<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 August 2, 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)
<TABLE>
<CAPTION>
Delaware 36-3548019
------------------------------- ------------------------------------
<S> <C>
(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)
</TABLE>
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 September 5, 1997 was 10,943,998.
Page 1 of 9 pages
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
EAGLE FOOD CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
AUGUST 2, 1997 AUGUST 3, 1996 AUGUST 2, 1997 AUGUST 3, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales................................ $245,383 $257,645 $485,320 $505,784
Cost of goods sold................... 182,719 192,780 360,669 378,093
----------- ----------- ----------- -----------
Gross margin....................... 62,664 64,865 124,651 127,691
Operating expenses:
Selling, general & administrative.. 53,507 55,384 105,853 108,487
Depreciation and amortization...... 4,838 5,161 9,727 10,360
----------- ----------- ----------- -----------
Operating income................. 4,319 4,320 9,071 8,844
Interest expense..................... 2,941 3,160 5,905 6,657
----------- ----------- ----------- -----------
Earnings before income taxes 1,378 1,160 3,166 2,187
Income taxes......................... 0 0 0 0
----------- ----------- ----------- -----------
Net earnings......................... $1,378 $1,160 $3,166 $2,187
=========== =========== =========== ===========
Earnings per share:
Primary net earnings............... $0.12 $0.10 $0.28 $0.20
=========== =========== =========== ===========
Fully diluted net earnings......... $0.12 $0.10 $0.27 $0.19
=========== =========== =========== ===========
Weighted average common shares and
Common equivalent shares outstanding 11,549 11,410 11,531 11,416
</TABLE>
See notes to the consolidated financial statements.
2
<PAGE> 3
EAGLE FOOD CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1997 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 12,858 $ 9,134
Restricted assets - marketable securities, at fair value .. 9,661 8,780
Accounts receivable ....................................... 11,660 13,388
Inventories ............................................... 67,755 76,395
Prepaid expenses and other ................................ 3,105 1,225
-------- --------
Total current assets ..................................... 105,039 108,922
Property and equipment (net) ............................... 112,386 118,473
Other assets:
Deferred debt issuance costs .............................. 1,416 1,761
Excess of cost over fair value of net assets acquired ..... 2,447 2,487
Property held for resale .................................. 15,995 13,748
Other ..................................................... 12,512 9,357
-------- --------
Total other assets ....................................... 32,370 27,353
-------- --------
Total assets ............................................ $249,795 $254,748
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable .......................................... $ 39,778 $ 43,824
Payroll and associate benefits ............................ 15,962 18,185
Accrued liabilities ....................................... 22,482 23,048
Accrued taxes ............................................. 9,759 9,633
Bank revolving credit facility ............................ 0 0
Current portion of long-term debt ......................... 1,450 2,502
-------- --------
Total current liabilities ................................ 89,431 97,192
Long-term debt:
Senior Notes .............................................. 100,000 100,000
Capital lease obligations ................................. 11,657 12,083
-------- --------
Total long-term debt ..................................... 111,657 112,083
Other liabilities:
Reserve for closed stores and warehouse ................... 7,135 8,839
Other deferred liabilities ................................ 11,492 9,946
-------- --------
Total other liabilities .................................. 18,627 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, 568,327 and
633,361 shares ........................................... (2,321) (2,590)
Other ..................................................... (384) (448)
Retained earnings (deficit) ............................... (20,667) (23,726)
-------- --------
Total shareholders' equity ............................... 30,080 26,688
-------- --------
Total liabilities and shareholders' equity .............. $249,795 $254,748
======== ========
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE> 4
EAGLE FOOD CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
AUGUST 2, 1997 AUGUST 3, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ..................................... $3,166 $2,187
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Depreciation and amortization .................... 9,727 10,360
LIFO charge ...................................... 500 600
Deferred charges and credits ..................... 893 1,340
Loss on disposal of assets ....................... 99 506
Changes in assets and liabilities:
Receivables and other assets ..................... (3,596) 2,844
Inventories ...................................... 8,140 1,623
Accounts payable ................................. (4,046) 2,486
Accrued and other liabilities .................... (1,117) 42
Reserve for closed stores and warehouse .......... ( 2,019) (10,330)
-------------- --------------
Net cash flows from operating activities ...... 11,747 11,658
Cash flows from investing activities:
Additions to property and equipment .............. (5,547) (2,416)
Additions to property held for resale ............ (1,009) (1,949)
Purchases of marketable securities ............... (817) (927)
Cash proceeds from dispositions of
property and equipment .......................... 678 3,515
-------------- --------------
Net cash flows from investing activities ...... (6,695) (1,777)
Cash flows from financing activities:
Net revolving credit repayment ................... 0 (1,992)
Principal payments of capital lease obligations .. (1,490) (2,590)
Issuance (purchase) of treasury stock ............ 162 (171)
-------------- --------------
Net cash flows from financing activities ...... (1,328) (4,753)
Increase in cash and cash equivalents ............. 3,724 5,128
Cash and cash equivalents at beginning of period .. 9,134 1,481
-------------- --------------
Cash and cash equivalents at end of period ........ $12,858 $6,609
============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest ........................ $5,485 $6,322
Cash paid for income taxes .................... $16 $30
Noncash investing and financing activities
Unrealized gain (loss) on securities .......... $64 $(370)
</TABLE>
See notes to the consolidated financial statements.
4
<PAGE> 5
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. Recently the court 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 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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the Company's second quarter ended August 2, 1997 were $245.4
million, a decrease of $12.3 million or 4.8% from the second quarter of
fiscal 1996. Same store sales for the quarter declined 6.1% and stores
not affected by new competition declined 2.4%. The Company has been faced
with 21 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 two quarters ended August 2, 1997 sales were
$485.3 million, a decrease of $20.5 million or 4.0% compared to the same
period in fiscal 1996. Same store sales for the two quarters declined
5.1% and stores not affected by new competition declined 1.6%. The
Company operated 91 stores at August 2, 1997 compared to 92 stores at the
same point in 1996.
Gross margin was 25.5% of sales for the quarter ended August 2, 1997
compared to 25.2% in the comparable quarter of 1996. For the two quarters
ended August 2, 1997 gross margin was 25.7% compared to 25.2% for the same
time period in 1996. Improvement in gross margin rate resulted from
improved perishable department sales and better buying practices.
Selling, general and administrative expenses were 21.8% of sales for the
quarter ended August 2, 1997 compared to 21.5% of sales in the comparable
quarter of 1996. Expense dollars decreased by $1.9 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. For the two quarters ended August 2, 1997, selling, general and
administrative expenses were 21.8% of sales versus 21.4% of sales for the
same period in 1996. Expense dollars for the two quarters decreased by
$2.6 million. The decrease for the two quarters is also primarily due to
reductions in store level employee costs.
Depreciation and amortization expenses decreased to $4.8 million or 2.0%
of sales for the quarter ended August 2, 1997 compared to $5.2 million or 2.0%
of sales in the same quarter of 1996. For the two quarters ended August
5
<PAGE> 6
2, 1997, depreciation and amortization expenses decreased to $9.7 million
or 2.0% of sales compared to $10.4 million or 2.0% of sales for the same period
in 1996. Lower levels of new asset additions are the primary cause of the
lower depreciation expense.
Net interest expense in the quarter ended August 2, 1997 decreased to $2.9
million or 1.2% of sales compared to $3.2 million or 1.2% of sales in the
comparable quarter of 1996. For the two quarters ended August 2, 1997 interest
expense has declined by over $750,000 compared to 1996 due to strong positive
cash balances and lower interest charges related to present valued liabilities.
There were no borrowings against the Revolving Credit Agreement as of August
2, 1997.
Net earnings for the second quarter of fiscal 1997 were $1.4 million or $0.12
per share on a fully diluted basis compared to $1.2 million or $0.10 per share
in the same quarter of fiscal 1996. There was no tax provision in either year
as tax loss carryforwards are being utilized. For the two quarters ended August
2, 1997 net earnings were $3.2 million, or $0.27 per share on a fully diluted
basis compared to $2.2 million or $0.19 per share for the comparable periods of
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $11.7 million for the two
quarters ended August 2, 1997 compared to $11.7 million in the comparable two
quarters of 1996. Higher earnings and reduced inventory levels helped to
offset reductions in accounts payable and increases in other assets related to
systems enhancements.
Additions to property and equipment for the two quarters ended August 2, 1997
totaled $5.5 million compared to $2.4 million in the first two quarters of
1996. Net expenditures for property held for resale totaled $1.0 million in
the two quarters of 1997 compared to $1.9 million in 1996. The Company opened
one new replacement store during the quarter and currently has two major
remodeling projects and six minor remodel projects in progress. In addition,
the Company has signed contracts to acquire sites for two new store openings in
1998. All of these projects will be financed out of the Company's cash flow
from operations.
Working capital at August 2, 1997 was $15.6 million and the current ratio was
1.17 to 1 compared to $14.7 million and 1.15 to 1 at August 3, 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 August 2,
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.
6
<PAGE> 7
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1997 Annual Meeting of Shareholders on June 11,1997, the
shareholders elected the following persons to its Board of Directors for a one
year term:
<TABLE>
<S> <C> <C>
Martin J. Rabinowitz Peter B. Foreman
Robert J. Kelly Michael J. Knilans
Pasquale V. Petitti Alain M. Oberrotman
Herbert T. Dotterer Marc C. Particelli
Steven M. Friedman William J. Snyder
Paul D. Barnett
In the matter of the election of directors, voting was as follows:
For Withheld
---------- --------
Paul D. Barnett 10,377,651 30,557
Herbert T. Dotterer 10,390,754 17,454
Peter B. Foreman 10,386,158 22,050
Steven M. Friedman 10,383,558 24,650
Robert J. Kelly 10,395,858 12,350
Michael J. Knilans 10,392,251 15,957
Alain M. Oberrotman 10,383,958 24,250
Marc C. Particelli 10,396,958 11,250
Pasquale V. Petitti 10,385,247 22,961
Martin J. Rabinowitz 10,392,049 16,159
William J. Snyder 10,379,742 28,466
</TABLE>
In the matter of ratification of the appointment of Deloitte & Touche, LLP as
independent auditors, 10,360,632 votes were cast in favor of approval, 8,359
votes were cast against, and holders of 39,217 shares abstained or did not
vote.
All votes were in the majority, and thus the directors were declared elected
and the appointment of auditor proposal declared approved.
7
<PAGE> 8
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: September 16, 1997 /s/ Robert J. Kelly
------------------------------
Robert J. Kelly
President and Chief Executive Officer
Dated: September 16, 1997 /s/ Herbert T. Dotterer
---------------------------------------
Herbert T. Dotterer
Sr. Vice President - Finance and
Chief Financial Officer
8
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET EARNINGS SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
8/02/97 8/03/96 8/02/97 8/03/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average of shares outstanding
during quarter ...................... 10,913 10,854 10,895 10,860
Weighted average common equivalent
shares attributable to stock options
granted, computed using the treasury
stock method on a fully diluted basis 636 556 636 556
Weighted average common and common
equivalent shares ................... 11,549 11,410 11,531 11,416
Net income applicable to common stock $ 1,378 $ 1,160 $ 3,166 $ 2,187
Net income per common and common
equivalent share .................... $ 0.12 $ 0.10 $ 0.27 $ 0.19
</TABLE>
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> AUG-2-1997
<CASH> 12,858,000
<SECURITIES> 9,661,000
<RECEIVABLES> 11,660,000
<ALLOWANCES> 884,000
<INVENTORY> 67,755,000
<CURRENT-ASSETS> 105,039,000
<PP&E> 269,944,000
<DEPRECIATION> 157,558,000
<TOTAL-ASSETS> 249,795,000
<CURRENT-LIABILITIES> 89,431,000
<BONDS> 100,000,000
0
0
<COMMON> 115,000
<OTHER-SE> 29,965,000
<TOTAL-LIABILITY-AND-EQUITY> 249,795,000
<SALES> 485,320,000
<TOTAL-REVENUES> 485,320,000
<CGS> 360,669,000
<TOTAL-COSTS> 360,669,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,905,000
<INCOME-PRETAX> 3,166,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,166,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,166,000
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
