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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15[d] OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15[d] OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19830
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EAGLE HARDWARE & GARDEN, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1465348
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
981 POWELL AVENUE SW RENTON, WA 98055
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(Address of principal executive offices)
(206) 227-5740
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
Common Stock (symbol: "EAGL") The Nasdaq National Market
6.25% convertible subordinated
debentures due 2001 (symbol: "EAGLG") The Nasdaq National Market
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. ( )
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant on April 1, 1997, was $437,889,468. For the
purposes of this response, executive officers and directors are deemed to be the
affiliates of the Registrant and the holding by nonaffiliates was computed as
23,199,442 shares.
The Registrant had 28,898,406 shares of Common Stock, without par value,
outstanding at April 1, 1997.
Total number of pages, including cover page: Exhibit Index appears at page .
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's 1996 Annual Report to Shareholders are
incorporated by reference into Part II; and
(2) Portions of the Registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commission in connection with its 1997 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.
FORWARD-LOOKING STATEMENTS
Some of the information in this Annual Report, including anticipated store
openings, capital requirements and trends in the Company's markets, constitute
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. (See
Item 1 - Business - Risk Factors)
PART I
ITEM 1 - BUSINESS -
GENERAL
Eagle Hardware & Garden, Inc. ("Eagle Hardware" or the "Company") is a
leading operator of customer-friendly home improvement centers in the western
United States. Since opening its first store in Spokane, Washington in
November 1990, the Company has grown to 30 stores with over 3.7 million square
feet of selling space. Eagle Hardware stores generated average annual sales per
store of $31.0 million in 1996, the second highest in the industry. The
Company's stores average approximately 125,000 square feet and feature a product
assortment of over 60,000 stock keeping units ("SKUs"), significantly more than
the Company's principal competitors, while maintaining an average in-stock
position of over 98%. Since its inception, the Company has focused on creating
the best home improvement shopping experience for its customers by combining the
selection and value associated with traditional warehouse-format home centers
with the comfortable atmosphere and service orientation of specialty retailers.
The Company has differentiated its stores from those of other warehouse
home improvement retailers by providing a bright, clean and well-organized
customer-friendly shopping environment and by offering "More of Everything-
Registered Trademark-," with one of the broadest and deepest selections of brand
name home improvement products available in the United States. Through its
highly trained sales associates, Eagle Experts-TM- and Eagle Service
Specialists-TM-, the Company provides exceptional customer service to both its
target do-it-yourself customers, as well as professional contractors. The
Company believes the successful implementation of its business strategy has made
Eagle Hardware a more appealing destination for home improvement shoppers,
including female customers, who favor the customer-oriented shopping environment
of the Company's stores over the often confusing atmosphere of traditional
warehouse-format home centers.
INDUSTRY OVERVIEW
According to industry publications, the do-it-yourself home improvement industry
in the United States generated aggregate revenues of approximately $135 billion
in 1996. Over the last 10 years, the industry has undergone significant changes,
with the warehouse-format home center retailers gaining significant market share
in a
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number of markets in the United States relative to traditional home center,
hardware and lumber yard operators, by offering lower prices and taking
advantage of economies created by larger sales volumes. Although the home
improvement industry remains fragmented, it has experienced increasing
consolidation during recent years, with the sales of the five largest operators
representing approximately 27% of the estimated overall market in 1996 as
compared to 15% of the overall market in 1991. The Company believes this trend
will continue, and that opportunities exist for service-oriented home
improvement retailers to benefit from this continuing consolidation.
BUSINESS STRATEGY
The Company's goal is to be the premier operator of customer-oriented home
improvement centers in the United States. To achieve this goal, Eagle Hardware
has developed and is implementing a business strategy designed to satisfy the
preferences expressed by its target do-it-yourself customers by combining
selection and value with exceptional customer service and convenience. The key
elements of the Company's strategy are as follows:
CUSTOMER-FRIENDLY STORE ENVIRONMENT The Company strives to create the best
shopping experience by providing a customer-friendly store environment that
is clean, attractive and "easy to shop," with bold signage, wide, brightly
lit aisles and well-marked departments designed to help customers easily
find desired merchandise categories. For ease of access, the Company's
innovative Design Center is typically positioned centrally within the store
and adjacent to 8,000 square feet of fully furnished and accessorized
kitchen and bath displays to allow customers to view products in real-life
settings. A tiled "racetrack" aisle encircles the Design Center and related
departments for easy customer access to the other merchandise departments
within the store. Seventeen to 26 cash registers are positioned at various
places in each store to facilitate rapid check-out. These and other
features provide Eagle Hardware customers with an enjoyable shopping
experience in a specialty-store environment.
"MORE OF EVERYTHING -Registered Trademark-" MERCHANDISING PHILOSOPHY Eagle
Hardware offers one of the broadest and deepest selections of virtually
every category of home improvement merchandise in the United States,
providing one-stop shopping for its target do-it-yourself customers as well
as professional contractors. In addition to serving the major project needs
of its customers, the Company also targets "fix-it" repair and maintenance
customers. The Company's home centers average approximately 125,000 square
feet (excluding storage and exterior garden square footage) of retail floor
space and the product selection of each Eagle Hardware home center consists
of over 60,000 SKUs. According to NATIONAL HOME CENTER NEWS, this amount is
more than twice the average number of SKUs carried by the 30 largest
domestic hardware and home improvement stores. The Company's home centers
also carry significantly more SKUs than its principal competitors, while
maintaining an average in-stock position of over 98%.
EXCEPTIONAL SERVICE To further enhance the Eagle Hardware shopping
experience, the Company is committed to providing outstanding customer
service. To best serve the needs of its do-it-yourself and professional
customers, all Eagle Hardware associates are trained to provide the
in-depth product knowledge and high levels of service typically associated
with specialty stores. To support this level of service, the Company has
developed and implemented a comprehensive training program, administered by
each store's training director, which includes weekly training sessions for
all associates focusing on service, selling and product knowledge. Through
independent study and testing on product knowledge, these associates can
achieve Eagle Expert-TM- certification and qualify for higher compensation.
To complement the Company's commitment to customer service, each Eagle
Hardware store has two Eagle Service Specialists-TM- who work directly with
customers to furnish unique and personalized solutions for special orders,
installation, major projects and other requests. In addition, in its effort
to be the "Nordstrom" of the home improvement industry in terms of customer
service, the Company maintains a "no-hassle" return policy to make it easy
for customers to return or exchange products.
CONVENIENT LOCATIONS Recognizing the importance of convenience in the
customer's decision-making process, the Company places a priority on
developing new stores in locations that maximize convenience and
accessibility. Management's experience in the western United States has
allowed the Company to
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develop an in-depth understanding of its existing and targeted new markets,
which the Company believes has allowed it to identify and secure favorable
sites for new stores. The Company typically locates its stores near major
freeways or thoroughfares to provide convenient access and greater
visibility.
EVERYDAY LOW PRICES Eagle Hardware has a policy of maintaining everyday
low prices on products carried by other home centers and generally does not
engage in promotional sale pricing. The Company will match prices on
products carried by competing home centers. At the same time, the Company
benefits from higher margins on hard-to-find merchandise and on products
not carried by its competitors.
EXPANSION STRATEGY
The Company's expansion strategy is two-fold. The first element of the
Company's strategy is to cluster multiple home centers in metropolitan areas.
This clustering strategy is designed to saturate larger markets in order to
increase market share and operating leverage. The second element of the
Company's strategy is to operate home centers in single-store markets. This
strategy is designed to establish favorable market positions in small markets in
which the Company believes operating costs are typically lower and competition
is less intense.
CLUSTER STORES IN METROPOLITAN MARKETS To provide more convenient access
to its stores, expand its total market share and achieve economies of
scale, the Company's strategy is to continue clustering stores in its
existing metropolitan markets, such as Seattle, Salt Lake City and Denver,
and enter additional metropolitan markets in the western United States. The
Company believes this strategy has enabled it to achieve the largest market
share in the greater Seattle area. Consistent with this strategy, the
Company has opened two new stores in the Seattle market in early fiscal
1997 and currently plans to open two new stores in the Denver market later
in fiscal 1997. The Company intends to continue to apply its clustering
strategy in additional metropolitan areas over time.
OPEN HOME CENTERS IN SINGLE-STORE MARKETS The second element of the
Company's strategy is to open home centers in single-store markets. The
Company believes that these markets typically have less competition from
other home centers, provide lower operating costs, such as rent and
advertising, and represent numerous expansion opportunities. The Company
currently operates home centers in single-store markets such as Kennewick
and Yakima, Washington, Medford, Oregon and Billings, Montana. The Company
believes that there are a substantial number of single-store market
opportunities in the western United States, including certain smaller
markets in California. To augment this expansion strategy, the Company has
recently opened three stores utilizing a new prototype designed for certain
single-store markets.
In choosing specific sites within a market, the Company takes into account
numerous factors, including local demographics and spending patterns, the
average age of the homes in the area, traffic patterns, the location of
competitors and overall retail activity. The following table shows the location,
anticipated opening, size and status of each of the Company's currently planned
store openings for fiscal 1997:
<TABLE>
<CAPTION>
STORE LOCATION ANTICIPATED OPENING SELLING SQUARE FEET SITE STATUS
<S> <C> <C> <C>
GREATER SEATTLE:
N. Seattle, Washington Opened February 13, 1997 120,100 Open
Tacoma, Washington Opened March 20, 1997 132,078 Open
GREATER DENVER:
Lakewood, Colorado Fourth Fiscal Quarter 1997 121,900 Under Contract
Northglenn, Colorado Fourth Fiscal Quarter 1997 123,461 Under Contract
SINGLE-STORE MARKETS:
Kahului (Maui), Hawaii Opened March 13, 1997 122,839(1) Open
</TABLE>
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(1) Includes an attached drive-through lumber and building materials yard
consisting of 30,825 square feet.
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STORE DESIGN
Since its inception, the Company has focused on creating the best home
improvement shopping experience for its customers by combining the selection and
value associated with traditional warehouse-format home centers with the
comfortable atmosphere and service orientation of specialty retailers. The
Company's home centers are constructed based on a standardized plan developed
from management's research and extensive industry experience. The focal point of
the Company's home centers is an innovative Design Center, which is intended to
stimulate home improvement ideas by conveying the image of a free home show
every day. The Design Center is typically adjacent to an area of approximately
8,000 square feet featuring kitchen and bath displays in fully accessorized
real-life settings and a wide assortment of countertops, wallpaper, floor
coverings and window treatments. Eagle Hardware's design coordinators work with
customers at the Design Center to conceptualize and plan virtually any home
decorating project.
The Design Center is surrounded by a tiled "racetrack" aisle, providing
convenient access to the store's various departments, which are located in
well-defined areas around the central core. Related departments are located
adjacent to one another and merchandise is displayed in a consistent manner
according to centrally developed plan-o-grams. Each department is designed for
effective product presentation to appeal to specific customer needs. High
warehouse-style racking is blended with attractive displays and wide, brightly
lit aisles.
Most Eagle Hardware stores have an additional entrance and exit, cashier
and loading area conveniently located near the lumber and building materials
department. This separate access enables customers to obtain their lumber and
building supplies quickly and comfortably, without having to carry merchandise
through other departments. Employees are available to help customers load their
vehicles. The Company believes that its customer-friendly store format, with
well-defined departments, provides customers with an attractive shopping
environment, as well as the ability to locate merchandise easily and check out
quickly.
The Company has recently augmented its expansion strategy by opening new
stores utilizing a new prototype designed for certain single-store markets. This
prototype consists of a main store of approximately 95,000 square feet and
includes certain features intended to cater to the unique needs of
do-it-yourself and professional customers in small markets, including an
attached drive-through lumber and building materials yard of approximately
60,000 square feet. Further, the new prototype offers the professional customer
a wider range of products and services, including a contractor's office with
phone and fax capabilities, in addition to job site delivery. As with the larger
Eagle Hardware stores, the new prototype will continue to offer "More of
Everything-Registered Trademark-" with a product assortment of over 60,000 SKUs.
The Company has opened three stores utilizing this new prototype.
MERCHANDISING
PRODUCT SELECTION AND DISPLAY Through its broad merchandising selection, Eagle
Hardware seeks to offer "More of Everything-Registered Trademark-" to its
customers and create a one-stop shopping environment where do-it-yourself
customers and professional contractors can purchase all necessary items in a
highly efficient manner. The Company's merchandise selection is broad enough to
allow both do-it-yourself customers and professional contractors to purchase
virtually every item needed to build an entire house, including many items not
generally carried by competitors. The Company believes that its SKU count of
over 60,000 items is broader than its primary warehouse home center competitors.
According to NATIONAL HOME CENTER NEWS, this amount is more than twice the
average number of items carried by the 30 largest domestic hardware and home
improvement stores. The Company's home centers also maintain an average in-stock
position of over 98%.
The major departments in each Eagle Hardware home center are plumbing,
electrical and lighting; lumber and building materials; paint and decor; tools
and hardware; and lawn and garden supplies. The Company's percentages of net
sales by product categories have been fairly stable over time. The following
table sets forth the Company's percentage of net sales by product categories for
fiscal 1996:
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Categories Percent
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Plumbing, electrical and lighting_________________ 27%
Lumber and building materials_____________________ 24
Paint and decor___________________________________ 18
Tools and hardware________________________________ 16
Lawn and garden supplies__________________________ 15
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Total net sales 100%
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The number of items described below may vary slightly from store to store
based on local market characteristics.
EAGLE HARDWARE'S DESIGN CENTER is the focal point of the central core of
each of the Company's home centers. The central core features different kitchen
and bathroom displays, approximately 27 styles of kitchen cabinets, brand name
appliances such as G.E., Jenn-Air, Kitchen Aid and Whirlpool and a large
selection of bathroom fixtures. Many of the kitchen and bath displays are
arranged in fully accessorized real-life settings. A wide assortment of
countertops, wallpaper, floor coverings and window treatments is also offered.
Eagle Hardware's design coordinators, using specially programmed computers,
color coordination boards and a variety of free literature, work with customers
to conceptualize and plan virtually any home decorating project. The Design
Center is supported and complemented by the surrounding departments, which are
designed in part to provide customers with one-stop shopping to implement
projects conceived in the Design Center.
EAGLE HARDWARE'S PAINT AND DECOR DEPARTMENT carries a wide variety of
indoor and outdoor paints and stains. A computerized color matching service
helps customers analyze and select paint and stain colors more easily. The
Company's paint inventory includes competitively priced private label paints as
well as high-quality, brand name products. In addition to its large selection of
paints, stains and accessories, this department also carries a full line of
window coverings, carpet and other floor coverings, ceramic tiles, mirrors and
approximately 650 different wallpaper patterns and borders in stock. There is
also an extensive offering of wallpaper available by special order. The
department also stocks more than 60 kinds of ladders and over 600 SKUs of closet
and storage materials and accessories.
EAGLE HARDWARE'S PLUMBING DEPARTMENT carries over 250 brand name faucets,
valves and shower heads, from manufacturers such as Delta, Moen and Price
Pfister, as well as imports from Europe, such as Grohe, which are not generally
carried by other home centers. Hundreds of other models, including those from
Kohler and Chicago Faucet, are available through special order. This department
stocks lines from three major domestic manufacturers of plumbing fixtures,
including American Standard, Briggs and Kohler and offers a complete line of
Jacuzzi equipment. Eagle Hardware carries full lines of plastic, galvanized and
copper pipe products, ranging from 1/8-inch to six-inch diameters. This
department also stocks over 1,320 different gaskets, stems and miscellaneous
parts for faucets and valves, and is equipped to custom cut and thread steel
pipe for customers, from 1/2-inch diameter to four-inch diameter.
EAGLE HARDWARE'S TOOLS AND HARDWARE DEPARTMENT not only carries major
brands of do-it-yourself tools and accessories, but also a wide selection of
commercial tools for contractors. As an example of the breadth of selection in
this department, the Company stocks more than 120 types of hammers, over 2,400
different power tool accessories and more than 120 different circular saw
blades. The Company also carries a wide range of contractors' tools such as
generators, concrete saws, tile and brick saws, table saws, drill presses,
welding equipment, pressure washers and trash pumps. The Company stocks a
variety of brand name power tools, including Black & Decker, Delta, DeWalt,
Hitachi, Homelite, MK Diamond, Makita, Milwaukee, Porter Cable, Ryobi, Senco,
Skil, Stanley Bostitch, Wen and Wissota. Many harder-to-find specialty tools are
also offered. This department features over 3,700 innovative "flip bins" filled
with hardware items that are not typically offered by the Company's competitors,
from plastic tips for chair legs to bumpers, crown corks, corrugated fasteners
and metric fasteners. The fastener selection ranges from common nuts and bolts
to industrial grade 150,000-pound tensile strength fasteners. The Company
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carries over 85 varieties of chain, more than 180 types of rope and over 350
kinds of hinges, as well as hard-to-find items such as horseshoes and industrial
hose sold by the foot.
EAGLE HARDWARE'S ELECTRICAL DEPARTMENT carries 100 different heaters and
fans, more than 260 different telephones and accessories, over 360 different
switch plates and more than 260 different light bulbs, many of which are not
carried by competing home centers. This department stocks virtually every kind
of conduit and circuit breaker commonly used in residential structures in the
western United States and also carries specialized tools for professional
electricians.
EAGLE HARDWARE'S LIGHTING DEPARTMENT displays more lighting fixtures than
any other major home center in the United States of which the Company is aware.
This department features over 1,500 different styles of lighting fixtures,
priced from under $10 to over $2,500, more than 450 kinds of lamp parts, over
120 styles of lamp shades and over 150 types of replacement glass for light
fixtures.
EAGLE HARDWARE'S LAWN AND GARDEN DEPARTMENT carries a broad selection of
hand and power gardening and lawn tools, as well as a wide variety of brand name
fertilizers, sprays and other chemicals. The lawn and garden department also
carries a broad range of seasonal nursery plants, shrubs and bedding plants, as
well as patio products. The Company carries a full line of lawn and garden
supplies and products including such brand names as Ames Tools, Black & Decker,
Homelite, Ortho, Scotts, Toro and Weedeater. To build the plant section of the
Company's lawn and garden department into a year-round business, most stores
have an indoor plant trellis and display area ranging in size from approximately
1,200 to 1,500 square feet. In certain markets, covered outdoor greenhouses have
been added to further establish the lawn and garden department as a year-round
business. The Company carries a large inventory of live indoor plants,
supplemented by a full line of silk flowers and greenery.
EAGLE HARDWARE'S LUMBER AND BUILDING MATERIALS DEPARTMENT carries a full
line of windows and doors, including wood, aluminum and vinyl windows and
exterior and interior doors from Jeld-Wen Corporation. On a special order basis,
Eagle Hardware offers the Pro-Line, Designer and Architectural Series of wood
windows from Pella. This department stocks lumber up to 16 feet in length and
from two to 12 inches in width, 400 types of decorative moldings, a full line of
Armstrong ceiling tile, a wide variety of plywood, particle board, metal fencing
and roofing materials, including roll, three-tab, metal and fiberglass, and a
large selection of roof coatings.
PRICING Eagle Hardware emphasizes its policy of maintaining everyday low prices
on products carried by competitors and does not generally engage in promotional
advertising that emphasizes sale pricing. The Company will match prices on
products carried by competing home centers. At the same time, the Company
benefits from higher margins on hard-to-find merchandise and on products not
carried by its competitors. Although Eagle Hardware's goal is to be perceived as
very price competitive by its customers, the Company believes that enabling
customers to purchase all of the items needed for a particular project at one
place is more important than offering the lowest price on any single item.
MARKETING The Company's marketing programs are designed to create an awareness
of Eagle Hardware's comprehensive selection of brand name merchandise, superior
customer service and everyday low prices. The Company's marketing department
develops all aspects of the Company's advertising, marketing and new promotional
programs. The Company's primary advertising vehicle in each of its markets
consists of four-color newspaper inserts designed by the Company's in-house
graphics department. The Company also utilizes television and limited radio and
billboard advertising.
A number of Eagle Hardware television advertisements in the Seattle market
area feature local professional athletes such as Randy Johnson, Jay Buhner and
Edgar Martinez of the Seattle Mariners major league baseball team. The Company
also sponsors promotional activities at professional sporting events from time
to time. The Company believes that these marketing programs both enhance
customer awareness of the Eagle Hardware & Garden-Registered Trademark- name and
foster support in the local community.
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CUSTOMER SERVICE
Eagle Hardware is committed to providing superior customer service.
Carefully selected Eagle Experts-TM-, many with extensive experience in their
respective fields, are available throughout the store to provide specialized
advice to do-it-yourself customers and professional contractors. Additional
specialized personnel are available in every department, including the Design
Center and the Project Service Center, to help customers conceptualize and plan
virtually any home improvement project. To complement the Company's commitment
to customer service, each Eagle Hardware store has two Eagle Service
Specialists-TM-. These Service Specialists work directly with customers to
furnish unique and personalized solutions for special orders, installation,
major projects and other requests.
In an effort to enhance its shopping environment, Eagle Hardware employees
perform all store restocking after hours in order to keep the aisles clear and
minimize customer disruption during business hours. Each of the Company's stores
has from 17 to 26 cash registers, enabling customers to pay for their
merchandise quickly. Customer questions, problems, returns and exchanges are
handled at a convenient service desk near the main entrance of the store. A
"no-hassle" return policy makes it easy for customers to return or exchange
products.
Most Eagle Hardware stores have a lounge area which contains convenient
seating, telephones and vending machines. The Company offers free electric carts
and wheelchairs for the disabled, three-wheeled baby strollers and a baby
changing area. The Company offers a credit card to qualified contractors,
businesses and retail customers under a program owned and operated by a third
party. Eagle Hardware customers can also pay by Visa, MasterCard, Discover and
American Express. Eagle Hardware home centers are open seven days a week and
most stores operate Monday through Saturday from 7:00 a.m. to 9:00 p.m. and on
Sunday from 9:00 a.m. to 7:00 p.m.
SPECIALIZED SERVICES Eagle Hardware offers a number of specialized services,
many of which are not offered by its competitors. These services include a cut
shop, an on-site locksmith, an Idea Center, a Project Service Center and a
separate lumber and building materials cashier and loading area. In addition,
the Company offers a delivery service and a product installation service.
CUT SHOP Eagle Hardware stores offer a cut shop where customers can have window
screen, fencing, glass, netting, chain, cable, hose, rope and a variety of other
materials custom cut and, in some instances, custom made. Custom cutting is done
free of charge or, on large projects, for a competitive fee. Lumber cutting is
complimentary for up to two pieces of material and is done in the lumber and
building materials department.
LOCKSMITH SERVICE All Eagle Hardware stores have a full-time locksmith
available for on-site consultation and assistance with locks, keys and home and
commercial security systems. The locksmith is also available for field calls.
IDEA CENTER Each of the Company's home centers features an Idea Center where
do-it-yourself books, plans and video tapes are offered for purchase. Free
product literature and do-it-yourself pamphlets are also available. Eagle
Hardware personnel conduct workshops on a variety of subjects, ranging from
basic electrical wiring to wallpaper hanging and ceramic tile installation.
PROJECT SERVICE CENTER To assist do-it-yourself customers and contractors,
Eagle Experts-TM- and other specially trained personnel are available at the
Project Service Center, located in the lumber and building materials department,
to assist in designing and planning projects, and to help select the appropriate
materials. Free estimates for customer projects are prepared at the Project
Service Center.
LUMBER AND BUILDING MATERIALS CASHIER AND LOADING AREA Most Eagle Hardware
stores have an additional entrance and exit, cashier and loading area
conveniently located near the lumber and building materials department. This
separate access enables customers to obtain their lumber and building supplies
quickly and comfortably, without having to carry merchandise through other
departments. In addition, the Company's employees assist customers in loading
their vehicles.
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DELIVERY SERVICE The Company offers a low cost delivery service at each of its
stores. Each truck is fully equipped, including a large capacity, rough terrain
forklift.
PRODUCT INSTALLATION SERVICE Most Eagle Hardware stores offer professional
product installation services. The Company has an agreement with a regional
installation company to provide basic installation for a number of the products
that the Company sells. This service is coordinated by Eagle Hardware personnel
to ensure customer satisfaction and a competitive fee structure.
EMPLOYEE TRAINING AND COMPENSATION
Eagle Hardware strives to develop the technical and interpersonal skills of
its store personnel to ensure that customers consistently receive knowledgeable
and courteous assistance. The Company provides extensive training for its entry
level store personnel through a comprehensive in-house training program that
combines on-the-job training with formal seminars and meetings. On an ongoing
basis, store personnel attend frequent in-house training sessions conducted by
the Company's training staff or by manufacturers' representatives, and receive
sales, product and other information in frequent manager meetings. Through
independent study and testing of product knowledge, sales associates can achieve
Eagle Expert-TM- certification and qualify for higher compensation.
Detailed training records are kept on all Eagle Hardware store personnel,
including the date and subject of each training session. To further develop the
professional skills of store personnel, the Company has appointed an on-site
training director for each store. The store training director is responsible for
supervising, organizing and scheduling all store training activities and
customer workshops. Working in conjunction with the store manager, the store
training director ensures that all store personnel attend weekly training
meetings and that training records are kept up to date. Additionally, the store
training director is responsible for instructing store personnel in the
Company's policies and procedures. The Company's training program is supervised
by a Vice President who has over 20 years of experience training home center
employees.
As part of its commitment to exceptional customer service, Eagle Hardware
strives to attract experienced and qualified personnel by paying competitive
wages in each of its markets. The Company expects that certain of its store
managers will receive total compensation of over $125,000 in the current fiscal
year, which the Company believes is more than the compensation received by store
managers for many other home center chains. Most of Eagle Hardware's store
personnel are paid on an hourly basis. All store sales and sales support
personnel are eligible to receive quarterly discretionary bonuses that are
determined on the basis of customer service and overall store sales. Store
managers and assistant managers are paid bonuses based on certain criteria,
including sales, gross margin, inventory turns, controllable expenses and
in-stock position. Corporate buyers are paid bonuses based on the attainment of
certain sales and gross margin goals. Certain other corporate management
personnel are paid bonuses based on total Company pretax income. The Company
believes that its bonus plan is both unique in its industry and highly
motivational, in part because store manager bonuses can equal up to 100% of base
compensation.
In addition to competitive wages, Eagle Hardware offers its employees a
comprehensive benefits program. Full-time employees are eligible to participate
in an Employee Stock Ownership Plan ("ESOP") after 24 months of service. Under
the ESOP, an employee may be credited with a maximum annual contribution of 10%
of annual salary up to a maximum contribution of $3,500. Funds credited to
individual accounts in the ESOP will be invested primarily in the Common Stock
of the Company. The Company also maintains a 401(k) retirement savings plan.
Eagle Hardware also offers a stock option plan under which certain
employees are granted options to purchase the Company's Common Stock at its fair
market value on the date of grant. Options generally vest over a five-year
period and are exercisable for a period of 10 years.
Eagle Hardware believes that its total compensation plan and the
opportunities it offers employees for advancement within the Company are key to
employee performance, motivation and retention. Management believes
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that it has a lower-than-average employee turnover rate, due, in part, to its
comprehensive compensation benefits plan.
PURCHASING AND DISTRIBUTION
The Company purchases most of its merchandise directly from manufacturers.
Eagle Hardware has a staff of ten buyers, each of whom has responsibility for
specified product categories. The Company is not dependent on any single vendor
and believes that alternative sources are available for virtually all of its
products. The Company operates principally on a purchase order basis and
typically does not maintain long-term purchase contracts with its vendors.
Approximately 80% of the merchandise purchased by the Company is shipped by
the vendors directly to its stores. In order to help maintain a high in-stock
position and to improve inventory management and distribution efficiencies as
the number of its stores increases, the Company operates a 214,000 square foot
warehouse and distribution facility in the Puget Sound area. This facility is
used for stocking and distributing merchandise purchased overseas and from
certain domestic vendors, for cross-docking merchandise transferred between
stores and for the consolidation of freight for the Alaska and Hawaii stores.
The distribution center ships merchandise to most of the Company's stores at
least weekly using a combination of Company-owned equipment and common carriers.
In addition to its primary warehouse and distribution facility, as of January
31, 1997, the Company also leased additional warehouse space totaling
approximately 125,000 square feet. As the Company grows, it will need to
continually analyze the sufficiency of its warehouse and distribution space and
will require additional facilities to support its planned growth.
MANAGEMENT INFORMATION SYSTEMS
The primary component of the Company's management information systems is
the JDA Retail Software package, which operates on an IBM AS/400 computer.
Corporate buyers utilize the JDA system to set up new items, order the initial
inventory for new stores and maintain store level prices. Each store is also
networked to the AS/400 for real-time receiving and replenishment. As an
additional component of the management information systems, each store is
equipped with point-of-sale scanning, price lookup and sales polling
capabilities utilizing a network of 17 to 26 registers per store. The Company
maintains its accounting information primarily on the IBM AS/400, utilizing
certain financial modules of the JDA system. In addition, the
warehouse/distribution center utilizes the JDA system in its daily operations.
The Company is currently refining its implementation of the perpetual inventory
reporting module of JDA. The Company will also need to continually evaluate the
adequacy of its management information systems, including its inventory control
and distribution systems, and in the future will need to upgrade or reconfigure
its management information systems to support its planned expansion.
COMPETITION
The home improvement, hardware and garden businesses are highly
competitive. The Company competes against traditional hardware, plumbing,
electrical and home supply retailers, as well as warehouse-format and discount
retail stores and catalog companies. Eagle Hardware's two-fold expansion
strategy is to cluster home centers in large metropolitan areas such as Seattle,
Salt Lake City and Denver, and to open single home centers in smaller markets.
Twelve of the Company's 30 existing stores are located in the greater
Seattle metropolitan market. Historically, Eagle Hardware's principal
competitors in this market have been Home Depot, Ernst Home Center ("Ernst"),
Fred Meyer and HomeBase. Home Depot, a warehouse-format home center with
approximately 500 stores in the United States, currently operates ten stores in
the Seattle metropolitan market. Two of these stores are located next to
existing Eagle Hardware stores. In addition, Home Depot is planning to open a
store in Bellevue, Washington. The Company's gross margin and operating income
are generally lower for stores located in markets where Home Depot also operates
stores.
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Four of the Company's existing stores are located in the Salt Lake City
metropolitan market. Historically, the Company's principal competitors in this
market have been Home Depot, Ernst, Fred Meyer and HomeBase. Home Depot operates
three stores in the Salt Lake City market. Three of the Company's existing
stores are located in the Denver metropolitan market and the Company intends to
open additional stores in this market. The Company's principal competitors in
the Denver market are Home Depot, Builders' Square, HomeBase and Hugh M. Woods
(a unit of Payless Cashways).
Twelve of the Company's existing stores are located in smaller markets.
Historically, the Company's principal competitors in these markets have included
Ernst, Fred Meyer and HomeBase, as well as traditional hardware, plumbing,
electrical and home supply retailers. Home Depot recently opened a store in
Pueblo, Colorado. According to published reports, Home Depot has an option to
purchase a location in Spokane, Washington, where the Company operates two
stores. The Company's ability to expand into and operate profitably in new
markets, particularly small markets, may be adversely affected by the existence
or entry of competing warehouse-format home centers.
Ernst filed for Chapter 11 bankruptcy protection in July 1996 and
subsequently obtained approval from the court in November 1996 to conduct a
Chapter 7 orderly liquidation of assets. For a period of time prior to its
bankruptcy, the Company operated 21 stores in markets with Ernst stores.
Liquidation of the remaining stores was completed in the Company's fourth
quarter of fiscal 1996.
EMPLOYEES
Each Eagle Hardware home center employs approximately 120 to 250 full- and
part-time personnel, depending on the sales volume of the store and the time of
the year. Store management includes the store manager, a store
manager-in-training, four to five assistant store managers, department managers
and sales supervisors. As of January 31, 1997 the Company employed approximately
5,100 persons, of whom approximately 180 were in corporate administration. Of
these 5,100 persons, approximately 85% were full-time employees. Eagle Hardware
is not a party to any collective bargaining agreements and is not aware of any
efforts to unionize its employees. The Company considers its relations with its
employees to be good.
TRADEMARKS AND SERVICE MARKS
The Company holds a federal trademark registration for MORE OF EVERYTHING-
Registered Trademark- (and design) and a concurrent federal service mark
registration for EAGLE HARDWARE & GARDEN-Registered Trademark- (and design) for
the western United States. Eagle Food Centers, Inc., a grocery store chain in
the midwest, holds a concurrent federal registration for "Eagle" for the eastern
United States, and, with certain limited geographic exceptions, the parties
cross-license each other for use of the word "Eagle" in the other party's
geographic markets. The Company does not expect that this arrangement will
impact its ability to use the EAGLE HARDWARE & GARDEN-Registered Trademark- (and
design) mark in any states in which it currently operates or anticipates opening
stores. In addition, the Company claims common law rights to the foregoing and
various other trademarks and service marks.
RISK FACTORS
COMPETITION The home improvement, hardware and garden businesses are all
highly competitive. The Company competes against traditional hardware, plumbing,
electrical and home supply retailers, as well as warehouse-format and discount
retail stores and catalog companies. Twenty of the Company's 30 stores compete
in markets where Home Depot, a warehouse-format home center with approximately
500 stores in the United States, also operates stores. Four of these stores are
located next to existing Eagle Hardware stores. The Company's gross margin and
operating income are generally lower for stores located in markets where Home
Depot also operates
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stores. The Company also currently competes against a number of other companies
in the western United States, including Fred Meyer, HomeBase, Builders' Square
and Hugh M. Woods (a unit of Payless Cashways). Many of the Company's
competitors have substantially greater resources than the Company. In addition,
there has been increasing consolidation within the home improvement industry,
which may provide certain entities with even stronger competitive advantages
over the Company. Moreover, the Company's ability to expand into and operate
profitably in new markets, particularly small markets, may be adversely affected
by the existence or entry of competing warehouse-format home centers.
Should Home Depot or any of the Company's other competitors reduce prices
in any of Eagle Hardware's markets, the Company may be required to implement
price reductions in order to remain competitive. In addition, although the
Company believes that alternative sources of merchandise are available, some of
the Company's competitors may attempt to negotiate exclusive supply arrangements
with certain of the Company's vendors, which could result in the loss of
individual sources of merchandise. The implementation of price reductions or the
loss of certain key vendors could have a material adverse effect on the
Company's business, financial condition and operating results.
EXPANSION PLANS The Company opened its first store in November 1990 and
currently operates 30 home improvement centers, averaging 125,000 square feet
(excluding storage and exterior garden square footage). The Company's expansion
strategy is to cluster multiple home centers in metropolitan areas such as
Seattle, Salt Lake City and Denver, and to open single home centers in small
markets. In the Company's experience, the opening of additional stores in
existing markets tends to negatively impact same store sales at existing stores.
The Company expects this trend, commonly referred to as "sales cannibalization,"
to continue as a result of its planned expansion program. Further, the Company's
ability to successfully execute its expansion strategy will depend, in large
part, on its ability to obtain suitable store sites at acceptable prices,
particularly sites meeting the large space requirements of Eagle Hardware
stores. In addition, the Company has encountered, and may continue to encounter,
substantial delays, increased expenses or loss of potential sites due to the
complexities associated with the regulatory and permitting process in markets in
which the Company intends to locate its stores. There can be no assurance that
the Company will be able to open the planned number of new stores according to
its store opening schedule; failure to do so could have a material adverse
effect on the Company's business, financial condition and operating results.
The Company recently augmented its expansion strategy to include a new
store prototype designed for selected single-store small markets. This prototype
consists of a main store of approximately 95,000 square feet and includes
certain features intended to cater to the unique needs of do-it-yourself and
professional customers in small markets, including an attached drive-through
lumber and building materials yard of approximately 60,000 square feet. The
Company is utilizing this prototype in Wenatchee, Washington, Pueblo, Colorado
and Kahului (Maui), Hawaii. Although the Company currently operates stores in
small markets, the first Eagle Hardware store based on this new prototype was
opened in August 1996; therefore, the Company's experience with the new
prototype is limited. The Company anticipates that average annual sales levels
achieved by stores located in small markets will be lower than those obtained by
stores operated in large metropolitan markets. In addition, there can be no
assurance that the Company's future stores, including those based on this new
prototype, will achieve anticipated sales and gross margin levels or that they
will prove to be profitable. Should any new store be unprofitable or should any
existing store experience a decline in profitability, the effect on the
Company's results of operations could be more significant than would be the case
with a larger company.
The construction of new store facilities and the conversion of existing
structures into Eagle Hardware stores are also subject to unexpected delays,
which could lead to higher costs. The Company's expansion further depends on its
ability to complete the improvements at its home centers in a timely manner, to
hire and train competent store managers and staff, and to integrate these
employees and new home centers into its overall systems and operations. Because
the Company will be expanding into geographic markets in which it has no
previous operating experience, it may face competitive challenges, delays or
other problems that are different from those encountered to date. There can be
no assurance that the Company will be able to enter new geographic markets
successfully.
The Company has signed agreements to purchase the land for three additional
stores scheduled to open during fiscal 1997 or 1998. As a result, the Company
will be required to finance the construction of the new store
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buildings on these sites, and will incur significant inventory and capital
expenditures and preopening costs. The Company believes that its current cash
and short-term investments, cash generated from operations, in combination with
anticipated bank borrowings under the existing line of credit and the proceeds
of fixed-term capital asset loans and/or sale-leaseback transactions, will be
sufficient to satisfy its anticipated working capital, capital expenditure,
interest and debt service requirements through fiscal 1997. However, in the past
the Company has occasionally exceeded its capital expenditure budget
substantially as a result of project delays, construction cost overruns and
other factors, and the Company may be required to seek additional sources of
funds for its planned expansion. There can be no assurance that such funds will
be available on satisfactory terms. Failure to obtain such financing could delay
or prevent the Company's planned expansion, which could adversely affect the
Company's business, financial condition and operating results. In addition,
there can be no assurance that there will not be a decline in the market value
of the Company's properties, which could also have an adverse effect on the
Company's business, financial condition and operating results. (See Item 1 -
Business - Expansion Strategy)
ABILITY TO MANAGE GROWTH; DEPENDENCE ON ACCOUNTING AND MANAGEMENT
INFORMATION SYSTEMS The Company has experienced significant growth in recent
years and intends to continue its growth strategy. This strategy will require an
increase in Company personnel, particularly store managers and sales associates,
who possess the training and experience necessary to operate the Company's new
stores. There can be no assurance that the Company will be able to continue to
attract, develop and retain the personnel necessary to pursue its growth
strategy. In addition, Eagle Hardware's rapid growth has placed significant
pressure on its accounting systems and internal controls. During fiscal 1991 and
fiscal 1992, the Company experienced an inventory shortage and other accounting
problems that were due in part to weaknesses in accounting systems and internal
controls. The Company has taken a number of steps over the past several years to
improve its accounting systems and internal controls. However, there can be no
assurance that additional problems associated with the Company's rapid growth
will not occur in the future. Any such additional problems could have a material
adverse impact on the Company's business, financial condition and results of
operation. The Company will also need to continually evaluate the adequacy of
its management information systems, including its inventory control and
distribution systems, and in the future will need to upgrade or reconfigure its
management information systems to support its planned expansion. While the
Company has taken a number of precautions against certain events that could
disrupt the operation of its management information systems, including in
connection with its planned systems revisions, there can be no assurance that
the Company will not experience systems failures or interruptions, which could
have a material adverse effect on its business, financial condition and
operating results. Further, the Company currently relies on a single outside
vendor for the software and support of its management information systems.
Although the Company believes that alternative information systems vendors are
available, in the event it were to change vendors, the Company could experience
systems delays or interruptions, which could have a material adverse effect on
the Company's business, financial condition and operating results. Moreover, as
the Company grows, it will need to continually analyze the sufficiency of its
warehouse and distribution space and will require additional facilities in order
to support such growth.
FLUCTUATIONS IN SAME STORE SALES A variety of factors affect the Company's
same store sales, including, among others, actions of competitors (including the
opening of additional stores in the Company's markets), the retail sales
environment, general economic conditions, weather conditions and the Company's
ability to execute its business strategy effectively. In addition, the Company's
expansion plans include the opening of additional stores in market areas where
the Company has already opened stores. The Company's experience has been that
opening such additional stores in the same market area reduces sales at existing
Company stores located in that area and the Company expects this sales
cannibalization to continue in the future. The Company's quarterly and annual
same store sales have fluctuated significantly in the past and may do so in the
future. The Company's annual same store sales increases (decreases) over the
prior year were (2%), (7%) and 11% in fiscal years 1994, 1995 and 1996,
respectively. New store openings by the Company in existing markets and
significant same store sales increases experienced in 1996, combined with other
factors such as competition and economic trends in the Company's markets, may
result in future same store sales increases lower than those experienced in
fiscal 1996. Moreover, there can be no assurance that same store sales for any
particular period will not decrease in the future. Changes in the Company's same
store sales have in the past and could in the future cause the price of the
Common Stock to fluctuate substantially.
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FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY The Company's quarterly
operating results have fluctuated in the past and are expected to fluctuate in
the future as a result of a variety of factors, including the timing of store
openings and related preopening expenses, weather conditions, price increases by
suppliers, actions by competitors, conditions in the home improvement market and
the hardware industry in general, regional and national economic conditions and
other factors. Moreover, the Company expects its business to exhibit some
measure of seasonality, which the Company believes is typical of the retail home
center industry. The Company anticipates 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 proportionately 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 than in any other quarter, due primarily to the effect of winter weather
on home improvement projects and the lack of significant sales of lawn and
garden items during the quarter.
GENERAL ECONOMIC CONDITIONS The success of the Company's operations depends
on a number of economic conditions. In particular, higher mortgage interest
rates and slower housing turnover will generally have an adverse effect on the
Company's sales and earnings. The Company cannot predict with certainty the
effect on its future earnings if either the national or regional economies of
the United States face a downturn or encounter periods of high inflation and
rising interest rates.
GEOGRAPHIC CONCENTRATION As its operations are located entirely in the
western United States, the Company is subject to regional risks, such as the
economy, weather conditions, natural disasters and government regulations. If
the region were to suffer an economic downturn or other adverse regional events
occur, there may be an adverse impact on the Company's sales and profitability
and its ability to implement its planned expansion program. Some of the
Company's competitors, including Home Depot, operate stores across the United
States and thus are not as vulnerable as the Company to such regional risks.
DEPENDENCE ON KEY INDIVIDUALS The Company's success depends in large part
on the abilities and continued service of its executive officers and other key
employees, including David J. Heerensperger, the Company's founder, Chairman and
Chief Executive Officer, and Richard T. Takata, the Company's President and
Chief Operating Officer. Most of these individuals, including Messrs.
Heerensperger and Takata, are not subject to employment agreements that would
prevent them from leaving the Company. There can be no assurance that the
Company will be able to retain the services of such executive officers and other
key employees. The loss of key personnel could have a material adverse effect on
the Company's business, financial condition and operating results.
VOLATILITY OF STOCK PRICE The market price of the Common Stock has
fluctuated substantially since the Company's initial public offering in July
1992. There can be no assurance that the market price of the Common Stock will
not fluctuate significantly from its current level. Future announcements
concerning the Company or its competitors, quarterly variations in operating
results or same store sales, changes in product mix or prices by the Company or
its competitors, weather patterns or economic trends that may be perceived to
affect the demand for the Company's products, changes in earnings estimates by
analysts or changes in accounting policies, among other factors, could cause the
market price of the Common Stock to continue to fluctuate substantially. In
addition, stock markets have experienced extreme price and volume volatility in
recent years. This volatility has had a substantial effect on the market prices
of securities of many public companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of the Common Stock.
ANTITAKEOVER CONSIDERATIONS Certain provisions of the Company's Restated
Articles of Incorporation and Restated Bylaws, as well as the Washington
Business Corporation Act, could discourage a third party from attempting to
acquire, or make it more difficult for a third party to acquire, control of the
Company without approval of the Company's Board of Directors. Such provisions
could also limit the price that certain investors might be willing to pay in the
future for the Common Stock. Certain of such provisions allow the Board of
Directors to authorize the issuance of preferred stock with rights superior to
those of the Common Stock. Additionally, the Company's Restated Bylaws provide
for staggered terms for the Board of Directors. The Company is also subject to
the provisions of Chapter 23B.19 of the Washington Business Corporation Act,
which generally prohibits any "significant business transactions" within five
years of the date a person acquires 10% or more of the outstanding voting shares
of a
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Washington corporation unless the transaction or the acquisition is approved
prior to the acquisition date by a majority of a company's then board of
directors. After the five-year period, a "significant business transaction" may
take place as long as it complies with certain "fair price" provisions of the
statute which generally prohibits "interested shareholder transactions" (such as
a merger, sale of assets or liquidation) with a person who beneficially owns 20%
or more of a corporation's outstanding voting securities, unless approved by a
majority vote of disinterested directors or a two-thirds vote of disinterested
shareholders. A corporation may not "opt out" of this statute. This provision
may have the effect of delaying, deferring or preventing a change in control of
the Company.
ITEM 2 - PROPERTIES -
The Company's headquarters consists of approximately 48,000 square feet of
leased office space in Renton, Washington. The Company leases warehouse and
distribution center space of approximately 339,000 square feet in Auburn,
Washington. The Company believes that such facilities will be sufficient to meet
the Company's needs through the end of fiscal 1997.
The Company leases 16 of its 30 existing stores under various lease terms
which, including renewal options, range from 21 to 51 years. The leases
generally provide for minimum annual rental amounts, with additional rental
payments based upon a percentage of gross store sales. These additional payments
range from 1.5% to 3.0% of annual gross sales in excess of a specified amount,
which ranges from $24.0 million to $50.0 million per store. One store lease
provides for additional payments of 0.75% of gross sales, with a specified
minimum dollar amount. In most cases, lease payments do not begin until a store
is operational.
The Company owns 14 of its existing stores and has signed agreements to
purchase sites for three future stores. In light of current economic conditions
and other strategic factors, the Company has increasingly elected to purchase
land for new store sites and finance the construction of new stores in order to
proceed expeditiously with its expansion program.
ITEM 3 - LEGAL PROCEEDINGS -
The Company is involved in various routine legal proceedings incident to
the ordinary course of its business. Management believes that the outcome of all
pending legal proceedings in the aggregate will not have a material adverse
effect on the Company's business, financial condition and operating results.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 31, 1997.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS -
The information required by this Item is included in the Company's Annual
Report to Shareholders for the fiscal year ended January 31, 1997 under the
heading "Quarterly Stock Data" and is incorporated herein by this reference.
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ITEM 6 - SELECTED FINANCIAL DATA -
The information required by this Item is included in the Company's Annual
Report to Shareholders for the fiscal year ended January 31, 1997 under the
heading "Five Year Summary of Selected Financial Data" and is incorporated
herein by this reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION -
The information required by this Item is included in the Company's Annual
Report to Shareholders for the fiscal year ended January 31, 1997 under the
heading "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and is incorporated herein by this reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -
The financial statements and other information required by this Item are
included in the Company's Annual Report to Shareholders for the fiscal year
ended January 31, 1997 at pages 10 through 30 and are incorporated herein by
this reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL
DISCLOSURE -
There were no changes in or disagreements with accountants on auditing and
financial disclosure during the fiscal year ended January 31, 1997.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
The information required by this Item is included in the Company's
definitive Proxy Statement for the Company's 1997 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission, under the
heading "Election of Directors" and is incorporated herein by this reference.
ITEM 11 - EXECUTIVE COMPENSATION -
The information required by this Item is included in the Company's
definitive Proxy Statement for the Company's 1997 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission, under the
heading "Executive Compensation" and is incorporated herein by this reference.
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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
The information required by this Item is included in the Company's
definitive Proxy Statement for the Company's 1997 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission, under the
heading "Voting Securities and Principal Holders" and is incorporated herein by
this reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
The information required by this Item is included in the Company's
definitive Proxy Statement for the Company's 1997 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission, under the
heading "Certain Relationships and Related Transactions" and is incorporated
herein by this reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
(a) 1. Financial Statements:
The following financial statements and related information filed as
part of this report are included on pages 17 through 30 of the Company's Annual
Report to Shareholders for the fiscal year ended January 31, 1997.
- Consolidated Balance Sheets - January 31, 1997 and January
26, 1996
- Consolidated Statements of Operations - For the fiscal years
ended January 31, 1997, January 26, 1996 and January 27,
1995
- Consolidated Statements of Cash Flows - For the fiscal years
ended January 31, 1997, January 26, 1996 and January 27,
1995
- Consolidated Statements of Shareholders' Equity - For the
fiscal years ended January 31, 1997, January 26, 1996 and
January 27, 1995
- Notes to Consolidated Financial Statements - For the fiscal
years ended January 31, 1997, January 26, 1996 and January
27, 1995
- Selected Quarterly Financial Data (Unaudited) - For the
fiscal years ended January 31, 1997 and January 26, 1996 -
See Note 12 of Notes to Consolidated Financial Statements
- Report of Ernst & Young LLP, Independent Auditors
2. Financial Statement Schedules:
All financial statement schedules are omitted because they are not
applicable or because the information is presented in the financial statements
or notes thereto.
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3. Exhibits:
Exhibits marked with a footnote designation (#) are hereby incorporated by
reference to exhibits or appendices previously filed by the Registrant as
indicated in the referenced footnote.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Restated Articles of Incorporation. (3)
3.2 Restated Bylaws. (3)
4.1 Form of Debenture (included in Exhibit 4.2B).
4.2B Form of Indenture dated as of March 14, 1994, between Eagle Hardware
& Garden, Inc. and Seattle-First National Bank, as Trustee. (7)
10.1 Directors' Nonqualified Stock Option Plan. (1)
10.2 1991 Stock Option Plan. (1)
10.3 Eagle Hardware & Garden Profit Sharing/Retirement Savings Plan. (1)
10.3A First Amendment to Eagle Hardware & Garden Profit Sharing/Retirement
Savings Plan. (10)
10.3B Second Amendment to Eagle Hardware & Garden Profit
Sharing/Retirement Savings Plan. (10)
10.3C Third Amendment to Eagle Hardware & Garden Profit Sharing/Retirement
Savings Plan. (12)
10.3D Fourth Amendment to Eagle Hardware & Garden Profit
Sharing/Retirement Savings Plan. (12)
10.4 Description of Corporate Bonus Plan. (1)
10.5 Registration Rights Agreement dated as of June 25, 1991, between the
Company and certain holders of the Company's capital stock. (1)
10.6 Key Man Life Insurance Policy for David J. Heerensperger by the
Great-West Life Assurance Company. (1)
10.7 Sublease dated September 10, 1990, by and between Payless Drug
Stores Northwest, Inc. and Eagle Hardware & Garden, Inc., as
amended. (2)
10.10 Lease dated November 30, 1990, by and between Harlan D. Douglass and
Maxine H. Douglass and Eagle Hardware & Garden, Inc. (1)
10.10A First Amendment to Lease dated May 22, 1992, by and between Harlan
D. Douglass and Maxine H. Douglass and Eagle Hardware & Garden, Inc.
(1)
10.11 Lease dated as of April 18, 1991, by and between Mercy Development
Company, M&E Company and Eagle Hardware & Garden, Inc. (2)
10.11A Addendum to Mercy Development/M&E Co. - Eagle Hardware Lease dated
July 11, 1991. (10)
10.11B Second Addendum to Mercy Development/M&E Co. - Eagle Hardware Lease
dated May 1, 1994. (10)
10.14 Lease dated July 12, 1991, by and between Industrial Wire and Metal
Forming, Inc. and Eagle Hardware & Garden, Inc. (1)
10.14A Amendment to Lease dated June 20, 1994, by and between Industrial
Wire and Metal Forming, Inc. and Eagle Hardware & Garden, Inc. (10)
10.15 Lease dated as of August 20, 1991, by and between Vernell's Fine
Candies, Inc. and Eagle Hardware & Garden, Inc. (2)
10.15A Amendment to Lease dated as of May 4, 1992, by and between Keystone
Capital Company, Inc. (formerly known as Vernell's Fine Candies,
Inc.) and Eagle Hardware & Garden, Inc. (2)
10.17 Lease dated November 18, 1991, by and between Hsiao-Tall Real Estate
Company and Eagle Hardware & Garden, Inc. (2)
10.17A Amendment to Lease dated as of June 30, 1992, by and between Hsiao-
Tall Real Estate Company and Eagle Hardware & Garden, Inc. (4)
10.17B Third Amendment to Lease dated as of September 28, 1992, by and
between Hsiao-Tall Real Estate Company and Eagle Hardware & Garden,
Inc. (3)
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.17C Amendment to Lease Concerning Storm Drainage System dated as of
April 1, 1992, by and between Hsiao-Tall Real Estate Company and
Eagle Hardware & Garden, Inc. (10)
10.19 Space Lease dated as of January 21, 1992, by and between WCC
Associates and Eagle Hardware & Garden, Inc. (2)
10.19A First Amendment to Space Lease dated as of May 29, 1992, by and
between WCC Associates and Eagle Hardware & Garden, Inc. (2)
10.20 Master Equipment Lease dated October 30, 1991, by and between XL
Datacomp, Inc. and Eagle Hardware & Garden, Inc. (1)
10.20C Schedule 1 dated July 1, 1994, to Master Equipment Lease by and
between XL Datacomp, Inc. and Eagle Hardware & Garden, Inc. (10)
10.20D Lease of Equipment dated June 7, 1994, and Schedule 5 to Lease of
Equipment dated November 15, 1995, by and between The Archive Group,
Inc. and Eagle Hardware & Garden, Inc. (11)
10.20E Lease of Equipment dated November 15, 1995, and Schedule 4 to Lease
of Equipment by and between The Archive Group, Inc. and Eagle
Hardware & Garden, Inc. (11)
10.22 Software License Agreement dated December 9, 1991, by and between
JDA Software Services, Inc. and Eagle Hardware & Garden, Inc. (1)
10.23 Assignment dated as of February 5, 1992, by Harlan D. Douglass and
Maxine H. Douglass to Eagle Hardware & Garden, Inc. (1)
10.24 Assignment dated as of March 13, 1992, by Eagle Hardware & Garden,
Inc. to R&B Development, Inc. (1)
10.25 Assignment dated as of February 5, 1992, by Harlan D. Douglass and
Maxine H. Douglass to Eagle Hardware & Garden, Inc. (1)
10.26 Assignment dated as of April 29, 1992, by Eagle Hardware & Garden,
Inc. to R&B Development, Inc. (1)
10.27 Real Property Transfer Agreement dated April 29, 1992, by and
between Eagle Hardware & Garden, Inc. and R&B Development, Inc. (1)
10.28 Lease dated as of March 10, 1992, by and between R&B Development,
Inc. and Eagle Hardware & Garden, Inc. (2)
10.29 Lease dated as of March 10, 1992, by and between R&B Development,
Inc. and Eagle Hardware & Garden, Inc. (2)
10.30 Real Estate Purchase and Sale Agreement dated April 23, 1992, by and
between TRF Pacific, Inc. and Eagle Hardware & Garden, Inc. (2)
10.31 Sublease dated March 23, 1992, by and between Pacific Pipeline, Inc.
and Eagle Hardware & Garden, Inc. (1)
10.32 Assignment of Contract and Deed dated as of February 24, 1993, by
Eagle Hardware & Garden, Inc. to Harlan D. Douglass and Maxine H.
Douglass. (3)
10.33 Lease dated as of September 29, 1992, by and between F.C.
Investments, Inc. and Eagle Hardware & Garden, Inc. (4)
10.34 Lease dated September 22, 1992, by and between R&B Development, Inc.
and Eagle Hardware & Garden, Inc. (4)
10.34A First Amendment to Lease dated as of June 23, 1994, by and between
R&B Development, Inc. and Eagle Hardware & Garden, Inc. (10)
10.35 Real Estate Purchase and Sale Agreement dated July 24, 1992, by and
between Sabey Corpora-tion and Eagle Hardware & Garden, Inc. (4)
10.36 Real Estate Purchase and Sale Agreement dated as of June 5, 1992, by
and between Roy S. Johnson, Carol L. Johnson, Harvey Syversrud, Rae
Syversrud, Energy International and Eagle Hardware & Garden, Inc.
(4)
10.37 Real Estate Purchase and Sale Agreement dated as of June 12, 1992,
by and between Jon C. Peterson, Charles W. Anderson, Judith
Anderson, Earl Senger, Virginia Senger and Eagle Hardware & Garden,
Inc. (4)
19
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.38 Eagle Hardware & Garden, Inc. Employee Stock Ownership Plan
effective January 1, 1992. (3)
10.38A First Amendment to Eagle Hardware & Garden, Inc. Employee Stock
Ownership Plan dated January 15, 1994. (10)
10.38B Second Amendment to Eagle Hardware & Garden, Inc. Employee Stock
Ownership Plan dated June 7, 1994. (10)
10.38C Third Amendment to Eagle Hardware & Garden, Inc. Employee Stock
Ownership Plan dated March 6, 1995. (10)
10.39 Eagle Hardware & Garden, Inc. Employee Stock Ownership Trust
Agreement effective January 1, 1992. (3)
10.46 Agreement effective September 1, 1992, by and between Northwestern
National Life Insurance Company and Eagle Hardware & Garden, Inc.
(3)
10.47 Lease dated March 18, 1993, by and between Harlan D. Douglass and
Maxine H. Douglass and Eagle Hardware & Garden, Inc. (4)
10.47A First Amendment to Lease dated September 1, 1995, by and between
Harlan D. Douglass and Maxine H. Douglass and Eagle Hardware &
Garden, Inc. (11)
10.48 Lease dated March 19, 1993, by and between Harlan D. Douglass and
Maxine H. Douglass and Eagle Hardware & Garden, Inc. (4)
10.49 Lease dated as of February 28, 1993, by and between West Valley 29
Partners and Eagle Hardware & Garden, Inc. (4)
10.49A Amendment to Lease Agreement dated September 15, 1993, by and
between West Valley 29 Partners and Eagle Hardware & Garden, Inc.
(8)
10.49B Second Amendment to Lease dated February 1, 1997 by and among West
Valley 29 Partners, Eagle Hardware & Garden, Inc. and Eagle
Hardware & Garden Distribution Services, Inc.
10.53 Lease dated as of September 10, 1973, between Elting, Graziadio &
Sampson Development Company and S. S. Kresge Company. (8)
10.53A First Amendment to Lease dated November 14, 1975, between EGSmetro
Construction Corporation and S. S. Kresge Company. (8)
10.53B Second Amendment to Lease dated as of November 15, 1993, by and
between Charles J. Fishback and KMart Corporation. (8)
10.54 Sublease dated as of August 31, 1993, by and between KMart
Corporation and Eagle Hardware & Garden, Inc. (8)
10.54A Amendment to Sublease dated as of November 18, 1993, by and among
KMart Corporation and Eagle Hardware & Garden, Inc. (8)
10.58 Agreement of Purchase and Sale dated October 18, 1993, by and
between Real Estate Properties Limited Partnership and Eagle
Hardware & Garden, Inc. (8)
10.59 Real Estate Purchase and Sale Agreement dated as of October 6, 1993,
and amendments thereto dated as of November 5, 1993, and as of
November 12, 1993, by and between I-90 Associates Limited
Partnership and Eagle Hardware & Garden, Inc. (8)
10.60 Agreement for the Purchase and Sale of Real Estate dated December 7,
1993, by and between 5405 Wadsworth By-Pass Limited Liability Co.
and Eagle Hardware & Garden, Inc. (8)
10.61 Contract to Buy and Sell Real Estate dated December 1, 1993, by and
between Arvada Urban Renewal Authority and Eagle Hardware & Garden,
Inc. (8)
20
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.62 Real Estate Purchase and Sale Agreements dated July 16, 1993, August
16, 1993, and August 20, 1993, by and between Professional
Maintenance, Inc., Austin, and Pacific Gas Transmission,
respectively, and Eagle Hardware & Garden, Inc. (8)
10.64 Earnest Money Sales Agreements dated June 15, 1993, June 22, 1993,
June 23, 1993, and June 23, 1993, and addendums thereto dated August
20, 1993, August 11, 1993, July 15, 1993 and August 11, 1993, by and
between Murray City, Leon and LaRue Peterson, Gordon S. and Claudia
J. Crofts and Cecil Woodard, respectively, and Eagle Hardware &
Garden, Inc. (8)
10.66 Option Agreements between Eagle Hardware & Garden, Inc. and the
following persons (dates): Ezra Billings Patten and Anna Lou Patten
(November 30, 1993, as amended February 4, 1994); Deon P. Carroll,
Ezra B. Patten, Kristian N. Patten, executor, Emery P. Patten,
Lawana Ballantyne, C. Brent Patten and Orson D. Patten (November 30,
1993, as amended February 4, 1994); Orson D. Patten and Jeanine
Patten (December 10, 1993, as amended February 4, 1994); Emery P.
Patten (November 17, 1993, as amended February 4, 1994); Deon P.
Carroll, James F. Carroll and Carroll Family Trust (December 10,
1993, as amended February 4, 1994). (8)
10.67 Earnest Money Sales Agreements by and between Eagle Hardware &
Garden, Inc. or Assigns and the following persons (dates): Mina
Brown (October 21, 1993, with addenda dated October 21 and December
10, 1993); H. Grant and June Butler (October 21, 1993, with addenda
dated October 21 and December 10, 1993); Willard Evans (October 21,
1993, with addenda dated October 21 and December 1, 1993, and
January 13, 1994); Colleen Horn (October 21, 1993, with addenda
dated October 21 and December 7, 1993); Joan G. Gallagher (October
21, 1993, with addenda dated October 21 and December 10, 1993);
Zelda Shawcroft (December 9, 1993, with addenda dated December 14,
1993, and January 14, 1994); John Jones (December 9, 1993, with
addenda dated February 22 and February 24, 1994); and Dick Luke
(March 23, 1994, with addenda dated March 30, 1994). (8)
10.71 Lease, Option and Assignment of Leases dated October 22, 1993,
between Eagle Hardware & Garden, Inc. and The Thomas P. Knorr and
Theda M. Knorr Family Trust. (8)
10.72 Promissory Notes dated October 22, 1993, by Eagle Hardware & Garden,
Inc. to and for the following persons (amounts): Exchange
Facilitator Corporation ($587,857); Charles W. Anderson and Judith
A. Anderson ($1,361,979); Energy International ($705,866); Harvey K.
Syversrud and Rae Syversrud ($319,296); Roy S. Johnson and Carol L.
Johnson ($156,902); and Exchange Facilitator Corporation
($1,341,979). (8)
10.76 Purchase Agreement dated December 1, 1994. (9)
10.77 Lease dated July 11, 1994, by and between Harlan D. Douglass and
Maxine H. Douglass and Eagle Hardware & Garden, Inc. (10)
10.78 Lease dated January 9, 1995, by and between Harlan D. Douglass and
Maxine H. Douglass and Eagle Hardware & Garden, Inc. (10)
10.78A First Amendment to Lease dated September 1, 1995, by and between
Harlan D. Douglass and Maxine H. Douglass and Eagle Hardware &
Garden, Inc. (11)
10.79 Lease dated September 28, 1994, between The Northwestern Mutual Life
Insurance Company and Eagle Hardware & Garden, Inc. (10)
10.80 Promissory Note dated November 4, 1994, by Eagle Hardware & Garden,
Inc. to The Prudential Insurance Company of America in the principal
amount of $8,000,000. (10)
10.81 Real Estate Purchase and Sale Agreement dated August 24, 1994, by
and between Rosemary Barrett and Eagle Hardware & Garden, Inc. (10)
10.82 Real Estate Purchase and Sale Agreement dated August 23, 1994, by
and between Marian K. Mosher, as Trustee of Marie Guimont Trust, and
Eagle Hardware & Garden, Inc. (10)
21
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.84 Contract to Buy and Sell Real Estate dated May 11, 1994, by and
between Development Corp. of the Rockies, Inc. and Eagle Hardware &
Garden, Inc. (10)
10.85 Contract to Buy and Sell Real Estate dated as of April 13, 1994,
between Eagle Hardware & Garden, Inc. and Supervalu Holdings, Inc.
(10)
10.94 Lease dated December 7, 1995, by and between KW, Ltd. and Eagle
Hardware & Garden, Inc. (11)
10.95 Promissory Note dated December 20, 1995, by Eagle Hardware & Garden,
Inc. to PFL Life Insurance Company in the principal amount of
$6,000,000. (11)
10.96 Real Estate Purchase and Sale Agreement dated December 11, 1995, by
and between Langley Associates, Inc. and Eagle Hardware & Garden,
Inc. (11)
10.97 Purchase and Sale Agreement dated January 30, 1996, by and between
Chandelle Development, LLC, and Eagle Hardware & Garden, Inc. (11)
10.98 Contract to Buy and Sell Real Estate dated February 12, 1996, by and
between Alpha West Realty & Investments, Inc. and Eagle Hardware &
Garden, Inc. (11)
10.99 Retail Technology Exchange Agreement dated July 17, 1995, by and
between Fujitsu-ICL Systems, Inc. and Eagle Hardware & Garden, Inc.
(11)
10.99A Supplement No. 101 and Supplement No. 102 under Retail Technology
Exchange Agreement by and between Fujitsu-ICL Systems, Inc. and
Eagle Hardware & Garden, Inc. (11)
10.99B Supplement No. 103 and Supplement No. 104 under Retail Technology
Exchange Agreement by and between Fujitsu-ICL Systems, Inc. and
Eagle Hardware & Garden, Inc. (13)
10.100 Memorandum of Understanding concerning Eagle Hardware Securities
Litigation dated May 23, 1995. (12)
10.101 Agreement dated June 6, 1995, by and among David Heerensperger,
Richard Takata, Myron E. Kirkpatrick and Eagle Hardware & Garden,
Inc. and National Union Fire Insurance Company of Pittsburgh, PA.
(12)
10.102 Amended and Restated Credit Agreement dated as of May 28, 1996,
between the Lenders, U.S. Bank of Washington, N.A., as Agent and
Eagle Hardware & Garden, Inc. (12)
10.102A First Amendment to Amended and Restated Credit Agreement dated as of
December 6, 1996, between the Lenders, U.S. Bank of Washington,
N.A., as Agent and Eagle Hardware & Garden, Inc.
10.103 Real Estate Purchase and Sale Agreement dated July 2, 1996, by and
between Terrace Point Partnership, Inc. and Eagle Hardware & Garden,
Inc. (12)
10.103A First Amendment to Real Estate Purchase and Sale Agreement dated
August 1996, by and between Terrace Point Partnership, Inc. and
Eagle Hardware & Garden, Inc. (13)
10.104 Promissory Note dated July 18, 1996, by Eagle Hardware & Garden,
Inc. to The Northwestern Mutual Life Insurance Company in the
principal amount of $9,000,000. (12)
10.105 Real Estate Purchase and Sale Agreements dated August 4, 1994 and
amended December 1, 1994, August 30, 1995 and February 23, 1996
between Atlantic Seaboard Realty and the following persons: Ronald
V. and Kathleen A. Gratias; Chlo Elaine Jackson and Charles L.
Betts; and Mary J. McColm. (12)
10.106 Assignment of Rights Under Real Estate Purchase and Sale Agreements
dated August 4, 1994, as amended, by Atlantic Seaboard Realty to
Eagle Hardware & Garden, Inc. (12)
22
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.107 Real Estate Purchase and Sale Agreement dated March 6, 1996 and
amended March 31, 1996, between Atlantic Seaboard Realty and the
Tacoma Alliance Church. (12)
10.108 Assignment of Rights Under Real Estate Purchase and Sale Agreement
dated March 6, 1996, as amended, by Atlantic Seaboard Realty to
Eagle Hardware & Garden, Inc. (12)
10.109 Real Estate Purchase and Sale Agreement dated April 1, 1996, by and
between Metropolitan Park District of Tacoma and Wahl & Associates,
Inc. (12)
10.110 Assignment of Rights Under Real Estate Purchase and Sale Agreement
dated April 1, 1996, by Wahl & Associates, Inc. to Eagle Hardware &
Garden, Inc. (12)
10.111 Employment and Severance Agreement between Eagle Hardware & Garden,
Inc. and Ronald P. Maccarone. (12)
10.112 Agreement for Purchase and Sale of Real Property dated September 5,
1996, by Northglenn Partners, L.P. and Eagle Hardware & Garden, Inc.
(13)
10.112A First Amendment to Agreement for Purchase and Sale of Real Property
dated November 13, 1996, between Northglenn Partners, L.P. and Eagle
Hardware & Garden, Inc.
10.112B Second Amendment to Agreement for Purchase and Sale of Real Property
dated December 17, 1996, between Northglenn Partners, L.P. and Eagle
Hardware & Garden, Inc.
10.113 Real Estate Purchase and Sale Agreement dated October 6, 1996, by
and between Eagle Hardware & Garden, Inc. and The Good Guys--
California, Inc. (13)
10.114 Stipulation and Order of Appropriation and Judgment by the Superior
Court of Washington for Snohomish County dated September 24, 1996.
(13)
10.115 Real Estate Purchase and Sale Agreement dated March 12, 1997, by and
between Washington-111, Ltd. and Eagle Hardware & Garden, Inc.
10.116 Purchase Agreement dated March 18, 1997 between David J.
Heerensperger and Eagle Hardware & Garden, Inc.
11.1 Statement Regarding Computation of Net Income Per Share.
13.1 Portions of Registrant's Annual Report to Shareholders (pages 10
through 30 and inside back cover) for the fiscal year ended January
31, 1997.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule
23
<PAGE>
- -------------------
(1) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Registration Statement No. 33-48593 on Form S-1.
(2) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Registration Statement No. 33-48593 on Form S-1
with confidential portions omitted and filed separately with the Commission
pursuant to a Request for Confidential Treatment under Rule 406 of the
Securities Act of 1933.
(3) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Registration Statement No. 33-60148 on Form S-1.
(4) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Registration Statement No. 33-60148 on Form S-1
with confidential portions omitted and filed separately with the Commission
pursuant to a Request for Confidential Treatment under Rule 406 of the
Securities Act of 1933.
(5) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Amended Registration Statement No. 33-60148 on
Amendment No. 1 to Form S-1.
(6) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Amended Registration Statement No. 33-60148 on
Amendment No. 1 to Form S-1 with confidential portions omitted and filed
separately with the Commission pursuant to a Request for Confidential
Treatment under Rule 406 of the Securities Act of 1933.
(7) Exhibit is incorporated herein by reference to an identically numbered
exhibit to a Current Report on Form 8-K, filed with the Commission on March
10, 1994.
(8) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Form 10-K filed with the Commission for the fiscal
year ended January 28, 1994.
(9) Exhibit is incorporated herein by reference to an identically numbered
exhibit to a Current Report on Form 8-K/A filed with the Commission on
December 30, 1994.
(10) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Form 10-K filed with the Commission for the fiscal
year ended January 27, 1995.
(11) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Form 10-K filed with the Commission for the fiscal
year ended January 26, 1996.
(12) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Form 10-Q filed with the Commission for the fiscal
quarter ended July 26, 1996.
(13) Exhibit is incorporated herein by reference to an identically numbered
exhibit to the Company's Form 10-Q filed with the Commission for the fiscal
quarter ended October 25, 1996.
- -------------------
(b) No reports on Form 8-K were filed in the fourth quarter of fiscal 1996.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Eagle Hardware & Garden, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on April 7,
1997.
EAGLE HARDWARE & GARDEN, INC.
By: /s/ David J. Heerensperger
---------------------------------
David J. Heerensperger
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on April 7, 1997, on behalf of
the Registrant and in the capacities indicated.
SIGNATURETITLE
/s/ David J. Heerensperger Chairman and Chief Executive Officer
- ---------------------------------- (Principal Executive Officer)
David J. Heerensperger
/s/ Richard T. Takata President, Chief Operating Officer and
- ---------------------------------- Director
Richard T. Takata
/s/ Ronald P. Maccarone Chief Financial Officer
- ----------------------------------
Ronald P. Maccarone
/s/ Ronald D. Crockett Director
- ----------------------------------
Ronald D. Crockett
/s/ Harlan D. Douglass Director
- ----------------------------------
Harlan D. Douglass
/s/ Herman Sarkowsky Director
- ----------------------------------
Herman Sarkowsky
/s/ Theodore M. Wight Director
- ----------------------------------
Theodore M. Wight
25
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT
This first amendment to amended and restated credit agreement
("Amendment") is dated as of December 6, 1996, and entered into by and among
EAGLE HARDWARE & GARDEN, INC., a Washington corporation ("Borrower"), the
financial institutions listed on the signature pages hereof (each individually
referred to as a "Lender" and collectively as "Lenders"), and U. S. BANK OF
WASHINGTON, NATIONAL ASSOCIATION, as agent for Lenders (in such capacity
"Agent").
RECITALS:
WHEREAS Borrower, Lenders, and Agent are parties to an amended and
restated credit agreement dated as of May 28, 1996 (as amended, the "Credit
Agreement"; capitalized terms used herein without definition shall have the
meaning set forth in the Credit Agreement), pursuant to which Agent and Lenders
have extended certain credit facilities to Borrower;
WHEREAS Borrower desires to amend the Credit Agreement so as to (a)
provide for the release by Agent of the Liens granted to Agent on certain assets
of Borrower, (b) provide for the elimination of the Borrowing Base requirement,
and (c) amend certain fees, interest rates, and financial tests.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I. AMENDMENTS
1.1 TERMS DEFINED. On and after (but not before) the Effective Date,
Section 1. 1 of the Credit Agreement is amended by (a) deleting the definitions
of "Borrowing Base," "Eligible Accounts Receivable," and "Eligible Inventory,"
(b) amending the definition of "Applicable Margin" as set forth below, and (c)
adding a new definition of "Adjusted Current Liabilities" to read as follows:
"Adjusted Current Liabilities" means Current Liabilities less the
amount of effective commitments for long term mortgage financing obtained by
Borrower that are not yet funded (provided that copies of the commitment letters
evidencing such commitments have been received by Agent).
"Applicable Margin" shall be determined as of the end of each Fiscal
Quarter based on the Borrower's Capital Ratio for such Fiscal Quarter in
accordance with the table set forth below and shall be effective as of the first
day of the Fiscal Quarter following the Borrower's delivery of the financial
statements required under Section 5.1(c) herein:
- 1 -
<PAGE>
<TABLE>
<CAPTION>
Capital Ratio Applicable Margin
---------------------------------------------------------------------------------------
<S> <C> <C>
Greater than 0.9:1.0 2% per annum
Less than or equal to 0.9:1.0 Greater than or equal to 0.8:1.0 1.75% per annum
Less than 0.8:1.0 Greater than or equal to 0.5:1.0 1.5% per annum
Less than 0.5:1.0 Greater than or equal to 0.33:1.0 1.25% per annum
Less than 0.33:1.0 0.75% per annum
</TABLE>
where:
Greater than means greater than
Less than means less than
Greater than or equal to means greater than or equal to
Less than or equal to means lesser than or equal to
Notwithstanding the foregoing, (a) if Borrower's senior debt rating from
Standard Poor's Corporation is BB (or equivalent rating from a comparable rating
agency) or better at the end of a Fiscal Quarter, then effective as of the first
day of the following Fiscal Quarter the Applicable Margin shall be 0.75 % per
annum and (b) if Borrower's senior debt rating from Standard Poor's Corporation
is BBB (or equivalent rating from a comparable rating agency) or better at the
end of a Fiscal Quarter, then effective as of the first day of the following
Fiscal Quarter the Applicable Margin shall be 0.55% per annum.
1.2 On and after (but not before) the Effective Date, Section 2.1(a)
of the Credit Agreement is amended to read as follows:
(a) Subject to and upon the terms and conditions set forth herein,
and in reliance upon the representations, warranties, and covenants of Borrower
contained herein or made pursuant hereto, each Lender severally and not jointly
agrees to make loans (individually, a "Revolving Credit Loan"; collectively, the
"Revolving Credit Loans") to Borrower from time to time during the Revolving
Credit Commitment Period, provided that the aggregate principal amount of the
Revolving Credit Loans made by such Lender to Borrower at any one time
outstanding shall not exceed an amount equal to Lender's Revolving Credit
Commitment as set forth opposite such Lender's name on SCHEDULE 1.1.2, provided,
further, that the aggregate principal amount of all Revolving Credit Loans at
any one time outstanding to Borrower shall not exceed, in the aggregate, as to
all Lenders, the Total Revolving Credit Commitment less (i) the aggregate face
amount of Letters of Credit then outstanding, less (ii) all Unreimbursed L/C
Payments at such time, and less (iii) the aggregate face amount of all
commercial paper of Borrower then outstanding.
- 2 -
<PAGE>
1.3 LETTER OF CREDIT FEES. On and after (but not before),the
Effective Date, (a) Section 2.3(a) of the Credit Agreement is amended by
substituting "1.0" for "l.25", and (b) Section 2.3(b) of the Credit Agreement is
amended by substituting "0.25" for "0.375."
1.4 BORROWING BASE. On and after (but not before) the Effective
Date, Section 2.19 of the Credit Agreement is deleted.
1.5 COLLATERAL. On and after (but not before) the Effective Date,
Section 3.10 of the Credit Agreement is deleted.
1.6 FURTHER ASSURANCES. On and after (but not before) the Effective
Date, Section 4.2(f) of the Credit Agreement is amended to read as follows:
(f) To the extent not previously delivered, all other documents,
agreements, and instruments from or with respect to Borrower or any other
Person that may be called for hereunder shall be duly executed and
delivered to Agent. For the purposes of this Agreement, the waiver of
delivery of any document, agreement, or instrument from or with respect to
Borrower or any other Person does not constitute a continuing waiver with
respect to the obligation to fulfill the conditions precedent to the making
or renewal of each Loan and the issuance of each Letter of Credit
hereunder.
1.7 INSURANCE. On and after (but not before) the Effective Date,
Section 5.5 of the Credit Agreement is amended by deleting subsection
5.5(a)(iii).
1.8 MAINTENANCE OF LIENS. On and after (but not before) the
Effective Date, Section 5.12 of the Credit Agreement is hereby deleted.
1.9 AFTER-ACQUIRED COLLATERAL. On and after (but not before) the
Effective Date, Section 5.14 of the Credit Agreement is deleted.
1.10 GUARANTIES AND SECURITY AGREEMENTS FROM SUBSIDIARIES. On and
after (but not before) the Effective Date, Section 5.17 of the Credit Agreement
is hereby amended to read as follows:
5.17 GUARANTIES FROM SUBSIDIARIES. Subject to SECTION 6.9 herein, as
promptly as possible after any entity becomes a Subsidiary of Borrower,
such Subsidiary shall execute and deliver to Agent (a) a guaranty
unconditionally guaranteeing all of the Obligations and (b) such other
documents and agreements as Agent may reasonably request. All of the
foregoing documents shall be in form and substance satisfactory to Agent.
1.11 OTHER INDEBTEDNESS. On or after (but not before) the Effective
Date, Section 6.3 of the Credit Agreement is hereby amended to read as follows:
- 3 -
<PAGE>
6.3 OTHER INDEBTEDNESS. Create, incur, assume, or suffer to exist,
contingently or otherwise, any Indebtedness except (a) Indebtedness
represented by the Note; (b) trade accounts and other current payables
arising from the ordinary course of business, (c) unsecured commercial
paper, and (d) additional Indebtedness outstanding or committed to at any
time (including without limitation, Indebtedness evidenced by notes, bonds,
debentures, leases, purchase agreements, and other contractual obligations)
incurred in the ordinary course of business of Borrower and its
Subsidiaries for the purchase, lease, or other acquisition of capital
assets or leasehold interests required for the operation of the retail
stores, warehouses, an other supporting facilities of Borrower and its
Subsidiaries. Except as allowed in SECTION 6.4 herein, none of the
Indebtedness described in this SECTION 6.3 shall be secured by any of the
assets or rights of Borrower or its Subsidiaries.
1.12 CHANGE OF CHIEF EXECUTIVE OFFICER NAME. On and after (but not
before) the Effective Date, Section 6.11 of the Credit Agreement is hereby
amended to read as follows:
6.11 CHANGE OF CHIEF EXECUTIVE OFFICE OR NAME. Change the location of
the chief executive office of Borrower, or Borrower's name, or adopt or use
any trade name without prior written notice to Agent.
1.13 WORKING CAPITAL. On and after (but not before) the Effective
Date, Section 6.20 of the Credit Agreement is hereby amended to read as follows:
6.20 WORKING CAPITAL. Commencing with the Fiscal Quarter ending
closest to January 31, 1997, and for each Fiscal Quarter thereafter, permit
the positive difference between Current Assets and Adjusted Current
Liabilities at the end of any Fiscal Quarter to be less than $45,000,000 or
the Aggregate Current Amount, whichever is greater.
1.14 CAPITAL EXPENDITURES. On and after (but not before) the
Effective Date, Section 6.21 of the Credit Agreement is hereby amended to read
as follows:
6.21 CAPITAL EXPENDITURES. Permit the aggregate amount of Borrower's
Consolidated Capital Expenditures (a) to exceed $85,000,000 for the Fiscal
Year ending January 31, 1997, and (b) to exceed $95,000,000 for Fiscal Year
ending closest to January 31, 1998.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF BORROWER
In order to induce Lenders and Agent to enter into this Amendment,
Borrower represents and warrants to each Lender and to Agent that the following
statements are true, correct, and complete:
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<PAGE>
2.1 CORPORATE POWER AND AUTHORITY. Borrower has all corporate power
and authority to enter into this Amendment and carry out the transactions
contemplated hereby, and perform its obligations under the Credit Agreement.
2.2 INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article VII of the
Credit Agreement are and will be true, correct, and complete in all material
respects on and as of the date of the Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which they were true,
correct, and complete in all material respects on and as of such earlier date.
2.3 ABSENCE OF DEFAULT. No event has occurred and is continuing that
will constitute a Default or an Event of Default.
ARTICLE III. CONDITIONS TO EFFECTIVENESS
Article I of this Amendment shall become effective as of December 1,
1996 (the "Effective Date"), provided that (a) all representations and
warranties contained herein are true and correct as of the Effective Date, and
(b) Agent shall have received each of the following, dated the date hereof (or
such other date satisfactory to Agent), and in form and substance satisfactory
to Agent.
3.1 AMENDMENT. A duly executed original (or, if elected by Agent, an
executed facsimile copy) of this Amendment, duly executed by Borrower and the
Requisite Lenders.
3.2 FURTHER ASSURANCES. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated by this Amendment
and all documents relating thereto shall be reasonably satisfactory in form and
substance to Agent and Agent shall have received all counterpart originals or
certified copies of such documents as it may reasonably request.
ARTICLE IV. MISCELLANEOUS
4.1 RESERVATION OF RIGHTS. Borrower acknowledges and agrees that the
execution and delivery by Agent and Lenders of this Amendment, shall not be
deemed to create a course of dealing or otherwise obligate Agent or Lenders to
give similar amendments in the future.
4.2 REAFFIRMATION. Except as hereby expressly amended, all terms,
covenants, and provisions of the Credit Agreement are and shall remain in full
force and effect and all references therein and in the other Loan Documents to
such Credit Agreement shall henceforth refer to the Credit Agreement as amended
by this Amendment. This Amendment shall be deemed incorporated into, and a part
of, the Credit Agreement.
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<PAGE>
4.3 SUPERSESSION. This Amendment, together with the Credit
Agreement, contains the entire and exclusive agreement of the parties hereto
with reference to the matters discussed herein and therein. This Amendment
supersedes all prior drafts and communications with respect thereto. This
Amendment may not be amended except in accordance with the provisions of Section
10.8 of the Credit Agreement.
4.4 CONSENT TO RELEASE OF COLLATERAL. The Requisite Lenders hereby
authorize and direct Agent to release any and all Liens of Agent on the
Collateral.
4.5 FEES AND EXPENSES. Borrower acknowledges that all reasonable
costs, fees, and expenses as described in Section 10.2 of the Credit Agreement
incurred by Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of
Borrower.
4.6 INVALIDITY. If any term or provision of this Amendment shall be
deemed prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this Amendment or
the Credit Agreement, respectively.
4.7 GOVERNING LAW. This Amendment and the rights and obligations of
the parties hereunder shall be governed by, and shall be construed and enforced
in accordance with the internal laws of the state of Washington, without regard
to conflicts of laws principles.
4.8 HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
4.9 SUCCESSORS. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and thereto and their respective successors
and assigns. No third-party beneficiaries are intended in connection with this
Amendment.
4.10 COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Amendment
to be duly executed and delivered by their respective officers therein to duly
authorized as of the date first above written.
BORROWER:
EAGLE HARDWARE & GARDEN, INC.
By /s/ Ronald P. Maccarone
--------------------------------
Title EXEC. V.P. FINANCE/C.F.O.
--------------------------------
LENDERS:
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By
--------------------------------
Title
--------------------------------
FIRST HAWAIIAN BANK
By
--------------------------------
Title
--------------------------------
UNITED STATES NATIONAL BANK
OF OREGON
By
--------------------------------
Title
--------------------------------
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Amendment
to be duly executed and delivered by their respective officers therein to duly
authorized as of the date first above written.
BORROWER:
EAGLE HARDWARE & GARDEN, INC.
By
--------------------------------
Title
--------------------------------
LENDERS:
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By /s/ David Westburg
--------------------------------
Title Vice President
--------------------------------
FIRST HAWAIIAN BANK
By
--------------------------------
Title
--------------------------------
UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Wade Black
--------------------------------
Title VICE PRESIDENT
--------------------------------
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Amendment
to be duly executed and delivered by their respective officers therein to duly
authorized as of the date first above written.
BORROWER:
EAGLE HARDWARE & GARDEN, INC.
By
--------------------------------
Title
--------------------------------
LENDERS:
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By
--------------------------------
Title
--------------------------------
FIRST HAWAIIAN BANK
By /s/ Robert M. Wheeler, III
--------------------------------
Robert M. Wheeler, III
Title Vice President
--------------------------------
UNITED STATES NATIONAL BANK
OF OREGON
By
--------------------------------
Title
--------------------------------
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<PAGE>
KEY BANK OF WASHINGTON
By /s/ Kathleen Johanson
--------------------------------
Title Vice President
--------------------------------
THE SUMITOMO BANK, LIMITED
By
--------------------------------
Title
--------------------------------
By
--------------------------------
Title
--------------------------------
FIRST SECURITY BANK OF IDAHO, N.A.
By
--------------------------------
Title
--------------------------------
AGENT:
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By /s/ David Westburg
--------------------------------
Title Vice President
--------------------------------
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<PAGE>
KEY BANK OF WASHINGTON
By
--------------------------------
Title
--------------------------------
THE SUMITOMO BANK, LIMITED
By /s/ J. William Bloore
--------------------------------
J. William Bloore
Title Vice President
--------------------------------
By /s/ Carole A. Daley
--------------------------------
Carole A. Daley
Title Vice President
--------------------------------
FIRST SECURITY BANK OF IDAHO, N.A.
By
--------------------------------
Title
--------------------------------
AGENT:
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By
--------------------------------
Title
--------------------------------
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<PAGE>
KEY BANK OF WASHINGTON
By
--------------------------------
Title
--------------------------------
THE SUMITOMO BANK, LIMITED
By
--------------------------------
Title
--------------------------------
By
--------------------------------
Title
--------------------------------
FIRST SECURITY BANK OF IDAHO, N.A.
By /s/ Brian W. Cook
--------------------------------
Title Vice President
--------------------------------
AGENT:
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By
--------------------------------
Title
--------------------------------
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<PAGE>
FIRST AMENDMENT
TO
AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY
THIS FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY
(the "First Amendment") is entered to this 13th day of November, 1996 between
NORTHGLENN PARTNERS, L. P., a California limited partnership ("Seller") and
EAGLE HARDWARE & GARDEN, INC., A Washington corporation ("Buyer").
RECITALS:
A. On September 6, 1996, Seller and Buyer entered into that certain
Agreement for Purchase and Sale of Real Property (the "Agreement"), with respect
to certain real property located in the City of Northglenn, County of Adams,
Colorado, consisting of approximately 9.2 acres (the "Property").
B. The Agreement contemplated that Seller would deliver to Buyer a
survey, together with certain other documents and plans, and Seller has
encountered delays in the production and delivery of several of such items.
Therefore, the parties desire to extend certain timeframes in the Agreement, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to amend the
Agreement as follows:
1. DELIVERY OF SURVEY. Paragraph 3(b) of the Agreement is hereby amended
to provide that Seller shall deliver the Survey to Buyer on or before
December 1, 1996.
2. EXTENSION OF OTHER DATES FOR PERFORMANCE. Because of the delay in the
delivery of the Survey, the parties desire to extend all other dates for
performance in the Agreement by sixty (60) days, which is the approximate time
in the delay in delivering the Survey. The amended timeframes are as follows:
(a) The Contingency Period, as defined in Paragraph 4(a), shall now
expire one hundred fifty (150) days following the Effective Date, which date is
February 3, 1997;
(b) The Approval Period, as defined in Paragraph 4(b), shall now
expire two hundred forty (240) days following the Effective Date, which date is
May 5, 1997;
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<PAGE>
(c) The date for Seller's waiver or approval of the conditions set
forth in Paragraph 5(a) shall now expire one hundred forty-five (145) days
following the Effective Date, which date is January 29, 1997;
(d) The date for Seller's delivery of the grading and drainage plan,
as set forth in Paragraph 6, shall be extended to ninety (90) days following the
Effective Date; which date is December 5, 1996;
(e) The Closing Date, as set forth in Paragraph 7, shall occur no
later than two hundred seventy (270) days following the Effective Date, which
date is June 4, 1997; and
(f) The date for delivery of the REA, as set forth in Paragraph 15,
shall be no later than one hundred twenty (120) days following the Effective
Date, which date is January 6, 1997.
3. MISCELLANEOUS.
(a) The Agreement, as modified herein, shall remain in full force and
effect and is hereby ratified by the parties hereto.
(b) Capitalized terms not defined herein shall have the same meaning
as set forth in the Agreement.
(c) This First Amendment shall be binding upon and inure to the
benefit of the parties hereto and their permitted successor and assigns.
(d) This First Amendment shall be governed by and construed in
accordance with the laws of the State of Colorado.
In Witness Whereof, the parties have executed this First Amendment to be
effective as of the date first set forth above.
EAGLE HARDWARE & GARDEN, INC.
a Washington corporation
By: /s/ PAUL B. MORRIS
-----------------------------
Title: Vice President
--------------------------
(signatures continued on next page)
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<PAGE>
NORTHGLENN PARTNERS, L.P.
By: HRBF NORTHGLENN NO. 3, L.P.
a California limited partnership,
General Partner
By: Northglenn - LRP, Inc.,
a California corporation
General Partner
By: /s/ Mark L. Kurtz
-----------------------
Mark L. Kurtz
Its: Vice-President
3
<PAGE>
SECOND AMENDMENT
TO
AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY
THIS SECOND AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY
(the "Second Amendment") is entered into this 17th day of December, 1996
between NORTHGLENN PARTNERS, L.P., a California limited partnership ("Seller")
and EAGLE HARDWARE & GARDEN, INC., a Washington corporation ("Buyer").
RECITALS:
A. On September 6, 1996, Seller and Buyer entered into that certain
Agreement for Purchase and Sale of Real Property (the "Agreement"), with respect
to certain real property located in the City of Northglenn, County of Adams,
Colorado, consisting of approximately 9.2 acres (the "Property").
B. On November 13, 1996, the parties executed that certain First
Amendment to Agreement for Purchase and Sale of Real Property (the "First
Amendment") pursuant to which the parties extended certain timeframes in the
Agreement, on the terms and conditions set forth therein.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to amend the
Agreement as follows:
1. DELIVERY OF SURVEY. Paragraph 3(b) of the Agreement is hereby further
amended to provide that Seller shall deliver the Survey to Buyer on or before
December 15, 1996.
2. EXTENSION OF OTHER DATES FOR PERFORMANCE. Because of the delay in
the delivery of the Survey, the parties desire to extend certain other dates
for performance in the Agreements. The amended timeframes are as follows:
(a) The Contingency Period, as defined in Paragraph 4(a), shall now
expire on March 3, 1997;
(b) The Approval Period, as defined in Paragraph 4(b), shall now
expire on June 2, 1997;
(c) The date for Seller's waiver or approval of the conditions set
forth in Paragraph 5(a) shall now expire on April 1, 1997;
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<PAGE>
(d) The date for Seller's delivery of the grading and drainage
plan, as set forth in Paragraph 6, shall be extended to January 15, 1997;
(e) The Closing Date, as set forth in Paragraph 7, shall occur no
later than June 30, 1997; and
(f) The date for Buyer to deliver objections to the REA as set forth
in Paragraph 15, shall be extended until January 22, 1997.
3. MISCELLANEOUS.
(a) The Agreement, as modified herein, shall remain in full force and
effect and is hereby ratified by the parties hereto.
(b) Capitalized terms not defined herein shall have the same meaning
as set forth in the Agreement.
(c) This Second Amendment shall be binding upon and inure to the
benefit of the parties hereto and their permitted successor and assigns.
(d) This Second Amendment shall be governed by and construed in
accordance with the laws of the State of Colorado.
In Witness Whereof, the parties have executed this Second Amendment to be
effective as of the date first set forth above.
EAGLE HARDWARE & GARDEN, INC.
a Washington corporation
By: /s/ PAUL B. MORRIS
-----------------------------
Title: Vice President
--------------------------
(signatures continued on next page)
2
<PAGE>
NORTHGLENN PARTNERS, L.P.
By: HRBF NORTHGLENN NO. 3, L.P.
a California limited partnership,
General Partner
By: Northglenn - LRP, Inc.,
a California corporation
General Partner
By: /s/ Mark L. Kurtz
--------------------------------
Mark L. Kurtz
Its: Vice-President
3
<PAGE>
REAL ESTATE PURCHASE AND SALE AGREEMENT
This agreement (the "Agreement") dated 3-12, 1997 by and between
WASHINGTON-111, LTD., a California limited partnership ("Seller") and EAGLE
HARDWARE & GARDEN, INC., a Washington corporation, or assigns ("Buyer") for
purchase and sale of that certain real property consisting of approximately
13.47 acres fronting on the southwesterly side of Highway 111 between Washington
Street on the west and Adams Street on the east in La Quinta, California, the
legal description of which is described on Exhibit A and any improvements
thereon and all rights appurtenant thereto (the "Property"). The Property is
shown on the proposed site plan dated March 4, 1997 and numbered X491B (the
"Site Plan") and attached hereto as Exhibit B.
Seller agrees to sell, and Buyer agrees to buy, the Property upon and
subject to the terms and conditions set forth below:
1. PURCHASE PRICE; PAYMENT. The total purchase price for the Property
shall be five dollars ($5.00) per gross square foot of unimproved land area to
the centerline of abutting roadways but the measurement of land area to such
centerlines shall apply only to proposed new streets and/or common area drives
which abut or straddle the actual length of Buyer's property lines. The gross
square footage of land to be purchased shall not include any ground abutting
existing streets or highways which have already been identified for future
right-of-way widening. It is estimated that the Property contains 586,753 square
feet and that the purchase price will be Two Million Nine Hundred Thirty-three
Thousand Seven Hundred Sixty-five Dollars ($2,933,765). The area of the Property
and the total purchase price shall be determined by the current ALTA/ACSM survey
to be provided by Seller. The purchase price shall be adjusted to the final
certified square footage, which amount, including the Deposit and interest
accrued thereon, shall be paid in cash upon closing.
2. EARNEST MONEY DEPOSIT. Within ten (10) business days after the
Effective Date, Buyer will deposit earnest money of fifty thousand dollars
($50,000) (the "Deposit") with Chicago Title Insurance Company in Palm Desert,
California (the "Closing Agent"). The Closing Agent shall place the Deposit in
an interest-bearing account, with interest to accrue to Buyer's benefit. If this
transaction does not close for any reason other than default by Buyer under this
Agreement, the Deposit, and all interest accrued thereon, shall be returned to
Buyer. In the event of Buyer's default under this Agreement, Seller shall have
as its sole remedy the right to terminate this Agreement and retain the Deposit,
together with accrued interest thereon, as liquidated damages.
3. CONTINGENCIES. Buyer's obligation to purchase the Property is subject
to Buyer's satisfaction or waiver, in writing, of the following conditions
precedent, in Buyers sole and absolute discretion, on or before the dates
described below:
3.1 FEASIBILITY. Buyer's sole determination that its proposed site
plan, building plan, parking plan and access plan for the Property are
acceptable; that utilities are available of adequate capacity to serve the
Property; and that the Property is otherwise feasible for its intended use.
3.2 STUDIES. Buyer's approval of all soils, engineering, seismic,
environmental, topography, hazardous waste, geotechnical, wetlands, drainage and
other studies that may be deemed necessary by Buyer or required by any
governmental agency in connection with the Property and Buyer's planned
development and use of the Property. All studies are to be obtained by Buyer at
Buyer's sole expense. In the event Buyer fails to close, all such studies shall
become the property of Seller at no expense to Seller.
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<PAGE>
3.3 APPROVALS AND PERMITS. Issuance of any and all required or
applicable governmental approvals included but not limited to a PUD and plat of
the Property, subdivision approvals, rezoning approvals, California Department
of Transportation highway access and traffic signal approvals, building permits,
use permits, design review approvals, site plan approvals, and approvals of any
kind from any and all governmental agencies having jurisdiction over the
Property, necessary for Buyer to develop, construct it's building and site
improvements and operate its selected business on the Property. The timing,
conditions and cost of any or all of the permits and approvals (including any
mitigation fees) must be satisfactory to Buyer in its sole discretion.
3.4 TIME PERIODS. Buyer shall have sixty (60) days from the Effective
Date (the "Feasibility Period") to satisfy or waive the contingencies set forth
in Sections 3.1 and 3.2 (the "Feasibility Period"). Buyer shall have one hundred
eighty (180) days (the "Contingency Period") from the end of the Feasibility
Period to satisfy or waive the contingencies set forth in Section 3.3 provided,
however, that if Buyer submits documentation to Buyer no later than ten (10)
days after the Effective Date that convinces Buyer in its sole and absolute
discretion about the Property is currently zoned to allow Buyer's typical retail
sales operations and facilities and that a "big box" retail store, a drive-
through building materials yard and an outdoor garden yard are permitted uses on
the site, then, in such event, the Contingency Period shall run concurrently
with the Feasibility Period, and provided further, that the Contingency Period
shall be further shortened if all approvals and permits under Section 3.3 above
are obtained in less than one hundred eighty (180) days, in which event the
Contingency Period shall end within ten (10) days after the last such approval
or permit is obtained by Buyer. If Buyer does not satisfy or waive the
contingencies by the applicable dates, the Deposit, with interest, shall be
refunded to Buyer and the Agreement shall terminate.
4. CLOSING.
4.1 TIME FOR CLOSING; TERMINATION DATE. This sale shall be closed in
the office of the Closing Agent within fifteen (15) days after all of Buyer's
conditions precedent have been satisfied or waived by Buyer on a date selected
by Buyer and agreeable to Seller. Buyer and Seller shall deposit in escrow with
Closing Agent all instruments, documents and monies necessary to complete the
sale in accordance with this Agreement. As used herein, "closing" or "date of
closing" means the date on which all appropriate documents are recorded and
proceeds of sale are available for disbursement to Seller. Funds held in reserve
accounts pursuant to escrow instructions shall be deemed, for purposes of this
definition, as available for disbursement to Seller.
4.2 PRORATIONS; CLOSING COSTS. Taxes and assessments for the current
year and utilities constituting liens shall be prorated as of the date of
closing. Seller shall pay the premium for the title insurance policy, real
estate excise, transfer and/or conveyance taxes, the cost of conveyance tax
stamps, if any, and one-half of Closing Agent's escrow fee. Buyer shall pay the
cost of recording the statutory warranty deed, and one-half of Closing Agent's
escrow fee and the difference in the cost of premium between standard owner's
and extended coverage.
4.3 POSSESSION. Buyer shall be entitled to possession upon closing.
5. CONVEYANCE OF TITLE. On closing, Seller shall execute and deliver to
Buyer a statutory warranty deed conveying good and marketable title to the
Property free and clear of any defects or encumbrances except for the lien of
real estate taxes for the current calendar year not yet due and payable, those
defects or encumbrances appearing on the preliminary commitment for title
insurance that are approved by Buyer (the "Permitted Exceptions"), and other
encumbrances or defects approved by Buyer in writing.
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<PAGE>
6. TITLE INSURANCE AND SURVEY. Within fifteen (15) days after the
Effective Date, Seller shall provide Buyer with a current preliminary
commitment for owner's title insurance with extended coverage (ALTA Form
1970-B, as revised in 1984 or if unavailable, Form B-1987) issued by Chicago
Title Insurance Company, with copies of all documents listed as exceptions
set forth therein. Within thirty (30) days after the Effective Date, Seller
shall provide Buyer with a current ALTA/ACSM survey with land area
certification of the Property, at Seller's cost. Buyer shall have fifteen
(15) days from the later receipt of either the preliminary committment or the
survey (and any amendments, supplements and revisions to either in which new
or revised exceptions or items first appear) to notify Seller of its
disapproval of any exceptions shown in the preliminary commitment or any
items on the survey. If, within twenty (20) days after the receipt of such
notice Seller has not removed or given reasonable written assurances to Buyer
that such disapproved exceptions or items will be removed on or before
closing, Buyer may, at its option, at any time prior to such removal or
receipt of such reasonable written assurances, terminate this Agreement by
giving notice of such termination to Seller. On such termination Closing
Agent shall refund the Deposit and all interest accrued thereon to Buyer and
all rights and obligations of Seller and Buyer under this Agreement shall
terminate and be of no further force or effect. Buyer agrees not to record
the survey in advance of closing and then only just ahead of the recording of
the deed as part of the closing process.
Neither Seller nor Buyer shall be required to close, and the Deposit and
all interest thereon shall be returned to Buyer, if any exception or item
disapproved by Buyer as herein provided cannot be removed by the date of
closing; provided, however, that Buyer may elect to waive any disapproved
exceptions or items and close on the remaining terms. Notwithstanding the
foregoing, Seller shall remove any defect or encumbrance attaching by,
through or under Seller after the Effective Date of this Agreement.
Exceptions to be discharged by Seller may be paid out of the purchase price
at closing.
As soon as available after closing, Seller shall provide to Buyer a
policy of title insurance pursuant to the preliminary commitment, dated as of
the closing date and insuring Buyer in the amount of the purchase price
against loss or damage by reason of defect in Buyer's title to the Property
subject only to the printed exclusions and general exceptions appearing in
the policy form; any Permitted Exceptions; the exceptions specified in the
preliminary commitment which Buyer has not disapproved of as provided herein;
and real property taxes and assessments that are not delinquent.
7. RISK OF LOSS; CONDEMNATION. Risk of loss of or damage to the
Property shall be borne by Seller until the date of closing. Thereafter,
Buyer shall bear the risk of loss. In the event of material loss of or damage
to the Property prior to the date upon which Buyer assumes the risk, Buyer
may terminate this Agreement by giving notice of such termination to Seller
and Closing Agent, and such termination shall be effective and the Deposit
and interest thereon shall be refunded ten (10) days thereafter; provided,
however, that such termination shall not be effective if Seller agrees in
writing within such ten (10) day period to restore the Property substantially
to its present condition by the closing date.
If the Property is or becomes the subject of a condemnation proceeding
prior to closing, Buyer may, at its option, terminate this Agreement by
giving notice of such termination to Seller, and upon such termination the
Deposit and accrued interest shall be returned to Buyer and this Agreement
shall be of no further force or effect; provided, however, that Buyer may
elect to purchase the Property, in which case the total purchase price shall
be reduced by the total of any condemnation award received by Seller. On
closing, Seller shall assign to Buyer all of Seller's rights in and to any
future condemnation awards or other proceeds payable or to become payable by
reason of any taking. Seller agrees to notify Buyer of eminent domain
proceedings within five (5) days after Seller learns thereof.
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<PAGE>
8. SELLER'S REPRESENTATIONS AND WARRANTIES. In addition to other
representations herein, Seller represents and warrants to Buyer as of the
date of closing that:
8.1 Seller, and the person signing on behalf of Seller, has full
power and authority to execute this Agreement and perform Seller's
obligations hereunder, and all necessary partnership action to authorize this
transaction has been taken;
8.2 The Property is not subject to any leases, tenancies or
rights of persons in possession;
8.3 Neither the Property nor the sale of the Property violates any
applicable statute, ordinance or regulation, nor any order of any court or any
governmental authority or agency, pertaining to the Property or the use
occupancy or condition thereof;
8.4 Seller is unaware of any material defect in the Property;
8.5 All persons and entities supplying labor, materials and
equipment to the Property have been paid and there are no claims or liens;
8.6 There are no currently due and payable assessments for public
improvements against the Property and Seller is not aware of any local
improvement district or other taxing authority having jurisdiction over the
Property in the process of formation;
8.7 The Property has legal access to all streets adjoining the
Property;
8.8 Seller has good and marketable title to the Property;
8.9 Seller is not a "foreign person" for purposes of Section 1445
of the Internal Revenue Code. Prior to closing, Seller shall execute and
deliver to Closing Agent an affidavit in order to meet the Foreign Investment
in Real Property Tax Act ("FIRPTA") requirements of I.R.C. #1445; and
8.10 Seller has not received notification of any kind from any
agency suggesting that the Property is or may be targeted for a Superfund
or similar type of cleanup. To the best of Seller's knowledge, neither the
Property nor any portion thereof is or has been used (i) for the storage,
disposal or discharge of oil, solvents, fuel, chemicals or any type of toxic
or dangerous or hazardous waste or substance, (ii) as a landfill or waste
disposal site, and (iii) does not contain any underground storage tanks.
Seller agrees to indemnify, defend and hold Buyer harmless from and against
any and all loss, damage, claims, penalties, liability, suits, costs and
expenses (including, without limitation, reasonable attorneys' fees) and also
including without limitation, costs of remedial action or cleanup, suffered
or incurred by Buyer arising out of or related to any such use of the
Property, or portion thereof, occurring prior to the conveyance to Buyer,
about which Seller knew or reasonably should have known prior to closing.
9. BUYER'S AUTHORITY. Buyer represents and warrants to Seller that at
the date of execution hereof and at the date of closing Buyer, and the person
signing on behalf of Buyer, has full power and authority to execute this
Agreement and to perform Buyer's obligations hereunder.
10. DEFAULT. If Seller defaults hereunder, Buyer may seek specific
performance of this Agreement, damages or rescission and Buyer shall be
entitled to return of the Deposit with accrued interest, on demand. If
Buyer defaults, the Deposit and accrued interest shall be forfeited to Seller
as liquidated damages and as Seller's sole and exclusive remedy and upon
payment thereof to Seller, Buyer shall have no further obligations or
liability hereunder. In any suit, action or appeal therefrom to enforce this
Agreement or any term or provision hereof, or to interpret this Agreement,
the prevailing party shall be entitled to recover its costs incurred therein,
including reasonable attorneys' fees.
4
<PAGE>
11. NOTICES. All notices, waivers, elections, approvals and demands
required or permitted to be given hereunder shall be in writing and shall be
personally delivered (by overnight courier service or other means of personal
service) or sent by United States certified mail, return receipt requested, to
the addressee's mailing address set forth on the signature page:
and, in the case of Buyer, a copy to: William N. Moloney
5711 NE Tolo Rd.
Bainbridge Island, WA 98110
and, in the case of Seller, a copy to: J. John Anderholt, Esq.
42-60 Cook St. #205
Palm Desert, CA 92211
Either party hereto may, by proper notice to the other, designate any other
address for the giving of notice. Any notice shall be effective when personally
delivered or, if mailed as provided herein, on the date of actual receipt.
12. ASSIGNMENT. Buyer may assign its rights hereunder to any person or
entity provided that an Eagle Hardware & Garden store is constructed and
operated on the site. An assignment for any other use shall require Seller's
consent which may be withheld in the sole discretion of Seller.
13. SITE BALANCING. Buyer shall be allowed to use excess soils located on
adjoining vacant parcels for the purpose of establishing a level subgrade across
Buyer's site at a suitable level to accommodate the construction of Buyer's
improvements. No soils shall be removed from other parcels below the subgrade
elevations established for Buyer's site. Any areas of soil removal on the other
parcels shall be left in a smooth graded condition with all site grubbed debris
stockpiled for future disposal. All the foregoing site balancing work shall be
at Buyer's expense. If requested by Buyer, Seller shall grant temporary
construction easements on the other parcels to access and remove the excess
soils.
14. NO NEGOTIATIONS WITH THIRD PARTY. Seller shall not negotiate nor
commit to sell, lease or otherwise transfer the Property on any portion thereof
to any other person or party as long as Buyer is proceeding in good faith to
perform its duties under this Agreement. This covenant shall remain in full
force and be legally binding upon Seller until termination of this Agreement.
Notwithstanding the above, Seller shall have the right to accept backup offers
to purchase the Property during the term of this Agreement provided such offers
are unsolicited and not negotiated.
15. GENERAL. This is the entire agreement of Buyer and Seller with respect
to the matters covered hereby and supersedes all prior agreements between them,
written or oral. This Agreement may be modified only in writing, signed by Buyer
and Seller. Any waivers hereunder must be in writing. No waive of any right or
remedy in the event of default hereunder shall constitute a waiver of such right
or remedy in the event of any subsequent default. This Agreement is for the
benefit only of the parties hereto and shall inure to the benefit of and bind
the heirs, personal representatives, successors and assigns of the parties
hereto. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision hereof.
16. SURVIVAL OF WARRANTIES. The terms, covenants, representations and
warranties shall not merge in the deed of conveyance, but shall survive closing.
5
<PAGE>
17. COMMISSIONS. All real estate commissions and/or brokers' fees shall be
payable by Seller at closing to Del Gagnon Company, Inc. (the "Broker"). Such
commission and/or fee shall be agreed upon in a separate agreement between
Seller and Broker. Each party represents to the other that it has engaged no
other broker in connection with the negotiations leading to this Agreement.
Seller agrees to indemnify and hold Buyer harmless from and against all claims
and demands on any and all brokers or agents with respect to the Property.
18. EXHIBITS. Exhibits A and B attached hereto are incorporated herein as
if fully set forth.
Exhibit A - Legal Description
Exhibit B - Site Plan
19. EFFECTIVE DATE. The later of the Buyer's signature date and the
Seller's signature date, set forth below, shall be the "Effective Date" of this
Agreement.
BUYER: EAGLE HARDWARE & GARDEN, INC.
By: /s/Richard T. Takata
-------------------------------------
Typed name: Richard T. Takata
March 5 , 1997
- -----------------
Buyer's signature date Its: President
Address:
981 Powell Avenue S.W.
Renton, WA 98055
SELLER: WASHINGTON-111, LTD.
By: /s/ Jack D. Franks
-------------------------------------
Typed name: Jack D. Franks
3-12 , 1997
- -----------------
Seller's signature date Its: Secretary of General Partner
Apollo, Inc.
Address:
42-600 Cook Street, Suite 205
Palm Desert, CA 92211
6
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF THE PROPERTY
(To be provided by Seller upon completion of the ALTA/ACSM Class A survey as set
forth in Section 6).
EXHIBIT "A"
7
<PAGE>
EXHIBIT "B"
[MAP]
EXHIBIT "B"
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (AGREEMENT), made this 18th day of March, 1997, by
and between David J. Heerensperger, whose address is 96 Cascade Key, Bellevue
WA 98006, hereinafter referred to as "Seller", and Eagle Hardware & Garden,
Inc, hereinafter referred to as "Purchaser" whose address is 981 Powell
Avenue S.W., Renton WA 98055.
Now therefore, in consideration of the mutual covenants herein contained, the
parties agree as follows:
1. The Purchaser agrees to purchase and Seller agrees to sell the
following aircraft:
MAKE and MODEL: BAE Hawker 700
SERIAL NUMBER: 257020
REGISTRATION NUMBER: N311 JD
MAKE AND MODEL OF ENGINES: Garrett TFE-731
ENGINE SERIAL NUMBERS: P80147, P80151
All of the above will hereinafter be referred to collectively as the
"Aircraft".
2. Purchaser agrees to Pay Seller the total purchase price of $3,040,000.
3. The aircraft shall be delivered by Seller to Purchaser on or before
March 18, 1997, at Seattle WA.
4. Title to the Aircraft shall pass from Seller to Purchaser upon
execution of this Purchase Agreement by Seller and Purchaser. The risk of
loss, injury, destruction or damage to the Aircraft by fire or casualty or
other occurrence shall be assumed by the Purchaser at the time of delivery
thereof or upon transfer of title documents, whichever event shall first
occur, and such occurrence after delivery or transfer of title shall not
relieve the Purchaser from any obligation hereunder.
5. At the time of delivery of the Aircraft and full payment by Purchaser,
Seller shall transfer to Purchaser a Bill of Sale or other document in the
normal and usual form conveying title of the Aircraft to Purchaser free and
clear of all liens, charges or encumbrances other than those specified
herein. Seller warrants that the Bill of Sale or other document of title
referred to herein shall pass to Purchaser good and defensible Title.
6. Seller warrants that there are no outstanding or delinquent taxes
attributable to Aircraft as of the date hereof except as specifically stated
herein. Purchaser hereby agrees to pay the taxes, duties, or fees that may be
assessed or levied by any Federal, State, or local taxing authority as a
result of the sale, delivery, registration or ownership of the Aircraft, but
specifically excluding any capital gains, income or other similar taxes of
Seller.
7. Seller represents and warrants that he has full corporate authority
and approval to sell and deliver the Aircraft as contemplated in this
Agreement.
<PAGE>
8. Purchaser represents that it has full corporate authority and is duly
authorized to act on behalf of Purchaser.
9. The Aircraft is being sold on an "as is" basis, and there are no
warranties which extend beyond the descriptions of the Aircraft. Seller
disclaims all expressed or implied warranties or representations of any kind
or nature whatsoever including merchantability and fitness except that Seller
warrants that the Aircraft will be delivered with the appropriate or required
Bill of Sale and other title documents.
10. At the time of delivery, the Aircraft shall have a valid Certificate
of Airworthiness. Seller warrants that there are no hidden defects of the
Aircraft which may not be discoverable from a normal inspection. Seller,
however, shall not be liable for any hidden defects of the Aircraft, of which
he has no knowledge, whether or not discoverable by Seller.
11. Seller agrees to make the Aircraft available to Purchaser at the time
of delivery to enable Purchaser to determine that the Aircraft is in the same
condition as described herein. Seller shall be financially responsible for
the repair of Aircraft as airworthy deficiencies are discovered during the
pre-purchase inspection.
12. To the extent that any manufacturer's warranties are still in effect
with respect to the Aircraft (other than warranties which by their terms are
unassignable), Seller will reasonably assist Purchaser to maintain continuity
of the warranties and take such other reasonable steps to assist Purchaser to
process warranty claims directly with the manufacturers.
13. Seller will transfer to Purchaser at the time of delivery of the
aircraft all available logbooks and other records as pertain to the operation
and maintenance of the Aircraft.
14. All notices and requests hereunder shall be in writing and may be
given by U.S. Mail, telegram, or telex, and shall be sent to the addresses
hereinabove set forth, (or to such other addresses as may hereafter be
designated in writing).
15. Seller shall not be liable for any failure of or delay in delivery of
the Aircraft for the period that such failure or delay is due to acts of God
or the public enemy; civil war, insurrection or riots; fires, explosions or
serious accidents; Governmental priorities or allocations; strikes or labor
disputes; inability to obtain aircraft, necessary materials, accessories,
equipment or parts from the manufacturers thereof; or any other cause beyond
Seller's control. In such notice, Seller will advise Purchaser either (A) of
its inability to deliver, and upon such notice this Agreement shall terminate
without further force and effect; or (B) of Seller's intention that it can
delivery the Aircraft within thirty (30) days of such notice, in which event,
Purchaser agrees to extend the time of delivery by Seller for such (30) day
period.
Page Two
<PAGE>
16. Purchaser hereby agrees to defend, indemnify and hold harmless Seller
and his agents, employees and affiliates from and against any and all claims,
demands, suits, obligations, liabilities and damages, including legal fees,
costs and expenses, arising out of acts or omissions occurring at any time
after delivery of the Aircraft, and in any manner arising out of or in any
way connected with the ownership, custody, movement, purchase, sale, use,
operation, repair, maintenance, modification, storage or disposition of the
Aircraft or materials, whether or not arising in tort, and Seller hereby
agrees to defend, indemnify and hold harmless Purchaser and its agents,
directors, officers, employees and affiliates from and against any and all
claims, demands, suits, obligations, liabilities and damages, including legal
fees, costs and expenses, arising out of acts or omissions occurring at any
time prior to delivery of the Aircraft, and in any manner arising out of or
in any way connected with the ownership, custody, movement, purchase, sale,
use, operation, repair, maintenance, modification, storage or disposition of
the Aircraft or materials, whether or not arising in tort.
17. The Agreement may not be assigned by either party without the prior
written consent of the other.
18. This Agreement shall be governed by and construed in accordance with
the laws of the United States of America and the State of Washington.
19. This Agreement shall not be modified or amended except by an instrument
in writing signed by duly authorized representatives of the parties.
20. If Purchaser fails to accept the Aircraft under the terms and
conditions of this Agreement, upon notice of Purchaser, Seller may in
addition to all other remedies available in law or equity, without prejudice,
cancel this Agreement, and proceed to otherwise sell or dispose of the
Aircraft with no further liability to the Purchaser.
21. Purchaser and Seller warrant that the terms and conditions of this
Agreement were fully read and understood and that they constitute the entire
Agreement between parties.
22. If any one or more provisions of this Agreement shall be found to be
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
23. This Agreement shall be binding upon and inure to the benefit of the
respective legal representatives and heirs of the individual parties, and the
respective successors and assignees of the corporate parties, except as
otherwise herein provided.
24. The terms and conditions of this Agreement shall remain confidential
as all parties agree not to divulge any condition of this Agreement either
prior or subsequent to delivery of the Aircraft.
Page Three
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed by their duly authorized representatives on the date first above
written.
PURCHASER:
EAGLE HARDWARE & GARDEN, INC. SELLER:
/s/ Richard T. Takata /s/ David J. Heerensperger
- ----------------------------------- ----------------------------------
RICHARD T. TAKATA, PRESIDENT DAVID J. HEERENSPERGER
Page Four
<PAGE>
SECOND AMENDMENT TO LEASE
This SECOND AMENDMENT TO LEASE (this "Second Amendment") is entered into
as of February 1, 1997 by and among WEST VALLEY 29 PARTNERS, a Washington
general partnership ("Landlord"), EAGLE HARDWARE & GARDEN, INC., a Washington
corporation ("Eagle"), and EAGLE HARDWARE & GARDEN DISTRIBUTION SERVICES,
INC., a wholly owned subsidiary of Eagle ("Distribution").
RECITALS
A. West Valley and Eagle are parties to a lease dated February 28,
1993 covering premises located at 3102 West Valley Highway, Bldg. "B",
Auburn, Washington 98001, as amended on September 15, 1993 (collectively the
"Lease").
B. The parties hereto desire to amend the Lease for the purpose of
including Distribution as a tenant and for the purpose of confirming the
continuing effect of the Lease.
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. The term "Tenant" shall refer to both Eagle and Distribution, each
of which will be jointly and severally liable for all of the Tenant's
obligations set forth in the Lease.
2. Except as required to effectuate or implement this Second
Amendment, all other terms of the Lease shall remain in full force and effect.
Executed as of the date first above written.
EAGLE HARDWARE & GARDEN, INC.
By /s/ Richard T. Takata
--------------------------------------
Its President
------------------------------------
EAGLE HARDWARE & GARDEN
DISTRIBUTION SERVICES, INC.
By /s/ Richard T. Takata
--------------------------------------
Its President
------------------------------------
Page 1 of 3
<PAGE>
WEST VALLEY 29 PARTNERS, a
Washington general partnership
By J & J PARTNERS, a Washington
general partnership,
Its Managing General Partner
By /s/ John S. Teutsch
---------------------------------
John S. Teutsch
Managing General Partner
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Richard T.
Takata is the person who appeared before me, and said person acknowledged
that he/she signed this instrument, on oath stated that he/she was authorized
to execute the instrument and acknowledged it as the President of EAGLE
HARDWARE & GARDEN, INC., to be free and voluntary act of such parties for the
uses and purposes mentioned in this instrument.
DATED: March 5, 1997 /s/ Sibyl A. Tice
-------------------- ----------------------------------------
[Notary Signature]
Sibyl A. Tice
----------------------------------------
[Type or Print Name of Notary]
NOTARY PUBLIC for the State of
Washington, residing
at Auburn
-------------------------------------
My appointment expires: 2-14-98
---------------
Page 2 of 3
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Richard T.
Takata is the person who appeared before me, and said person acknowledged
that he/she signed this instrument, on oath stated that he/she was authorized
to execute the instrument and acknowledged it as the President of EAGLE
HARDWARE & GARDEN DISTRIBUTION SERVICES, INC., to be the free and voluntary
act of such parties for the uses and purposes mentioned in this instrument.
DATED: March 5, 1997 /s/ Sibyl A. Tice
------------------ ----------------------------------------
[Notary Signature]
Sibyl A. Tice
----------------------------------------
[Type or Print Name of Notary]
NOTARY PUBLIC for the State of
Washington, residing
at Auburn
--------------------------------------
My appointment expires: 2-14-98
-----------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that John S. Teutsch,
the Managing General Partner of J & J PARTNERS, the Managing General Partner
of WEST VALLEY 29 PARTNERS, a Washington general partnership, is the person
who appeared before me, and said person acknowledged that he signed this
instrument on behalf of the partnership, acknowledged it to be free and
voluntary act of the partnership for the uses and purposes mentioned in this
instrument, and on oath stated that he was authorized to execute this
instrument.
DATED: February 11, 1997 /s/ Andrea L. Siegel
---------------------- ----------------------------------------
[Notary Signature]
Andrea L. Siegel
----------------------------------------
[Type or Print Name of Notary]
NOTARY PUBLIC for the State of
[SEAL] Washington, residing
at Seattle
--------------------------------------
My appointment expires: 5-24-98
-----------------
Page 3 of 3
<PAGE>
EAGLE HARDWARE & GARDEN, INC.
COMPUTATION OF NET INCOME PER SHARE - EXHIBIT 11.1
(IN THOUSANDS)
53 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 26, JANUARY 27,
1997 1996 1995
----------- ----------- -----------
Net income (loss) as reported $21,737 $11,335 $(6,284)
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) used for primary
computation $21,737 $11,335 $(6,284)
Add (where dilutive):
Tax effected interest and amortization
of debt expense on convertible debt 3,686 3,688 3,243
----------- ----------- -----------
Net income (loss) used for fully
diluted computation $25,423 $15,023 $(3,041)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of
common shares outstanding 25,065 22,863 22,812
Add (where dilutive):
Assumed exercise of those
options that are common stock
equivalents net of treasury
shares deemed to have been
repurchased 441 262 0
----------- ----------- -----------
Weighted average number of
common and common equivalent
shares outstanding, used for
primary computation 25,506 23,125 22,812
Add (where dilutive):
Shares applicable to stock options
in addition to those used in primary
computation due to the use of
period-end market price when
higher than average price 31 7 0
Assumed exercise of
convertible debt 4,790 4,792 4,214
----------- ----------- -----------
Adjusted shares outstanding used
for fully diluted computation 30,327 27,924 27,026
----------- ----------- -----------
----------- ----------- -----------
26
<PAGE>
Five Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
53 weeks 52 weeks 52 weeks 52 weeks 52 weeks
In thousands, except store Jan. 31 Jan. 26 Jan. 27 Jan. 28 Jan. 29
weeks and per share data 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Store weeks in period1 1,301 1,135 850 492 266
Net sales $760,963 $615,674 $518,755 $322,938 $147,281
Results of Operations Cost of sales 549,383 449,865 379,473 228,998 105,057
---------------------------------------------------------------------------------------------------------
Data Gross margin 211,580 165,809 139,282 93,940 42,224
Operating expenses 172,746 140,279 117,159 72,686 34,337
Preopening expenses 1,880 2,934 4,539 5,225 1,548
Loss on sale of Canadian subsidiary 0 0 12,715 0 0
--------------------------------------------------------------------------------------------------------------
Operating income 36,954 22,596 4,869 16,029 6,339
Other income (expense):
Net interest income (expense) (6,656) (7,398) (4,652) 470 (59)
Other income 2,471 1,860 309 264 80
-----------------------------------------------------------------------------------------------------------
Income before tax 32,769 17,058 526 16,763 6,360
Income taxes 11,032 5,723 6,810 6,004 2,200
-----------------------------------------------------------------------------------------------------------
Net income (loss) $ 21,737 $ 11,335 $ (6,284) $ 10,759 $ 4,160
Net income (loss) per share, primary $ 0.85 $ 0.49 $ (0.28) $ 0.50 $ 0.26
Net income per share, fully diluted $ .84 - - - -
Weighted average common and
common equivalent shares
for primary computation 25,506 23,125 22,812 21,681 15,704
-----------------------------------------------------------------------------------------------------------
In thousands
Balance Working capital $143,351 $ 55,391 $ 79,031 $ 56,160 $ 22,239
Sheet Total assets $519,385 $366,567 $321,865 $211,860 $102,635
Data Note payable to bank $ 0 $ 34,500 $ 6,000 $ 9,500 $ 5,700
Long-term debt $108,416 $101,542 $103,807 $ 4,915 $ 138
Shareholders' equity $304,843 $155,601 $143,849 $149,309 $ 71,724
-----------------------------------------------------------------------------------------------------------
Selected Number of stores open at end of period 27 24 19 13 7
Operating Selling square footage at end of
Data period (in thousands)2 3,348 2,861 2,248 1,520 801
Average weekly net sales per store
(in thousands) $ 585 $ 542 $ 610 $ 656 $ 554
Average daily transactions per store 2,171 2,065 2,287 2,352 2,068
Average net sale per transaction $ 38.88 $ 37.92 $ 38.44 $ 40.21 $ 38.69
Annual sales per square foot2 $ 248 $ 237 $ 268 $ 292 $ 252
-----------------------------------------------------------------------------------------------------------
In thousands, except ratios
Other Ratio of earnings to fixed charges3 2.31x 1.67x 0.96x 2.82x 2.71x
Data EBITDA4 $ 52,014 $ 33,749 $ 12,557 $ 20,199 $ 8,061
Interest expense5 $ 7,747 $ 7,421 $ 5,262 $ 90 $ 195
Capital expenditures $ 88,846 $ 45,934 $100,837 $ 58,250 $ 36,265
-----------------------------------------------------------------------------------------------------------
</TABLE>
1 "Store weeks in period" represents the aggregate
number of full weeks in which stores were open
during the reporting period.
2 The calculation of selling square footage was
adjusted in fiscal 1995 to exclude exterior lawn
and garden (including covered greenhouses).
Annual sales per square foot was adjusted
accordingly.
3 For purposes of computing the ratio of earnings to
fixed charges, earnings include earnings (loss)
before income taxes, amortization of debt expense
and interest expense, including that portion of
rental expense which management deems attributable
to interest costs. Fixed charges consist of
interest expense, including that portion of rental
expense which management deems attributable to
interest costs, and interest capitalized during
the period. In fiscal 1994, earnings were net of
a $12,715,000 pretax loss on the sale of the
Company's Canadian subsidiary. Excluding this
loss, the fiscal 1994 ratio of earnings to fixed
charges would have been 1.63x.
4 EBITDA is defined as net income before interest
expense, income taxes, depreciation and
amortization.
5 After interest capitalization. See Note (4) of
Notes to Consolidated Financial Statements.
Management's Discussion and Analysis
of Results of Operations and Financial Condition
General Eagle Hardware & Garden (the "Company" or "Eagle
Hardware") was incorporated in November 1989 and opened
its first home improvement center in Spokane,
Washington in November 1990. The Company currently
operates 30 stores in the western United States,
including 17 stores in the state of Washington. The
Company's merchandising strategy is to provide its
target do-it-yourself customers as well as professional
contractors with a broad selection of home improvement
items. The Company focuses on creating the best home
improvement shopping experience for its customers by
combining the selection and value associated with
traditional warehouse-format home centers with the
comfortable atmosphere and service orientation of
specialty retailers. The Company's product categories
include plumbing, garden, lumber, tools, electrical,
hardware, paint and decor.
<PAGE>
A significant element of the Company's overall
expansion strategy is to provide more convenient access
to its stores, expand its total market share and
achieve economies of scale by clustering stores in
metropolitan markets. In general, the opening of
additional stores by the Company in existing markets
results in sales cannibalization. Consistent with this
strategy, in fiscal 1997, the Company has opened two
additional stores in the Seattle metropolitan market
and plans to open two additional stores in the Denver
metropolitan market.
The Company's same store sales increases (decreases)
over the prior year were (2%), (7%) and 11% in fiscal
years 1994, 1995 and 1996, respectively. New store
openings by the Company in existing markets and
significant same store sales increases in 1996,
combined with other factors such as competition and
economic trends in the Company's markets, may result in
future same store sales increases lower than those
experienced in fiscal 1996. Moreover, there can be no
assurance that same store sales for any particular
period will not decrease in the future.
Quarterly results of operations may fluctuate
materially depending on a number of factors, including
seasonality and the timing of new store openings and
related preopening expenses. The Company expects that
its business will exhibit some measure of seasonality,
which the Company believes is typical of the retail
home center industry. 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 proportionately
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
items during the period.
Results of The following table sets forth the Company's results of
Operations operations for the fiscal years ended January 27, 1995,
January 26, 1996, and January 31, 1997, and for each of
the quarters in the fiscal year ended January 31, 1997,
expressed as percentages of net sales. Percentage
amounts may not accumulate to 100% as a result of
rounding. Fiscal 1996 was a 53-week year. The first
three quarters of fiscal 1996 were 13-week quarters and
the fourth quarter of fiscal 1996 was a 14-week
quarter.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
52 Weeks 52 Weeks 53 Weeks
Ended Ended 1996 Fiscal Quarters Ended Ended
Jan. 27 Jan. 26 Apr. 26 Jul. 26 Oct. 25 Jan. 31 Jan. 31
1995 1996 1996 1996 1996 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.2 73.1 71.9 72.1 72.5 72.2 72.2
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin 26.8 26.9 28.1 27.9 27.5 27.8 27.8
Operating expenses 22.6 22.8 23.8 20.8 22.3 24.3 22.7
Preopening expenses 0.9 0.5 0.0 0.0 0.3 0.7 0.2
Loss on sale of Canadian subsidiary 2.5 0.0 0.0 0.0 0.0 0.0 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 0.9 3.7 4.3 7.1 4.9 2.8 4.9
Other income (expense)
Net interest (expense) (0.9) (1.2) (1.5) (1.0) (0.7) (0.3) (0.9)
Other income 0.1 0.3 0.1 0.0 1.1 0.0 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income tax 0.1 2.8 2.9 6.1 5.3 2.5 4.3
Income taxes 1.3 0.9 1.1 2.2 1.5 0.9 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (1.2)% 1.8% 1.8% 3.9% 3.8% 1.6% 2.9%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fiscal 1996 vs Net Income
Fiscal 1995 Net income for fiscal 1996 increased 92% to $21,737,000, or
$0.84 per share, fully diluted, from $11,335,000, or $0.49
per share, in fiscal 1995. This increase was due to the
factors discussed below. The Company's 6.25% convertible
subordinated debentures were dilutive during fiscal 1996.
Had the debentures not been dilutive, net income per share
for fiscal 1996 would have been $0.85 (primary earnings per
share).
Weighted average common and common equivalent shares
outstanding for use in the primary earnings per share
calculation increased 10% from 23,125,000 as of January 26,
1996 to 25,506,000 as of January 31, 1997. This increase
was primarily attributable to the issuance of an additional
5,750,000 shares of Common Stock in the Company's September
1996 public stock offering.
Net Sales
Net sales during fiscal 1996 increased by 24% over fiscal
1995. The 24% increase in net sales over fiscal 1995 was
due primarily to two factors. First, there were 1,301 store
weeks of operations during the year versus 1,135 store weeks
during the prior year. Second, same store sales for the
year (for stores open one year or more) increased 11%
primarily as a result of an 8% increase in customer
transactions. The increase in customer transactions was due
to several factors, including strong existing home sales,
favorable economic conditions in most of the Company's
markets and the declining performance and subsequent
liquidation of a primary competitor, Ernst Home Center, Inc.
Gross Margin
The Company's fiscal 1996 gross margin increased 28% over
the prior year. As a percentage of net sales, gross margin
was 27.8% during fiscal 1996 compared to 26.9% in the prior
year. The improvement in gross margin as a percentage of
sales was due to a combination of factors, including
volume-related buying efficiencies, a reduction in realized
inventory shrinkage (attributed primarily to continuing loss
prevention programs) and less promotional pricing by
competitors.
Operating Expenses
Operating expenses as a percentage of net sales decreased
from 22.8% in fiscal 1995 to 22.7% in fiscal 1996. This
slight reduction was primarily due to the additional
leverage attributable to the 11% increase in same store
sales. Operating expense leverage in fiscal 1996 would have
been greater had
<PAGE>
it not been for the Company's decision to increase staffing
on the sales floor to support increased levels of customer
traffic and to further its commitment to providing a high
level of customer service.
Preopening Expenses
Preopening expenses were 0.2% of net sales during fiscal
1996, when the Company opened three stores, compared to
0.5% of net sales during fiscal 1995, when the Company
opened five stores. Average preopening expense per store
increased 7% from $587,000 in fiscal 1995 to $627,000 in
fiscal 1996. Preopening expenses vary directly with the
number of stores opened during a particular period and the
location of the stores. Such costs are normally expensed in
the period when the related store opens.
Operating Income
For the reasons explained above, operating income increased
64% compared to the prior year. Expressed as a percentage of
net sales, operating income increased from 3.7% during
fiscal 1995 to 4.9% during fiscal 1996.
Net Interest Expense
Net interest expense during fiscal 1996 was $6,656,000,
compared to net interest expense of $7,398,000 during fiscal
1995. This decrease was due primarily to the use of proceeds
from the Company's September 1996 public stock offering for
repayment of bank borrowings and for investment. Interest
on the Company's convertible subordinated debentures, which
represents the primary source of interest expense, was
comparable between the current and prior year. During both
years, interest incurred was partially offset by interest
capitalized on construction projects.
Other Income
Other income during fiscal 1996 was $2,471,000, compared to
$1,860,000 during fiscal 1995. Other income in fiscal 1996
consisted primarily of a $2,108,000 capital gain on the sale
of surplus property in Lynnwood, Washington.
Income Taxes
The Company's effective tax rate for fiscal 1996 was 33.7%,
compared to 33.6% for fiscal 1995. The 1996 effective tax
rate was lower than the combined federal and state statutory
tax rates that the Company expects to pay under normal
circumstances for two reasons. First, the Company utilized
a portion of its capital loss carryforward, incurred in the
fourth quarter of fiscal 1994, to offset capital gains of
$2,296,000. Second, a portion of the Company's net proceeds
from the public stock offering was invested in tax-exempt
securities. For 1995, refer to the reconciliation between
the U.S. statutory income tax rate and the effective tax
rate in Note 5 of Notes to Consolidated Financial
Statements.
Fiscal 1995 vs Net Income (Loss)
Fiscal 1994 During fiscal 1995, the Company recorded net income of
$11,335,000, or $0.49 per share. This compares to a net
loss of $6,284,000, or $0.28 per share, during fiscal 1994,
attributable to a significant loss recorded on the sale of
the Company's Canadian subsidiary. There were 23,125,000
weighted average common and common equivalent shares
outstanding during fiscal 1995 compared to 22,812,000 common
and common equivalent shares during fiscal 1994.
Net Sales
Net sales during fiscal 1995 increased by 19% over fiscal
1994 due primarily to having 1,135 store weeks of operations
during the year versus 850 store weeks during the prior
year. Same store sales for the year (for stores open one
year or more) decreased 7% as a result of a 4% decline in
the average net sale per transaction (from $39.62 to $37.86)
for comparable stores and a 2% decline in the number of
sales transactions.
The decrease of 7% in same store sales during fiscal 1995
followed a decrease of 2% during the prior year. The
additional decline in same store sales was primarily
attributable to planned sales cannibalization by new Eagle
Hardware stores, increased competition in the Puget Sound
market, normal store maturation and slow economic growth in
many of the Company's markets during fiscal 1995.
Gross Margin
The Company's gross margin increased 19% over the prior
year. As a percentage of net sales, gross margin was 26.9%
during fiscal 1995 versus 26.8% in the prior year. The
slight improvement in gross margin percentage versus the
prior year was due primarily to the beneficial effect of
selling the Company's lower margin Canadian subsidiary in
1994, 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 increased
from 22.6% in fiscal 1994 to 22.8% in fiscal 1995. The
primary factor in this slight reduction in operating expense
leverage was an 11% decline in sales per store week, from
$610,000 in fiscal 1994 to $542,000 in fiscal 1995, related
to the previously described decline in same store sales and
to the increase in the number of lower volume stores
included in the 24-store base. As of January 26, 1996, 50%
of the Company's stores had been in operation for less than
24 months.
Preopening Expenses
Preopening expenses were 0.5% of net sales during fiscal
1995, when the Company opened five stores. The Company
opened eight stores and incurred preopening expenses of 0.9%
of net sales during fiscal 1994. Preopening expenses vary
directly with the number of stores opened during a
particular period and the location of the stores. Such
costs are normally expensed in the period when the related
store opens.
Operating Income
For the reasons explained above, income from operations
increased 364% compared to the prior year. Excluding the
loss on the sale of the Canadian subsidiary from the 1994
amounts, income from operations increased 29%. Expressed as
a percentage of net sales, income from operations increased
from 0.9% (3.4% excluding the loss on the sale of the
Canadian subsidiary) during fiscal 1994 to 3.7% during
fiscal 1995.
Net Interest Expense
Net interest expense during fiscal 1995 was $7,398,000,
compared to net interest expense of $4,652,000 during fiscal
1994. This increase was due primarily to interest on the
Company's $86,250,000 convertible debentures issued in March
1994, other long-term borrowings made during 1994 and 1995
and higher average borrowings on the Company's bank line of
credit at higher rates of interest. In the prior year, the
debentures were
<PAGE>
outstanding for approximately 46 weeks and interest incurred
was partially offset by interest earned through temporary
investment of the offering proceeds. During both years,
interest incurred was partially offset by interest
capitalized on construction projects.
Other Income
Other income during fiscal 1995 was $1,860,000, compared to
$309,000 during fiscal 1994. Other income in fiscal 1995
consisted primarily of $1,125,000 related to the settlement
of securities litigation and $818,000 in capital gains
recognized on the sale of surplus property in Utah.
Income Taxes
The Company's effective tax rate for fiscal 1995 was 33.6%.
The 1995 effective tax rate 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 incurred in the fourth quarter of fiscal 1994.
The capital loss carryforward was used to offset capital
gains realized on the sale of surplus property in Utah and
the recovery of a previously reserved receivable relating to
the sale of property in Canada. For 1994, refer to the
reconciliation between the U.S. statutory income tax rate
and the effective tax rate in Note 5 of Notes to
Consolidated Financial Statements.
Liquidity and Historically, the Company's principal sources of funds to
Capital finance its expansion plans, working capital, interest and
Resources debt service requirements have been cash flow from
operations, bank credit lines, mortgages on owned stores and
equity and debt offerings. The Company used cash of $45.9
million and $88.8 million during fiscal 1995 and fiscal
1996, respectively, to fund its capital expenditure program.
Fiscal 1996 expenditures related primarily to the three
stores opened in fiscal 1996, three stores opened in early
fiscal 1997 and the acquisition of sites for future store
openings.
During fiscal 1996, operating activities provided $30.0
million to fund the Company's continued expansion. Net
income adjusted for noncash items provided $33.2 million
which was used in part to finance an increase of $31.2
million in inventory levels during the period. Additional
cash was provided by a $23.0 million increase in accounts
payable and outstanding checks under the Company's
integrated cash management program and a $7.0 million net
increase in accrued liabilities and income taxes payable.
The primary financing activity used to support the
Company's continued expansion in fiscal 1996 was the $125
million public stock offering completed in September 1996.
Part of the proceeds from the offering were used to pay off
all outstanding borrowings on the Company's bank line of
credit and the balance is being used to finance the
Company's ongoing expansion. Additional financing was
provided during the year by a $9.0 million mortgage note
payable executed in the second quarter.
The Company has available a $75 million unsecured
revolving working capital line of credit provided by a group
of banks, including U.S. Bank of Washington, N.A. ("USBW")
as the agent bank. The line expires November 30, 1997.
Borrowings under this line incur interest at USBW's prime
rate or, at the Company's option, at a daily bid rate or the
Inter-Bank Offered Rate ("IBOR") plus a factor based on the
Company's capital ratio and/or senior debt ratings. This
factor can range from 0.55% to 2.00%. If the sum of
borrowings and outstanding letters of credit exceeds $50
million, an additional 0.25% is added to the IBOR rate. The
line imposes certain requirements on the Company in terms of
working capital, current ratio, capital ratio, tangible net
worth, debt service coverage ratio and fixed charge coverage
ratio. The line also restricts payment of dividends and
includes a provision that limits annual capital
expenditures. There were no borrowings outstanding on the
line as of January 31, 1997.
The Company currently owns 14 of its 30 stores in
operation. As of February 28, 1997, the Company was
obligated in the amount of approximately $21 million on
mortgages for three of its owned stores and had signed
commitment letters for two additional mortgages totalling
$20 million. The mortgage notes require monthly payments of
principal and interest. The other nine owned stores are
available for financing through either fixed-term capital
asset loans and/or sale-leaseback transactions.
In addition to the mortgage notes, the Company's primary
long-term commitments are its store operating leases and
$86.1 million in 6.25% convertible subordinated debentures.
The debentures, which mature in March 2001, require
semi-annual interest payments.
Future Cash Flow The Company's future cash requirements and cash flow
Plans and expectations are closely related to its expansion plans.
Expectations The Company currently plans to open five or six stores
during fiscal 1997 (including three stores already opened)
and four to six stores in fiscal 1998. Four or five of the
stores currently scheduled to open during fiscal 1997 will
be owned by the Company. In light of current economic
conditions and other strategic factors, the Company has
increasingly elected to purchase land for new store sites
and finance the construction of new store buildings in order
to proceed expeditiously with its expansion program. In
such cases, the Company will typically use its bank credit
line or cash to fund the store development and may secure
permanent financing from either fixed-term capital asset
loans and/or sale-leaseback transactions after the store is
opened.
Historically, capital expenditures have averaged
approximately $14 million for owned stores and $4 million
for leased stores. Future capital expenditures will vary
significantly, depending on such factors as store location;
whether the store will be owned or leased; local permitting
and regulatory requirements; whether the project involves
new construction or remodeling of an existing structure; and
if remodeling is involved, the extent of that work. The
Company currently expects fiscal 1997 capital expenditures
to be in the range of $75 million to $90 million for the
purpose of acquiring and constructing stores planned for
opening in fiscal 1997, acquiring sites for planned future
expansion and updating certain existing stores.
The Company expects to maintain store level inventories
during fiscal 1997 of approximately $4.9 million to $7.8
million per store and to incur preopening expenses of
approximately $600,000 to $700,000 per store. When the
Company opens a new store, it expects that its vendors will
finance approximately 60% of the opening merchandise
inventory cost, and that on an ongoing basis, vendor credit
terms will finance approximately 20% to 30% of the inventory
cost. In addition, under the terms of its bank line of
credit, the Company may finance the cost of merchandise
inventory by borrowing against its working capital line of
credit. Although the Company believes it can finance a
significant portion of its merchandise inventory cost
through vendor and bank financing as described, there can be
no assurance that this level of financing will be available
in the future on terms acceptable to the Company.
As of January 31, 1997, the Company's cash and short-term
investments totaled $52.1 million. The Company believes
that its current cash and short-term investments, cash
generated from operations, bank borrowings under the
existing line of credit and the proceeds of fixed-term
capital asset loans and/or sale-leaseback transactions will
be sufficient to satisfy its anticipated working capital,
capital expenditure, interest and debt service requirements
through fiscal 1997.
Impact of Inflation Although the Company can not accurately anticipate the
and Changing Prices effect of inflation, it does not believe inflation has had
or is likely to have a material effect on its results of
operations.
<PAGE>
Adoption of Effective January 27, 1996, the Company adopted Statement of
Accounting Financial Accounting Standards No. 121, "Accounting or the
Standards Impairment of Long-Lived Assets and for Long-Lived 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 No. 121 had no effect on the Company's financial
position or results of operations for the fiscal year ended
January 31, 1997.
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 or results of operations
for the fiscal year ended January 31, 1997.
Forward-Looking Some of the information in this Annual Report, including
Statements anticipated store openings, capital requirements and
trends in the Company's markets, constitute 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.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
----------------------------------------------------------------------------------------------------------------
January 31 January 26
In thousands 1997 1996
<S> <C> <C>
Assets Current assets
Cash and cash equivalents $ 20,738 $ 6,591
Short-term investments 31,330 0
Trade and other accounts receivable (less allowance
for doubtful accounts of $1,891 and $1,559) 4,213 3,594
Merchandise inventories 174,299 143,094
Prepaid expenses 4,930 2,076
Deferred income taxes 2,559 1,571
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 238,069 156,926
- ------------------------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost
Land and buildings 140,434 105,725
Furniture, fixtures and equipment 75,823 64,486
Leasehold improvements 45,730 45,035
Construction in progress 44,960 4,743
- ------------------------------------------------------------------------------------------------------------------------------------
306,947 219,989
Less accumulated depreciation and amortization 29,454 18,836
- ------------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 277,493 201,153
- ------------------------------------------------------------------------------------------------------------------------------------
Preopening costs 1,468 7
Other assets 2,355 8,481
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 519,385 $ 366,567
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities & Current liabilities
Shareholders' Outstanding checks, not cleared by the bank $ 8,762 $ 8,859
Equity Accounts payable 55,295 32,226
Note payable to bank 0 34,500
Sales taxes payable 6,029 3,945
Accrued payroll and related expenses 13,951 8,648
Other current liabilities 8,572 7,159
Current portion of long-term debt 2,109 6,198
----------------------------------------------------------------------------------------------------------------
Total current liabilities 94,718 101,535
Deferred income taxes 8,314 5,042
Other long-term liabilities 3,094 2,847
Long-term debt 108,416 101,542
----------------------------------------------------------------------------------------------------------------
Total liabilities 214,542 210,966
----------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, without par value; 50,000 shares authorized;
28,890 and 22,900 shares issued and outstanding 263,226 135,721
Retained earnings 41,617 19,880
----------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
<S> <C> <C>
Total shareholders' equity 304,843 155,601
----------------------------------------------------------------------------------------------------------------
Total liabilities & shareholders' equity $ 519,385 $ 366,567
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
53 weeks 52 weeks 52 weeks
In thousands, except store January 31 January 26 January 27
weeks and per share data 1997 1996 1995
<S> <C> <C> <C>
Store weeks in period 1,301 1,135 850
Net sales $760,963 $615,674 $518,755
Cost of sales 549,383 449,865 379,473
----------------------------------------------------------------------------------------------------------------
Gross margin 211,580 165,809 139,282
Operating expenses 172,746 140,279 117,159
Preopening expenses 1,880 2,934 4,539
Loss on sale of Canadian subsidiary 0 0 12,715
----------------------------------------------------------------------------------------------------------------
Operating income 36,954 22,596 4,869
Other income (expense):
Net interest (expense) (6,656) (7,398) (4,652)
Other income 2,471 1,860 309
----------------------------------------------------------------------------------------------------------------
Income before tax 32,769 17,058 526
Income taxes 11,032 5,723 6,810
----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 21,737 $ 11,335 $ (6,284)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
Net income (loss) per share, primary $ 0.85 $ 0.49 $ (0.28)
Net income per share, fully diluted $ 0.84 $ - $ -
Weighted average common and common equivalent shares
for net income (loss) per share computations:
Primary 25,506 23,125 22,812
Fully diluted 30,327 - -
See accompanying notes to consolidated financial statements.
</TABLE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
53 weeks 52 weeks 52 weeks
January 31 January 26 January 27
In thousands 1997 1996 1995
<S> <C> <C> <C>
Operating Net income (loss) $ 21,737 $ 11,335 $ (6,284)
-----------------------------------------------------------------------------------------------------
Activities
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 11,497 9,270 6,768
Loss on sale of Canadian subsidiary 0 0 4,002
Net gain on sale of assets (2,255) (493) 0
Deferred income taxes 2,284 670 2,325
Changes in operating assets and liabilities:
Trade and other accounts receivable (619) (51) (1,190)
Merchandise inventories (31,205) (7,521) (36,397)
Prepaid expenses (1,032) (884) (1,110)
Other assets 810 822 584
Preopening costs (1,461) 224 (16)
Accounts payable and outstanding checks 22,971 (4,629) 9,296
Income taxes payable (2,903) 2,136 329
Accrued liabilities 9,883 2,101 7,941
Other 247 1,432 574
----------------------------------------------------------------------------------------------------
8,217 3,077 (6,894)
----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 29,954 14,412 (13,178)
----------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
<S> <C> <C> <C>
Investing Capital expenditures for property and equipment (88,846) (45,934) (100,837)
Activities Purchases of short-term investments (32,054) 0 0
Sales of short-term investments 724 0 0
Proceeds from sale of surplus property 7,422 3,718 0
Proceeds from sale of Canadian subsidiary 0 0 19,711
Other 1,028 0 3,764
---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (111,726) (42,216) (77,362)
---------------------------------------------------------------------------------------------------------------
Financing Advances on note payable to bank 304,000 325,000 176,700
Activities Payments on note payable to bank (338,500) (296,500) (180,200)
Net proceeds from sale of stock 124,737 0 0
Proceeds from long-term borrowings 9,000 6,000 96,794
Payments on long-term borrowings and capital leases (6,099) (5,962) (269)
Other 2,781 417 503
--------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 95,919 28,955 93,528
----------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 14,147 1,151 2,988
Cash and cash equivalents at beginning of year 6,591 5,440 2,452
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 20,738 $ 6,591 $ 5,440
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Supplemental Cash flow
Information Cash paid for interest $ 9,510 $ 8,847 $ 4,295
Cash paid for income taxes $ 10,000 $ 2,828 $ 4,785
Investing and financing
Capital lease obligations incurred $ 381 $ 3,295 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total
Currency Share-
In thousands, except Common Stock Retained Translation holders'
per share data Shares Amount Earnings Adjustment Equity
<S> <C> <C> <C> <C> <C>
Balance, January 28, 1994 22,777 $134,803 $14,829 $(323) $149,309
Issuance of Common upon exercise
of stock options, including
payment of stock subscription
receivable from officer of $148 63 283 - - 283
Tax benefit on exercise of
stock options - 218 - - 218
Net loss - - (6,284) - (6,284)
Equity adjustment from foreign
currency translation - - - 323 323
----------------------------------------------------------------------------------------------------------------
Balance, January 27, 1995 22,840 135,304 8,545 0 143,849
Issuance of Common upon exercise
of stock options, including
payment of stock subscription
receivable from officer of $18 60 365 - - 365
Tax benefit on exercise of
stock options - 52 - - 52
Net income - - 11,335 - 11,335
----------------------------------------------------------------------------------------------------------------
Balance, January 26, 1996 22,900 135,721 19,880 0 155,601
Sale of Common in September 1996
at $22.875 per share, net of
offering costs of $6,794 5,750 124,737 - - 124,737
Issuance of Common upon exercise
of stock options 234 1,074 - - 1,074
Tax benefit on exercise of
stock options - 1,578 - - 1,578
Issuance of Common upon
conversion of debentures 6 116 - - 116
Net income - - 21,737 - 21,737
----------------------------------------------------------------------------------------------------------------
Balance, January 31, 1997 28,890 $263,226 $41,617 $ 0 $304,843
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Note One Summary of Significant Accounting Policies
The Company
Eagle Hardware & Garden, Inc. (the "Company") was
incorporated in the state of Washington on November 20,
1989, and operated 27 warehouse home improvement centers in
Washington, Utah, Colorado, Alaska, Hawaii, Montana and
Oregon as of January 31, 1997. As of that date, 15 of the
Company's stores were located in the state of Washington.
The Company's merchandising strategy is to provide a wide
range of do-it-yourself customers and professional
contractors with a broad selection of home improvement
items. The Company's product categories include plumbing,
garden, lumber, tools, electrical, hardware, paint and
decor.
Basis of Presentation
The fiscal year 1994 consolidated statements include the
accounts of the Company and its wholly owned subsidiaries.
All significant intercompany transactions have been
eliminated in consolidation.
"Store Weeks in Period" represents the aggregate number
of full weeks in which stores were open during the reporting
period.
Fiscal Year
The Company's 52/53-week fiscal year ends on the last Friday
in January. Fiscal years 1994 and 1995 were 52-week years
and fiscal 1996 was a 53-week year.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash Equivalents and Short-Term Investments
Excess cash balances are invested in financial instruments
which have maturities of up to one year. The Company
considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
The Company's cash equivalents are carried at fair market
value. Investments with a maturity of between three months
and one year, as well as less liquid investments with
maturities of less than three months, are classified as
short-term investments. Interest reset periods on variable
rate securities are considered to be equivalent to maturity
for purposes of this policy. The investments are considered
available-for-sale and are carried at fair market value.
Realized and unrealized gains and losses are included in
shareholders' equity and are not material.
Merchandise Inventories
Merchandise inventories are stated at the lower of weighted
average cost or market and include certain buying and
occupancy costs related to the acquisition and warehousing
of merchandise. The Company estimates inventory shrinkage
during interim periods between physical inventories.
Store Preopening Costs
Expenses associated with the opening of a new store are
ordinarily deferred until the period in which the store
opens. In situations involving unusual regulatory delays in
store openings, however, preopening costs in excess of
historical levels are expensed as incurred after the extent
of the delay becomes clearly apparent.
Property and Equipment
The Company's property and equipment are depreciated using
the straight-line method over the estimated useful lives of
the assets. Improvements to leased premises are amortized
on the straight-line method over the life of the lease
(including renewal periods in some cases) or the useful life
of the improvement, whichever is shorter. The Company's
property and equipment are depreciated and amortized using
the following estimated useful lives:
Asset Category Life
Furniture, fixtures and equipment 3-20 years
Leasehold improvements 20-30 years
Buildings 35 years
Expenditures for major renewals and improvements that
extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are
charged to operations as incurred. When property and
equipment are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the
accounts and the resulting gain or loss is recognized.
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 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.
Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption of
Statement 121 had no effect on the Company's financial
position or results of operations.
Advertising
The Company expenses advertising costs at the time the
advertising first takes place. Net advertising expense was
$7,588,000, $7,270,000 and $7,728,000 for fiscal years 1996,
1995 and 1994, respectively.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly,
because the Company grants all options at fair market value,
no compensation cost has been recognized for options issued
under the Company's stock option plans.
<PAGE>
Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share is based on
weighted average shares outstanding and, if dilutive, common
share equivalents. Common share equivalents used in the
calculation of primary and fully diluted net income per
share represent options to purchase common shares granted
under the Company's stock option plans. The fully diluted
net income per share calculation assumes conversion of the
Company's 6.25% convertible subordinated debentures into
Common Stock.
<TABLE>
<CAPTION>
Note Two Short-Term Investments
The Company's short-term investments are summarized as follows:
----------------------------------------------------------------------------------------------------------------
January 31, 1997 January 26, 1996
Amortized Fair Market Amortized Fair Market
In thousands Cost Value Cost Value
<S> <C> <C> <C> <C>
Municipal bonds $25,528 $25,512 $0 $0
Federal agency securities 5,825 5,818 0 0
----------------------------------------------------------------------------------------------------------------
Total short-term investments $31,353 $31,330 $0 $0
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
Note Three Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is summarized
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
January 31 January 26 January 27
In thousands 1997 1996 1995
<S> <C> <C> <C>
Beginning balance $1,559 $1,026 $ 818
Additions charged to expense 1,752 1,386 518
Write-offs, net (1,420) (853) (310)
----------------------------------------------------------------------------------------------------------------
Ending balance $1,891 $1,559 $1,026
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
Note Four Debt
The Company has available a $75,000,000 unsecured revolving
working capital line of credit provided by a group of banks,
including U.S. Bank of Washington, N.A. ("USBW") as the
agent bank. The line expires November 30, 1997. Borrowings
against this line incur interest at USBW's prime rate or, at
the Company's option, at a daily bid rate or the Inter-Bank
Offered Rate ("IBOR") plus a factor based on the Company's
capital ratio and/or senior debt ratings. This factor can
range from 0.55% to 2.00%. If the sum of borrowings and
outstanding letters of credit exceeds $50 million, an
additional 0.25% is added to the IBOR rate. The weighted
average interest rate on short-term borrowings as of January
26, 1996 was 7.67%. There were no short-term borrowings
outstanding as of January 31, 1997. The line imposes
certain requirements on the Company in terms of working
capital, current ratio, capital ratio, tangible net worth,
debt service coverage ratio and fixed charge coverage ratio.
The line also restricts payment of dividends and requires
approval of annual capital expenditure plans.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
January 31 January 26
In thousands 1997 1996
<S> <C> <C>
6.25% convertible subordinated debentures, maturing March 2001 $ 86,134 $ 86,250
9.25% mortgage note, maturing November 2005 6,993 7,483
8.25% mortgage note, maturing December 2006 5,650 6,000
7.97% mortgage note, maturing August 2006 8,750 0
6.75% notes payable on purchased real estate, maturing October 1996 0 4,887
Other long-term debt 2,998 3,120
----------------------------------------------------------------------------------------------------------------
Total long-term debt 110,525 107,740
Less current portion of long-term debt 2,109 6,198
----------------------------------------------------------------------------------------------------------------
Long-term debt, excluding current portion $ 108,416 $ 101,542
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's convertible subordinated debentures (the
"Debentures") mature on March 15, 2001, and are convertible
into the Company's Common Stock at any time prior to
maturity or redemption at a conversion price of $18 per
share, subject to adjustment under certain conditions. The
Debentures are also redeemable, in whole or in part, at the
Company's option at specified conversion prices plus accrued
interest at any date on or after March 16, 1997, and prior
to maturity, except that, until March 16, 1999, the
Debentures cannot be redeemed at the option of the Company
unless the closing price of the Company's Common Stock
equals or exceeds 150% of the then effective conversion
price per share (currently $18) for at least 20 of 30
consecutive trading days. The Debentures are subordinated
to all existing and future senior indebtedness of the
Company. The indenture governing the Debentures does not
restrict the ability of the Company to incur additional
senior indebtedness or other indebtedness. Interest on the
Debentures is payable semiannually on March 15 and September
15; no sinking fund is provided. The fair value of the
Debentures as of January 31, 1997 and January 26, 1996,
based on the closing market price on the last day of the
fiscal year, was $101,638,000 and $67,922,000, respectively.
The mortgage notes are due in monthly installments and
are secured by real property with a total net book value of
$43,579,000 as of January 31, 1997. Based on discounted
cash flows of future payment streams, assuming rates
equivalent to the Company's current incremental borrowing
rate on similar liabilities, the estimated fair value of the
mortgage notes and other long-term debt as of January 31,
1997 and January 26, 1996 was $24,782,000 and $22,405,000,
respectively.
<PAGE>
Aggregate principal payments required on long-term
debt, including $2,998,000 pertaining to capital leases for
equipment, through the next five fiscal years and thereafter
are as follows: 1997 - $2,109,000; 1998 - $2,288,000; 1999
- $2,480,000; 2000 - $2,689,000; 2001 - $88,781,000;
thereafter - $12,178,000. As of February 28, 1997, the
Company has signed commitment letters for additional
mortgage notes totaling $20,000,000.
Interest expense incurred and capitalized was as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
In thousands 1996 1995 1994
<S> <C> <C> <C>
Interest incurred $9,429 $8,972 $6,515
Interest capitalized 1,682 1,551 1,253
----------------------------------------------------------------------------------------------------------------
Interest expense, net $7,747 $7,421 $5,262
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
Note Five Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." This Statement requires the
establishment of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are
determined based on differences between the financial
statement carrying amounts and the tax basis of assets and
liabilities using currently enacted tax rates.
Significant components of the Company's deferred income
tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
January 31 January 26
In thousands 1997 1996
<S> <C> <C>
Deferred income tax assets and (liabilities)
Current
Reserve for self-insurance $ 1,517 $ 775
Accrued vacation 711 475
Inventory adjustments 372 152
Allowance for doubtful accounts 233 171
Deferred preopening (536) (2)
Other 262 0
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred income tax assets, current, net 2,559 1,571
----------------------------------------------------------------------------------------------------------------
Non-current
Capital loss carryforward 4,678 5,430
Less valuation reserve (4,678) (5,430)
----------------------------------------------------------------------------------------------------------------
Deferred income tax assets, non-current, net 0 0
----------------------------------------------------------------------------------------------------------------
Deferred income tax assets, net $ 2,559 $ 1,571
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Deferred income tax (assets) and liabilities, non-current
Accelerated depreciation $9,204 $5,767
Deferred rent (890) (720)
Other 0 (5)
----------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities, non-current, net $8,314 $5,042
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of the deferred tax provision are
consistent with the components of deferred tax assets and
liabilities.
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
In thousands 1996 1995 1994
<S> <C> <C> <C>
Current taxes on income
Federal $ 8,399 $ 4,809 $ 4,394
State 349 244 197
----------------------------------------------------------------------------------------------------------------
Total current taxes on income 8,748 5,053 4,591
----------------------------------------------------------------------------------------------------------------
Deferred taxes on income
Federal 2,190 638 1,227
State 94 32 53
Foreign 0 0 939
----------------------------------------------------------------------------------------------------------------
Total deferred taxes on income 2,284 670 2,219
----------------------------------------------------------------------------------------------------------------
Total income taxes $ 11,032 $ 5,723 $ 6,810
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
In fiscal year 1993, the Company recorded a tax asset
of $939,000 related to a foreign net operating loss
carryforward. Due to the subsequent sale of the Company's
Canadian subsidiary in fiscal 1994, this benefit could not
be utilized and was reversed.
<PAGE>
The Company incurred a $16,104,000 capital loss for tax
purposes on the sale of its Canadian subsidiary during
fiscal 1994. This loss, which could not be recognized for
tax purposes, can only be used to offset future capital
gains and a valuation allowance for the related capital loss
carryforward, which will expire at the end of fiscal 1999,
was recorded. The Company utilized a portion of the capital
loss carryforward to offset $2,296,000 and $824,000 of
capital gains in fiscal years 1996 and 1995, respectively,
and accordingly, reduced the deferred tax valuation
allowance.
A reconciliation between the U.S. statutory income tax
rate and the effective rate follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Fiscal 1996 Fiscal 1995 Fiscal 1994
In thousands Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rate $11,469 35.0% $5,971 35.0% $ 184 35.0%
State income taxes, net of
federal benefit 492 1.5 299 1.8 8 1.5
Utilization of capital loss carryforward (838) (2.6) (303) (1.8) 0 0.0
Increase in valuation allowance 0 0.0 938 5.5 4,492 854.0
Foreign related tax losses 0 0.0 (1,092) (6.4) 2,300 437.3
Other, net (91) (0.2) (90) (0.5) (174) (33.1)
----------------------------------------------------------------------------------------------------------------
Income taxes at effective rate $11,032 33.7% $5,723 33.6% $ 6,810 1,294.7%
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
Note Six Shareholders' Equity
In September 1996, the Company completed a public offering
of 5,750,000 shares of its Common Stock at a price of $22 7/8
per share.
Note Seven Stock Option Plans
The Company has two stock option plans: the 1991 Stock
Option Plan (the "1991 Plan") and the Directors'
Nonqualified Stock Option Plan (the "Directors' Plan").
Both plans provide for the granting of stock options at the
fair market value of the Company's Common Stock on the date
of grant. 2,200,000 shares of Common Stock have been
authorized for grants of options under the plans. Options
granted under the 1991 Plan generally vest over five years
at the rate of 20% each year and expire 10 years from the
date of grant. Options granted under the Directors' Plan
vest over three years at the rate of 33.3% each year and
expire 10 years from the date of grant.
Effective January 27, 1996, the Company adopted Statement
of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," which establishes accounting and
reporting standards for stock-based employee compensation
plans. This Statement defines a fair value-based method of
accounting for these equity instruments. This method
measures compensation cost based on the estimated fair value
of the award and recognizes that cost over the service
period. The Company has adopted the disclosure-only
provisions of Statement No. 123. Accordingly, because
options are granted at fair market value, no compensation
cost has been recognized for options issued under the
Company's stock option plans. Had compensation cost been
recognized based on the fair value at the date of grant for
options awarded under the Plan, pro forma amounts of the
Company's net income and net income per share would have
been as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
In thousands, except per share data 1996 1995
<S> <C> <C>
Net income - as reported $21,737 $11,335
Net income - pro forma 21,008 11,015
Net income per share, primary - as reported $ 0.85 $ 0.49
Net income per share, primary - pro forma 0.82 0.48
Net income per share, fully diluted - as reported $ 0.84 -
Net income per share, fully diluted - pro forma 0.81 -
</TABLE>
The fair value of each option grant was estimated using
the Black-Scholes option-pricing model with the following
weighted average assumptions: risk-free interest rates of
5.37% to 7.86%; expected option life of seven years for
officers and directors and six years for all other
employees; expected volatility of 56%; and no expected
dividends. The weighted average fair value of options
granted during fiscal years 1996 and 1995 was $10.87 and
$4.49, respectively, including the fair value of 353,200
options repriced to $8.00 per share on January 30, 1995.
Excluding the fair value of repriced options, the weighted
average fair value of options granted during fiscal 1995 was
$4.52. The effect of applying Statement No. 123 for
providing pro forma disclosures for fiscal years 1996 and
1995 is not likely to be representative of the effects in
future years because options vest over several years and
additional awards generally are made each year.
Stock option transactions relating to the 1991 Plan and
the Directors' Plan are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted
Average
Exercise
Share data in thousands Shares Option Price Range Price
<S> <C> <C> <C>
Fiscal 1994
Balance, January 28, 1994 1,053 $1.83 - $25.50 $ 8.51
Granted 171 $9.38 - $16.25 $ 13.60
Exercised (63) $1.83 - $ 6.00 $ 2.15
Forfeited (108) $9.38 - $25.50 $ 16.38
-----
Balance, January 27, 1995 1,053 $1.83 - $25.50 $ 5.24
-----
-----
Options exercisable 458 $1.83 - $25.50 $ 5.66
<PAGE>
<CAPTION>
<S> <C> <C> <C>
Fiscal 1995
Granted 311 $6.63 - $ 8.38 $ 7.36
Exercised (60) $1.83 - $ 8.00 $ 5.79
Forfeited (113) $1.83 - $ 8.00 $ 6.66
-----
Balance, January 26, 1996 1,191 $1.83 - $ 16.50 $ 5.63
-----
-----
Options exercisable 590 $1.83 - $ 16.50 $ 4.10
Fiscal 1996
Granted 399 $8.88 - $29.25 $ 17.47
Exercised (234) $1.83 - $ 8.00 $ 4.60
Forfeited (46) $1.83 - $14.63 $ 6.61
-----
Balance, January 31, 1997 1,310 $1.83 - $29.25 $ 9.39
-----
-----
Options exercisable 561 $1.83 - $16.50 $ 4.75
Shares available for future grant 289
</TABLE>
The following table summarizes information about
fixed-price options outstanding at January 31, 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Share data in thousands Outstanding Exercisable
----------------------- ----------- -----------
Wtd. Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Prices Options Life Price Options Price
<S> <C> <C> <C> <C> <C>
$ 1.83 - $ 6.99 435 6.8 $ 3.10 396 $ 2.81
$ 7.00 - $ 9.99 451 9.2 $ 7.74 132 $ 7.78
$ 10.00 - $ 14.99 26 9.3 $ 11.76 0 $ 0.00
$ 15.00 - $ 19.99 356 9.2 $ 17.11 33 $15.90
$ 20.00 - $ 29.25 42 9.7 $ 25.23 0 $ 0.00
----------------------------------------------------------------------------------------------------------------
1,310 8.4 $ 9.39 561 $ 4.75
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
Note Eight Employee Benefit Plans
Employees of the Company are eligible to participate in the
Company's 401(k) Plan after six months of employment, and in
the Company's Employee Stock Ownership Plan (the "ESOP")
after 24 months. Eligible employees may contribute between
2% and 15% of their compensation to the 401(k) Plan, subject
to limitations imposed by federal income tax regulations.
Each employee controls the investment of funds credited to
his 401(k) account. Each year, the Company may, at its
discretion, contribute an amount determined by the Board of
Directors to the ESOP on the employees' behalf. The
aggregate ESOP contribution may not exceed 15% of the
Company's pretax earnings or the maximum amount allowed as a
deduction under federal income tax regulations. Funds
credited to individual ESOP accounts are invested primarily
in the Common Stock of the Company as directed by the ESOP's
administrative committee. During fiscal years 1996, 1995
and 1994, the Company's ESOP contributions totaled
$3,193,000, $1,944,000 and $1,084,000, respectively. For
fiscal 1994 only, the Board of Directors approved an
amendment to the ESOP under which the loss on the sale of
the Company's Canadian subsidiary was excluded from pretax
earnings for the purpose of calculating the Company's ESOP
contribution, and all senior Company officers were declared
ineligible for a fiscal 1994 contribution.
Note Nine Leases
As of January 31, 1997, the Company leased 15 of its 27
operational retail stores, its warehouse/distribution center
and its corporate office facility. Future minimum lease
commitments for all noncancelable leases (including one for
a future store) at that date are summarized as follows:
------------------------------------------------------------
In thousands
Fiscal Year Amount
1997 $ 18,867
1998 $ 18,972
1999 $ 18,694
2000 $ 17,988
2001 $ 17,774
Thereafter $ 259,440
------------------------------------------------------------
Total rent expense for fiscal years 1996, 1995 and 1994
was $19,655,000, $18,809,000 and $17,056,000, respectively.
The noncancelable operating leases for the Company's
existing stores include provisions for contingent rents
based upon sales performance. Contingent rental expense
under these leases was approximately $1,434,000, $1,088,000
and $1,495,000 for fiscal years 1996, 1995 and 1994,
respectively. Some leases provide for periodic rental
increases based on the Consumer Price Index, and the leases
generally include options for renewal periods of up to 10
years.
The Company leases eight of its operational stores and
its warehouse/distribution center from members of the Board
of Directors. The lease agreements for these facilities
were approved by disinterested members of the Board
following receipt of independent fairness opinions. Rental
expense incurred for these leases was $9,519,000, $9,051,000
and $7,604,000 for fiscal years 1996, 1995 and 1994,
respectively. Minimum related-party lease commitments of
$167,686,000 over the remaining lease terms are included in
the lease commitment schedule above.
Note Ten Commitments and Contingencies
As of January 31, 1997, the Company had signed agreements to
purchase property for two additional store sites at a cost
of approximately $6,400,000. Purchase of these sites will
be finalized upon successful resolution of various
contingencies.
<PAGE>
As of January 31, 1997, the Company was liable for
issued and outstanding letters of credit totaling
$4,218,000, related to store construction and merchandise
imports.
The Company is party to routine litigation incident to
its business. The Company's management believes the
ultimate resolution of these matters will not have a
material adverse impact on the Company's future financial
position and results of operations.
Note Eleven Geographic Information
The following table shows the amounts of net sales, pretax
income (loss) and identifiable assets associated with the
Company's U.S. and foreign operations:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
In thousands 1996 1995 1994
<S> <C> <C> <C>
Net sales
United States $760,963 $615,674 $489,624
Foreign $ 0 $ 0 $ 29,131
Pretax income (loss)
United States $ 32,769 $ 17,058 $ 7,488
Foreign $ 0 $ 0 $ (6,962)
Identifiable assets
United States $519,385 $366,567 $321,813
Foreign $ 0 $ 0 $ 52
----------------------------------------------------------------------------------------------------------------
</TABLE>
During fiscal 1994, the Company sold its Canadian
subsidiary, Eagle Hardware & Garden (Canada) Limited. Net
cash proceeds from the sale were $19,711,000; inventory,
fixtures and equipment with a book value of approximately
$8,300,000 were also returned to the U.S. for use in
domestic operations. A pretax loss of $12,715,000 was
recorded on the sale in the fourth quarter of fiscal 1994,
and that quarter's tax provision was increased $1,616,000 to
reflect the write-off of previously recognized foreign
deferred tax benefit, of which $677,000 had been recognized
in the first two quarters of fiscal 1994.
Note Twelve Quarterly Financial Data (Unaudited)
The following is a summary of the Company's unaudited
quarterly results of operations for the past two fiscal
years:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Primary Net
In thousands, Common Net Income
except store Store and Income Per Share,
weeks and per Weeks in Net Gross Net Equivalent Per Share, Fully
share data Period Sales Margin Income Shares Primary(1) Diluted
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1996
Fourth quarter(2) 356 $192,048 $53,325 $3,117 29,373 $0.11 -
Third quarter(3) 321 $198,731 $54,660 $7,591 26,055 $0.29 $0.28
Second quarter 312 $209,078 $58,339 $8,065 23,359 $0.35 $0.32
First quarter 312 $161,106 $45,256 $2,964 23,237 $0.13 -
Fiscal 1995
Fourth quarter 312 $157,929 $42,584 $1,629 23,088 $0.07 -
Third quarter 302 $159,764 $43,158 $2,473 23,129 $0.11 -
Second quarter(4) 274 $167,835 $44,339 $4,553 23,075 $0.20 -
First quarter(5) 247 $130,146 $35,728 $2,680 23,108 $0.12 -
----------------------------------------------------------------------------------------------------------------
</TABLE>
1 Interim per share amounts may not accumulate to annual per
share amounts due to rounding.
2 The fourth quarter of fiscal 1996 was a 14-week
quarter. All other quarters presented were 13-week
quarters.
3 Includes $2,108,000 capital gain from sale of surplus
property.
4 Includes $1,125,000 other income from settlement of
litigation and $290,000 capital gain from sale of
surplus property.
5 Includes $527,000 capital gain from sale of surplus
property and $375,000 recovery of a previously reserved
receivable relating to the sale of land in Canada.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Eagle Hardware & Garden, Inc.
We have audited the accompanying consolidated balance sheets of Eagle
Hardware & Garden, Inc. as of January 31, 1997 and January 26, 1996, and
the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended January 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Eagle Hardware & Garden, Inc. at January 31, 1997 and January 26, 1996, and
the consolidated results of its operations and its cash flows for each of
the three years in the period ended January 31, 1997, in conformity with
generally accepted accounting principles.
[signature]
Seattle, Washington
February 28, 1997
<PAGE>
Corporate Information
Directors
David J. Heerensperger
Chairman and
Chief Executive Officer,
Eagle Hardware & Garden, Inc.
Richard T. Takata
President and
Chief Operating Officer,
Eagle Hardware & Garden, Inc.
Ronald D. Crockett
President,
Emerald Downs
Harlan D. Douglass
Real Estate Developer
Herman Sarkowsky
President,
Sarkowsky Investment Corp.
Theodore M. Wight
General Partner of the
General Partner, Pacific
Northwest Partners, SBIC, L.P.
Executive Officers
David J. Heerensperger
Chairman and
Chief Executive Officer
Richard T. Takata
President and
Chief Operating Officer
Ronald P. Maccarone
Executive Vice President and
Chief Financial Officer
Dale W. Craker
Executive Vice President --
Store Operations
John P. Foucrier
Executive Vice President --
Administration and
Human Resources
Larry E. Elliott
Executive Vice President --
Merchandising
Robert M. Cleveland
Vice President --
Marketing
Calvin E. Karbowski
Vice President --
Distribution
George E. Smith
Vice President --
Training
Corporate Information
<PAGE>
Stock Transfer Agent
and Registrar
ChaseMellon Shareholder Services
520 Pike Street, Suite 1220
Seattle, WA 98101
Legal Counsel
The Summit Law Group
1505 Westlake Avenue
Suite 300
Seattle, WA 98109
Bond Trustee and Registrar
Seattle-First National Bank
P.O. Box 24425
Seattle, WA 98124
Independent Auditors
Ernst & Young LLP
Suite 3500
999 Third Avenue
Seattle, WA 98104
Corporate Headquarters
Eagle Hardware & Garden, Inc.
981 Powell Avenue SW
Renton, WA 98055
(206) 227-5740
Shareholder Information
Annual Meeting
The annual meeting of Shareholders will be Thursday, May 29, 1997, at 9:00 AM at
the Sea-Tac Airport Marriott Hotel
3201 South 176th Street
Seattle, WA 98188
Form 10-K
The Company files an Annual Report with the Securities and Exchange Commission
on Form 10-K. Copies are available from the Company without charge upon written
request. Requests should be sent to the attention of the Investor Relations
department at the corporate headquarters.
24-Hour Investor Relations
Message System
The Company's 24-hour direct line investor relations message system may be
accessed by dialing (206) 204-5150. Available information includes: current
stock activity, date of next earnings release, text of most recent earnings
release, text of other recent news releases, list of analysts who follow the
Company s performance and list of available Company reports. You may also leave
messages and requests.
Quarterly Stock Data
The Company's Common Stock is traded on The Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "EAGL." The following table sets forth the
high and low closing sale prices of the Company's Common Stock for the fiscal
quarters indicated.
Quarter High Low
Fiscal 1996
First quarter $11 5/8 $ 8 3/8
Second quarter $18 1/2 $ 9 3/8
Third quarter $29 1/2 $17
Fourth quarter $29 1/2 $17 1/2
Quarter High Low
Fiscal 1995
First quarter $8 5/8 $6 7/8
Second quarter $7 7/8 $6 1/8
Third quarter $9 7/8 $7
Fourth quarter $8 7/8 $7 1/8
As of February 28, 1997 there were 1,070 holders of record of the Company's
Common Stock. The Company has not paid cash dividends since its inception. The
Company currently intends to retain all earnings, if any, for use in the
expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. Additionally, the Company's bank line of
credit prohibits the payment of cash dividends to holders of Common Stock
without the lender's consent.
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Eagle Hardware & Garden, Inc. of our report dated February 28, 1997, included
in the 1996 Annual Report to Shareholders of Eagle Hardware & Garden, Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-50938) pertaining to the 1991 Stock Option Plan and the
Directors' Nonqualified Stock Option Plan of Eagle Hardware & Garden, Inc. of
our report dated February 28, 1997, with respect to the consolidated financial
statements of Eagle Hardware & Garden, Inc. incorporated by reference in its
Annual Report (Form 10-K) for the year ended January 31, 1997.
Ernst & Young LLP
April 3, 1997
Seattle, Washington
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 20,738
<SECURITIES> 31,330
<RECEIVABLES> 6,104
<ALLOWANCES> 1,891
<INVENTORY> 174,299
<CURRENT-ASSETS> 238,069
<PP&E> 306,947
<DEPRECIATION> 29,454
<TOTAL-ASSETS> 519,385
<CURRENT-LIABILITIES> 94,718
<BONDS> 108,416
0
0
<COMMON> 263,226
<OTHER-SE> 41,617
<TOTAL-LIABILITY-AND-EQUITY> 519,385
<SALES> 760,963
<TOTAL-REVENUES> 760,963
<CGS> 549,383
<TOTAL-COSTS> 549,383
<OTHER-EXPENSES> 174,626
<LOSS-PROVISION> 1,309
<INTEREST-EXPENSE> 6,656
<INCOME-PRETAX> 32,769
<INCOME-TAX> 11,032
<INCOME-CONTINUING> 21,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,737
<EPS-PRIMARY> .85
<EPS-DILUTED> .84
</TABLE>
