<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 July 29, 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.
------------------------
(Debtor-in-Possession as of February 29, 2000)
(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 September 8, 2000 was 12,869,468.
Trading of the Company's common stock, now under the symbol "EGLEQ", was
suspended subsequent to the close of business on February 29, 2000 as a
result of the Chapter 11 Bankruptcy Case. Trading resumed under the symbol
"EGLE" on August 10, 2000 after the Company exited Chapter 11.
Page 1 of 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
EAGLE FOOD CENTERS, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales ...................................... $ 190,563 $ 234,434 $ 393,600 $ 465,178
Cost of goods sold ......................... 141,328 173,501 292,568 344,863
------------ ------------ ------------ ------------
Gross margin .......................... 49,235 60,933 101,032 120,315
Operating expenses:
Selling, general and administrative ... 41,879 51,612 90,647 102,883
Store closing and asset revaluation ... -- -- -- 1,664
Reorganization items, net ............. (157) -- 11,177 --
Depreciation and amortization ......... 4,506 5,083 9,473 9,887
------------ ------------ ------------ ------------
Operating income (loss) ............. 3,007 4,238 (10,265) 5,881
Interest expense, net ...................... 2,840 3,554 6,091 6,725
------------ ------------ ------------ ------------
Earnings (loss) before income taxes ........ 167 684 (16,356) (844)
Income taxes ............................... -- -- -- --
------------ ------------ ------------ ------------
Net earnings (loss) ........................ $ 167 $ 684 $ (16,356) $ (844)
============ ============ ============ ============
Earnings (loss) per share:
Basic ................................. $ 0.02 $ 0.06 $ (1.50) $ (0.08)
============ ============ ============ ============
Diluted ............................... $ 0.02 $ 0.06 $ (1.50) $ (0.08)
============ ============ ============ ============
Weighted average shares and potential common
shares outstanding ....................... 10,939,000 10,998,000 10,939,000 10,933,000
</TABLE>
See note to the unaudited consolidated financial statements.
2
<PAGE>
EAGLE FOOD CENTERS, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 29, JANUARY 29,
ASSETS 2000 2000
--------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $ 29,752 $ 18,558
Restricted assets ................................................. 7,983 6,418
Accounts receivable, net of allowance for doubtful accounts
of $1.4 million in fiscal 2000 and fiscal 1999 .................. 8,505 15,561
Inventories, net of LIFO reserve of $8.6 million in fiscal 2000 and
$9.6 million in fiscal 1999 ..................................... 51,701 66,690
Prepaid expenses and other ........................................ 1,039 780
--------- ---------
Total current assets ..................................... 98,980 108,007
Property and equipment (net) ........................................ 112,534 128,971
Other assets:
Deferred debt issuance costs (net) ................................ 231 104
Property held for resale .......................................... 9,346 8,016
Other ............................................................. 13,030 15,318
--------- ---------
Total other assets ....................................... 22,607 23,438
--------- ---------
Total assets ............................................. $ 234,121 $ 260,416
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 25,757 $ 36,365
Payroll and associate benefits .................................... 12,247 14,294
Accrued liabilities ............................................... 11,751 15,026
Reserve for closed stores ......................................... -- 3,088
Accrued taxes ..................................................... 7,991 8,155
Revolving credit agreement ........................................ 2,000 --
Current portion of long term debt ................................. 899 101,128
--------- ---------
Total current liabilities not subject to compromise ...... 60,645 178,056
Liabilities subject to compromise ................................. 33,185 --
--------- ---------
Total current liabilities ................................ 93,830 178,056
Long term debt:
Senior Notes ...................................................... -- --
Capital lease obligations ......................................... 33,902 42,879
Other ............................................................. 727 728
--------- ---------
Total long term debt not subject to compromise ........... 34,629 43,607
Other liabilities:
Reserve for closed stores ......................................... -- 6,898
Other deferred liabilities ........................................ 10,239 9,877
--------- ---------
Total other liabilities not subject to compromise ........ 10,239 16,775
Liabilities subject to compromise ................................... 89,787 --
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, 560,952 shares ................. (2,228) (2,228)
Accumulated other comprehensive income ............................ 27 13
Accumulated deficit ............................................... (45,614) (29,258)
--------- ---------
Total shareholders' equity ............................... 5,636 21,978
--------- ---------
Total liabilities and shareholders' equity ............... $ 234,121 $ 260,416
========= =========
</TABLE>
See notes to the unaudited consolidated financial statements.
3
<PAGE>
EAGLE FOOD CENTERS, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 29, 2000 JULY 31, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(16,356) $ (844)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 9,473 9,887
Reorganization items:
Provision for reorganization items, net 11,177 --
Payments for professional fees (772) --
Payments for employee termination benefits (1,338) --
Other (130) --
Store closing and asset revaluation -- 1,664
LIFO charge (credit) (1,000) 500
Deferred charges and credits 220 360
(Gain) loss on disposal of assets (147) 72
Change in assets and liabilities:
Receivables and other assets 7,132 (180)
Inventories 15,989 5,225
Accounts payable (11,535) (13,126)
Accrued and other liabilities 1,450 (5,635)
Principal payments on reserve for closed stores (2,396) (649)
-------- --------
Net cash flows from operating activities 11,767 (2,726)
Cash flows from investing activities:
Additions to property and equipment (3,859) (8,545)
Additions to property held for resale (4) (7,068)
Sales/maturities (purchases) of marketable securities (1,551) 2,346
Cash proceeds from dispositions of property and equipment-reorganization 3,165 --
Cash proceeds from dispositions of property and equipment 188 42
Cash proceeds from dispositions of property held for resale 246 18,536
-------- --------
Net cash flows from investing activities (1,815) 5,311
Cash flows from financing activities:
Net bank revolving credit borrowing 2,000 --
Deferred financing costs (274) (32)
Principal payments on lease obligations (484) (527)
-------- --------
Net cash flows from financing activities 1,242 (559)
-------- --------
Increase in cash and cash equivalents 11,194 2,026
Cash and cash equivalents at beginning of period 18,558 11,775
-------- --------
Cash and cash equivalents at end of period $ 29,752 $ 13,801
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,137 $ 6,459
Cash paid for income taxes $ 7 $ 23
Noncash investing and financing activities:
Unrealized gain (loss) on marketable securities $ 14 $ (33)
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 $ --
</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").
On July 7, 2000, the Court confirmed the Plan on the terms specified above, and
on August 7, 2000, subsequent to the end of the second quarter of fiscal 2000,
the Company consummated the Plan and exited Chapter 11. See "Subsequent Events"
footnote.
As the Plan contemplated, the Company closed/sold 20 underperforming locations,
which reduced the number of operating stores from 84 for the year ended January
29, 2000 to 64 at the end of the second quarter of fiscal 2000. The Company
estimates that total sales will decrease to approximately $800 million for
fiscal 2000 as a result of the decrease in stores. 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, as discussed below.
The Plan also provides, among other things, for replacement of the Senior Notes
with new notes (the "New Senior Notes") that have the following material terms
and conditions; (i) a 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 will give 15% of the fully-diluted common stock 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.
On February 9, 2000, the Company entered into an amendment of the Revolving
Credit Facility (the "Revolver") with Congress which extended the terms of the
existing Revolver and provided the interim debtor-in-possession financing (the
"DIP Facility") if the Company became subject to a proceeding under Chapter 11
of Title 11 of the United States Code. The DIP financing was defined in the
amendment as financing with terms and conditions substantially identical to the
terms and conditions set forth in the Revolver, both of which to have a term
ending on April 15, 2002, per the amendment. Under the Plan, the $2.0 million
balance on the Revolver was treated as a secured claim.
On August 7, 2000 the Company signed a two year agreement providing a $40
million revolving credit facility (the "New Revolving Credit Facility") expiring
on August 7, 2002. The New Revolving Credit Facility has substantially the same
terms and conditions as the DIP Facility and the Revolver.
5
<PAGE>
On March 1, 2000, the Court approved various "first day" requests including,
among other things, the payment of prepetition claims of employees, utilities,
reclamation claimants, critical trade vendors and other key constituents. On
March 21, 2000, the Court authorized Eagle to pay all prepetition claims of its
remaining trade creditors.
On March 21, 2000, the Court approved a process by which certain unexpired real
estate leases may be rejected. Under Bankruptcy Law, the Company's liability to
the landlord on claims resulting from such rejections is capped at the greater
of 15% of the remaining lease payments (limited to three years' lease payments)
or one year's lease payments (the "Rejection Damages Cap"). Rejection of the
leases, however, does not limit the Company's obligation with respect to damages
arising from the rejection of any corresponding subleases.
In connection with the Company's rejection of leases, Lucky Stores, Inc.
("Lucky"), the assignor or sublessor of numerous leases to the Company, filed an
indemnification claim under a certain Transaction Agreement dated as of October
9, 1987 based on the Company's rejection of the leases related to eight stores
equal to the full obligation under such leases, totaling approximately $8.0
million (includes Rejection Damages Cap and indemnification claim).
Additionally, Lucky advised the Company that it would file similar claims in the
event the Company rejects additional leases that Lucky assigned or subleased to
the Company. The Company and Lucky subsequently negotiated an agreement in which
the Company agreed to pay the Rejection Damages Cap for the Lucky leases and
reimburse Lucky for an agreed percentage of the actual payments that Lucky makes
with respect to any claim that a Landlord may assert against Lucky ("Excess Rent
Claim"), other than a claim that the Landlord asserted or could have asserted
against the Company in the Bankruptcy Case, including a claim in the Bankruptcy
Case that a Landlord asserted or could have asserted against the Company for
damage or repair to the Landlord's leased property.
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 July 29, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending February 3, 2001.
From the Petition Date to August 7, 2000, the date on which the Plan was
consummated, the Company operated its business as a debtor-in-possession under
the Bankruptcy Code. The American Institute of Certified Public Accountant's
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7") provides guidance for financial
reporting by entities that have filed petitions with the Bankruptcy Court and
expect to reorganize under Chapter 11 of the Bankruptcy Code.
Under SOP 90-7, the financial statements of an entity in a Chapter 11
reorganization proceeding should distinguish transactions and events that are
directly associated with the reorganization from those of the operations of the
ongoing business as it evolves. Accordingly, SOP 90-7 requires the following
financial reporting or accounting treatments in respect to each of the financial
statements:
BALANCE SHEET
The balance sheet separately classifies pre-petition liabilities as those
subject to compromise (generally unsecured and undersecured claims) and those
not subject to compromise (including fully secured claims). Pre-petition
liabilities are reported on the basis of the expected amount of such allowed
claims, as opposed to the amount for which those allowed claims may be settled.
When debt subject to compromise has become an allowed claim and that claim
differs from the net carrying amount of the debt (defined as the face amount of
the debt less unamortized debt issuance costs), the net carrying amount is
adjusted to the amount of the allowed claim. The resulting gain or loss is
classified as a reorganization
6
<PAGE>
item.
STATEMENT OF OPERATIONS
Pursuant to SOP 90-7, revenues and expenses, realized gains and losses, and
provisions for losses resulting from the reorganization and restructuring of the
business are reported in the statement of operations separately as
reorganization items. Professional fees are expensed as incurred and interest
expense is being recorded on a contractual basis.
STATEMENT OF CASH FLOWS
Reorganization items are reported separately within the operating, investing and
financing categories of the statement of cash flows.
NEW ACCOUNTING STANDARDS - Existing generally accepted accounting principles 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 Company will implement EITF 00-14 no later than
the fourth quarter of the current fiscal year (the 53-week period ending
February 3, 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 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).
RESERVE FOR CLOSED STORES
An analysis of activity in the reserve for closed stores for the quarter and two
quarters ended July 29, 2000 and July 31, 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
JULY 29, JULY 31, JULY 29, JULY 31,
2000 1999 2000 1999
--------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 18,770 $ 11,212 $ 9,986 $ 10,736
Payments, primarily rental payments, net of sublease rentals
of $105 and $422 in fiscal 2000 and $337 and $674
in fiscal 1999 (1,605) (394) (2,483) (961)
Amount classified as a direct reduction of related assets and
liabilities -- -- -- (763)
Interest cost 67 170 132 312
Provision for store closing and asset revaluation (1,101) -- 8,496 1,664
-------- -------- -------- --------
Balance at end of period (including $11.3 million
and $1.3 million, respectively, classified as current) $ 16,131 $ 10,988 $ 16,131 $ 10,988
======== ======== ======== ========
</TABLE>
7
<PAGE>
The reserve for closed stores is classified in the consolidated balance sheet
under the caption "Liabilities subject to compromise" at the end of the second
quarter of fiscal 2000 and the caption "Reserve for closed stores" at the end of
the second quarter of fiscal 1999. See also "Subsequent Events" note for
reclassification of "Reserve for closed stores" as of the effective date of the
Plan. 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 two quarters ended July 29, 2000 and the caption
"Store closing and asset revaluation" for the fiscal quarter and two quarters
ended July 31, 1999.
During the first half 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 $1.9
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
eight stores terminated/expired during the first half of 2000.
During the first half 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 $0.9 million for future lease costs and $0.8 million of asset
revaluations.
A roll-forward presentation of the number of stores in the closed store reserve
for the quarter and two quarters ended July 29, 2000 and July 31, 1999 is as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
JULY 29, JULY 31, JULY 29, JULY 31,
2000 1999 2000 1999
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Number of stores in reserve at beginning of period 30 17 18 16
Leases terminated/expired (5) -- (8) --
Stores added to the closed store reserve -- -- 15 1
--- --- --- ---
Number of stores in reserve at end of period 25 17 25 17
=== === === ===
</TABLE>
8
<PAGE>
LIABILITIES SUBJECT TO COMPROMISE
Liabilities Subject to Compromise refer to liabilities incurred prior to the
filing of a petition for protection under the Bankruptcy Code, except those
claims that will not be impaired. The liabilities subject to compromise
represent management's best estimate of known or potential claims to be resolved
in connection with the Chapter 11 filing. Such claims may be subject to future
adjustment depending on Court action, further developments with respect to
disputed claims or other events. The principal categories of claims classified
as Liabilities subject to compromise consist of the following:
<TABLE>
<CAPTION>
JULY 29, 2000
-----------------------------------------
CURRENT LONG-TERM TOTAL
--------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior Notes $ 15,000 $ 85,000 $100,000
Accrued interest payable on the Senior Notes 6,841 -- 6,841
Closed store reserve 11,344 4,787 16,131
-------- -------- --------
Total $ 33,185 $ 89,787 $122,972
======== ======== ========
</TABLE>
The Company has reviewed claims submitted to the Bankruptcy Court and believes
all valid claims have been properly recorded in the consolidated financial
statements as of July 29, 2000.
REORGANIZATION ITEMS, NET
A summary of costs recognized during the quarter and two quarters ended July 29,
2000 and estimated additional costs to be incurred subsequent to the second
quarter is as follows:
<TABLE>
<CAPTION>
QUARTER TWO QUARTERS ESTIMATED TOTAL
ENDED ENDED ADDITIONAL REORGANIZATION
JULY 29, 2000 JULY 29, 2000 COSTS COSTS
------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Store closing and asset revaluation $ (1,101) $ 8,496 $ -- $ 8,496
Employee termination benefits 87 1,338 -- 1,338
Professional fees 938 1,811 1,686 3,497
Net realized gains on sale/disposal of
leases and equipment and release of
capital leases (157) (598) (550) (1,148)
Other 76 130 25 155
-------- -------- -------- --------
Total $ (157) $ 11,177 $ 1,161 $ 12,338
======== ======== ======== ========
</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 half of fiscal 2000. The Company also reduced the closed store
reserve by $1.9 million for net favorable changes in estimates for stores and
the termination/expiration of leases on eight stores.
9
<PAGE>
EMPLOYEE TERMINATION BENEFITS
In connection with the Bankruptcy Case, the Company recognized $1.3 million in
employee termination benefits during the first two quarters of fiscal 2000,
representing severance costs for 346 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.
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 pay an additional $1.7 million, including $1.3
million to Jefferies and Company for financial advisory fees payable upon
consummation of the confirmed Plan.
NET REALIZED GAINS
During the first two quarters of fiscal 2000, the Company had realized gains on
the sale/disposal of leases and equipment and release of capital lease
obligations of $0.6 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 TWO QUARTERS ENDED
------------------------------ -------------------------------
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 167 $ 684 $(16,356) $ (844)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable
securities 4 (31) 14 (33)
-------- -------- -------- --------
Comprehensive income (loss) $ 171 $ 653 $(16,342) $ (877)
======== ======== ======== ========
</TABLE>
LITIGATION
BANKRUPTCY CASE
The Company commenced the Bankruptcy Case on February 29, 2000. Additional
information relating to the Bankruptcy Case is set forth in the notes to the
consolidated financial statements under the caption "Reorganization Proceedings
Under Chapter 11 of the Bankruptcy Code" and "Subsequent Events".
OTHER CASES
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 (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 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.
10
<PAGE>
All outstanding options were excluded from the net earnings (loss) per share
calculation for the two quarters ending July 29, 2000 and July 31, 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 TWO QUARTERS ENDED
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 167 $ 684 $ (16,356) $ (844)
======= ======== ========== ========
Weighted average common
shares outstanding 10,939 10,939 10,939 10,933
======= ======== ========== ========
Basic EPS $ 0.02 $ 0.06 $ (1.50) $ (0.08)
======= ======== ========== ========
Weighted average common
shares outstanding 10,939 10,939 10,939 10,933
Effect of dilutive securities -
stock options -- 59 -- --
------- -------- ---------- --------
Shares applicable to diluted
earnings (loss) 10,939 10,998 10,939 10,933
======= ======== ========== ========
Diluted EPS $ 0.02 $ 0.06 $ (1.50) $ (0.08)
======= ======== ========== ========
</TABLE>
SUBSEQUENT EVENTS
The Plan was consummated on August 7, 2000, and as a result the Company replaced
the Senior Notes with 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 gave 15% of the 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. In addition, subsequent to August 7,
2000, the Company paid $1.3 million to Jefferies and Company for financial
advisory services, $1.1 million for certain lease termination costs, and $2.0
million on the New Revolving Credit Facility.
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<PAGE>
The effects of the above transactions and certain reclassifications on the
Company's Consolidated Balance Sheet as if they had occurred on July 29, 2000 is
presented below:
EAGLE FOOD CENTERS, INC.
CONSOLIDATED BALANCE SHEET- PROFORMA
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 29, 2000 TRANSACTIONS/ JULY 29, 2000
AS REPORTED RECLASSIFICATIONS PROFORMA
------------- ----------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,752 $ (21,841)(1) $ 3,512
(1,336)(2)
(1,063)(3)
(2,000)(4)
Other 69,228 69,228
--------- --------- ---------
Total current assets 98,980 (26,240) 72,740
Other assets 135,141 135,141
--------- --------- ---------
Total assets $ 234,121 $ (26,240) $ 207,881
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liablities:
Reserve for closed stores $ -- $ 10,281 (6) $ 10,281
Revolving credit agreement 2,000 (2,000)(4) --
Other 58,645 58,645
--------- --------- ---------
Total current liabilities not subject to compromise 60,645 8,281 68,926
Liabilities subject to compromise 33,185 (21,841)(1) --
(1,063)(3)
(10,281)(6)
--------- --------- ---------
Total current liabilities 93,830 (24,904) 68,926
Long-term debt:
Senior Notes -- 85,000 (1) 82,853
(2,147)(5)
Other 34,629 34,629
--------- --------- ---------
Total long-term debt not subject to compromise 34,629 82,853 117,482
Other liabilities:
Reserve for closed stores -- 4,787 (6) 4,787
Other deferred liabilities 10,239 10,239
--------- --------- ---------
Total other liabilities not subject to compromise 10,239 4,787 15,026
Liabilities subject to compromise 89,787 (85,000)(1) --
(4,787)(6)
Shareholders' equity:
Common stock 115 19 (5) 134
Capital in excess of par value 53,336 2,128 (5) 55,464
Other (2,201) (2,201)
Accumulated deficit (45,614) (1,336)(2) (46,950)
--------- --------- ---------
Total shareholders' equity 5,636 811 6,447
--------- --------- ---------
Total liabilities and shareholders' equity $ 234,121 $ (26,240) $ 207,881
========= ========= =========
</TABLE>
TRANSACTIONS/RECLASSIFICATIONS:
(1) Reflects the replacement and reclassification of Senior Notes with New
Senior Notes, including a $15.0 million principal payment and a $6.8
million payment for accrued interest at July 29, 2000
(2) Reflects a $1.3 million payment to Jefferies and Company for financial
advisory fees
(3) Reflects a $1.1 million payment for termination of certain leases
(4) Reflects a $2.0 million payment on the New Revolving Credit Facility
(5) Reflects the issuance of 1,930,420 shares of Common stock
(6) Reflects the reclassification of Liabilities subject to compromise to
Reserve for closed stores
12
<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 July 29, 2000 were $190.6
million, a decrease of $43.9 million or 18.7% from the second 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 2.9%
from the same quarter in the prior year. There were 64 stores operating at the
close of the second quarter of fiscal 2000 and 90 stores were operating at the
end of the second quarter of 1999. For the two quarters ended July 29, 2000,
sales were $393.6 million, a decrease of $71.6 million, or 15.4% 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.
The gross margin rate was 25.8% of sales for the quarter ended July 29, 2000
compared to 26.0% in the comparable quarter of 1999. For the two quarters ended
July 29, 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 two
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
$1.5 million. The gross margin rate for the 64 continuing stores for two
quarters ended July 29, 2000 was 25.9% compared to 26.3% in the same quarter of
the prior year, and 26.1% for the two quarters ended July 29, 2000 compared to
26.2% for the same period in the prior year.
Selling, general and administrative expense for the second quarter of fiscal
2000 was $41.9 million, or 22.0% of sales, compared to $51.6 million or 22.0% 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, partially
offset by increased benefits expense of $0.9 million due to a temporary
reduction in health and welfare costs ending in fiscal 1999, and other increases
related to continuing operations. For the two quarters ended July 29, 2000,
selling, general and administrative expense was $90.6 million, or 23.0% of
sales, versus $102.9 million, or 22.1% 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 $17.7 million, partially offset by increased benefits
expense of $1.8 million, and other increases related to continuing operations.
The Company recorded a store closing and asset revaluation charge of $1.7
million during the first half of 1999 to reflect the estimated future lease
costs and asset revaluations relating to one store added to the reserve during
the first quarter.
A charge of $11.3 million was recorded during the first quarter of fiscal 2000
and a credit of $0.1 million during the second quarter of fiscal 2000 for
reorganization items, including costs of $8.5 million in store closing and asset
revaluations, $1.3 million in employee termination benefits, $1.8 million in
professional fees and $0.2 million of other items, partially offset by $0.6
million in realized gains.
Depreciation and amortization expense decreased to $4.5 million, or 2.4% of
sales, in the second quarter of 2000 compared to $5.1 million, or 2.2% of sales,
in the prior year. For the two quarters ended July 29, 2000 depreciation and
amortization expense decreased to $9.5 million, or 2.4% of sales, compared to
$9.9 million, or 2.1% 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 decreased to $2.8 million, or 1.5% of sales, in the second quarter of
2000 compared to $3.6 million, or 1.5% of sales, in the prior year. For the two
quarters ended July 29, 2000, net interest expense decreased to $6.1 million, or
1.5% of sales, compared to $6.7 million, or 1.4% of sales in the prior year. The
decreases are due primarily to an increase in interest income.
Net earnings for the second quarter of fiscal 2000 were $0.2 million, or $0.02
per share on a diluted basis, compared to net earnings of $0.7 million, or $0.06
per share on a diluted basis, in the same quarter of fiscal 1999. For the two
quarters ended July 29, 2000, the net loss was $16.4 million, or $1.50 per share
on a diluted basis, compared to a loss of $0.8 million, or $0.08 per share on a
diluted basis, for the comparable period of 1999. No
13
<PAGE>
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.
In connection with the Plan, the Company made payments totaling $26.4 million
subsequent to the end of the second quarter, including $15.0 million in
principal payments and $7.0 million in interest payments on the Senior Notes,
$1.3 million in professional fees, $1.1 million in lease termination costs and
$2.0 million on the New Revolving Credit Facility. Additionally, the Company
expects to make payments totaling $16.1 million, with approximately $11.3
million paid within one year, relating to lease termination costs which are
included in the balance sheet caption "Liabilities subject to compromise" at
July 29, 2000.
The Company has expensed $1.8 million in professional fees and $1.3 million in
employee severance costs during the first two quarters of fiscal 2000, of which
$0.8 million and $1.3 million, respectively, were paid in the first half of
fiscal 2000. The Company anticipates it will incur an additional $1.7 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 half of fiscal 2000 for net proceeds of $3.2 million and expects
additional net proceeds of approximately $0.5 million relating to the
termination of leases during the remainder of fiscal 2000.
The Plan expenditures discussed in this section 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 the
New Revolving Credit Facility. The availability under the New Revolving Credit
Facility was $27.2 million on July 29, 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 Proceedings Under Chapter 11 of the
Bankruptcy Code."
Cash provided by operating activities was $11.8 million for the two quarters
ended July 29, 2000 compared to cash used of $2.7 million in the comparable
period of 1999. The net loss and non-cash charges provided $1.1 million of cash
and working capital changes provided $10.7 million, primarily due to a decrease
in receivables and inventories, partially offset by a decrease in accounts
payable. The Company believes that operating cash flows and other sources of
liquidity, including borrowings under its New 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 half of fiscal 2000 were $3.9
million compared to $15.6 million in the same period of 1999. One store was sold
and 19 stores were closed during the first half of fiscal 2000, one major
remodel was completed and two major remodels and three minor remodels are in
progress. The Company is projecting capital expenditures to be approximately
$5.0 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.
14
<PAGE>
Working capital on July 29, 2000 was $5.2 million and the current ratio was 1.05
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. As of July 29, 2000, the $100 million of Senior Notes was
reclassified to the caption "Liabilities subject to compromise." The $15 million
which was paid upon the effective date of the Plan, August 7, 2000, is included
in current liabilities and the remaining $85 million which has a maturity date
of April 15, 2005 has been classified as long-term.
On July 29, 2000 the Company had $2.0 million in borrowings against the
Revolving Credit Facility and no letters of credit outstanding. The
balance of $2.0 million was paid on August 9, 2000.
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, and
other risks detailed in the Company's Securities and Exchange Commission
filings.
15
<PAGE>
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
Reference is made to the notes to the consolidated financial statements
under the caption "Reorganization Proceedings Under Chapter 11 of the
Bankruptcy Code."
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
As a result of the filing by the Company on February 29, 2000 of a
voluntary petition for relief under Chapter 11, Title 11 of the United
States Code, a default occurred on the Company's 8 5/8% Senior Notes due
April 15, 2000 (the "Senior Notes"). The Company is also in default
under the Senior Notes because it did not pay the principal amount of
$100 million and interest of $4.3 million each of which was due on April
15, 2000. As of the date of the filing of this Form 10-Q, there is no
arrearage amount for the Senior Notes.
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 18)
Form 8K: On July 24, 2000 the Company filed a report on Form 8-K
relating to the confirmation of the Company's Plan as of
July 7, 2000.
On August 4, 2000 the Company filed a report on Form 8-K
relating to a change in the Company's certifying
accountant.
On August 17, 2000 the Company filed a report on Form
8-K relating to the consummation of the Company's Plan
as of August 7, 2000.
16
<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: September 12, 2000 /s/ Jeffrey L. Little
-----------------------------------
Jeffrey L. Little
Chief Executive Officer and President
Dated: September 12, 2000 /s/ S. Patric Plumley
-----------------------------------
S. Patric Plumley
Senior Vice President-Chief Financial
Officer and Secretary
17
