-----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, UkQhZABI47w2lojbeC17t15mKskm3RMrBHIm31HBli4nhrk2TM4c876IDXdHnWq3 WpRmMX1H8/qVH5YOhAFFig== 0001047469-99-024065.txt : 19990615 0001047469-99-024065.hdr.sgml : 19990615 ACCESSION NUMBER: 0001047469-99-024065 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990501 FILED AS OF DATE: 19990614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE FOOD CENTERS INC CENTRAL INDEX KEY: 0000030908 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [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: 99645791 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 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 MAY 1, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ Commission File Number 0-17871 EAGLE FOOD CENTERS, INC. ------------------------ (Exact name of registrant as specified in the charter) DELAWARE 36-3548019 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) RT. 67 & KNOXVILLE RD., MILAN, ILLINOIS 61264 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (309) 787-7700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The number of shares of the Registrant's Common Stock, par value one cent ($0.01) per share, outstanding at June 9, 1999 was 10,938,548. Page 1 of 10 pages PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS EAGLE FOOD CENTERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
QUARTER ENDED MAY 1, 1999 MAY 2, 1998 ------------ ------------ Sales ........................................... $ 230,744 $ 231,568 Cost of goods sold .............................. 171,362 173,844 ------------ ------------ Gross margin ............................... 59,382 57,724 Operating expenses: Selling, general and administrative ........ 51,271 50,301 Store closing and asset revaluation ........ 1,664 -- Depreciation and amortization .............. 4,804 4,377 ------------ ------------ Operating income ......................... 1,643 3,046 Interest expense ................................ 3,171 2,922 ------------ ------------ Earnings (loss) before income taxes ............. (1,528) 124 Income taxes .................................... -- -- ------------ ------------ Net earnings (loss) ............................. $ (1,528) $ 124 ============ ============ Earnings (loss) per share: Basic ...................................... $ (0.14) $ 0.01 ============ ============ Diluted .................................... $ (0.14) $ 0.01 ============ ============ Weighted average shares and potential common shares outstanding ............................ 10,926,000 11,205,000
See notes to consolidated financial statements. 2 EAGLE FOOD CENTERS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
ASSETS MAY 1, JANUARY 30, 1999 1999 --------- --------- Current Assets: Cash and cash equivalents $ 6,755 $ 11,775 Restricted assets - marketable securities, at fair value 8,751 9,846 Accounts receivable, net of allowance for doubtful accounts of $1.0 million in fiscal 1999 and $1.2 million in fiscal 1998 11,922 16,537 Income tax receivable 926 926 Inventories 69,259 74,069 Prepaid expenses 1,518 1,392 --------- --------- Total current assets 99,131 114,545 Property and equipment (net) 136,362 132,364 Other assets: Deferred debt issuance costs 465 585 Excess of cost over fair value of net assets acquired 2,305 2,325 Property held for resale 16,719 20,025 Other 11,945 13,471 --------- --------- Total other assets 31,434 36,406 --------- --------- Total assets $ 266,927 $ 283,315 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 31,886 $ 47,434 Payroll and associate benefits 14,760 14,318 Accrued liabilities 19,712 25,353 Reserve for closed stores 1,302 1,302 Accrued taxes 7,799 7,795 Bank revolving credit facility -- -- Current portion of long-term debt 1,102 991 --------- --------- Total current liabilities 76,561 97,193 Long-term debt: Senior Notes 100,000 100,000 Capital lease obligations 43,347 37,779 --------- --------- Total long-term debt 143,347 137,779 Other liabilities: Reserve for closed stores 9,910 9,434 Other deferred liabilities 10,226 10,523 --------- --------- Total other liabilities 20,136 19,957 Shareholders' equity: Preferred stock, $.01 par value, 100,000 shares authorized -- -- Common stock, $.01 par value, 18,000,000 shares authorized, 11,500,000 shares issued 115 115 Capital in excess of par value 53,336 53,336 Common stock in treasury, at cost, 561,452 shares and 581,202 shares (2,230) (2,309) Accumulated other comprehensive income 45 47 Other (140) (140) Retained earnings (deficit) (24,243) (22,663) --------- --------- Total shareholders' equity 26,883 28,386 --------- --------- Total liabilities and shareholders' equity $ 266,927 $ 283,315 ========= =========
See notes to consolidated financial statements. 3 EAGLE FOOD CENTERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
MAY 1, MAY 2, 1999 1998 -------- -------- Cash flows from operating activities: Net earnings $ (1,528) $ 124 Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation and amortization 4,804 4,377 Store closing and asset revaluation 1,664 -- LIFO charge 250 250 Deferred charges and credits 315 482 (Gain) loss on disposal of assets 55 (1,111) Change in assets and liabilities: Receivables and other assets 5,131 (2,830) Inventories 4,560 10,053 Accounts payable (15,548) 384 Accrued and other liabilities (5,715) (6,748) Reserve for closed stores (425) (241) -------- -------- Net cash (used) provided by operating activities (6,437) 4,740 Cash flows from investing activities: Additions to property and equipment (2,885) (1,950) Additions to property held for resale (2,255) (1,486) Maturities of marketable securities 1,092 5 Cash proceeds from dispositions of property and equipment 34 159 Cash proceeds from dispositions of property held for resale 5,696 10,753 -------- -------- Net cash provided by investing activities 1,682 7,481 Cash flows from financing activities: Net bank revolving credit -- (7,181) Deferred financing costs -- (50) Principal payments on capital lease obligations (265) (126) -------- -------- Net cash used by financing activities (265) (7,357) -------- -------- Increase (decrease) in cash and cash equivalents (5,020) 4,864 Cash and cash equivalents at beginning of period 11,775 5,113 -------- -------- Cash and cash equivalents at end of period $ 6,755 $ 9,977 ======== ======== Supplemental disclosures of cash flow information Cash paid for interest $ 5,254 4,834 Cash paid for income taxes $ -- 50 Noncash investing and financing activities: Unrealized (loss) gain on marketable securities $ (3) 20 Additions to property and equipment and capital lease liability in connection with sale/leaseback transactions $ 5,696 10,744 Accounts receivable for the sale of company assets $ -- 1,557
See notes to consolidated financial statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ACCOUNTING POLICIES The accompanying unaudited financial statements have been prepared in accordance with the summary of significant accounting policies set forth in the notes to the audited financial statements contained in the Company's Form 10-K/A filed with the Securities and Exchange Commission on May 6, 1999. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results of operations and financial position for the interim periods presented. Operating results for the thirteen weeks ended May 1, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending January 29, 2000. RESERVE FOR CLOSED STORES During the first quarter of fiscal 1999, the Company added one store to the reserve and recorded $1.7 million for estimated future store closing costs. This charge included $900,000 for future lease costs and $800,000 of asset revaluations. COMPREHENSIVE INCOME In the fourth quarter of fiscal 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income includes all changes in the Company's equity during the period, except transactions with stockholders of the Company. Comprehensive income consisted of the following (in thousands of dollars):
Quarter Ended May 1, 1999 May 2, 1998 Net income (loss) $(1,528) $ 124 Other comprehensive income (loss): Unrealized (loss) gain on marketable securities (3) 20 ------- ------- Comprehensive income (loss) $(1,531) $ 144 ======= =======
LITIGATION The Company recently reached a settlement in a lawsuit alleging discrimination in employment which was filed against the Company in 1994 in the United States District Court for the Central District of Illinois by two current and one former associates individually and as representative of a class of all individuals who are similarly situated. The settlement did not have a material impact on financial results in the first quarter of 1999 since adequate settlement costs were previously recorded. The Company denied all substantive allegations of the Plaintiffs and of the class. The Company is subject to various other unresolved legal actions which arise in the normal course of its business. It is not possible to predict with certainty the outcome of these unresolved legal actions or the range of the possible loss. 5 EARNINGS PER SHARE Earnings per share ("EPS") are computed in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic EPS is computed by dividing consolidated net earnings (loss) by the weighted average number of common shares outstanding. Diluted EPS is computed by dividing consolidated net earnings (loss) by the sum of the weighted average number of common shares outstanding and the weighted average number of potential common shares outstanding. Potential common shares consist solely of outstanding options under the Company's stock option plans. All outstanding options were excluded from the earnings (loss) per share calculation for the first quarter of fiscal 1999 because they were anti-dilutive. The computation of basic and diluted EPS is as follows:
(In thousands, except per share amounts) Quarter Ended MAY 1, 1999 MAY 2, 1998 ----------- ----------- Net Earnings (Loss): $ (1,528) $ 124 ========== ======= Weighted average common shares outstanding 10,926 10,948 ========== ======= Basic earnings (loss) per share $ (0.14) $ 0.01 ========== ======= Weighted average common shares outstanding 10,926 10,948 Effect of dilutive securities - stock options -- 257 ---------- ------- Shares applicable to diluted earnings 10,926 11,205 ========== ======= Diluted earnings (loss) per share $ (0.14) $ 0.01 ========== =======
SUBSEQUENT EVENTS One store held for resale was sold for $7.1 million and leased back subsequent to the first quarter of fiscal 1999. In addition, the Company opened one new store and closed one store subsequent to the first quarter of fiscal 1999. 6 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales for the Company's first fiscal quarter ended May 1, 1999 were $230.7 million, a decrease of $824,000 or 0.4% from the first quarter of fiscal 1998. Same store sales for the quarter decreased 2.4%. There were 90 stores operating during the first quarter of both 1999 and 1998. The decline in total and same store sales was due to competitive store growth during the past year. The gross margin rate was 25.7% of sales for the quarter ended May 1, 1999 compared to 24.9% in the comparable quarter of 1998. The increase in the gross margin rate is primarily related to the benefits of new systems and better purchasing and marketing practices during the quarter. Selling, general and administrative expense for the first quarter of 1999 was $51.3 million or 22.2% of sales compared to $50.3 million or 21.7% of sales in the same quarter of 1998. The increase in dollars is primarily due to a gain of $1.0 million on the sale of the Company's bakery in the first quarter of 1998. The Company recorded a store closing and asset revaluation charge of $1.7 million during the first quarter of 1999 to reflect the estimated future lease costs and asset revaluations relating to one store added to the reserve during the first quarter. Depreciation and amortization expense increased to $4.8 million or 2.1% of sales in the first quarter of 1999 compared to $4.4 million or 1.9% of sales in the prior year, primarily due to increased depreciation relating to the Company's capital spending program. Interest expense increased to $3.2 million or 1.4% of sales in the first quarter of 1999 compared to $3.0 million or 1.3% of sales in the prior year due to increased interest on capital lease obligations. The loss for the first quarter of fiscal 1999 was $1.5 million or $0.14 per share on a diluted basis compared to earnings of $124,000 or $0.01 per share in the same quarter of fiscal 1998. There was no tax provision in the first quarter of fiscal 1998 as tax loss carryforwards were utilized. LIQUIDITY AND CAPITAL RESOURCES Cash used by operating activities was $6.4 million for the quarter ended May 1, 1999 compared to cash provided of $4.7 million in the comparable quarter of 1998. Earnings and non-cash charges generated $5.6 million of cash and working capital changes used $12.0 million, primarily due to a decrease in accounts payable. The Company believes that operating cash flows and other sources of liquidity, including borrowings under its Bank Revolving Credit Facility, will be adequate to meet the Company's anticipated requirements for working capital, capital expenditures and interest payments for the foreseeable future. There can be no assurance, however, that the Company's business will continue to generate operating cash flows at or above current flows. Additions to property and equipment for the first quarter of 1999 were $5.1 million compared to $3.4 million in the first quarter of 1998. One store held for resale was sold for $5.7 million and leased back during the quarter. One new store opened in the first quarter of fiscal 1999, and there were no store closings during the quarter. Working capital at May 1, 1999 was $22.6 million and the current ratio was 1.29 to 1 compared to $17.4 million and 1.18 to 1 at January 30, 1999. 7 At May 1, 1999 the Company had no borrowing against the Revolving Credit Facility and no letters of credit outstanding. YEAR 2000 MATTERS The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing inaccuracies and disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company is dependent on computer hardware, software, systems and processes ("IT Systems") and non-information technology systems such as telephones, clocks, scales, refrigeration controllers and other equipment which may contain embedded microprocessor technology ("Non-IT" Systems). These systems are used in several critical operating areas including store and distribution operations, product merchandising and procurement, inventory and labor management, and accounting and administrative systems. The Company has been engaged in a comprehensive project under the direction of the Chief Executive Officer since June 1996 to upgrade or replace its IT Systems and convert from mainframe to client/server technology. Addressing Year 2000 matters is an integral part of this process. The Company has phased in a substantial number of computer systems and related programs over the past two years, including financial systems, merchandising, distribution, store ordering, time and attendance, and direct store delivery receiving. The Company is currently in the process of upgrading or replacing various systems; including payroll, human resources and personnel systems, store systems, purchasing and inventory control and warehouse and distribution systems. The project will include testing all systems critical for day-to-day operations. The Company is requesting each of its hardware and software vendors for both the new systems that it has installed or expects to install, as well as any systems which it does not expect to replace, to certify that their systems are Year 2000 compliant. During the first quarter of fiscal 1999, the Company requested certification, and is tracking responses, from companies it has a significant business relationship with that their systems are Year 2000 compliant. In addition, the Company is evaluating Year 2000 issues related to Non-IT systems. The evaluation consists of developing an inventory of all such systems, testing and taking corrective action on all detected deficiencies. The Company believes that its efforts will result in Year 2000 compliance. However, if the Company's new computer systems fail with respect to the Year 2000 issue, or if any applications or embedded chips critical to the Company's operational processes are overlooked, there could be a material adverse impact on the business operations or financial performance of the Company. The Company cannot guarantee that hardware and software vendors on whom it has relied will honor their obligations with respect to Year 2000 compliance, or that other companies it has a business relationship with will achieve Year 2000 compliance. Additionally, there can be no assurance that the systems of other companies on which the Company's systems rely will be converted timely, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the business operations or financial performance of the Company. Management believes that, should the Company or any third party with whom the Company has a significant business relationship have a Year 2000 related systems failure, the most significant impact would likely be the inability to conduct operations due to a power failure, to deliver inventory in a timely fashion, to receive certain products from vendors, process payments or to process electronically customer sales at the store level. 8 The Company is in the process of developing contingency plans to provide alternatives to enable the Company's core business operations to continue in the event of a Year 2000 failure in its systems or in the systems of other companies with which it has a relationship. There can be no assurance that the systems of other companies on which the Company's contingency plans rely will be converted timely, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not also have a material adverse effect on the business operations or financial performance of the Company. The Company expects to complete the contingency plans during the 1999 calendar year. The Company has expended approximately $17.0 million since June 1996 to upgrade or replace the majority of systems and convert them to client/server technology, and expects to incur an additional $3.0 million, for a total of $20.0 million, to complete the remaining systems. In addition, the Company has entered into operating leases for equipment with a fair market value of $2.0 million and has purchased equipment for $3.2 million, and expects to purchase or lease additional equipment with a fair market value of $1.8 million, for a total of $7.0 million. This includes both Year 2000 upgrades or replacements and the replacement of systems that are inefficient and in need of replacement regardless of their Year 2000 readiness. The Company expects to finalize the upgrade or replacement of all IT Systems, correct any detected deficiencies in Non-IT Systems and achieve Year 2000 compliance by September 1999. SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements under Management's Discussion and Analysis of Financial Condition and Results of Operations and the other statements in this Form 10-Q which are not historical facts are forward looking statements. These forward looking statements involve risks and uncertainties that could render them materially different, including, but not limited to, the effect of economic conditions, the impact of competitive stores and pricing, availability and costs of inventory, the rate of technology change, the cost and uncertain outcomes of pending and unforeseen litigation, the availability of capital, supply constraints or difficulties, the effect of the Company's accounting policies, the effect of regulatory and legal developments, adverse effects of failure to achieve Year 2000 compliance and other risks detailed in the Company's Securities and Exchange Commission filings. PART II : OTHER INFORMATION: ITEM 1 : LEGAL PROCEEDINGS Not Applicable ITEM 2 : CHANGE IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3 : DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4 : SUBMITTED MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5 : OTHER Not Applicable ITEM 6 : EXHIBITS AND REPORTS ON FORM 8K Exhibit 27 : Financial Data Schedule (see page 11) 9 Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: EAGLE FOOD CENTERS, INC. Dated: June 14, 1999 /s/ ROBERT J. KELLY -------------------------------------------------- Robert J. Kelly Chairman, Chief Executive Officer and President Dated: June 14, 1999 /s/ S. PATRIC PLUMLEY -------------------------------------------------- S. Patric Plumley Senior Vice President -Chief Financial Officer and Secretary 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS JAN-29-2000 JAN-31-1999 MAY-01-1999 6,755,000 8,751,000 13,830,000 982,000 69,259,000 99,131,000 287,398,000 151,036,000 266,927,000 76,561,000 100,000,000 0 0 115,000 26,768,000 266,927,000 230,744,000 230,744,000 171,362,000 171,362,000 57,739,000 0 3,171,000 (1,528,000) 0 (1,528,000) 0 0 0 (1,528,000) (0.14) (0.14)
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