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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year (52 weeks) ended February 1, 2003

OR

For the transition period from            to            

Commission file number 1-10876

SHOPKO STORES, INC.

(Exact name of registrant as specified in its Charter)

Registrant’s telephone number, including area code (920) 429-2211

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12 (g) of the Act: None.

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 reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K   x.

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 aggregate market value of the voting stock held by non-affiliates of the Registrant as of August 3, 2002 was approximately $434,631,987 (based upon the closing price of Registrant’s Common Stock on the New York Stock Exchange on such date).

Number of shares of $0.01 par value Common Stock outstanding as of March 28, 2003: 29,090,531.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference portions of the definitive Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 28, 2003.

PART I

Item 1.    Business

General

ShopKo Stores, Inc. (“ShopKo” or the “Company”), a Wisconsin corporation, was incorporated in 1961 and in 1971 became a wholly owned subsidiary of Supervalu Inc. (“Supervalu”). On October 16, 1991, the Company sold 17,250,000 common shares or 54% of equity ownership in an initial public offering. On July 2, 1997, Supervalu exited its remaining 46% investment in the Company through a stock buyback and secondary public offering. The Company’s principal executive offices are located at 700 Pilgrim Way, Green Bay, Wisconsin 54304, and its telephone number is (920) 429-2211. The Company’s internet website can be found at www.shopko.com. ShopKo’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to such reports are available on this website as soon as reasonably practicable after they have been filed with the Securities and Exchange Commission. In addition, the Company makes information about quarterly webcasts and recent press releases available on its website.

The Company has two business segments: a ShopKo Retail segment and a Pamida Retail segment. The ShopKo Retail segment consists of a multi-department retailer operating under the “ShopKo” name, located primarily in mid-size and larger communities. The ShopKo retail stores are committed to offering quality merchandise, services and value to meet customers’ needs for home, family basics, casual apparel and seasonal products along with a special emphasis on retail health, operating in-store pharmacies and optical centers. As of February 1, 2003, the Company had 141 ShopKo retail stores operating in 15 Midwest, Pacific Northwest and Western Mountain states. The Pamida Retail segment is a general merchandise retailer serving smaller and more rural communities, offering a convenient, one-stop shopping format. As of February 1, 2003, the Company had 223 Pamida retail stores operating in 16 Midwest, North Central and Rocky Mountain states. Financial information about these segments is included in Note J of the Notes to Consolidated Financial Statements for fiscal year 2002.

ShopKo Retail

Merchandising Philosophy—ShopKo Retail

ShopKo Retail is committed to offering quality merchandise, services and value to meet customers’ requirements for health, home, family basics, casual apparel and seasonal needs in its stores with speed, friendliness and simplicity. ShopKo Retail strives to differentiate itself from its competition by meeting customer needs more quickly and conveniently, and by anticipating the needs of its customers’ changing lifestyles.

ShopKo’s strategy is to focus on selected merchandise categories tied to its customers’ changing lifestyle needs.

ShopKo aims to deliver a superior customer experience in its retail stores by:

ShopKo provides quality trend-correct, casual lifestyle merchandise at compelling prices in an attractive, customer-friendly shopping environment.

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Merchandising and Services—ShopKo Retail

The ShopKo Retail store net sales mix for the last three fiscal years was:

ShopKo Retail stores carry a wide assortment of trend-correct branded and private label softline goods, including:

ShopKo also carries a wide assortment of seasonal and everyday basic categories of hardline goods such as:

ShopKo carries a broad assortment of merchandise to provide customers with a convenient one-stop shopping source for everyday items. ShopKo’s accommodating customer service policies provide customers with a pleasant shopping experience.

ShopKo continually seeks to offer leading national brand names in its merchandise lines. It concentrates on brands that have wide customer acceptance and provide quality and value. In addition, ShopKo seeks to maintain the appropriate mix of private label goods through its well-developed private label programs. ShopKo’s in-house quality assurance and technical design team analyzes and develops the quality of its fashion offerings. This allows ShopKo to deliver a better and more consistent product, with greater control and efficiency.

The Company also provides retail health services in most of its ShopKo stores. Of the Company’s 141 stores as of February 1, 2003, 140 include retail pharmacies and optical centers. In addition to generating store traffic and building customer loyalty, these services contribute significantly to the Company’s overall profitability and provide the opportunity for additional growth. ShopKo’s pharmacies filled over 12.7 million prescriptions in fiscal 2002, compared to 12.2 million prescriptions in fiscal 2001. ShopKo’s optometrists perform in-store eye exams and prescribe correctional lenses, most of which are fabricated in the Company’s centralized optical laboratory and in approximately 91 in-store finishing labs. In fiscal 2002, ShopKo dispensed over 683,000 eyewear prescriptions, compared to 679,000

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eyewear prescriptions in fiscal 2001. The in-store finishing labs typically service other ShopKo stores in the vicinity and provide customers with same day or next day optical service for single vision lenses.

Marketing and Advertising—ShopKo Retail

ShopKo markets its general merchandise and retail pharmacy and optical services by using weekly newspaper circulars, which enables ShopKo to reach a broad-based group of customers consisting largely of middle-income families. These full-color circulars average 20 pages and feature values in all of the departments in ShopKo’s stores and have a circulation of 4.4 million. ShopKo uses direct mail advertisements selectively during key promotional periods. These direct mail advertisements average 56 pages and have a circulation of 5.8 million. All printed advertising materials are designed by the Company’s in-house design team and photographed in the Company’s own photography studios. In addition to the newspaper circulars and direct mail advertisements, ShopKo uses television and radio advertising as secondary media to support key events.

In general, ShopKo uses its frequent advertising of a large group of high demand items to reinforce its competitive value image and to generate store traffic, rather than attempting to meet the lowest available price on every item.

ShopKo Retail Store Layout and Design

ShopKo stores are designed for simplicity, speed and ease of the shopping experience. The stores emphasize ShopKo’s customers’ lifestyles and brand awareness. The stores feature competitive assortments of softlines, home and hardlines products as well as pharmacy and optical centers. The pharmacy and optical centers are located in the front of the store for added convenience. Health and Beauty Aids and Over The Counter products have been positioned adjacent to the pharmacy, in most stores, to provide a total health care environment. ShopKo designs the remainder of the store in a “racetrack” configuration that assists customers in navigating easily throughout the store. ShopKo presents high impulse, high volume promotional items prominently on fixture endcaps.

The Company is testing various store layouts, display techniques and merchandise mixes in defining its evolving prototype format for both existing and new stores, through a well-managed asset maintenance program. The Company expects to introduce a new ShopKo prototype store in fiscal 2003, which will be continually modified and updated. The Company’s current average ShopKo store size is over 90,000 square feet. Future store size may vary depending on changes to the Company’s prototype design, the community, and the retail competition in the immediate area.

ShopKo Retail Store Operations and Management

ShopKo’s store operations organization focuses on:

ShopKo strives for continuous improvements in the overall customer experience. The ShopKo operating model has been integrated into store operations with significant improvements in operating efficiency and dedication to customer service. The store operations organization is designed on a framework of three leadership planks: people, performance and profit.

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People.    The Company has lowered teammate turnover the past three years by focusing on an improved work environment and quality training programs. The current focus is improving the leadership capacity of every leader. This education is intended to sharpen management’s ability to serve our customers and maximize our profitability.

Performance.    The Company has implemented a set of in-store measures that regularly monitor performance in each store. The measures are specifically focused to gauge the customer experience and maximize profit. The Company continually monitors performance to emphasize successes and positive trends.

Profit.    ShopKo has invested in technology to remove unnecessary labor from non-selling functions. Store teams are keenly aware of their store performance and are rewarded through incentive programs designed to stretch beyond plan profit goals.

ShopKo holds its store operations management teams accountable for execution of aggressive plans and achievement of comprehensive goals. ShopKo emphasizes ongoing development of its management teams to ensure that it has the competencies required for continued success.

Purchasing and Distribution—ShopKo Retail

ShopKo purchases merchandise from more than 1,500 vendors. ShopKo’s ten largest vendors accounted for approximately 40.8% of ShopKo’s purchases during fiscal 2002. ShopKo believes that most merchandise, other than branded goods, is available from a variety of sources. ShopKo is working with its entire supply chain to link its vendors into ShopKo’s general merchandise business planning process to reduce costs and to replenish its inventory more efficiently. The majority of ShopKo’s vendors are linked to its electronic data interchange purchase order systems. Select vendors electronically receive point-of-sale information from ShopKo, which allows them to respond to changing inventory levels in the stores. In addition, the majority of ShopKo’s vendors are electronically transmitting invoices directly into the Company’s automated invoice matching system.

Purchasing and distribution of merchandise is a critical aspect of our business. The Company controls the flow of main store and optical merchandise through the use of centralized purchasing, replenishment and allocation processes and information systems. Allocation and distribution management is closely tied to the merchandise buying organization to effectively control and plan merchandise logistics. ShopKo’s pharmacy merchandise is replenished primarily through the use of a distributor. Pharmacies are electronically linked to the distributor and place orders as product is needed.

Direct imports accounted for approximately 7.9% of ShopKo’s purchases, based upon cost of goods, during fiscal 2002. ShopKo buys its imported goods principally in the Far East and ships the goods to its distribution centers for distribution to the stores.

ShopKo has three distribution centers strategically located throughout the United States to efficiently support its retail operations. Utilization of distribution centers has enabled ShopKo to:

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ShopKo believes that these cost reductions help it remain price-competitive. During fiscal 2002, approximately 89% of the merchandise sold by ShopKo, excluding optical and pharmaceutical products, flowed through its distribution centers.

Pursuant to a license agreement, Payless ShoeSource, Inc. operates a shoe department (other than certain nationally-branded athletic shoes) in every ShopKo store. ShopKo retains a percentage of the gross proceeds collected as rent.

Management Information Systems—ShopKo Retail

ShopKo uses information technology to improve customer service, reduce operating costs and provide useful information to help ShopKo make timely decisions regarding merchandising. ShopKo uses modern point-of-sale terminal systems for electronic price lookup and tracking sales information at store and Stock Keeping Unit (SKU) level. ShopKo uses frame relay communications technology to provide real-time, on-line credit card and check authorization. ShopKo uses portable radio-frequency terminals extensively in its stores for merchandise receiving, stocking, replenishment, pricing and label printing.

ShopKo’s merchandising systems provide for integrated perpetual inventory management, automated replenishment, promotional planning, space planning, merchandise financial planning and assortment planning. In addition, ShopKo converts transaction-based raw data it amasses daily into actionable reporting which serves as a decision support tool for the Company’s management.

ShopKo’s warehouse management system provides complete warehouse functionality such as conveyor control and direction of picking and put-away processes by using portable radio-frequency terminals. In addition, this system is highly integrated with the Company’s central information systems through its telecommunications network, thereby ensuring up-to-date perpetual inventory records, as well as facilitating highly accurate merchandise allocation and distribution decisions to its management team.

ShopKo uses electronic commerce technology in support of its focus on total supply chain management. This includes integrated replenishment systems, vendor-managed inventories and electronic data interchange. ShopKo believes that these tools have resulted in higher in-stock service levels, optimized inventory levels and greater productivity.

Expansion—ShopKo Retail

The Company does not currently anticipate pursuing growth of the ShopKo retail business through the addition of new stores in fiscal 2003. See Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources. Nonetheless, the Company expects to explore and test alternative platforms for re-establishing growth within the Company. Costs for conversion of existing stores to the new prototype design, as well as the timing of renovations of existing stores, will depend on a variety of factors, including the success of the new prototype. As conditions allow, the Company intends to consider increasing the number of ShopKo retail stores to achieve economies of scale and to capitalize on the Company’s existing infrastructure. The Company currently plans to resume opening new ShopKo stores in existing markets in 2004. The Company’s plans with respect to new store growth are subject to change, and there can be no assurances that the Company will achieve its plans.

Competition—ShopKo Retail

The discount general merchandise business is very competitive. ShopKo competes in most of its markets with a variety of national, regional and local discount stores, national category killers, specialty

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niche retailers, catalog merchants and Internet retailers. In addition, department stores compete with some branded merchandise lines, discount specialty retail chains compete with some merchandise lines such as health and beauty aids, household cleaning and supplies, electronics, bed and bath, housewares, casual furniture and toys, and pharmaceutical and optical operations compete with some of ShopKo’s pharmacy and optical centers. ShopKo believes that the principal competitive factors in its markets include:

ShopKo’s principal national general merchandise discount chain competitors are Wal-Mart, Kmart and Target, each of which is substantially larger than, and has greater resources than, the Company.

The percentage of ShopKo stores where these competitors are present within the applicable market is as follows:

ShopKo also competes with regional chains in some markets in the Midwest and the Pacific Northwest. These competitors continue to open new stores in ShopKo’s markets.

Historically, the entry of one of these chains into an area served by a ShopKo store generally has had an adverse effect on the affected store’s sales growth for approximately 12 months. After the 12 month time period, the ShopKo store generally has resumed a positive growth trend, although not necessarily to previous levels. Entry by one of these competitors into a ShopKo market often has resulted in permanently intensified price competition. In addition, ShopKo store sales are generally negatively affected by a competitor’s increased saturation through expansion, relocation and additional stores in an existing market. The Company’s efficiency measures and distribution center expenditures are important aspects of ShopKo’s efforts to maintain or improve operating margins and market share in these markets.

Seasonality—ShopKo Retail

ShopKo’s retail general merchandise operations are highly seasonal. Historically, ShopKo’s third and fourth fiscal quarters have contributed a significant part of the Company’s earnings due to the Christmas selling season.

Pamida Retail

On July 6, 1999, the Company acquired all of the outstanding voting and nonvoting common stock of Pamida, Inc. (“Pamida”) for $94.0 million in cash, $285.8 million in assumed debt and $138.6 million in assumed trade and other accrued liabilities. Pamida is a retail chain headquartered in Omaha, Nebraska.

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Merchandising Philosophy—Pamida Retail

Pamida’s strategy is to offer consumers in small, rural communities a convenient one-stop shopping format. A typical store carries a broad assortment of value-priced softlines and hardlines merchandise, including consumables, and 89 of Pamida’s 223 stores have retail pharmacies.

Pamida stores generally are located in small towns where there often is less competition from another major general merchandise retailer and which Pamida considers to be either too small to support more than one major general merchandise retailer (thereby creating a potential barrier to entry by a major competitor) or too small to attract competitors whose stores generally are designed to serve larger populations.

Pamida’s merchandising strategy is to provide customers with a reliable and convenient family shopping experience featuring nationally advertised brand-name products as well as select private-label merchandise at competitive prices. Pamida stores are self-service. Advertising circulars are run weekly. Pamida places special emphasis on maintaining a strong in-stock position in all merchandise categories.

Merchandising and Services—Pamida Retail

The Pamida Retail store net sales mix for the last three fiscal years was:

Pamida’s softlines division includes:

Pamida’s hardlines division includes categories such as:

As of February 1, 2003, Pamida owned and operated pharmacies in 87 of its stores with an additional two pharmacies leased to and operated by independent pharmacists. The pharmacies have proven to be effective in building customer loyalty and attracting customers who are likely to purchase other items in addition to prescription drugs. Pamida intends to aggressively grow its pharmacy base, looking to add 15 to 20 pharmacies per year for the next couple of years.

Marketing and Advertising—Pamida Retail

Pamida’s advertising primarily utilizes colorful weekly circulars coordinated by an internal advertising staff. Circulars advertise brand-name and other merchandise at competitive prices.

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Pamida Retail Store Layout and Design

The Company tests various alternative layouts and merchandising mixes for its Pamida stores and is currently remodeling several stores to reduce the space devoted to softlines, with more space to be devoted to consumables and convenience-oriented items. If the test is successful, more stores will be converted to the newer design. Pamida historically has invested approximately $3.0 to $3.2 million in building a new store, but is currently exploring the less expensive alternative of leasing existing retail locations for expansion and growth. The risks associated with this alternative will be minimized through the negotiation of shorter lease terms and options for lease extensions.

Pamida’s stores average approximately 27,500 square feet of sales area and range in size from approximately 8,000 to 50,000 square feet of sales area. Historically, Pamida has used a 35,000 square foot prototype when building new stores, but will continue to make adjustments to its prototype as it identifies new strategies and trends.

Pamida Retail Store Operations and Management

The methods Pamida employs to build customer loyalty and satisfaction are weekly advertised specials, competitive pricing, clean and orderly stores and friendly, well-trained personnel.

Purchasing and Distribution—Pamida Retail

Pamida maintains a centralized purchasing, merchandise allocation and space planning staff at its central offices. Pamida’s point-of-sale data equipment provides current information to Pamida’s buyers and inventory management specialists to assist them in managing inventories, effecting prompt reorders of popular items, eliminating slow-selling merchandise and reducing markdowns.

Centralized purchasing enables Pamida to more effectively control the cost of merchandise and to take advantage of promotional programs and volume discounts offered by certain vendors. Pamida continuously seeks to optimize merchandise costs.

Pamida purchases merchandise from more than 1,500 vendors. Pamida’s ten largest vendors accounted for approximately 33.1% of Pamida’s purchases during fiscal 2002. Pamida believes that most merchandise, other than branded goods, is available from a variety of sources. Pamida is working with its entire supply chain to link its vendors into Pamida’s general merchandise business planning process to reduce costs and to replenish its inventory more efficiently. The majority of Pamida’s vendors are linked to its electronic data interchange purchase order systems. Select vendors electronically receive point-of-sale information from Pamida, which allows them to respond to changing inventory levels in the stores. In addition, the majority of Pamida’s vendors are electronically transmitting invoices directly into the Company’s automated invoice matching system.

Pamida has entered into an agreement with Payless ShoeSource, Inc. to be the primary vendor within the shoe category.

Purchasing and distribution of merchandise is a critical aspect of Pamida’s business. The Company controls the flow of main store merchandise through the use of centralized purchasing, replenishment and allocation processes and information systems. Allocation and distribution management is closely tied to the merchandise buying organization to effectively control and plan merchandise logistics. Pamida’s pharmacy merchandise is replenished primarily through the use of a distributor. Pharmacies are electronically linked to the distributor and place orders, as product is needed.

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Direct imports accounted for approximately 4.7% of Pamida’s purchases, based upon cost of goods, during fiscal 2002. Pamida buys its imported goods principally in the Far East and ships the goods to its distribution centers for distribution to the stores.

Pamida operates distribution facilities in Omaha, Nebraska and Lebanon, Indiana; both of which serve primarily as distribution centers for bulk shipments and promotional and replenishment merchandise on which cost savings can be realized through quantity purchasing. During fiscal 2002, approximately 78% of Pamida’s merchandise, excluding pharmaceutical products, was distributed to the stores through these distribution centers, while the remaining merchandise was supplied directly to the stores by manufacturers or distributors.

The primary Omaha distribution facility is 336,000 square feet. Pamida owns another distribution center in Omaha, which is 135,000 square feet and is used primarily as a cross-dock operation for seasonal merchandise. The Lebanon distribution center is 418,000 square feet and is used as a full-service operation providing both full-case and less-than-case merchandise distribution, similar to the primary Omaha facility.

Management Information Systems—Pamida Retail

Similar to ShopKo, Pamida employs an up-to-date suite of integrated retail information systems, including merchandise procurement, inventory management, automated replenishment, merchandise and space planning, warehouse management, pharmacy management and point of sale.

In fiscal 2002, the Company consolidated Pamida’s data center and information technology support functions into the corporate headquarters in Green Bay, Wisconsin. In addition, during fiscal 2002, Pamida completed a major upgrade of its core merchandise management system and is in the process of implementing a centralized pharmacy claims management system.

Expansion—Pamida Retail

On June 29, 2000, the Company acquired the retail chain, P.M. Place Stores Company (“Places”), which operated 49 discount stores in Missouri, Iowa, Kansas, and Illinois. Forty-eight of these stores were reopened as Pamida stores, and one Places store, located in an existing Pamida location, was closed. During fiscal 2000, Pamida opened 76 new stores, including the 48 converted Places stores, and closed four stores. During fiscal 2001, four additional stores were closed. During fiscal 2002, Pamida closed two stores, decreasing the total number of Pamida stores to 223 as of February 1, 2003.

The Company does not currently anticipate pursuing significant growth of the Pamida retail business in fiscal 2003 through the addition of new stores. However, the Company does plan on expanding pharmacy locations in existing Pamida retail stores and is examining the possibility of leasing existing retail locations as described earlier. The Company intends to return to modest store growth as conditions allow, and the Company has identified numerous communities as potential sites for Pamida stores and in which it believes it can achieve a leading market position. There is, however, no assurance that the Company will open stores in such communities or on any particular time schedule.

Competition—Pamida Retail

The general merchandise retail business is highly competitive. Pamida’s stores generally compete with other general merchandise retailers, supermarkets, drug and specialty stores, mail order and catalog merchants, Internet retailers and, in some communities, department stores. The type and degree of competition and the number of competitors with which Pamida’s stores compete vary by market.

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Pamida stores generally are located in small towns where there is no direct local competition from another major general merchandise retailer in the town, and which may be either too small to support more than one major general merchandise retailer (thereby creating a potential barrier to entry by a major competitor) or too small to attract competitors whose stores generally are designed to serve larger populations.

The percentage of Pamida stores where national general merchandise discount chains are present (within 10 miles) is as follows:

In recent years Pamida’s business strategy has been to focus its store expansion program on communities with less likelihood of the entry of a new major competitor, but there can be no assurance that in the future major competitors will not open additional stores in Pamida’s markets.

Seasonality—Pamida Retail

Pamida’s business, like that of most other general merchandise retailers, is seasonal. First quarter sales are lower than sales during the other three fiscal quarters, while fourth quarter sales amount to approximately 28% of the full year’s sales and normally involve a greater proportion of higher margin merchandise.

Discontinued Operations

At the start of fiscal 2000, the Company maintained a 64.5% ownership interest in ProVantage Health Services, Inc. (“ProVantage”). ProVantage provided health benefit management services, pharmacy mail services, vision benefit management services and health information technology and clinical support services. On June 16, 2000, the Company sold its interest in ProVantage pursuant to a tender offer by a third party to acquire all of the outstanding shares of ProVantage. For financial information regarding the sale, see Note A of the Notes to the Consolidated Financial Statements.

Consolidated

Employees

The Company employs approximately 18,900 persons in its ShopKo division, of whom approximately 7,500 are full-time employees and 11,400 are part-time employees and approximately 6,500 persons in its Pamida division, of whom approximately 3,100 are full-time employees and 3,400 are part-time employees. During the Christmas shopping season, the Company typically employs additional persons on a temporary basis. No employees of the Company are covered by collective bargaining agreements.

Government Regulation

The Company’s pharmacy and optical services business is subject to extensive federal and state laws and regulations governing, among other things:

Licensure and Regulation of Retail Pharmacies and Optical Centers

There are extensive federal and state regulations applicable to the practice of pharmacy and optometry at the retail level. Most states have laws and regulations governing the operation and

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licensing of pharmacies and optical centers, and regulate standards of professional practice by pharmacy and optical service providers. These regulations are issued by an administrative body in each state, typically a pharmacy board or board of optometry, which is empowered to impose sanctions for non-compliance.

Future Legislative Initiatives

Legislative and regulatory initiatives pertaining to such healthcare related issues as reimbursement policies, payment practices, therapeutic substitution programs, and other healthcare cost containment issues are frequently introduced at both the state and federal level. The Company is unable to predict accurately whether or when legislation may be enacted or regulations may be adopted relating to the Company’s pharmacy and optical services operations or what the effect of such legislation or regulations may be.

Substantial Compliance

The Company’s management believes the Company is in substantial compliance with, or is in the process of complying with, all existing statutes and regulations material to the operation of the Company’s pharmacy and optical services businesses and, to date, no state or federal agency has taken enforcement action against the Company for any material non-compliance, and to the Company’s knowledge, no such enforcement against the Company is presently contemplated.

Forward-Looking Statements and Risk Factors

In accordance with the Private Securities Litigation Reform Act of 1995, the Company can obtain a “safe-harbor” for forward-looking statements by identifying those statements and by accompanying those statements with cautionary statements which identify factors that could cause actual results to differ from those in the forward-looking statements. Accordingly, the following information contains or may contain forward-looking statements: (1) information included or incorporated by reference in this Annual Report on Form 10-K, including, without limitation, statements made under Item 1, Business, and under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, (2) information included or incorporated by reference in future filings by the Company with the Securities and Exchange Commission (“SEC”) including, without limitation, statements with respect to growth, acquisition and expansion plans, store layouts and evolving prototypes, financing plans and projected sales, revenues, earnings, costs and capital expenditures, and (3) information contained in written material, releases and oral statements issued by, or on behalf of, the Company including, without limitation, statements with respect to growth, acquisition and expansion plans, store layouts and evolving prototypes, financing plans and projected sales, revenues, earnings, costs and capital expenditures. The Company’s actual results may differ materially from those contained in the forward-looking statements identified above. Factors which may cause such a difference to occur include, but are not limited to, (i) the impact of recent accounting pronouncements as described herein, (ii) the risk factors described below, and (iii) other risks described from time to time in the Company’s SEC filings.

An investment in ShopKo’s Common Stock or other securities carries certain risks. Investors should carefully consider the risks described below and other risks, which may be disclosed from time to time in ShopKo’s filings with the SEC, before investing in ShopKo’s Common Stock or other securities.

The Company has a significant amount of debt, which could adversely affect its business and growth prospects.    At February 1, 2003, the Company had approximately $455.2 million of total debt and lease obligations, including $40.0 million outstanding on a senior secured credit facility (the

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“Secured Credit Facility”). The restrictions and limitations in the Secured Credit Facility, as well as the significant amount of debt in general, could have material adverse effects on the Company’s business. For example, it:

The Company finances a significant portion of its operations through vendor financing.    The credit terms provided by the Company’s vendors are an important source of financing for the Company’s operations. Future operating performance could negatively impact the favorable credit terms the Company now maintains with these vendors. If the credit terms provided to the Company by a significant portion of its vendors were to deteriorate, the Company would be materially adversely affected.

The Company may not achieve the expected benefits of current or future reorganizations.    During the fourth quarter of fiscal 2000, the Company announced a strategic reorganization plan to improve the productivity of its assets and reduce debt. The plan included store and distribution center closings and a charge to earnings of approximately $125 million. The Company believes that implementation of the plan has resulted in an increase in the Company’s profitability and efficiency. However, the analysis underlying this plan involved many variables and uncertainties. Based on the overall softness in the real estate market and an independent valuation analysis, the Company determined that an additional $6.0 million should be added to the reserve in the fourth quarter of 2002. The Company may not achieve all of the expected benefits of its plan and additional charges may be necessary in the future. There can be no assurances that additional reorganizations of this nature, together with related charges to earnings, will not be required in the future to improve the productivity and efficiency in the Company’s ShopKo and Pamida segments. Such reorganizations and charges to earnings could have a material adverse effect on our financial position or results of operations.

The Company may be unable to execute its expansion plans, which may have a significant adverse effect on its financial performance and its growth strategy and prospects.    The Company considers expansion in the number of its retail stores to be an integral part of its plan to achieve projected operating results in future years. In an effort to reduce the Company’s overall debt, as well as to comply with the restrictions and limitations in its Secured Credit Facility, the Company does not anticipate opening any significant number of new retail locations in fiscal 2003. Furthermore, the Company expects that any new stores will typically require an extended period of time to reach the sales and profitability levels of its existing stores. The opening of any new stores does not ensure that those stores will ever