<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 OCTOBER 28, 2000
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 |_|
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court: Yes |X| No |_|
The number of shares of the Registrant's Common Stock, par value one cent
($0.01) per share, outstanding on December 8, 2000 was 12,869,468.
Trading resumed under the symbol "EGLE" on August 10, 2000 after the
Company exited Chapter 11.
Page 1 of 13
<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 THREE QUARTERS ENDED
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales ...................................... $ 180,215 $ 226,554 $ 573,815 $ 691,732
Cost of goods sold ......................... 133,592 167,863 426,160 512,726
------------ ------------ ------------ ------------
Gross margin .......................... 46,623 58,691 147,655 179,006
Operating expenses:
Selling, general and administrative ... 39,430 50,849 130,077 153,732
Store closing and asset revaluation ... -- -- -- 1,664
Reorganization items, net ............. 167 -- 11,344 --
Depreciation and amortization ......... 4,573 5,186 14,046 15,073
------------ ------------ ------------ ------------
Operating income (loss) ............. 2,453 2,656 (7,812) 8,537
Interest expense, net ...................... 3,385 3,335 9,476 10,060
------------ ------------ ------------ ------------
Earnings (loss) before income taxes ........ (932) (679) (17,288) (1,523)
Income taxes ............................... -- -- -- --
------------ ------------ ------------ ------------
Net earnings (loss) ........................ $ (932) $ (679) $ (17,288) $ (1,523)
============ ============ ============ ============
Earnings (loss) per share:
Basic ................................. $ (0.07) $ (0.06) $ (1.50) $ (0.14)
============ ============ ============ ============
Diluted ............................... $ (0.07) $ (0.06) $ (1.50) $ (0.14)
============ ============ ============ ============
Weighted average shares and potential common
shares outstanding ....................... 12,700,000 10,939,000 11,526,000 10,935,000
</TABLE>
See notes to the unaudited consolidated financial statements.
2
<PAGE>
EAGLE FOOD CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 28, JANUARY 29,
ASSETS 2000 2000
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,602 $ 18,558
Restricted assets 8,649 6,418
Accounts receivable, net of allowance for doubtful accounts
of $1.4 million in fiscal 2000 and fiscal 1999 8,592 15,561
Inventories, net of LIFO reserve of $8.3 million in fiscal 2000 and
$9.6 million in fiscal 1999 60,760 66,690
Prepaid expenses and other 1,211 780
--------- ---------
Total current assets 80,814 108,007
Property and equipment (net) 110,630 128,971
Other assets:
Deferred debt issuance costs (net) 240 104
Property held for resale 9,275 8,016
Other 11,968 15,318
--------- ---------
Total other assets 21,483 23,438
--------- ---------
Total assets $ 212,927 $ 260,416
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,322 $ 36,365
Payroll and associate benefits 11,647 14,294
Accrued liabilities 11,610 15,026
Reserve for closed stores 7,178 3,088
Accrued taxes 6,633 8,155
Revolving credit agreement 4,992 --
Current portion of long term debt 920 101,128
--------- ---------
Total current liabilities 74,302 178,056
Long term debt:
Senior Notes, net of discount of $2,042 82,958 --
Capital lease obligations 33,706 42,879
Other 685 728
--------- ---------
Total long term debt 117,349 43,607
Other liabilities:
Reserve for closed stores 4,392 6,898
Other deferred liabilities 9,881 9,877
--------- ---------
Total other liabilities 14,273 16,775
Shareholders' equity:
Preferred stock, $.01 par value, 100,000 shares authorized -- --
Common stock, $.01 par value, 18,000,000 shares authorized,
13,430,420 shares issued in fiscal 2000 and 11,500,000 in fiscal 1999 134 115
Capital in excess of par value 55,464 53,336
Common stock in treasury, at cost, 560,952 shares (2,228) (2,228)
Accumulated other comprehensive income 179 13
Accumulated deficit (46,546) (29,258)
--------- ---------
Total shareholders' equity 7,003 21,978
--------- ---------
Total liabilities and shareholders' equity $ 212,927 $ 260,416
========= =========
</TABLE>
See notes to the unaudited consolidated financial statements.
3
<PAGE>
EAGLE FOOD CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 28, 2000 OCTOBER 30, 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(17,288) $ (1,523)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 14,046 15,073
Reorganization items:
Provision for reorganization items, net 11,344 --
Payments for professional fees (2,352) --
Payments for employee termination benefits (1,361) --
Other (147) --
Store closing and asset revaluation -- 1,664
LIFO charge (credit) (1,300) 688
Deferred charges and credits 387 534
(Gain) loss on disposal of assets (151) (121)
Change in assets and liabilities:
Receivables and other assets 6,930 (3,975)
Inventories 7,230 2,617
Accounts payable (6,116) (8,315)
Accrued and other liabilities (7,736) (9,099)
Principal payments on reserve for closed stores (5,895) (1,202)
-------- --------
Net cash flows from operating activities (2,409) (3,659)
Cash flows from investing activities:
Additions to property and equipment (5,595) (14,322)
Additions to property held for resale -- (9,555)
Sales/maturities/(purchases) of marketable securities (2,065) 3,351
Cash proceeds from dispositions of property and equipment-reorganization 3,715 --
Cash proceeds from dispositions of property and equipment 187 667
Cash proceeds from dispositions of property held for resale 246 18,536
-------- --------
Net cash flows from investing activities (3,512) (1,323)
Cash flows from financing activities:
Net bank revolving credit borrowing 4,992 --
Deferred financing costs (326) (52)
Principal payments on Senior Notes (15,000) --
Principal payments on lease obligations (701) (855)
-------- --------
Net cash flows from financing activities (11,035) (907)
-------- --------
Decrease in cash and cash equivalents (16,956) (5,889)
Cash and cash equivalents at beginning of period 18,558 11,775
-------- --------
Cash and cash equivalents at end of period $ 1,602 $ 5,886
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 11,847 $ 12,053
Cash paid for income taxes $ 7 $ 33
Noncash investing and financing activities:
Unrealized gain (loss) on marketable securities $ 166 $ (38)
Additions to property and equipment and capital
lease liability in connection with sale/leaseback transactions $ -- $ 18,536
Additions to property and equipment and debt $ 103 $ 878
Stock issued to Senior Noteholders $ 2,147 $ --
</TABLE>
See notes to the unaudited consolidated financial statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
On February 29, 2000 (the "Petition Date"), Eagle Food Centers, Inc. (the
"Company") filed a voluntary petition under Chapter 11 of Title 11 of the United
States Code (the "Bankruptcy Code"). The petition was filed in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") under
case number 00-01311 (the "Bankruptcy Case"). The Company continued to manage
its affairs and operate its business as a debtor-in-possession while the
Bankruptcy Case was pending. The Bankruptcy Case, which proceeded before the
United States District Court for the District of Delaware (the "Court"), was
commenced in order to implement a financial restructuring of the Company that
had been pre-negotiated with holders of approximately 29% of the principal
amount of the Company's Senior Notes due April 15, 2000 (the "Senior Notes"). On
March 10, 2000, the Company filed a plan of reorganization to implement the
financial restructuring, which plan was subsequently amended on April 17, 2000
(as further amended or modified, the "Plan").
The Plan was confirmed on July 7, 2000 and consummated on August 7, 2000. The
Company replaced the Senior Notes with new notes (the "New Senior Notes")
that have the following material terms and conditions; (i) maturity date of
April 15, 2005, (ii) an interest rate of 11%, (iii) a $15 million repayment
of outstanding principal by the Company upon the effective date of the Plan,
and (iv) the Company may, at its option and with no prepayment penalty,
redeem the New Senior Notes at any time at 100% of the principal amount
outstanding at the time of redemption. In addition, under the Plan, the
Company issued 15% of fully-diluted common stock of the Company (1,930,420
shares) to the holders of the Senior Notes, of which 10% will be returned to
the Company if the Company is sold or the debt is retired prior to October
15, 2001. If the Company is sold or the debt is retired prior to October 15,
2002, 5% of the common stock will be returned to the Company. None of the
common stock will be returned to the Company if the Company is not sold or
the debt retired prior to October 15, 2002. The shares were recorded at fair
value in the amount of $2.147 million with the offsetting amount recorded as
a discount against the New Senior Notes. The discount will be amortized over
the life of the debt.
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 April 28, 2000.
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 periods ended October 28, 2000 are
not necessarily indicative of the results that may be expected for the fiscal
year ending February 3, 2001.
NEW ACCOUNTING STANDARDS - Existing accounting principles generally accepted in
the United States of America do not provide specific guidance on the accounting
for sales incentives that many companies offer to their customers. The FASB
Emerging Issues Task Force (EITF), a group responsible for promulgating changes
to accounting policies and procedures, has issued a new accounting
pronouncement, EITF Issue Number 00-14, "Accounting for Certain Sales
Incentives," which addresses the recognition, measurement and income statement
classification for certain sales incentives offered by companies in the form of
discounts, coupons or rebates. The implementation of this new accounting
pronouncement will require the Company to make certain reclassifications between
Total Sales, Cost of Goods Sold and Selling, General and Administrative Expenses
in the Company's Consolidated Statements of Operations. The effective date for
EITF 00-14 has been delayed until fiscal years beginning after December 15, 1999
or fiscal quarters beginning after March 15, 2001, whichever is later. The
Company expects to implement EITF 00-14 no later than the second quarter of
fiscal 2001 ending August 4, 2001. In accordance with such implementation, the
Company will also reclassify certain prior period financial statements for
comparability purposes.
The Company expects that the implementation of EITF 00-14 will result in an
equal decrease to the Company's reported Sales, Cost of Goods Sold and Selling,
General, and Administrative Expenses. Accordingly, while the Company is
currently reviewing this pronouncement with its auditors and therefore cannot
quantify the precise effect
5
<PAGE>
on reported Sales, Cost of Goods Sold and Selling, General, and Administrative
Expenses, the Company believes that the implementation of EITF 00-14 will not
have an effect on reported Operating Income (Loss) or Net Earnings (Loss).
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which was later
amended by SFAS No. 137 and SFAS No. 138. This statement as amended establishes
accounting and reporting standards for derivative instruments and all hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities at their fair values. Accounting for changes in the fair
value of a derivative depends on its designation and effectiveness. For
derivatives that qualify as effective hedges, the change in fair value will have
no impact on earnings until the hedged item affects earnings. For derivatives
that are not designated as hedging instruments or for the ineffective portion of
a hedging instrument, the change in fair value will affect current period
earnings. At October 28, 2000, the Company had no derivative instruments.
RESERVE FOR CLOSED STORES
An analysis of activity in the reserve for closed stores for the quarter and
three quarters ended October 28, 2000 and October 30, 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 16,131 $ 10,988 $ 9,986 $ 10,736
Payments, primarily rental payments, net of sublease rentals
of $102 and $524 in fiscal 2000 and $337 and $1,011
in fiscal 1999 (3,606) (723) (6,089) (1,684)
Amount classified as a direct reduction of related assets and
liabilities -- -- -- (763)
Interest cost 107 170 239 482
Provision for store closing and asset revaluation (1,062) -- 7,434 1,664
-------- -------- -------- --------
Balance at end of period (including $7.2 million
and $1.3 million, respectively, classified as current) $ 11,570 $ 10,435 $ 11,570 $ 10,435
======== ======== ======== ========
</TABLE>
The provision for store closing and asset revaluation is classified in the
consolidated statement of operations under the caption "Reorganization items,
net" for the fiscal quarter and three quarters ended October 28, 2000 and the
caption "Store closing and asset revaluation" for the three quarters ended
October 30, 1999.
During the first three quarters of fiscal 2000, the Company added 15 stores to
the reserve for which $10.4 million was provided for estimated future lease
costs. In addition, the Company benefited from net favorable changes in
estimates of $3.0 million for both the 18 stores in the reserve at the end of
fiscal 1999 and new stores added to the reserve in the first quarter of fiscal
2000. The leases for 13 stores terminated/expired during the first three
quarters of fiscal 2000.
During the first three quarters of fiscal 1999, the Company added three stores
to the reserve and recorded $1.7 million for estimated future store closing
costs. This charge included $0.9 million for future lease costs and $0.8 million
of asset revaluations.
6
<PAGE>
A roll-forward presentation of the number of stores in the closed store reserve
for the quarter and three quarters ended October 28, 2000 and October 30, 1999
is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Number of stores in reserve at beginning of period 25 19 18 16
Leases terminated/expired (5) -- (13) --
Stores added to the closed store reserve -- -- 15 3
-------------- -------------- -------------- --------------
Number of stores in reserve at end of period 20 19 20 19
============== ============== ============== ==============
</TABLE>
REORGANIZATION ITEMS, NET
A summary of costs recognized during the quarter and three quarters ended
October 28, 2000 and estimated additional costs to be incurred subsequent to the
third quarter is as follows:
<TABLE>
<CAPTION>
QUARTER THREE QUARTERS ESTIMATED TOTAL
ENDED ENDED ADDITIONAL REORGANIZATION
OCTOBER 28, 2000 OCTOBER 28, 2000 COSTS COSTS
------------------ ----------------- ------------------ ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Store closing and asset revaluation $ (1,062) $ 7,434 $ -- $ 7,434
Employee termination benefits 23 1,361 -- 1,361
Professional fees 1,614 3,425 300 3,725
Net realized gains on sale/disposal of
leases and equipment and release of
capital leases (425) (1,023) -- (1,023)
Other 17 147 -- 147
-------- -------- -------- --------
Total $ 167 $ 11,344 $ 300 $ 11,644
======== ======== ======== ========
</TABLE>
The net reorganization items are based on information presently available to the
Company, however, the actual costs could differ materially from the estimates.
Additionally, other costs may be incurred which cannot be presently estimated.
STORE CLOSING AND ASSET REVALUATION
In connection with the Bankruptcy Case, the Company sold one store and closed 19
underperforming stores during the first two quarters of fiscal 2000. These
closings resulted in the Company recording estimated costs of $10.4 million
during the first three quarters of fiscal 2000. The Company also reduced the
closed store reserve by $3.0 million for net favorable changes in estimates and
the termination/expiration of leases on thirteen stores.
EMPLOYEE TERMINATION BENEFITS
In connection with the Bankruptcy Case, the Company recognized $1.4 million in
employee termination benefits during the first three quarters of fiscal 2000,
representing severance costs for 353 employees terminated as a result of the
store closings under the provisions of the Plan. Prior to April 29, 2000, the
Company notified the employees terminated under the Plan. Such notification
included the provisions of the involuntary termination benefit formula in
sufficient detail so they were able to calculate their termination benefits.
7
<PAGE>
PROFESSIONAL FEES
Professional fees relate to legal, accounting, consulting and other professional
costs directly attributable to the Bankruptcy Case and are being expensed as
incurred. The Company expects to incur an additional $0.3 million.
NET REALIZED GAINS
During the first three quarters of fiscal 2000, the Company had realized gains
on the sale/disposal of leases and equipment and release of capital lease
obligations of $1.0 million, all related to the 20 closed/sold stores in the
Plan.
COMPREHENSIVE INCOME
Comprehensive income is presented in accordance with SFAS No. 130, "Reporting
Comprehensive Income". 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 THREE QUARTERS ENDED
----------------------------- -----------------------------
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (932) $ (679) $(17,288) $ (1,523)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable
securities 152 (5) 166 (38)
-------- -------- -------- --------
Comprehensive income (loss) $ (780) $ (684) $(17,122) $ (1,561)
======== ======== ======== ========
</TABLE>
LITIGATION
The Company is subject to various 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 (LOSS) 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 net earnings (loss) per share calculation for the quarter and
three quarters ending October 28, 2000 and October 30, 1999 because they were
anti-dilutive. The computation of basic and diluted EPS is as follows:
8
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
------- ------- --------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (932) $ (679) $ (17,288) $ (1,523)
======= ======= ========= ========
Weighted average common
shares outstanding 12,700 10,939 11,526 10,935
======= ======= ========= ========
Basic EPS $ (0.07) $ (0.06) $ (1.50) $ (0.14)
======= ======= ========= ========
Weighted average common
shares outstanding 12,700 10,939 11,526 10,935
Effect of dilutive securities -
stock options -- -- -- --
------- ------- --------- --------
Shares applicable to diluted
earnings (loss) 12,700 10,939 11,526 10,935
======= ======= ========= ========
Diluted EPS $ (0.07) $ (0.06) $ (1.50) $ (0.14)
======= ======= ========= ========
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the Company's third fiscal quarter ended October 28, 2000 were $180.2
million, a decrease of $46.3 million or 20.5% from the third quarter of fiscal
1999. Sales for the 64 stores remaining open after all closures covered in the
Plan (the "Continuing Stores"), including replacement stores, increased 0.5%
from the same quarter in the prior year. There were 64 stores operating at the
close of the third quarter of fiscal 2000 and 88 stores were operating at the
end of the third quarter of fiscal 1999. For the three quarters ended October
28, 2000, sales were $573.8 million, a decrease of $117.9 million, or 17.0%
compared to the same period in fiscal 1999. The decline in total store sales was
due primarily to fewer open stores, lower sales in the stores designated for
closing and continued competitive store growth during the past year. Sales for
the Continuing Stores, including replacement stores, increased 0.8% for the
three quarters ended October 28, 2000 compared to the same period in the prior
year.
The gross margin rate was 25.9% of sales for the third quarter ended October 28,
2000 compared to 25.9% in the comparable quarter of 1999. For the three quarters
ended October 28, 2000, the gross margin rate was 25.7% compared to 25.9% for
the same period a year ago. The decrease in the gross margin rate for the first
three quarters in fiscal 2000 is primarily related to the liquidation of
inventory in stores closed and a concerted effort to drive business with sales
promotions in the Continuing Stores, partially offset by a reduction in the LIFO
reserve of $1.3 million in the first three quarters of fiscal 2000 compared with
an increase in the LIFO reserve of $0.7 million in fiscal 1999.
Selling, general and administrative expense for the third quarter of fiscal 2000
was $39.4 million, or 21.9% of sales, compared to $50.8 million or 22.4% of
sales in the same quarter of 1999. The decrease in dollars is due primarily to a
reduction in direct expenses in closed/sold stores of $12.8 million. The prior
year included a reduction in benefits expense of $1.3 million due to a temporary
reduction in health and welfare costs ending in fiscal 1999. For the three
quarters ended October 28, 2000, selling, general and administrative expense was
$130.1 million, or 22.7% of sales, versus $153.7 million, or 22.2% of sales, for
the same period in 1999. The decrease in dollars is primarily related to a
reduction in direct expenses in closed/sold stores of $30.5 million, partially
offset by increases in operating expenses related to continuing stores. The
prior year included a reduction in benefits expense of $3.6 million.
9
<PAGE>
The Company recorded a store closing and asset revaluation charge of $1.7
million during the first three quarters of 1999 to reflect the estimated future
lease costs and asset revaluations relating to three stores added to the reserve
during the first three quarters.
A charge of $11.3 million was recorded during the first quarter of fiscal 2000,
a credit of $0.1 million during the second quarter of fiscal 2000, and a charge
of $0.1 million during the third quarter of fiscal 2000 for reorganization
items, including costs of $7.4 million in store closing and asset revaluations,
$1.4 million in employee termination benefits, $3.4 million in professional fees
and $0.1 million of other items, partially offset by $1.0 million in realized
gains.
Depreciation and amortization expense decreased to $4.6 million, or 2.5% of
sales, in the third quarter of 2000 compared to $5.2 million, or 2.3% of sales,
in the prior year. For the three quarters ended October 28, 2000 depreciation
and amortization expense decreased to $14.0 million, or 2.5% of sales, compared
to $15.1 million, or 2.2% of sales, for the same period in 1999. The decreases
are due primarily to a reduction in the number of operating stores. Net interest
expense increased to $3.4 million, or 1.9% of sales, in the third quarter of
fiscal 2000 compared to $3.3 million, or 1.5% of sales, in the prior year. For
the three quarters ended October 28, 2000, net interest expense decreased to
$9.5 million, or 1.7% of sales, compared to $10.1 million, or 1.4% of sales in
the prior year. The decreases are due primarily to lower interest expense on
capital lease and closed store reserve obligations and to an increase in
interest income.
Net loss for the third quarter of fiscal 2000 was $0.9 million, or $0.07 per
share on a diluted basis, compared to a net loss of $0.7 million, or $0.06 per
share on a diluted basis, in the same quarter of fiscal 1999. For the three
quarters ended October 28, 2000, the net loss was $17.3 million, or $1.50 per
share on a diluted basis, compared to a loss of $1.5 million, or $0.14 per share
on a diluted basis, for the comparable period of 1999. No tax benefit was
recognized in fiscal 2000 or 1999 as the Company is in a net operating loss
carryforward position. Valuation allowances have been established for the entire
amount of net deferred tax assets due to the uncertainty of future
recoverability.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Company's inability to refinance its Senior Notes, due April
15, 2000, the Company filed the Bankruptcy Case on February 29, 2000. The
Company operated its business and managed properties as a debtor-in-possession
pursuant to the Bankruptcy Code (see notes to the consolidated financial
statements under the caption "Reorganization Proceedings Under Chapter 11 of the
Bankruptcy Code"), through August 7, 2000, the date on which the Plan became
effective.
The Company has expensed $3.4 million in professional fees and $1.4 million in
employee severance costs during the first three quarters of fiscal 2000, of
which $2.4 million and $1.4 million, respectively, were paid during the first
three quarters of fiscal 2000. The Company anticipates it will incur an
additional $0.3 million in professional fees during the remainder of fiscal 2000
as a result of the Bankruptcy Case. The Company sold certain assets and
terminated leases in the first three quarters of fiscal 2000 for net proceeds of
$3.7 million.
The Plan expenditures discussed in this section and expenditures relating to the
reserve for closed stores have been funded primarily from existing cash, and the
Company expects additional expenditures to be funded by existing cash,
internally generated cash flows from operations, proceeds from the sale of
certain of the Company's assets and short-term borrowings from a revolving
credit facility. The remaining availability under the revolving credit facility,
in excess of the loan balance, was $29.2 million on October 28, 2000 and the
Company is projecting the availability to remain above $10.0 million after the
funding required for the above expenditures.
During fiscal 1999, the 20 underperforming stores had sales of approximately
$140 million and operating losses of approximately $3 million, excluding
corporate allocations of overhead. As such, the Company anticipates that the
closing of the stores will have a favorable impact on operating income,
excluding the expenses related to the debt restructuring and Bankruptcy Case,
which is discussed in the notes to the consolidated financial statements under
the caption "Reorganization Items, Net." There can be no assurance, however,
that such favorable impact will materalize.
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Cash used in operating activities was $2.4 million for the three quarters ended
October 28, 2000 compared to cash used of $3.7 million in the comparable period
of 1999. The net loss and non-cash charges provided $3.2 million of cash.
Working capital changes used $5.6 million of cash, primarily due to a decrease
in accounts payable, accrued and other liabilities and principal payments on
reserve for closed stores, partially offset by a decrease in receivables and
inventories. The Company believes that operating cash flows and other sources of
liquidity, including borrowings under its 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 cash flows.
Additions to property and equipment for the first three quarters of fiscal 2000
were $5.6 million compared to $14.3 million in the same period of 1999. One
store was sold and 19 stores were closed during the first three quarters of
fiscal 2000, two major remodels were completed and one major remodel is in
progress. The Company is projecting capital expenditures to be approximately
$1.0 million for the remainder of fiscal 2000. Three stores held for resale were
sold for $18.5 million and leased back during the first half of fiscal 1999.
Working capital on October 28, 2000 was $6.5 million and the current ratio was
1.09 to 1 compared to a negative $70.0 million and 0.61 to 1 on January 29,
2000. The Company reclassified its $100 million in Senior Notes, due April 15,
2000, from Long-Term Debt to Current Liabilities, resulting in the negative
working capital on January 29, 2000.
On August 7, 2000 the Company signed a two year agreement providing a revolving
credit facility in an amount up to $40 million expiring on August 7, 2002. On
October 28, 2000 the Company had $5.0 million in borrowings against the
revolving credit facility and 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,
personnel costs and availability, 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, and other
risks detailed in the Company's Securities and Exchange Commission filings.
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PART II : OTHER INFORMATION:
ITEM 1 : LEGAL PROCEEDINGS
Chapter 11 Proceedings. Reference is made to the notes to the
consolidated financial statements under the caption "Reorganization
Proceedings Under Chapter 11 of the Bankruptcy Code."
ITEM 2 : CHANGE IN SECURITIES AND USE OF PROCEEDS
Under the Plan, the Company issued 15% of the fully-diluted common
stock (1,930,420 shares) of the Company to the holders of the Senior
Notes, of which 10% will be returned to the Company if the Company is
sold or the debt is retired prior to October 15, 2001. If the Company
is sold or the debt is retired prior to October 15, 2002, 5% of the
common stock will be returned to the Company. None of the common stock
will be returned to the Company if the Company is not sold or the debt
retired prior to October 15, 2002.
ITEM 3 : DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 : SUBMITTED MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2000 Annual Meeting of Shareholders on September 13,
2000, the shareholders elected the following persons to its Board of
Directors for a one year term:
Robert J. Kelly
Jeffrey L. Little
S. Patric Plumley
Peter B. Foreman
Steven M. Friedman
Alain M. Oberrotman
Jerry I. Reitman
William J. Snyder
In the matter of the election of directors, 9,463,165 votes or more
were cast in favor of each director, no votes were cast against, and
holders of 862,357 shares abstained.
In the matter of ratification of the 2000 Stock Incentive Plan,
6,968,566 votes were cast in favor of the Plan, 1,092,546 were cast
against, holders of 25,626 shares abstained, and 2,267,695 were
non-votes.
In the matter of ratification of the appointment of KPMG LLP as
independent auditors, 10,246,386 votes were cast in favor of approval,
82,638 votes were cast against, and holders of 25,409 shares abstained.
All votes were in the majority, and thus the directors were declared
elected, the 2000 Stock Incentive Plan ratified, 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 14)
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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 8, 2000 /s/ JEFFREY L. LITTLE
----------------------------------------------
Jeffrey L. Little
Chief Executive Officer and President
Dated: December 8, 2000 /s/ S. PATRIC PLUMLEY
----------------------------------------------
S. Patric Plumley
Senior Vice President -Chief Financial Officer
and Secretary
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