority of the
decreases, approximately 2.2% in the third quarter and 1.8% in the first three
quarters. Other factors affecting the decreases in the gross margin
percentages included the increased impact of managed care business on retail
pharmacies and increased margin pressures in general merchandise. The gross
margin percentages for the third quarter and the first three quarters reflect
LIFO charges of $1.0 million and $2.9 million, respectively. This is compared
to the prior year's LIFO expense of $1.0 million in the third quarter and $2.8
million in the first three quarters.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses as a percent of sales were 15.9%
for the third quarter of fiscal 1997 compared to 18.0% for the same period last
year. For the first three quarters, selling, general and administrative
expenses as a percent of sales were 17.4% compared to 19.2% for the same period
last year. The selling, general and administrative expenses as a percent of
sales decreased 2.1% and 1.8% for the third quarter and first three quarters,
respectively. Increased sales related to the prescription benefit management
business accounted for the majority of the decreases, approximately 1.9% in the
third quarter and 1.6% in the first three quarters.
Interest Expense:
Interest expense for the third quarter was 1.4% of sales versus 1.6% of sales
for the same period last year. Interest expense as a percent of sales was 1.5%
for the first three quarters of fiscal 1997 compared to 1.8% for the same
period last year. This decrease is primarily due to increased sales and
increased investment income.
12
<PAGE> 13
Liquidity and Capital Resources:
The Company relies primarily on cash generated from its operations, with its
remaining funding requirements being met from the short-term $125 million
revolving credit facility and, if needed, long-term borrowings. Cash provided
from net earnings before depreciation and amortization was $66.7 million for
the first three quarters of fiscal 1997 compared to $61.2 million for the same
period last year. The Company had no borrowings outstanding under its revolving
credit agreement at the end of the first three quarters of fiscal 1997 and
fiscal 1996, respectively.
Effective as of October 4, 1996, The Company's Credit Agreement was extended
until October 4, 1997. The amount of borrowing available under the Credit
Agreement was reduced from $175 million to $125 million. The Credit Agreement
will terminate upon the consummation of the Reorganization (as defined below)
and be replaced by a new credit agreement.
The Company's principal use of cash in the first three quarters of fiscal 1997
was for working capital needs, for the CareStream Scrip Card acquisition
discussed below and for the purchase of property, equipment and systems
technology. During the first three quarters of fiscal 1997, working capital,
excluding cash, increased $49.6 million. This increase resulted principally
from increases in merchandise inventories net of accounts payable and from
increases in receivables offset by increases in accrued liabilities related to
the prescription benefit management business. During the first three quarters
of fiscal 1996, working capital, excluding cash, decreased $18.3 million. This
decrease resulted primarily from decreases in merchandise inventories net of
accounts payable.
The Company spent $23.6 million on capital expenditures (excluding
acquisitions) in the first three quarters of fiscal 1997 compared to $33.9
million for the same period last year.
In fiscal 1997, the Company opened two new stores under the Vision 2000 format
(one of which is a relocation) and two Vision Advantage stores, which are stand
alone optical centers. The Company's store expansion and remodel plans for
fiscal 1998 and after are under review, although the Company plans to open two
additional Vision Advantage stores in the first quarter of fiscal 1998. The
Company may consider the acquisition of existing retail stores or businesses,
or health services businesses, or the construction or acquisition of stores
which vary from the Company's existing stores. Such plans may be reviewed and
revised from time to time in light of changing conditions. The Company's
expansion and capital expenditure plans are under review in light of the Plan
of Reorganization.
With respect to store remodels, the Company completed seven remodels under the
Vision 2000 format in fiscal 1997. As with store expansion plans, remodeling
plans are subject to change and normal delays.
13
<PAGE> 14
On August 2, 1996, the Company completed the acquisition of CareStream Scrip
Card from FoxMeyer Health Corporation. CareStream Scrip Card is a prescription
benefit management company which is being integrated with the Company's
ProVantage subsidiary. The purchase price was $30.5 million in cash, with a
supplemental cash payment of between $1.5 million and $5.0 million due between
six months and five years after August 2, 1996. The purchase price was funded
from the Company's available cash.
On October 4, 1996, the Company (i) acquired the remaining 3% of the common
stock of Bravell, Inc. which the Company did not acquire in January 1995, (ii)
extinguished all remaining contingent payment obligations to the former
shareholders of Bravell, Inc., and (iii) terminated the former shareholders'
employment agreements. The present value of the extinguished payment
obligations was approximately $12.0 million. The acquisition agreement
provides for the issuance by the Company on an installment sale basis of
572,531 shares of Company Common Stock to the former Bravell, Inc.
shareholders. Such Company Common Stock is required to be delivered on the
first to occur of: (i) one business day prior to the consummation of the
Reorganization (defined below), or (ii) the later of: (x) March 31, 1997, and
(y) the date the Company publicly announces its financial results for its
fiscal year ending February 22, 1997. Under certain circumstances, the Company
has the right to reacquire the Company Common Stock issued to the former
Bravell, Inc. shareholders for cash based on a 30-day average trading price.
Inflation:
Inflation has and is expected to have only a minor effect on the results of
operations of the Company and its internal and external sources of liquidity.
Plan of Reorganization:
On September 7, 1996, the Company entered in an Agreement and Plan of
Reorganization, as amended as of October 9, 1996, (the "Plan of
Reorganization") with Phar-Mor, Inc. ("Phar-Mor") and Cabot Noble, Inc. ("Cabot
Noble"). Pursuant to the Plan of Reorganization, the Company and Phar-Mor will
become subsidiaries of Cabot Noble (the "Reorganization").
Additional information regarding the Reorganization and the transactions
contemplated in connection therewith is contained in the Company's Current
Reports on Form 8-K dated September 7, 1996 (the "September 7 Form 8-K") and
October 11, 1996 (the "October 11 Form 8-K") and the exhibits thereto which are
incorporated herein by reference. The foregoing summary of the Reorganization
is qualified in its entirety by reference to the complete text of the September
7 Form 8-K and the October 11 Form 8-K and the text of the exhibits thereto.
14
<PAGE> 15
Forward-Looking Statements:
Item 2 of this Form 10-Q, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," including information incorporated by
reference into Item 2, contains forward-looking statements. The Company's
actual results may differ materially from those contained in the
forward-looking statements. Factors which may cause such differences are
identified in the Company's Annual Report on Form 10-K for the fiscal year
ended February 24, 1996, and the Company's Current Reports on Form 8-K dated
September 7, 1996 and October 11, 1996, and are incorporated herein by
reference.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities
(c) On October 4, 1996, the Company entered into an agreement
requiring it to issue 572,531 shares of its Common Stock. These
shares are to be issued at a future date on an installment sale
basis. Such Company Common Stock is required to be delivered on
the first to occur of: (i) one business day prior to the
consummation of the Reorganization, or (ii) the later of: (x) March
31, 1997, and (y) the date the Company publicly announces its
financial results for its fiscal year ending February 22, 1997.
The Company Common Stock will be issued to three individuals who
are the former shareholders of Bravell, Inc.
The consideration for the issuance of the Company Common Stock was
(i) the acquisition of the 3% of the Common Stock of Bravell, Inc.
which the Company did not acquire on January 1995, (ii) the
extinguishment of all remaining contingent payment obligations to
the three individuals who are the former shareholders of Bravell,
Inc., and (iii) termination of the shareholders' employment
agreements. The present value of the extinguished payment
obligations was approximately $12.0 million.
The Company Common Stock was issued in a transaction exempt from
the registration requirements of the Securities Act of 1933, as
amended pursuant to Section 4(2) thereof. The Company Common Stock
was issued to three individuals who represented to the Company that
they (i) understood that the Company Common Stock was being issued
in a private placement pursuant to Section 4(2) of the Securities
Act; (ii) were acquiring the Company Common Stock with the
requisite investment intent; (iii) had sufficient knowledge and
experience to evaluate the merits and risks of an investment in
Company Common Stock; (iv) had access to all necessary information
concerning Company Common Stock; and (v) understood that their
shares of Company Common Stock would bear a restrictive legend.
16
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
* 2.1 Agreement and Plan of Reorganization dated as of September 7,
1996 by and among Phar-Mor, Inc., ShopKo Stores, Inc. and
Cabot Noble, Inc. (with selected exhibits attached).
** 2.1.1 First Amendment to the Agreement and Plan of Reorganization
dated as of October 9, 1996 by and among Phar-Mor, Inc.,
ShopKo Stores, Inc. and Cabot Noble, Inc. (with Exhibit B
thereto).
* 10.1 Voting Agreement dated as of September 7, 1996 by and among
SUPERVALU INC., Supermarket Operators of America, Inc., Cabot
Noble, Inc. and Robert M. Haft.
* 10.2 Stock Purchase Agreement dated as of September 7, 1996 by and
between Cabot Noble, Inc., SUPERVALU INC., and Supermarket
Operators of America, Inc.
** 10.2.1 Amended Stock Purchase Agreement dated as of October 9, 1996
by and between Cabot Noble, Inc., SUPERVALU INC., and
Supermarket Operators of America, Inc.
11 Computation of Earnings Per Common and Common Equivalent
Share.
12 Statements Re Computation of Ratios.
27 Financial Data Schedule.
* 99.1 Press Release Dated September 9, 1996.
** 99.1.1 Press Release Dated October 11, 1996.
* Incorporated by reference to the Company's current Report on Form 8-K dated
September 7, 1996.
** Incorporated by reference to the Company's Current Report on Form 8-K dated
October 11, 1996.
17
<PAGE> 18
(b) Reports on Form 8-K.
The Company filed Current Reports on Form 8-K dated September 7, 1996
and October 11, 1996, reporting items 5 and 7 therein, with respect to
the Plan of Reorganization referred to above.
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.
SHOPKO STORES, INC. (Registrant)
Date: December 23, 1996 By: /s/ Richard D. Schepp
-------------------------------
Richard D. Schepp
Vice President Legal Affairs/Secretary
(Duly Authorized Officer of Registrant)
Date: December 23, 1996 By: /s/ Lawrence J. Clark
-------------------------------
Lawrence J. Clark
Vice President, Finance and Treasurer
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
18
<PAGE> 19
EXHIBIT INDEX
SHOPKO STORES, INC.
10-Q REPORT
<TABLE>
<CAPTION>
Exhibit Sequential
Number Exhibit Page
- ------- ------- ----------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated as of Incorporated by
September 7, 1996 by and among Phar-Mor, Inc., Reference
ShopKo Stores, Inc. and Cabot Noble, Inc. (with
selected exhibits attached).
2.1.1 First Amendment to the Agreement and Plan of Incorporated by
Reorganization dated as of October 9, 1996 by Reference
and among Phar-Mor, Inc., Shopko Stores, Inc.
and Cabot Noble, Inc. (with Exhibit B thereto).
10.1 Voting Agreement dated as of September 7, 1996 Incorporated by
by and among SUPERVALU INC., Supermarket Reference
Operators of America, Inc., Cabot Noble, Inc. and
Robert M. Haft.
10.2 Stock Purchase Agreement dated as of September Incorporated by
7, 1996 by and between Cabot Noble, Inc., Reference
SUPERVALU INC., and Supermarket Operators
of America, Inc.
10.2.1 Amended Stock Purchase Agreement dated as of Incorporated by
October 9, 1996 by and between Cabot Noble, Reference
Inc., SUPERVALU INC., and Supermarket Operators
of America, Inc.
11 Computation of Earnings Per Common and
Common Equivalent Share.
12 Statements Re Computation of Ratios.
27 Financial Data Schedule.
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit Sequential
Number Exhibit Page
- ------- ------- ----------
<S> <C> <C>
99.1 Press Release Dated September 9, 1996. Incorporated by
Reference
99.1.1 Press Release Dated October 11, 1996. Incorporated by
Reference
</TABLE>
<PAGE> 1
Shopko Stores, Inc. and Subsidiaries
Exhibit 11 - Computation of Earnings Per Common and
Common Equivalent Share
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year to Date as of Fiscal Years Ended
------------------------------------------------------------------------------
November 30, December 2, February 24, February 25, February 26,
1996 1995 1996 1995 1994
(40 Weeks) (40 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRIMARY:
Net earnings $ 20,617 $ 17,369 $ 38,439 $ 37,790 $ 32,122
========= ========= ======== ========= ========
Weighted average number of
outstanding common shares 32,073 32,005 32,005 32,014 32,001
Number of common shares
issuable assuming exercise
of stock options 340 81 51 4
--------- --------- -------- --------- --------
Weighted average number of
outstanding common and
common equivalent shares -
assuming primary 32,413 32,086 32,056 32,018 32,001
========= ========= ======== ========= ========
Net earnings per common
share - primary (1) $ 0.64 $ 0.54 $ 1.20 $ 1.18 $ 1.00
========= ========= ======== ========= ========
FULLY DILUTED:
Net earnings $ 20,617 $ 17,369 $ 38,439 $ 37,790 $ 32,122
========= ========= ======== ========= ========
Weighted average number of
outstanding common shares 32,073 32,005 32,005 32,014 32,001
Number of common shares
issuable assuming exercise
of stock options 446 81 73 4 8
--------- --------- -------- --------- --------
Weighted average number of
outstanding common and
common equivalent shares -
assuming full dilution 32,519 32,086 32,078 32,018 32,009
========= ========= ======== ========= ========
Net earnings per common
share - assuming full dilution (1) $ 0.63 $ 0.54 $ 1.20 $ 1.18 $ 1.00
========= ========= ======== ========= ========
</TABLE>
(1) Earnings per share are computed by dividing net earnings by the weighted
average number of outstanding common and common equivalent shares.
<PAGE> 1
Shopko Stores, Inc. and Subsidiaries
Exhibit 12 - Statements Re Computation of Ratios
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year to Date as of Fiscal Years Ended
----------------------------------------------------------------
November 30, December 2, February 24, February 25, February 26,
1996 1995 1996 1995 1994
(40 Weeks) (40 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
----------------------------------------------------------------
Ratio of Earnings to Fixed Charges
----------------------------------
Computation of Earnings
<S> <C> <C> <C> <C> <C>
1 Pretax Income $ 33,954 $ 28,440 $ 63,140 $ 62,418 $ 52,889
2 Add previously capitalized interest
amortized during the period 421 411 540 503 418
3 Less interest capitalized during
the period 128 190 249 1,309 2,140
-------- -------- --------- -------- --------
4 Total earnings (sum of lines 1 to 3) 34,247 28,661 63,431 61,612 51,167
Computation of Fixed Charges
5 Interest (1) 25,111 27,261 34,531 30,351 23,557
6 Interest factor in rental expense 2,060 2,088 2,689 2,403 1,908
-------- -------- --------- -------- --------
7 Total fixed charges (sum of lines
5 and 6) 27,171 29,349 37,220 32,754 25,465
8 TOTAL EARNINGS AND
FIXED CHARGES (line 4
plus line 7) $ 61,418 $ 58,010 $ 100,651 $ 94,366 $ 76,632
======== ======== ========= ======== ========
9 Ratio (line 8 divided by line 7) 2.3 2.0 2.7 2.9 3.0
</TABLE>
(1) Includes capitalized interest
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> FEB-22-1997
<PERIOD-START> FEB-25-1996
<PERIOD-END> NOV-30-1996
<CASH> 44,058
<SECURITIES> 0
<RECEIVABLES> 99,384
<ALLOWANCES> 4,460
<INVENTORY> 434,028
<CURRENT-ASSETS> 588,592
<PP&E> 975,514
<DEPRECIATION> 379,974
<TOTAL-ASSETS> 1,240,976
<CURRENT-LIABILITIES> 369,052
<BONDS> 414,505
0
0
<COMMON> 321
<OTHER-SE> 435,900
<TOTAL-LIABILITY-AND-EQUITY> 1,240,976
<SALES> 1,700,636
<TOTAL-REVENUES> 1,710,559
<CGS> 1,310,013
<TOTAL-COSTS> 1,651,622
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,983
<INCOME-PRETAX> 33,954
<INCOME-TAX> 13,337
<INCOME-CONTINUING> 20,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,617
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.63
</TABLE>
