<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 (13 weeks) ended May 2, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE 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)
Wisconsin 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 (920) 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 May 29, 1998 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 26,058,010
Exhibit Index Page 1 of Page 21
on Page 18
1
<PAGE> 2
SHOPKO STORES, INC.
FORM 10-Q
FOR THE 13 WEEKS ENDED MAY 2, 1998
INDEX
Page
----
Part I Item 1 - Financial Statements
Consolidated Statements of Earnings for the 13 weeks 3
ended May 2, 1998 and May 3, 1997
Consolidated Balance Sheets as of May 2, 1998, 4
May 3, 1997 and January 31, 1998
Consolidated Statements of Cash Flows for the 13 5
weeks ended May 2, 1998 and May 3, 1997
Consolidated Statements of Shareholders' Equity for 6
the 13 weeks ended May 2, 1998 and for the period
ended January 31, 1998
Notes to Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis of Financial 9-15
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure About 15
Market Risk (not applicable)
Part II Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries First Quarter (13 Weeks) Ended
- ---------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
May 2, May 3, % Increase
1998 1997 (Decrease)
- ---------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 645,801 $ 561,868 14.9
Licensed department rentals and other income 2,943 2,735
---------------- ---------------
648,744 564,603 14.9
Costs and expenses:
Cost of sales 506,569 435,896
Selling, general and administrative expenses 110,834 101,905
Nonrecurring charge 1,696 2,800
Depreciation and amortization expenses 17,073 15,216
---------------- ---------------
636,172 555,817 14.5
Income from operations 12,572 8,786 43.1
Interest expense - net 9,029 7,122
---------------- ---------------
Earnings before income taxes 3,543 1,664 112.9
Provision for income taxes 1,392 653
---------------- ---------------
Net earnings $ 2,151 $ 1,011 112.8
================ ===============
Basic net earnings per common share $ 0.08 $ 0.03
================ ===============
Weighted average number of common shares
outstanding 25,869 32,195
Diluted net earnings per common share $ 0.08 $ 0.03
================ ===============
Adjusted average number of common shares
outstanding 26,346 32,541
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries First Quarter as of Fiscal Year End
- ---------------------------------------------------------------------------------------------------------------------
(In thousands)
May 2, May 3, January 31,
ASSETS 1998 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 28,968 $ 138,932 $ 54,344
Receivables, less allowance for losses of
$9,722, $5,996 and $8,637, respectively 92,010 84,815 97,812
Merchandise inventories 401,938 359,174 376,568
Other current assets 8,677 16,346 13,508
---------------- ------------- ---------------
Total current assets 531,593 599,267 542,232
Other assets and deferred charges 6,991 5,747 7,202
Intangible assets - net 72,024 60,069 71,668
Property and equipment at cost:
Land 118,725 107,982 118,723
Buildings 523,013 492,146 522,732
Equipment 360,450 315,600 348,817
Leasehold improvements 53,951 49,960 53,932
Property under construction 3,410 666 456
Property under capital leases 26,419 26,419 26,419
---------------- ------------- ---------------
1,085,968 992,773 1,071,079
Less accumulated depreciation and amortization:
Property and equipment 445,836 391,164 430,293
Property under capital leases 11,670 9,085 11,053
---------------- ------------- ---------------
Net property and equipment 628,462 592,524 629,733
---------------- ------------- ---------------
Total assets $ 1,239,070 $ 1,257,607 $ 1,250,835
================ ============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 212,347 $ 166,162 $ 193,646
Accrued compensation and related taxes 30,002 25,865 39,964
Accrued other liabilities 118,138 140,177 135,522
Accrued income and other taxes 14,259 21,916 24,502
Current portion of long-term obligations 5,552 2,014 4,174
---------------- ------------- ---------------
Total current liabilities 380,298 356,134 397,808
Long-term obligations 433,636 418,348 436,125
Deferred income taxes 21,651 20,999 20,906
Shareholders' equity:
Common stock 260 322 339
Additional paid-in capital 226,661 245,911 283,520
Retained earnings 176,564 215,893 264,316
Less treasury stock - - (152,179)
---------------- ------------- ---------------
Total shareholders' equity 403,485 462,126 395,996
---------------- ------------- ---------------
Total liabilities and shareholders' equity $ 1,239,070 $ 1,257,607 $ 1,250,835
================ ============= ===============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year to Date (13 weeks) Ended
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
May 2, May 3,
1998 1997
- -----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,151 $ 1,011
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 17,073 15,216
Provision for losses on receivables 112
Gain on sale of property and equipment (247)
Deferred income taxes 5,527 (1,518)
Change in assets and liabilities:
Receivables 5,690 13,604
Merchandise inventories (25,370) (21,005)
Other current assets 57 (1,435)
Other assets and intangibles (888) (1,551)
Accounts payable 18,701 (24,039)
Accrued liabilities (35,854) 22,734
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (12,801) 2,770
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment (14,888) (5,404)
Proceeds from the sale of property and equipment 717
Business acquisitions, net of cash acquired (8,874)
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (14,888) (13,561)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Change in common stock from stock options 3,453 875
Reduction in debt and capital leases (1,140) (482)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,313 393
- -----------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (25,376) (10,398)
Cash and cash equivalents at beginning of year 54,344 149,330
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of first quarter $ 28,968 $ 138,932
=================================================================================================================
Supplemental cash flow information:
Noncash investing and financial activities -
Retirement of treasury stock $ 152,179
</TABLE>
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Common Stock Capital in Treasury Stock
---------------------- Excess of Retained -------------------------
Shares Amount Par Value Earnings Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT FEBRUARY 22, 1997 32,167 $ 322 $ 245,137 $ 215,405
Net earnings 48,845
Sale of common stock under option plans 780 7 10,900
Income tax benefit related to stock options 3,658
Sale of common stock in public offering 984 10 23,409
Issuance of restricted stock 10 246 (246)
Remeasurement of restricted stock 170 (170)
Restricted stock expense 482
Purchase of treasury stock (8,174) $(152,179)
----------------------------------------------------------------------------------
BALANCES AT JANUARY 31, 1998 33,941 339 283,520 264,316 (8,174) (152,179)
Net earnings 2,151
Sale of common stock under option plans 274 3 3,450
Income tax benefit related to stock options 1,735
Restricted stock expense 150
Retirement of treasury stock (8,174) (82) (62,044) (90,053) 8,174 152,179
----------------------------------------------------------------------------------
BALANCES AT MAY 2, 1998 26,041 $ 260 $ 226,661 $ 176,564 - $ -
==================================================================================
</TABLE>
Interim data subject to year end audit.
See notes to consolidated financial statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Change in Fiscal Year:
The Company changed its fiscal year end from the last Saturday in February to
the Saturday nearest January 31, effective with the fiscal year ended January
31, 1998. This change was made in order to coincide the Company's fiscal year
with the calendar predominantly used by the retail industry. The current year
consolidated balance sheet and statements of earnings, cash flows and
shareholders' equity are presented for the quarter ended May 2, 1998 (13 weeks).
The consolidated balance sheet, statements of earnings and cash flows for the
preceding fiscal year are presented for the comparable quarter ended May 3, 1997
(13 weeks).
Accounting Policies:
The Company's 1997 Annual Report on Form 10-K (the Transition Report for the
period ending January 31, 1998) contains a summary of significant accounting
policies which includes the consolidated financial statements and the notes to
the consolidated financial statements. The same accounting policies are followed
in the preparation of interim reports.
In 1997, Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" were issued. In February 1998, SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" was
issued. These statements had to be adopted by the Company beginning February 1,
1998.
SFAS N0. 130, "Reporting Comprehensive Income," which specifies how to report
and display comprehensive income and its components, has no impact on the
Company's consolidated financial statements.
The Company will adopt SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" and SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" this fiscal year. It is not
anticipated that these SFAS's will significantly impact the Company's annual
financial statements.
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 $39.3 million and $42.6 million higher at May 2, 1998 and at May 3, 1997,
respectively.
7
<PAGE> 8
Intangible Assets:
The excess of cost over fair value of the net assets of businesses acquired is
amortized using the straight-line method over 20 to 22 years. Accumulated
amortization for these costs was $6.4 million and $3.0 million at May 2, 1998
and May 3, 1997, respectively.
Income Taxes:
The provision for income tax expense for the first quarter of fiscal 1998 was
$1.4 million, of which $5.5 million in deferred tax expense is offset by a $4.1
million current 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:
Basic net earnings per common share are computed by dividing net earnings by the
weighted average number of common shares outstanding. Diluted net earnings per
common share are computed by dividing net earnings by the weighted average
number of common shares outstanding increased by the number of dilutive
potential common shares based on the treasury stock method.
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 May 2, 1998 and May 3, 1997 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 fourth
fiscal quarter contributes a significant part of the Company's earnings due to
the Christmas selling season.
8
<PAGE> 9
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 first quarter of fiscal 1998 and 1997 as a
percentage of net sales:
<TABLE>
<CAPTION>
First Quarter
-------------
Fiscal Fiscal
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Net sales 100.0 % 100.0 %
Licensed department rentals and other income 0.4 0.5
---------- ----------
100.4 100.5
Costs and expenses
Cost of sales 78.4 77.6
Selling, general and administrative expenses 17.2 18.1
Nonrecurring charge 0.3 0.5
Depreciation and amortization expenses 2.6 2.7
---------- ----------
98.5 98.9
Income from operations 1.9 1.6
Interest expense 1.4 1.3
---------- ----------
Earnings before income taxes 0.5 0.3
Provision for income taxes 0.2 0.1
---------- ----------
Net earnings 0.3 % 0.2 %
========== ==========
</TABLE>
The Company has two business segments: a Retail Store segment (which includes
general merchandise, retail pharmacy and retail optical operations) and a
ProVantage segment (which includes prescription benefit management, mail service
pharmacy, vision benefit management and health information technology).
Intercompany sales, which consist of prescriptions that were both sold at a
ShopKo pharmacy and processed by ProVantage, have been eliminated.
9
<PAGE> 10
The following tables set forth items from the Company's business segments as
percentages of net sales:
RETAIL STORE SEGMENT
<TABLE>
<CAPTION>
First Quarter
-------------
Fiscal Fiscal
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Net sales 100.0 % 100.0 %
Licensed departmental rentals and other income 0.6 0.6
---------- ----------
100.6 100.6
Costs and expenses
Cost of sales 74.4 73.6
Selling, general and administrative expenses 19.8 20.5
Depreciation and amortization expenses 3.1 3.2
---------- ----------
97.3 97.2
Income from operations 3.3 % 3.4 %
</TABLE>
PROVANTAGE SEGMENT
<TABLE>
<CAPTION>
First Quarter
-------------
Fiscal Fiscal
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Net sales 100.0 % 100.0 %
Licensed department rentals and other income 0.1 0.0
---------- --------
100.1 100.0
Costs and expenses
Cost of sales 93.2 93.4
Selling, general and administrative expenses 3.8 4.0
Depreciation and amortization expenses 0.9 0.7
---------- --------
97.9 98.1
Income from operations 2.2 % 1.9 %
</TABLE>
10
<PAGE> 11
Net Sales
The following table presents the Company's consolidated net sales for the first
quarter of fiscal 1998 and fiscal 1997:
<TABLE>
<CAPTION>
FIRST QUARTER % INCREASE
------------- ----------
FISCAL FISCAL
1998 1997 TOTAL COMP
------------------ ----- ----
<S> <C> <C> <C> <C>
Retail Store $504.2 $445.8 13.1 5.3
ProVantage 149.9 122.0 22.9 N/A
Intercompany (8.3) (5.9) N/A N/A
------ ------ ---- ---
Consolidated $645.8 $561.9 14.9
====== ====== ====
</TABLE>
The 5.3% increase in first quarter retail comparable store sales are derived
from the following categories: Retail Health increased 9.2%, Hardlines/Home
increased 5.8% and Apparel remained flat. Changes in retail comparable store
sales are based upon those stores which were open for the entire preceding
fiscal year.
On December 19, 1997, ShopKo acquired the retail chain Penn-Daniels,
Incorporated ("Penn-Daniels"), which operated 18 Jacks discount stores and one
Lots-A-Deals close-out store in Iowa, Illinois and Missouri. The Company is
converting 17 of the Jacks retail locations to ShopKo stores, including the
addition of in-store pharmacies and optical centers. In March 1998, the
Lots-A-Deals store in Moline, Illinois was closed, and the Iowa City, Iowa store
closed in May 1998.
The increase in ProVantage sales in the first quarter is due primarily to
internally generated growth. Included in ProVantage sales are amounts billed to
insurance companies, third party administrators and self-funded medical plan
sponsors, amounts billed to pharmaceutical manufacturers and third party
formulary administrators for formulary fees and fees for health information
technology services.
11
<PAGE> 12
Gross Margin:
The following table sets forth gross margin as a percent of net sales:
<TABLE>
<CAPTION>
First Quarter
-------------
Retail Store ProVantage Consolidated
------------ ---------- ------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross margin percent 25.6 % 26.4 % 6.8 % 6.6 % 21.6 % 22.4 %
Gross margin percent prior to
LIFO charge 25.8 % 26.6 % N/A N/A 21.8 % 22.6 %
</TABLE>
The decrease in the retail store gross margin rate is primarily attributable to
planned lower gross margins in general merchandise and pharmacy categories.
ProVantage's increase is primarily due to increased sales in the higher gross
margin health information technology and clinical services. The retail store and
consolidated gross margin percentages reflect LIFO charges of $1.3 million this
year versus $0.9 million last year.
Selling, General and Administrative Expenses:
Consolidated selling, general and administrative expense as a percent of sales
for the first quarter decreased to 17.2 percent from 18.1 percent. First quarter
retail selling, general and administrative expense as a percent of sales was
19.8 percent compared with 20.5 percent last year. This decrease is primarily
due to expense control initiatives at store level. ProVantage's selling, general
and administrative expense as a percent of sales was 3.8 percent compared with
4.0 percent last year. This decrease is primarily due to leveraging expenses
over the increased sales volume.
Interest Expense:
Consolidated interest expense, net of interest income, increased $1.9 million or
0.1 percent of net sales in the first quarter primarily due to a decrease in
interest income this year compared to last year. This decrease in interest
income is a result of two simultaneous transactions which were completed on July
2, 1997. The first transaction was a $150.0 million stock buyback, whereby the
Company repurchased 8,174,387 shares of its common stock from Supervalu Inc.
("Supervalu"). The second transaction was a secondary public offering of
Supervalu's 6,557,280 remaining shares.
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 $19.2 million for the first quarter of fiscal 1998 compared to $16.2 million
for the same period last year. The Company had no borrowings outstanding under
its revolving credit agreement at the end of the first quarters of both fiscal
1998 and fiscal 1997.
The Company entered into a new $200.0 million revolving credit facility on July
8, 1997. The new facility, effective through January 31, 2002, has terms and
conditions similar to those of the prior credit agreement. Funds generated from
operations, and if necessary, the revolving credit facility are expected to fund
the projected working capital needs and total capital expenditures through
fiscal 1998 except for possible acquisitions described below.
The Company's principal use of cash is for the purchase of property, equipment
and systems technology. During the first quarter of fiscal 1998, additional cash
was used for increases in inventory levels in the newly acquired Jacks
locations. The Company spent $14.9 million on capital expenditures in the first
quarter of fiscal 1998, compared to $5.4 million on capital expenditures
(excluding acquisitions) for the same period last year. The Company's total
capital expenditures for the fiscal year ending January 30, 1999 are anticipated
to approximate $80.0 to $90.0 million, the majority of which would relate to
remodeling the recently acquired Penn-Daniels stores, supporting the existing
retail business for merchandise initiatives and ongoing store equipment and
fixturing replacements and continuing investments in systems technology. This
amount excludes any capital that may be required for acquisitions of businesses
or real estate. Such plans may be reviewed and revised from time to time in
light of changing conditions.
The Company expects to pursue growth of its Retail Store business through new
store construction or acquisition of existing retail stores or businesses. The
Company may also consider the acquisition of health services businesses. Such
plans may be reviewed and revised from time to time in light of changing
conditions. Depending upon the size and structure of any such acquisitions, the
Company may require additional capital resources. The Company believes that
adequate sources of capital will be available.
On August 20, 1997, ProVantage acquired The Mikalix Group, Inc. and its
subsidiaries ("Mikalix"), an international privately held group of companies
based in Alexandria, Virginia. Mikalix's primary subsidiary is PharMark
Corporation ("PharMark"), a software and database development company providing
information driven strategies for optimizing medical and pharmaceutical
outcomes. The purchase price for Mikalix was approximately $15.3 million, of
which $13.3 million was paid in cash and $2.0 million is due over the next two
years. The sellers of Mikalix may also be entitled to contingent payments of up
to $8.0 million in the aggregate based on future increases in the market value
of ProVantage's outstanding common stock (the "Contingent Payments"). The
Contingent Payments, if any, will be due on the first to occur of August 20,
2002 and certain liquidity events related to ProVantage. The Contingent Payments
may be made, at the Company's election, in either cash, Company common stock, or
ProVantage common stock; provided, however, that any stock used for such
payments must be traded in a public market.
13
<PAGE> 14
On December 19, 1997, ShopKo bought the outstanding stock of Penn-Daniels, a
retail chain headquartered in Quincy, Illinois for approximately $16.4 million
in cash and $42.5 million of assumed debt, of which approximately $21.0 million
was retired at the time of the closing. The Company utilized cash and borrowings
under its revolving credit facility to fund the acquisition and the retirement
of a portion of Penn-Daniels' outstanding debt. The acquisition was accounted
for under the purchase method of accounting. The results of Penn-Daniels'
operations since the date of acquisition have been included in the Company's
consolidated statements of earnings.
In connection with the Penn-Daniels acquisition, ShopKo expects to incur
nonrecurring pre-tax costs of approximately $5.0 to $7.0 million for duplicate
operations at the Penn-Daniels administrative office and warehouse until they
are consolidated with ShopKo's operations and for other transaction related
items. These estimated costs are expected to be incurred primarily in the first
half of fiscal 1998. So far, the Company has incurred $1.7 million in
nonrecurring pre-tax costs in the first quarter. The Company expects to fund
these costs from available cash and, if necessary, borrowing under the Company's
revolving credit facility. The Penn-Daniels acquisition is expected to be
slightly accretive to fiscal 1998 earnings per share excluding the nonrecurring
pre-tax costs described above, and to be slightly dilutive to fiscal 1998
earnings when such costs are factored into fiscal 1998 results.
Year 2000:
The Company is in the process of addressing Year 2000 compliance. Management has
initiated a comprehensive project designed to eliminate or minimize any business
disruption associated with date processing problems in computer and other
electronic systems.
As a result of the significant investment made by the Company in both hardware
and software over the past several years, management does not anticipate that
Year 2000 compliance initiatives will be disruptive to its operations. The
overall cost of these initiatives is not expected to have a material impact on
the Company's financial statements.
As part of the process, the Company is communicating with others with whom it
does significant business to determine their Year 2000 compliance readiness.
There can be no guarantee that the systems of other companies on which the
Company's systems rely will be compliant, or that a failure by another company
to bring its systems into compliance would not have a material adverse effect on
the Company.
Treasury Stock Retirement:
In the first quarter of fiscal 1998, the Company retired all 8,174,387 shares of
common stock held as treasury stock for accounting purposes, and such shares
were returned to the status of authorized but unissued shares. As a result, the
$152.2 million assigned to treasury stock was eliminated with a corresponding
decrease in par value, additional paid-in capital and retained earnings.
14
<PAGE> 15
Stock Repurchase Program:
On March 26, 1998, the Company announced that the Board of Directors had
authorized the repurchase of up to $20.0 million of the Company's Common Stock.
Repurchased shares will be used for stock-based employee benefit plans and other
corporate purposes. As of the end of the first quarter, no shares of Common
Stock had been repurchased under this program.
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.
Forward-Looking Statements:
Item 2 of this Form 10-Q, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements include, without limitation,
statements regarding earnings, growth and capital expenditure plans and capital
requirements. Such statements are subject to important factors which could cause
the Company's actual results to differ materially from those anticipated by the
forward-looking statements. These factors include those referenced in the
Company's Annual Report on Form 10-K (the Transition Report for the period
ending January 31, 1998) or as may be described from time to time in the
Company's subsequent SEC filings.
Item 3: Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11 Computation of Earnings Per Common and Common
Equivalent Share.
12 Statements Re Computation of Ratios.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed Current Reports on Form 8-K in the first quarter of
fiscal 1998 as follows:
Date of Report Items Reported
- -------------- --------------
March 16, 1998 Items 5,7 - The Company presented unaudited
financial information for each quarter of
fiscal 1996, for the full year of fiscal 1996,
for each quarter of fiscal 1997 and the full
year of fiscal 1997 as if the Company had been
using the National Retail Federation retail
calendar as its fiscal year for those periods.
16
<PAGE> 17
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: June 12, 1998 By: /s/ Richard D. Schepp
-----------------------------------------
Richard D. Schepp
Senior Vice President General Counsel and
Secretary
(Duly Authorized Officer of Registrant)
Date: June 12, 1998 By: /s/ Jeffery R. Simons
-----------------------------------------
Jeffery R. Simons
Vice President and Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
17
<PAGE> 18
EXHIBIT INDEX
SHOPKO STORES, INC.
10-Q REPORT
Exhibit Sequential
Number Exhibit Page Number
- ------ ------- -----------
11 Computation of Earnings Per Common and
Common Equivalent Share.
12 Statements Re Computation of Ratios.
27 Financial Data Schedule.
18
<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 Quarters as of Fiscal Years Ended
---------------------------------------------------------
May 2, May 3, January 31, February 1,
1998 1997 1998 1997
(13 Weeks) (13 Weeks) (52 Weeks) (52 Weeks)
---------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC:
Net earnings $ 2,151 $ 1,011 $ 49,382 $ 45,669
=========== =========== =========== ===========
Weighted average number of
outstanding common shares 25,869 32,195 28,398 32,090
=========== =========== =========== ===========
Net earnings per common
share - basic (1) $ 0.08 $ 0.03 $ 1.74 $ 1.42
=========== =========== =========== ===========
DILUTED:
Net earnings $ 2,151 $ 1,011 $ 49,382 $ 45,669
=========== =========== =========== ===========
Weighted average number of
outstanding common shares 25,869 32,195 28,398 32,090
Number of common shares
issuable assuming exercise
of stock options 477 346 377 473
----------- ----------- ----------- -----------
Weighted average number of
outstanding common and
common equivalent shares -
assuming dilution 26,346 32,541 28,775 32,563
=========== =========== =========== ===========
Net earnings per common
share - diluted (1) $ 0.08 $ 0.03 $ 1.72 $ 1.40
=========== =========== =========== ===========
</TABLE>
(1) Earnings per share are computed by dividing net earnings by the weighted
average number of outstanding common and common equivalent shares.
19
<PAGE> 1
SHOPKO STORES, INC. AND SUBSIDIARIES
EXHIBIT 12 - STATEMENTS RE COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
First Quarters as of Fiscal Years Ended
---------------------------------------------------------
May 2, May 3, January 31, February 1,
1998 1997 1998 1997
(13 Weeks) (13 Weeks) (52 Weeks) (52 Weeks)
---------------------------------------------------------
<S> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
----------------------------------------
COMPUTATION OF EARNINGS
1 Pretax Income $ 3,543 $ 1,664 $ 81,326 $ 75,215
2 Add previously capitalized interest
amortized during the period 139 139 550 548
3 Less interest capitalized during
the period 17 0 0 128
----------- ----------- ----------- -----------
4 Total earnings (sum of lines 1 to 3) 3,665 1,803 81,876 75,635
COMPUTATION OF FIXED CHARGES
5 Interest (1) 9,046 7,122 32,239 32,128
6 Interest factor in rental expense 1,069 670 2,691 2,657
----------- ----------- ----------- -----------
7 Total fixed charges (sum of lines
5 and 6) 10,115 7,792 34,930 34,785
8 TOTAL EARNINGS AND
FIXED CHARGES (line 4
plus line 7) $ 13,780 $ 9,595 $ 116,806 $ 110,420
=========== =========== =========== ===========
9 Ratio (line 8 divided by line 7) 1.4 1.2 3.3 3.2
</TABLE>
(1) Includes capitalized interest
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 28,968
<SECURITIES> 0
<RECEIVABLES> 101,732
<ALLOWANCES> 9,722
<INVENTORY> 401,938
<CURRENT-ASSETS> 531,593
<PP&E> 1,085,968
<DEPRECIATION> 457,506
<TOTAL-ASSETS> 1,239,070
<CURRENT-LIABILITIES> 380,298
<BONDS> 0
0
0
<COMMON> 260
<OTHER-SE> 403,225
<TOTAL-LIABILITY-AND-EQUITY> 1,239,070
<SALES> 645,801
<TOTAL-REVENUES> 648,744
<CGS> 506,569
<TOTAL-COSTS> 636,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,029
<INCOME-PRETAX> 3,543
<INCOME-TAX> 1,392
<INCOME-CONTINUING> 2,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,151
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
