<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the quarterly period ended November 1, 1997
--------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the transition period from________________________________
Commission File Number 0-17871
------------
EAGLE FOOD CENTERS, INC.
------------------------
(Exact name of registrant as specified in the charter)
Delaware 36-3548019
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Rt. 67 & Knoxville Rd., Milan, Illinois 61264
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (309) 787-7700
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
--- ---
The number of shares of the Registrant's Common Stock, par value one cent
($0.01) per share, outstanding at December 8, 1997 was 10,945,873.
1
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
EAGLE FOOD CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
NOV 1, 1997 NOV 2, 1996 NOV 1, 1997 NOV 2, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES............................... $234,200 $248,293 $719,520 $754,077
COST OF GOODS SOLD.................. 176,153 185,523 536,822 563,616
----------- ----------- ----------- -----------
GROSS MARGIN........................ 58,047 62,770 182,698 190,461
OPERATING EXPENSES:
SELLING, GENERAL & ADMINISTRATIVE... 51,591 54,037 157,444 162,524
DEPRECIATION AND AMORTIZATION....... 4,558 5,014 14,285 15,374
----------- ----------- ----------- -----------
OPERATING INCOME.................... 1,898 3,719 10,969 12,563
INTEREST EXPENSE.................... 2,761 3,189 8,666 9,846
----------- ----------- ----------- -----------
EARNINGS/(LOSS) BEFORE INCOME TAXES
(863) 530 2,303 2,717
INCOME TAXES/(BENEFIT).............. (400) 0 (400) 0
----------- ----------- ----------- -----------
NET EARNINGS/(LOSS)................. $ (463) $ 530 $ 2,703 $ 2,717
=========== =========== =========== ===========
EARNINGS/(LOSS) PER SHARE:
PRIMARY NET EARNINGS/(LOSS)......... $ (0.04) $ 0.05 $ 0.24 $ 0.24
=========== =========== =========== ===========
FULLY DILUTED NET EARNINGS/(LOSS)... $ (0.04) $ 0.05 $ 0.24 $ 0.24
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON EQUIVALENT SHARES
OUTSTANDING 11,436 11,341 11,404 11,208
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
2
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EAGLE FOOD CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 1, FEBRUARY 1,
1997 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 11,427 $ 9,134
Restricted assets - marketable securities, at fair value .. 10,117 8,780
Accounts receivable ....................................... 10,338 13,388
Inventories ............................................... 75,239 76,395
Prepaid expenses and other ................................ 2,295 1,225
----------- -----------
Total current assets ..................................... 109,416 108,922
Property and equipment (net) ............................... 110,805 118,473
Other assets:
Deferred debt issuance costs .............................. 1,243 1,761
Excess of cost over fair value of net assets acquired ..... 2,427 2,487
Property held for resale .................................. 16,344 13,748
Other ..................................................... 13,679 9,357
----------- -----------
Total other assets ....................................... 33,693 27,353
----------- -----------
Total assets ............................................ $253,914 $254,748
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 45,799 $ 43,824
Payroll and associate benefits ............................ 15,632 18,185
Accrued liabilities ....................................... 22,385 23,048
Accrued taxes ............................................. 7,745 9,633
Bank revolving credit facility ............................ 0 0
Current portion of long-term debt ......................... 1,072 2,502
-------- --------
Total current liabilities ................................ 92,633 97,192
Long-term debt:
Senior Notes .............................................. 100,000 100,000
Capital lease obligations ................................. 14,213 12,083
-------- --------
Total long-term debt ..................................... 114,213 112,083
Other liabilities:
Reserve for closed stores ................................. 6,757 8,839
Other deferred liabilities ................................ 10,650 9,946
-------- --------
Total other liabilities .................................. 17,407 18,785
Shareholders' equity:
Preferred stock, $.01 par value, 100,000 shares
authorized ............................................... 0 0
Common stock, $.01 par value, 18,000,000 shares
authorized, 11,500,000 shares issued .................... 115 115
Capital in excess of par value ........................... 53,337 53,337
Common stock in treasury, at cost, 555,377 and
638,411 shares .......................................... (2,268) (2,590)
Other .................................................... (378) (448)
Retained earnings (deficit) .............................. (21,145) (23,726)
-------- --------
Total shareholders' equity .............................. 29,661 26,688
-------- --------
Total liabilities and shareholders' equity ............. $253,914 $254,748
======== ========
</TABLE>
See notes to the consolidated financial statements.
3
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EAGLE FOOD CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
NOV 1, 1997 NOV 2, 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ..................................... $ 2,703 $ 2,717
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Depreciation and amortization .................... 14,285 15,374
LIFO charge ...................................... 750 850
Deferred charges and credits ..................... 1,103 1,773
(Gain)/Loss on disposal of assets ................ (288) 488
Changes in assets and liabilities:
Receivables and other assets ..................... (2,843) (67)
Inventories ...................................... 406 (4,661)
Accounts payable ................................. 1,975 5,487
Accrued and other liabilities .................... (4,401) (3,027)
Reserve for closed stores and warehouse .......... (2,306) (11,335)
-------- --------
Net cash flows from operating activities .... 11,384 7,599
Cash flows from investing activities:
Additions to property and equipment .............. (8,127) (5,431)
Net additions to property held for resale ........ (1,469) (4,806)
Purchases of marketable securities ............... (1,267) (326)
Cash proceeds from dispositions of
property and equipment .......................... 3,640 3,536
-------- --------
Net cash flows from investing activities .... (7,223) (7,027)
Cash flows from financing activities:
Net revolving credit repayment ................... 0 5,494
Principal payments of capital lease obligations .. (2,068) (3,926)
Issuance (purchase) of treasury stock ............ 200 (171)
-------- --------
Net cash flows from financing activities .... (1,868) 1,397
Increase in cash and cash equivalents .............. 2,293 1,969
Cash and cash equivalents at beginning of period ... 9,134 1,481
-------- --------
Cash and cash equivalents at end of period ......... $ 11,427 $ 3,450
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest........................ $ 10,358 $ 11,411
Cash paid/(received) for income taxes ........ $ 45 $ (1,373)
Noncash investing and financing activities
Unrealized gain (loss) on securities ........ $ 70 $ (284)
</TABLE>
See notes to the consolidated financial statements.
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with the summary of significant accounting policies set forth
in the notes to the consolidated financial statements contained in the
Company's Form 10-K filed with the Securities and Exchange Commission on
May 2, 1997.
In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments of a normal recurring nature necessary
for a fair statement of the results of operations and financial position
for the interim periods presented. Operating results for the interim
periods presented are not necessarily indicative of the results that may
be expected for the fiscal year ending January 31,1998.
LITIGATION
A complaint alleging discrimination in employment was filed against the
Company in 1994 in the United States District Court for the Central
District of Illinois by two current and one former associates individually
and as representative of a class of all individuals who are similarly
situated. The Plaintiffs moved for class certification and their motion
was granted. The court has granted the Company's motion to narrow the
scope of the class. The Company denies all substantive allegations of the
Plaintiffs and of the class. The Company is subject to various other
unresolved legal actions which arise in the normal course of its business.
It is not possible to predict with certainty the outcome of these
unresolved legal actions or the range of the possible loss.
EARNINGS PER SHARE
Primary and fully diluted net earnings (loss) per share of Common Stock,
throughout the periods presented, is calculated by dividing net earnings
by the total of the weighted average shares, assuming the dilutive effect
of exercise of outstanding stock options computed in accordance with the
treasury stock method.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES
The Company recorded assets and a related capital lease obligation of $2.8
million in connection with a sale/leaseback transaction for one of it's
stores during the three quarters ended November 1, 1997.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the Company's third quarter ended November 1, 1997 were $234.2
million, a decrease of $14.1 million or 5.7% from the third quarter of
fiscal 1996. Same store sales for the quarter declined 5.7% from the year
earlier quarter and stores not affected by new competition declined 2.9%.
The Company has been faced with 25 competitive openings that have added
square footage in its markets in the past twelve months which is the
primary contributing factor to the lower sales levels. For the three
quarters ended November 1, 1997 sales were $719.5 million, a decrease of
$34.6 million or 4.6% compared to the same period in fiscal 1996. Same
store sales for the three quarters declined 5.3% from the year earlier
period. The Company operated 91 stores at November 1, 1997 compared to 92
stores at the same point in 1996.
Gross margin was 24.8% of sales for the quarter ended November 1, 1997
compared to 25.3% in the comparable quarter of 1996. The lower rate in
1997 was primarily the result of increased promotional activity in an
attempt to improve sales trends. The third quarter was negatively
influenced by approximately $0.3 million of incremental systems related
expenses. For the three quarters ended November 1, 1997 gross margin was
25.4% compared to 25.3% for the same period in 1996. Factors contributing
to the year to date gross margin rate increase include increased
percentage of perishable and private label sales plus better buying
practices.
Selling, general and administrative expenses were 22.0% of sales for the
quarter ended November 1, 1997 compared to 21.8% of sales in the
comparable quarter of 1996. Expense dollars decreased by $2.4 million,
which was primarily due to lower store employee costs as a result of
negotiated reductions in pension and health & welfare contributions and
fewer hours worked offset by higher advertising and $0.9 million of
incremental systems related expenses. For the three quarters ended
November 1, 1997, selling, general and administrative expenses were 21.9%
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of sales for the same period in 1996. Expense dollars for the three
quarters decreased by $5.1 million. The decrease for the three quarters
is also primarily due to reductions in store level employee costs.
Depreciation and amortization expenses decreased to $4.6 million or 2.0%
of sales for the quarter ended November 1, 1997 compared to $5.0 million
or 2.0% of sales in the same quarter of 1996. For the three quarters
ended November 1, 1997, depreciation and amortization expenses decreased
to $14.3 million or 2.0% of sales compared to $15.4 million or 2.0% of
sales for the same period in 1996. Lower levels of new asset additions
during the past few years are the primary cause of the lower depreciation
expense.
Net interest expense in the quarter ended November 1, 1997 decreased to $2.8
million or 1.2% of sales compared to $3.2 million or 1.2% of sales in the
comparable quarter of 1996. For the three quarters ended November 1, 1997
interest expense has declined by $1.2 million compared to 1996 due to a
stronger cash position during the year and lower interest charges related to
present valued liabilities. There were no borrowings against the Company's
Revolving Credit Agreement as of November 1, 1997.
The net loss for the third quarter of fiscal 1997 was $463,000 or $0.04 per
share on a fully diluted basis compared to net earnings of $530,000 or $0.05
per share in the same quarter of fiscal 1996. The earnings decline was
attributable to lower gross margin dollars resulting from lower sales levels
and increased promotional activity, and incremental systems implementation
costs which were partially offset by lower operating, depreciation and interest
costs. Excluding a $400,000 income tax benefit that was recorded in the current
quarter due to the resolution of uncertain issues related to audits of prior
years, there were no tax provisions in either year as tax carryforwards were
being used. For the three quarters ended November 1, 1997 net earnings were
$2.7 million, or $0.24 per share on a fully diluted basis compared to $2.7
million or $0.24 per share for the comparable periods of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $11.4 million for the three
quarters ended November 1, 1997 compared to $7.6 million in the comparable
three quarters of 1996. Earnings and non-cash charges generated $18.6 million
of cash and working capital changes used $7.2 million, primarily in reduced
liabilities and a net increase in receivables and other assets.
Additions to property and equipment for the three quarters ended November 1,
1997 totaled $8.1 million compared to $5.4 million in the first three quarters
of 1996. Net expenditures for property held for resale totaled $1.5 million in
the three quarters of 1997 compared to $4.8 million in 1996. The Company has
one new store under construction and is close to beginning construction on
three additional stores, two store expansions and four major remodeling
projects which will all be completed in fiscal 1998. These capital projects
will be financed through internally generated funds, real estate financing
transactions and borrowing from the Company's Revolving Credit Agreement. The
Company expects capital expenditures to increase as it embarks on a more
aggressive real estate program to open up to 20 stores over the next three
years.
Working capital at November 1, 1997 was $16.8 million and the current ratio was
1.18 to 1 compared to $12.4 million and 1.12 to 1 at November 2, 1996 and $11.7
million or 1.12 to 1 at February 1, 1997. There were no borrowings or Letters
of Credit outstanding against the Revolving Credit Agreement as of November 1,
1997.
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The statements under Management's Discussion and Analysis of Financial
Condition and Results of Operations and the other statements in this Form 10-Q
which are not historical facts are forward looking statements. These forward
looking statements involve risks and uncertainties that could render them
materially different, including, but not limited to, the effect of economic
conditions, the impact of competitive stores and pricing, availability and
costs of inventory, labor costs, the rate of technology change, the
availability of capital, supply constraints or difficulties, the effect of the
Company's accounting policies, the effect of regulatory and legal developments,
and other risks detailed in the Company's Securities and Exchange Commission
filings.
PART II - OTHER INFORMATION
NONE
6
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
EAGLE FOOD CENTERS, INC.
Dated: December 16, 1997 /s/ Robert J. Kelly
---------------------
Robert J. Kelly
President and Chief Executive Officer
Dated: December 16, 1997 /s/ Herbert T. Dotterer
--------------------------------
Herbert T. Dotterer
Sr. Vice President - Finance and
Chief Financial Officer
7
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EXHIBIT 11
COMPUTATION OF NET EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
11/01/97 11/02/96 11/01/97 11/02/96
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average of shares outstanding
during quarter ............................ 10,943 10,865 10,911 10,863
Weighted average common equivalent
shares attributable to stock options
granted, computed using the treasury
stock method on a fully diluted basis ..... 493 476 493 345
Weighted average common and common
equivalent shares ......................... 11,436 11,341 11,404 11,208
Net earnings/(loss) applicable to common stock $ (463) $ 530 $ 2,703 $ 2,717
Net earnings/(loss) per common and common
equivalent share .......................... $ (0.04) $ 0.05 $ 0.24 $ 0.24
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-10-1997
<CASH> 11,427,000
<SECURITIES> 10,117,000
<RECEIVABLES> 10,338,000
<ALLOWANCES> 909,000
<INVENTORY> 75,239,000
<CURRENT-ASSETS> 109,416,000
<PP&E> 266,296,000
<DEPRECIATION> 158,253,000
<TOTAL-ASSETS> 253,914,000
<CURRENT-LIABILITIES> 92,633,000
<BONDS> 100,000,000
0
0
<COMMON> 115,000
<OTHER-SE> 29,546,000
<TOTAL-LIABILITY-AND-EQUITY> 253,914,000
<SALES> 719,520,000
<TOTAL-REVENUES> 719,520,000
<CGS> 536,822,000
<TOTAL-COSTS> 536,822,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,666,000
<INCOME-PRETAX> 2,703,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,703,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,703,000
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
