<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 April 29, 2000
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 May 30, 2000 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 29,613,810
Exhibit Index Page 1 of Page 29
on Page 18
1
<PAGE> 2
SHOPKO STORES, INC.
FORM 10-Q
FOR THE 13 WEEKS ENDED APRIL 29, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Item 1 - Financial Statements
Condensed Consolidated Statements of Earnings for the 3
13 weeks ended April 29, 2000 and May 1, 1999
Condensed Consolidated Balance Sheets as of April 29, 4
2000, May 1, 1999 and January 29, 2000
Condensed Consolidated Statements of Cash Flows for the 5
13 weeks ended April 29, 2000 and May 1, 1999
Condensed Consolidated Statement of Shareholders' 6
Equity for the 13 weeks ended April 29, 2000
Notes to Condensed Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis of Financial 9-15
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure About 15
Market Risk
Part II Item 6 - Exhibits and Reports on Form 8-K 16-17
Signatures 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries First Quarter (13 Weeks) Ended
---------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) April 29, May 1,
2000 1999 % Increase
---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net sales $ 749,591 $ 549,460 37.7
Licensed department rentals and other income 3,085 2,904
-------------- --------------
752,676 552,364 36.3
Costs and expenses:
Cost of sales 557,783 411,019
Selling, general and administrative expenses 155,276 112,892
Special charges 1,240
Depreciation and amortization expenses 22,009 15,587
-------------- --------------
736,308 539,498 36.5
Income from operations 16,368 12,866 27.2
Interest expense - net 14,583 9,865
-------------- --------------
Earnings from continuing operations before income taxes 1,785 3,001 (40.5)
Provision for income taxes 1,223 1,041
-------------- --------------
Earnings from continuing operations 562 1,960 (71.3)
Discontinued operations, net of income taxes of
$956 and $1,750, respectively 1,234 2,353
Extraordinary (loss) on retirement of debt,
net of income taxes of $2,443 (3,776)
-------------- --------------
Net earnings $ 1,796 $ 537 234.5
============== ==============
Net earnings per share of common stock:
Basic:
Earnings from continuing operations $ 0.02 $ 0.07
Earnings from discontinued operations 0.04 0.09
Extraordinary loss on retirement of debt (0.14)
============== ==============
Net earnings $ 0.06 $ 0.02
============== ==============
Diluted:
Earnings from continuing operations $ 0.02 $ 0.07
Earnings from discontinued operations 0.04 0.09
Extraordinary loss on retirement of debt (0.14)
============== ==============
Net earnings $ 0.06 $ 0.02
============== ==============
Weighted average number of common
shares outstanding 29,585 26,140
Adjusted weighted average number of common
shares outstanding 29,685 26,591
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries First Quarter as of Fiscal Year End
-----------------------------------------------------------------------------------------------------------------
(In thousands)
April 29, May 1, January 29,
ASSETS 2000 1999 2000
-----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 12,037 $ 84,240 $ 26,916
Receivables, less allowance for losses of
$5,773, $7,695 and $6,826, respectively 48,235 124,860 179,140
Merchandise inventories 728,375 483,876 663,164
Other current assets 18,058 11,594 16,042
Net assets of discontinued operations 122,460
------------ ------------ ------------
Total current assets 929,165 704,570 885,262
Other assets and deferred charges 18,631 6,980 16,396
Intangible assets - net 201,986 73,637 272,193
Property and equipment at cost:
Land 137,338 121,332 135,591
Buildings 625,441 541,799 572,761
Equipment 522,763 428,172 539,399
Leasehold improvements 97,259 74,233 91,242
Property under construction 13,671 3,275 54,759
Property under capital leases 118,317 58,004 103,248
------------ ------------ ------------
1,514,789 1,226,815 1,497,000
Less accumulated depreciation and amortization:
Property and equipment 566,946 503,238 558,216
Property under capital leases 30,818 10,235 29,346
------------ ------------ ------------
Net property and equipment 917,025 713,342 909,438
------------ ------------ ------------
Total assets $ 2,066,807 $ 1,498,529 $ 2,083,289
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------
Current liabilities:
Short-term debt $ 345,500 $ 159,000 $ 245,000
Accounts payable - trade 323,375 240,423 281,291
Accrued compensation and related taxes 34,331 35,488 51,548
Accrued other liabilities 112,790 146,080 211,049
Accrued income and other taxes 21,192 17,429 18,970
Current portion of long-term obligations 6,016 2,734 6,416
------------ ------------ ------------
Total current liabilities 843,204 601,154 814,274
Long-term obligations, less current portion 464,185 409,543 453,084
Deferred income taxes 63,075 26,831 69,771
Minority interest 51,658
Shareholders' equity:
Common stock 304 262 304
Additional paid-in capital 381,383 229,652 381,354
Retained earnings 334,684 231,087 332,872
Less treasury stock (20,028) (20,028)
------------ ------------ ------------
Total shareholders' equity 696,343 461,001 694,502
------------ ------------ ------------
Total liabilities and shareholders' equity $ 2,066,807 $ 1,498,529 $ 2,083,289
============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries Year to Date (13 weeks) Ended
---------------------------------------------------------------------------------------------
(In thousands)
April 29, May 1,
2000 1999
---------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,796 $ 537
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 22,009 17,648
Provision for losses on receivables 59 209
Loss (gain) on sale of property and equipment 77 (673)
Deferred income taxes (2,379) (767)
Extraordinary loss on early extinguishment of debt,
net of tax benefit 3,776
Change in assets and liabilities:
Receivables 8,165 (7,417)
Merchandise inventories (69,852) (49,233)
Other current assets (1,811) (4,834)
Net assets of discontinued operations (27,562)
Other assets and intangibles 10,382 (472)
Accounts payable 3,921 50,842
Accrued liabilities (16,411) (23,396)
--------------------------------------------------------------------------------------------
Net cash (used in) operating activities (71,606) (13,780)
--------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment (42,398) (26,221)
Proceeds from the sale of property and equipment 5 746
--------------------------------------------------------------------------------------------
Net cash (used in) investing activities (42,393) (25,475)
--------------------------------------------------------------------------------------------
Cash flows from financing activities:
Change in short-term debt 100,500 159,000
Change in common stock from stock options 29 765
Retirement of debt and capital leases (1,409) (66,489)
--------------------------------------------------------------------------------------------
Net cash provided by financing activities 99,120 93,276
--------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (14,879) 54,021
Cash and cash equivalents at beginning of year 26,916 30,219
--------------------------------------------------------------------------------------------
Cash and cash equivalents at end of first quarter $ 12,037 $ 84,240
============================================================================================
Supplemental cash flow information:
Noncash investing and financial activities -
Capital lease obligations incurred $ 15,069
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
ShopKo Stores, Inc. and Subsidiaries
------------------------------------------------------------------------------------------------------------------------------
(In thousands)
(Unaudited)
Common Stock Treasury Stock
---------------------- Additional --------------------------
Paid-in Retained
Shares Amount Capital Earnings Shares Amount
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 29, 2000 30,400 $ 304 $ 381,354 $ 332,872 (816) $ (20,028)
Net earnings 1,796
Sale of common stock under
option plans 2 24
Income tax benefit related to
stock options 5
Restricted stock expense 16
------------------------------------------------------------------------------------
BALANCES AT APRIL 29, 2000 30,402 $ 304 $ 381,383 $ 334,684 (816) $ (20,028)
====================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies:
The Company's fiscal 1999 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.
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 $30.4 million, $35.6 million, and $28.9 million higher at April 29, 2000,
May 1, 1999 and January 29, 2000, 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.
Acquisitions:
On July 6, 1999, the Company acquired all of the outstanding voting and
nonvoting common stock of Pamida Holdings Corporation ("Pamida"). The results of
operations of Pamida since the acquisition are included in the accompanying
condensed consolidated financial statements.
Discontinued Operations
In May 2000, the Company announced a definitive agreement for Merck & Co., to
acquire ShopKo's ProVantage Health Services, Inc. (ProVantage) subsidiary. The
ProVantage subsidiary includes health benefit management services, pharmacy mail
services, vision benefit management services and health information technology
and clinical support services. The Company currently owns 64.5 percent of
ProVantage. The pending transaction is expected to result in proceeds of
approximately $143.4 million. The acquisition is expected to close by the end of
the Company's second fiscal quarter.
The results of operations of ProVantage have been presented as discontinued
operations. Accordingly, previously reported statement of earnings information
has been restated to reflect this presentation. Net sales of ProVantage for the
13 weeks ended April 29, 2000 and May 1, 1999 were $275.7 million and $214.9
million, respectively.
Assets and liabilities related to ProVantage are presented in the Condensed
Consolidated Balance Sheet at April 29, 2000 as net assets of discontinued
operations.
7
<PAGE> 8
Business Segment Information:
The Company's reportable segments are based on the Company's strategic business
operating units, and include a ShopKo Retail segment (which includes ShopKo
stores general merchandise, retail pharmacy and retail optical operations) and a
Pamida Retail segment (which includes Pamida stores general merchandise and
retail pharmacy operations).
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's fiscal 1999 Annual
Report on Form 10-K. 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 Quarter Ended
----------------------------------------
April 29, May 1,
2000 1999
-------------------------------------------------------------------------------------------------------------------------
Net sales
<S> <C> <C>
ShopKo Retail $ 583,435 $ 549,460
Pamida Retail 166,156
------------------------------------------------------------------------------------------------------------------------
Total net sales $ 749,591 $ 549,460
------------------------------------------------------------------------------------------------------------------------
Income from operations
ShopKo Retail $ 22,829 $ 18,037
Pamida Retail 416
Corporate (6,877) (5,171)
------------------------------------------------------------------------------------------------------------------------
Income from operations $ 16,368 $ 12,866
------------------------------------------------------------------------------------------------------------------------
</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 quarters of fiscal 2000 and fiscal 1999.
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 April 29, 2000 and May 1, 1999 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.
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth items from the Company's unaudited condensed
consolidated financial statements for the first quarter of fiscal 2000 and 1999
as a percentage of net sales:
<TABLE>
<CAPTION>
First Quarter
-------------
Fiscal Fiscal
2000 1999
---- ----
<S> <C> <C>
Revenues
Net sales 100.0 % 100.0 %
Licensed department rentals and other income 0.4 0.5
--------- ---------
100.4 100.5
Costs and expenses
Cost of sales 74.4 74.8
Selling, general and administrative expenses 20.7 20.5
Special charges 0.2 0.0
Depreciation and amortization expenses 2.9 2.8
--------- ---------
98.2 98.1
Income from operations 2.2 2.4
Interest expense - net 1.9 1.8
--------- ---------
Earnings from continuing operations before income taxes 0.3 0.6
Provision for income taxes 0.2 0.2
--------- ---------
Earnings from continuing operations 0.1 0.4
Discontinued operations, net of income taxes 0.1 0.4
Extraordinary (loss) on early retirement of debt,
net of income taxes (0.7)
--------- ---------
Net earnings 0.2 % 0.1 %
========= =========
</TABLE>
On May 4, 2000, the Company announced a definitive agreement for Merck & Co., to
acquire ShopKo's ProVantage Health Services, Inc. ("ProVantage") subsidiary. The
Company currently owns 64.5 percent of ProVantage. The Company's financial
results reflect the operations of ProVantage as discontinued operations for all
periods presented.
The Company has two business segments: a ShopKo Retail segment (which includes
ShopKo stores general merchandise, retail pharmacy and retail optical
operations) and a Pamida Retail segment (which includes Pamida stores general
merchandise and retail pharmacy operations).
9
<PAGE> 10
The following tables set forth items from the Company's business segments as
percentages of net sales:
SHOPKO RETAIL
<TABLE>
<CAPTION>
First Quarter
-------------
Fiscal Fiscal
2000 1999
---------- ----------
<S> <C> <C>
Revenues
Net sales 100.0 % 100.0 %
Licensed departmental rentals and other income 0.5 0.5
--------- ---------
100.5 100.5
Costs and expenses
Cost of sales 74.1 74.8
Selling, general and administrative expenses 19.5 19.6
Depreciation and amortization expenses 2.9 2.8
--------- ---------
96.5 97.2
Income from operations 4.0 % 3.3 %
PAMIDA RETAIL
<CAPTION>
First Quarter
-------------
Fiscal
2000
----------
<S> <C>
Revenues
Net sales 100.0 %
Licensed department rentals and other income 0.3
---------
100.3
Costs and expenses
Cost of sales 75.4
Selling, general and administrative expenses 21.8
Depreciation and amortization expenses 2.8
---------
100.0
Income from operations 0.3 %
</TABLE>
10
<PAGE> 11
Net Sales
The following table presents the Company's consolidated net sales for the first
quarter of fiscal 2000 and fiscal 1999:
<TABLE>
<CAPTION>
FIRST QUARTER % INCREASE
------------- ----------
FISCAL FISCAL
2000 1999 TOTAL COMP
---- ---- ----- ----
<S> <C> <C> <C> <C>
ShopKo Retail $583.4 $549.5 7.2 2.6
Pamida Retail 166.2 N/A N/A
----- --- ---
Consolidated $749.6 $549.5 37.7
====== ====== ====
</TABLE>
The 2.6% increase in first quarter retail comparable store sales are derived
from the following categories: Retail Health increased 11.2%, Hardlines/Home
increased 0.5% and Apparel decreased 0.5%. The store sales changes exclude
layaway sales in both years. Changes in retail comparable store sales are based
upon those stores which were open for the entire preceding fiscal year.
During the first quarter, the Company opened three new ShopKo stores and three
new Pamida stores and closed one Pamida store. The ShopKo store in Plover,
Wisconsin is a relocation from Stevens Point, Wisconsin. All three of the new
ShopKo stores include in-store pharmacies and optical centers.
In July 1999, the Company acquired the retail chain Pamida, Inc. ("Pamida"),
which operated 152 Pamida stores in 15 Midwest, North Central and Rocky Mountain
states. Since the acquisition, 16 additional Pamida stores were opened and 3
Pamida stores were closed, increasing the number of Pamida stores in operation
from 152 to 165 stores as of May 2000. 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.
11
<PAGE> 12
Gross Margin:
The following table sets forth gross margin as a percent of net sales:
<TABLE>
<CAPTION>
First Quarter
-------------
ShopKo Retail Pamida Retail Consolidated
------------- ------------- ------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross margin percent 25.9 % 25.2 % 24.6 % 25.6 % 25.2 %
Gross margin percent prior to
LIFO charge 26.1 % 25.4 % 24.8 % 25.8 % 25.4 %
</TABLE>
Consolidated gross margin, as restated, as a percent of sales for the first
quarter was 25.6 percent compared to 25.2 percent last year. Consolidated gross
margin dollars increased 38.5 percent to $191.8 million for the same period.
ShopKo retail gross margin as a percent of sales was 25.9 percent compared with
25.2 percent last year, a 70 basis point improvement. The increase is primarily
attributable to higher gross margin rates in our general merchandise. ShopKo
retail gross margin dollars increased 8.9 percent to $150.8 million for the same
period. Pamida's retail gross margin as a percent of sales was 24.6 percent for
the quarter.
Selling, General and Administrative Expenses:
Consolidated selling, general and administrative expenses, as restated, as a
percent of sales for the first quarter were 20.7 percent compared with 20.5
percent last year. ShopKo's retail selling, general and administrative expenses
as a percent of sales for the quarter were 19.5 percent compared to 19.6 percent
last year. Pamida's selling, general and administrative expenses were 21.8
percent of sales for the quarter.
Special Charges:
During the first quarter of fiscal 2000, the Company incurred $1.2 million in
special pre-tax costs relating to the Pamida acquisition for employee retention
programs, elimination of administrative functions and various integration
initiatives. During the remainder of fiscal 2000, the Company expects to incur
additional special charges of approximately $3.0 to $5.0 million for the same
integration initiatives mentioned above.
Interest Expense - Net:
Interest expense, as restated, for the first quarter increased 47.8 percent to
$14.6 million. This increase is primarily due to additional debt as a result of
last year's Pamida acquisition.
12
<PAGE> 13
Income Taxes:
The effective tax rates for the first quarter were 68.5 percent compared with
34.7 percent last year. This increase is mainly due to $1.1 million of
nondeductible goodwill amortization associated with the Pamida acquisition.
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 $23.8 million for the first quarter of fiscal 2000 compared to $18.2 million
for the same period last year. The Company had $345.5 million outstanding under
its credit agreements at the end of the first quarter of fiscal 2000 compared to
$159.0 million outstanding at the end of the first quarter of fiscal 1999. This
increase is primarily due to additional debt as a result of last year's Pamida
acquisition. The Company has a $200.0 million revolving credit agreement with a
consortium of banks of which $200.0 million was outstanding as of April 29,
2000. This credit facility is unsecured and is effective through January 31,
2002. The Company also has a $100.0 million 364-day credit facility of which
$85.5 million was outstanding as of April 29, 2000. The 364-day credit facility
is unsecured and is effective through August 31, 2000. The Company also has
various other unsecured credit facilities, including a $75.0 million seasonal
facility which will expire August 31, 2000 and a banker's acceptance note which
allows borrowing from $25.0 to $100.0 million based on the seasonal needs of the
Company. The banker's acceptance note expires April 30, 2001. As of the end of
the first quarter, $60.0 million was outstanding under these two credit
facilities. Funds generated from operations and borrowings under these credit
facilities are expected to fund the projected working capital needs and total
capital expenditures through fiscal 2000.
The Company's principal use of cash is for the purchase of property, equipment
and systems technology. The Company spent $42.4 million on capital expenditures
in the first quarter of fiscal 2000, compared to $26.2 million on capital
expenditures for the same period last year. The Company's total capital
expenditures for the fiscal year ending February 3, 2001 are anticipated to
approximate $200.0 to $230.0 million, which excludes ProVantage's capital
expenditures. The expenditures would relate to construction of the new ShopKo
and Pamida stores; expansion and building of ShopKo distribution centers;
supporting the existing retail business for merchandise initiatives and ongoing
store equipment and fixturing replacements; and continuing investments in
systems technology. These amounts exclude any capital that may be required for
acquisitions of businesses. Such plans may be reviewed and revised from time to
time in light of changing conditions.
The Company plans to open 10 to 13 new Pamida stores during the second fiscal
quarter. The Company also plans to open 2 new ShopKo stores in the fall. In
total, the Company expects to open 5 ShopKo Stores and 20 to 25 Pamida
stores in fiscal 2000.
13
<PAGE> 14
The Company expects to pursue growth of its retail store business through new
store construction or acquisition of existing retail stores or businesses. Such
plans may be reviewed and revised from time to time in light of changing
conditions. Depending upon the size and structure of any such acquisitions, the
Company may require additional capital resources. The Company believes that
adequate sources of capital will be available.
In May 2000, the Company announced a definitive agreement for Merck & Co., to
acquire ProVantage. The Company currently owns 64.5 percent of ProVantage. The
pending transaction is expected to result in proceeds of approximately $143.4
million which may potentially be used by the Company to acquire or construct new
stores or acquire other retail businesses, repurchase stock, reduce debt or for
other corporate purposes. The acquisition is expected to close by the end of the
Company's second fiscal quarter.
On May 31, 2000, the Company and a majority of the shareholders of P.M. Place
Stores Company ("Place") signed a letter of intent for ShopKo to acquire Place
in a transaction that values Place at approximately $22.0 million, including the
assumption of approximately $19.0 million in debt. Place, which is an employee
owned company, is headquartered in Bethany, Missouri and operates 49 discount
stores in Missouri, Iowa, Kansas and Illinois.
The acquisition will be accounted for as a purchase, and is expected to close by
early July 2000, contingent upon regulatory approval and certain other
conditions. The Company will finance the transaction with cash on hand. Assuming
the transaction closes as anticipated, Place's store inventories will be
liquidated and the stores will be closed for a brief remodeling period. The
stores are expected to reopen in late September 2000 under the Pamida name. The
transaction is not expected to have a material impact on the Company's current
fiscal year results, and is expected to be accretive to earnings in fiscal year
2001.
Stock Repurchase Program:
On January 12, 2000, the Company announced that the Board of Directors had
authorized the repurchase of another $20.0 million of the Company's Common
Stock. As of April 29, 2000, 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. During the first quarter
of fiscal 1999, the Company repurchased approximately $57.1 million of the
Senior Notes, resulting in an extraordinary loss of $3.8 million, net of income
tax benefit of $2.4 million.
14
<PAGE> 15
Inflation:
Inflation has and is expected to have only a minor effect on the results of
operations of the Company and its internal and external sources of liquidity.
Forward-Looking Statements:
Item 2 of this Form 10-Q, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements include, without limitation,
statements regarding earnings, growth and capital expenditure plans and capital
requirements. Such statements are subject to important factors which could cause
the Company's actual results to differ materially from those anticipated by the
forward-looking statements. These factors include those referenced in the
Company's Annual Report on Form 10-K for the period ending January 29, 2000 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 29, 2000. There have been no material changes in the
Company's quantitative or qualitative exposure to market risk since the end of
fiscal 1999.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
2.1 Agreement and Plan of Merger among Merck & Co., Inc., PV
Acquisition Corp. and ProVantage Health Services, Inc.
dated as of May 4, 2000.
10.1 Stockholder Agreement among ShopKo Stores, Inc., SKO
Holdings, Inc., Merck & Co., Inc. and PV Acquisition
Corp. dated as of May 4, 2000.
10.2 Side Letter among ShopKo Stores, Inc., Merck & Co., Inc.
and ProVantage Health Services, Inc. dated May 4, 2000.
10.3 Amended and Restated Tax Matters Agreement between
ShopKo Stores, Inc. and ProVantage Health Services, Inc.
dated as of May 4, 2000.
10.4 Amendment to Lease Agreement between ShopKo Stores, Inc.
and ProVantage Health Services, Inc. dated as of May 4,
2000.
12 Statements Re Computation of Ratios.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule (fiscal year ended
January 29, 2000).
27.3 Restated Financial Data Schedule (third quarter ended
October 30, 1999).
27.4 Restated Financial Data Schedule (second quarter ended
July 31, 1999).
27.5 Restated Financial Data Schedule (first quarter ended
May 1, 1999).
27.6 Restated Financial Data Schedule (fiscal year ended
January 30, 1999).
27.7 Restated Financial Data Schedule (third quarter ended
October 31, 1998).
16
<PAGE> 17
(a) Exhibits (continued).
27.8 Restated Financial Data Schedule (second quarter
ended August 1, 1998).
27.9 Restated Financial Data Schedule (fiscal year ended
January 31, 1998).
(b) Reports on Form 8-K.
The Company filed Current Reports on Form 8-K in the first quarter of
fiscal 2000 as follows:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHOPKO STORES, INC. (Registrant)
Date: June 12, 2000 By: /s/ Richard D. Schepp
-----------------------------------
Richard D. Schepp
Senior Vice President General Counsel and Secretary
(Duly Authorized Officer of Registrant)
Date: June 12, 2000 By: /s/ Jeffery R. Simons
-----------------------------------
Jeffery R. Simons
Vice President and Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
17
<PAGE> 18
EXHIBIT INDEX
SHOPKO STORES, INC.
10-Q REPORT
<TABLE>
<CAPTION>
Exhibit Sequential
Number Exhibit Page Number
------ ------- -----------
<S> <C> <C>
2.1 Agreement and Plan of Merger among Merck & Co., Inc., PV Acquisition
Corp. and ProVantage Health Services, Inc. dated as of May 4, 2000,
incorporated by reference from the Registrant's Current Report on
Form 8-K dated May 4, 2000 (the "May 4 Form 8-K").
10.1 Stockholder Agreement among ShopKo Stores, Inc., SKO Holdings, Inc.,
Merck & Co., Inc. and PV Acquisition Corp. dated as of May 4, 2000,
incorporated by reference from the May 4 Form 8-K.
10.2 Side Letter among ShopKo Stores, Inc., Merck & Co., Inc. and
ProVantage Health Services, Inc. dated May 4, 2000, incorporated by
reference from the May 4 Form 8-K.
10.3 Amended and Restated Tax Matters Agreement between ShopKo Stores,
Inc. and ProVantage Health Services, Inc. dated as of May 4, 2000,
incorporated by reference from the May 4 Form 8-K.
10.4 Amendment to Lease Agreement between ShopKo Stores, Inc. and
ProVantage Health Services, Inc. dated as of May 4, 2000,
incorporated by reference from the May 4 Form 8-K.
12 Statements Re Computation of Ratios.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule (fiscal year ended January 29,
2000).
27.3 Restated Financial Data Schedule (third quarter ended October 30,
1999).
27.4 Restated Financial Data Schedule (second quarter ended July 31,
1999).
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit Sequential
Number Exhibit Page Number
------ ------- -----------
<S> <C> <C>
27.5 Restated Financial Data Schedule (first quarter ended May 1, 1999).
27.6 Restated Financial Data Schedule (fiscal year ended January 30,
1999).
27.7 Restated Financial Data Schedule (third quarter ended October 31,
1998).
27.8 Restated Financial Data Schedule (second quarter ended August 1,
1998).
27.9 Restated Financial Data Schedule (fiscal year ended January 31,
1998).
</TABLE>
19
