<PAGE>
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 1, 1998
----------------------------
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 September 4, 1998 was 10,960,098.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
--------------------
EAGLE FOOD CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
August 1, 1998 August 2, 1997 August 1, 1998 August 2, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales......................................................... $234,530 $245,383 $466,098 $485,320
Cost of goods sold............................................ 174,860 182,719 348,704 360,669
-------- -------- -------- --------
Gross margin............................................... 59,670 62,664 117,394 124,651
Operating expenses:
Selling, general & administrative.......................... 51,746 53,507 102,047 105,853
Depreciation and amortization.............................. 4,360 4,838 8,737 9,727
-------- -------- -------- --------
Operating income........................................ 3,564 4,319 6,610 9,071
Interest expense.............................................. 2,650 2,941 5,572 5,905
-------- -------- -------- --------
Earnings before income taxes 914 1,378 1,038 3,166
Income taxes.................................................. 0 0 0 0
-------- -------- -------- --------
Net earnings.................................................. $ 914 $ 1,378 $ 1,038 $ 3,166
======== ======== ======== ========
Earnings per share:
Basic net earnings $ 0.08 $ 0.13 $ 0.09 $ 0.29
======== ======== ======== ========
Diluted net earnings $ 0.08 $ 0.12 $ 0.09 $ 0.28
======== ======== ======== ========
Weighted average common shares and common equivalent shares
outstanding 11,153 11,537 11,174 11,411
</TABLE>
See notes to the consolidated financial statements.
2
<PAGE>
EAGLE FOOD CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
ASSETS
August 1, January 31,
1998 1998
--------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 27,202 $ 5,113
Restricted assets - marketable securities, at fair value.. 10,712 10,349
Accounts receivable....................................... 13,038 11,819
Inventories............................................... 68,900 83,841
Prepaid expenses and other................................ 3,363 1,595
-------- --------
Total current assets..................................... 123,215 112,717
Property and equipment (net)............................... 127,342 113,124
Other assets:
Deferred debt issuance costs.............................. 823 1,070
Excess of cost over fair value of net assets acquired..... 2,366 2,406
Property held for resale.................................. 14,409 18,769
Other..................................................... 12,588 13,538
-------- --------
Total other assets....................................... 30,186 35,783
-------- --------
Total assets............................................ $280,743 $261,624
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 45,013 $ 43,078
Payroll and associate benefits............................ 14,320 16,982
Accrued liabilities....................................... 21,779 19,258
Reserve for closed stores and warehouse................... 3,271 3,271
Accrued taxes............................................. 8,680 9,131
Bank revolving credit facility............................ 0 7,208
Current portion of long-term debt......................... 3,267 841
-------- --------
Total current liabilities................................ 96,330 99,769
Long-term debt:
Senior Notes.............................................. 100,000 100,000
Capital lease obligations................................. 34,649 13,959
-------- --------
Total long-term debt..................................... 134,649 113,959
Other liabilities:
Reserve for closed stores and warehouse................... 5,317 6,397
Other deferred liabilities................................ 11,163 9,262
-------- --------
Total other liabilities.................................. 16,480 15,659
Shareholders' equity:
Common stock, $.01 par value, 18,000,000 shares
authorized, 11,500,000 shares issued..................... 115 115
Capital in excess of par value............................ 53,336 53,336
Common stock in treasury, at cost, 544,902 and
553,127 shares.......................................... (2,225) (2,259)
Other..................................................... (214) (199)
Retained earnings (deficit)............................... (17,728) (18,756)
-------- --------
Total shareholders' equity............................... 33,284 32,237
-------- --------
Total liabilities and shareholders' equity.............. $280,743 $261,624
======== ========
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE>
EAGLE FOOD CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Two Quarters Ended
August 1, 1998 August 2, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 1,038 $ 3,166
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Depreciation and amortization............................. 8,737 9,727
LIFO charge............................................... 500 500
Deferred charges and credits.............................. 1,173 893
(Gain) Loss on disposal of assets......................... (1,111) 99
Changes in assets and liabilities:
Receivables and other assets.............................. (3,613) (3,596)
Inventories............................................... 14,441 8,140
Accounts payable.......................................... 1,935 (4,046)
Accrued and other liabilities............................. (3,149) (1,117)
Reserve for closed stores and warehouse................... (1,395) ( 2,019)
------- --------
Net cash flows from operating activities.............. 18,556 11,747
Cash flows from investing activities:
Additions to property and equipment........................ (6,891) (5,547)
Net proceeds from (additions to) property held for resale.. 4,209 (1,009)
Net purchases of marketable securities..................... (378) (817)
Cash proceeds from dispositions of
property and equipment................................... 14,245 678
------- --------
Net cash flows from investing activities.............. 11,185 (6,695)
Cash flows from financing activities:
Deferred financing costs................................... (50) 0
Net revolving credit repayment............................ (7,208) 0
Principal payments of capital lease obligations............ (428) (1,490)
Issuance of treasury stock................................. 34 162
------- --------
Net cash flows from financing activities.............. (7,652) (1,328)
Increase in cash and cash equivalents........................ 22,089 3,724
Cash and cash equivalents at beginning of period............. 5,113 9,134
------- --------
Cash and cash equivalents at end of period................... $27,202 $ 12,858
======= ========
Supplemental disclosures of cash flow information:
Cash paid for interest................................ $ 5,860 $ 5,485
Cash paid for income taxes............................ 85 16
Noncash investing and financing activities:
Capital lease additions.............................. 23,544 0
Unrealized gain (loss) on securities................ $ (15) $ 64
</TABLE>
See notes to the consolidated financial statements.
4
<PAGE>
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 audited financial statements contained in the Company's Form 10-K filed with
the Securities and Exchange Commission on May 1, 1998.
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 thirteen weeks ended August 1, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ending January 30, 1999.
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. Subsequently, 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
Earnings per share ("EPS") are computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic EPS
is computed by dividing consolidated net earnings by the weighted average number
of common shares outstanding. Diluted EPS is computed by dividing consolidated
net earnings by the sum of the weighted average number of common shares
outstanding and the weighted average number of potential common shares
outstanding. Potential common shares consist solely of outstanding options under
the Company's stock option plans. The computation of basic and diluted EPS are
as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Two Two
Quarter Ended Quarter Ended Quarters Ended Quarters Ended
August 1, 1998 August 2, 1997 August 1, 1998 August 2, 1997
<S> <C> <C> <C> <C>
Net Earnings $914 $1,378 $1,038 $3,166
============== ============== ============== ==============
Weighted average common shares outstanding 10,954 10,913 10,951 10,895
============== ============== ============== ==============
Basic EPS $0.08 $0.13 $0.09 $0.29
============== ============== ============== ==============
Weighted average common shares outstanding 10,954 10,913 10,951 10,895
Effect of dilutive securities - stock options 199 624 223 516
-------------- -------------- -------------- --------------
Shares applicable to diluted earnings 11,153 11,537 11,174 11,411
============== ============== ============== ==============
Diluted EPS $0.08 $0.12 $0.09 $0.28
============== ============== ============== ==============
</TABLE>
5
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Sales for the Company's second fiscal quarter ended August 1, 1998 were $234.5
million, a decrease of $10.9 million or 4.4% from the first quarter of 1998.
Same store sales for the quarter decreased 3.6%. There were 89 stores operating
during the second quarter of 1998 compared to 91 stores operating in the second
quarter of 1997. For the two quarters ended August 1, 1998 sales were $466.1
million, a decrease of $19.2 million or 4.0% compared to the same period in
fiscal 1997. Same store sales for the two quarters declined 3.2% and stores not
affected by new competition declined 0.8%. This decrease reflects the impact of
competitive store openings including five during the second quarter of 1998 and
10 for the two quarters ended August 1, 1998, and a reduction in the number of
stores.
The gross margin rate was 25.4% of sales for the quarter ended August 1, 1998
compared to 25.5% in the comparable quarter of 1997. For the two quarters ended
August 1, 1998, the gross margin rate was 25.2% compared to 25.7% for the same
period a year ago. The decrease in the gross margin rate for the two quarters is
primarily related to increased promotional activity.
Selling, general and administrative expenses were 22.1% of sales for the quarter
ended August 1, 1998 compared to 21.8% of sales in the comparable quarter of
1997. For the two quarters ended August 1, 1998, selling, general and
administrative expenses were 21.9% of sales versus 21.8% of sales for the same
period in 1997. Selling, general and administrative expenses for the quarter and
two quarters ended August 1, 1998 included a reduction of $1.2 million and $1.6
million, respectively, in associate benefit costs that have been temporarily
reduced through fiscal 1999. In addition, the two quarters ended August 1, 1998
included a $1.0 million gain on the sale of a bakery.
Depreciation and amortization expenses were $4.4 million or 1.9% of sales for
the quarter ended August 1, 1998 compared to $4.8 million or 2.0% of sales in
the same quarter of 1997. For the two quarters ended August 1, 1998,
depreciation and amortization expenses decreased to $8.7 million or 1.9% of
sales compared to $9.7 million or 2.0% of sales for the same period in 1997. The
decrease was due to lower levels of capital expenditures in prior years and to
other capital assets being fully depreciated.
Net interest expense in the quarter ended August 1, 1998 decreased to $2.7
million or 1.1% of sales compared to $2.9 million or 1.2% of sales in the
comparable quarter of 1997. For the two quarters ended August 1, 1998 interest
expense declined to $5.6 million compared to $5.9 million in 1997. There were no
borrowings against the Bank Revolving Credit Facility as of August 1, 1998.
Earnings for the second quarter of fiscal 1998 were $914 thousand or $0.08 per
share on a diluted basis compared to $1.4 million or $0.12 per share for the
same quarter of fiscal 1997. There was no tax provision in either year as tax
loss carryforwards are being utilized. For the two quarters ended August 1, 1998
net earnings were $1.0 million, or $0.09 per share on a diluted basis compared
to $3.2 million or $0.28 per share for the comparable period of fiscal 1997.
Costs related to the Company's strategic information system initiatives reduced
net earnings by $1.2 million for the quarter and $1.8 million for the two
quarters ended August 1, 1998.
6
<PAGE>
Liquidity and Capital Resources
Cash flow from operating activities was $18.6 million for the two quarters ended
August 1, 1998 compared to $11.7 million in the comparable two quarters of 1997.
Earnings and non cash charges generated $10.3 million of cash and working
capital changes generated $8.3 million, primarily due to a decrease in inventory
levels partially offset by an increase in accounts receivable and a decrease in
accrued liabilities. The company believes that operating cash flows and other
sources of liquidity, including borrowings under its Bank Revolving Credit
Facility, will be adequate to meet the Company's anticipated requirements for
working capital, capital expenditures and interest payments for the foreseeable
future. There can be no assurance, however, the Company's business will continue
to generate operating cash flows at or above current levels.
Capital expenditures, including property held for resale, were $11.9 million for
the quarter and $15.3 million for the two quarters ended August 1, 1998. The
Company opened one new store and completed one expansion and one major remodel
during the quarter, and currently has three new stores and one expansion project
in progress. The sale and leaseback of three stores was completed during the
quarter with proceeds of $12.6 million.
Working capital at August 1, 1998 was $26.9 million and the current ratio was
1.28 to 1 compared to $12.9 million and 1.13 to 1 at January 31, 1998 and $14.3
million and 1.16 to 1 at August 2, 1997. There were no borrowings against the
Bank Revolving Credit Facility at August 1, 1998 and there were no Letters of
Credit outstanding.
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,
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
Item 1: Legal Proceedings Not Applicable
-----------------
Item 2: Change in Securities and Use of Proceeds Not Applicable
----------------------------------------
Item 3: Defaults Upon Senior Securities Not Applicable
-------------------------------
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's 1998 Annual Meeting of Shareholders on June 17, 1998, the
shareholders elected the following persons to its Board of Directors for a one
year term:
Paul D. Barnett
Peter B. Foreman
Steven M. Friedman
Robert J. Kelly
Michael J. Knilans
Alain M. Oberotman
William J. Snyder
7
<PAGE>
In the matter of the election of directors, voting was as follows:
<TABLE>
<CAPTION>
For Withheld Abstained
--- -------- ---------
<S> <C> <C> <C>
Paul D. Barnett 10,458,658 162,318 327,797
Peter B. Foreman 10,461,265 159,711 327,797
Steven M. Friedman 10,461,265 159,711 327,797
Robert J. Kelly 10,470,156 150,820 327,797
Michael J. Knilans 10,469,265 151,711 327,797
Alain M. Oberrotman 10,459,658 161,318 327,797
William J. Snyder 10,460,156 160,820 327,797
</TABLE>
In the matter of ratification of the appointment of Deloitte & Touche, LLP as
independent auditors, 10,594,929 votes were cast in favor of approval, 5,416
votes were cast against, and holders of 348,428 abstained.
All votes were in the majority, and thus the directors were declared elected and
the appointment of auditor proposal declared approved.
Item 5: Other Not Applicable
-----
Item 6: Exhibits and Reports on Form 8K
-------------------------------
Exhibit 27: Financial Data Schedule (see page 10)
8
<PAGE>
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 10, 1998 /s/ Robert J. Kelly
-------------------------------
Robert J. Kelly
Chairman, President and Chief Executive Officer
Dated: September 10, 1998 /s/ S. Patric Plumley
-------------------------------
S. Patric Plumley
Vice President - Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<CASH> 27,202,000
<SECURITIES> 10,712,000
<RECEIVABLES> 13,038,000
<ALLOWANCES> 1,130,400
<INVENTORY> 68,900,000
<CURRENT-ASSETS> 123,215,000
<PP&E> 274,740,000
<DEPRECIATION> 147,398,000
<TOTAL-ASSETS> 280,743,000
<CURRENT-LIABILITIES> 96,330,000
<BONDS> 100,000,000
0
0
<COMMON> 115,000
<OTHER-SE> 33,169,000
<TOTAL-LIABILITY-AND-EQUITY> 280,743,000
<SALES> 466,098,000
<TOTAL-REVENUES> 466,098,000
<CGS> 348,704,000
<TOTAL-COSTS> 348,704,000
<OTHER-EXPENSES> 110,784,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,572,000
<INCOME-PRETAX> 1,038,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,038,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,038,000
<EPS-PRIMARY> $0.09
<EPS-DILUTED> $0.09
</TABLE>
