<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED October 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 0-19830
Eagle Hardware & Garden, Inc.
-----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Washington 91-1465348
---------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
981 Powell Ave SW Renton, WA 98055
-------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(425) 227-5740
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO __
---
THE REGISTRANT HAD 29,134,306 SHARES OF COMMON STOCK, WITHOUT PAR VALUE,
----------
OUTSTANDING AT October 30, 1998.
----------------
<PAGE>
EAGLE HARDWARE & GARDEN, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 3
ITEM 1 - FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 10
Consolidated Statements of Operations. . . . . . . . . . . . 11
Consolidated Statements of Cash Flows. . . . . . . . . . . . 12
Notes to Unaudited Consolidated Financial Statements . . . . 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . . . . . . . . . . . . . 3
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 8
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . 8
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION:
- -------------------------------
ITEM 1 - FINANCIAL STATEMENTS -
- -----------------------------
Eagle Hardware & Garden, Inc.'s (the "Company") unaudited consolidated
balance sheet as of October 30, 1998, audited consolidated balance sheet as of
January 30, 1998, unaudited statements of operations for the 13- and 39-week
periods ended October 30, 1998, and October 31, 1997, and unaudited consolidated
statements of cash flows for the 39-week periods then ended are attached. Notes
to the unaudited consolidated financial statements are also attached.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS -
---------------------
It is suggested that this discussion be read in conjunction with the
"Management's Discussion and Analysis" included in the Company's 1997 Annual
Report to Shareholders, which has previously been filed with the Securities and
Exchange Commission.
The results of operations for the 13- and 39-week periods ended October 30,
1998, are not necessarily indicative of the results to be expected for the full
fiscal year. The Company expects that its gross margin percentage will
generally be lower in the second and third quarters of each fiscal year when
sales of lower margin products are greater. The Company also expects that, in
general, individual stores will experience lower net sales and operating income
and that cash flow from operations will be lower in the fourth quarter of the
fiscal year than in any of the other quarters, due primarily to the effect of
winter weather on home improvement projects and the lack of significant sales of
lawn and garden products during this period. In addition, unusual weather
conditions could have a material adverse effect on seasonal sales.
RESULTS OF OPERATIONS -
---------------------
(A) COMPARISON OF THE 13 WEEKS ENDED OCTOBER 30, 1998 AND OCTOBER 31,
1997.
NET INCOME. Net income for the third quarter of fiscal 1998 was $10.7
million, or $0.34 per share, diluted, compared to $8.9 million, or $0.29 per
share, diluted, for the third quarter of fiscal 1997. The Company's 6.25%
convertible subordinated debentures were dilutive during the third quarter of
fiscal 1998 and fiscal 1997 (see Note 4 to the Company's Consolidated Financial
Statements (unaudited)). Basic net income per share for the third quarter of
fiscal 1998 was $0.37 compared to $0.30 for the third quarter of fiscal 1997.
The 21% increase in net income was due to the factors discussed below.
NET SALES. Net sales for the third quarter of fiscal 1998 increased 10%
over the comparable prior year period. This increase was due to two factors.
First, there were 416 store weeks of operation during the third quarter of
fiscal 1998 compared to 390 store weeks in the comparable prior year period.
Second, same store sales for the third quarter of fiscal 1998 increased 5%.
Same store sales increased due primarily to continued favorable economic
conditions in most of the Company's markets, particularly the greater Denver
and Seattle area markets.
GROSS MARGIN. The Company's gross margin, in dollars, increased 10% over
the third quarter of fiscal 1997. As a percentage of net sales, gross margin
was 28.3% in both the third
3
<PAGE>
quarter of fiscal 1998 and fiscal 1997. Increased competitive pressure in
certain markets was offset by buying efficiencies.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
decreased from 22.1% in the third quarter of fiscal 1997 to 21.6% in the
third quarter of fiscal 1998. The additional leverage attributed to the 5%
increase in same store sales contributed to the decrease in operating
expenses as a percentage of sales. The Company experienced decreases in
certain expenses as a percentage of sales, including store level wages and
net advertising expense.
OPERATING INCOME. For the reasons explained above, operating income
increased 20% in the third quarter of fiscal 1998 over the third quarter of
fiscal 1997. Expressed as a percentage of net sales, operating income
improved from 6.1% in the third quarter of fiscal 1997 to 6.7% in the third
quarter of fiscal 1998.
INTEREST INCOME. Interest income increased 22% from $761,000 in the
third quarter of fiscal 1997 to $926,000 in the third quarter of fiscal 1998.
The increase in interest income was due to an increase in cash available for
investment during the third quarter of fiscal 1998 compared to the prior
year. The primary sources of cash for investment were cash flow from
operations and proceeds from store mortgages.
INTEREST EXPENSE. Interest expense during the third quarter of fiscal
1998 was $2.2 million, compared to $2.3 million during the comparable prior
year period. During both quarters, interest incurred was partially offset by
interest capitalized on construction projects. Interest capitalized for the
third quarter of fiscal 1998 and fiscal 1997 was $1.1 million and $145,000,
respectively. The increase in interest expense before interest
capitalization was due to $25 million in new store mortgages in the third
quarter of fiscal 1997 and $32 million in new store mortgages in the first
quarter of fiscal 1998. Interest on the Company's convertible subordinated
debentures was comparable between the current and prior year.
(B) COMPARISON OF THE 39 WEEKS ENDED OCTOBER 30, 1998 AND OCTOBER 31,
1997.
NET INCOME. Net income for the first 39 weeks of fiscal 1998 was $32.3
million, or $1.02 per share, diluted, compared to $26.4 million, or $0.85 per
share, diluted, for the first 39 weeks of fiscal 1997. The Company's 6.25%
convertible subordinated debentures were dilutive during the first 39 weeks
of fiscal 1998 and fiscal 1997 (see Note 4 to the Company's Consolidated
Financial Statements (unaudited)). Basic net income per share for the 39
weeks ended October 30, 1998 was $1.11 compared to $0.91 in the prior year.
The 22% increase in net income was due to the factors discussed below.
NET SALES. Net sales for the first 39 weeks of fiscal 1998 increased
11% over the comparable prior year period. This increase in net sales over
the prior 39-week period was due primarily to an 8% increase in store weeks
of operation and a 5% increase in same store sales for the period. Same
store sales for the period increased due primarily to continued favorable
economic conditions in most of the Company's markets and continued strong
consumer acceptance of the Eagle concept.
GROSS MARGIN. The Company's gross margin, in dollars, increased 11%
over the first 39 weeks of fiscal 1997. As a percentage of net sales, gross
margin was 28.2% in the first 39 weeks of both fiscal 1998 and fiscal 1997.
Increased competitive pressure in certain markets was offset by buying
efficiencies.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
decreased from 21.8% in the first 39 weeks of fiscal 1997 to 21.3% in the
first 39 weeks of fiscal 1998. The
4
<PAGE>
additional leverage attributed to the 5% increase in same store sales
contributed to the decrease in operating expenses as a percentage of sales.
The Company experienced decreases in certain expenses as a percentage of
sales, including store level wages and net advertising expense.
PREOPENING EXPENSES. Preopening expenses were 0.1% of sales in the
first 39 weeks of fiscal 1998, when the Company opened one store. In the
comparable prior year period, the Company opened three stores and preopening
expenses were 0.3% of sales. Preopening expenses associated with the store
opened in the first quarter of fiscal 1998 were higher than the Company's
historical average preopening costs due to a delayed store opening.
OPERATING INCOME. For the reasons explained above, operating income
increased 22% in 1998 over the comparable 1997 period. Expressed as a
percentage of net sales, operating income improved from 6.1% in the first 39
weeks of fiscal 1997 to 6.7% in the comparable current year period.
INTEREST INCOME. Interest income increased from $1.6 million in the
first 39 weeks of fiscal 1997 to $3.0 million in the first 39 weeks of fiscal
1998. The increase in interest income was due to an increase in cash
available for investment. The primary sources of cash for investment were
cash flow from operations and proceeds from store mortgages.
INTEREST EXPENSE. Interest expense during the first 39 weeks of fiscal
1998 was $7.8 million, compared to $6.1 million during the comparable prior
year period. During both periods, interest incurred was partially offset by
interest capitalized on construction projects. Interest capitalized for the
first 39 weeks of fiscal 1998 and fiscal 1997 was $1.9 million and $485,000,
respectively. The increase in interest expense before interest
capitalization was due to $25 million in new store mortgages in the third
quarter of fiscal 1997 and $32 million in new store mortgages in the first
quarter of fiscal 1998. Interest on the Company's convertible subordinated
debentures was comparable between the current and prior year.
LIQUIDITY AND CAPITAL RESOURCES -
-------------------------------
The Company did not open any stores during the third quarter of fiscal
1998. The Company currently plans to open four additional stores by the end
of fiscal 1998 and at least 14 stores in fiscal 1999 (see "Recent
Developments"). All four of the remaining fiscal 1998 stores and five of the
fiscal 1999 stores are under construction. Construction commitments as of
December 4, 1998 totalled $64.7 million. In addition to the nine stores
currently under construction and another site acquired but not under
construction, the Company has signed agreements to purchase ten future store
sites at a total cost of approximately $53.4 million and has signed
agreements to lease property for four future store sites. One of these sites
under a ground lease also involves the purchase of several parcels adjacent
to the leased property, at a total cost of approximately $1.7 million. The
Company intends to replace its current warehouse/distribution center with a
new larger facility by the end of fiscal 1998. The Company is currently
under contract to lease the new facility but intends to purchase the facility
at a future date. The purchase price is estimated to be in the range of $25
to $30 million.
The Company's balance sheet at October 30, 1998, reflects a $91.9
million, or 15%, increase in total assets since the fiscal year began on
January 31, 1998. The principal components of this change were a $26.5
million increase in inventories, attributable to seasonal inventory
fluctuations and the addition of one new store, and an increase of $91.0
million in net property and equipment, primarily related to the Company's
continuing store expansion program. These increases were offset by a $28.4
million decrease in cash and cash equivalents. Net income adjusted for
noncash items provided $48.4 million during the first 39 weeks of the year to
support the Company's expansion. The increase in total assets was also
accompanied by an
5
<PAGE>
increase of $25.9 million in accounts payable and outstanding checks under
the Company's integrated cash management program and a $4.6 million increase
in accrued liabilities and income taxes payable, all primarily related to the
continuing store expansion program. In addition, the Company received $32.0
million in proceeds from mortgages on four owned stores.
The Company's capital requirements are significantly influenced by its
expansion plans and by factors such as real estate costs in the markets which
the Company enters, whether that real estate will be purchased or leased and
the extent of Company-financed remodeling required when existing buildings
are acquired or leased. The Company currently expects to finance its
remaining fiscal 1998 and current fiscal 1999 expansion plans through a
combination of cash, cash generated from operations, bank borrowings under the
existing line of credit and proceeds of fixed-term capital asset loans and/or
sale-leasebacks of owned properties. In addition, the Company may consider
other sources of financing in the form of expanded bank lines and/or equity
or debt offerings. See also "Recent Developments."
The Company reports on a 52/53-week year, consisting of four 13-week
quarters. The fiscal year ends on the last Friday in January.
YEAR 2000 -
------------
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any
of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000. If
not addressed, the direct result could be a system failure or miscalculations
causing disruption of operations, including, among other things, a temporary
inability to process customer transactions, order merchandise, or engage in
similar normal business activities.
During fiscal 1997, Eagle management initiated a Company-wide program to
prepare its computer systems and applications for the Year 2000 by the middle
of fiscal 1999. Management has completed the assessment phase of its Year
2000 compliance program. At this stage, the remediation phase is more than
50% complete as it relates to both information technology (IT) and non-IT
systems and applications. The testing and implementation phases of the Year
2000 program are expected to be completed by the middle of fiscal 1999.
Management currently estimates the total cost of this program to be less than
$2.0 million, including internal staff costs and the cost to write off any
unamortized existing hardware and software that may need to be replaced.
Costs associated with preparing computer systems and applications for the
Year 2000 will be expensed as incurred. The amount expensed to date has been
immaterial.
Management anticipates that its systems and applications will be Year
2000 compliant on a timely basis. However, there can be no assurance that
the systems of other companies with which the Company does business will be
Year 2000 compliant in the same time frame. None of the Company's material
systems interface directly with any third-party vendors. Because Eagle
relies heavily on the ability of its merchandise vendors to deliver product
on a timely basis to its stores, the Company has sent Year 2000
questionnaires to all of its merchandise vendors. To the extent responses
are received, these responses are being entered into a database that is being
reviewed by senior management in order to assess any potential problems. Any
such failure on the part of merchandise vendors, or other companies with whom
the Company transacts business, to be Year 2000 compliant on a timely basis
may have an adverse impact on the operations of the Company. In addition, it
is possible that some of the products sold by the Company may not be Year
2000 compliant. To date, the Company has not taken any formal steps to
assess the Year 2000 compliance of its products, but does not expect any
liability as a result of non-compliant products to be material.
At this point, the Company can not estimate a worst case Year 2000
scenario but is continuing to analyze this issue. The Company is planning to
develop a Year 2000 contingency plan as part of its Year 2000 compliance
program.
6
<PAGE>
RECENT DEVELOPMENTS -
-------------------
On November 22, 1998, the Company, Lowe's Companies, Inc. ("Lowe's"),
and Mariner Merger Corporation, a Washington corporation and wholly owned
subsidiary of Lowe's ("Sub"), entered into an Agreement and Plan of Merger
(the "Merger Agreement"), a copy of which has previously been filed with the
Securities and Exchange Commission. Pursuant to the terms of the Merger
Agreement, Sub will be merged (the "Merger") with and into the Company, with
the Company surviving the Merger and becoming a wholly owned subsidiary of
Lowe's.
At the effective time of the Merger, each share of the Company's Common
Stock (excluding shares held by the Company or Lowe's, in each case other
than in a fiduciary capacity, and excluding shares held by shareholders who
perfect their statutory dissenters' rights under Washington state law) issued
and outstanding immediately prior to the effective time of the Merger shall
cease to be outstanding and shall be converted into and exchanged for the
right to receive that multiple (rounded to the nearest 1/10,000) of a share
of Lowe's Common Stock obtained by dividing $29.00 by the "Base Period
Trading Price" (defined to mean the average of the daily closing prices for
the shares of Lowe's Common Stock for the ten (10) consecutive trading days
on which such shares are actually traded on the New York Stock Exchange (as
reported by THE WALL STREET JOURNAL or, if not reported thereby, any other
authoritative source selected by Lowe's) ending at the close of trading on
the fifth trading day immediately preceding the closing date of the Merger);
provided, that for purposes of this calculation, the Base Period Trading
Price shall be deemed to equal (i) $45.31 in the event the Base Period
Trading Price is greater than $45.31 or (ii) $33.49 in the event the Base
Period Trading Price is less than $33.49. The Company shall not be obligated
to consummate the Merger if the "Lowe's Ratio" is less than 70%. The "Lowe's
Ratio" shall mean the quotient obtained by dividing the Base Period Trading
Price by $39.40.
It is the intention of the Company and Lowe's that the Merger for
federal income tax purposes will be tax-free to the Company's shareholders
and for accounting purposes will qualify as a pooling of interests. In
addition, the consummation of the Merger is subject to certain other
conditions contained in the Merger Agreement, including approval of the
Merger Agreement by the Company's shareholders. Each of the Company's
directors has entered into an agreement (the "Shareholder Agreement") to vote
his shares in favor of the Merger. A form of the Shareholder Agreement has
previously been filed with the Securities and Exchange Commission.
FORWARD-LOOKING STATEMENTS -
--------------------------
Some of the information in this report constitutes forward-looking
statements. These statements are subject to a number of risks and
uncertainties that might cause actual results to differ materially from
stated expectations. These risks include, among others, the Year 2000 issue,
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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
- -------------------------------------------------------------------
Not applicable.
7
<PAGE>
PART II - OTHER INFORMATION:
- ---------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K -
- -----------------------------------------
(a) Exhibits filed with this Form 10-Q are as follows:
<TABLE>
<CAPTION>
<S> <C>
2.1 Agreement and Plan of Merger among Lowe's Companies, Inc., Eagle
Hardware & Garden, Inc. and Mariner Merger Corporation, dated as
of November 22, 1998. [1]
10.118B Second Extension Agreement dated August 28, 1998 for Agreement to
Lease and Put to Lease, between Tigard-Tualatin School District
23J and Eagle Hardware & Garden, Inc.
10.118C Third Extension Agreement dated November 1, 1998 for Agreement to
Lease and Put to Lease, between Tigard-Tualatin School District
23J and Eagle Hardware & Garden, Inc.
10.133B Amendment No. 2 to Build to Suit Warehouse and Distribution Lease
dated June 12, 1998, by and between Kent Central, L.L.C. and
Eagle Hardware & Garden Distribution Services, Inc.
10.137A First Amendment of Lease dated June 12, 1998 between FF
Properties, L.P. and Eagle Hardware & Garden, Inc.
10.145A Agreement to Amend/Extend Contract dated May 15, 1998
between JP Northglenn LLC and Eagle Hardware & Garden, Inc.
99.1(a) Form of Shareholder Agreement between Lowe's Companies, Inc. and
each director of Eagle Hardware & Garden, Inc., dated as of
November 22, 1998. [1]
99.1(b) Press release dated November 22, 1998 announcing the execution of
the Merger Agreement. [1]
27 Financial Data Schedule
</TABLE>
- ---------------
[1] Exhibit is incorporated by reference to an identically numbered exhibit to
a Current Report on Form 8-K, filed with the Commission on November 25,
1998.
- ---------------
(b) No reports on Form 8-K were filed during the third quarter of fiscal 1998.
On November 25, 1998, the following reports were filed on Form 8-K:
1. Form 8-K filed November 25, 1998
- Item 5. Other Events.
- Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
8
<PAGE>
SIGNATURES:
- ----------
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
EAGLE HARDWARE & GARDEN, INC.
-----------------------------------
Registrant
December 7, 1998 /s/ David J. Heerensperger
- ---------------- -----------------------------------
Date David J. Heerensperger
Chairman
December 7, 1998 /s/ Richard T. Takata
- ---------------- -----------------------------------
Date Richard T. Takata
President and Chief Executive Officer
(Principal Executive Officer)
December 7, 1998 /s/ Ronald P. Maccarone
- ---------------- -----------------------------------
Date Ronald P. Maccarone
Executive Vice-President-Finance and
Chief Financial Officer (Principal
Financial Officer)
9
<PAGE>
EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 30, JANUARY 30,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,148 $ 63,557
Trade and other accounts receivable (less allowance
for doubtful accounts of $6,464 and $2,435) 2,311 4,463
Merchandise inventories 229,353 202,833
Prepaid expenses 4,121 4,479
Deferred income taxes 2,385 2,312
----------- -----------
Total current assets 273,318 277,644
----------- -----------
Property and equipment, at cost:
Land and buildings 233,907 184,340
Furniture, fixtures and equipment 114,180 107,916
Leasehold improvements 49,545 48,925
Construction in progress 62,191 16,495
----------- -----------
459,823 357,676
Less accumulated depreciation and amortization 52,726 41,543
----------- -----------
Net property and equipment 407,097 316,133
----------- -----------
Preopening costs 2,125 1,055
Other assets 10,978 6,823
----------- -----------
Total assets $693,518 $601,655
----------- -----------
----------- -----------
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Outstanding checks, not cleared by the bank $ 18,429 $ 11,008
Accounts payable 73,556 55,097
Sales taxes payable 7,503 5,799
Accrued payroll and related expenses 15,925 16,492
Other current liabilities 12,384 10,425
Current portion of long-term debt 8,750 6,218
----------- -----------
Total current liabilities 136,547 105,039
Deferred income taxes 14,282 11,084
Other long-term liabilities 3,362 3,159
Long-term debt 169,579 145,836
----------- -----------
Total liabilities 323,770 265,118
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, without par value; 50,000 shares authorized;
29,134 and 29,071 shares issued and outstanding 265,894 265,004
Retained earnings 103,854 71,533
----------- -----------
Total shareholders' equity 369,748 336,537
----------- -----------
Total liabilities & shareholders' equity $693,518 $601,655
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
-------------------------- --------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $274,305 $249,690 $832,501 $749,035
Cost of sales 196,588 179,050 597,913 537,553
----------- ----------- ----------- -----------
Gross margin 77,717 70,640 234,588 211,482
Operating expenses 59,228 55,288 177,590 163,570
Preopening expenses 0 0 1,030 2,089
----------- ----------- ----------- -----------
Operating income 18,489 15,352 55,968 45,823
Other income (expense):
Interest income 926 761 3,016 1,637
Interest expense (2,184) (2,253) (7,813) (6,079)
Other income (expense) (400) 76 (272) 214
----------- ----------- ----------- -----------
Income before tax 16,831 13,936 50,899 41,595
Income taxes 6,143 5,080 18,578 15,168
----------- ----------- ----------- -----------
Net income $10,688 $8,856 $32,321 $26,427
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share:
Basic $0.37 $0.30 $1.11 $0.91
Diluted $0.34 $0.29 $1.02 $0.85
Weighted average common and common equivalent
shares for net income per share
computations:
Basic 29,127 29,045 29,096 28,976
Diluted 34,317 34,201 34,251 34,175
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
39 WEEKS ENDED
--------------------------
OCTOBER 30, OCTOBER 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $32,321 $26,427
----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 12,486 10,933
Net write-off of assets 478 0
Deferred income taxes 3,125 1,956
Changes in operating assets and liabilities:
Trade and other accounts receivable 2,152 (684)
Merchandise inventories (26,520) (32,291)
Prepaid expenses (1,127) (746)
Other assets (4,155) (776)
Preopening costs (1,070) 751
Accounts payable and outstanding checks 25,880 9,545
Income taxes 1,485 3,627
Accrued liabilities 3,096 (812)
Other 206 112
----------- -----------
16,036 (8,385)
----------- -----------
Net cash provided by operating activities 48,357 18,042
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures for property and equipment (103,931) (42,802)
Sales of short-term investments 0 31,330
----------- -----------
Net cash used in investing activities (103,931) (11,472)
----------- -----------
FINANCING ACTIVITIES:
Advances on note payable to bank 0 6,700
Payments on note payable to bank 0 (6,700)
Proceeds from long-term borrowings 32,000 43,950
Payments on long-term borrowings and capital leases (5,725) (1,978)
Other 890 1,542
----------- -----------
Net cash provided by financing activities 27,165 43,514
----------- -----------
(Decrease) increase in cash and cash equivalents (28,409) 50,084
Cash and cash equivalents at beginning of period 63,557 20,738
----------- -----------
Cash and cash equivalents at end of period $35,148 $70,822
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest $10,894 $7,755
Income taxes $13,657 $9,006
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
EAGLE HARDWARE & GARDEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------
1. The accompanying unaudited consolidated financial statements do not
purport to be full presentations, and do not include all information and
disclosures required for fair presentation by generally accepted accounting
principles. However, in the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of
normal recurring accruals) considered necessary to present fairly the
consolidated financial position of the Company at October 30, 1998, the
consolidated results of operations for the 13-week and 39-week periods ended
October 30, 1998, and October 31, 1997, and consolidated cash flows for the
39-week periods then ended. These financial statements should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1998, filed with
the Securities and Exchange Commission.
2. In March 1998, the Company received $32 million from mortgages on four
owned stores.
3. As of December 4, 1998, in addition to six sites already acquired for
stores currently under construction and one site acquired but not currently
under construction, the Company had signed agreements to purchase property
for ten additional store sites at a cost of approximately $53.4 million.
Purchase of these sites will be finalized upon successful resolution of
various contingencies. In addition, the Company has signed agreements to
lease property for six future store sites, three of which are currently under
construction, and has signed an agreement to lease a future store site. One
of these sites under a ground lease also includes the purchase of several
parcels adjacent to the leased property, at a total cost of approximately
$1.7 million.
As of December 4, 1998 the Company's construction commitments related to
nine stores currently under construction, including amounts already paid,
totalled $64.7 million.
4. The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
-------------------------- --------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income as reported and used for
basic computation $10,688 $8,856 $32,321 $26,427
Add (where dilutive):
Tax effected interest and amortization
of debt expense on convertible debt 919 919 2,756 2,757
----------- ----------- ----------- -----------
Net income used for diluted computation $11,607 $9,775 $35,077 $29,184
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding used for basic computation 29,127 29,045 29,096 28,976
Add (where dilutive):
Shares applicable to stock options 405 371 370 414
Assumed exercise of convertible debt 4,785 4,785 4,785 4,785
----------- ----------- ----------- -----------
Adjusted shares outstanding used for
diluted computation 34,317 34,201 34,251 34,175
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic net income per share $0.37 $0.30 $1.11 $0.91
Diluted net income per share $0.34 $0.29 $1.02 $0.85
</TABLE>
13
<PAGE>
5. Subsequent to the end of the quarter, the Company, Lowe's Companies,
Inc., ("Lowe's") and Mariner Merger Corporation, a wholly owned subsidiary of
Lowe's ("Sub") entered into an Agreement and Plan of Merger. Pursuant to the
Agreement and Plan of Merger, Sub will be merged (the "Merger") with and into
the Company, with the Company surviving the Merger and becoming a wholly
owned subsidiary of Lowe's. For additional information, see "Recent
Developments" under Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
6. In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," which is required to be adopted by the Company in the first
quarter of fiscal 1999. This SOP requires that costs related to start-up
activities, including store preopening costs, be expensed as incurred. The
Company estimates that an amount in the range of $1 million to $2 million
that will be classified as deferred preopening costs on the balance sheet at
the end of its fiscal year will be expensed in the first quarter of fiscal
1999.
14
<PAGE>
SECOND EXTENSION AGREEMENT
DATE: Effective as of August 28, 1998
PARTIES: Tigard-Tualatin School District 23J "TTSD"
and
Eagle Hardware & Garden, Inc. "Eagle"
RECITALS:
A. TTSD and Eagle entered into an Agreement to Lease dated April 30,
1997, (the "Agreement") covering certain real property in Tigard, Oregon (the
"10.5-acre parcel") and a Put to Lease Property dated April 30, 1997, (the
"Put") covering certain other adjoining real property in Tigard, Oregon (the
"1.52-acre parcel").
B. TTSD and Eagle thereafter entered into an extension agreement
("First Extension Agreement") effective August 30, 1997, that confirmed the
exercise of the Put, extended certain of Eagle's deadlines, and required
Eagle to pay a $190,000 nonrefundable fee.
C. In recent weeks, Eagle has concluded that it will take the City of
Tigard several additional weeks to determine if, and under what conditions,
the City will issue the permits and approvals Eagle requires to develop the
10.5-acre parcel and 1.52-acre parcel. As a consequence, Eagle has requested
that TTSD extend certain of its deadlines in accordance with this Second
Extension Agreement.
D. TTSD and Eagle each desire to successfully enter into and conclude
the leases of the 10.5-acre and 1.52-acre parcels from TTSD to Eagle and
understand the need to extend the deadlines as hereinafter described.
AGREEMENT:
In consideration of the mutual covenants set forth below, TTSD and
Eagle agree as follows:
1. EXTENSION REGARDING EAGLE'S SOLE REMAINING CONDITION. Provided that
the $100,000 is remitted to TTSD in accordance with Section 3 below, the
August 29, 1998, deadline for Eagle's waiver or satisfaction of the condition
set forth in Section 3(b)(iii) of the Agreement is hereby extended until
10 a.m. on November 2, 1998.
2. CLOSING. Provided that the $100,000 is remitted to TTSD in
accordance with Section 3 below, (a) the Closing shall occur at or before
5 p.m. on November 2, 1998, and (b) the dates of September 19, 1997, October
20, 1997, and November 21, 1997, set forth in Section 8 of the Agreement are
hereby modified to the
- 1 -
<PAGE>
effect that the sole specified date for the Closing is "at or before 5 p.m.
on November 2, 1998."
3. PAYMENT OF ADDITIONAL NONREFUNDABLE FEE. First American Title
Insurance Company of Oregon is currently holding no less than $110,000 cash
in escrow for this transaction. Eagle shall have until 5 p.m. on September
1, 1998, to cause First American to remit $100,000 of the $110,000 to TTSD as
a nonrefundable fee designed solely to compensate TTSD for postponing the
deadlines as described in this Second Extension Agreement and agreeing to
keep the 10.5-acre parcel and 1.52-acre parcel off the market between August
29, 1998, and November 2, 1998. (TTSD shall cooperate with Eagle in causing
First American to remit the $100,000 to TTSD on or before September 1, 1998.)
Eagle agrees that this fee is not a penalty, that this fee is fair and
reasonable compensation for postponing the deadlines as described above and
agreeing to keep the property off the leasehold market, and that this fee is
nonrefundable. Provided that the $100,000 is remitted to TTSD by September 1,
1998, and the Closing occurs in accordance with the Agreement (as modified by
the First Extension Agreement and by this Second Extension Agreement), TTSD
shall credit the $100,000 to Eagle as prepaid rent for the 10.5-acre parcel.
If Eagle fails to cause the $100,000 to be remitted to TTSD by 5 p.m. on
September 1, 1998, the Agreement and Put shall have no further force or
effect.
4. SUPPLEMENTAL EXTENSION FEE. At Closing, the parties shall
calculate a supplemental extension fee by assuming that they had closed on
October 17, 1998, and computing the ground rent that would have accrued under
the two ground leases from October 17, 1998, through the actual date of
Closing. That amount shall then be divided in half, and Eagle shall remit
that sum (i.e., the imputed ground rent divided by two) to TTSD at Closing as
a supplemental extension fee. The supplemental extension fee is in addition
to the sum described in Section 3 above and shall not be credited as prepaid
rent.
5. REMAINDER OF AGREEMENT. In all other respects, the terms and
conditions of the Agreement and the Put (as previously modified by the First
Extension Agreement) shall remain in full force and effect.
TIGARD-TUALATIN SCHOOL DISTRICT 23J EAGLE HARDWARE & GARDEN, INC.
Patricia N. Biggs
By /s/ Patricia N. Biggs By /s/ Paul B. Morris
--------------------------------- -----------------------------------
Chair of the School Board Paul B. Morris
Vice President
Russell A. Joki
By /s/ Russell A. Joki
--------------------------------- -----------------------------------
Superintendent
- 2 -
<PAGE>
THIRD EXTENSION AGREEMENT
DATE: Effective as of November 1, 1998
PARTIES: Tigard-Tualatin School District 23J "TTSD"
and
Eagle Hardware & Garden, Inc. "Eagle"
RECITALS:
A. TTSD and Eagle entered into an Agreement to Lease dated April 30,
1997, (the "Agreement") covering certain real property in Tigard, Oregon (the
"10.5-acre parcel") and a Put to Lease Property dated April 30, 1997, (the
"Put") covering certain other adjoining real property in Tigard, Oregon (the
"1.52-acre parcel").
B. TTSD and Eagle thereafter entered into an extension agreement
("First Extension Agreement") effective August 30, 1997, that confirmed the
exercise of the Put, extended certain of Eagle's deadlines, and required
Eagle to pay a $190,000 nonrefundable fee.
C. TTSD and Eagle thereafter entered into a second extension agreement
("Second Extension Agreement") effective August 28, 1998, that extended
certain of Eagle's deadlines and required Eagle to pay an additional $100,000
nonrefundable fee.
D. TTSD and Eagle each desire to successfully enter into and conclude
the leases of the 10.5-acre and 1.52-acre parcels from TTSD to Eagle and
understand the need to extend the deadlines as hereinafter described.
AGREEMENT:
In consideration of the mutual covenants set forth below, TTSD and
Eagle agree as follows:
1. EXTENSION REGARDING EAGLE'S SOLE REMAINING CONDITION. Provided that
the $50,000 is remitted to TTSD in accordance with Section 3 below, the
November 2, 1998, deadline for Eagle's waiver or satisfaction of the condition
set forth in Section 3(b)(iii) of the Agreement is hereby extended until
10 a.m. on December 2, 1998.
2. CLOSING. Provided that the $50,000 is remitted to TTSD in
accordance with Section 3 below, (a) the Closing shall occur at or before 5
p.m. on December 2, 1998, and (b) the dates of September 19, 1997, October
20, 1997, and November 21, 1997, set forth in Section 8 of the Agreement are
hereby modified to the effect that the sole specified date for the Closing is
"at or before 5 p.m. on December 2, 1998."
3. PAYMENT OF ADDITIONAL NONREFUNDABLE FEE. Eagle shall have until 5
p.m. on November 2, 1998, to remit $50,000 to TTSD as a nonrefundable fee
designed solely to compensate TTSD for postponing the deadlines as described
in this Third Extension Agreement and agreeing to keep the 10.5-acre parcel
and 1.52-acre parcel off the market
- 1 -
<PAGE>
between November 2, 1998, and December 2, 1998. Eagle agrees that this fee is
not a penalty, that this fee is fair and reasonable compensation for
postponing the deadlines as described above and agreeing to keep the property
off the leasehold market, and that this fee is nonrefundable. Provided that
the $50,000 is remitted to TTSD by 5 p.m. on November 2, 1998, and the
Closing occurs in accordance with the Agreement (as modified by the First
Extension Agreement, the Second Extension Agreement, and this Third Extension
Agreement), TTSD shall credit the $50,000 to Eagle as prepaid rent for the
10.5-acre parcel. If Eagle fails to cause the $50,000 to be remitted to TTSD
by 5 p.m. on November 2, 1998, the Agreement and Put shall have no further
force or effect.
4. SUPPLEMENTAL EXTENSION FEE. At Closing, the parties shall
calculate a supplemental extension fee by assuming that they had closed on
October 17, 1998, and computing the ground rent that would have accrued under
the two ground leases from October 17, 1998, through the actual date of
Closing. That amount shall then be divided in half, and Eagle shall remit
that sum (i.e., the imputed ground rent divided by two) to TTSD at Closing as
a supplemental extension fee. The supplemental extension fee is in addition
to the sum described in Section 3 above and shall not be credited as prepaid
rent.
5. REMAINDER OF AGREEMENT. In all other respects, the terms and
conditions of the Agreement and the Put (as previously modified by the First
Extension Agreement and Second Extension Agreement) shall remain in full
force and effect.
TIGARD-TUALATIN SCHOOL DISTRICT 23J EAGLE HARDWARE & GARDEN, INC.
By /s/ Patricia N. Biggs By /s/ Paul B. Morris
--------------------------------- -----------------------------------
Chair of the School Board Paul B. Morris
Vice President
By /s/ Russell A. Joki November 9, 1998
--------------------------------- -----------------------------------
Superintendent
- 2 -
<PAGE>
AMENDMENT NO. 2 TO
BUILD TO SUIT
WAREHOUSE AND DISTRIBUTION LEASE
THIS AMENDMENT NO. 2 TO BUILD TO SUIT WAREHOUSE AND DISTRIBUTION LEASE (this
"Amendment") is dated for reference purposes the 12th day of June, 1998, and
is by and between KENT CENTRAL, L.L.C., a Washington Limited Liability
Company ("Lessor") and EAGLE HARDWARE & GARDEN DISTRIBUTION SERVICES, INC., a
Washington corporation ("Lessee").
RECITALS
A. Lessor and Lessee are parties to that certain Built to Suit Warehouse and
Distribution Center Lease dated as of June 18, 1997, (the "Lease") as
amended by Amendment No. 1 dated February 9, 1998.
B. Due to certain requirements related to the development of the Property, a
minor adjustment has been made to the current Legal Description of the
Property.
C. Lessee has requested and Lessor has agreed to incorporate an adjacent and
contiguous property owned by Lessor as a part of the Premises described in
the Lease.
D. Due to circumstances beyond the control of either party, the completion of
construction of the Improvements is likely to be delayed.
Now, therefore, in return the mutual promises of both parties and other good
and valuable consideration the parties hereby agree that the Lease is hereby
modified and amended as follows:
1. The site square footage number referenced in Recital A is hereby changed
from 1,292,000 to 1,381,944.
2. Exhibit A attached to the Lease is hereby deleted and replaced with
Exhibit A attached to this Amendment No. 2.
<PAGE>
3. Section 4.1: INITIAL RENT is hereby amended to increase the annual rent
referenced therein from Two Million Four Hundred Thousand Dollars
($2,400,000) to Two Million Four Hundred Sixty Six Thousand Dollars
($2,466,000). Furthermore, the monthly installments referenced therein
will be increased from Two Hundred Thousand Dollars ($200,000) to Two
Hundred Five Thousand Five Hundred Dollars ($205,500).
4. The date referenced in Section 6.2 is hereby changed from December 31,
1998 to February 15, 1999.
5. Except as expressly set forth in this Amendment, the Lease shall remain
in full force and effect and its terms and provisions are hereby
ratified.
In witness whereof, the parties have executed this Amendment No. 2 as of
the date first written above.
LESSOR:
KENT CENTRAL, L.L.C., a Washington Limited
Liability Company.
By: /s/ Larry R. Benaroya
-----------------------------------------
Larry R. Benaroya, its Manager
LESSEE:
EAGLE HARDWARE & GARDEN DISTRIBUTION
SERVICES, INC., a Washington corporation
By: /s/ Richard T. Takata
-----------------------------------------
Its: ____________________________
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this 18 day of June, 1998, before me personally appeared Richard T.
Takata, to me known to be the President of EAGLE HARDWARE & GARDEN
DISTRIBUTION SERVICES, INC., the corporation that executed the within and
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation, for the uses and proposes therein
mentioned, and on oath stated that he/she was authorized to execute said
instrument and that the seal affixed, if any, is the corporate seal of said
corporation.
WITNESS my hand and official seal hereto affixed the day and year first
above written.
/s/ Sibyl A. Tice
-----------------------------------
Notary Public in and for the State
[SEAL] of Washington, residing at Auburn
My commission expires: 2/14/02
-------------
Sibyl A. Tice
-----------------------------------
[Type or Print Notary Name]
(Use This Space for Notarial
Seal Stamp)
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this 18 day of June, 1998, before me personally appeared Larry R.
Benaroya, to me known to be a member of KENT CENTRAL L.L.C., the limited
liability company that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said limited liability company, for the uses and proposes therein mentioned,
and on oath stated that he was authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed the day and year first
above written.
/s/ Sibyl A. Tice
-----------------------------------
Notary Public in and for the State
[SEAL] of Washington, residing at Auburn
My commission expires: 2/14/02
-------------
Sibyl A. Tice
-----------------------------------
[Type or Print Notary Name]
(Use This Space for Notarial
Seal Stamp)
<PAGE>
Exhibit A
LEGAL DESCRIPTION FOR NEW LOT "A"
THAT PORTION OF TRACT 2 OF KENT FIVE ACRE TRACTS, ACCORDING THE PLAT THEREOF
RECORDED IN VOLUME 10 OF PLATS, PAGE 19, IN KING COUNTY, WASHINGTON,
DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHEAST CORNER OF SAID TRACT 2;
THENCE NORTH 88 DEG. 26' 13" WEST ALONG THE SOUTH LINE OF SAID TRACT 2, A
DISTANCE OF 315.00 FEET;
THENCE NORTH 01 DEG. 14' 06" EAST PARALLEL WITH THE EAST LINE OF SAID
TRACT 2, A DISTANCE OF 288.18 FEET TO THE SOUTH LINE OF THE NORTH 50 FEET OF
SAID TRACT 2;
THENCE SOUTH 88 DEG. 25' 58" EAST ALONG SAID SOUTH LINE OF THE NORTH 50
FEET OF TRACT 2, A DISTANCE OF 315.00 FEET TO THE EAST LINE OF SAID TRACT 2;
THENCE SOUTH 01 DEG. 14' 06" WEST ALONG SAID EAST LINE, A DISTANCE OF
288.16 FEET TO THE POINT OF BEGINNING;
EXCEPT THE EAST 12 FEET THEREOF FOR 84TH AVENUE SOUTH;
SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.
1 of 4
<PAGE>
LEGAL DESCRIPTION FOR NEW LOT "B"
ALL OF TRACT 5 AND THOSE PORTIONS OF TRACT 1 AND THE UNPLATTED TRACT "A,"
KENT FIVE ACRE TRACTS, ACCORDING TO THE PLAT THEREOF, RECORDED IN VOLUME 10
OF PLATS, PAGE 19, IN KING COUNTY, WASHINGTON, DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHEAST CORNER OF THE NORTHEAST QUARTER OF THE SOUTHEAST
QUARTER OF SECTION 12, TOWNSHIP 22 NORTH, RANGE 4 EAST, WILLAMETTE MERIDIAN,
IN KING COUNTY, WASHINGTON;
THENCE WEST ALONG THE SOUTH LINE OF SAID SUBDIVISION 30 FEET TO A POINT ON
THE WEST MARGIN OF PRIMARY STATE HIGHWAY NO. 5 (84TH AVENUE SOUTH), SAID
POINT BEING THE SOUTHEAST CORNER OF SAID UNPLATTED TRACT "A" AND THE TRUE
POINT OF BEGINNING;
THENCE NORTH ALONG THE WEST LINE OF PRIMARY STATE HIGHWAY NO. 5, A DISTANCE
OF 30 FEET;
THENCE WEST PARALLEL WITH THE SOUTH LINE OF SAID TRACTS 1 AND "A," A DISTANCE
OF 320 FEET;
THENCE NORTH PARALLEL WITH THE EAST LINE OF SAID TRACTS 1 AND "A," 291.7
FEET, MORE OR LESS, TO THE NORTH LINE OF SAID TRACT 1;
THENCE WEST 328.5 FEET, MORE OR LESS, TO THE NORTHWEST CORNER OF SAID TRACT 1;
THENCE SOUTH 321.7 FEET, MORE OR LESS, TO THE SOUTHWEST CORNER OF SAID TRACT
1;
THENCE EAST ALONG THE SOUTH LINE OF SAID TRACTS 1 AND "A," 648.5 FEET, MORE
OR LESS, TO THE TRUE POINT OF BEGINNING;
EXCEPT THE EAST 12 FEET OF THE SOUTH 30 FEET OF TRACT "A," CONVEYED TO THE
CITY OF KENT FOR STREET BY DEED RECORDED UNDER RECORDING NO. 7209150092; AND
EXCEPT THAT PORTION CONVEYED TO THE CITY OF KENT FOR STREET BY DEED RECORDED
UNDER RECORDING NO. 7908130086;
EXCEPT THE EAST 12 FEET THEREOF FOR 84TH AVENUE SOUTH;
SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.
AND
TRACTS 2, 7 AND 9, KENT FIVE ACRE TRACTS, ACCORDING TO THE PLAT THEREOF,
RECORDED IN VOLUME 10 OF PLATS, PAGE 19, IN KING COUNTY, WASHINGTON;
EXCEPT THAT PORTION OF TRACT 2 OF KENT FIVE ACRE TRACTS, ACCORDING THE PLAT
THEREOF RECORDED IN VOLUME 10 OF PLATS, PAGE 19, IN KING COUNTY, WASHINGTON,
DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHEAST CORNER OF SAID TRACT 2;
THENCE NORTH 88 DEG. 26' 13" WEST ALONG THE SOUTH LINE OF SAID TRACT 2, A
DISTANCE OF 315.00 FEET;
THENCE NORTH 01 DEG. 14' 06" EAST PARALLEL WITH THE EAST LINE OF SAID
TRACT 2, A DISTANCE OF 288.18 FEET TO THE SOUTH LINE OF THE NORTH 50 FEET OF
SAID TRACT 2;
THENCE SOUTH 88 DEG. 25' 58" EAST ALONG SAID SOUTH LINE OF THE NORTH 50
FEET OF TRACT 2, A DISTANCE OF 315.00 FEET TO THE EAST LINE OF SAID TRACT 2;
THENCE SOUTH 01 DEG. 14' 06" WEST ALONG SAID EAST LINE, A DISTANCE OF
288.16 FEET TO THE POINT OF BEGINNING;
EXCEPT THE WEST 20 FEET OF SAID TRACT 9, CONDEMNED FOR DRAINAGE DITCH BY
DRAINAGE DISTRICT NO. 1, IN KING COUNTY SUPERIOR COURT CAUSE NO. 329121; AND
EXCEPT THE EAST 12 FEET OF TRACT 2, CONVEYED TO THE CITY OF KENT FOR STREET
BY DEED RECORDED UNDER RECORDING NO. 7209150101; AND
EXCEPT THAT PORTION CONVEYED TO THE CITY OF KENT FOR STREET BY DEED RECORDED
UNDER RECORDING NO. 7908130086.
2 of 4
<PAGE>
LEGAL DESCRIPTION FOR NEW LOT "B" (CONTINUED)
AND
UNPLATTED TRACT "B," AS SHOWN AND DELINEATED ON THE PLAT OF KENT FIVE ACRE
TRACTS, ACCORDING TO THE PLAT THEREOF, RECORDED IN VOLUME 10 OF PLATS, PAGE
19, IN KING COUNTY, WASHINGTON;
EXCEPT THE WEST 20 FEET THEREOF CONDEMNED FOR DRAINAGE DITCH BY DRAINAGE
DISTRICT NO. 1, IN KING COUNTY SUPERIOR COURT CAUSE NO. 329121; AND
EXCEPT THAT PORTION THEREOF LYING NORTH OF THE WESTERLY EXTENSION OF THE
CENTERLINE OF SOUTH 218TH STREET; AND
EXCEPT THAT PORTION THEREOF CONVEYED TO THE CITY OF KENT FOR STREET BY DEED
RECORDED UNDER RECORDING NO. 7908130086.
AND
THAT PORTION OF THE SOUTH HALF OF THE SOUTHEAST QUARTER OF SECTION 12,
TOWNSHIP 22 NORTH, RANGE 4 EAST, WILLAMETTE MERIDIAN, IN KING COUNTY,
WASHINGTON, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID SOUTH HALF OF THE SOUTHEAST
QUARTER;
THENCE WEST ALONG THE NORTH LINE OF SAID SOUTH HALF OF THE SOUTHEAST QUARTER,
30 FEET TO AN INTERSECTION WITH THE WEST MARGIN OF PRIMARY STATE HIGHWAY NO.
5 (84TH AVENUE SOUTH) AND THE TRUE POINT OF BEGINNING;
THENCE CONTINUING WEST ALONG SAID NORTH LINE TO THE EASTERLY MARGIN OF THE
RIGHT-OF-WAY OF THE NORTHERN PACIFIC RAILWAY COMPANY;
THENCE SOUTHEASTERLY ALONG SAID EASTERLY MARGIN TO THE NORTHWEST CORNER OF
TRACT 8, SHINN'S VALLEY HOME ADDITION TO KENT, ACCORDING TO THE PLAT THEREOF,
RECORDED IN VOLUME 7 OF PLATS, PAGE 22, IN KING COUNTY, WASHINGTON;
THENCE EAST ALONG THE NORTH LINE OF SAID ADDITION TO AN INTERSECTION WITH A
LINE PARALLEL WITH AND 320 FEET WEST OF THE WEST MARGIN OF PRIMARY STATE
HIGHWAY NO. 5;
THENCE NORTH PARALLEL WITH THE WEST MARGIN OF PRIMARY STATE HIGHWAY NO. 5 TO
AN INTERSECTION WITH A LINE 30 FEET SOUTH OF AND PARALLEL WITH THE NORTH LINE
OF THE SOUTH HALF OF THE SOUTHEAST QUARTER OF SAID SECTION 12;
THENCE EAST ALONG SAID PARALLEL LINE TO THE WEST MARGIN OF PRIMARY STATE
HIGHWAY NO. 5;
THENCE NORTH ALONG SAID WEST LINE 30 FEET TO THE TRUE POINT OF BEGINNING;
EXCEPT THE WESTERLY 20 FEET THEREOF CONDEMNED FOR DRAINAGE DITCH BY DRAINAGE
DISTRICT NO. 1, IN KING COUNTY SUPERIOR COURT CAUSE NO. 329121; AND
EXCEPT THE EAST 12 FEET CONVEYED TO THE CITY OF KENT FOR STREET BY DEED
RECORDED UNDER RECORDING NO. 7209150092;
TOGETHER WITH THAT PORTION OF SOUTH 218TH STREET ADJOINING AS VACATED BY CITY
OF KENT ORDINANCE NO. 3293 RECORDED UNDER RECORDING NOS. 9608080143 AND
9701280976 WHICH WOULD ATTACH BY OPERATION OF LAW.
3 of 4
<PAGE>
[AERIAL MAP]
4 of 4
<PAGE>
FIRST AMENDMENT OF LEASE
THIS FIRST AMENDMENT OF LEASE (the "Amendment") is made as of the 12th
day of June, 1998, between FF PROPERTIES, L.P., A CALIFORNIA LIMITED
PARTNERSHIP ("Landlord"), and EAGLE HARDWARE AND GARDEN, INC., A WASHINGTON
CORPORATION ("Tenant"), with reference to the following facts:
RECITALS:
A. Landlord and Tenant have entered into a written ground lease (the
"Lease"), dated as of March 5, 1998 for certain premises (the "Premises")
located in the City of Westminster, County of Orange, State of California
which is a part of that certain shopping center commonly known as the
"Westminster Gateway Center" (the "Center"). In the Lease, the Premises had
been referred to, in part, as Lots 2, 3, 4, and 5 of Tract Map No. 15514, as
more particularly described in the Lease.
B. An Application for Lot Line Adjustment LL-A 98-2 was recorded on May
12, 1998, as Instrument No. 19980291311 and was re-recorded on June 10, 1998
as Instrument No. 19980364998, in the Official Records of Orange County,
California (the "Lot Line Adjustment"). The Lot Line Adjustment was recorded
in order to, among other things, correct certain boundaries of the legal lots
comprising the Center.
C. The parties desire to confirm the legal description of the real
property comprising both the Shopping Center and the Premises (as those terms
are used in the Lease), as the same have been modified by the Lot Line
Adjustment. Following the execution of this Amendment, the parties also
intend to cause a Memorandum of the Lease to be recorded in the Official
Records of Orange County, California.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth in this Amendment, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant agree as follows (unless otherwise defined herein, capitalized terms
shall have the same definition in this Amendment as set forth in the Lease):
AGREEMENT:
1. SHOPPING CENTER. Notwithstanding anything to the contrary contained
in the Lease, the legal description of the Shopping Center is as follows:
Parcels 1 through 6, inclusive, of the Lot Line Adjustment.
2. PREMISES. Notwithstanding anything to the contrary contained in the
Lease, the legal description of the Premises is as follows:
Parcels, 4, 5, and 6, inclusive, of the Lot Line Adjustment.
3. NO OTHER MODIFICATIONS. Except as expressly set forth in this
Amendment, the Lease is not amended, modified, or supplemented in any way and
remains in full force and effect. In the event of a conflict between the
terms of the Lease and this Amendment, this Amendment shall govern.
4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-1-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
LANDLORD:
FF PROPERTIES, L.P., a California limited partnership
By: Carnoustie, Inc., a California corporation
Its general partner
By: /s/ James D. Vandever
-------------------------------------
Name: James. D. Vandever
-------------------------------------
Title: Vice President
-------------------------------------
TENANT:
EAGLE HARDWARE & GARDEN, INC.,
a Washington corporation
By: /s/ Richard T. Takata
-------------------------------------
Name: Richard T. Takata
-------------------------------------
Title: President & CEO
-------------------------------------
-2-
<PAGE>
State of California )
) ss.
County of Los Angeles)
On June 29, 1998, before me, Jill Saperstein, Notary Public, personally
appeared James D. Vandever, personally known to me to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on
the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------------
JILL SAPERSTEIN
[SEAL] Commission # 1088002 /s/ Jill Saperstein
Notary Public -- California ------------------------
Los Angeles County
My Comm. Expires Feb 16, 2000
- -------------------------------------
Capacity of signer: Vice President
Signer is representing: Carnoustie, Inc., general partner of FF Properties, L.P.
Document: First Amendment of Lease
<PAGE>
State of Washington )
) ss.
County of King )
On June 16, 1998, before me, Sibyl A. Tice, Notary Public, personally
appeared Richard T. Takata, personally known to me to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same as President and Chief Executive Officer of Eagle Hardware
& Garden, Inc., and that by his signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL] /s/ Sibyl A. Tice
--------------------------------
Sibyl A. Tice
Notary Public for Washington
My Commission Expires: 2/14/02
<PAGE>
Exhibit 10.145A
The printed portions of this form, except (italicized)(differentiated)
additions, have been approved by the Colorado Real Estate Commission.
(AE41-1-94)
THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT
LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING.
AGREEMENT TO AMEND/EXTEND CONTRACT
June 12 , 1998
RE: Contract dated effective May 15 , 1998 between Eagle Hardware & Garden,
Inc.
(Buyer) and
JP Northglenn LLC (Seller),
relating to the sale and purchase of the following described real estate in the
County of Adams , Colorado.
Eagle Hardware site, originally consisting of approximately 10.68 acres in
the Marketplace at Northglenn Shopping Center at the NE quadrant of 104th
Avenue and Melody Drive in Northglenn, Colorado
known as No. ______________________________________________________(Property).
Street Address City State Zip
Buyer and Seller hereby agree to amend the aforesaid contract as follows:
N/A 1. The date for closing and delivery of deed is changed to
_______________, 19___.
2. The date for furnishing commitment for title insurance policy or
abstract of title is changed to June 26 , 1998, and has been
furnished.
N/A 3. The date for delivering possession of Property is changed to
_________________________, 19_____.
N/A 4. The date for approval of new loan is changed to _____________, 19__.
N/A 5. The date for lender's consent to loan assumption or transfer of
Property is changed to ________________, 19__.
6. Other dates set forth in said contract shall be changed as follows:
Date for delivery of the ALTA/ACSM is changed to July 26, 1998.
7. Additional amendments: See attached page 2 of 2
All other terms and conditions of said contract shall remain the same.
JP Northglenn LLC
By: /s/ Jordon Perlmutter
- --------------------------------------- ---------------------------------------
Seller: Jordon Perlmutter, Manager Seller
Date of Seller's signature 6/30 , 1998 Date of Seller's signature , 19
------ -- ------ --
By: /s/ Paul B. Morris
- --------------------------------------- ---------------------------------------
Buyer: Paul B. Morris, Vice President Buyer
Date of Buyer's signature 7/7 , 1998 Date of Buyer's signature , 19
------ -- ------ --
<PAGE>
AGREEMENT TO AMEND/EXTEND CONTRACT
JP NORTHGLENN LLC/EAGLE HARDWARE & GARDEN, INC.
Page 2 of 2
7. Additional amendments:
A. The area of the Property to be purchased is increased to 10.95
acres, more or less.
B. The legal description of the Property is shown on Exhibit A
attached hereto.
C. The purchase price for the Property, based on the area of 10.95
acres is adjusted to $3,434,270.40.
D. Seller agrees to install on the Property:
1. The two storm sewer lines running in the north/south direction
including inlets and connections to the existing box culvert,
as shown on Exhibit B, attached hereto; and
2. The water line running in the north/south direction and the
three fire hydrants (with the laterals to the hydrants), as
shown on Exhibit B, attached hereto.
Seller agrees to install such lines and hydrants not later than
October 1, 1998. Buyer agrees to reimburse Seller for its out of
pocket cost in installing the utilities including a mark-up of 11%
to Seller or Seller's affiliated company for its services as general
contractor for such work. Such reimbursement is to take place within
fifteen (15) days after completion of such work.
E. The second sentence of Section 4.1 of the Contract is deleted and
the following is substituted therefor:
Buyer's plans shall provide for a minimum of five (5) parking
spaces, including handicapped parking and customer load areas,
per one thousand (1,000) square feet of retail area calculated
on one hundred thirty one thousand four hundred seventy five
(131,475) square feet, which is to be the maximum amount of
covered enclosed building area to be built on the Property,
except that Buyer may additionally have an enclosed greenhouse
with a transparent or translucent roof within its garden area,
which greenhouse area is not to be included in computing the
required number of parking spaces.
8.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
LEGAL DESCRIPTION
EAGLE HARDWARE - THE MARKETPLACE AT NORTHGLENN
A PARCEL OF LAND BEING A PART OF LOT 1, BLOCK 46, NORTH GLENN - FIFTH FILING,
A PLAT RECORDED IN THE ADAMS COUNTY RECORDS AT FILE 10, MAP 363, LOCATED IN
THE SW 1/4 OF SECTION 10, TOWNSHIP 2 SOUTH, RANGE 68 WEST OF THE SIXTH
PRINCIPAL MERIDIAN, COUNTY OF ADAMS, STATE OF COLORADO, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE EASTERLY BOUNDARY OF SAID PLAT WHENCE THE
SOUTHEASTERLY CORNER OF SAID LOT 1 BEARS SOUTH 11 DEG. 31' 00" WEST 642.02
FEET;
THENCE NORTH 78 DEG. 26' 13" WEST 141.43 FEET; THENCE NORTH 11 DEG. 25' 16"
EAST 190.11 FEET; THENCE NORTH 00 DEG. 07' 00" WEST 138.23 FEET; THENCE SOUTH
89 DEG. 53' 00" WEST 284.00 FEET; THENCE SOUTH 00 DEG. 07' 00" EAST 229.00
FEET; THENCE SOUTH 89 DEG. 53' 00" WEST 270.50 FEET; THENCE NORTH 00 DEG. 07'
00" WEST 711.00 FEET; THENCE NORTH 89 DEG. 53' 00" EAST 270.50 FEET; THENCE
NORTH 00 DEG. 07' 00" WEST 33.24 FEET TO A POINT ON THE SOUTHERLY BOUNDARY OF
A PARCEL OWNED BY SEARS; THENCE ALONG SAID PARCEL THE FOLLOWING TWO (2)
COURSES:
1. SOUTH 89 DEG. 49' 12" EAST 59.04 FEET;
2. THENCE NORTH 00 DEG. 07' 00" WEST 6.00 FEET;
THENCE NORTH 89 DEG. 53' 00" EAST 190.96 FEET; THENCE NORTH 00 DEG. 07' 00"
WEST 65.00 FEET; THENCE NORTH 89 DEG. 53' 00" EAST 100.00 FEET TO A POINT ON
THE EASTERLY BOUNDARY OF SAID PLAT; THENCE ALONG SAID EASTERLY BOUNDARY THE
FOLLOWING TWO (2) COURSES:
1. SOUTH 00 DEG. 07' 00" EAST 717.93 FEET;
2. THENCE SOUTH 11 DEG. 31' 00" WEST 225.76 FEET TO THE POINT OF
BEGINNING, CONTAINING 10.95 ACRES, MORE OR LESS.
BEARINGS ARE BASED ON THE WEST LINE OF NORTH GLENN - FIFTH FILING, BEING
NORTH 00 DEG. 01' 30" WEST.
PREPARED BY:
--------------------------------
DUWAYNE M. PHILLIPS PLS 9329
FOR AND ON BEHALF OF
ROCKY MOUNTAIN CONSULTANTS, INC.
8301 E. PRENTICE AVE. #101
ENGLEWOOD, CO 80111
(303) 741-6000
DATE:
--------------------------
EXHIBIT A
EAGLE HARDWARE - NORTHGLENN
RMC 1163.034.00
JUNE 15, 1998 - qjk
<PAGE>
EXHIBIT B
[AERIAL MAP]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-1999
<PERIOD-END> OCT-30-1998
<CASH> 35,148
<SECURITIES> 0
<RECEIVABLES> 8,755
<ALLOWANCES> 6,464
<INVENTORY> 229,353
<CURRENT-ASSETS> 273,318
<PP&E> 459,823
<DEPRECIATION> 52,726
<TOTAL-ASSETS> 693,518
<CURRENT-LIABILITIES> 136,547
<BONDS> 178,329
0
0
<COMMON> 265,854
<OTHER-SE> 103,854
<TOTAL-LIABILITY-AND-EQUITY> 693,518
<SALES> 832,501
<TOTAL-REVENUES> 832,501
<CGS> 597,913
<TOTAL-COSTS> 597,913
<OTHER-EXPENSES> 178,620
<LOSS-PROVISION> 3,887
<INTEREST-EXPENSE> 7,813
<INCOME-PRETAX> 50,899
<INCOME-TAX> 18,578
<INCOME-CONTINUING> 32,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,321
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.02
</TABLE>
