<PAGE> 1
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 26, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 0-19830
EAGLE HARDWARE & GARDEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1465348
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
981 POWELL AVE SW RENTON, WA 98055
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(206) 227-5740
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 REGISTRANT HAD 22,909,263 SHARES OF COMMON STOCK, WITHOUT PAR VALUE,
OUTSTANDING AT April 26, 1996.
<PAGE> 2
EAGLE HARDWARE & GARDEN, INC.
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION ............................................ 3
ITEM 1 - FINANCIAL STATEMENTS .................................... 3
Consolidated Balance Sheets ............................. 8
Consolidated Statements of Operations ................... 9
Consolidated Statements of Cash Flows ................... 10
Notes to Unaudited Consolidated Financial Statements .... 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..................... 3
PART II - OTHER INFORMATION ............................................... 6
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ........................... 6
Exhibit 11 - Calculation of Earnings Per Common and
Common Equivalent Share ................................. 13
2
<PAGE> 3
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS -
Eagle Hardware & Garden, Inc.'s ("the Company") unaudited consolidated
balance sheet as of April 26, 1996, audited consolidated balance sheet as of
January 26, 1996, unaudited statements of operations for the 13-week periods
ended April 26, 1996, and April 28, 1995, and unaudited consolidated statements
of cash flows for the 13-week periods then ended are attached. Notes to the
unaudited consolidated financial statements are also attached.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -
It is suggested that this discussion be read in conjunction with the
"Management's Discussion and Analysis" included in the Company's 1995 Annual
Report to Shareholders, which has previously been filed with the Securities and
Exchange Commission.
The results of operations for the 13-week period ended April 26, 1996,
are not necessarily indicative of the results to be expected for the full fiscal
year. The Company expects that its gross margin percentage will generally be
lower in the second and third quarters of each fiscal year when sales of lower
margin products are greater. The Company also expects that, in general,
individual stores will experience lower net sales and operating income and that
cash flow from operations will be lower in the fourth quarter of the fiscal year
than in any of the other quarters, due primarily to the effect of winter weather
on home improvement projects and the lack of significant sales of lawn and
garden products during this period. In addition, unusual weather conditions
could have a material adverse effect on seasonal sales.
"Store Weeks in Period" represents the aggregate number of full weeks
in which stores were open during the reporting period. There were 312 store
weeks of operations during the first quarter of fiscal 1996, an increase of 26%
compared to the 247 store weeks during the comparable prior year period.
RESULTS OF OPERATIONS -
COMPARISON OF THE 13 WEEKS ENDED APRIL 26, 1996, AND APRIL 28, 1995.
NET INCOME. Net income for the first quarter was $2,964,000, or $0.13
per share, compared to $2,680,000, or $0.12 per share, during the first quarter
of fiscal 1995. The 11% increase in net income was due to the factors discussed
below. There were approximately 23,237,000 common and common equivalent shares
in the first quarter of fiscal 1996 compared to approximately 23,108,000 shares
in the first quarter of fiscal 1995.
NET SALES. Net sales for the first quarter of fiscal 1996 were
$161,106,000, compared to net sales of $130,146,000 for the comparable prior
year period. This 24% increase in net sales over the prior period was due
primarily to having 312 store weeks of operations during the quarter versus 247
store weeks during the comparable prior year period. Same store sales for the
period (for stores open one year or more) increased 1% primarily as a result of
an increase in the
3
<PAGE> 4
number of transactions. The increase of 1% in comparable store sales during the
quarter compares to a decrease of 5% for stores open one year or more during the
first quarter of fiscal 1995.
GROSS MARGIN. The Company's gross margin was $45,256,000 for the first
quarter of fiscal 1996. This represents an increase of $9,528,000, or 27%, over
the first quarter of fiscal 1995. As a percentage of net sales, gross margin was
28.1% in the first quarter of fiscal 1996 versus 27.5% in the comparable prior
period. Management attributes the improvement in gross margin as a percentage of
net sales to a combination of factors, including volume-related buying
efficiencies, a slight reduction in realized inventory shrinkage (attributed
primarily to continuing loss prevention programs) and less promotional pricing
by competitors; offset in part by an increase in the number of stores operating
in more competitive markets.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
decreased from 24.1% in the first quarter of fiscal 1995 to 23.8% in the first
quarter of 1996. Operating expenses declined slightly as a percentage of sales
due to reductions in certain expenses, including advertising, rent and
insurance. The Company's market saturation strategy has made it possible to
leverage advertising and certain administrative expenses. The dollar amount of
operating expenses increased by $6,924,000, or 22%, from the comparable prior
year period, primarily as a result of the 26% increase in store weeks of
operations. Operating expenses in the first quarter of 1995 were favorably
impacted by the recovery of a previously reserved receivable of $375,000
relating to the sale of land in Canada.
OPERATING INCOME. For the reasons explained above, operating income
increased 60%, from $4,358,000 in the first quarter of fiscal 1995 to $6,962,000
in the first quarter of fiscal 1996. Expressed as a percentage of net sales,
operating income increased from 3.3% in the first quarter of fiscal 1995 to 4.3%
in the comparable quarter of 1996.
INTEREST EXPENSE. Net interest expense during the first quarter of
fiscal 1996 was $2,423,000, compared to $1,300,000 during the comparable prior
year period. This increase was due primarily to additional long-term borrowings
made in fiscal 1995, higher average borrowings on the Company's line of credit
and a smaller amount of capitalized interest in the first quarter of 1996
compared to the prior year.
INCOME TAXES. The Company recorded a combined federal and state tax
provision of $1,704,000 for the first quarter of fiscal 1996, compared to a
provision of $987,000 during the comparable prior year period. The effective tax
rate for the first quarter of fiscal 1996 was 36.5% versus 26.9% in the first
quarter of fiscal 1995. The first quarter effective tax rate in fiscal 1995 was
lower than the combined federal and state statutory tax rates due primarily to
the utilization of a portion of the Company's capital loss carryforward to
offset capital gains realized in the first quarter of the prior year. In
accordance with Financial Accounting Standard No. 109, the effect of these
events was recognized entirely in the first quarter of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES -
The Company did not open any stores during the first quarter of fiscal
1996. A store in Wenatchee, Washington, is currently under construction and is
scheduled to open in the third quarter. This store will be the first Eagle store
built in a new format designed for smaller population centers. In addition, the
Company is planning to open stores in Pueblo and Louisville, Colorado during the
fourth quarter. The Company continues to review additional sites for future
expansion.
4
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The Company also recently reached an agreement with the National
Trailer Park Homeowners Association that will enable construction to begin on
its site in North Seattle. The North Seattle store is expected to open in the
spring of 1997.
The Company's balance sheet at April 26, 1996, reflects a $16,957,000
(5%) increase in total assets since the fiscal year began on January 27. The
principal components of this change are a seasonal increase of $14,503,000 in
Inventories and an increase of $5,724,000 in net Property and Equipment,
primarily related to the continuing store expansion program. This increase in
total assets was accompanied by an increase of $14,480,000 in Accounts Payable
and Checks Drawn in Excess of Bank Balances under the Company's integrated cash
management program, both primarily related to the seasonal increase in
Inventories and the continuing store expansion program.
On May 28, 1996, the Company signed an amendment to its credit
agreement (the "Agreement") with U.S. Bank of Washington, N.A. ("USBW"),
extending the expiration date applicable to the existing $75 million revolving
working capital line of credit to November 30, 1997. The May 28 amendment also
reduced the rate of interest applicable to IBOR borrowings from IBOR plus 2.00%
to a range of IBOR plus 1.25% to IBOR plus 2.00%, depending on the Company's
capital ratio and level of borrowings (if borrowings exceed $50 million, an
additional 0.25% is added to the rate applicable to all borrowings under the
line). Borrowings are secured by the Company's accounts receivable and
inventory. Advances are limited to a base of eligible accounts receivable and
inventory plus $10 million.
The Company's capital requirements are dictated by its expansion plans
and by factors such as real estate costs in the markets which the Company
enters, whether that real estate will be purchased or leased and the extent of
Company-financed remodeling required when existing buildings are acquired or
leased. The Company presently expects to finance its fiscal 1996 expansion
program through a combination of cash flow from operations, bank credit lines,
and mortgages and/or sale-leasebacks of owned properties.
The Company reports on a 52/53-week year, consisting of four 13-week
quarters. The fiscal year ends on the last Friday in January.
FORWARD-LOOKING STATEMENTS -
Some of the information in this report constitutes forward-looking
statements. These statements are subject to a number of risks and uncertainties
that might cause actual results to differ materially from stated expectations.
These risks include, among others, the highly competitive environment in the
retail home improvement industry, the effect of general economic conditions and
weather in the Company's markets and the Company's ability to achieve its
expansion plans and successfully manage its growth. These risks are described
in detail in the Company's Annual Report on Form 10-K and other SEC filings.
5
<PAGE> 6
PART II - OTHER INFORMATION:
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibit 11 (Calculation of Earnings Per Common and Common
Equivalent Share) is attached.
(b) No reports on Form 8-K were filed during the first quarter of
fiscal 1996.
6
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SIGNATURES:
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
EAGLE HARDWARE & GARDEN, INC.
Registrant
JUNE 4, 1996 ------------------------------------
Date David J. Heerensperger
Chairman and Chief Executive Officer
(Principal Executive Officer)
JUNE 4, 1996 -----------------------------------
Date Richard T. Takata
President and Chief Operating Officer
JUNE 4, 1996 -----------------------------------
Date Ronald P. Maccarone
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
JUNE 4, 1996 -----------------------------------
Date Earl E. Robicheaux
Vice President & Controller
(Principal Accounting Officer)
7
<PAGE> 8
EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED BALANCE SHEETS
[000]
<TABLE>
<CAPTION>
(UNAUDITED)
APRIL 26, JANUARY 26,
1996 1996
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,855 $ 6,591
Trade and other accounts receivable, net 5,158 3,594
Merchandise inventories 157,597 143,094
Prepaid expenses 1,654 2,076
Deferred income taxes 2,618 1,571
-------- --------
Total current assets 171,882 156,926
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 110,688 105,725
Furniture, fixtures and equipment 65,538 64,486
Leasehold improvements 45,042 45,035
Construction in progress 6,762 4,743
-------- --------
228,030 219,989
Less accumulated depreciation and amortization 21,153 18,836
-------- --------
Net property and equipment 206,877 201,153
-------- --------
PREOPENING COSTS 13 7
OTHER ASSETS 4,752 8,481
======== ========
Total assets $383,524 $366,567
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks drawn in excess of bank balances $ 10,011 $ 8,859
Accounts payable 45,554 32,226
Note payable to bank 33,800 34,500
Sales taxes payable 4,969 3,945
Accrued payroll and related expenses 11,428 8,648
Other current liabilities 7,942 7,159
Current portion of long-term debt 1,494 6,198
-------- --------
Total current liabilities 115,198 101,535
-------- --------
DEFERRED INCOME TAXES 5,575 5,042
OTHER LONG-TERM LIABILITIES 2,931 2,847
LONG-TERM DEBT 101,197 101,542
-------- --------
Total liabilities 224,901 210,966
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, without par value; 50,000 shares authorized;
22,909 and 22,900 shares issued and outstanding 135,779 135,721
Retained earnings 22,844 19,880
-------- --------
Total shareholders' equity 158,623 155,601
-------- --------
Total liabilities & shareholders' equity $383,524 $366,567
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
[000, EXCEPT STORE WEEK AND PER SHARE DATA]
[UNAUDITED]
<TABLE>
<CAPTION>
13 WEEKS ENDED
---------------------------
APRIL 26, APRIL 28,
1996 1995
-------- --------
<S> <C> <C>
STORE WEEKS IN PERIOD [312] [247]
NET SALES $161,106 $130,146
COST OF SALES 115,850 94,418
-------- --------
Gross margin 45,256 35,728
OPERATING EXPENSES 38,294 31,370
PREOPENING EXPENSES 0 0
-------- --------
Operating income 6,962 4,358
OTHER INCOME (EXPENSE):
Net interest (expense) (2,423) (1,300)
Other income 129 609
-------- --------
Income before tax 4,668 3,667
INCOME TAX PROVISION 1,704 987
======== ========
Net income $ 2,964 $ 2,680
======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 23,237 23,108
NET INCOME PER SHARE $ 0.13 $ 0.12
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[000]
[UNAUDITED]
<TABLE>
<CAPTION>
13 WEEKS ENDED
---------------------------
APRIL 26, APRIL 28,
1996 1995
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,964 $ 2,680
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,658 1,989
Gain on sale of assets (88) (527)
Deferred income taxes (514) 665
Changes in operating assets and liabilities:
Trade accounts receivable (1,564) (17)
Merchandise inventories (14,503) (6,113)
Prepaid expenses 760 912
Other assets 44 (386)
Preopening costs (6) (1,705)
Accounts payable and checks drawn in excess of bank balances 14,479 5,816
Income taxes payable 1,856 320
Accrued liabilities 2,393 (399)
Other 83 146
-------- --------
5,598 701
-------- --------
Net cash provided by operating activities 8,562 3,381
-------- --------
INVESTING ACTIVITIES:
Capital expenditures for property and equipment (8,855) (15,728)
Proceeds on sale of surplus land 3,686 1,546
Other 562 0
-------- --------
Net cash used in investing activities (4,607) (14,182)
-------- --------
FINANCING ACTIVITIES:
Advances on note payable to bank 73,400 82,500
Payments on note payable to bank (74,100) (72,500)
Payments on long-term borrowings (5,048) (159)
Other 57 0
-------- --------
Net cash provided by (used in) financing activities (5,691) 9,841
-------- --------
Decrease in cash and cash equivalents (1,736) (960)
Cash and cash equivalents at beginning of period 6,591 5,440
-------- --------
Cash and cash equivalents at end of period $ 4,855 $ 4,480
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 3,925 $ 3,415
Income taxes $ 0 $ 27
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 11
EAGLE HARDWARE & GARDEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements do not purport
to be full presentations, and do not include all information and disclosures
required for fair presentation by generally accepted accounting principles.
However, in the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) considered necessary to present fairly the consolidated financial
position of the Company at April 26, 1996, the consolidated results of
operations for the 13-week periods ended April 26, 1996, and April 28, 1995, and
consolidated cash flows for the 13-week periods then ended. These financial
statements should be read in conjunction with the financial statements included
in the Company's Annual Report on Form 10-K for the fiscal year ended January
26, 1996, filed with the Securities and Exchange Commission.
2. The results of operations for the 13-week period ended April 26, 1996, are
not necessarily indicative of the results to be expected for the full fiscal
year. The Company expects that its gross margin percentage will generally be
lower in the second and third quarters of each fiscal year when sales of lower
margin products are greater. The Company also expects that, in general,
individual stores will experience lower net sales and operating income and that
cash flow from operations will be lower in the fourth quarter of the fiscal year
than in any of the other quarters, due primarily to the effect of winter weather
on home improvement projects and the lack of significant sales of lawn and
garden products during this period. In addition, unusual weather conditions
could have a material adverse effect on seasonal sales.
"Store Weeks in Period" represents the aggregate number of full weeks in
which stores were open during the reporting period.
3. As of April 26, 1996, the Company had completed the purchases of sites for
one future store location and had signed agreements to purchase property for
three additional store sites at a cost of approximately $14,700,000. Purchases
of the latter sites, including the Company's North Seattle site, will be
finalized upon successful resolution of various contingencies. Subsequent to the
end of the quarter, the Company reached an agreement with the National Trailer
Park Homeowners Association that will enable construction to begin this summer
on its site in North Seattle. The North Seattle store is expected to open in the
spring of 1997.
4. On May 28, 1996, the Company signed an amendment to its credit agreement
(the "Agreement") with U.S. Bank of Washington, N.A. ("USBW"), extending the
expiration date applicable to the existing $75 million revolving working capital
line of credit to November 30, 1997. The May 28 amendment also reduced the rate
of interest applicable to IBOR borrowings from IBOR plus 2.00% to a range of
IBOR plus 1.25% to IBOR plus 2.00%, depending on the Company's capital ratio and
level of borrowings (if borrowings exceed $50 million, an additional 0.25% is
added to the rate applicable to all borrowings under the line). Borrowings are
secured by the Company's accounts receivable and inventory. Advances are limited
to a base of eligible accounts receivable and inventory plus $10 million.
5. Effective January 27, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived
11
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Assets to be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The adoption of Statement 121 had no
effect on the Company's financial position and results of operations as of the
date of adoption and for the quarter ended April 26, 1996.
Effective January 27, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," using
the intrinsic-value method prescribed by APB Opinion No. 25, as allowed for in
the Statement. The adoption of Statement No. 123 had no effect on the Company's
financial position and results of operations as of the date of adoption and for
the quarter ended April 26, 1996.
12
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EAGLE HARDWARE & GARDEN, INC.
CALCULATION OF EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
[EXHIBIT 11]
[000, EXCEPT PER SHARE DATA]
<TABLE>
<CAPTION>
[UNAUDITED]
13 WEEKS ENDED
-------------------------
APRIL 26, APRIL 28,
1996 1995
-------- --------
<S> <C> <C>
PRIMARY:
Earnings -
Net income applicable to common
and common equivalent shares $ 2,964 $ 2,680
======= =======
Shares - [1]
Weighted average common shares
outstanding 22,903 22,840
Net effect of stock options, based
on treasury stock method using
average market price 334 268
------- -------
Weighted average common and
common equivalent shares 23,237 23,108
======= =======
Primary earnings per common
and common equivalent share $ 0.13 $ 0.12
======= =======
</TABLE>
FULLY DILUTED:
Fully diluted earnings per share is not presented because potentially dilutive
securities in the first quarter of fiscal 1995 and fiscal 1996 would be
anti-dilutive.
NOTES:
(1) In the calculation of weighted average common and common equivalent shares,
nonqualified stock options are considered common stock equivalents. Such
options are converted using the treasury stock method which assumes that
the shares issuable upon exercise of the options were outstanding for the
full period.
13
<TABLE> <S> <C>
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<NAME> EAGLE HARDWARE & GARDEN, INC.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> JAN-27-1996
<PERIOD-END> APR-26-1996
<EXCHANGE-RATE> 1
<CASH> 4855
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<CURRENT-LIABILITIES> 115198
<BONDS> 101197
0
0
<COMMON> 135779
<OTHER-SE> 22844
<TOTAL-LIABILITY-AND-EQUITY> 383524
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