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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 AUGUST 2, 2003
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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of Common Stock
as of August 29, 2003 is as follows:
Title of Each Class Shares Outstanding
Common Shares 29,144,735
Exhibit Index Page 1 of Page 25
on Page 26
1
SHOPKO STORES, INC.
FORM 10-Q
FOR THE 13 WEEKS and 26 WEEKS ENDED AUGUST 2, 2003
INDEX
Page
----
Part I Item 1 - Financial Statements
Condensed Consolidated Statements of Operations for the 3
13 weeks ended August 2, 2003 and August 3, 2002
Condensed Consolidated Statements of Operations for the 4
26 weeks ended August 2, 2003 and August 3, 2002
Condensed Consolidated Balance Sheets as of August 2, 5
2003, August 3, 2002 and February 1, 2003
Condensed Consolidated Statements of Cash Flows for 6
the 26 weeks ended August 2, 2003 and August 3, 2002
Condensed Consolidated Statement of Shareholders' 7
Equity for the 26 weeks ended August 2, 2003
Notes to Condensed Consolidated Financial Statements 8-12
Item 2 - Management's Discussion and Analysis of Financial 13-21
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 22
Item 4 - Controls and Procedures 22
Part II Item 4 - Submission of Matters to a Vote of Security Holders 23
Item 6 - Exhibits and Reports on Form 8-K 24
Signatures 25
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------
SHOPKO STORES, INC. AND SUBSIDIARIES SECOND QUARTER (13 WEEKS) ENDED
- ---------------------------------------------------------------------------------------
(In thousands, except per share data)
AUGUST 2, AUGUST 3,
2003 2002
- ---------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
Revenues:
Net sales $764,692 $783,369
Licensed department rentals and other income 3,240 3,199
-------- --------
767,932 786,568
Costs and expenses:
Cost of sales 562,960 583,902
Selling, general and administrative expenses 161,010 157,233
Depreciation and amortization expenses 20,608 20,707
-------- --------
744,578 761,842
Earnings from operations 23,354 24,726
Interest expense - net 10,581 12,784
-------- --------
Earnings before income taxes 12,773 11,942
Provision for income taxes 5,074 4,737
-------- --------
Net Earnings $ 7,699 $ 7,205
======== ========
Net earnings per share of common stock:
Basic: $ 0.27 $ 0.25
======== ========
Diluted: $ 0.26 $ 0.25
======== ========
Weighted average number of common shares outstanding:
Basic: 28,975 28,803
Diluted: 29,249 29,320
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------
SHOPKO STORES, INC. AND SUBSIDIARIES YEAR TO DATE (26 WEEKS) ENDED
- ----------------------------------------------------------------------------------------------
(In thousands, except per share data)
AUGUST 2, AUGUST 3,
2003 2002
- ---------------------------------------------------------------------------- -----------
(UNAUDITED) (UNAUDITED)
Revenues:
Net sales $ 1,472,609 $ 1,512,133
Licensed department rentals and other income 6,287 6,323
----------- -----------
1,478,896 1,518,456
Costs and expenses:
Cost of sales 1,088,214 1,127,741
Selling, general and administrative expenses 316,931 310,514
Depreciation and amortization expenses 41,579 41,609
----------- -----------
1,446,724 1,479,864
Earnings from operations 32,172 38,592
Interest expense - net 21,216 25,870
----------- -----------
Earnings before income taxes 10,956 12,722
Provision for income taxes 4,352 5,045
----------- -----------
Earnings before accounting change 6,604 7,677
Cumulative effect of accounting change -0- (186,052)
----------- -----------
Net earnings (loss) $ 6,604 $ (178,375)
=========== ===========
Net earnings (loss) per share of common stock:
Basic:
Earnings before cumulative effect of accounting change $ 0.23 $ 0.27
Cumulative effect of accounting change -0- (6.47)
----------- -----------
Net earnings (loss) $ 0.23 $ (6.20)
=========== ===========
Diluted:
Earnings before cumulative effect of accounting change $ 0.23 $ 0.26
Cumulative effect of accounting change -0- (6.36)
----------- -----------
Net earnings (loss) $ 0.23 $ (6.10)
=========== ===========
Weighted average number of common shares outstanding:
Basic: 28,953 28,768
Diluted: 29,202 29,265
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------- ---------------
SHOPKO STORES, INC. AND SUBSIDIARIES SECOND QUARTER AS OF FISCAL YEAR END
- ------------------------------------------------------------------------------------------- ---------------
(In thousands)
AUGUST 2, AUGUST 3, FEBRUARY 1,
2003 2002 2003*
- ------------------------------------------------------------------------ ----------- ---------------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 36,507 $ 35,869 $ 33,753
Receivables, less allowance for losses of $2,749
$3,448 and $2,611, respectively 48,744 53,680 49,509
Merchandise inventories 585,141 611,192 562,731
Other current assets 11,528 23,373 13,745
----------- ----------- -----------
Total current assets 681,920 724,114 659,738
Other assets and deferred charges 10,970 10,974 12,570
Intangible assets - net 20,389 22,715 20,475
Property and equipment, net of accumulated
depreciation of $758,679, $690,470 and $723,550 780,651 841,129 812,184
----------- ----------- -----------
Total assets $ 1,493,930 $ 1,598,932 $ 1,504,967
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 53,159 $ 30,853 $ 40,022
Accounts payable - trade 250,988 281,683 241,166
Accrued compensation and related taxes 38,648 42,142 44,957
Deferred taxes and other accrued liabilities 117,841 130,539 128,809
Accrued income and other taxes 34,542 25,876 49,998
Current portion of long-term obligations and leases 94,343 7,621 95,554
----------- ----------- -----------
Total current liabilities 589,521 518,714 600,506
Long-term obligations and leases, less current portion 309,214 532,744 319,577
Other long-term obligations 16,157 4,370 16,744
Deferred income taxes 23,201 29,811 19,769
Shareholders' equity:
Common stock 310 308 310
Additional paid-in capital 389,943 387,135 389,177
Retained earnings 205,834 166,100 199,134
Less treasury stock (40,250) (40,250) (40,250)
----------- ----------- -----------
Total shareholders' equity 555,837 513,293 548,371
----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,493,930 $ 1,598,932 $ 1,504,967
=========== =========== ===========
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------
SHOPKO STORES, INC. AND SUBSIDIARIES YEAR TO DATE (26 WEEKS) ENDED
- -----------------------------------------------------------------------------------------------------
(In thousands)
AUGUST 2, AUGUST 3,
2003 2002
- -----------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Earnings before accounting change $ 6,604 $ 7,677
Adjustments to reconcile earnings before accounting change to net
cash provided by operating activities:
Depreciation and amortization 41,579 41,609
Gain on sale of property and equipment (2,007) (769)
Deferred income taxes 187 10,789
Change in assets and liabilities:
Receivables 765 (4,942)
Merchandise inventories (22,410) 2,719
Other current assets 2,217 (4,985)
Other assets and intangibles (19) 653
Accounts payable 9,822 26,053
Accrued liabilities (27,940) 3,344
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,798 82,148
- -----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment (13,978) (10,451)
Proceeds from the sale of property and equipment 2,540 9,240
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,438) (1,211)
- -----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from debt borrowings 13,137 37,471
Net payments of debt and capital lease obligations (8,106) (112,317)
Debt issuance costs 0 (1,380)
Change in common stock from stock options 363 989
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,394 (75,237)
- -----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,754 5,700
Cash and cash equivalents at beginning of period 33,753 30,169
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 36,507 $ 35,869
- -----------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Noncash investing and financial activities -
Capital lease obligations incurred $ -0- $ 18
Capital lease obligations terminated $ 3,989 $ 11,000
See notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SHOPKO STORES, INC. AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands) (UNAUDITED)
Common Stock Additional Treasury Stock Total
-------------------- Paid-in Retained --------------------- -------------------
Shares Amount Capital Earnings Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT FEBRUARY 1, 2003 30,974 $ 310 $ 389,177 $ 199,134 (1,904) $ (40,250) 29,070 $548,371
Net earnings 6,604 6,604
Issuance of restricted stock 28 -0- 319 (319) 28 -0-
Sales of common stock under
option plans 45 -0- 363 45 363
Income tax benefit related to
stock options 84 84
Restricted stock expense 415 415
-------------------------------------------------------------------------------------------
BALANCES AT AUGUST 2, 2003 31,047 $ 310 $ 389,943 $ 205,834 (1,904) $ (40,250) 29,143 $555,837
===========================================================================================
See notes to condensed consolidated financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Interim Financial Statements
The Company operates on a 52-week fiscal year basis. The 2003 fiscal year will
end on January 31, 2004 and the 2002 fiscal year ended February 1, 2003. The
accompanying condensed consolidated financial statements have been prepared by
the Company without audit. However, the foregoing financial statements reflect
all adjustments (which include only normal recurring adjustments) which are, in
the opinion of Company management, necessary to present fairly the consolidated
financial position of the Company as of August 2, 2003 and August 3, 2002, and
the results of 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.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission. The Company's
fiscal 2002 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, except for the implementation of
recent accounting pronouncements as described herein. The accompanying unaudited
condensed consolidated financial statements should be read in conjunction with
the Company's consolidated financial statements and notes thereto for the fiscal
year ended February 1, 2003.
B. Intangible Assets
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets",
effective February 3, 2002. Under SFAS No. 142, the Company no longer amortizes
goodwill and other intangible assets with indefinite useful lives. Instead, the
carrying value is evaluated for impairment on an annual basis, unless events
warrant more frequent review. During fiscal 2002, based on the analysis of an
independent appraiser, the Company completed its assessment of the impairment of
goodwill of the Pamida retail segment in accordance with the guidelines provided
by SFAS No. 142. The fair value of the Pamida retail segment was determined by
the appraiser based on a combination of a discounted cash flow analysis and an
analysis of market prices of other retail companies. The fair values of the
underlying assets and liabilities were determined using standard valuation
practices, including income capitalization, sales comparisons, market rent
analysis, relief from royalty and replacement cost. As a result of this
assessment, the Company recorded a charge of $186.1 million as of February 3,
2002 related to the write down of all goodwill recorded on the Company's balance
sheet, all of which related to the Pamida retail segment.
In fiscal 2002, an independent appraiser prepared a valuation of the Company's
intangible assets with indefinite lives, which primarily consist of a trademark
associated with the Pamida retail segment. No impairment was recorded as a
result of this assessment. In the first quarter of fiscal 2003, Company
management updated the valuation using a consistent methodology, which was
reviewed by the same appraiser, and concluded that no impairment of these assets
has occurred.
8
C. Restructuring Reserve
In the fourth quarter of fiscal 2000, the Company announced a strategic
reorganization plan to close 23 ShopKo retail stores, a distribution center, and
to downsize its corporate workforce. The inventory and fixed asset write-down
reserves were recorded in the fourth quarter of fiscal 2000. All stores and the
distribution center were closed and approximately 2,500 employees were
terminated in the first quarter of fiscal 2001. The Company utilized all of the
employee severance reserve prior to fiscal 2002. Of the 24 properties initially
covered by the restructuring reserve, six were disposed of in fiscal 2001 and
nine were disposed of in fiscal 2002, leaving nine remaining properties covered
by the restructuring reserve.
The amount of the asset write-downs and reserves for lease termination and
property carrying costs are based in part on management's estimates as to the
timing for disposition of, sales proceeds from, and disposition costs of the
closed facilities. The Company's intention has been, and continues to be, to
relieve all obligations associated with the closed facilities. Due to continuing
softness in the retail real estate climate, as well as a growing number of
vacant retail properties coming on the market as the Company's competitors
continue to restructure and downsize their operations, the Company engaged a
real estate consulting firm to evaluate the obligations of the remaining four
leased closed stores and potential sales prices for the remaining five owned
closed store properties during fiscal 2002. Based on this evaluation, the
Company lowered the estimated valuations of the properties. Disposition of some
properties may also take longer than originally estimated. As a result, the
Company took an additional $5.6 million pre-tax impairment charge on the owned
properties and an additional $0.4 million charge for future lease obligations on
the leased properties during the fourth quarter of fiscal 2002.
During the first half of fiscal 2003, no additional leases were terminated or
owned properties sold. As of August 2, 2003, the remaining reserve for lease
termination and related property carrying costs, as well as other costs, was
$14.9 million and the remaining property write-down reserve was $16.1 million.
For balance sheet reporting purposes, the portion of the reserve for the lease
termination, property carrying and other costs to be paid in the next 12 months
is reported in accrued expenses as a current liability and the remainder ($13.7
million) is recorded in other long-term obligations at August 2, 2003. The
Company believes the reserves are adequate, and continues to negotiate lease
terminations with landlords and actively market closed stores for sale. However,
sales of owned stores and lease terminations have been slower than anticipated,
due to the unfavorable retail real estate climate described earlier.
Accordingly, the level of reserves could prove to be inadequate and additional
charges may be required. The Company will continue to evaluate the adequacy of
the amounts reserved as it proceeds with the disposition of the real estate and
termination of the leases.
Following is an analysis of the change in the restructuring reserve (in
thousands) during the first half of fiscal 2003:
Balance as of Cash Other Balance as of
February 1, 2003 Payments Adjustments August 2, 2003
---------------- -------- ----------- --------------
Lease termination and property
carrying costs $ 14,971 (210) 115 $ 14,876
Other costs 115 (115) -0-
-----------------------------------------------------------------
$ 15,086 (210) -0- $ 14,876
=================================================================
9
D. Stock-Based Employee Compensation Plans
The Company has various stock-based employee compensation plans, which are
described more fully in Note G of the Notes to Consolidated Financial Statements
in the Company's 2002 Annual Report on Form 10-K. The Company accounts for those
plans under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No
stock-based employee compensation cost is reflected in results of operations for
stock option awards, as all options granted under those plans had an exercise
price equal to the market value of the underlying common stock on the date of
grant. The expense related to the intrinsic value of restricted stock issued was
not significant to second quarter or year to date net earnings, cash flows or
financial position for fiscal years 2003 and 2002.
The following pro forma information illustrates the effect on net income and
earnings per share as if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
in accounting for its employee stock options.
SECOND QUARTER (13 YEAR TO DATE (26 WEEKS)
WEEKS) ENDED ENDED
-----------------------------------------------------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
---- ---- ---- ----
Net earnings (loss) as reported $ 7,699 $ 7,205 $ 6,604 $ (178,375)
Add: Stock-based employee compensation expense
included in reported net income, net of
related tax effects 123 28 250 55
Deduct: Total stock-based employee compensation
expense determined under fair value
method for all option awards, net of
related tax effects (416) (435) (533) (906)
-----------------------------------------------------------------
Pro forma net earnings (loss) $ 7,406 $ 6,798 $ 6,321 $ (179,226)
=================================================================
Net Earnings (Loss) per share:
Basic - as reported $ 0.27 $ 0.25 $ 0.23 $ (6.20)
Basic - pro forma $ 0.26 $ 0.24 $ 0.22 $ (6.24)
Diluted - as reported $ 0.26 $ 0.25 $ 0.23 $ (6.10)
Diluted - pro forma $ 0.25 $ 0.24 $ 0.22 $ (6.13)
E. Business Segment Information
The Company's reportable segments are based on the Company's strategic business
operating units and include a ShopKo Retail segment and a Pamida Retail segment,
each of which includes the following product categories: hardlines/home,
softlines, and retail health services.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's fiscal 2002 Annual
Report on Form 10-K, except for the implementation of recent accounting
pronouncements as described herein. The Company evaluates performance based on
earnings from operations of the respective business segments.
10
Summary financial information concerning the Company's reportable segments is
shown in the following table (in thousands).
SECOND QUARTER (13 WEEKS) ENDED YEAR TO DATE (26 WEEKS) ENDED
------------------------------- -------------------------------
AUGUST 2, 2003 AUGUST 3, 2002 AUGUST 2, 2003 AUGUST 3, 2002
- -------------------------------------------------------------------------------------------------------------
Net sales
ShopKo Retail $ 558,810 $ 583,283 $ 1,089,337 $ 1,135,753
Pamida Retail 205,882 200,086 383,272 376,380
- -------------------------------------------------------------------------------------------------------------
Total net sales $ 764,692 $ 783,369 $ 1,472,609 $ 1,512,133
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations
ShopKo Retail $ 24,858 $ 28,634 $ 40,671 $ 53,687
Pamida Retail 6,304 3,708 4,932 972
Corporate (7,808) (7,616) (13,431) (16,067)
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations $ 23,354 $ 24,726 $ 32,172 $ 38,592
- -------------------------------------------------------------------------------------------------------------
The Company's areas of operations are principally in the United States. No major
customer accounted for a significant amount of consolidated revenue during the
first half of fiscal 2003 and fiscal 2002.
F. Commitments & Contingencies
The Company is contingently liable on the lease payments for two former retail
stores, which were assumed by an unrelated party. Total remaining lease
obligations for the stores are $10.6 million as of August 2, 2003.
G. Recent Accounting Pronouncements
In January 2003, the Emerging Issues Task Force ("EITF") issued EITF Consensus
No. 02-16, "Accounting By a Customer (Including a Reseller) for Certain
Consideration Received From a Vendor", applicable to fiscal years beginning
after December 15, 2002. EITF No. 02-16 provides accounting guidance on how a
customer, including a reseller, should characterize consideration received from
a vendor and when to recognize and how to measure that consideration in its
income statement. The Company adopted EITF No. 02-16 on a prospective basis as
of February 2, 2003. EITF 02-16, as it applies to the Company, addresses the
recognition of certain vendor allowances and requires these allowances be
treated as a reduction of inventory cost unless specifically identified as
reimbursement for services or other costs incurred. The adoption of EITF 02-16
resulted in the deferral of certain vendor allowances into inventory cost. This
reduced earnings by approximately $1.6 million after tax or $0.05 per share for
the second quarter and by $2.5 million after tax or $0.08 per share for the
first half of fiscal 2003. The Company believes the full year impact on earnings
will be immaterial. Additionally, the adoption of EITF 02-16 impacted certain
vendor allowances resulting in a reclassification that increased Selling,
General and Administrative expenses and, correspondingly, decreased Cost of
Sales by $6.7 million and $14.4 million for the second quarter and first half of
fiscal 2003, respectively.
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS
No. 123 to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
It amends the disclosure requirements of SFAS No. 123 to require
11
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. As of August 2, 2003, the Company has not
elected to expense stock options. The potential impact on consolidated financial
statements of expensing of stock options is disclosed in Note D of the Notes to
Condensed Consolidated Financial Statements.
H. Subsequent Event
On August 19, 2003, the Company amended and restated its senior secured
revolving credit facility (the "Amended Secured Credit Facility"), which is
secured by the Company's inventory and accounts receivable. The Amended Secured
Credit Facility, which terminates on August 19, 2007, provides for revolving
credit borrowings of up to $450.0 million. Amounts available under the Amended
Secured Credit Facility are limited based on a percentage of inventory and
accounts receivable and bear interest at the bank's base rate or Eurodollar rate
plus an applicable margin depending on borrowing availability under the
facility. The facility contains various affirmative and negative covenants and
limits the Company's ability to pay dividends.
12
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 second quarter and first half of
fiscal 2003 and 2002 as a percentage of net sales:
SECOND QUARTER YEAR TO DATE
(13 WEEKS) (26 WEEKS)
-------------------------- --------------------------
FISCAL FISCAL FISCAL FISCAL
2003 2002 2003 2002
---------- ---------- ---------- ----------
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
Cost of sales 73.6 74.5 73.9 74.6
Gross margin 26.4 25.5 26.1 25.4
Selling, general and administrative expenses 21.1 20.1 21.5 20.5
Depreciation and amortization expenses 2.7 2.6 2.8 2.8
-------- -------- -------- --------
23.8 22.7 24.3 23.3
-------- -------- -------- --------
Earnings from operations 3.1 3.2 2.2 2.6
Interest expense - net 1.4 1.6 1.4 1.7
-------- -------- -------- --------
Earnings before income taxes 1.7 1.5 0.7 0.8
Provision for income taxes 0.7 0.6 0.3 0.3
-------- -------- -------- --------
Earnings before accounting change 1.0% 0.9% 0.4% 0.5%
Cumulative effect of accounting change -- -- -- (12.3)
-------- -------- -------- --------
Net earnings (loss) 1.0% 0.9% 0.4% (11.8)%
======== ======== ======== ========
13
The Company has two business segments: a ShopKo Retail segment and a Pamida
Retail segment. The following tables set forth items from the Company's business
segments as percentages of net sales:
SECOND QUARTER YEAR TO DATE
(13 WEEKS) (26 WEEKS)
-------------------------- --------------------------
FISCAL FISCAL FISCAL FISCAL
2003 2002 2003 2002
---------- ---------- ---------- ----------
SHOPKO RETAIL SEGMENT
Net sales 100.0% 100.0% 100.0% 100.0%
Licensed department rentals and other income 0.5 0.5 0.5 0.5
------- -------- ------- -------
100.5 100.5 100.5 100.5
Cost of sales 73.6 74.5 74.0 74.3
Gross margin 26.4 25.5 26.0 25.7
Selling, general and administrative expenses 19.8 18.5 20.1 18.8
Depreciation and amortization expenses 2.6 2.6 2.7 2.7
------- -------- ------- -------
22.5 21.1 22.8 21.5
------- -------- ------- -------
Earnings from operations 4.4% 4.9% 3.7% 4.7%
======= ======== ======= =======
SECOND QUARTER YEAR TO DATE
(13 WEEKS) (26 WEEKS)
-------------------------- --------------------------
FISCAL FISCAL FISCAL FISCAL
2003 2002 2003 2002
---------- ---------- ---------- ----------
PAMIDA RETAIL SEGMENT
Net sales 100.0% 100.0% 100.0% 100.0%
Licensed department rentals and other income 0.2 0.2 0.2 0.2
------- -------- ------- -------
100.2 100.2 100.2 100.2
Cost of sales 73.5 74.8 73.7 75.5
Gross margin 26.5 25.2 26.3 24.5
Selling, general and administrative expenses 20.8 20.8 22.1 21.6
Depreciation and amortization expenses 2.8 2.7 3.0 2.9
------- -------- ------- -------
23.5 23.6 25.2 24.5
------- -------- ------- -------
Earnings from operations 3.1% 1.9% 1.3% 0.3%
======= ======== ======= =======
14
NET SALES:
The following table presents the Company's consolidated net sales for the second
quarter and first half of fiscal 2003 and fiscal 2002:
SECOND QUARTER % INCREASE/
(13 WEEKS) (DECREASE)
-------------------------------------------------------
FISCAL FISCAL
2003 2002 TOTAL *** COMP**
---------- ---------- ---------- --------
ShopKo Retail $ 558.8 $ 583.3 (4.2)% (4.2)%
Pamida Retail* 205.9 200.1 2.9 % 3.7 %
-------------------------------------------------------
Consolidated $ 764.7 $ 783.4 (2.4)% (2.2)%
=======================================================
YEAR TO DATE % INCREASE/
(26 WEEKS) (DECREASE)
-------------------------------------------------------
FISCAL FISCAL
2003 2002 TOTAL *** COMP**
---------- ---------- ---------- --------
ShopKo Retail $ 1,089.3 $ 1,135.7 (4.1)% (4.1)%
Pamida Retail* 383.3 376.4 1.8 % 2.6 %
-------------------------------------------------------
Consolidated $ 1,472.6 $ 1,512.1 (2.6)% (2.4)%
=======================================================
* Changes in store sales are exclusive of layaway sales, which are immaterial.
** Changes in comparable store sales are based upon those stores open for the
entire preceding fiscal year.
*** Pamida division reflects sales from six closed locations which were not
replaced.
The 4.2 percent decrease in ShopKo comparable store sales during the second
quarter was primarily the result of decreased general merchandise sales as a
result of the challenging retail climate, adjustments to the advertising
calendar and less aggressive advertised pricing, partially offset by strong
sales in retail health services. Changes in ShopKo comparable store sales in the
second quarter of fiscal 2003 by category were as follows: Retail Health, 4.7%;
Hardlines/Home, (8.8)%; and Softlines, (6.6)%. The 3.7 percent increase in
Pamida comparable store sales was driven by increased pharmacy (including sales
at new pharmacy locations in existing Pamida stores) and advertised sales,
resulting from new convenience and value merchandising and marketing efforts.
Changes in Pamida comparable store sales in the second quarter of fiscal 2003 by
category were as follows: Pharmacy, 20.9%; Hardlines, 1.8%; and Softlines,
(4.1)%.
The 4.1 percent decrease in ShopKo comparable store sales during the first half
of fiscal 2003 was primarily the result of decreased general merchandise sales
as a result of weak consumer sentiment, adjustments to the advertising calendar
and competitive store openings, partially offset by strong sales in retail
health services. Changes in ShopKo comparable store sales in the first half of
fiscal 2003 by category were as follows: Retail Health, 4.6%; Hardlines/Home,
(9.2)%; and Softlines, (6.7)%. The 2.6 percent increase in Pamida comparable
store sales during the first half of fiscal 2003 was driven by increased
pharmacy and advertised sales, resulting from new convenience and value
merchandising and marketing efforts. Changes in Pamida comparable store sales in
the first half of fiscal 2003 by category were as follows:
15
Pharmacy, 18.2%; Hardlines, (0.5)%; and Softlines, (0.3)%. As mentioned earlier,
the increase in Pharmacy sales for the Pamida division is inclusive of new
pharmacy openings in existing stores.
Generating sales growth is a Company priority, which will be challenging in the
current environment. The Company expects competitive store openings to continue
to affect sales in a similar manner for the foreseeable future. To address the
sales growth priority, the Company has initiated investments in infrastructure,
in both organization and technology, additional store remodeling plans and is
continuing store development plans to focus on our strong Retail Health segment
and to strengthen performance in Hardlines/Home and Softlines. Moreover, the
Company will continue to refine merchandising and advertising techniques in this
challenging environment. There can be no assurance that such efforts will
succeed.
The Company's store activity is summarized below:
26 WEEKS ENDED
----------------------- YEAR ENDED
AUGUST 2, AUGUST 3, FEBRUARY 1,
2003 2002 2003
---- ---- ----
SHOPKO STORES
Beginning number of stores 141 141 141
Openings 0 0 0
Closings 0 0 0
-------------------------------------
Ending number of stores 141 141 141
=====================================
PAMIDA STORES
Beginning number of stores 223 225 225
Openings 0 0 0
Closings 4 1 2
-------------------------------------
Ending number of stores 219 224 223
=====================================
GROSS MARGIN:
Consolidated gross margin, as a percent of net sales for the second quarter of
fiscal 2003, was 26.4 percent compared with 25.5 percent for the same period
last year. Consolidated gross margin dollars increased 1.1 percent to $201.7
million for the same period. The adoption of EITF No. 02-16 favorably affected
gross margin by 50 basis points, or $4.1 million. Excluding the effect of EITF
No. 02-16, the Company experienced improved merchandise margins attributable to
reduced shrinkage.
ShopKo's gross margin as a percent of net sales was 26.4 percent in the second
quarter compared with 25.5 percent last year. ShopKo's gross margin dollars
decreased 1.1 percent to $147.2 million for the same period, due primarily to
lower sales volume. The adoption of EITF No. 02-16 favorably affected ShopKo's
gross margin by 90 basis points, or $4.9 million. Pamida's gross margin as a
percent of net sales was 26.5 percent in the second quarter of fiscal 2003
compared with 25.2 percent last year. Pamida's gross margin dollars increased
7.8 percent to $54.5 million for the same period. The improvement was primarily
attributable to continued reductions in shrink expense. The adoption of EITF No.
02-16 adversely affected Pamida's gross margin by 40 basis points or ($0.8)
million.
Consolidated gross margin, as a percent of net sales for the first half of
fiscal 2003, was 26.1 percent compared with 25.4 percent for the same period
last year. Consolidated gross margin dollars were flat at $384.4 million for the
same period. The adoption of EITF No. 02-16 favorably affected gross margin by
70 basis points, or $10.4 million. Excluding the effect of
16
EITF No. 02-16, the Company experienced compressed merchandise margins
attributable to heavier clearance activity in the ShopKo division, offset by
reduced shrink expense.
ShopKo's gross margin as a percent of net sales was 26.0 percent in the first
half of fiscal 2003 compared with 25.7 percent last year. ShopKo's gross margin
dollars decreased 2.8 percent to $283.7 million for the same period, due
primarily to increased clearance sales. The adoption of EITF No. 02-16 favorably
affected ShopKo's gross margin by 110 basis points or $11.5 million. Pamida's
gross margin as a percent of net sales was 26.3 percent in the first half of
fiscal 2003 compared with 24.5 percent last year. Pamida's gross margin dollars
increased 9.0 percent to $100.7 million for the same period. The improvement was
primarily attributable to continued reductions in shrink expense. The adoption
of EITF No. 02-16 adversely affected Pamida's gross margin by 30 basis points or
($1.1) million.
The Company uses the last-in, first-out (LIFO) method for substantially all
inventories. There was no LIFO charge or credit for the quarters ended August 2,
2003 and August 3, 2002. If the first-in, first-out (FIFO) method had been used
to determine cost of inventories, the Company's inventories would have been $2.9
million higher at August 3, 2002. There was no difference between the LIFO and
FIFO cost methods at August 2, 2003 and February 1, 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Consolidated selling, general and administrative (SG&A) expenses, as a percent
of net sales for the second quarter, were 21.1 percent compared with 20.1
percent last year. The adoption of EITF No. 02-16 adversely affected
consolidated SG&A by 90 basis points or $6.7 million. Excluding the effect of
EITF No. 02-16, the Company's expense rate would have increased by ten basis
points over the same period last year. The higher rate is primarily attributable
to lower sales volume.
ShopKo's selling, general and administrative expenses as a percent of net sales
for the second quarter were 19.8 percent compared with 18.5 percent last year.
The adoption of EITF No. 02-16 adversely affected SG&A by 130 basis points.
Pamida's selling, general and administrative expenses for the second quarter
were 20.8 percent of net sales, consistent with the second quarter of last year.
The second quarter difference in the effects of adopting EITF No. 02-16 between
the $4.1 million in gross margin and the $6.7 million in SG&A expense, or $2.6
million, relates to the deferred recognition of vendor allowances into inventory
until the merchandise is sold.
Consolidated selling, general and administrative (SG&A) expenses as a percent of
net sales for the first half of fiscal 2003 were 21.5 percent compared with 20.5
percent last year. The adoption of EITF No. 02-16 adversely affected
consolidated SG&A by 100 basis points or $14.4 million. Excluding the effect of
EITF No. 02-16, the Company's expense rate would have been comparable with the
same period last year.
ShopKo's selling, general and administrative expenses as a percent of net sales
for the first half of fiscal 2003 were 20.1 percent compared with 18.8 percent
last year. The adoption of EITF No. 02-16 adversely affected SG&A by 140 basis
points. Pamida's selling, general and administrative expenses for the first half
of fiscal 2003 were 22.1 percent of net sales compared with 21.6 percent for the
first half of last year, reflecting store closing costs, increased payroll costs
associated with pharmacy growth and increases in incentive compensation costs.
17
DEPRECIATION AND AMORTIZATION EXPENSE:
Consolidated depreciation and amortization expenses as a percent of net sales
for the second quarter were 2.7 percent compared with 2.6 percent last year. The
increase for the second quarter of fiscal 2003 was primarily attributable to
lower sales. For the first half of fiscal 2003 and fiscal 2002, depreciation and
amortization expenses were 2.8 percent of net sales.
INTEREST EXPENSE - NET:
Net interest expense for the second quarter of the fiscal year decreased 17.2
percent to $10.6 million and decreased 18.0 percent to $21.2 million for the
first half of the fiscal year, when compared with the same periods in the prior
fiscal year. The decrease in interest expense of $2.2 million for the second
quarter and $4.7 million for the first half of the year was primarily due to
reductions in debt levels compared with the prior year.
INCOME TAXES:
The Company's effective tax rate for the second quarter and first half of fiscal
2003 was 39.7 percent which is consistent with the effective tax rate for the
second quarter and first half of fiscal 2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the appropriate application of certain accounting policies, many of
which require management to make estimates and assumptions about future events
and their impact on amounts reported in our financial statements and related
notes. Since future events and their impact cannot be determined with certainty,
the actual results will inevitably differ from our estimates. Such differences
could be material to the financial statements.
Management believes that its application of applicable accounting policies, and
the estimates inherently required therein, are reasonable. Management
periodically reevaluates these accounting policies and estimates in the
preparation of our financial statements and makes adjustments when facts and
circumstances dictate a change. We have identified certain critical accounting
policies, which are described below.
Merchandise Inventory. Our merchandise inventory is carried at the
lower of cost or market on a last-in, first-out (LIFO) basis. The valuation of
inventories at cost requires certain management judgments and estimates,
including among others, an assessment of any excess inventory levels, lower of
cost or market value of merchandise inventory, and shrinkage rates. These
assumptions can have a significant impact on current and future operating
results and financial position.
Restructuring Reserve. In connection with the reorganization plan
announced in the fourth quarter of fiscal 2000 to close 23 ShopKo retail stores,
a distribution center, and to downsize its corporate workforce, the Company
incurred a pre-tax charge of $125.0 million related to inventory and property
write-downs, lease termination and property carrying costs, and employee
separation and other costs. The inventory and fixed asset write-down reserves
were recorded in the fourth quarter of fiscal 2000, and the Company closed all
23 stores and the distribution center in fiscal 2001. The Company utilized all
of the employee severance reserve
18
prior to fiscal 2002. Of the 24 properties initially covered by the
restructuring reserve, six were disposed of in fiscal 2001 and nine were
disposed of in fiscal 2002, leaving nine remaining properties covered by the
restructuring reserve. During the first half of fiscal 2003, no additional
leases were terminated or owned properties sold.
The amount of the asset write-downs and reserves for lease termination and
property carrying costs are based in part on management's estimates as to the
timing for disposition of, sales proceeds from, and disposition costs of the
closed facilities. The Company's intention has been, and continues to be, to
relieve all obligations associated with the closed facilities. Due to continuing
softness in the retail real estate climate, as well as a growing number of
vacant retail properties coming on the market as the Company's competitors
continue to restructure and downsize their operations, the Company engaged a
real estate consulting firm to evaluate the obligations of the remaining four
leased closed stores and potential sales prices for the remaining five owned
closed store properties during fiscal 2002. Based on this evaluation, the
Company lowered the estimated valuations of the properties. Disposition of some
properties may also take longer than originally estimated. As a result, the
Company took an additional $5.6 million pre-tax impairment charge on the owned
properties and an additional $0.4 million charge for future lease obligations on
the leased properties during the fourth quarter of fiscal 2002.
The Company believes the reserves are adequate, and continues to negotiate lease
terminations with landlords and actively market closed stores for sale. However,
due to the unfavorable retail real estate climate described earlier, sales of
owned stores and lease terminations have been slower than anticipated.
Accordingly, the level of reserves could prove to be inadequate and additional
charges may be required. The Company will continue to evaluate the adequacy of
the amounts reserved as it proceeds with the disposition of the real estate and
termination of the leases.
Vendor Allowances. The Company records vendor allowances and discounts
in the income statement when the purpose for which those monies were designated
is fulfilled. Allowances provided by vendors generally relate to profitability
of inventory recently sold and, accordingly, are reflected as reductions of cost
of merchandise sold. Vendor allowances received for advertising or fixturing
programs reduce the Company's expense for the related advertising or fixturing
program.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's liquidity requirements are met primarily by cash generated from
operations, with remaining funding requirements provided by short-term and
long-term borrowings. Cash provided by operating activities was $8.8 million for
the first half of fiscal 2003 compared with $82.1 million for the same period
last year. The change in cash provided by operating activities in comparison to
the first half of 2002 was primarily due to changes in merchandise inventory
levels, payments of accrued income taxes and lower accruals for compensation and
related taxes. The Company finances a significant portion of its operations
through vendor financing. As of August 2, 2003, accounts payable totaled $251.0
million. The Company currently maintains favorable terms with its vendors,
however these terms could change based on the Company's future operating
performance.
As of August 2, 2003, the Company had $247.5 million of Senior Unsecured Notes
outstanding. On August 15, 2003, the Company funded the retirement of $89.2
million in aggregate principal amount of notes due August 2003. The remaining
Senior Unsecured Notes have maturity dates in November 2004 and March 2022, with
approximately $58.2 million principal amount maturing in November 2004. Subject
to certain limitations set forth in our amended and restated senior secured
revolving credit facility (the "Amended Secured Credit Facility"), proceeds of
the facility
19
or funds from other sources may be used to retire or repurchase those Senior
Unsecured Notes maturing during the term of the Amended Secured Credit Facility.
During the first half of fiscal 2003, the Company purchased a combined total of
$1.5 million in principal amount of the outstanding Senior Unsecured Notes due
in November 2004. The Company anticipates funding the retirement of the notes
due November 2004 through a combination of operating cash flow and available
borrowings under the Amended Secured Credit Facility. Payments due under the
Senior Unsecured Notes could be accelerated in the event the Company defaults on
any debt obligation in excess of $25.0 million.
In addition to the Senior Unsecured Notes, the Company had $53.2 million
outstanding under its secured credit facility at the end of the second quarter
of fiscal 2003 compared with $130.9 million outstanding at the end of the second
quarter of fiscal 2002. On August 19, 2003, the Company entered into the Amended
Secured Credit Facility, which is secured by the Company's inventory and
accounts receivable. The Amended Secured Credit Facility provides for revolving
credit borrowings of up to $450.0 million, bearing interest at the bank's base
rate plus a margin of 0.0% to 0.25% or the Eurodollar rate plus a margin of 1.5%
to 2.0%, depending on borrowing availability under the facility.
The Amended Secured Credit Facility terminates August 19, 2007, limits the
payment of dividends, new indebtedness, repurchases of common stock, and capital
expenditures, and requires the Company to meet financial performance covenants
relating to borrowing availability and minimum operating cash flows. The
consequences of failing to comply with the various covenants and requirements
range from increasing the interest rate to restrictions on cash management to
default and acceleration of the debt. The indebtedness under the Amended Secured
Credit Facility can be declared immediately due and payable in the event other
Company debt in excess of $10.0 million is accelerated. As of August 2, 2003 and
for the first half of fiscal 2003, the Company was in compliance with all
covenants in the secured credit facility in place during the first half of the
year.
The following schedule sets forth the Company's contractual obligations and
commercial commitments as of August 2, 2003 (in thousands):
- -----------------------------------------------------------------------------------------------------------
Less than 1 After
CONTRACTUAL OBLIGATIONS Total year 2-3 years 4-5 years 5 years
- -----------------------------------------------------------------------------------------------------------
Long-Term Debt $ 300,867 $ 90,366 $ 61,330 $ 5,599 $ 143,572
- -----------------------------------------------------------------------------------------------------------
Capital Lease Obligations (1) 184,223 15,119 29,139 26,299 113,666
- -----------------------------------------------------------------------------------------------------------
Operating Leases (2) 207,494 20,198 34,856 31,701 120,739
- -----------------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations $ 692,584 $ 125,683 $ 125,325 $ 63,599 $ 377,977
- -----------------------------------------------------------------------------------------------------------
(1) Capital lease obligations represent the total minimum future obligations
including interest.
(2) Operating leases are the aggregate future payments for operating leases as
of August 2, 2003, including closed stores.
The Company believes that the Amended Secured Credit Facility and expected cash
from operations together with continued favorable vendor credit terms, will
provide sufficient liquidity to finance continuing operations, including planned
capital expenditures, for fiscal 2003 and fiscal 2004. However, if the Company's
operating results were to deteriorate significantly for any reason, or if the
Company were to require significant additional capital for unexpected events,
the Company could suffer liquidity problems, which would materially adversely
affect its results of operations and financial condition. Furthermore, as
described above, the Company has a significant amount of debt obligations
maturing in November 2004. While the Company believes it will have sufficient
liquidity to retire these debt obligations as they mature, there can be no
assurance that the Company will be able to retire or refinance these
obligations. If the Company
20
cannot retire or refinance these obligations as they mature, the Company's
results of operations and financial condition will be materially adversely
affected.
The Company spent $11.1 million in the second quarter and $14.0 million in the
first half of fiscal 2003 on capital expenditures compared with $7.6 million and
$10.5 million in the second quarter and first half of fiscal 2002, respectively.
During the quarter, the Company completed the remodeling of eleven Pamida
stores, began the remodeling of two ShopKo stores, prepared to open two new
Pamida stores, and announced the test of a freestanding drug store concept.
The Company's total capital expenditures for fiscal 2003 are anticipated to be
approximately $60.0 to $70.0 million. The expected expenditures during the
remainder of fiscal 2003 relate primarily to investments in infrastructure,
especially technology. The Company also expects that capital expenditures will
be made for pharmacy growth, store remodels (including new merchandise
initiatives), Pamida new store openings, initial development of a 2004 new store
opening program and the test of a freestanding drug store concept. However, the
Company does not expect to pursue significant growth of its retail store
business through new store construction or acquisitions in fiscal 2003. Such
plans may be reviewed and revised from time to time in light of changing
conditions. Subsequent to the second quarter of fiscal 2003, the Company
announced its intent to expend approximately $20 million in fiscal 2004 in
connection with the expansion of the ShopKo distribution center in Omaha,
Nebraska to accommodate the consolidation of the Pamida distribution operations
located in Omaha, Nebraska into one automated facility serving both divisions.
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 AND RISK FACTORS:
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. All forward-looking statements involve risks and
uncertainties. Such forward-looking statements include, without limitation,
statements regarding earnings, growth and capital expenditure plans and capital
requirements. The information under the heading "Forward-Looking Statements and
Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended
February 1, 2003, which information is incorporated herein by reference,
provides cautionary statements identifying, for purposes of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, important
factors that could cause our actual results to differ materially from those
contained in the forward-looking statements, including: a.) significant debt
levels; b.) continued availability of vendor financing; c.) failure to achieve
the expected benefits of current or future reorganizations; d.) inability to
execute future expansion plans; e.) failure to remodel existing stores on
schedule or within budget; f.) quarterly performance fluctuations - most notably
the highly seasonal nature of the Company's business; g.) competition; h.)
long-term economic effects of U.S. and international political unrest and an
extended economic slowdown; i.) general economic conditions and weather; j.)
smooth functioning of the Company's distribution network; k.) labor conditions;
l.) pending or future changes in federal, state or local laws and regulations
and m.) pending or future litigation. In addition, the impact of recent
accounting pronouncements described in Item 1 of this report could cause our
actual results to differ materially from those anticipated by the
forward-looking statements. The Company undertakes no obligation to update any
forward-looking statements to reflect subsequent events or circumstances.
21
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 ended February 1, 2003. There have been no material changes in the
Company's quantitative or qualitative exposure to market risk since the end of
fiscal 2002.
ITEM 4: CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures
designed to ensure that information required to be disclosed by us in
the reports filed under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), is recorded, processed, summarized and reported
within the time periods specified by the SEC. The Company carried out
an evaluation, under the supervision and with the participation of the
Company's Disclosure Committee and the Company's management, including
the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-15 promulgated under the
Exchange Act. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective as of the end of the period
covered by this report.
(b) Changes in Internal Control
There have been no significant changes in the Company's internal
control over financial reporting identified in connection with the
evaluation discussed above that occurred during the quarter ended
August 2, 2003 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial
reporting.
22
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its 2003 Annual Meeting of Shareholders on May 28,
2003.
(b) Votes cast for the election of directors at the 2003 Annual Meeting
were as follows:
Jack W. Eugster:
For 26,057,095
Withheld Authority 288,061
Stephen E. Watson:
For 26,080,854
Withheld Authority 264,302
Richard A. Zona:
For 26,076,315
Withheld Authority 268,841
The terms of office as directors for Messrs. Girard, Kramer, Turner, Duncan,
Wolf and Ms. McPhee continued after the 2003 Annual Meeting of Shareholders.
(c) Votes cast to ratify the appointment of Deloitte & Touche LLP to audit
the financial statements of the Company for the fiscal year ending
January 31, 2004 were as follows:
For 26,145,082
Against 185,833
Abstain 14,241
Broker Non-Vote 0
23
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.5 Amended and Restated Loan and Security Agreement dated as
of August 19, 2003 ("Amended Secured Credit Facility") among
ShopKo Stores, Inc. and Pamida, Inc., subsidiaries of ShopKo
Stores, Inc., named therein, as guarantors, the banks, named
therein, and Fleet Retail Finance Inc., as Administrative
Agent. (The exhibits and schedules to the Amended Secured
Credit Facility have been omitted. Such exhibits and schedules
are described in the agreement. The Company hereby agrees to
furnish to the Securities and Exchange Commission, upon its
request, any or all of such omitted exhibits or schedules.)
31.1 Certification of Sam K. Duncan, Chief Executive Officer,
President, pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as amended.
31.2 Certification of Brian W. Bender, Senior Vice President,
Chief Financial Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.
32.1 Statement of Sam K. Duncan, Chief Executive Officer,
President, pursuant to 18 U.S.C. ss. 1350.
32.2 Statement of Brian W. Bender, Senior Vice President,
Chief Financial Officer, pursuant to 18 U.S.C. ss. 1350.
(b) Reports on Form 8-K.
The Company furnished one Current Report on Form 8-K during the second
quarter of fiscal 2003 as follows:
1) Form 8-K with respect to Items 7, 9 and 12 dated May 22, 2003,
providing a press release containing its financial results for
the quarter ended May 3, 2003.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHOPKO STORES, INC. (Registrant)
Date: September 16, 2003 By: /s/ Sam K. Duncan
-----------------
Sam K. Duncan
Chief Executive Officer, President
(Duly Authorized Officer of Registrant)
Date: September 16, 2003 By: /s/ Brian W. Bender
-------------------
Brian W. Bender
Senior Vice President, Chief Financial Officer
(Principal Financial Officer and Duly
Authorized Officer of Registrant)
25
EXHIBIT INDEX
SHOPKO STORES, INC.
10-Q REPORT
Exhibit
Number Exhibit
- ------ -------
4.5 Amended and Restated Loan and Security Agreement dated as of August 19,
2003 ("Amended Secured Credit Facility") among ShopKo Stores, Inc. and
Pamida, Inc., subsidiaries of ShopKo Stores, Inc., named therein, as
guarantors, the banks, named therein, and Fleet Retail Finance Inc., as
Administrative Agent.
31.1 Certification of Sam K. Duncan, Chief Executive Officer, President,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
as amended.
31.2 Certification of Brian W. Bender, Senior Vice President, Chief
Financial Officer, pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as amended.
32.1 Statement of Sam K. Duncan, Chief Executive Officer, President,
pursuant to 18 U.S.C. ss. 1350.
32.2 Statement of Brian W. Bender, Senior Vice President, Chief Financial
Officer, pursuant to 18 U.S.C. ss. 1350.
26