<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
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 September 7, 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 September 7, 1996 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 32,106,740
Exhibit Index Page 1 of Page 29
On Page 20
<PAGE> 2
SHOPKO STORES, INC.
FORM 10-Q
FOR THE 12 WEEKS AND 28 WEEKS ENDED SEPTEMBER 7, 1996
INDEX
<TABLE>
<S> <C> <C>
Page
----
Part I Item 1 - Financial Statements
Consolidated Statements of Earnings for the 12 weeks 3
ended September 7, 1996 and September 9, 1995
Consolidated Statements of Earnings for the 28 weeks 4
ended September 7, 1996 and September 9, 1995
Consolidated Balance Sheets as of September 7, 5
1996, September 9, 1995 and February 24, 1996
Consolidated Statements of Cash Flows for the 28 6
weeks ended September 7, 1996 and September 9,
1995
Consolidated Statements of Shareholders' Equity for 7
the 28 weeks ended September 7, 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 4 - Submission of Matters to a Vote of Security Holders 16-17
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Second Quarter (12 Weeks) Ended
- ------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
September 7, September 9, % Increase
1996 1995 (Decrease)
- ------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $498,517 $418,165 19.2
Licensed department rentals and other income 2,924 3,352
-------- --------
501,441 421,517 19.0
Costs and expenses:
Cost of sales 385,543 314,420
Selling, general and administrative expenses 87,978 82,977
Depreciation and amortization expenses 13,983 13,084
-------- --------
487,504 410,481 18.8
Income from operations 13,937 11,036 26.3
Interest expense 7,478 7,959
-------- --------
Earnings before income taxes 6,459 3,077 109.9
Provision for income taxes 2,537 1,208
-------- --------
Net earnings $ 3,922 $ 1,869 109.8
======== =========
Net earnings per common share $ 0.12 $ 0.06
======== ========
Weighted average number of common shares
outstanding 32,052 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 (28 Weeks) Ended
- ----------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
September 7, September 9, % Increase
1996 1995 (Decrease)
- ----------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 1,109,428 $ 978,637 13.4
Licensed department rentals and other income 6,755 7,734
----------- -----------
1,116,183 986,371 13.2
Costs and expenses:
Cost of sales 850,063 731,533
Selling, general and administrative expenses 201,366 193,287
Depreciation and amortization expenses 31,810 30,649
----------- -----------
1,083,239 955,469 13.4
Income from operations 32,944 30,902 6.6
Interest expense 17,000 18,984
----------- -----------
Earnings before income taxes 15,944 11,918 33.8
Provision for income taxes 6,263 4,681
----------- -----------
Net earnings $ 9,681 $ 7,237 33.8
=========== ===========
Net earnings per common share $ 0.30 $ 0.23
=========== ===========
Weighted average number of common shares
outstanding 32,052 32,005
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Second Quarter as of Fiscal Year End
- --------------------------------------------------------------------------------------------------------------------------
(In thousands)
September 7, September 9, February 24,
ASSETS 1996 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 52,023 $ 28,059 $ 89,469
Receivables, less allowance for losses of
$3,870, $2,595 and $3,212, respectively 70,924 45,932 55,514
Merchandise inventories 374,125 381,069 322,433
Other current assets 17,922 17,355 8,775
---------- ---------- ----------
Total current assets 514,994 472,415 476,191
Other assets and deferred charges 56,602 23,172 24,621
Property and equipment at cost:
Land 108,491 108,234 107,915
Buildings 489,147 471,153 479,124
Equipment 299,520 290,907 286,763
Leasehold improvements 48,846 47,857 49,306
Property under construction 782 6,683 10,585
Property under capital leases 21,968 17,539 21,968
---------- ---------- ----------
968,754 942,373 955,661
Less accumulated depreciation and amortization:
Property and equipment 359,562 324,245 331,541
Property under capital leases 8,359 6,423 6,972
---------- ---------- ----------
Net property and equipment 600,833 611,705 617,148
---------- ---------- ----------
Total assets $1,172,429 $1,107,292 $1,117,960
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable - trade $ 174,364 $ 178,746 $ 144,638
Accrued compensation and related taxes 23,441 21,670 25,290
Accrued other liabilities 89,848 54,370 72,943
Accrued income and other taxes 21,312 22,177 16,797
Current portion of long-term obligations 1,096 755 1,127
---------- ---------- ----------
Total current liabilities 310,061 277,718 260,795
Long-term obligations 414,849 413,234 415,138
Deferred income taxes 22,753 18,870 20,396
Shareholders' equity:
Common stock 321 320 320
Additional paid-in capital 244,339 242,843 242,843
Retained earnings 180,106 154,307 178,468
---------- ---------- ----------
Total shareholders' equity 424,766 397,470 421,631
---------- ---------- ----------
Total liabilities and shareholders' equity $1,172,429 $1,107,292 $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 (28 weeks) Ended
- ------------------------------------------------------------------------------------------------------
(In thousands)
September 7, September 9,
1996 1995
- ------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 9,681 $ 7,237
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 31,810 30,649
Provision for losses on receivables 132 77
Gain on sale of property and equipment (1,031) (1,649)
Deferred income taxes 1,680 1,763
Change in assets and liabilities:
Receivables (15,342) (3,942)
Merchandise inventories (51,692) 19,554
Other current assets (8,303) (4,215)
Other assets (2,679) (871)
Accounts payable 29,726 29,453
Accrued liabilities 19,559 (18,208)
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,541 59,848
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment (15,013) (24,358)
Proceeds from the sale of property and equipment 1,472 2,420
Business acquisition, net of cash acquired (30,500)
- ------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (44,041) (21,938)
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Change in short-term debt (15,000)
Proceeds from the sale of common stock
under option plans 485
Dividend payment (7,050) (7,042)
Reduction in capital lease obligations (381) (407)
- ------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (6,946) (22,449)
- ------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (37,446) 15,461
Cash and cash equivalents at beginning of year 89,469 12,598
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of second quarter $ 52,023 $ 28,059
======================================================================================================
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)
Capital in
Common Stock 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 37 485
Issuance of restricted stock 65 1 1,011 (1,012)
Restricted stock expense 29
Net earnings 9,681
Cash dividend declared on common
stock - $0.22 per share (7,060)
- -----------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 7, 1996 32,107 $ 321 $244,339 $180,106
===============================================================================================
</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 $41.2 million and $38.8 million higher at September 7, 1996 and at
September 9, 1995, respectively.
Income Taxes:
The provision for income tax expense for the first half of fiscal 1997 was $6.3
million, of which $4.6 million is current and $1.7 million is deferred tax
expense, respectively. 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.
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 September 7, 1996 and September 9, 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 second quarter and first half of fiscal 1997 and
1996 as a percentage of net sales:
<TABLE>
<CAPTION>
Second Quarter First Half
-------------------------- ------------------------------
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 0.6 0.8 0.6 0.8
----- ----- ----- -----
100.6 100.8 100.6 100.8
Costs and expenses
Cost of sales 77.3 75.2 76.6 74.8
Selling, general & administrative expenses 17.7 19.9 18.1 19.8
Depreciation & amortization expenses 2.8 3.1 2.9 3.1
----- ----- ----- -----
97.8 98.2 97.6 97.7
Income from operations 2.8 2.6 3.0 3.1
Interest expense 1.5 1.9 1.5 1.9
----- ----- ----- -----
Earnings before income taxes 1.3 0.7 1.5 1.2
Provision for income taxes 0.5 0.3 0.6 0.5
----- ----- ----- -----
Net earnings 0.8 % 0.4 % 0.9 % 0.7 %
===== ====== ====== =====
</TABLE>
Net Sales
The following table presents the Company's consolidated net sales for the
second quarter and first half of fiscal 1997 and fiscal 1996:
<TABLE>
<CAPTION>
SECOND QUARTER % INCREASE/
---------------- (DECREASE)
---------------------
FISCAL FISCAL
1997 1996 TOTAL COMP
------- ------- ----- ----
<S> <C> <C> <C> <C>
General Merchandise $337.3 $315.0 7.1 % 5.9 %
Health Services 161.2 103.2 56.2 42.2
------- ------- ----- ----
Consolidated $498.5 $418.2 19.2 % 14.9 %
======= ======= ===== ====
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION> % INCREASE/
FIRST HALF (DECREASE)
--------------- ------------------
FISCAL FISCAL
1997 1996 TOTAL COMP
-------- ---------- ----- ----
<S> <C> <C> <C> <C>
General Merchandise $ 760.8 $741.5 2.6% 2.3%
Health Services 348.6 237.1 47.0 40.9
-------- ---------- ----- ----
Consolidated $1,109.4 $978.6 13.4% 11.7%
======== ========== ===== ====
</TABLE>
Consolidated comparable sales in the second quarter and first half 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
6.4 percent in the second quarter and increased 3.5 percent in the first half.
Since the second quarter of last year, the Company has opened three new stores
(one in the third quarter of fiscal 1996 and two in the second quarter of
fiscal 1997, one of which is a relocation) and remodeled 12 stores (six in the
third quarter of fiscal 1996 and six in the first quarter of fiscal 1997) under
the Vision 2000 format.
General merchandise sales had a strong performance in the second quarter,
especially in back-to-school related categories. The general merchandise sales
in the first half also reflect the unseasonable spring weather experienced
throughout the ShopKo markets in the first quarter.
The increase in health services sales in the second quarter and first half is
primarily due to growth in the prescription benefit management business and
increases in the retail pharmacy and optical departments. Health services
comparable sales for the second quarter and first half 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>
Second Quarter First Half
-------------------- --------------------
Fiscal Fiscal Fiscal Fiscal
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Gross margin percent 22.7% 24.8% 23.4% 25.2%
Gross margin
percent prior to
LIFO charge 22.8% 24.9% 23.6% 25.4%
</TABLE>
The decrease in the gross margin percentage in the second quarter and first
half is primarily due to the impact of lower gross margins in the prescription
benefit management business and to increased margin pressures in the retail
pharmacies as a result of increased managed care business. The gross margin
percentages for the second quarter and first half reflect LIFO charges of $0.8
million and $1.9 million, respectively. This is compared to the prior year's
LIFO expense of $0.2 million in the second quarter and $1.8 million in the
first half.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses as a percent of sales were 17.7%
for the second quarter of fiscal 1997 compared to 19.9% for the same period
last year. The decrease is primarily due to increased sales related to the
prescription benefit management business and the leveraging of store expenses
on incremental retail sales. For the first half, selling, general and
administrative expenses as a percent of sales were 18.1% compared to 19.8% for
the same period last year. The decrease is primarily due to increased sales
related to the prescription benefit management business.
Interest Expense:
Interest expense for the second quarter and first half was 1.5% of sales versus
1.9% of sales in the second quarter and first half of 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 short-term and long-term
borrowings. Cash provided from net earnings before depreciation and
amortization was $41.5 million for the first half of fiscal 1997 compared to
$37.9 million for the same period last year. The Company had no borrowings
outstanding under its revolving credit agreement at the end of the first half
of fiscal 1997 and fiscal 1996, respectively.
The Company's principal use of cash in the first half of fiscal 1997 was for
increases in working capital and for the purchase of property, equipment,
systems technology and the CareStream Scrip Card acquisition discussed below.
During the first half of fiscal 1997, working capital, excluding cash,
increased $27.0 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.
The Company spent $15.0 million on capital expenditures (excluding
acquisitions) in the first half of fiscal 1997 compared to $24.4 million for
the same period last year.
The Company opened two new stores in fiscal 1997, one of which is a relocation.
The Company's store expansion and remodel plans for fiscal 1998 and after are
under review. 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 described below.
With respect to store remodels, the Company completed six remodels under the
Vision 2000 format thus far in fiscal 1997. One additional remodel will be
completed during the third quarter of fiscal 1997. As with store expansion
plans, remodeling plans are subject to change and normal delays.
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.
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.
13
<PAGE> 14
Plan of Reorganization:
On September 7, 1996, the Company entered in an Agreement and Plan of
Reorganization (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"). The Reorganization will be accomplished through share
exchanges with Cabot Noble.
Under the terms of the Reorganization, each issued and outstanding share of
Company common stock will be exchanged for 2.4 shares of Cabot Noble common
stock, subject to adjustment in the event the value of the exchange
consideration falls outside a range of $17.25 and $18.00 (based on the average
daily closing sale prices of the Phar-Mor common stock over a specified 30 day
period). Each issued and outstanding share of Phar-Mor common stock will be
exchanged for one share of Cabot Noble common stock.
In connection with the Reorganization, a subsidiary of SUPERVALU INC.,
("SuperValu"), which currently owns approximately 46% of the issued and
outstanding shares of Company common stock, has entered in to a Stock Purchase
Agreement (the "Stock Purchase Agreement") with Cabot Noble whereby SuperValu
has agreed to sell the Cabot Noble shares it receives in the Reorganization to
Cabot Noble immediately after the Reorganization is completed for an aggregate
purchase price of $248,438,339, which represents $16.86 per share for the
Company common stock held by SuperValu prior to the Reorganization. The Stock
Purchase Agreement provides that SuperValu will receive $208,038,339 in cash at
closing, and $40,400,000 in a short-term promissory note due January 31, 1997.
Consummation of the reorganization is subject to certain conditions, including
(a) receipt of financing of at least $100 million, (b) approval by the
shareholders of the Company and Phar-Mor, (c) receipt of necessary regulatory
approvals, and (d) other conditions to closing customary in transactions of
this type.
Additional information regarding the Reorganization is contained in the
Company's Current Report on Form 8-K dated September 7, 1996 (the "September 7
Form 8-K") which is incorporated herein by reference. The Plan of
Reorganization and the Stock Purchase Agreement are attached as exhibits to the
September 7 Form 8-K and are incorporated herein by reference. The foregoing
summary of such exhibits is qualified in its entirety by reference to the
complete text of such exhibits.
14
<PAGE> 15
Subsequent Events:
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 and be replaced by a
new credit agreement.
On October 4, 1996, the Company (i) acquired the remaining 3% of Bravell, Inc.
which the Company did not acquire in January 1995, and (ii) extinguished all
remaining contingent payment obligations to the former shareholders of Bravell,
Inc. The acquisition agreement provides for the issuance by the Company on an
installment sale basis of Company Common Stock having a value of $9.16 million
(approximately 572,500 shares) to the former Bravell shareholders. 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.
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 Report on Form 8-K dated
September 7, 1996, and are incorporated herein by reference.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its 1996 Annual Meeting of Shareholders on June
19,1996.
(b) Votes cast for the election of directors at the 1996 Annual
Meeting were as follows:
Mr. Wright:
<TABLE>
<S> <C>
For 29,825,936
----------
Withheld Authority 545,154
----------
Mr. Tyrrell:
For 29,833,853
----------
Withheld Authority 537,237
----------
</TABLE>
Messrs. Eugster, Girard and Kramer, terms of office as directors continue
after the 1996 Annual Meeting of Shareholders.
Votes cast to approve the Company's 1995 Stock Option Plan were as
follows:
<TABLE>
<S> <C>
For 29,817,496
----------
Against 404,929
----------
Abstain 148,664
----------
Broker Non-Vote 1
----------
</TABLE>
16
<PAGE> 17
Votes cast to ratify the appointment of Deloitte & Touche LLP as the
Company's auditors for the fiscal year ending February 22, 1997, were as
follows:
<TABLE>
<S> <C>
For 30,301,646
----------
Against 14,340
----------
Abstain 55,104
----------
Broker Non-Vote 0
----------
</TABLE>
17
<PAGE> 18
PART II - OTHER INFORMATION
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).
* 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.
10.3 Amendment No. 1 to Credit Agreement dated as of October
4, 1996 among ShopKo Stores, Inc. and the Banks named
therein.
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.
* Incorporated by reference to the Company's Current Report
on Form 8-K dated September 7, 1996.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated
September 7, 1996, reporting items 5 and 7 therein, with
respect to the Plan of Reorganization referred to above.
18
<PAGE> 19
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: October 4, 1996 By: /s/ Richard D. Schepp
----------------------------------------
Richard D. Schepp
Vice President Legal Affairs/Secretary
(Duly Authorized Officer of Registrant)
Date: October 4, 1996 By: /s/ Lawrence J. Clark
-----------------------------------------
Lawrence J. Clark
Vice President, Finance and Treasurer
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
19
<PAGE> 20
EXHIBIT INDEX
SHOPKO STORES, INC.
10-Q REPORT
<TABLE>
<CAPTION>
Exhibit Sequential
Number Exhibit Page Number
- ------- ------- -----------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated as of September 7, Incorporated by
1996 by and among Phar-Mor, Inc., Reference ShopKo Stores, Reference
Inc. and Cabot Noble, Inc. (with selected exhibits attached).
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.
10.3 Amendment No. 1 to Credit Agreement dated as of
October 4, 1996 among ShopKo Stores, Inc. and
the Banks named therein.
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. Incorporated by
Reference
</TABLE>
<PAGE> 1
EXHIBIT 10.3
CONFORMED COPY
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT NO. 1 TO CREDIT AGREEMENT dated as of October 4, 1996 among
SHOPKO STORES, INC. (the "Borrower"), the BANKS listed on the signature pages
hereof (the "Banks")and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent
(the "Aqent").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into a Credit
Agreement dated as of October 4, 1993 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement as set forth
herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions: References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. Amendment of Termination Date. The definition of "Termination
Date" in Section 1.01 of the Agreement is amended to read in its entirety as
follows:
"Termination Date" means October 4, 1997, or such later date to which the
Credit Availability Period shall have been extended pursuant to Section
2.01(d), or, if any such day is not a Euro-Dollar Business Day, the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the Termination Date shall be the next
preceding Euro-Dollar Business Day.
<PAGE> 2
SECTION 3. Amendment of Section 6.01. Section 6.01 of the Agreement is
amended by inserting the following subparagraph (l) after subparagraph (k):
(1) the Borrower shall fail to observe or perform the covenant contained
in Section 5 of Amendment No. 1 to this Agreement;
SECTION 4. Changes in Commitments. With effect from and including the
date this Amendment becomes effective in accordance with Section 8 hereof, the
Commitment of each Bank shall be the amount set forth opposite the name of such
Bank on the signature pages hereof. Any Bank whose Commitment is changed to
zero shall upon such effectiveness cease to be a Bank party to the Agreement,
and all accrued fees and other amounts payable under the Agreement for the
account of such Bank shall be due and payable on such date; provided that the
provisions of Sections 8.03 and 9.03 of the Agreement shall continue to inure
to the benefit of each such Bank.
SECTION 5. Covenant of the Borrower. The Borrower hereby covenants that
it will not consummate any merger, share exchange or similar transaction with
Phar-Mor, Inc. or any affiliate thereof unless, prior to or simultaneously with
the consummation of such merger, share exchange or similar transaction, it has
(i) repaid all Loans (whether Syndicated Loans or Swingline Loans) then
outstanding, (ii) repaid all Reimbursement Obligations then outstanding and
paid to the Agent the Aggregate LC Amount (as defined in Section 6.01 of the
Agreement) to be held by the Agent in accordance with the terms of the last
four paragraphs of Section 6.01 of the Agreement, and (iii) terminated the
Commitments of all Banks in their entirety. This covenant shall not affect the
limitations on any such transaction imposed by any other provision of the
Agreement.
SECTION 6. Representations and Warranties. The Borrower hereby
represents and warrants that as of the date hereof and after giving effect
thereto:
(a) no Default has occurred and is continuing;
(b) each representation and warranty of the Borrower set forth in the
Agreement is true and correct as though made on and as of this date; and
(c) since February 24, 1996 there has been no material adverse change in
the business, financial position or result of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole.
<PAGE> 3
SECTION 7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts: Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective as of the date hereof when the Agent
shall have received duly executed counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, the Agent shall have received
telegraphic, telex or other written confirmation from such party of execution
of a counterpart hereof by such party).
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
SHOPKO STORES, INC.
By /s/ Lawrence J. Clark
Title: Treasurer
<PAGE> 4
$20,695,364.24 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Jeffrey Hwang
Title: Vice President
$20,695,364.24 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Sandra S. Ober
Title: Vice President
$20,695,364.24 FIRST BANK NATIONAL ASSOCIATION
By /s/ Elliot Jaffee
Title: Vice President
$20,695,364.24 NATIONSBANK, N.A.
By /s/ Lisa S. Donoghue
Title: Vice President
$20,695,364.24 PNC BANK, NATIONAL ASSOCIATION
By /s/ Richard T. Jander
Title: Assistant Vice President
$8,278,145.70 FIRSTAR BANK MILWAUKEE, N.A.
By /s/ Robert A. Flosbach
Title: Vice President
<PAGE> 5
$6,622,516.55 ASSOCIATED BANK GREEN BAY,
NATIONAL ASSOCIATION
By /s/ Nancy A. Felhofer
Title: Assistant Vice President
$6,622,516.55 BANK ONE, GREEN BAY
By /s/ Thomas E. Knab Jr
Title: Vice President
$0 BANK OF AMERICA ILLINOIS
(formerly CONTINENTAL BANK)
By /s/ Sandra S. Ober
Title: Vice President
$0 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Janet M. Klein
Title: Vice President
Total Commitments
$125,000,000.00
===============
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Jeffrey Hwang
Title: Vice President
<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>
First Half as of Fiscal Years Ended
------------------------------------------------------------------------------------
September 7, September 9, February 24, February 25, February 26,
1996 1995 1996 1995 1994
(28 Weeks) (28 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRIMARY:
Net earnings
$ 9,681 $ 7,237 $ 38,439 $ 37,790 $ 32,122
========== ========== ========== ========= =========
Weighted average number of
outstanding common shares 32,052 32,005 32,005 32,014 32,001
Number of common shares
issuable assuming exercise
of stock options 420 36 51 4
---------- ---------- ---------- --------- ---------
Weighted average number of
outstanding common and
common equivalent shares -
assuming primary 32,472 32,041 32,056 32,018 32,001
========== ========== ========== ========= =========
Net earnings per common
share - primary (1) $ 0.30 $ 0.23 $ 1.20 $ 1.18 $ 1.00
========== ========== ========== ========= =========
FULLY DILUTED:
Net earnings $ 9,681 $ 7,237 $ 38,439 $ 37,790 $ 32,122
========== ========== ========== ========= =========
Weighted average number of
outstanding common shares 32,052 32,005 32,005 32,014 32,001
Number of common shares
issuable assuming exercise
of stock options 611 121 73 4 8
---------- ---------- ---------- --------- ---------
Weighted average number of
outstanding common and
common equivalent shares -
assuming full dilution 32,663 32,126 32,078 32,018 32,009
========== ========== ========== ========= =========
Net earnings per common
share - assuming full
dilution (1) $ 0.30 $ 0.23 $ 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>
First Half as of Fiscal Years Ended
-----------------------------------------------------------------------------------
September 7, September 9, February 24, February 25, February 25,
1996 1995 1996 1995 1994
(28 Weeks) (28 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 $ 15,944 $ 11,918 $ 63,140 $ 62,418 $ 52,889
2 Add previously capitalized interest
amortized during the period 295 288 540 503 418
3 Less interest capitalized during
the period 128 160 249 1,309 2,140
-------- -------- -------- -------- --------
4 Total earnings (sum of lines 1 to 3) 16,111 12,046 63,431 61,612 51,167
Computation of Fixed Charges
5 Interest (1) 17,128 19,144 34,531 30,351 23,557
6 Interest factor in rental expense 1,382 1,464 2,689 2,403 1,908
-------- -------- -------- -------- --------
7 Total fixed charges (sum of lines
5 and 6) 18,510 20,608 37,220 32,754 25,465
8 TOTAL EARNINGS AND
FIXED CHARGES (line 4
plus line 7) $ 34,621 $ 32,654 $100,651 $ 94,366 $ 76,632
======== ======== ======== ======== ========
9 Ratio (line 8 divided by line 7) 1.9 1.6 2.7 2.9 3.0
</TABLE>
(1) Includes capitalized interest
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> FEB-22-1997
<PERIOD-START> FEB-25-1996
<PERIOD-END> SEP-07-1996
<EXCHANGE-RATE> 1
<CASH> 52,023
<SECURITIES> 0
<RECEIVABLES> 74,794
<ALLOWANCES> 3,870
<INVENTORY> 374,125
<CURRENT-ASSETS> 514,994
<PP&E> 968,754
<DEPRECIATION> 367,921
<TOTAL-ASSETS> 1,172,429
<CURRENT-LIABILITIES> 310,061
<BONDS> 414,849
<COMMON> 321
0
0
<OTHER-SE> 424,445
<TOTAL-LIABILITY-AND-EQUITY> 1,172,429
<SALES> 1,109,428
<TOTAL-REVENUES> 1,116,183
<CGS> 850,063
<TOTAL-COSTS> 1,083,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,000
<INCOME-PRETAX> 15,944
<INCOME-TAX> 6,263
<INCOME-CONTINUING> 9,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,681
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
