<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 MAY 1, 1999
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 June 9, 1999 was 10,938,548.
Page 1 of 10 pages
<PAGE>
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
MAY 1, 1999 MAY 2, 1998
------------ ------------
<S> <C> <C>
Sales ........................................... $ 230,744 $ 231,568
Cost of goods sold .............................. 171,362 173,844
------------ ------------
Gross margin ............................... 59,382 57,724
Operating expenses:
Selling, general and administrative ........ 51,271 50,301
Store closing and asset revaluation ........ 1,664 --
Depreciation and amortization .............. 4,804 4,377
------------ ------------
Operating income ......................... 1,643 3,046
Interest expense ................................ 3,171 2,922
------------ ------------
Earnings (loss) before income taxes ............. (1,528) 124
Income taxes .................................... -- --
------------ ------------
Net earnings (loss) ............................. $ (1,528) $ 124
============ ============
Earnings (loss) per share:
Basic ...................................... $ (0.14) $ 0.01
============ ============
Diluted .................................... $ (0.14) $ 0.01
============ ============
Weighted average shares and potential common
shares outstanding ............................ 10,926,000 11,205,000
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
EAGLE FOOD CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MAY 1, JANUARY 30,
1999 1999
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,755 $ 11,775
Restricted assets - marketable securities, at fair value 8,751 9,846
Accounts receivable, net of allowance for doubtful accounts of $1.0 million in
fiscal 1999 and $1.2 million in fiscal 1998 11,922 16,537
Income tax receivable 926 926
Inventories 69,259 74,069
Prepaid expenses 1,518 1,392
--------- ---------
Total current assets 99,131 114,545
Property and equipment (net) 136,362 132,364
Other assets:
Deferred debt issuance costs 465 585
Excess of cost over fair value of net assets acquired 2,305 2,325
Property held for resale 16,719 20,025
Other 11,945 13,471
--------- ---------
Total other assets 31,434 36,406
--------- ---------
Total assets $ 266,927 $ 283,315
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,886 $ 47,434
Payroll and associate benefits 14,760 14,318
Accrued liabilities 19,712 25,353
Reserve for closed stores 1,302 1,302
Accrued taxes 7,799 7,795
Bank revolving credit facility -- --
Current portion of long-term debt 1,102 991
--------- ---------
Total current liabilities 76,561 97,193
Long-term debt:
Senior Notes 100,000 100,000
Capital lease obligations 43,347 37,779
--------- ---------
Total long-term debt 143,347 137,779
Other liabilities:
Reserve for closed stores 9,910 9,434
Other deferred liabilities 10,226 10,523
--------- ---------
Total other liabilities 20,136 19,957
Shareholders' equity:
Preferred stock, $.01 par value, 100,000 shares
authorized -- --
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, 561,452 shares
and 581,202 shares (2,230) (2,309)
Accumulated other comprehensive income 45 47
Other (140) (140)
Retained earnings (deficit) (24,243) (22,663)
--------- ---------
Total shareholders' equity 26,883 28,386
--------- ---------
Total liabilities and shareholders' equity $ 266,927 $ 283,315
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
EAGLE FOOD CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 1, MAY 2,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ (1,528) $ 124
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization 4,804 4,377
Store closing and asset revaluation 1,664 --
LIFO charge 250 250
Deferred charges and credits 315 482
(Gain) loss on disposal of assets 55 (1,111)
Change in assets and liabilities:
Receivables and other assets 5,131 (2,830)
Inventories 4,560 10,053
Accounts payable (15,548) 384
Accrued and other liabilities (5,715) (6,748)
Reserve for closed stores (425) (241)
-------- --------
Net cash (used) provided by operating activities (6,437) 4,740
Cash flows from investing activities:
Additions to property and equipment (2,885) (1,950)
Additions to property held for resale (2,255) (1,486)
Maturities of marketable securities 1,092 5
Cash proceeds from dispositions of property and equipment 34 159
Cash proceeds from dispositions of property held for resale 5,696 10,753
-------- --------
Net cash provided by investing activities 1,682 7,481
Cash flows from financing activities:
Net bank revolving credit -- (7,181)
Deferred financing costs -- (50)
Principal payments on capital lease obligations (265) (126)
-------- --------
Net cash used by financing activities (265) (7,357)
-------- --------
Increase (decrease) in cash and cash equivalents (5,020) 4,864
Cash and cash equivalents at beginning of period 11,775 5,113
-------- --------
Cash and cash equivalents at end of period $ 6,755 $ 9,977
======== ========
Supplemental disclosures of cash flow information
Cash paid for interest $ 5,254 4,834
Cash paid for income taxes $ -- 50
Noncash investing and financing activities:
Unrealized (loss) gain on marketable securities $ (3) 20
Additions to property and equipment and capital
lease liability in connection with sale/leaseback transactions $ 5,696 10,744
Accounts receivable for the sale of company assets $ -- 1,557
</TABLE>
See notes to 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/A filed
with the Securities and Exchange Commission on May 6, 1999.
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 May 1, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending January 29, 2000.
RESERVE FOR CLOSED STORES
During the first quarter of fiscal 1999, the Company added one store to the
reserve and recorded $1.7 million for estimated future store closing costs. This
charge included $900,000 for future lease costs and $800,000 of
asset revaluations.
COMPREHENSIVE INCOME
In the fourth quarter of fiscal 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes rules for the
reporting of comprehensive income and its components. Comprehensive income
includes all changes in the Company's equity during the period, except
transactions with stockholders of the Company. Comprehensive income consisted of
the following (in thousands of dollars):
<TABLE>
<CAPTION>
Quarter Ended
May 1, 1999 May 2, 1998
<S> <C> <C>
Net income (loss) $(1,528) $ 124
Other comprehensive income (loss):
Unrealized (loss) gain on marketable
securities (3) 20
------- -------
Comprehensive income (loss) $(1,531) $ 144
======= =======
</TABLE>
LITIGATION
The Company recently reached a settlement in a lawsuit alleging discrimination
in employment which 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 settlement did not have a material
impact on financial results in the first quarter of 1999 since adequate
settlement costs were previously recorded. The Company denied 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.
5
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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 (loss) by the weighted average
number of common shares outstanding. Diluted EPS is computed by dividing
consolidated net earnings (loss) 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. All outstanding options were
excluded from the earnings (loss) per share calculation for the first quarter of
fiscal 1999 because they were anti-dilutive. The computation of basic and
diluted EPS is as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Quarter Ended
MAY 1, 1999 MAY 2, 1998
----------- -----------
<S> <C> <C>
Net Earnings (Loss): $ (1,528) $ 124
========== =======
Weighted average common shares outstanding 10,926 10,948
========== =======
Basic earnings (loss) per share $ (0.14) $ 0.01
========== =======
Weighted average common shares outstanding 10,926 10,948
Effect of dilutive securities - stock options -- 257
---------- -------
Shares applicable to diluted earnings 10,926 11,205
========== =======
Diluted earnings (loss) per share $ (0.14) $ 0.01
========== =======
</TABLE>
SUBSEQUENT EVENTS
One store held for resale was sold for $7.1 million and leased back subsequent
to the first quarter of fiscal 1999. In addition, the Company opened one new
store and closed one store subsequent to the first quarter of fiscal 1999.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the Company's first fiscal quarter ended May 1, 1999 were $230.7
million, a decrease of $824,000 or 0.4% from the first quarter of fiscal 1998.
Same store sales for the quarter decreased 2.4%. There were 90 stores operating
during the first quarter of both 1999 and 1998. The decline in total and same
store sales was due to competitive store growth during the past year.
The gross margin rate was 25.7% of sales for the quarter ended May 1, 1999
compared to 24.9% in the comparable quarter of 1998. The increase in the gross
margin rate is primarily related to the benefits of new systems and better
purchasing and marketing practices during the quarter.
Selling, general and administrative expense for the first quarter of 1999 was
$51.3 million or 22.2% of sales compared to $50.3 million or 21.7% of sales in
the same quarter of 1998. The increase in dollars is primarily due to a gain of
$1.0 million on the sale of the Company's bakery in the first quarter of 1998.
The Company recorded a store closing and asset revaluation charge of $1.7
million during the first quarter of 1999 to reflect the estimated future
lease costs and asset revaluations relating to one store added to the reserve
during the first quarter. Depreciation and amortization expense increased to
$4.8 million or 2.1% of sales in the first quarter of 1999 compared to $4.4
million or 1.9% of sales in the prior year, primarily due to increased
depreciation relating to the Company's capital spending program. Interest
expense increased to $3.2 million or 1.4% of sales in the first quarter of
1999 compared to $3.0 million or 1.3% of sales in the prior year due to
increased interest on capital lease obligations.
The loss for the first quarter of fiscal 1999 was $1.5 million or $0.14 per
share on a diluted basis compared to earnings of $124,000 or $0.01 per share in
the same quarter of fiscal 1998. There was no tax provision in the first quarter
of fiscal 1998 as tax loss carryforwards were utilized.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities was $6.4 million for the quarter ended May 1,
1999 compared to cash provided of $4.7 million in the comparable quarter of
1998. Earnings and non-cash charges generated $5.6 million of cash and working
capital changes used $12.0 million, primarily due to a decrease in accounts
payable. 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, that the Company's business will continue to generate
operating cash flows at or above current flows.
Additions to property and equipment for the first quarter of 1999 were $5.1
million compared to $3.4 million in the first quarter of 1998. One store held
for resale was sold for $5.7 million and leased back during the quarter. One
new store opened in the first quarter of fiscal 1999, and there were no store
closings during the quarter.
Working capital at May 1, 1999 was $22.6 million and the current ratio was 1.29
to 1 compared to $17.4 million and 1.18 to 1 at January 30, 1999.
7
<PAGE>
At May 1, 1999 the Company had no borrowing against the Revolving Credit
Facility and no letters of credit outstanding.
YEAR 2000 MATTERS
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing inaccuracies and disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The Company is
dependent on computer hardware, software, systems and processes ("IT Systems")
and non-information technology systems such as telephones, clocks, scales,
refrigeration controllers and other equipment which may contain embedded
microprocessor technology ("Non-IT" Systems). These systems are used in several
critical operating areas including store and distribution operations, product
merchandising and procurement, inventory and labor management, and accounting
and administrative systems.
The Company has been engaged in a comprehensive project under the direction of
the Chief Executive Officer since June 1996 to upgrade or replace its IT Systems
and convert from mainframe to client/server technology. Addressing Year 2000
matters is an integral part of this process. The Company has phased in a
substantial number of computer systems and related programs over the past two
years, including financial systems, merchandising, distribution, store ordering,
time and attendance, and direct store delivery receiving. The Company is
currently in the process of upgrading or replacing various systems; including
payroll, human resources and personnel systems, store systems, purchasing and
inventory control and warehouse and distribution systems. The project will
include testing all systems critical for day-to-day operations.
The Company is requesting each of its hardware and software vendors for both the
new systems that it has installed or expects to install, as well as any systems
which it does not expect to replace, to certify that their systems are Year 2000
compliant. During the first quarter of fiscal 1999, the Company requested
certification, and is tracking responses, from companies it has a significant
business relationship with that their systems are Year 2000 compliant. In
addition, the Company is evaluating Year 2000 issues related to Non-IT systems.
The evaluation consists of developing an inventory of all such systems, testing
and taking corrective action on all detected deficiencies.
The Company believes that its efforts will result in Year 2000 compliance.
However, if the Company's new computer systems fail with respect to the Year
2000 issue, or if any applications or embedded chips critical to the Company's
operational processes are overlooked, there could be a material adverse impact
on the business operations or financial performance of the Company. The Company
cannot guarantee that hardware and software vendors on whom it has relied will
honor their obligations with respect to Year 2000 compliance, or that other
companies it has a business relationship with will achieve Year 2000 compliance.
Additionally, there can be no assurance that the systems of other companies on
which the Company's systems rely will be converted timely, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the business
operations or financial performance of the Company. Management believes that,
should the Company or any third party with whom the Company has a significant
business relationship have a Year 2000 related systems failure, the most
significant impact would likely be the inability to conduct operations due to a
power failure, to deliver inventory in a timely fashion, to receive certain
products from vendors, process payments or to process electronically customer
sales at the store level.
8
<PAGE>
The Company is in the process of developing contingency plans to provide
alternatives to enable the Company's core business operations to continue in the
event of a Year 2000 failure in its systems or in the systems of other companies
with which it has a relationship. There can be no assurance that the systems of
other companies on which the Company's contingency plans rely will be converted
timely, or that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not also have a material adverse
effect on the business operations or financial performance of the Company. The
Company expects to complete the contingency plans during the 1999 calendar year.
The Company has expended approximately $17.0 million since June 1996 to upgrade
or replace the majority of systems and convert them to client/server technology,
and expects to incur an additional $3.0 million, for a total of $20.0 million,
to complete the remaining systems. In addition, the Company has entered into
operating leases for equipment with a fair market value of $2.0 million and has
purchased equipment for $3.2 million, and expects to purchase or lease
additional equipment with a fair market value of $1.8 million, for a total of
$7.0 million. This includes both Year 2000 upgrades or replacements and the
replacement of systems that are inefficient and in need of replacement
regardless of their Year 2000 readiness. The Company expects to finalize the
upgrade or replacement of all IT Systems, correct any detected deficiencies in
Non-IT Systems and achieve Year 2000 compliance by September 1999.
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 cost and uncertain outcomes of pending and
unforeseen litigation, the availability of capital, supply constraints or
difficulties, the effect of the Company's accounting policies, the effect of
regulatory and legal developments, adverse effects of failure to achieve Year
2000 compliance 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 : SUBMITTED MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable
ITEM 5 : OTHER Not Applicable
ITEM 6 : EXHIBITS AND REPORTS ON FORM 8K
Exhibit 27 : Financial Data Schedule (see page 11)
9
<PAGE>
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: June 14, 1999 /s/ ROBERT J. KELLY
--------------------------------------------------
Robert J. Kelly
Chairman, Chief Executive Officer and President
Dated: June 14, 1999 /s/ S. PATRIC PLUMLEY
--------------------------------------------------
S. Patric Plumley
Senior Vice President -Chief Financial Officer and
Secretary
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 6,755,000
<SECURITIES> 8,751,000
<RECEIVABLES> 13,830,000
<ALLOWANCES> 982,000
<INVENTORY> 69,259,000
<CURRENT-ASSETS> 99,131,000
<PP&E> 287,398,000
<DEPRECIATION> 151,036,000
<TOTAL-ASSETS> 266,927,000
<CURRENT-LIABILITIES> 76,561,000
<BONDS> 100,000,000
0
0
<COMMON> 115,000
<OTHER-SE> 26,768,000
<TOTAL-LIABILITY-AND-EQUITY> 266,927,000
<SALES> 230,744,000
<TOTAL-REVENUES> 230,744,000
<CGS> 171,362,000
<TOTAL-COSTS> 171,362,000
<OTHER-EXPENSES> 57,739,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,171,000
<INCOME-PRETAX> (1,528,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,528,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,528,000)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
