<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 July 31, 1999
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) 429-2211
-----------------------
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 August 16, 1999 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 30,383,000
Exhibit Index Page 1 of Page 31
on Page 28
1
<PAGE> 2
SHOPKO STORES, INC.
FORM 10-Q
FOR THE 13 WEEKS AND 26 WEEKS ENDED JULY 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Item 1 - Financial Statements
Consolidated Statements of Earnings for the 13 weeks 3
ended July 31, 1999 and August 1, 1998
Consolidated Statements of Earnings for the 26 weeks 4
ended July 31, 1999 and August 1, 1998
Consolidated Balance Sheets as of July 31, 1999, 5
August 1, 1998 and January 30, 1999
Consolidated Statements of Cash Flows for the 26 6-7
weeks ended July 31, 1999 and August 1, 1998
Consolidated Statements of Shareholders' Equity for 8
the 26 weeks ended July 31, 1999 and for the year
ended January 30, 1999
Notes to Consolidated Financial Statements 9-12
Item 2 - Management's Discussion and Analysis of Financial 13-24
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure About 24
Market Risk
Part II Item 4 - Submission of Matters to Vote of Security Holders 25
Item 5 - Other Information 26
Item 6 - Exhibits and Reports on Form 8-K 26
Signatures 27
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Second Quarter (13 Weeks) Ended
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
July 31, August 1,
1999 1998 % Increase
- ---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 868,488 $ 672,524 29.1
Licensed department rentals and other income 3,378 2,826
-------------- --------------
871,866 675,350 29.1
Costs and expenses:
Cost of sales 685,387 520,587
Selling, general and administrative expenses 140,904 115,743
Nonrecurring charge 841 2,241
Depreciation and amortization expenses 20,088 17,797
-------------- --------------
847,220 656,368 29.1
Income from operations 24,646 18,982 29.8
Interest expense - net 11,141 9,266
Gain on sale of ProVantage stock 57,236
-------------- --------------
Earnings before income taxes and minority interest 70,741 9,716 628.1
Provision for income taxes 27,806 3,816
-------------- --------------
Earnings before minority interest 42,935 5,900 627.7
Minority interest (90)
-------------- --------------
Net earnings $ 42,845 $ 5,900 626.2
============== ==============
Basic net earnings per common share $ 1.60 $ 0.23
============== ==============
Weighted average number of common shares
outstanding 26,810 26,067
Diluted net earnings per common share $ 1.57 $ 0.22
============== ==============
Adjusted average number of common shares
outstanding 27,299 26,626
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year To Date (26 Weeks) Ended
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
July 31, August 1,
1999 1998 % Increase
- ---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 1,621,138 $ 1,314,224 23.4
Licensed department rentals and other income 6,296 5,769
-------------- --------------
1,627,434 1,319,993 23.3
Costs and expenses:
Cost of sales 1,285,842 1,023,055
Selling, general and administrative expenses 261,573 226,577
Nonrecurring charge 841 3,937
Depreciation and amortization expenses 37,736 34,870
-------------- --------------
1,585,992 1,288,439 23.1
Income from operations 41,442 31,554 31.3
Interest expense - net 20,833 18,295
Gain on sale of ProVantage stock 57,236
-------------- --------------
Earnings before income taxes, minority interest
and extraordinary item 77,845 13,259 487.1
Provision for income taxes 30,597 5,208
-------------- --------------
Earnings before minority interest
and extraordinary item 47,248 8,051 486.9
Minority interest (90)
-------------- --------------
Earnings before extraordinary item 47,158 8,051 485.7
Extraordinary (loss) on retirement of debt
net of income taxes of $2,443 (3,776)
-------------- --------------
Net earnings $ 43,382 $ 8,051 438.8
============== ==============
Basic net earnings per common share
before extraordinary item $ 1.78 $ 0.31
Extraordinary (loss) on retirement of debt (0.14)
-------------- --------------
Basic net earnings per common share $ 1.64 $ 0.31
============== ==============
Weighted average number of common shares
outstanding 26,475 25,968
Diluted net earnings per common share
before extraordinary item $ 1.75 $ 0.30
Extraordinary (loss) on retirement of debt (0.14)
-------------- --------------
Diluted net earnings per common share $ 1.61 $ 0.30
============== ==============
Adjusted average number of common shares
outstanding 26,945 26,486
</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)
July 31, August 1, January 30,
ASSETS 1999 1998 1999
- --------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 34,575 $ 5,834 $ 30,219
Receivables, less allowance for losses of
$7,730, $9,139 and $7,487, respectively 150,960 96,463 117,652
Merchandise inventories 657,157 440,323 434,643
Other current assets 13,283 10,534 5,461
-------------- -------------- -------------
Total current assets 855,975 553,154 587,975
Other assets and deferred charges 36,538 6,770 6,960
Intangible assets - net 233,445 72,116 74,749
Property and equipment at cost:
Land 132,241 119,903 121,577
Buildings 584,970 536,095 540,953
Equipment 487,162 378,562 408,313
Leasehold improvements 86,051 57,112 58,820
Property under construction 29,673 2,741 12,999
Property under capital leases 105,793 26,419 58,004
-------------- -------------- -------------
1,425,890 1,120,832 1,200,666
Less accumulated depreciation and amortization:
Property and equipment 520,107 461,751 487,137
Property under capital leases 30,290 12,285 9,689
-------------- -------------- -------------
Net property and equipment 875,493 646,796 703,840
-------------- -------------- -------------
Total assets $ 2,001,451 $ 1,278,836 $ 1,373,524
============== ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Short-term debt $ 84,751 $ 30,000 $
Accounts payable - trade 296,883 203,420 189,581
Accrued compensation and related taxes 46,453 29,921 40,955
Accrued other liabilities 197,945 136,407 169,530
Accrued income and other taxes 24,065 8,596 16,127
Current portion of long-term obligations 146,127 4,852 4,597
-------------- -------------- -------------
Total current liabilities 796,224 413,196 420,790
Long-term obligations 445,113 433,103 467,191
Deferred income taxes 52,142 21,933 26,301
Minority interest 52,488
Shareholders' equity:
Common stock 304 261 261
Additional paid-in capital 381,201 227,730 228,479
Retained earnings 273,979 182,613 230,502
-------------- -------------- -------------
Total shareholders' equity 655,484 410,604 459,242
-------------- -------------- -------------
Total liabilities and shareholders' equity $ 2,001,451 $ 1,278,836 $ 1,373,524
============== ============== =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year to Date (26 Weeks) Ended
- ---------------------------------------------------------------------------------------------------
(In thousands)
July 31, August 1,
1999 1998
- ---------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 43,382 $ 8,051
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 37,736 34,870
Provision for losses on receivables 427 302
Gain on sale of property and equipment (2,201) (822)
Gain on sale of ProVantage stock (57,236)
Deferred income taxes 19,800 6,755
Extraordinary loss on early retirement of debt,
net of tax benefit 3,776
Change in assets and liabilities (excluding effects of
business acquisitions):
Receivables (24,933) 1,047
Merchandise inventories (50,920) (69,638)
Other current assets (4,266) (2,748)
Other assets and intangibles (3,440) (1,845)
Accounts payable 36,603 9,774
Accrued liabilities (33,347) (22,619)
- -----------------------------------------------------------------------------------------------
Net cash (used in) operating activities (34,619) (36,873)
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment (53,828) (44,118)
Proceeds from the sale of property and equipment 4,529 769
Business acquisitions, net of cash acquired (94,033)
- -----------------------------------------------------------------------------------------------
Net cash (used in) investing activities (143,332) (43,349)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Change in short-term debt (9,567) 30,000
Issuance of common stock from stock options 3,710 4,113
Issuance of common stock from public offering 147,337
Proceeds from the sale of ProVantage stock 106,431
Retirement of debt and capital leases (65,604) (2,401)
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 182,307 31,712
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,356 (48,510)
Cash and cash equivalents at beginning of year 30,219 54,344
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of second quarter $ 34,575 $ 5,834
===============================================================================================
</TABLE>
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year to Date (26 Weeks) Ended
- ---------------------------------------------------------------------------------------------------
(In thousands)
July 31, August 1,
1999 1998
- ---------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C>
Supplemental cash flow information:
Noncash investing and financial activities -
Retirement of treasury stock $ 152,179
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Common Stock Treasury Stock
------------------------ Additional --------------------------
Paid-in Retained
Shares Amount Capital Earnings Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 31, 1998 33,941 $ 339 $ 283,520 $ 264,316 (8,174) $ (152,179)
Net earnings 55,636
Sale of common stock under option plans 362 4 4,568
Income tax benefit related to stock options 2,435
Restricted stock expense 603
Retirement of treasury stock (8,174) (82) (62,044) (90,053) 8,174 152,179
---------------------------------------------------------------------------------------
BALANCES AT JANUARY 30, 1999 26,129 261 228,479 230,502 - -
Net earnings 43,382
Sale of common stock under public offering 4,025 40 147,297
Sale of common stock under option plans 227 3 3,707
Income tax benefit related to stock options 1,718
Restricted stock expense 95
---------------------------------------------------------------------------------------
BALANCES AT JULY 31, 1999 30,381 $ 304 $ 381,201 $ 273,979 - $ -
=======================================================================================
</TABLE>
Interim data subject to year end audit.
See notes to consolidated financial statements.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies:
The Company's 1998 Annual Report on Form 10-K 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 June 1998, Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. The
Company believes this statement will have no significant impact on the Company's
consolidated 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 $36.9 million and $40.6 million higher at July 31, 1999 and at August 1,
1998, respectively.
Intangible Assets:
The fair value of the intangible assets of businesses acquired are amortized
using the straight-line method over 5 to 40 years. Accumulated amortization for
these assets was $13.8 million and $9.5 million at July 31, 1999 and August 1,
1998, respectively.
Extraordinary Item:
During the first quarter of fiscal 1999, the Company retired debt with a face
value of $57.1 million prior to maturity. The debt repurchases resulted in an
extraordinary after tax charge of $3.8 million.
Income Taxes:
The provision for income tax expense, including the income tax benefit for the
extraordinary item and minority interest, for the first half of fiscal 1999 was
$28.1 million, of which $8.3 million is current and $19.8 million is deferred
tax expense. 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.
9
<PAGE> 10
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.
Reclassifications:
Certain reclassifications have been made to the fiscal 1998 consolidated
financial statements to conform to those used in fiscal 1999.
Acquisitions:
On July 6, 1999, the Company completed a tender offer for all of the outstanding
voting common stock of Pamida Holdings Corporation ("Pamida") at a price of
$11.50 per share. The Company simultaneously acquired all of Pamida's
outstanding non-voting common stock. Approximately $104.4 million was disbursed
in consummation of the Pamida acquisition. The Company utilized cash from its
operations to fund this acquisition. The acquisition was accounted for as a
purchase. The financial statements as of July 31, 1999 reflect the preliminary
allocation of the purchase price. Such allocations could change based upon the
receipt of various appraisals and the completion of the assessment of fair
values and such changes could be significant. Pamida is a retail chain
headquartered in Omaha, Nebraska operating 152 Pamida and 4 Heartland Furniture
stores in 15 Midwestern, North Central and Rocky Mountain states as of July 31,
1999.
Business Segment Information:
The Company's reportable segments are strategic business units that offer
different products and services, and include a ShopKo Retail segment (which
includes ShopKo stores general merchandise, retail pharmacy and retail optical
operations), a Pamida Retail segment (which includes Pamida stores general
merchandise and retail pharmacy operations) and a ProVantage segment (which
includes health benefit management products and services, pharmacy mail
products, vision benefit management products and services and health information
and clinical support services).
10
<PAGE> 11
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's 1998 Annual Report
on Form 10-K. Intersegment sales and transfers are accounted for at current
market prices. The Company evaluates performance based on operating earnings of
the respective business segments.
Summarized financial information concerning the Company's reportable segments is
shown in the following table (in thousands):
<TABLE>
<CAPTION>
First Half
----------------------------------------
July 31, August 1,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
ShopKo Retail $ 1,160,024 $ 1,036,195
Pamida Retail 54,922
ProVantage 429,842 294,760
Intercompany* (23,650) (16,731)
- -------------------------------------------------------------------------------------------------------------------------
Total net sales $ 1,621,138 $ 1,314,224
- -------------------------------------------------------------------------------------------------------------------------
* Intercompany sales consist of prescriptions that were both sold at a ShopKo pharmacy and processed by ProVantage.
Earnings before income taxes, minority interest and extraordinary item
ShopKo Retail $ 43,950 $ 38,751
Pamida Retail 216
ProVantage 7,851 6,480
Corporate (10,575) (13,677)
Interest expense (20,833) (18,295)
Gain on sale of ProVantage stock 57,236
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, minority interest and extraordinary
item $ 77,845 $ 13,259
- -------------------------------------------------------------------------------------------------------------------------
Assets
ShopKo Retail $ 1,245,501 $ 1,095,293
Pamida Retail 522,655
ProVantage 220,498 170,970
Corporate 12,797 12,573
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,001,451 $ 1,278,836
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's areas of operations are principally in the United States. No major
customer accounted for a significant amount of consolidated revenue during the
first half of fiscal 1999 and fiscal 1998.
11
<PAGE> 12
Significant Events:
On July 19, 1999, the initial public offering of 6,440,000 shares of ProVantage
common stock at $18.00 per share was completed which included the underwriters'
over-allotment option of 840,000 shares. The Company received approximately
$106.4 million in the transaction and recognized a $57.2 million pre-tax gain.
The Company retained approximately 64.5 percent of ProVantage's stock.
ProVantage's stock is listed on the New York Stock Exchange under the symbol
`PHS.'
On July 21, 1999, the Company completed an offering of 4,025,000 shares of
common stock at $38.50 per share. The Company used the net proceeds of
approximately $147.3 million of the offering for repayment of a portion of the
debt it assumed in connection with its recent acquisition of Pamida.
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 July 31, 1999 and August 1, 1998 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 has historically contributed a significant part of the Company's
earnings due to the Christmas selling season.
12
<PAGE> 13
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 1999 and
1998 as a percentage of net sales:
<TABLE>
<CAPTION>
Second Quarter First Half
-------------- ----------
Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Licensed department rentals and other
income 0.4 0.4 0.4 0.4
---------- -------- --------- ---------
100.4 100.4 100.4 100.4
Costs and expenses
Cost of sales 79.0 77.4 79.3 77.8
Selling, general and administrative
expenses 16.2 17.2 16.1 17.2
Nonrecurring charge 0.1 0.3 0.1 0.3
Depreciation and amortization expenses 2.3 2.7 2.3 2.7
---------- -------- --------- ---------
97.6 97.6 97.8 98.0
Income from operations 2.8 2.8 2.6 2.4
Interest expense - net 1.3 1.3 1.3 1.4
Gain on sale of ProVantage stock 6.6 0.0 3.5 0.0
---------- -------- --------- ---------
Earnings before income taxes, minority
interest and extraordinary item 8.1 1.5 4.8 1.0
Provision for income taxes 3.2 0.6 1.9 0.4
---------- -------- --------- ---------
Earnings before minority interest and
extraordinary item 4.9 0.9 2.9 0.6
Minority interest 0.0 0.0 0.0 0.0
---------- -------- --------- ---------
Earnings before extraordinary item 4.9 0.9 2.9 0.6
Extraordinary (loss) on retirement of
debt, net of income taxes 0.0 0.0 (0.2) 0.0
---------- -------- --------- ---------
Net earnings 4.9 % 0.9 % 2.7 % 0.6 %
========== ======== ========= =========
</TABLE>
13
<PAGE> 14
The Company has three business segments: a ShopKo Retail segment (which includes
ShopKo stores general merchandise, retail pharmacy and retail optical
operations), a Pamida Retail segment (which includes Pamida stores general
merchandise and retail pharmacy operations) and a ProVantage segment (which
includes health benefit management products and services, pharmacy mail
products, vision benefit management products and services and health information
and clinical support services). Intercompany sales, which consist of
prescriptions that were both sold at a ShopKo pharmacy and processed by
ProVantage, have been eliminated.
The following tables set forth items from the Company's business segments as
percentages of net sales:
<TABLE>
<CAPTION>
SHOPKO RETAIL
Second Quarter First Half
-------------- ----------
Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Licensed departmental rentals and other
income 0.5 0.5 0.5 0.5
---------- --------- --------- ---------
100.5 100.5 100.5 100.5
Costs and expenses
Cost of sales 74.5 73.5 74.6 74.0
Selling, general and administrative
expenses 19.2 19.9 19.4 19.8
Depreciation and amortization expenses 2.6 3.0 2.7 3.0
---------- --------- --------- ---------
96.3 96.4 96.7 96.8
Income from operations 4.2 % 4.1 % 3.8 % 3.7 %
<CAPTION>
PAMIDA RETAIL
Second Quarter First Half
-------------- ----------
Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net sales 100.0 % 0.0 % 100.0 % 0.0 %
Licensed departmental rentals and other
income 0.3 0.0 0.3 0.0
---------- --------- --------- ---------
100.3 0.0 100.3 0.0
Costs and expenses
Cost of sales 75.6 0.0 75.6 0.0
Selling, general and administrative
expenses 20.6 0.0 20.6 0.0
Depreciation and amortization expenses 3.7 0.0 3.7 0.0
---------- --------- --------- ---------
99.9 0.0 99.9 0.0
Income from operations 0.4 % 0.0 % 0.4 % 0.0 %
</TABLE>
14
<PAGE> 15
PROVANTAGE
<TABLE>
<CAPTION>
Second Quarter First Half
-------------- ----------
Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Licensed department rentals and other
income 0.0 0.1 0.0 0.1
--------- --------- --------- ---------
100.0 100.1 100.0 100.1
Costs and expenses
Cost of sales 93.6 92.6 93.6 92.7
Selling, general and administrative
expenses 3.6 4.0 3.6 4.0
Depreciation and amortization expenses 1.0 1.2 1.0 1.1
--------- --------- --------- ---------
98.2 97.8 98.2 97.8
Income from operations 1.8 % 2.3 % 1.8 % 2.3 %
</TABLE>
Net Sales
The following table presents the Company's consolidated net sales for the second
quarter and first half of fiscal 1999 and fiscal 1998:
<TABLE>
<CAPTION>
SECOND QUARTER % INCREASE
-------------- ----------
FISCAL FISCAL
1999 1998 TOTAL COMP
---- ---- ----- ----
<S> <C> <C> <C> <C>
ShopKo Retail $610.6 $532.0 14.8 9.2
Pamida Retail 54.9 N/A N/A N/A
---- ---
Total Retail Stores 665.5 532.0 25.1 N/A
ProVantage 214.9 149.0 44.2 N/A
Intercompany (11.9) (8.5) N/A N/A
------ ----- --- ---
Consolidated $868.5 $672.5 29.1
====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
FIRST HALF % INCREASE
---------- ----------
FISCAL FISCAL
1999 1998 TOTAL COMP
---- ---- ----- ----
<S> <C> <C> <C> <C>
ShopKo Retail $1,160.0 $1,036.2 12.0 8.7
Pamida Retail 54.9 N/A N/A N/A
---- ---
Total Retail Stores 1,214.9 1,036.2 17.3 N/A
ProVantage 429.8 294.8 45.8 N/A
Intercompany (23.6) (16.8) N/A N/A
------ ------ --- ---
Consolidated $1,621.1 $1,314.2 23.4
======== ======== ====
</TABLE>
15
<PAGE> 16
The 9.2% increase in second quarter ShopKo Retail comparable store sales are
derived from the following segment categories: Retail Health increased 17.8%,
Apparel increased 9.0% and Hardlines/Home increased 7.5%. The 8.7% increase in
first half ShopKo Retail comparable store sales are derived from the following
segment categories: Retail Health increased 19.0%, Apparel increased 11.9% and
Hardlines/Home increased 9.3%. Changes in retail comparable store sales are
based upon those stores which were open for the entire preceding fiscal year.
In April 1999, the Company opened ten former Venture locations and one former
Target location. All of these locations include in-store pharmacies and optical
centers. Two additional new stores will be opening during the third quarter of
fiscal 1999.
In July 1999, the Company acquired the retail chain Pamida Holdings Corporation
("Pamida"), which operates 152 Pamida stores and 4 Heartland Furniture stores in
15 Midwestern, North Central and Rocky Mountain states as of July 31, 1999. On
August 30, 1999, the Company sold the entire Heartland Home Furniture business
to a group of investors. The Pamida stores sales are included in net sales since
their acquisition but they are not included in retail comparable store sales
since they were not owned by ShopKo for the entire preceding fiscal year.
The increase in ProVantage sales in the second quarter and first half is due
primarily to internally generated growth in claims processing and mail pharmacy.
Included in ProVantage sales are the following: (i) administrative and
dispensing fees plus the cost of pharmaceuticals dispensed by pharmacies
participating in the network maintained by ProVantage or by ProVantage's mail
service pharmacy to members of health benefit plans sponsored by ProVantage's
clients; (ii) administrative fees plus the cost of sales of eyeglasses and
contact lenses relating to vision benefit management services; and (iii) license
and service fees for health information technology and clinical support
services.
16
<PAGE> 17
Gross Margin:
The following table sets forth gross margin as a percent of net sales:
<TABLE>
<CAPTION>
Second Quarter
--------------
ShopKo Retail Pamida Retail ProVantage Consolidated
------------- ------------- ---------- ------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross margin percent 25.5% 26.5% 24.4 % N/A 6.4 % 7.4 % 21.0 % 22.6 %
Gross margin percent prior to
LIFO charge 25.7% 26.7% 24.4 % N/A N/A N/A 21.2 % 22.8 %
<CAPTION>
First Half
----------
ShopKo Retail Pamida Retail ProVantage Consolidated
------------- ------------- ---------- ------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross margin percent 25.4% 26.0% 24.4 % N/A 6.4 % 7.3 % 20.7 % 22.2 %
Gross margin percent prior to
LIFO charge 25.6% 26.3% 24.4 % N/A N/A N/A 20.8 % 22.3 %
</TABLE>
Consolidated gross margin as a percent of sales for the second quarter was 21.0
percent compared with 22.6 percent for the same period last year. For the first
half, the consolidated gross margin as a percent of sales was 20.7 percent
compared with 22.2 percent for the same period last year.
ShopKo's Retail gross margin as a percent of sales for the second quarter was
25.5 percent compared with 26.5 percent last year. The FIFO ShopKo Retail gross
margin as a percent of sales for the quarter was 25.7 percent compared with 26.7
percent last year. The ShopKo Retail gross margin as a percent of sales for the
first half was 25.4 percent compared with 26.0 last year. Notwithstanding this
margin rate decrease, ShopKo Retail LIFO gross margin dollars increased 9.0
percent to $294.4 million. The FIFO ShopKo Retail gross margin as a percent of
sales was 25.6 percent compared with 26.3 percent for the same period last year.
The decrease in the gross margin rate for the second quarter and first half is
primarily attributable to planned lower gross margin rates in general
merchandise categories due to increased promotional sales and lower gross margin
rates in retail pharmacy due to the increased third party business.
Pamida's Retail gross margin as a percent of sales was 24.4 percent for the
month of July. The results of the Pamida operations have been included in the
consolidated statements of earnings since the date of the acquisition.
ProVantage's gross margin as a percent of sales for the second quarter
experienced a planned decrease to 6.4 percent from 7.4 percent. During the first
half, ProVantage's gross margin as a percent of sales decreased to 6.4 percent
from 7.3 percent. The decrease in the gross margin rate for the second quarter
and first half is primarily due to increasing prescription costs and the
addition of larger clients with lower average transaction fees.
17
<PAGE> 18
Selling, General and Administrative Expenses:
Consolidated selling, general and administrative expenses as a percent of sales
for the second quarter were 16.2 percent compared with 17.2 percent last year.
For the first half, the consolidated selling, general and administrative
expenses as a percent of sales decreased to 16.1 percent from 17.2 percent last
year.
ShopKo Retail selling, general and administrative expenses as a percent of sales
for the second quarter were 19.2 percent compared with 19.9 percent last year.
Excluding expenses incurred for year 2000 compliance, ShopKo Retail selling,
general and administrative expenses as a percent of sales were 19.0 percent for
the second quarter compared to 19.8 percent last year. This reduction is
primarily due to leveraging store payroll cost and fixed costs against increased
sales volume. During the first half, ShopKo Retail selling, general and
administrative expenses as a percent of sales were 19.4 percent compared to 19.8
percent last year. Excluding expenses incurred for year 2000 compliance, ShopKo
Retail selling, general and administrative expenses as a percent of sales were
19.2 percent compared to 19.8 percent last year. Pamida Retail selling, general
and administrative expenses were 20.6 percent of sales for the month of July.
ProVantage's selling, general and administrative expenses were 3.6 percent of
sales for the second quarter compared to 4.0 percent of sales for the same
period last year. This decrease is primarily due to leveraging costs against
increased sales volume. ProVantage's selling, general and administrative
expenses decreased to 3.6 percent of sales during the first half compared with
4.0 percent of sales for the same period last year.
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 $81.1 million for the first half of fiscal 1999 compared to $42.9 million
for the same period last year. Cash provided from net earnings for the 26 weeks
ended July 31, 1999 includes a pre-tax gain of $57.2 million from the sale of
ProVantage stock. The Company had $84.8 million outstanding under its credit
agreements at the end of the first half of fiscal 1999 compared to $30.0 million
outstanding at the end of the first half of fiscal 1998.
On July 21, 1999, the Company completed an offering of 4,025,000 shares of
common stock at $38.50 per share. The Company used the net proceeds of
approximately $147.3 million of the offering for repayment of a portion of the
debt it assumed in connection with its recent acquisition of Pamida and other
corporate purposes.
On July 19, 1999, the initial public offering of 5,600,000 shares of ProVantage
common stock at $18.00 per share was completed. The Company also sold an
additional 840,000 shares of ProVantage common stock pursuant to the
underwriters' over-allotment option. The Company received approximately $106.4
million in this transaction of which $20.0 million will be retained by
ProVantage. The Company used the remaining proceeds of the offering to pay down
its short-term debt. ProVantage's stock is listed on the New York Stock Exchange
under the symbol 'PHS.'
18
<PAGE> 19
As of July 31, 1999, the Company had a $200.0 million revolving credit agreement
with a consortium of banks. This credit facility is unsecured and is effective
through January 31, 2002. In April 1999, the Company negotiated a $50.0 million
unsecured bankers acceptance note which is due October 20, 1999 and in September
1999, the Company also negotiated a $100.0 million unsecured 364-day credit
facility. Pamida's $125.0 million committed Loan and Security Agreement, as
amended, (the "Pamida Loan Agreement") had been utilized by Pamida prior to the
Company's acquisition of Pamida and shortly thereafter for working capital
purposes. Obligations under the Pamida Loan Agreement were $34.8 million as of
July 31, 1999. On August 11, 1999, the remaining balance of the Pamida Loan
Agreement was paid in full and the Company plans to terminate the agreement on
or before September 30, 1999. Funds generated from operations, and if necessary,
the Company's revolving credit facility or other short-term borrowings are
expected to fund the projected working capital needs and total capital
expenditures through fiscal 1999.
The Company has entered into a credit agreement with ProVantage which provides
that ProVantage may borrow up to $25.0 million from the Company on a revolving
basis. ProVantage's capital needs are expected to be met through the proceeds of
its initial public offering, cash generated from its operations, and borrowings
under the credit agreement with the Company or third party sources.
The Company's principal use of cash is for the purchase of property, equipment
and systems technology. The Company spent $53.8 million on capital expenditures
in the first half of fiscal 1999 (excluding business acquisitions), compared to
$44.1 million on capital expenditures for the same period last year. The
Company's total capital expenditures for the fiscal year ending January 29, 2000
are anticipated to approximate $150.0 to $170.0 million, the majority of which
would relate to remodeling the 11 stores opened in April 1999 and constructing
the two new stores that will open in the third quarter; expansion of the
Company's distribution facilities; supporting the existing retail business for
merchandise initiatives and ongoing store equipment and fixturing replacements;
and continuing investments in systems technology. The Company plans to expand
its distribution centers in Wisconsin and Idaho and to build a new distribution
facility near Omaha, Nebraska. The total capital expenditures for these
distribution facilities for fiscal years 1999 and 2000 will be approximately
$70.0 to $75.0 million with approximately $40.0 to $45.0 million being spent in
fiscal 1999. These amounts exclude 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.
ProVantage expects to consider and, if appropriate, pursue the acquisition of
health services or health information technology 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
and/or ProVantage may require additional capital resources. The Company believes
that adequate sources of capital will be available.
19
<PAGE> 20
On August 20, 1997, ProVantage acquired PharMark, a software and database
development business providing information driven strategies for optimizing
medical and pharmaceutical outcomes, based in Arlington, Virginia. The purchase
price for PharMark was approximately $15.2 million, of which $14.2 million was
paid in cash and $1.0 million was due in August 1999. The sellers of PharMark
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 the date on
which the Company ceases to own at least a majority of ProVantage's common
stock. The Contingent Payments may be made, at ProVantage'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. The
Contingent Payments, if any, will be capitalized as additional purchase price
and amortized over a period of 15 to 19 years.
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 $25.8 million
has been retired. 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, the Company incurred $3.9
million in nonrecurring pre-tax costs in the first half of fiscal 1998. The
Company funded these costs from available cash and borrowings under the
Company's revolving credit facility.
On July 6, 1999, the Company completed a tender offer for all of the outstanding
voting common stock of Pamida at a price of $11.50 per share. The Company
simultaneously acquired all of Pamida's non-voting common stock from 399 Venture
Partners, Inc. at a price of $11.50 per share. Pamida is a retail chain
headquartered in Omaha, Nebraska operating 152 Pamida and 4 Heartland Furniture
stores in 15 Midwestern, North Central and Rocky Mountain states as of July 31,
1999. On August 30, 1999, the Company sold the entire Heartland Home Furniture
business to a group of investors.
The Pamida acquisition was accounted for under the purchase method of
accounting. The results of Pamida's operations since the date of acquisition
have been included in the Company's consolidated statements of earnings. The
Company expects that the acquisition will be accretive to earnings in the
current fiscal year, excluding the effects of nonrecurring charges related to
the transaction which are expected to be in the range of $5.0 to $8.0 million on
a pre-tax basis. During the second quarter, the Company incurred $0.8 million in
nonrecurring pre-tax charges related to the Pamida acquisition. The nonrecurring
charges reflect the costs of employee retention programs and various integration
initiatives.
On July 21, 1999, the Company called for redemption of all $140.0 million of
Pamida's 11 3/4% senior subordinated notes. The redemption date for the senior
subordinated notes is September 3, 1999. The total amount due to the holders of
Pamida's senior subordinated notes is approximately $153.0 million, which
includes principal, accrued interest and premium due on call. The Company
expects to fund this redemption from cash flows from operations and other
short-term borrowings.
20
<PAGE> 21
Year 2000:
State of Readiness
In order to address Year 2000 compliance, the Company is actively engaged in a
comprehensive project designed to eliminate or minimize any business disruption
associated with potential date processing problems in its information technology
("IT") systems, as well as its non-IT systems (e.g., HVAC systems, building
security systems, etc.). The project consists of five phases: company awareness,
assessment, strategy and work plan development, renovation and testing.
As part of its Year 2000 project, the Company has communicated with its
merchandise vendors and services suppliers to assess their state of Year 2000
readiness. A significant percentage of its vendors have responded in writing to
the Company's Year 2000 readiness inquiries. The Company plans to continue
assessment of its third party business partners, including face-to-face meetings
with management and/or onsite visits as deemed appropriate. Despite the
Company's diligence, there can be no guarantee that the systems of other
companies which the Company relies upon to conduct its day-to-day business will
be compliant.
ShopKo Retail:
With respect to IT systems, substantially all of the Company's critical business
systems are currently compliant. The Company has performed certification testing
for 73.0 percent of its business systems and the remaining 27.0 percent are
expected to be certified during the third quarter of fiscal 1999. The Company
has substantially completed renovation and testing of its non-IT systems.
Pamida Retail:
With respect to IT systems, approximately 69.0 percent of Pamida's critical
business systems are currently compliant and the remainder are expected to be
renovated in the third quarter of fiscal 1999. Pamida has performed
certification testing of approximately 69.0 percent of its business systems and
the remaining 31.0 percent is expected to be certified by the end of November
1999. With respect to non-IT systems, the assessment phase is complete and
renovation is planned to be completed by the end of October 1999.
ProVantage:
With respect to IT systems, substantially all of ProVantage's critical business
systems are currently compliant. ProVantage has certified 50.0 percent of its
business systems and the remaining 50.0 percent are expected to be certified
during the third quarter of fiscal 1999. With respect to non-IT systems, 53.0
percent are compliant and the remaining systems are expected to be renovated in
October 1999.
21
<PAGE> 22
Costs
As a result of the significant investment made by the Company in both hardware
and software over the past several years, the majority of its IT systems do not
require renovation. The Company estimates that it will incur internal and
external expenses of $5.0 to $7.0 million in conjunction with the Year 2000
compliance project of which approximately $4.2 million has already been
incurred. $2.0 million was incurred in fiscal 1998, and $2.2 million was
incurred through the first half of fiscal 1999.
Risks
With respect to the risks associated with its IT and non-IT systems, the Company
believes that the most reasonably likely worst case scenario is that the Company
will experience a number of minor system malfunctions and errors in the early
days and weeks of the Year 2000 that were not detected during its renovation and
testing efforts. The Company also believes that these problems will not be
overwhelming and will not have a material effect on the Company's operations or
financial results. Failure of the Company to complete the remaining renovation
of critical business systems as currently planned for Pamida Retail could
materially and adversely affect the Company's ability to execute various aspects
of its operations.
With respect to the risks associated with third parties, the Company believes
that the most reasonably likely worst case scenario is that some of the
Company's merchandise vendors will not be compliant and will have difficulty
filling orders and flowing goods. Management also believes that the number of
such vendors will have been minimized by the Company's program of identifying
non-compliant vendors and replacing or jointly developing alternative supply or
delivery solutions prior to the Year 2000.
The Company also designs and sells software products to third parties through
its ProVantage subsidiary. While the Company has taken appropriate steps to
ensure the readiness of this software and believes it to be compliant, the
Company cannot be certain that the software will operate error free, or that the
Company will not be subject to litigation, whether the software operates error
free or not. However, the Company believes that based on its efforts to ensure
compliance, and the terms and conditions of its software licensing contracts, it
is not reasonably likely that the Company will be subject to litigation which
will have a material adverse effect on the Company.
The Company has limited the scope of its risk assessment to those factors which
it can reasonably be expected to have an influence upon. For example, the
Company has made the assumption that government agencies, utility companies, and
national telecommunications providers will continue to operate. Obviously, the
lack of such services could have a material effect on the Company's ability to
operate, but the Company has little, if any, ability to influence such an
outcome, or to reasonably make alternative arrangements in advance for such
services in the event they are unavailable.
22
<PAGE> 23
Contingency Plans
The Company has substantially completed contingency plans for ShopKo Retail and
ProVantage for the most reasonably likely worst case scenarios described above.
The Company has commenced the development of contingency plans for Pamida Retail
for the most reasonably likely worst case scenarios described above and
anticipates these plans will be in place by November 1999.
Year 2000 Readiness Statements
To allow its customers and suppliers an opportunity to assess the Company's
state of readiness for the Year 2000, the Company maintains a Year 2000 web page
at www.shopko.com. Statements made or contained herein or therein or any past
statements made or contained herein or therein are deemed Year 2000 Readiness
Statements and are subject to the Year 2000 Information and Readiness Disclosure
Act (P.L.105-271), to the fullest extent permitted by law.
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.
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 half of fiscal 1999, no shares of
Common Stock had been repurchased under this program.
Senior Notes Buyback Program:
On February 8, 1999, the Company announced that its Board of Directors had
authorized the Company to repurchase its Senior Notes from time to time in the
open market and through privately negotiated transactions. Any purchases would
depend on price, market conditions and other factors. As of July 31, 1999, the
Company has repurchased approximately $57.1 million of the Senior Notes.
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.
23
<PAGE> 24
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 for the period ending January 30, 1999 or
as may be described from time to time in the Company's subsequent SEC filings.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
For information as to the Company's Quantitative and Qualitative Disclosures
About Market Risk, please see the Company's Annual Report on Form 10-K for the
fiscal year ending January 30, 1999. There have been no material changes in the
Company's quantitative or qualitative exposure to market risk since the end of
fiscal 1998.
24
<PAGE> 25
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its 1999 Annual Meeting of Shareholders on May 26, 1999.
(b) Votes cast for the election of directors at the 1999 Annual Meeting were as
follows:
<TABLE>
<S><C>
William J. Podany:
For 21,692,934
Withheld Authority 180,485
Gregory H. Wolf
For 21,690,226
Withheld Authority 183,193
</TABLE>
Messrs. Kramer, Eugster, Girard, Reinertsen and Watson terms of office as
directors continued after the 1999 Annual Meeting of Shareholders.
Votes cast to approve the Company's 1999 Executive Incentive Plan.
<TABLE>
<CAPTION>
<S> <C>
For 21,482,000
Against 313,871
Abstain 77,548
Broker Non-Vote 0
</TABLE>
Votes cast to ratify the appointment of Deloitte & Touche LLP as the Company's
auditors for the fiscal year ending January 29, 2000 were as follows:
<TABLE>
<S> <C>
For 21,853,878
Against 12,561
Abstain 6,980
Broker Non-Vote 0
</TABLE>
25
<PAGE> 26
Item 5. Other Information
On August 16, 1999, John G. Turner, chairman and chief executive officer of
ReliaStar Financial Corporation in Minneapolis, Minnesota joined the Company's
Board of Directors. Mr. Turner replaced Dr. James Reinertsen, who resigned from
the Company's Board of Directors due to time constraints related to his position
as chief executive officer of CareGroup Healthcare System in Boston,
Massachusetts.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
2.1 Agreement and Plan of Merger dated as of May
10, 1999 by and among ShopKo Stores, Inc.,
its wholly-owned subsidiary, ShopKo Merger
Corp., and Pamida Holdings Corporation.
11 Computation of Earnings Per Common and
Common Equivalent Share.
12 Statements Re Computation of Ratios.
27 Financial Data Schedule.
The Registrant hereby agrees to furnish to the Commission upon request
any long-term debt instrument, the principal amount of which represents 10.0
percent or less of the Registrant's consolidated assets.
(b) Reports on Form 8-K.
The Company filed Current Reports on Form 8-K in the second quarter of
fiscal 1999 as follows:
Date of Report Items Reported
- -------------- --------------
July 6, 1999 Items 2,5,7 - The Company
consummated its tender offer for
the outstanding voting common stock
of Pamida Holdings Corporation.
26
<PAGE> 27
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: September 13, 1999 By: /s/ Richard D. Schepp
--------------------------------
Richard D. Schepp
Senior Vice President
General Counsel and
Secretary
(Duly Authorized Officer of
Registrant)
Date: September 13, 1999 By: /s/ Jeffery R. Simons
--------------------------------
Jeffery R. Simons
Vice President and
Controller
(Chief Accounting Officer
and Duly Authorized Officer
of Registrant)
27
<PAGE> 28
EXHIBIT INDEX
SHOPKO STORES, INC.
10-Q REPORT
Exhibit Sequential
Number Exhibit Page Number
- ------ ------- -----------
2.1 Agreement and Plan of Merger dated as of
May 10, 1999 by and among Shopko Stores,
Inc., its wholly-owned subsidiary, ShopKo
Merger Corp., and Pamida Holdings
Corporation (incorporated by reference to
Exhibit 99(c)(1) to the ShopKo Stores, Inc.
and ShopKo Merger Corp. Schedule 14D-1
filed May 17, 1999).
11 Computation of Earnings Per Common and
Common Equivalent Share.
12 Statements Re Computation of Ratios.
27 Financial Data Schedule.
28
<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
---------------------------------------------------------------------------------------
July 31, August 1, January 30, January 31, February 1,
1999 1998 1999 1998 1997
(26 Weeks) (26 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BASIC:
Earnings before
extraordinary item $ 47,158 $ 8,051 $ 55,636 $ 49,382 $ 45,669
Extraordinary item (3,776)
-------------- -------------- ------------- -------------- ---------------
Net earnings $ 43,382 $ 8,051 $ 55,636 $ 49,382 $ 45,669
============== ============== ============= ============== ===============
Weighted average number of
outstanding common shares 26,475 25,968 26,035 28,398 32,090
============== ============== ============= ============== ===============
Earnings per common
share before extraordinary
item - basic (1) $ 1.78 $ 0.31 $ 2.14 $ 1.74 $ 1.42
Extraordinary item - basic (1) (0.14)
-------------- -------------- ------------- -------------- ---------------
Net earnings per common
share - basic (1) $ 1.64 $ 0.31 $ 2.14 $ 1.74 $ 1.42
============== ============== ============= ============== ===============
DILUTED:
Earnings before
extraordinary item $ 47,158 $ 8,051 $ 55,636 $ 49,382 $ 45,669
Extraordinary item (3,776)
-------------- -------------- ------------- -------------- ---------------
Net earnings $ 43,382 $ 8,051 $ 55,636 $ 49,382 $ 45,669
============== ============== ============= ============== ===============
Weighted average number of
outstanding common shares 26,475 25,968 26,035 28,398 32,090
Number of common shares
issuable assuming exercise
of stock options
470 518 482 377 473
-------------- -------------- ------------- -------------- ---------------
Weighted average number of
outstanding common and
common equivalent shares -
assuming dilution 26,945 26,486 26,517 28,775 32,563
============== ============== ============= ============== ===============
Earnings per common
share before extraordinary
item - diluted (1) $ 1.75 $ 0.30 $ 2.10 $ 1.72 $ 1.40
Extraordinary item - diluted (1) (0.14)
-------------- -------------- ------------- -------------- ---------------
Net earnings per common
share - diluted (1) $ 1.61 $ 0.30 $ 2.10 $ 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.
29
<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
----------------------------------------------------------------------------
July 31, August 1, January 30, January 31, February 1,
1999 1998 1999 1998 1997
(26 Weeks) (26 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
-----------------------------------
COMPUTATION OF EARNINGS
1 Pre-tax income before extraordinary item $ 77,697 $ 13,259 $ 91,627 $ 80,443 $ 74,022
2 Add previously capitalized
interest amortized during the period 281 278 555 550 548
3 Less interest capitalized
during the period 157 17 171 0 128
----------- ---------- ----------- ----------- -------------
4 Total earnings (sum of lines 1 to 3) 77,821 13,520 92,011 80,993 74,442
COMPUTATION OF FIXED CHARGES
5 Interest (1) 20,990 18,312 38,482 30,582 31,905
6 Interest factor in rental
expense 3,397 2,175 4,087 2,691 2,657
----------- ---------- ----------- ----------- -------------
7 Total fixed charges (sum of
lines 5 and 6) 24,387 20,487 42,569 33,273 34,562
8 TOTAL EARNINGS AND
FIXED CHARGES (LINE 4
PLUS LINE 7) $ 102,208 $ 34,007 $ 134,580 $ 114,266 $ 109,004
=========== ========== =========== =========== =============
9 Ratio (line 8 divided by line 7) 4.2 1.7 3.2 3.4 3.2
(1) Includes capitalized interest
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> MAY-02-1999
<PERIOD-END> JUL-31-1999
<CASH> 34575
<SECURITIES> 0
<RECEIVABLES> 158690
<ALLOWANCES> 7730
<INVENTORY> 657157
<CURRENT-ASSETS> 855975
<PP&E> 1425890
<DEPRECIATION> 550397
<TOTAL-ASSETS> 2001451
<CURRENT-LIABILITIES> 796224
<BONDS> 0
0
0
<COMMON> 304
<OTHER-SE> 655180
<TOTAL-LIABILITY-AND-EQUITY> 2001451
<SALES> 1621138
<TOTAL-REVENUES> 1627434
<CGS> 1285842
<TOTAL-COSTS> 1585992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20833
<INCOME-PRETAX> 77697
<INCOME-TAX> 30539
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (3776)
<CHANGES> 0
<NET-INCOME> 43382
<EPS-BASIC> 1.64
<EPS-DILUTED> 1.61
</TABLE>
