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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 APRIL 30, 2005
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 May 27, 2005 is as follows:
Title of Each Class Shares Outstanding
Common Shares 30,113,992
Exhibit Index on Page 23 Page 1 of Page 31
1
SHOPKO STORES, INC.
FORM 10-Q
FOR THE 13 WEEKS ENDED APRIL 30, 2005
INDEX
Page
----
Part I Item 1 - Financial Statements
Condensed Consolidated Statements of Operations for the 3
13 weeks ended April 30, 2005 and May 1, 2004
Condensed Consolidated Balance Sheets as of April 30, 4
2005, May 1, 2004 and January 29, 2005
Condensed Consolidated Statements of Cash Flows for 5
the 13 weeks ended April 30, 2005 and May 1, 2004
Condensed Consolidated Statement of Shareholders' 6
Equity for the 13 weeks ended April 30, 2005
Notes to Condensed Consolidated Financial Statements 7-10
Item 2 - Management's Discussion and Analysis of Financial 11-21
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21
Item 4 - Controls and Procedures 21
Part II Item 1 - Legal Proceedings 22
Item 5 - Other Information 22
Item 6 - Exhibits 23
Signatures 24
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FIRST QUARTER (13 WEEKS) ENDED
------------------------------
APRIL 30, MAY 1,
SHOPKO STORES, INC. AND SUBSIDIARIES 2005 2004
- ------------------------------------- ----------- -----------
(In thousands, except per share data) (UNAUDITED) (UNAUDITED)
Revenues:
Net sales $ 703,259 $ 735,033
Licensed department rentals and other income 3,460 3,096
---------- ----------
706,719 738,129
Costs and expenses:
Cost of sales 515,251 551,222
Selling, general and administrative expenses 162,193 160,738
Depreciation and amortization expenses 20,881 21,500
---------- ----------
698,325 733,460
Earnings from operations 8,394 4,669
Interest expense 7,361 8,568
---------- ----------
Income (loss) before income taxes 1,033 (3,899)
Income tax provision (credit) 397 (1,520)
---------- ----------
Net income (loss) $ 636 $ (2,379)
========== ==========
Net income (loss) per share of common stock:
Basic $ 0.02 $ (0.08)
========== ==========
Diluted $ 0.02 $ (0.08)
========== ==========
Weighted average number of common shares outstanding:
Basic 29,726 29,210
Diluted 30,043 29,210
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
FIRST QUARTER AS OF FISCAL YEAR END
-------------------------- ---------------
APRIL 30, MAY 1, JANUARY 29,
SHOPKO STORES, INC. AND SUBSIDIARIES 2005 2004 2005 *
- ------------------------------------ ----------- ----------- ---------------
(In thousands) (UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 26,800 $ 28,289 $ 25,110
Receivables, less allowance for losses of $1,947
$2,579 and $1,833, respectively 51,307 52,951 62,019
Merchandise inventories 597,322 644,244 564,099
Other current assets 10,879 10,726 9,046
----------- ----------- -----------
Total current assets 686,308 736,210 660,274
Other assets and deferred charges 9,182 7,660 9,037
Intangible assets, net of accumulated amortization of $14,092, $11,389
and $13,330, respectively 22,655 25,480 21,865
Property and equipment, net of accumulated
depreciation of $849,021, $817,464 and
$828,768; impairment reserve of $1,563, $13,825
and $1,660, respectively 724,456 770,518 742,027
----------- ----------- -----------
Total assets $ 1,442,601 $ 1,539,868 $ 1,433,203
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 78,242 $ 117,423 $ 85,679
Accounts payable - trade 257,593 311,149 225,777
Accrued compensation and related taxes 31,223 31,433 37,088
Deferred taxes and other accrued liabilities 102,570 103,392 104,903
Accrued income and other taxes 38,333 31,794 49,760
Current portion of long-term obligations and leases 7,688 63,179 8,018
----------- ----------- -----------
Total current liabilities 515,649 658,370 511,225
Long-term obligations and leases, less current portion 236,767 244,800 238,612
Other long-term obligations 20,927 25,158 21,976
Deferred income taxes 22,963 22,803 22,963
Shareholders' equity:
Common stock 320 313 316
Additional paid-in capital 403,613 392,403 396,514
Retained earnings 283,030 236,587 282,261
Less treasury stock (40,668) (40,566) (40,664)
----------- ----------- -----------
Total shareholders' equity 646,295 588,737 638,427
----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,442,601 $ 1,539,868 $ 1,433,203
=========== =========== ===========
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR TO DATE (13 WEEKS) ENDED
-----------------------------
APRIL 30, MAY 1,
SHOPKO STORES, INC. AND SUBSIDIARIES 2005 2004
- ------------------------------------------------------------------- ----------- ------------
(In thousands) (UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ 636 $ (2,379)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 20,881 21,500
Gain on sale of property and equipment (177) (595)
Change in assets and liabilities:
Receivables 10,712 9,857
Merchandise inventories (33,223) (74,929)
Other current assets (1,833) 148
Other assets 72 431
Accounts payable 31,816 57,836
Accrued liabilities (18,430) (26,695)
Other long-term obligations (1,049) (48)
----------- -----------
Net cash provided by (used in) operating activities 9,405 (14,874)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (2,806) (10,382)
Proceeds from the sale of property and equipment 321 759
Purchases of pharmacy customer lists (1,552) (2,470)
----------- -----------
Net cash used in investing activities (4,037) (12,093)
----------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowings 0 35,153
Payments of debt and capital lease obligations (9,681) (2,878)
Sale of common stock due to exercise of stock options 6,007 446
Purchase of treasury stock (4) (251)
----------- -----------
Net cash (used in) provided by financing activities (3,678) 32,470
----------- -----------
Net increase in cash and cash equivalents 1,690 5,503
Cash and cash equivalents at beginning of period 25,110 22,786
----------- -----------
Cash and cash equivalents at end of period $ 26,800 $ 28,289
----------- -----------
Supplemental cash flow information:
Noncash investing and financial activities -
Capital lease obligations incurred $ - $ -
Capital lease obligations terminated $ - $ -
See notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
Common Stock Additional Treasury Stock Total
SHOPKO STORES, INC. AND SUBSIDIARIES ------------------ Paid-in Retained ------------------ ------------------
- ------------------------------------ Shares Amount Capital Earnings Shares Amount Shares Amount
(In thousands) ------ --------- ---------- --------- ------ --------- ------ ---------
BALANCES AT JANUARY 29, 2005 31,580 $ 316 $ 396,514 $ 282,261 (1,930) $ (40,664) 29,650 $ 638,427
Net income 636 636
Issuance of restricted stock 10 219 (219) 10 -0-
Forfeiture of restricted stock (25) (325) 325 (25) -0-
Sales of common stock under
option plans 385 4 6,003 385 6,007
Income tax benefit related to
stock options 1,202 1,202
Restricted stock expense 27 27
Purchase of treasury stock (0) (4) (0) (4)
------ --------- --------- --------- ------ --------- ------ ---------
BALANCES AT April 30, 2005 31,950 $ 320 $ 403,613 $ 283,030 (1,930) $ (40,668) 30,020 $ 646,295
====== ========= ========= ========= ====== ========= ====== =========
See notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Interim Financial Statements
The Company operates on a 52/53-week fiscal year basis. The 2005 fiscal year
will end on January 28, 2006 and the 2004 fiscal year ended January 29, 2005.
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 April 30, 2005 and May 1,
2004, and the results of operations and cash flows for the then ended periods.
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 2004 Annual Report on Form 10-K, as amended, contains a summary of
significant accounting policies and 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. 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 January 29, 2005.
B. 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 a distribution
center in 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, twenty were disposed of in subsequent years, leaving four
remaining leased properties covered by the restructuring reserve as of the
beginning of fiscal 2005.
During the first quarter of fiscal 2005, no additional leases were terminated.
As of April 30, 2005, the remaining reserve for lease termination and related
property carrying costs, as well as other costs, was $13.1 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 ($2.2 million) as a current liability and the remainder
($10.9 million) is recorded in other long-term obligations at April 30, 2005.
The Company believes the reserves are adequate, and continues to negotiate lease
terminations with landlords. However, due to the Company's inability to
terminate the leases or to sublease the four locations, 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 termination of the leases.
7
Activity in the restructuring reserve (in thousands) during the first quarter of
fiscal 2005:
Lease termination and
property carrying costs
-----------------------
Balance as of January 29, 2005 $ 13,329
Cash Payments 276
------------
Balance as of April 30, 2005 $ 13,053
============
C. Stock-Based Employee Compensation Plans
The Company has various stock-based employee compensation plans, which are
described more fully in Note F of the Notes to Consolidated Financial Statements
in the Company's fiscal 2004 Annual Report on Form 10-K, as amended. 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. Pre-tax expense related to the intrinsic
value of restricted stock was $0.0 million and $0.1 million for the quarters
ended April 30, 2005 and May 1, 2004, respectively.
The following pro forma information illustrates the effect on net earnings 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 (in thousands):
THIRTEEN WEEK PERIOD ENDED
----------------------------
April 30, 2005 May 1, 2004
-------------- -----------
Net income (loss) as reported $ 636 $ (2,379)
Add: Stock-based employee compensation expense included
in reported net income, net of related tax
effects 17 74
Deduct: Total stock-based employee compensation expense
determined under fair value method for all option
awards, net of related tax effects (238) (442)
---------- ----------
Pro forma net income (loss) $ 415 $ (2,747)
========== ==========
Net income (loss) per share:
Basic - as reported $ 0.02 $ (0.08)
Basic - pro forma $ 0.01 $ (0.09)
Diluted - as reported $ 0.02 $ (0.08)
Diluted - pro forma $ 0.01 $ (0.09)
8
D. 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 2004 Annual
Report on Form 10-K, as amended. The Company evaluates performance based on
earnings from operations of the respective business segments.
Summary financial information concerning the Company's reportable segments is
shown in the following table (in thousands).
FIRST QUARTER (13 WEEKS) ENDED
------------------------------
APRIL 30, 2005 MAY 1, 2004
Net sales
ShopKo Retail $ 517,851 $ 552,799
Pamida Retail 185,408 182,234
---------- ----------
Total net sales $ 703,259 $ 735,033
---------- ----------
Earnings (loss) from operations
ShopKo Retail $ 15,680 $ 13,845
Pamida Retail 21 (2,438)
Corporate (7,307) (6,738)
---------- ----------
Earnings from operations $ 8,394 $ 4,669
---------- ----------
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 2005 and fiscal 2004.
E. 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 $9.4 million as of April 30, 2005.
F. Merger Announcement
On April 8, 2005, the Company announced it had signed a definitive merger
agreement to be acquired by an affiliate of Goldner Hawn Johnson & Morrison.
Under the terms of the agreement, each outstanding share of the Company's common
stock will be converted into a right to receive $24.00 in cash. The total value
of the transaction is approximately $1 billion, including assumed debt of
approximately $330 million. The Company's Board of Directors approved the
transaction based on the unanimous recommendation of a Special Committee of
disinterested and independent directors. The closing of the transaction is
subject to funding under finance commitments, regulatory approvals and approval
by the Company's shareholders.
9
G. Litigation
On April 27, 2005, the Company announced that, following the Company's April 8,
2005 announcement that it had signed a definitive merger agreement to be
acquired by an affiliate of Goldner Hawn Johnson & Morrison Incorporated
("Goldner Hawn") (the "Transaction"), the Company was named as a defendant in
six putative shareholder class actions filed in the Circuit Court for Brown
County, Wisconsin: Thomas Zwicker v. ShopKo Stores, Inc., et al., Case No.
05-CV-677; Robert Farer v. ShopKo Stores, Inc., et al., Case No. 05-CV-678;
Market Street Investments, L.P. v. ShopKo Stores, Inc., et al., Case No.
05-CV-688; City of Pontiac General Employees' Retirement Systems v. ShopKo
Stores, Inc., et al., Case No. 05-CV-692; Plumbers and Pipefitters Local 51
Pension Fund v. ShopKo Stores, Inc., et al., Case No. 05-CV-753; and Strongbow
Capital Ltd. v. ShopKo Stores, Inc., et al., Case No. 05-CV-781.
The complaint in each action purports to have been filed by a shareholder of the
Company who seeks to maintain the suit as a class action on behalf of all
holders of the Company's stock, excluding those related to or affiliated with
any of the defendants. In addition to the Company, each complaint names the
Company's directors as defendants. Goldner Hawn is a defendant in one of the
lawsuits. The complaints all assert claims arising out of the Company's April 8,
2005 announcement, and allege that the Company and its directors breached
fiduciary duties to the Company's shareholders by negotiating and agreeing to
the Transaction at a price that the plaintiffs claim to be inadequate. The
plaintiffs seek, among other things, to enjoin or to rescind the Transaction,
and/or to establish a constructive trust over any benefits received by the
defendants, damages and other monetary relief.
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS:
On April 8, 2005, the Company announced it had signed a definitive merger
agreement to be acquired by an affiliate of Goldner Hawn Johnson & Morrison.
Under the terms of the agreement, each outstanding share of the Company's common
stock will be converted into a right to receive $24.00 in cash. The total value
of the transaction is approximately $1 billion, including assumed debt of
approximately $330 million. The Company's Board of Directors approved the
transaction based on the unanimous recommendation of a Special Committee of
disinterested and independent directors. The Company's Chairman of the Board,
Jack Eugster, has resigned his position as Chairman of the Board and his Board
committee positions, but will remain on the Board of Directors while the
transaction is pending. John Turner and Steve Watson, both members of the Board
of Directors, have been named Co-Chairmen of the Board. The closing of the
transaction is subject to funding under finance commitments, regulatory
approvals, and approval by the Company's shareholders. The Company currently
anticipates that the transaction will close late in the Company's second fiscal
quarter or early in the third fiscal quarter.
On April 14, 2005 the Company announced Sam Duncan, president and chief
executive officer, resigned to accept a position at another company. On April
18, 2005, the ShopKo Stores, Inc. Board of Directors appointed a three-person
management committee to oversee operations of the Company pending the completion
of the proposed merger involving the Company and an affiliate of Goldner Hawn
Johnson & Morrison. The committee is composed of senior vice president and chief
financial officer Brian W. Bender; senior vice president and chief merchandising
officer Paul G. White; and Pamida president Michael J. Hopkins.
An affiliate of Goldner Hawn Johnson & Morrison has delivered to the Company
the following: a fully executed commitment letter (the "Real Estate Debt
Letter") from Bank of America, N.A. (the "Real Estate Lender") providing the
terms and conditions upon which the Real Estate Lender has committed to provide
the Company with secured real estate financing in connection with the
transaction in an aggregate amount equal to $700 million and a fully executed
commitment letter (each, a "Senior Debt Letter") from each of Bank of America
Retail Financial Group and Back Bay Capital Funding LLC (each a "Senior Debt
Lender", and collectively with the Real Estate Lender, the "Lenders") providing
the terms and conditions upon which the Senior Debt Lenders have committed to
provide the Company with senior debt financing in connection with the
transaction in an aggregate amount equal to $415 million, and a fully executed
letter (the "Equity Commitment Letter"), pursuant to which the affiliate of
Goldner Hawn Johnson & Morrison has committed to provide equity financing in
an aggregate amount of $27 million and Jack W. Eugster has committed to provide
equity financing in an aggregate amount of $3 million (the Equity Commitment
Letter, together with the Real Estate Debt Letter and the Senior Debt Letters,
the "Financing Letters"). The financing contemplated by the Financing Letters
(the "Financing"), together with excess cash are sufficient to pay the aggregate
merger consideration costs, any amounts due under the Amended Secured Credit
Facility and any amounts due in connection with the repayment of outstanding
debt and pay all merger-related fees and expenses. The obligations to fund the
commitments under the Financing Letters are not subject to any condition other
than as set forth in the Financing Letters. For additional information related
to the transaction refer to the Form 8-K filed on April 8, 2005, Entry Into a
Material Definitive Agreement.
11
EXECUTIVE SUMMARY:
ShopKo Stores, Inc. is a retailer headquartered in Green Bay, Wis., with 366
stores and approximately 23,000 teammates throughout the Midwest, Mountain and
Pacific Northwest regions. The Company's reportable Retail segments include a
ShopKo Retail segment and a Pamida Retail segment. The ShopKo Retail segment
includes 140 ShopKo stores providing quality name-brand merchandise, great
values, pharmacy and optical services in mid-sized to larger cities and three
ShopKo Express Rx stores, a new and convenient neighborhood drugstore concept.
The Pamida Retail segment includes 223 Pamida stores bringing value close to
home in small, rural communities.
During the first quarter of fiscal 2005, earnings per diluted share were $0.02
compared with loss per diluted share of $0.08 for the same period of fiscal
2004. First quarter 2005 earnings included merger-related expenses of $1.1
million, or $0.02 per diluted share. Net income was $0.6 million compared with
last year's net loss of $2.4 million. The increase in earnings is primarily the
result of continued focus on improving the mix between profitable sales and
promotional activity accompanied by disciplined expense control. The Company's
close monitoring of sales and inventory receipts resulted in a 7.3 percent
decrease in consolidated inventory in the first quarter of fiscal 2005 compared
to the same period last year. Consolidated sales were $703.3 million compared
with $735.0 million in fiscal 2004. Consolidated comparable store sales
decreased 4.8 percent from the prior year. ShopKo comparable store sales
decreased 6.5 percent. The Company believes the decline in sales is largely
attributable to a continued reduction in promotional activity. Pamida comparable
store sales increased 0.4 percent, primarily due to an increase in the retail
health category, partially offset by declines in general merchandise sales.
Consistent with the past several years, the retail health category continued to
increase as a percentage of the Company's sales in the first quarter of fiscal
2005. For fiscal 2005, retail health sales made up 34.7 percent and 27.1 percent
of ShopKo and Pamida retail segments, respectively.
The Company's first quarter of fiscal 2005 results highlight the Company's
objectives of improving profitability and reducing debt. The consolidated gross
margin as a percent of sales was 26.7 percent compared to 25.0 percent for the
same period last year. The increase is primarily attributable to a reduction in
promotional activity as well as better managed clearance inventory markdowns.
Debt declined 24.1 percent, or $102.7 million, compared to the first quarter of
fiscal 2004. The debt reduction strategy resulted in a $1.2 million interest
expense reduction as compared with a year ago and further strengthened the
Company's balance sheet.
Consolidated selling, general and administrative expenses ("SG&A") for the first
quarter of fiscal 2005 were essentially flat when compared to the same period
last year. Consolidated SG&A expenses as a percent of sales, however, increased
to 23.0 percent from 21.9 percent for the same period last year primarily due to
the decline in sales. In the first quarter of 2005, selling, general and
administrative expenses included merger-related expenses of $1.1 million, or
$0.02 per diluted share.
Capital expenditures for the first quarter of fiscal 2005 were $2.8 million
compared with $10.4 million for the same period last year. The decrease in
capital expenditures is primarily due to $6.1 million of consolidation costs
related to our Omaha distribution center during the first quarter of fiscal
2004. In the first quarter of fiscal 2005, the Company opened three new Pamida
stores and invested in its technology infrastructure by replacing the optical
center system in ShopKo. The Company now expects capital expenditures of up to
$35 million for the fiscal year.
12
The retail industry is highly competitive and ShopKo competes in most of its
markets with a variety of national and regional retailers. Pamida's competition
varies by market, which includes other general merchandise retailers,
supermarkets, dollar stores, drug and specialty stores, and mail order
merchants. The Company expects to continue to be challenged by competitor store
openings for the foreseeable future. While there can be no assurance that the
Company's efforts will succeed, the Company remains committed to improving
profitability and further decreasing debt levels.
The following table sets forth items from the Company's unaudited condensed
consolidated financial statements for the first quarter of fiscal 2005 and
fiscal 2004 as a percentage of net sales:
FIRST QUARTER
(13 WEEKS)
---------------------
FISCAL FISCAL
2005 2004
------- -------
Revenues:
Net sales 100.0% 100.0%
Licensed department rentals and other income 0.5 0.4
----- -----
100.5 100.4
Costs and Expenses:
Cost of sales 73.3 75.0
Gross margin 26.7 25.0
Selling, general and administrative expenses 23.0 21.9
Depreciation and amortization expenses 3.0 2.9
----- -----
26.0 24.8
Earnings from operations 1.2 0.6
Interest expense 1.0 1.1
----- -----
Earnings (loss) before income taxes 0.2 (0.5)
Income tax provision (credit) 0.1 (0.2)
----- -----
Net income (loss) 0.1% (0.3)%
===== =====
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:
FIRST QUARTER
(13 WEEKS)
-----------------
FISCAL FISCAL
2005 2004
------ ------
SHOPKO RETAIL SEGMENT
Revenues:
Net sales 100.0% 100.0%
Licensed department rentals and other income 0.6 0.5
----- -----
100.6 100.5
Costs and Expenses:
Cost of sales 73.0 75.1
Gross margin 27.0 24.9
Selling, general and administrative expenses 21.5 20.1
Depreciation and amortization expenses 3.0 2.8
----- -----
24.5 22.9
Income from operations 3.1% 2.5%
===== =====
FIRST QUARTER
(13 WEEKS)
-----------------
FISCAL FISCAL
2005 2004
------ ------
PAMIDA RETAIL SEGMENT
Revenues:
Net sales 100.0% 100.0%
Licensed department rentals and other income 0.3 0.2
----- -----
100.3 100.2
Costs and Expenses:
Cost of sales 74.0 74.6
Gross margin 26.0 25.4
Selling, general and administrative expenses 23.5 23.6
Depreciation and amortization expenses 2.8 3.3
----- -----
26.3 26.9
Income (loss) from operations 0.0% (1.3)%
===== =====
NET SALES:
The following table presents the Company's consolidated net sales for the first
quarter of fiscal 2005 and fiscal 2004:
14
FIRST QUARTER
(13 WEEKS) % INCREASE
------------------- (DECREASE)
FISCAL FISCAL --------------------
2005 2004 TOTAL ** COMP*
-------- -------- -------- -----
ShopKo Retail $ 517.9 $ 552.8 (6.3)% (6.5)%
Pamida Retail 185.4 182.2 1.7 % 0.4 %
-------- -------- ---- ----
Consolidated $ 703.3 $ 735.0 (4.3)% (4.8)%
======== ======== ==== ====
* Comparable store sales represent sales of those stores open during both
fiscal years and do not include sales from the ShopKo wholesale optical lab.
** ShopKo division total sales variance reflects sales from one ShopKo closed
location in fiscal 2004 and three new ShopKo Express Rx locations in 2004.
Pamida division total sales variance reflects sales from five closed Pamida
locations and seven new locations in fiscal 2004, and three new locations in
fiscal 2005.
ShopKo comparable store sales decreased 6.5 percent during the first quarter of
fiscal 2005. Changes in ShopKo comparable store sales in the first quarter of
fiscal 2005 by category were as follows: Hardlines/Home, (12.5)%; Softlines,
(3.7)%; and Retail Health, 1.1%. The 0.4 percent increase in Pamida comparable
store sales was primarily due to an increase in pharmacy sales, primarily offset
by declines in apparel sales. Changes in Pamida comparable store sales in the
first quarter of fiscal 2005 by category were as follows: Pharmacy, 14.0%;
Hardlines, (1.6)%; and Softlines, (13.5)%.
The Company's store activity is summarized below:
13 Weeks Ended Year Ended
------------------ -----------
April 30, May 1, January 29,
2005 2004 2005
--------- ------ -----------
SHOPKO STORES
Beginning number of stores 143 141 141
Openings * 0 0 3
Closings 0 0 1
--- --- ---
Ending number of stores 143 141 143
=== === ===
PAMIDA STORES
Beginning number of stores 220 218 218
Openings 3 0 7
Closings 0 0 5
--- --- ---
Ending number of stores 223 218 220
=== === ===
* ShopKo retail segment includes three new ShopKo Express locations.
GROSS MARGIN:
Consolidated gross margin dollars increased 2.3 percent to $188.0 million in the
first quarter of fiscal 2005 from $183.8 million for the same period last year.
Consolidated gross margin, as a percent of net sales for the first quarter of
fiscal 2005, was 26.7 percent compared with 25.0 percent for the same period
last year. This increase was primarily attributable to a continued reduction in
promotional activity, as well as a reduction in clearance inventory markdowns
from the same period last year.
15
ShopKo's gross margin dollars increased 1.6 percent to $139.8 million in the
first quarter of fiscal 2005 from $137.6 million for the same period last year.
ShopKo's gross margin, as a percent of net sales, was 27.0 percent compared with
24.9 percent for the same period last year. The rate increase was primarily due
to improved pharmacy and general merchandise margins (collectively 214 basis
points) attributable to reduced promotional activity and better managed
clearance inventory markdowns in 2005. Pamida's gross margin dollars increased
4.3 percent to $48.2 million in the first quarter of fiscal 2005 from $46.2
million for the same period last year. As a percent of sales, Pamida's gross
margin was 26.0 percent in the first quarter of fiscal 2005 compared with 25.4
percent for the same period last year. The increase was primarily due to
improved merchandise margins (68 basis points) attributable to reduced
promotional activity and better managed clearance inventory markdowns in 2005.
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 April 30,
2005 and May 1, 2004. There was no difference between the LIFO and FIFO cost
methods at April 30, 2005, May 1, 2004 and January 29, 2005.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Consolidated selling, general and administrative (SG&A) expense dollars
increased 0.9 percent. SG&A expenses as a percent of net sales for the first
quarter of fiscal 2005 were 23.0 percent compared with 21.9 percent for the same
period last year, primarily attributable to the decline in sales at ShopKo (99
basis points), increased legal and professional fees associated with merger
related activities (25 basis points) and other various individually immaterial
variations that in the aggregate comprise the remainder of the difference.
ShopKo's SG&A expenses as a percent of net sales for the first quarter of fiscal
2005 were 21.5 percent compared with 20.1 percent for the same period last year,
primarily due to sales deleveraging (149 basis points) i.e., sales decreasing at
a faster rate than the change in expense dollars, offset by a reduction in
preopening expenses associated with store remodels (18 basis points) and lower
net advertising (12 basis points). Pamida's SG&A expenses for the first quarter
of fiscal 2005 were 23.5 percent of net sales compared with 23.6 percent for the
first quarter last year. The improvement was driven by sales leveraging, i.e.,
sales increasing at a faster rate than the increase in expense dollars (40 basis
points) partially offset by higher payroll due to pharmacy growth (32 basis
points).
DEPRECIATION AND AMORTIZATION EXPENSE:
Consolidated depreciation and amortization expenses were $20.9 million for the
first quarter of fiscal 2005 compared with $21.5 million for the same period
last year. As a percent of net sales, consolidated depreciation and amortization
expenses were 3.0 percent for the first quarter of fiscal 2005 compared with 2.9
percent for the same period last year.
INTEREST EXPENSE:
Interest expense for the first quarter of the fiscal 2005 was $7.4 million
compared with $8.6 million for the same period last year. The $1.2 million or
14.1 percent decrease was primarily attributable to lower debt balances.
16
INCOME TAXES:
The Company's effective income tax rate for the first quarter of fiscal 2005 was
38.5 percent compared with 39.0 percent for the first quarter of fiscal 2004.
The decrease in the Company's effective tax rate is due to a lower state income
tax rate, net of federal benefits.
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 the financial statements and makes adjustments when facts and
circumstances dictate a change. The Company has identified certain critical
accounting policies, which are described below.
Merchandise inventory. The Company's merchandise inventory is carried at the
lower of cost or market on a last-in, first-out (LIFO) basis utilizing the
average cost method of accounting. The valuation of inventories at cost requires
certain management judgments and estimates, including among others, the
assessment of shrinkage rates, obsolescence and the impact on inventory values
of using the lower of cost or market valuation method. In valuing the inventory,
the Company undertakes physical inventories at least annually at its stores and
distribution centers and adjusts inventory values regularly to reflect market
conditions and business trends. The Company estimates losses of inventory due to
shrinkage based upon historical experience by store and by merchandise
department, which are then verified by physical inventory counts. The Company's
experience has been that there is little fluctuation or risk in the estimate of
obsolescence or lower of cost or market reserve because (i) of the Company's
inventory turnover rate, (ii) a large percentage of our inventory is returnable
to our vendors for cost and (iii) the Company is able to receive vendor support
monies if product is sold below expected prices. The non-returnable inventory
goes through a markdown process that liquidates the inventory, generally at
prices in excess of cost.
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 prior to fiscal 2002. Of the 24 properties
initially covered by the restructuring reserve, twenty were disposed of in
subsequent years, leaving four remaining leased properties covered by the
restructuring reserve as of the beginning of fiscal 2005.
During the first quarter of fiscal 2005, no additional leases were terminated.
As of April 30, 2005, the remaining reserve for lease termination and related
property carrying costs, as well as other costs, was $13.1 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
17
accrued expenses ($2.2 million) as a current liability and the remainder ($10.9
million) is recorded in other long-term obligations at April 30, 2005.
The Company believes the reserves are adequate, and continues to negotiate lease
terminations with landlords. However, due to the Company's inability to
terminate the leases or to sublease the four locations, 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 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 inventory recently
sold and, accordingly, are reflected as reductions of cost of sales as
merchandise is sold. Vendor allowances received for advertising or fixturing
programs reduce the Company's expense or cost for the related advertising or
fixturing program. The Company recognizes vendor allowances based on the
provisions of EITF No. 02-16.
Impairment of Long-Lived Assets. In accordance with SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", the Company evaluates long-lived
assets whenever events or changes in circumstances indicate the carrying value
of an asset may not be recoverable based on projected future undiscounted cash
flows attributable to that asset. The measurement of possible impairment is
based on the ability to recover the balance of assets from expected future
operating cash flows on an undiscounted basis. Impairment losses, if any, would
be measured by comparing the carrying amount of the asset to its fair value,
determined based on appraised values or the present value of the cash flows
using discount rates that reflect the inherent risks of the underlying business.
Our impairment loss calculations require management to apply judgment in
estimating future cash flows and asset fair values, including forecasting useful
lives of the assets and selecting the discount rate that reflects the risk
inherent in future cash flows.
Stock Based Compensation. As discussed in the Company's fiscal 2004 Annual
Report on Form 10-K, as amended, the Company follows Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees", which does not
require recognition of expense for stock options when the exercise price of an
option equals, or exceeds, the fair market value of the common stock on the date
of grant.
In December 2004, the FASB issued SFAS No. 123R "Share-Based Payment" ("SFAS
123R"), which requires the Company to expense all share-based payments to
employees, including grants of employee stock options, in the financial
statements. The grant-date fair value of employee stock options and similar
instruments will be estimated using an option-pricing model adjusted for any
unique characteristics of a particular instrument. In April 2005, the SEC
amended the compliance dates for SFAS 123R from fiscal periods beginning after
June 15, 2005 to fiscal years beginning after June 15, 2005. The Company will
continue to account for share-based compensation using the intrinsic value
method set forth in APB No. 25, until adoption of SFAS 123R on January 29, 2006.
The pro forma impact on the 13 week period ended April 30, 2005 of expensing
unvested stock options is disclosed, as required under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" in Note C to the unaudited Condensed
Consolidated Financial Statements ("SFAS 123"). The impact of SFAS 123R is not
expected to be materially different than the impact of SFAS 123.
Income Taxes. The Company provides deferred income tax assets and liabilities
based on the estimated future tax effects of differences between the financial
and tax bases of assets and liabilities based on currently enacted laws. The tax
balances and income tax expense recognized by the Company are based on
management's interpretation of the tax laws of multiple jurisdictions. Income
tax expense also reflects the Company's best estimates and assumptions
regarding, among other things, the level of future taxable income,
interpretation of
18
the tax laws, and tax planning. The Company pays income taxes based on tax
statutes, regulations and case law of the various jurisdictions in which it
operates. At any one time, multiple tax years are subject to audit by the
various taxing authorities.
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 $9.4 million for
the first quarter of fiscal 2005 compared with cash used by operating activities
of $14.9 million for the same period last year. The Company finances a
significant portion of its operations through vendor financing. As of April 30,
2005, accounts payable totaled $257.6 million, a decrease of $53.5 million,
compared with $311.1 million at the end of the first quarter of fiscal 2004. The
Company currently maintains favorable terms with its vendors, however these
terms could change based on the Company's future operating performance.
As of April 30, 2005, the Company had $151.8 million of long-term debt
outstanding, consisting of $99.7 million of Senior Unsecured Notes and
approximately $52.1 million of long-term notes payable. The Senior Unsecured
Notes have maturity dates in March 2022. A more detailed description of these
Senior Unsecured Notes is contained in Note D of the Notes to Consolidated
Financial Statements in the Company's fiscal 2004 Annual Report on Form 10-K, as
amended. Subject to certain limitations set forth in our Amended Secured Credit
Facility, proceeds of the Facility or funds from other sources may be used to
retire or repurchase Senior Unsecured Notes. 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, the Company had $78.2 million outstanding under its Amended Secured
Credit Facility at the end of the first quarter of fiscal 2005 compared with
$117.4 million outstanding at the end of the first quarter of fiscal 2004.
During the third quarter of fiscal 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 Company had
$331.2 million in availability at the end of the first quarter.
The Amended Secured Credit Facility terminates August 19, 2007, and 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 as defined
therein. 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
April 30, 2005 and for the first quarter of fiscal 2005, the Company was in
compliance with all covenants in the Amended Secured Credit Facility.
19
The following schedule sets forth the Company's contractual obligations and
commercial commitments as of April 30, 2005 (in thousands):
Less than After
CONTRACTUAL OBLIGATIONS (1) Total 1 year 2-3 years 4-5 years 5 years
- --------------------------- ---------- ---------- ---------- ---------- ----------
Long-Term Debt (2) $ 151,510 $ 1,836 $ 5,694 $ 2,839 $ 141,141
Capital Lease Obligations (3) 92,944 6,557 11,975 12,338 62,074
Operating Leases (4) 181,794 19,264 35,975 30,576 95,979
Total Contractual Cash Obligations 426,248 27,657 53,644 45,753 299,194
(1) The schedule excludes obligations of $78.2 million outstanding under the
Amended Secured Credit Facility, which are classified on the balance sheet
as short-term debt, as well as $6.6 million of outstanding documentary
letters of credit and $19.3 million of standby letters of credit as of
April 30, 2005 (which reduce availability under the Amended Secured Credit
Facility)
(2) Interest payments (in millions) due on long-term debt for less than 1 year
are $14.6, 2-3 years are $28.2, 4-5 years are $27.6 and after 5 years are
$117.8.
(3) Capital lease obligations represent the total minimum future obligations,
net of $64.9 million of interest. Interest payments (in millions) due on
capital lease obligations for less than 1 year are $8.1, 2-3 years are
$14.4, 4-5 years are $12.0 and after 5 years are $30.4.
(4) Operating leases are the aggregate future payments for operating leases as
of April 30, 2005, 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 2005. 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.
The Company spent $2.8 million in the first quarter of fiscal 2005 on capital
expenditures compared with $10.4 million in the first quarter of fiscal 2004,
respectively. The decrease in capital expenditures is primarily due to $6.1
million of consolidation costs related to the Company's Omaha distribution
center during the first quarter of fiscal 2004. In the first quarter of fiscal
2005, the Company opened three new Pamida stores and invested in its technology
infrastructure by replacing the optical center system in ShopKo. The Company now
expects capital expenditures of up to $35 million for the fiscal year.
INFLATION:
The Company does not believe that inflation has had a material effect on the
results of operations during the periods presented. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS:
Certain statements contained in Item 2, "Management's Discussion and
Analysis" and elsewhere in this Form 10-Q are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements discuss, among other things, expected growth, future revenues,
product development, debt reduction, capital expenditures and deployment plans
and future operating and financial performance. The forward-looking statements
are subject to risks and uncertainties, which could cause actual results to
differ materially from those discussed in such forward-looking statements. These
risks and uncertainties include, but are not limited to: 1.) the impact of
accounting pronouncements as described herein; and 2.) the following which are
more fully discussed in the Company's fiscal 2004 Annual Report on Form 10-K, as
amended, for the fiscal year ended January 29, 2005: a.)
20
significant debt levels; b.) continued availability of vendor financing; c.)
failure to achieve the expected benefits of 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 business; g.) competition; h.) U.S. and
international political unrest and extended economic slowdown; i.) general
economic conditions and weather; j.) smooth functioning distribution network;
k.) labor conditions; l.) anti-takeover provisions in the Company's
organizational documents; m.) pending or future changes in laws or regulations
and n.) pending or future litigation. These and other risks and uncertainties as
may be indicated in subsequent filings with the Securities and Exchange
Commission, are incorporated herein by reference. These forward-looking
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions, which may, or may not come to fruition. In
addition, the Company does not undertake any obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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 fiscal 2004 Annual Report on Form
10-K, as amended, for the fiscal year ended January 29, 2005. There have been no
material changes in the Company's quantitative or qualitative exposure to market
risk since the end of fiscal 2004.
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 acting members of
the office of the Chief Executive Officer, which includes 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
Co-Chief Executive Officers including 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 April 30, 2005 that
have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
21
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On April 27, 2005, the Company announced that, following the Company's April 8,
2005 announcement that it had signed a definitive merger agreement to be
acquired by an affiliate of Goldner Hawn Johnson & Morrison Incorporated
("Goldner Hawn") (the "Transaction"), the Company was named as a defendant in
six putative shareholder class actions filed in the Circuit Court for Brown
County, Wisconsin: Thomas Zwicker v. ShopKo Stores, Inc., et al., Case No.
05-CV-677; Robert Farer v. ShopKo Stores, Inc., et al., Case No. 05-CV-678;
Market Street Investments, L.P. v. ShopKo Stores, Inc., et al., Case No.
05-CV-688; City of Pontiac General Employees' Retirement Systems v. ShopKo
Stores, Inc., et al., Case No. 05-CV-692; Plumbers and Pipefitters Local 51
Pension Fund v. ShopKo Stores, Inc., et al., Case No. 05-CV-753; and Strongbow
Capital Ltd. v. ShopKo Stores, Inc., et al., Case No. 05-CV-781.
The complaint in each action purports to have been filed by a shareholder of the
Company who seeks to maintain the suit as a class action on behalf of all
holders of the Company's stock, excluding those related to or affiliated with
any of the defendants. In addition to the Company, each complaint names the
Company's directors as defendants. Goldner Hawn is a defendant in one of the
lawsuits. The complaints all assert claims arising out of the Company's April 8
announcement, and allege that the Company and its directors breached fiduciary
duties to the Company's shareholders by negotiating and agreeing to the
Transaction at a price that the plaintiffs claim to be inadequate. The
plaintiffs seek, among other things, to enjoin or to rescind the Transaction,
and/or to establish a constructive trust over any benefits received by the
defendants, damages and other monetary relief.
The Company does not believe that the actions are meritorious and intends to
vigorously contest them. On April 25, 2005, the Court held a hearing in the
Zwicker case to consider the Zwicker plaintiff's motion for a temporary
injunction pending trial and for expedited treatment of the case. The Court took
up the motion of the Pontiac plaintiff to consolidate the six cases and to
appoint lead counsel. During the hearing, the parties before the Court
stipulated to consolidate the actions.
ITEM 5: OTHER INFORMATION
During the first quarter, the Audit Committee of the Board of Directors of the
Company approved the following audit and non-audit services performed, or to be
performed, by the Company's independent registered public accounting firm,
Deloitte & Touche LLP: (1) accounting and audit-related services, including
auditing the Company's fiscal 2005 financial statements to be included in the
Company's Annual Report on Form 10-K, and reviewing the Company's quarterly
financial statements to be included in the Company's Quarterly Reports on Form
10-Q, (2) tax consulting and tax compliance services and (3) compliance services
related to employee benefit plans.
22
ITEM 6: EXHIBITS
(a) Exhibits.
31.1 Certification of Brian W. Bender, Senior Vice President,
Chief Financial Officer, Co-Chief Executive Officer*, pursuant
to Rule 13a-14(a) under the Securities Exchange Act of 1934,
as amended.
31.2 Certification of Michael J. Hopkins, President, Pamida
Division, Co-Chief Executive Officer*, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended.
31.3 Certification of Paul G. White, Senior Vice President,
Chief Merchandising Officer, Co-Chief Executive Officer*,
pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934, as amended.
32.1 Statement of Brian W. Bender, Senior Vice President,
Chief Financial Officer, Co-Chief Executive Officer*, pursuant
to 18 U.S.C. ss. 1350.
32.2 Statement of Michael J. Hopkins, President, Pamida
Division, Co-Chief Executive Officer*, pursuant to 18 U.S.C.
ss. 1350.
32.3 Statement of Paul G. White, Senior Vice President, Chief
Merchandising Officer, Co-Chief Executive Officer*, pursuant
to 18 U.S.C. ss. 1350.
* The office of Chief Executive Officer is comprised of three executive
officers, each serving as Co-Chief Executive Officer.
23
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 3, 2005 By: /s/ Brian W. Bender
-------------------
Brian W. Bender
Senior Vice President, Chief Financial Officer
Co-Chief Executive Officer*
(Duly Authorized Officer of Registrant and
Principal Financial Officer)
* The office of Chief Executive Officer is comprised of three executive
officers, each serving as Co-Chief Executive Officer.
24
EXHIBIT INDEX
SHOPKO STORES, INC.
10-Q REPORT
Exhibit
Number Exhibit
- ------- -------
31.1 Certification of Brian W. Bender, Senior Vice President, Chief
Financial Officer, Co-Chief Executive Officer*, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended.
31.2 Certification of Michael J. Hopkins, President, Pamida Division,
Co-Chief Executive Officer*, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended.
31.3 Certification of Paul G. White, Senior Vice President, Chief
Merchandising Officer, Co-Chief Executive Officer*, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended.
32.1 Statement of Brian W. Bender, Senior Vice President, Chief Financial
Officer, Co-Chief Executive Officer*, pursuant to 18 U.S.C. ss. 1350.
32.2 Statement of Michael J. Hopkins, President, Pamida Division, Co-Chief
Executive Officer*, pursuant to 18 U.S.C. ss. 1350.
32.3 Statement of Paul G. White, Senior Vice President, Chief Merchandising
Officer, Co-Chief Executive Officer*, pursuant to 18 U.S.C. ss. 1350.
* The office of Chief Executive Officer is comprised of three executive
officers, each serving as Co-Chief Executive Officer.
25