-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fej7GFUztDz+KCR5hip5zrKoWSOaNJ+KrDrXdLW9BxfmSGfs0ZIkrDPhABp5wKyj a0CCZHySLksFeFiviNEi0A== /in/edgar/work/20000613/0000912057-00-028353/0000912057-00-028353.txt : 20000919 0000912057-00-028353.hdr.sgml : 20000919 ACCESSION NUMBER: 0000912057-00-028353 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000429 FILED AS OF DATE: 20000613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE FOOD CENTERS INC CENTRAL INDEX KEY: 0000030908 STANDARD INDUSTRIAL CLASSIFICATION: [5411 ] IRS NUMBER: 363548019 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17871 FILM NUMBER: 653877 BUSINESS ADDRESS: STREET 1: RTE 67 KNOXVILLE RD CITY: MILAN STATE: IL ZIP: 61264 BUSINESS PHONE: 3097877730 MAIL ADDRESS: STREET 1: PO BOX 6700 CITY: ROCK ISLAND STATE: IL ZIP: 61204-6700 10-Q 1 a10-q.txt FORM 10-Q 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 April 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 / / The number of shares of the Registrant's Common Stock, par value one cent ($0.01) per share, outstanding at June 9, 2000 was 10,939,048. 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. Page 1 of 16 pages PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS EAGLE FOOD CENTERS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
QUARTER ENDED APRIL 29, 2000 MAY 1, 1999 -------------- ------------- Sales ...................................... $ 203,037 $ 230,744 Cost of goods sold ......................... 151,240 171,362 ------------ ------------ Gross margin .......................... 51,797 59,382 Operating expenses: Selling, general and administrative ... 48,768 51,271 Store closing and asset revaluation ... -- 1,664 Reorganization items, net ............. 11,334 -- Depreciation and amortization ......... 4,967 4,804 ------------ ------------ Operating income (loss) ............. (13,272) 1,643 Interest expense ........................... 3,251 3,171 ------------ ------------ Earnings (loss) before income taxes ........ (16,523) (1,528) Income taxes ............................... -- -- ------------ ------------ Net earnings (loss) ........................ $ (16,523) $ (1,528) ============ ============ Earnings (loss) per share: Basic ................................. $ (1.51) $ (0.14) ============ ============ Diluted ............................... $ (1.51) $ (0.14) ============ ============ Weighted average shares and potential common shares outstanding ....................... 10,939,000 10,926,000
See notes to the consolidated financial statements. 2 EAGLE FOOD CENTERS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
APRIL 29, JANUARY 29, ASSETS 2000 2000 ----------- ------------- Current assets: Cash and cash equivalents $ 19,338 $ 18,558 Restricted assets 7,460 6,418 Accounts receivable, net of allowance for doubtful accounts of $1.4 million in fiscal 2000 and fiscal 1999 12,019 15,561 Inventories, net of LIFO reserve of $9.1 million in fiscal 2000 and $9.6 million in fiscal 1999 58,966 66,690 Prepaid expenses and other 1,092 780 --------- --------- Total current assets 98,875 108,007 Property and equipment (net) 115,124 128,971 Other assets: Deferred debt issuance costs (net) 245 104 Property held for resale 9,577 8,016 Other 14,331 15,318 --------- --------- Total other assets 24,153 23,438 --------- --------- Total assets $ 238,152 $ 260,416 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 28,177 $ 36,365 Payroll and associate benefits 12,620 14,294 Accrued liabilities 11,854 15,026 Reserve for closed stores -- 3,088 Accrued taxes 8,370 8,155 Revolving credit agreement 2,000 -- Current portion of long term debt 923 101,128 --------- --------- Total current liabilities not subject to compromise 63,944 178,056 Liabilities subject to compromise 33,673 -- --------- --------- Total current liabilities 97,617 178,056 Long term debt: Senior Notes -- -- Capital lease obligations 34,507 42,879 Other 696 728 --------- --------- Total long term debt not subject to compromise 35,203 43,607 Other liabilities: Reserve for closed stores -- 6,898 Other deferred liabilities 10,085 9,877 --------- --------- Total other liabilities not subject to compromise 10,085 16,775 Liabilities subject to compromise 89,782 -- 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 23 13 Retained earnings (deficit) (45,781) (29,258) --------- --------- Total shareholders' equity 5,465 21,978 --------- --------- Total liabilities and shareholders' equity $ 238,152 $ 260,416 ========= =========
See notes to the consolidated financial statements. 3 EAGLE FOOD CENTERS, INC. (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
APRIL 29, MAY 1, 2000 1999 ----------- --------- Cash flows from operating activities: Net earnings (loss) $(16,523) $ (1,528) Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation and amortization 4,967 4,804 Reorganization items: Reorganization items, net 11,334 -- Payments for professional fees (643) -- Payments for employee termination benefits (763) -- Other (54) -- Store closing and asset revaluation -- 1,664 LIFO charge (credit) (500) 250 Deferred charges and credits 167 315 (Gain) loss on disposal of assets (40) 55 Change in assets and liabilities: Receivables and other assets 3,207 5,131 Inventories 8,224 4,560 Accounts payable (8,677) (15,548) Accrued and other liabilities 273 (5,715) Principal payments on reserve for closed stores (856) (425) -------- -------- Net cash flows from operating activities 116 (6,437) Cash flows from investing activities: Additions to property and equipment (2,216) (2,885) Additions to property held for resale (4) (2,255) Sales/maturities (purchases) of marketable securities (1,032) 1,092 Cash proceeds from dispositions of property and equipment-reorganization 2,372 -- Cash proceeds from dispositions of property and equipment 65 34 Cash proceeds from dispositions of property held for resale -- 5,696 -------- -------- Net cash flows from investing activities (815) 1,682 Cash flows from financing activities: Net bank revolving credit borrowing 2,000 -- Deferred financing costs (254) -- Principal payments on lease obligations (267) (265) -------- -------- Net cash flows from financing activities 1,479 (265) -------- -------- Increase (decrease) in cash and cash equivalents 780 (5,020) Cash and cash equivalents at beginning of period 18,558 11,775 -------- -------- Cash and cash equivalents at end of period $ 19,338 $ 6,755 ======== ======== Supplemental disclosures of cash flow information: Cash paid for interest $ 1,144 $ 5,254 Cash paid for income taxes $ 7 $ -- Noncash investing and financing activities: Unrealized gain (loss) on marketable securities $ 10 $ (3) Additions to property and equipment and capital lease liability in connection with sale/leaseback transactions $ -- $ 5,696
See notes to the consolidated financial statements. 4 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 continues to manage its affairs and operate its business as a debtor-in-possession while the Bankruptcy Case is pending. The Bankruptcy Case, which is proceeding 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"). The Bankruptcy Case was commenced in order to implement a financial restructuring of the Company, which includes reorganizing the Company's operations and restructuring its Senior Notes. The critical terms of the Plan were pre-negotiated with the Company's largest secured lender, Congress Financial Corporation (Central) ("Congress"), and the largest identifiable unsecured institutional holders. Prior to the filing, the Company had definitive lock-up agreements from the largest institutional holders of its 8 5/8% Senior Notes due April 15, 2000 representing approximately $29 million of the $100 million in Senior Notes. Pursuant to the lock-up agreements, the identified institutional holders agreed to vote in favor of the plan of reorganization with the Court. 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 contemplates the closing or sale of 20 underperforming locations, which reduced the number of operating stores from 84 for the year ended January 29, 2000 to 66 at the end of the first quarter of fiscal 2000 and 64 stores subsequent to the end of the first quarter when the final two stores were closed. 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, which is 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 is treated as a secured claim that the Company intends to pay with accrued interest as of the effective date of the Plan. On March 21, 2000, the Court approved a final order approving the DIP Facility. The DIP Facility is available to provide funds to the Company for continuous operations and to meet ongoing financial commitments to vendors and employees during the Bankruptcy Case. Congress has committed to provide the financing for the Company after exiting from bankruptcy, and they are in the process of negotiating the terms and conditions of this credit facility (the "Exit Facility"). The Exit Facility is conditioned upon 5 confirmation and consummation of the Plan and the Company anticipates it will have substantially the same terms and conditions as the Revolving Credit Facility. 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 April 17, 2000, the Court approved the Company's Disclosure Statement (the "Disclosure Statement") relating to the Plan. The Company mailed the Disclosure Statement to all of its creditors and shareholders entitled to vote on the Plan. Subsequent to the end of the first quarter of fiscal 2000, the Company received sufficient votes to accept the Plan by the classes of creditors and shareholders entitled to vote on the Plan and, assuming the Bankruptcy Court approves the Plan, the Company expects the Plan to become effective approximately thirty days following the confirmation date. There is no assurance that the Court will confirm the Plan, which the Company expects to occur during the second quarter of fiscal 2000, or that the Plan will become effective thirty days thereafter. On March 21, 2000, the Court approved a process by which certain unexpired real estate leases may be rejected. Additionally, the Company is pursuing the assignment or sublease of leases on stores that are closed or that will be closed in connection with the Plan. However, if the leases on these stores cannot be assigned or subleased, the Company plans to reject these leases through the Bankruptcy Case. 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 (including eight dark stores and 13 stores closed or to be closed), 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 of the dark 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 will file similar claims in the event the Company rejects additional leases that Lucky assigned or subleased to the Company. The Company and Lucky have a tentative agreement in which the Company will 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. The accompanying consolidated financial statements have been prepared on a going concern basis of accounting and do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, (i) confirmation of a plan of reorganization under the Bankruptcy Code, (ii) the Company's ability to achieve profitable operations after such confirmation, and (iii) the Company's ability to generate sufficient cash from operations to meet its obligations. Management believes that the actions included in the plan of reorganization and the DIP Facility and Exit Facility, along with cash on hand and cash provided by operations, will provide sufficient liquidity to allow the Company to continue as a going concern; however, there can be no assurance that the sources of liquidity will be available or sufficient to meet the Company's needs. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 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. 6 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 April 29, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending February 3, 2001. Since the Petition Date, the Company has 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 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. 7 RESERVE FOR CLOSED STORES An analysis of activity in the reserve for closed stores for the quarters ended April 29, 2000 and May 1, 1999 are as follows:
QUARTER ENDED QUARTER ENDED APRIL 29, MAY 1, 2000 1999 ------------- -------------- (Dollars in thousands) Balance at beginning of quarter $ 9,986 $ 10,736 Payments, primarily rental payments, net of sublease rentals of $317 in fiscal 2000 and $337 in fiscal 1999 (878) (567) Amount classified as a direct reduction of related assets and liabilities -- (763) Interest cost 65 142 Provision for store closing and asset revaluation 9,597 1,664 -------- -------- Balance at end of quarter (including $14.0 million and $1.3 million, respectively, classified as current) $ 18,770 $ 11,212 ======== ========
The reserve for closed stores is classified in the consolidated balance sheet under the caption "Liabilities subject to compromise" at the end of the first quarter of fiscal 2000 and the caption "Reserve for closed stores" at the end of the first quarter of fiscal 1999. 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 ended April 29, 2000 and the caption "Store closing and asset revaluation" for the fiscal quarter ended May 1, 1999. During the first quarter of fiscal 2000, the Company added 15 stores to the reserve for which $10.4 million is provided for estimated future costs. In addition, the Company benefited from net favorable changes in estimates of $0.8 million for all of the 18 stores in the reserve at the end of the fiscal year 1999, the leases for three of which were terminated/expired during the first quarter. 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 $0.9 million for future lease costs and $0.8 million of asset revaluations. A rollforward presentation of the number of stores in the closed store reserve for the first quarters of fiscal 2000 and 1999 is as follows: QUARTER ENDED QUARTER ENDED APRIL 29, MAY 1, 2000 1999 ------------- -------------- Number of stores in reserve at beginning of quarter 18 16 Leases terminated/expired (3) - Stores added to the closed store reserve 15 1 ------------- -------------- Number of stores in reserve at end of quarter 30 17 ============= ============== LIABILITIES SUBJECT TO COMPROMISE 8 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: APRIL 29, 2000 ------------------------------- CURRENT LONG-TERM TOTAL --------- --------- -------- (Dollars in thousands) Senior Notes $ 15,000 $ 85,000 $100,000 Accrued interest payable on the Senior Notes 4,685 -- 4,685 Closed store reserve 13,988 4,782 18,770 -------- -------- -------- Total $ 33,673 $ 89,782 $123,455 ======== ======== ======== 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 April 29, 2000. REORGANIZATION ITEMS A summary of costs recognized during the first quarter of fiscal 2000 and estimated additional costs to be incurred subsequent to the first quarter is as follows:
QUARTER ESTIMATED TOTAL ENDED ADDITIONAL REORGANIZATION APRIL 29, 2000 COSTS COSTS -------------- ------------ ---------------- (DOLLARS IN THOUSANDS) Store closing and asset revaluation $ 9,597 $ -- $ 9,597 Employee termination benefits 1,251 -- 1,251 Professional fees 873 2,800 3,673 Net realized gains on sale/disposal of leases and equipment and release of capital leases (441) (1,000) (1,441) Other 54 200 254 -------- -------- -------- Total $ 11,334 $ 2,000 $ 13,334 ======== ======== ========
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 17 underperforming stores during the first quarter of fiscal 2000 and closed two stores subsequent to quarter end. These closings resulted in the Company recording estimated costs of $10.4 million during the first quarter. The Company also reduced the closed store reserve by $0.8 million for net favorable changes in estimates for stores and the termination/expiration of three stores existing in the reserve at January 29, 2000. EMPLOYEE TERMINATION BENEFITS In connection with the Bankruptcy Case, the Company recognized $1.3 million in employee termination benefits during the first quarter of fiscal 2000, representing severance costs for 338 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 9 termination benefit formula in sufficient detail so they were able to calculate their termination benefits. Of the $1.3 million accrued, the Company paid out $0.8 million in the first quarter and the remainder is included in the Balance Sheet caption "Accounts Payable". 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 $2.8 million which includes $1.3 million to Jefferies and Company for financial advisory fees upon consummation of a confirmed Plan. NET REALIZED GAINS During the first quarter of fiscal 2000, the Company had realized gains on the sale/disposal of leases and equipment and release of capital lease obligations of $0.4 million, all related to the 20 closing/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):
QUARTER ENDED -------------------------------------- APRIL 29, 2000 MAY 1, 1999 ----------------- ------------------ Net income (loss) $(16,523) $ (1,528) Other comprehensive income (loss): Unrealized gain (loss) on marketable securities 10 (3) -------- -------- Comprehensive income (loss) $(16,513) $ (1,531) ======== ========
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." 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 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 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 2000 and 1999 because they were anti-dilutive. The computation of basic and diluted EPS is as follows: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER ENDED 10
APRIL 29, 2000 MAY 1, 1999 Net Earnings (Loss): $ (16,523) $ (1,528) ========= ======== Weighted average common shares outstanding 10,939 10,926 ========= ======== Basic earnings (loss) per share $ (1.51) $ (0.14) ========= ======== Weighted average common shares outstanding 10,939 10,926 Effect of dilutive securities - stock options -- -- --------- -------- Shares applicable to diluted earnings 10,939 10,926 ========= ======== Diluted earnings (loss) per share $ (1.51) $ (0.14) ========= ========
SUBSEQUENT EVENTS The Company closed two stores subsequent to the first quarter of fiscal 2000. The closings will not result in a second quarter charge to earnings since the store expenses were previously recorded. 11 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 April 29, 2000 were $203.0 million, a decrease of $27.7 million or 12.0% from the first quarter of fiscal 1999. Sales for the 64 stores remaining open after all closures covered in the Plan (the "Continuing Stores"), including replacement stores, declined 1.1% from the same quarter in the prior year. There were 66 stores operating at the close of the first quarter of fiscal 2000 (two additional stores closed subsequent to the end of the first quarter) and 90 stores were operating at the end of the first quarter of 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 25.5% of sales for the quarter ended April 29, 2000 compared to 25.7% in the comparable quarter of 1999. The decrease in the gross margin rate for the first quarter of fiscal 2000 is primarily related to the liquidation of inventory in 17 stores closed during the quarter and a concerted effort to drive business with sales promotions in the Continuing Stores, partially offset by a favorable change in LIFO of $0.8 million. The Company also expects additional favorable changes in LIFO in future quarters of fiscal 2000 as inventory levels continue to decline. The gross margin rate during the first quarter for the 64 continuing stores was 26.3% compared to 26.1% in the same quarter of the prior year. Selling, general and administrative expense for the first quarter of 2000 was $48.8 million or 24.0% of sales compared to $51.3 million or 22.2% of sales in the same quarter of 1999. The decrease in dollars is primarily related to a reduction in direct expenses in closed/sold stores of $4.9 million, partially offset by increased benefits expense of $1.2 million due to a temporary reduction in health and welfare costs ending in fiscal 1999 and increased promotional activity of $0.6 million. 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. A charge of $11.3 million was recorded during the first quarter of fiscal 2000 for reorganization items, including costs of $9.6 million in store closing and asset revaluations, $1.3 million in employee termination benefits, $0.9 million in professional fees and $0.1 million of other items, partially offset by $0.4 million in realized gains. Depreciation and amortization expense increased to $5.0 million or 2.5% of sales in the first quarter of 2000 compared to $4.8 million or 2.1% of sales in the prior year, primarily due to increased depreciation relating to the Company's capital spending program. Interest expense increased to $3.3 million or 1.6% of sales in the first quarter of 2000 compared to $3.2 million or 1.4% of sales in the prior year due primarily to increased interest on capital lease obligations. The net loss for the first quarter of fiscal 2000 was $16.5 million or $1.51 per share on a diluted basis compared to a net loss of $1.5 million or $0.14 per share in the same quarter of fiscal 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 is currently operating its business and managing 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"). In connection with the Plan, the Company expects to make $15.0 million in principal payments and approximately $6.5 million in interest payments on the Senior Notes during the second quarter of fiscal 2000. Additionally, the Company expects to make $18.8 million, with approximately $14.1 million paid within one year, in lease termination payments which are included in the balance sheet caption "Liabilities subject to compromise" at April 29, 2000. The Company has expensed $0.9 million in professional fees and $1.3 million in employee severance costs of which $0.6 million and $0.8 million were paid in the first quarter, respectively. The Company 12 anticipates it will incur an additional $2.8 million in professional fees during the remainder of fiscal 2000 as a result of the Bankruptcy Case. The Company sold certain assets in the first quarter of fiscal 2000 for net proceeds of $2.4 million and expects additional net proceeds of approximately $0.5 million from sales of assets during the remainder of fiscal 2000. The Plan expenditures discussed in this section will be funded primarily from 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 DIP Facility and Exit Facility. The availability under the DIP Facility and Exit Facility is estimated to be $28.0 million 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 used by operating activities was $0.1 million for the quarter ended April 29, 2000 compared to cash used of $6.4 million in the comparable quarter of 1999. Net loss and non-cash charges used $2.1 million of cash and working capital changes provided $2.2 million, primarily due to a decrease in receivables and inventories offset somewhat by a decrease in accounts payable. The Company believes that operating cash flows and other sources of liquidity, including borrowings under its DIP Facility and Exit 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 quarter of fiscal 2000 were $2.2 million compared to $5.1 million in the first quarter of 1999. One store was sold and 17 stores were closed during the first quarter of fiscal 2000 and there was one major remodel completed. The Company is projecting capital expenditures to be approximately $8.8 million for the remainder of fiscal 2000. One store held for resale was sold for $5.7 million and leased back during the first quarter of fiscal 1999. Working capital at April 29, 2000 was $1.3 million and the current ratio was 1.01 to 1 compared to a negative $70.0 million and 0.61 to 1 at 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 at January 29, 2000. As of April 29, 2000, the $100 million of Senior Notes was reclassified to the caption "Liabilities subject to compromise." The $15 million expected to be paid in connection with the Plan upon the effective date of the Plan is included in Current Liabilities and the remaining $85 million which is expected to have a maturity date of April 15, 2005 has been classified as long-term. At April 29, 2000 the Company had $2.0 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, the rate of technology change, the cost and uncertain outcomes of pending and unforeseen litigation, the approval of the Plan by the Court, the ability of the Company to consummate the Plan on the terms specified in such Plan and the timing of such consummation, 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. 13 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 were due on April 15, 2000 and thus as of the date of this Form 10-Q, the total arrearage amount for the Senior Notes is $104.3 million. 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 16) Form 8-K : On March 15, 2000 the Company filed a report on Form 8-K relating to the Company's filing, on February 29, 2000, of a Voluntary Petition under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware -- IN RE EAGLE FOOD CENTERS, INC., DEBTOR, Chapter 11, Case. No. 00-01311. 14 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 13, 2000 /s/ Jeffrey L. Little ----------------------------------- Jeffrey L. Little Chief Executive Officer and President Dated: June 13, 2000 /s/ S. Patric Plumley ----------------------------------- S. Patric Plumley Senior Vice President -Chief Financial Officer and Secretary 15 EX-27 2 ex-27.txt EXHIBIT 27
5 3-MOS FEB-03-2001 APR-29-2000 19,338,000 7,460,000 13,419,000 1,400,000 58,966,000 98,875,000 260,971,000 145,847,000 238,152,000 97,617,000 100,000,000 0 0 115,000 5,350,000 238,152,000 203,037,000 203,037,000 151,240,000 151,240,000 65,069,000 0 3,251,000 (16,523,000) 0 (16,523,000) 0 0 0 (16,523,000) (1.51) (1.51)
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