<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 October 30, 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 November 26, 1999 is as follows:
<TABLE>
<CAPTION>
Title of Each Class Shares Outstanding
------------------- ------------------
<S> <C>
Common Shares 30,396,080
Exhibit Index Page 1 of Page 31
on Page 28
</TABLE>
<PAGE> 2
SHOPKO STORES, INC.
FORM 10-Q
FOR THE 13 WEEKS AND 39 WEEKS ENDED OCTOBER 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Part I Item 1 - Financial Statements
Consolidated Statements of Earnings for the 13 weeks 3
ended October 30, 1999 and October 31, 1998
Consolidated Statements of Earnings for the 39 weeks 4
ended October 30, 1999 and October 31, 1998
Consolidated Balance Sheets as of October 30, 1999, 5
October 31, 1998 and January 30, 1999
Consolidated Statements of Cash Flows for the 39 6-7
weeks ended October 30, 1999 and October 31, 1998
Consolidated Statements of Shareholders' Equity for 8
the 39 weeks ended October 30, 1999 and for the year
ended January 30, 1999
Notes to Consolidated Financial Statements 9-13
Item 2 - Management's Discussion and Analysis of Financial 14-24
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure About 25
Market Risk
Part II Item 6 - Exhibits and Reports on Form 8-K 25-26
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 Third Quarter (13 Weeks) Ended
- --------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
October 30, October 31,
1999 1998 % Increase
- --------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 1,018,191 $ 726,448 40.2
Licensed department rentals and other income 3,580 3,162
-------------- ---------------
1,021,771 729,610 40.0
Costs and expenses:
Cost of sales 803,155 573,611
Selling, general and administrative expenses 160,888 115,774
Nonrecurring charge 3,372 1,786
Depreciation and amortization expenses 24,019 16,508
-------------- ---------------
991,434 707,679 40.1
Income from operations 30,337 21,931 38.3
Interest expense 13,362 10,464
-------------- ---------------
Earnings before income taxes and minority interest 16,975 11,467 48.0
Provision for income taxes 6,614 4,503
-------------- ---------------
Earnings before minority interest 10,361 6,964 48.8
Minority interest (1,003)
-------------- ---------------
Net earnings $ 9,358 $ 6,964 34.4
============== ===============
Basic net earnings per common share $ 0.31 $ 0.27
============== ===============
Weighted average number of common shares
outstanding 30,376 26,093
Diluted net earnings per common share $ 0.30 $ 0.26
============== ===============
Adjusted weighted average number of common shares
outstanding 30,702 26,517
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year To Date (39 Weeks) Ended
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
October 30, October 31,
1999 1998 % Increase
- ---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 2,639,329 $ 2,040,672 29.3
Licensed department rentals and other income 9,876 8,931
-------------- --------------
2,649,205 2,049,603 29.3
Costs and expenses:
Cost of sales 2,088,997 1,596,666
Selling, general and administrative expenses 422,461 342,351
Nonrecurring charge 4,213 5,723
Depreciation and amortization expenses 61,755 51,378
-------------- --------------
2,577,426 1,996,118 29.1
Income from operations 71,779 53,485 34.2
Interest expense 34,195 28,759
Gain on sale of ProVantage stock 57,236
-------------- --------------
Earnings before income taxes, minority interest
and extraordinary item 94,820 24,726 283.5
Provision for income taxes 37,211 9,711
-------------- --------------
Earnings before minority interest
and extraordinary item 57,609 15,015 283.7
Minority interest (1,093)
-------------- --------------
Earnings before extraordinary item 56,516 15,015 276.4
Extraordinary (loss) on retirement of debt,
net of income taxes of $2,443 (3,776)
-------------- --------------
Net earnings $ 52,740 $ 15,015 251.2
============== ==============
Basic earnings per common share
before extraordinary item $ 2.03 $ 0.58
Extraordinary (loss) on retirement of debt (0.14)
-------------- --------------
Basic net earnings per common share $ 1.90 $ 0.58
============== ==============
Weighted average number of common shares
outstanding 27,775 26,010
Diluted earnings per common share
before extraordinary item $ 2.00 $ 0.57
Extraordinary (loss) on retirement of debt (0.13)
-------------- --------------
Diluted net earnings per common share $ 1.87 $ 0.57
============== ==============
Adjusted weighted average number of common shares
outstanding 28,197 26,493
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Third Quarter as of Fiscal Year End
- ------------------------------------------------------------------------------------------------
(In thousands)
October 30, October 31, January 30,
ASSETS 1999 1998 1999
- ------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 34,055 $ 6,948 $ 30,219
Receivables, less allowance for losses of
$7,119, $9,412 and $7,487, respectively 172,526 106,545 117,652
Merchandise inventories 781,769 534,923 434,643
Other current assets 17,688 15,472 5,461
----------- ----------- -----------
Total current assets 1,006,038 663,888 587,975
Other assets and deferred charges 14,326 7,430 6,960
Intangible assets - net 270,805 71,120 74,749
Property and equipment at cost:
Land 130,384 121,553 121,577
Buildings 572,702 539,587 540,953
Equipment 501,059 396,495 408,313
Leasehold improvements 88,998 57,682 58,820
Property under construction 34,340 1,041 12,999
Property under capital leases 104,200 46,667 58,004
----------- ----------- -----------
1,431,683 1,163,025 1,200,666
Less accumulated depreciation and amortization:
Property and equipment 537,909 476,249 487,137
Property under capital leases 29,604 13,071 9,689
----------- ----------- -----------
Net property and equipment 864,170 673,705 703,840
----------- ----------- -----------
Total assets $ 2,155,339 $ 1,416,143 $ 1,373,524
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
Current liabilities:
Short-term debt $ 325,000 $ 80,000 $
Accounts payable - trade 320,249 268,276 189,581
Accrued compensation and related taxes 48,456 34,271 40,955
Accrued other liabilities 226,634 121,734 169,530
Accrued income and other taxes 16,937 16,044 16,127
Current portion of long-term obligations 4,979 4,855 4,597
----------- ----------- -----------
Total current liabilities 942,255 525,180 420,790
Long-term obligations 444,331 452,390 467,191
Deferred income taxes 52,702 20,683 26,301
Minority interest 53,578
Shareholders' equity:
Common stock 304 261 261
Additional paid-in capital 381,361 227,902 228,479
Retained earnings 283,383 189,727 230,502
Less treasury stock (2,575)
----------- ----------- -----------
Total shareholders' equity 662,473 417,890 459,242
----------- ----------- -----------
Total liabilities and shareholders' equity $ 2,155,339 $ 1,416,143 $ 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 (39 weeks) Ended
- -----------------------------------------------------------------------------------------
(In thousands)
October 30, October 31,
1999 1998
- -----------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 52,740 $ 15,015
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 61,755 51,378
Provision for losses on receivables 763 599
Gain on sale of property and equipment (1,836) (916)
Gain on sale of ProVantage stock (57,236)
Deferred income taxes 16,060 2,732
Extraordinary loss on early extinguishment of debt,
net of tax benefit 3,776
Change in assets and liabilities (excluding effects of:
business acquisitions):
Receivables (46,835) (9,332)
Merchandise inventories (175,532) (164,238)
Other current assets (4,096) (4,911)
Other assets and intangibles 6,927 (2,269)
Accounts payable 59,968 74,630
Accrued liabilities (12,378) (25,738)
- ----------------------------------------------------------------------------------------
Net cash (used in) operating activities (95,924) (63,050)
- ----------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment (85,968) (66,777)
Proceeds from the sale of property and equipment 4,357 1,588
Business acquisitions, net of cash acquired (99,033)
- ----------------------------------------------------------------------------------------
Net cash (used in) investing activities (180,644) (65,189)
- ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Change in short-term debt 230,708 80,000
Change in common stock from stock options 3,828 4,229
Change in common stock from public offering 147,337
Proceeds from the sale of ProVantage stock 106,431
Purchase of treasury stock (2,575)
Retirement of debt and capital leases (205,325) (3,386)
- ----------------------------------------------------------------------------------------
Net cash provided by financing activities 280,404 80,843
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,836 (47,396)
Cash and cash equivalents at beginning of year 30,219 54,344
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of third quarter $ 34,055 $ 6,948
========================================================================================
</TABLE>
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year to Date (39 Weeks) Ended
- ------------------------------------------------------------------------------------------------
(In thousands)
October 30, October 31,
1999 1998
- ------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Supplemental cash flow information:
Noncash investing and financial activities -
Retirement of treasury stock $ 152,179
Capital lease obligations incurred $ 20,247
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
---------------------- 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 52,740
Sale of common stock under public offering 4,025 40 147,297
Sale of common stock under option plans 235 3 3,825
Income tax benefit related to stock options 1,760
Restricted stock expense 141
Purchase of treasury stock (109) (2,575)
------------------------------------------------------------------------------------
BALANCES AT OCTOBER 30, 1999 30,389 $ 304 $ 381,361 $ 283,383 (109) $ (2,575)
====================================================================================
</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 $38.6 million and $41.8 million higher at October 30, 1999 and at October
31, 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 $17.3 million and $10.6 million at October 30, 1999 and October
31, 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, for the first three quarters of fiscal 1999 was $34.8
million, of which $18.7 million is current and $16.1 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 acquired all of the outstanding voting and
nonvoting common stock of Pamida Holdings Corporation ("Pamida") for $104.4
million in cash $271.6 million of assumed debt and $128.6 million of trade and
other accrued Liabilities. The Company utilized cash from its operations to fund
this acquisition. The results of operations of Pamida since the acquisition are
included in the accompanying consolidated financial statements. Pamida is a
retail chain headquartered in Omaha, Nebraska operating 152 Pamida stores in 15
Midwestern, North Central and Rocky Mountain states as of July 6, 1999.
The acquisition of Pamida was accounted for as a purchase and the financial
statements as of October 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. As of October 30, 1999, a total of $194.4 million was
recorded as goodwill and will be amortized on a straight line basis over 40
years.
The following unaudited pro forma consolidated statement of earnings information
has been prepared assuming the Pamida acquisition occurred on January 31, 1999
and February 1, 1998, respectively:
<TABLE>
<CAPTION>
(in thousands, except per share data) Year To Date (39) Weeks Ended
-----------------------------
October 30, October 31,
1999 1998
<S> <C> <C>
Net sales $2,922,806 $2,527,810
Net earnings before extraordinary item $ 48,169 $ 11,220
Net earnings before extraordinary item per share $ 1.82 $ 0.42
</TABLE>
10
<PAGE> 11
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition in the future been
consummated on such dates, nor do the results give effect to the nonrecurring
charges related to the Pamida acquisition, synergies, cost savings and other
charges expected to result from the acquisition of Pamida. The nonrecurring
charges of $4.2 million primarily reflect the costs of employee retention
programs and various integration iniatives. Accordingly, the pro forma results
of operations do not purport to be indicative of the Company's results of
operation for the periods ended or for any other future dates or periods.
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).
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.
11
<PAGE> 12
Summarized financial information concerning the Company's reportable segments is
shown in the following table (in thousands):
<TABLE>
<CAPTION>
Year to Date
----------------------------------------
October 30, October 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
ShopKo Retail $ 1,786,804 $ 1,607,180
Pamida Retail 234,174
ProVantage 655,714 459,544
Intercompany* (37,363) (26,052)
- -------------------------------------------------------------------------------------------------------------------------
Total net sales $ 2,639,329 $ 2,040,672
=========================================================================================================================
* Intercompany sales consist of prescriptions that were both sold at a ShopKo pharmacy or a Pamida pharmacy and processed
by ProVantage.
Earnings before income taxes, minority interest and extraordinary item
ShopKo Retail $ 72,342 $ 64,110
Pamida Retail 5,790
ProVantage 12,104 10,079
Corporate (18,457) (20,704)
Interest expense (34,195) (28,759)
Gain on sale of ProVantage stock 57,236
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, minority interest and extraordinary item $ 94,820 $ 24,726
=========================================================================================================================
<CAPTION>
Assets As of October 30, As of October 31,
1999 1998
<S> <C> <C>
ShopKo Retail $ 1,353,353 $ 1,239,490
Pamida Retail 541,819
ProVantage 225,906 162,502
Corporate 34,261 14,151
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,155,339 $ 1,416,143
=========================================================================================================================
</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 three quarters of fiscal 1999 and fiscal 1998.
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.'
12
<PAGE> 13
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.
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.
As of December 6, 1999, 815,600 shares of Common Stock had been repurchased for
approximately $20.0 million. The repurchased shares will be used for stock-based
employee benefit plans and other corporate purposes.
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 October 30, 1999 and October 31, 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 holiday selling season.
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth items from the Company's unaudited consolidated
financial statements for the third quarter and the first three quarters of
fiscal 1999 and 1998 as a percentage of net sales:
<TABLE>
<CAPTION>
Third Quarter Year to Date
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 78.9 79.0 79.2 78.2
Selling, general and administrative
expenses 15.8 15.9 16.0 16.8
Nonrecurring charge 0.3 0.2 0.2 0.3
Depreciation and amortization expenses 2.4 2.3 2.3 2.5
---------- -------- --------- ---------
97.4 97.4 97.7 97.8
Income from operations 3.0 3.0 2.7 2.6
Interest expense - net 1.3 1.4 1.3 1.4
Gain on sale of ProVantage stock 0.0 0.0 2.2 0.0
---------- -------- --------- ---------
Earnings before income taxes, minority
interest and extraordinary item 1.7 1.6 3.6 1.2
Provision for income taxes 0.7 0.6 1.4 0.5
---------- -------- --------- ---------
Earnings before minority interest and
extraordinary item 1.0 1.0 2.2 0.7
Minority interest (0.1) 0.0 (0.1) 0.0
---------- -------- --------- ---------
Earnings before extraordinary item 0.9 1.0 2.1 0.7
Extraordinary (loss) on retirement of
debt, net of income taxes 0.0 0.0 (0.1) 0.0
---------- -------- --------- ---------
Net earnings 0.9% 1.0% 2.0% 0.7%
========== ======== ========= =========
</TABLE>
14
<PAGE> 15
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 or a Pamida 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
Third Quarter Year to Date
------------- ------------
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 75.2 75.2 74.8 74.4
Selling, general and administrative
expenses 18.2 18.3 19.0 19.3
Depreciation and amortization expenses 2.6 2.6 2.7 2.8
---------- --------- --------- ---------
96.0 96.1 96.5 96.5
Income from operations 4.5% 4.4% 4.0% 4.0%
<CAPTION>
PAMIDA RETAIL
Third Quarter Year to Date
------------- ------------
Fiscal Fiscal
1999 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Net sales 100.0% 100.0%
Licensed departmental rentals and other
income 0.3 0.3
---------- ---------- --------- ----------
100.3 100.3
Costs and expenses
Cost of sales 74.8 75.0
Selling, general and administrative
expenses 19.2 19.5
Depreciation and amortization expenses 3.2 3.3
---------- ---------- --------- ----------
97.2 97.8
Income from operations 3.1% 2.5%
</TABLE>
15
<PAGE> 16
PROVANTAGE
<TABLE>
<CAPTION>
Third Quarter Year to Date
------------- ------------
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 0.2 0.0 0.1
---------- --------- --------- ---------
100.0 100.2 100.0 100.1
Costs and expenses
Cost of sales 93.6 93.1 93.6 92.9
Selling, general and administrative
expenses 3.6 3.8 3.6 3.9
Depreciation and amortization expenses 1.0 1.1 1.0 1.1
---------- --------- --------- ---------
98.2 98.0 98.2 97.9
Income from operations 1.8% 2.2% 1.8% 2.2%
</TABLE>
NET SALES
THE following table presents the Company's consolidated net sales for the third
quarter and cumulative for the first three quarters of fiscal 1999 and fiscal
1998:
<TABLE>
<CAPTION>
THIRD QUARTER % INCREASE
------------- ----------
FISCAL FISCAL
1999 1998 TOTAL COMP
-------- ------ ----- ----
<S> <C> <C> <C> <C>
ShopKo Retail $626.8 $571.0 9.8 4.7
Pamida Retail 179.2 N/A N/A N/A
-------- ------
Total Retail Stores 806.0 571.0 41.2 N/A
ProVantage 225.9 164.8 37.1 N/A
Intercompany (13.7) (9.4) N/A N/A
-------- ------ ---- ----
Consolidated $1,018.2 $726.4 40.2
======== ====== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR TO DATE % INCREASE
------------ ----------
FISCAL FISCAL
1999 1998 TOTAL COMP
-------- -------- ----- ----
<S> <C> <C> <C> <C>
ShopKo Retail $1,786.8 $1,607.2 11.2 7.3
Pamida Retail 234.2 N/A N/A N/A
-------- --------
Total Retail Stores 2,021.0 1,607.2 25.7 N/A
ProVantage 655.7 459.5 42.7 N/A
Intercompany (37.4) (26.0) N/A N/A
-------- -------- ---- ----
Consolidated $2,639.3 $2,040.7 29.3
======== ======== ====
</TABLE>
16
<PAGE> 17
The 4.7% increase in third quarter ShopKo Retail comparable store sales are
derived from the following segment categories: Retail Health increased 14.3%,
Apparel increased 4.5% and Hardlines/Home increased 1.4%. The 7.3% increase in
the first three quarters of ShopKo Retail comparable store sales are derived
from the following segment categories: Retail Health increased 17.3%, Apparel
increased 9.0% and Hardlines/Home increased 6.5%. 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 as ShopKo stores. In October 1999, two additional new ShopKo
stores were opened. All of these locations include in-store pharmacies and
optical centers. The Company operated 160 ShopKo Retail stores at the end of the
third quarter this year compared to 147 ShopKo Retail stores at the end of the
third quarter last year.
In July 1999, the Company acquired the retail chain Pamida Holdings Corporation
("Pamida"), which operated 152 Pamida stores and 4 Heartland Home Furniture
stores in 15 Midwestern, North Central and Rocky Mountain states as of July 31,
1999. In October 1999, three additional Pamida stores were opened increasing the
number of Pamida stores in operation from 152 to 155 stores. On August 30, 1999,
the Company sold the entire Heartland Home Furniture business to a group of
investors. 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 third quarter and the first three
quarters 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.
Gross Margin:
The following table sets forth gross margin as a percent of net sales:
<TABLE>
<CAPTION>
Third 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 24.8% 24.8% 25.2% N/A 6.4% 6.9% 21.1% 21.0%
Gross margin percent prior to
LIFO charge 25.0% 25.0% 25.4% N/A N/A N/A 21.3% 21.2%
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Year to Date
------------
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 25.2% 25.6% 25.0% N/A 6.4% 7.1% 20.8% 21.8%
Gross margin percent prior to
LIFO charge 25.4% 25.8% 25.2% N/A N/A N/A 21.0% 21.9%
</TABLE>
Consolidated gross margin as a percent of sales for the third quarter was 21.1
percent compared with 21.0 percent for the same period last year. During the
first three quarters, the consolidated gross margin as a percent of sales was
20.8 percent compared with 21.8 percent for the same period last year.
ShopKo Retail gross margin as a percent of sales for the third quarter was 24.8
percent compared with 24.8 percent last year. The FIFO ShopKo Retail gross
margin as a percent of sales for the quarter was 25.0 percent compared with 25.0
percent last year. The ShopKo Retail gross margin as a percent of sales for the
first three quarters was 25.2 percent compared with 25.6 last year.
Notwithstanding this margin rate decrease, ShopKo Retail LIFO gross margin
dollars increased 9.3 percent to $449.8 million. The FIFO ShopKo Retail gross
margin as a percent of sales for the first three quarters was 25.4 percent
compared with 25.8 percent for the same period last year. The decrease in the
gross margin rate for the first three quarters 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 25.2 percent for the
third quarter and the FIFO Pamida gross margin as a percent of sales for the
same quarter was 25.4 percent. The Pamida Retail gross margin for the 17 weeks
ended October 30, 1999 was 25.0 percent of sales and FIFO Pamida Retail gross
margin was 25.2 percent of sales for the same time period. 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 third quarter
experienced a planned decrease to 6.4 percent from 6.9 percent due to increasing
prescription drug costs. During the first three quarters, ProVantage's gross
margin as a percent of sales decreased to 6.4 percent from 7.1 percent. The
decrease in the gross margin rate is primarily due to increasing prescription
drug costs and the addition of larger clients with lower average transaction
fees.
18
<PAGE> 19
Selling, General and Administrative Expenses:
Consolidated selling, general and administrative expenses as a percent of sales
for the third quarter were 15.8 percent compared with 15.9 percent last year.
For the first three quarters, the consolidated selling, general and
administrative expenses as a percent of sales decreased to 16.0 percent from
16.8 percent last year.
ShopKo Retail selling, general and administrative expenses as a percent of sales
for the third quarter were 18.2 percent compared with 18.3 percent last year.
Excluding expenses incurred for year 2000 compliance, ShopKo Retail selling,
general and administrative expenses as a percent of sales were 18.1 percent for
the third quarter compared to 18.2 percent last year. Pamida's selling, general
and administrative expenses were 19.2 percent of sales for the quarter. During
the first three quarters, ShopKo Retail selling, general and administrative
expenses as a percent of sales were 19.0 percent compared to 19.3 percent last
year. Excluding expenses incurred for year 2000 compliance, ShopKo Retail
selling, general and administrative expenses as a percent of sales were 18.8
percent compared to 19.2 percent last year. This reduction is primarily due to
leveraging store payroll and fixed costs against increased sales volume. Pamida
Retail selling, general and administrative expenses were 19.5 percent of sales
for the 17 weeks ended October 30, 1999.
ProVantage's selling, general and administrative expenses were 3.6 percent of
sales for the third quarter compared to 3.8 percent of sales for the same period
last year. ProVantage's selling, general and administrative expenses decreased
to 3.6 percent of sales during the first three quarters compared with 3.9
percent of sales for the same period last year. These decreases are primarily
due to leveraging costs against increased sales volume.
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 $114.5 million for the first three quarters of fiscal 1999 compared to $66.4
million for the same period last year. Cash provided from net earnings for the
39 weeks ended October 30, 1999 includes a pre-tax gain of $57.2 million from
the sale of ProVantage stock. The Company had $325.0 million outstanding under
its credit agreements at the end of the third quarter of fiscal 1999 compared to
$80.0 million outstanding at the end of the third quarter 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 for
other corporate purposes.
19
<PAGE> 20
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 was 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.'
As of October 30, 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 April 17, 2000 and
in September 1999, the Company also negotiated a $100.0 million unsecured
364-day credit facility. In October 1999, the Company negotiated another
revolving credit agreement for $75.0 million which is effective through December
30, 1999. 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. During August 1999, the remaining balance of the Pamida Loan Agreement
was paid in full, and then the Pamida Loan Agreement was terminated. 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 $86.0 million on capital expenditures
in the first three quarters of fiscal 1999 (excluding business acquisitions),
compared to $66.8 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 be approximately $150.0 million, the majority of which
would relate to remodeling the 11 stores opened in April 1999 and constructing
the two new stores that opened in October 1999; 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's total capital
expenditures for the fiscal year ending February 3, 2001 are anticipated to be
approximately $200.0 to $225.0 million. 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 expansion of
these distribution facilities 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.
20
<PAGE> 21
On September 14, 1999 the Company announced plans to open three new ShopKo
stores in the Spring of 2000, with more store openings planned for later in the
year 2000. One of the new stores is a former Wal-Mart location which will be
remodeled including the addition of an in-store pharmacy and optical center. The
other two additional locations will be new stores, one of which will replace one
of two existing ShopKo stores in Stevens Point, Wisconsin. All three of these
stores will be leased, of which one will be an operating lease and two will be
capital leases. During November 1999, four new Pamida stores were opened, each
of which is leased. The Company expects to open 20 to 25 additional Pamida
stores next year with the intent to own most of them.
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.
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 paid 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 $26.2 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 $5.7
million in nonrecurring pre-tax costs in the first three quarters of fiscal
1998. The Company funded these costs from available cash and borrowings under
the Company's revolving credit facility.
21
<PAGE> 22
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 155 Pamida stores in 15 Midwestern,
North Central and Rocky Mountain states as of October 30, 1999. At the time of
the acquisition, Pamida also operated 4 Heartland Home Furniture stores. 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 first three quarters, the Company incurred $4.2
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. On September 2, 1999, the Company
paid to the holders of Pamida's senior subordinated notes approximately $153.2
million, which included principal, accrued interest and premium due on call. The
Company funded this redemption from cash flows from operations and other
financing activities.
Year 2000:
State of Readiness
The Company has substantially completed Year 2000 renovation and testing of its
critical and non-critical business systems in accordance with its comprehensive
Year 2000 project. Additionally, business contingency planning for core business
functions has been completed to ensure business continuity in the event of
temporary business interruptions.
The Company continues to communicate with its key merchandise vendors and
services suppliers to ensure their state of Year 2000 readiness. 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 ready.
Costs
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 $5.0 million has already been incurred. $2.0 million was incurred
in fiscal 1998, and $3.0 million was incurred through the first three quarters
of fiscal 1999.
22
<PAGE> 23
Risks
With respect to the risks associated with its information technology and
non-information technology 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.
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 may not be compliant and may have difficulty
filling orders and flowing goods. Management also believes that the number of
such vendors has 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 ready, 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
readiness, 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.
Contingency Plans
The Company has completed contingency plans for the most reasonably likely worst
case scenarios described above. Millennium weekend communications and command
center plans have been finished. The Company does not anticipate any serious
disruptions to its operations due to the millennium rollover.
23
<PAGE> 24
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.
Stock Repurchase Program:
On March 26, 1998, the Company announced that the Board of Directors has
authorized the repurchase of up to $20.0 million of the Company's Common Stock.
As of December 6, 1999, 815,600 shares of common stock had been repurchased for
approximately $20.0 million. The repurchased shares will be used for stock-based
employee benefit plans and other corporate purposes.
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 October 30, 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.
Forward-Looking Statements:
Item 2 of this Form 10-Q, "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and Item 3 of this Form 10-Q,
"Quantitative and Qualitative Disclosure about Market Risk", contain
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.
24
<PAGE> 25
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates based on
its financing activities. At October 30, 1999, the Company had $325.0 million of
short-term debt with a weighted average interest rate of 6.0%. This short-term
debt was incurred under the Company's credit facilities to fund the Company's
seasonal working capital requirements. This short-term debt exposes the Company
to the possibility of increased or decreased interest expense in the event of
changes in short-term interest rates. If the weighted average interest rate were
to change 10.0% from the October 30, 1999 level, the Company's interest expense
for short-term obligations would increase or decrease by approximately $0.5
million per quarter based upon October 30, 1999 principal balances.
At October 30, 1999, the Company had fixed-rate long-term debt totaling $449.3
million. These instruments are fixed-rate and therefore do not expose the
Company to the possibility of earnings loss or gain due to changes in market
interest rates. In general, fluctuations in the market value of these
instruments based on fluctuations in interest rates would impact the Company's
earnings and cash flows only if the Company were to reacquire all or a portion
of these instruments prior to their maturity.
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.
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.
25
<PAGE> 26
(b) Reports on Form 8-K.
The Company filed Current Reports on Form 8-K in the third quarter of
fiscal 1999 as follows:
<TABLE>
<CAPTION>
Date of Report Items Reported
- -------------- --------------
<S> <C>
August 12, 1999 Items 5,7 - Exhibits filed in connection with the Registration Statement on Form S-3
(Reg. No. 333-79763), the second quarter earnings press release and the press release
announcing that John G. Turner was joining ShopKo's Board of Directors.
July 6, 1999 (Amendment No. 1) Item 7 - Financial statements filed in connection with the acquisition of Pamida
Holdings Corporation:
Independent Auditors' Report on Pamida Holdings Corporation and Subsidiaries
Consolidated Financial Statements for the Fiscal Years ended January 31, 1999, February
1, 1998 and February 2, 1997.
Pamida Holdings Corporation and Subsidiaries: Consolidated Balance Sheets as of January
31, 1999 and February 1, 1998.
Pamida Holdings Corporation and Subsidiaries: Consolidated Statements of Operations,
Consolidated Statements of Cash Flows, and Consolidated Statements of Common
Stockholders' Equity for the Fiscal Years ended January 31, 1999, February 1, 1998 and
February 2, 1997.
Notes to the Consolidated Financial Statements.
Pamida Holdings Corporation and Subsidiaries: Unaudited Consolidated Balance Sheets as
of May 2, 1999 and May 3, 1998.
Pamida Holdings Corporation and Subsidiaries: Unaudited Consolidated Statements of
Operations and Consolidated Statements of Cash Flows for the thirteen weeks ended May 2,
1999 and May 3. 1998.
Notes to the Consolidated Financial Statements.
</TABLE>
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: December 13, 1999 By: /s/ Richard D. Schepp
-------------------------------------------
Richard D. Schepp
Senior Vice President General
Counsel and Secretary
(Duly Authorized Officer of Registrant)
Date: December 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
<TABLE>
<CAPTION>
Exhibit Sequential
Number Exhibit Page Number
- ------ ------- -----------
<S> <C> <C>
11 Computation of Earnings Per Common and
Common Equivalent Share.
12 Statements Re Computation of Ratios.
27 Financial Data Schedule.
</TABLE>
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>
Year to Date as of Fiscal Years Ended
----------------------------------------------------------------------------------------
October 30, October 31, January 30, January 31, February 1,
1999 1998 1999 1998 1997
(39 Weeks) (39 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BASIC:
Earnings before
extraordinary item $ 56,516 $ 15,015 $ 55,636 $ 49,382 $ 45,669
Extraordinary item (3,776)
-------------- -------------- -------------- -------------- ------------
Net earnings $ 52,740 $ 15,015 $ 55,636 $ 49,382 $ 45,669
============== ============== ============== ============== ============
Weighted average number of
outstanding common shares 27,775 26,010 26,035 28,398 32,090
============== ============== ============== ============== ============
Earnings per common
share before extraordinary
item - basic (1) $ 2.03 $ 0.58 $ 2.14 $ 1.74 $ 1.42
Extraordinary item - basic (1) (0.14)
-------------- -------------- -------------- -------------- ------------
Net earnings per common
share - basic (1) $ 1.90 $ 0.58 $ 2.14 $ 1.74 $ 1.42
============== ============== ============== ============== ============
DILUTED:
Earnings before
extraordinary item $ 56,516 $ 15,015 $ 55,636 $ 49,382 $ 45,669
Extraordinary item (3,776)
-------------- -------------- -------------- -------------- ------------
Net earnings $ 52,740 $ 15,015 $ 55,636 $ 49,382 $ 45,669
============== ============== ============== ============== ============
Weighted average number of
outstanding common shares 27,775 26,010 26,035 28,398 32,090
Number of common shares
issuable assuming exercise
of stock options 422 483 482 377 473
-------------- -------------- -------------- -------------- ------------
Weighted average number of
outstanding common and
common equivalent shares -
assuming full dilution 28,197 26,493 26,517 28,775 32,563
============== ============== ============== ============== ============
Earnings per common
share before extraordinary
item - diluted (1) $ 2.00 $ 0.57 $ 2.10 $ 1.72 $ 1.40
Extraordinary item - diluted (1) (0.13)
-------------- -------------- -------------- -------------- ------------
Net earnings per common
share - diluted (1) $ 1.87 $ 0.57 $ 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 RATIOS)
<TABLE>
<CAPTION>
Year to Date as of Fiscal Years Ended
----------------------------------------------------------------------------
October 30, October 31, January 30, January 31, February 22,
1999 1998 1999 1998 1997
(39 Weeks) (39 Weeks) (52 Weeks) (49 Weeks) (52 Weeks)
----------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges
----------------------------------
COMPUTATION OF EARNINGS
<S> <C> <C> <C> <C> <C>
1 Pre-tax income before extraordinary item $ 94,820 $ 24,726 $ 91,627 $ 80,443 $ 74,022
2 Add previously capitalized interest
amortized during the period 416 413 555 550 548
3 Less interest capitalized during
the period 233 124 171 0 128
------------- ----------- ------------ ----------- -------------
4 Total earnings (sum of lines 1 to 3) 95,003 25,015 92,011 80,993 74,442
COMPUTATION OF FIXED CHARGES
5 Interest (1) 34,428 28,883 38,482 30,582 31,905
6 Interest factor in rental expense 6,972 3,138 4,087 2,691 2,657
------------- ----------- ------------ ----------- -------------
7 Total fixed charges (sum of lines
5 and 6) 41,400 32,021 42,569 33,273 34,562
8 TOTAL EARNINGS AND
FIXED CHARGES (LINE 4
PLUS LINE 7) $ 136,403 $ 57,036 $ 134,580 $ 114,266 $ 109,004
============= =========== ============ =========== =============
9 Ratio (line 8 divided by line 7) 3.3 1.8 3.2 3.4 3.2
</TABLE>
(1) Includes capitalized interest
30
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-30-1999
<EXCHANGE-RATE> 1
<CASH> 34,055
<SECURITIES> 0
<RECEIVABLES> 179,645
<ALLOWANCES> 7,119
<INVENTORY> 781,769
<CURRENT-ASSETS> 1,006,038
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0
0
<COMMON> 304
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</TABLE>
