<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 JULY 31, 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 29,114,106 SHARES OF COMMON STOCK, WITHOUT PAR VALUE,
OUTSTANDING AT JULY 31, 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 ..................................... 9
Consolidated Statements of Operations ........................... 10
Consolidated Statements of Cash Flows ........................... 11
Notes to Unaudited Consolidated Financial Statements ............ 12
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 ....................................................... 7
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ................................................ 7
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ................................ 7
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS -
Eagle Hardware & Garden, Inc.'s (the "Company") unaudited consolidated
balance sheet as of July 31, 1998, audited consolidated balance sheet as of
January 30, 1998, unaudited statements of operations for the 13- and 26-week
periods ended July 31, 1998, and August 1, 1997, and unaudited consolidated
statements of cash flows for the 26-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 26-week periods ended July
31, 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 JULY 31, 1998 AND AUGUST 1, 1997.
NET INCOME. Net income for the second quarter of fiscal 1998 was $15.4
million, or $0.48 per share, diluted, compared to $13.0 million, or $0.41 per
share, diluted, for the second quarter of fiscal 1997. The Company's 6.25%
convertible subordinated debentures were dilutive during the second 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 second quarter of
fiscal 1998 was $0.53 compared to $0.45 for the second quarter of fiscal 1997.
The 18% increase in net income was due to the factors discussed below.
NET SALES. Net sales for the second quarter of fiscal 1998 increased
11% over the comparable prior year period. This increase was due to two factors.
First, there were 416 store weeks of operation during the second quarter of
fiscal 1998 compared to 390 store weeks in the comparable prior year period.
Second, same store sales for the second quarter of fiscal 1998 increased 6%.
Same store sales 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 second quarter of fiscal 1997. As a percentage of net sales, gross
margin was 28.1% in both the second
3
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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 20.3% in the second quarter of fiscal 1997 to 19.8% in the second
quarter of fiscal 1998 due primarily to the additional leverage attributable to
the 6% increase in same store 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 17% in the second quarter of fiscal 1998 over the second quarter of
fiscal 1997. Expressed as a percentage of net sales, operating income improved
from 7.9% in the second quarter of fiscal 1997 to 8.3% in the second quarter of
fiscal 1998.
INTEREST INCOME. Interest income increased 89% from $657,000 in the
second quarter of fiscal 1997 to $1.2 million in the second quarter 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 second quarter of fiscal
1998 was $2.8 million, compared to $2.2 million during the comparable prior year
period. This 28% increase was due primarily to $58 million in additional store
mortgages since the second quarter of fiscal 1997. Interest on the Company's
convertible subordinated debentures was comparable between the current and prior
year. During both quarters, interest incurred was partially offset by interest
capitalized on construction projects. Interest capitalized for the second
quarter of fiscal 1998 and fiscal 1997 was $533,000 and $17,000, respectively.
(b) COMPARISON OF THE 26 WEEKS ENDED JULY 31, 1998 AND AUGUST 1, 1997.
NET INCOME. Net income for the first 26 weeks of fiscal 1998 was $21.6
million, or $0.69 per share, diluted, compared to $17.6 million, or $0.57 per
share, diluted, for the first 26 weeks of fiscal 1997. The Company's 6.25%
convertible subordinated debentures were dilutive during the first half of
fiscal 1998 and fiscal 1997 (see Note 4 to the Company's Consolidated Financial
Statements (unaudited)). Primary net income per share for the 26 weeks ended
July 31, 1998 was $0.74 compared to $0.61 in the prior year. The 23% increase in
net income was due to the factors discussed below.
NET SALES. Net sales for the first 26 weeks of fiscal 1998 increased
12% over the comparable prior year period. This increase in net sales over the
prior 26-week period was due primarily to an 8% increase in store weeks of
operations and a 6% 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 26 weeks of fiscal 1997. As a percentage of net sales, gross
margin was 28.1% in the first 26 weeks of fiscal 1998 versus 28.2% in the
comparable prior year period. The slight decrease in gross margin as a
percentage of sales was due to several factors, including increased competitive
pressure in certain markets.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
decreased from 21.7% in the first 26 weeks of fiscal 1997 to 21.2% in the first
26 weeks of fiscal 1998 due to the additional leverage attributable to the 6%
increase in same store sales. The Company
4
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experienced decreases in certain expenses as a percentage of sales, including
store level wages and net advertising expense.
PREOPENING EXPENSES. Preopening expenses were 0.2% of sales in the
first 26 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 0.4% 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 23% in 1998 over the comparable 1997 period. Expressed as a percentage
of net sales, operating income improved from 6.1% in the first 26 weeks of
fiscal 1997 to 6.7% in the comparable current year period.
INTEREST INCOME. Interest income increased from $876,000 in the first
26 weeks of fiscal 1997 to $2.1 million in the first 26 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 26 weeks of fiscal
1998 was $5.6 million, compared to $3.8 million during the comparable prior year
period. The increase in interest expense was due primarily to $58 million in
additional store mortgages since the second quarter of fiscal 1997. Interest on
the Company's convertible subordinated debentures was comparable between the
current and prior year. During both periods, interest incurred was partially
offset by interest capitalized on construction projects. Interest capitalized
for the first 26 weeks of fiscal 1998 and fiscal 1997 was $771,000 and $340,000,
respectively.
LIQUIDITY AND CAPITAL RESOURCES -
The Company did not open any stores during the second quarter of fiscal
1998. The Company currently plans to open six additional stores by the end of
fiscal 1998 and 10 to 12 stores in fiscal 1999. All six of the remaining fiscal
1998 stores and one of the fiscal 1999 stores are under construction. In
addition to the seven stores currently under construction, the Company has
signed agreements to purchase nine future store sites at a total cost of
approximately $45.5 million and has signed agreements to lease property for four
future store sites. The Company has also signed a lease for another future
store. 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 July 31, 1998, reflects an $82.6
million, or 14%, increase in total assets since the fiscal year began on January
31. The principal components of this change were a $26.6 million increase in
cash and cash equivalents, a $10.9 million increase in inventories, attributable
to seasonal inventory fluctuations and the addition of one new store, and an
increase of $42.2 million in net property and equipment, primarily related to
the continuing store expansion program. Net income adjusted for noncash items
provided $30.0 million during the first 26 weeks of the year to support the
Company's expansion. The increase in total assets was also accompanied by an
increase of $20.1 million in accounts payable and outstanding checks under the
Company's integrated cash management program and an $11.8 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.
5
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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 fiscal 1998
expansion program through a combination of current 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.
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 time-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. At this stage, the program is more than 50% complete as it
relates to both information technology (IT) and non-IT systems and applications.
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.
Although management anticipates that its systems and applications will
be Year 2000 compliant on a timely basis, 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. 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. Their responses are being entered into a database that will be 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. 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.
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.
6
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
Not applicable.
PART II - OTHER INFORMATION:
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
The Company's 1998 Annual Meeting of Shareholders was held on May 28,
1998. Matters voted upon at the meeting and the results of those votes are set
forth in the following table.
<TABLE>
<CAPTION>
VOTES
---------------------------------------- BROKER OTHER
MATTER FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES NON-VOTES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Election of Directors:
Heerensperger 25,737,012 - 1,619,527 - - -
Douglass 25,731,099 - 1,625,440 - - -
Amend the Company's
Stock Option Plans 13,896,672 4,586,201 - 136,834 8,736,832 1,715,367
Adopt Employee Stock
Purchase
Plan 18,005,087 514,879 - 99,741 8,736,832 1,715,367
Ratification of
Independent Public
Accountants
(Ernst & Young) 27,254,719 38,215 - 63,605 - 1,715,367
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits filed with this Form 10-Q are as follows:
10.3E Fifth Amendment to Eagle Hardware & Garden Profit
Sharing/Retirement Savings Plan.
10.38D Fourth Amendment to Eagle Hardware & Garden, Inc. Employee
Stock Ownership Plan dated June 1, 1998.
10.146A First Amendment to Agreement of Purchase and Sale and Joint
Escrow Instructions dated July 13, 1998 by and between
Nevada Investment Holdings, Inc. and Eagle Hardware &
Garden, Inc.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the second quarter of fiscal 1998.
7
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SIGNATURES:
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
EAGLE HARDWARE & GARDEN, INC.
-----------------------------
Registrant
September 2, 1998 /s/ David J. Heerensperger
- ----------------- --------------------------
Date David J. Heerensperger
Chairman
September 2, 1998 /s/ Richard T. Takata
- ----------------- ---------------------
Date Richard T. Takata
President and Chief Executive Officer (Principal
Executive Officer) and Operating Officer
September 2, 1998 /s/ Ronald P. Maccarone
- ----------------- -----------------------
Date Ronald P. Maccarone
Executive Vice-President-Finance and Chief
Financial Officer (Principal Financial Officer)
8
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EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 31, JANUARY 30,
1998 1998
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 90,140 $ 63,557
Trade and other accounts receivable (less allowance
for doubtful accounts of $5,066 and $2,435) 2,224 4,463
Merchandise inventories 213,773 202,833
Prepaid expenses 4,081 4,479
Deferred income taxes 3,860 2,312
-------- --------
Total current assets 314,078 277,644
-------- --------
Property and equipment, at cost:
Land and buildings 226,484 184,340
Furniture, fixtures and equipment 112,828 107,916
Leasehold improvements 49,446 48,925
Construction in progress 18,153 16,495
-------- --------
406,911 357,676
Less accumulated depreciation and amortization 48,547 41,543
-------- --------
Net property and equipment 358,364 316,133
-------- --------
Preopening costs 231 1,055
Other assets 11,628 6,823
-------- --------
-------- --------
Total assets $684,301 $601,655
-------- --------
-------- --------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks, not cleared by the bank $ 16,055 $ 11,008
Accounts payable 70,170 55,097
Sales taxes payable 8,637 5,799
Accrued payroll and related expenses 17,038 16,492
Other current liabilities 16,978 10,425
Current portion of long-term debt 8,629 6,218
-------- --------
Total current liabilities 137,507 105,039
Deferred income taxes 12,737 11,084
Other long-term liabilities 3,516 3,159
Long-term debt 171,806 145,836
-------- --------
Total liabilities 325,566 265,118
-------- --------
Commitments and contingencies
Shareholders' equity:
Common stock, without par value; 50,000 shares authorized;
29,114 and 29,071 shares issued and outstanding 265,569 265,004
Retained earnings 93,166 71,533
-------- --------
Total shareholders' equity 358,735 336,537
-------- --------
Total liabilities & shareholders' equity $684,301 $601,655
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
---------------------------- ----------------------------
JULY 31, AUGUST 1, JULY 31, AUGUST 1,
1998 1997 1998 1997
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $ 307,957 $ 278,238 $ 558,196 $ 499,345
Cost of sales 221,331 199,966 401,325 358,503
--------- --------- --------- ---------
Gross margin 86,626 78,272 156,871 140,842
Operating expenses 60,927 56,388 118,362 108,282
Preopening expenses 0 0 1,030 2,089
--------- --------- --------- ---------
Operating income 25,699 21,884 37,479 30,471
Other income (expense):
Interest income 1,244 657 2,090 876
Interest expense (2,807) (2,188) (5,629) (3,826)
Other income 71 80 128 138
--------- --------- --------- ---------
Income before tax 24,207 20,433 34,068 27,659
Income taxes 8,836 7,450 12,435 10,088
--------- --------- --------- ---------
Net income $ 15,371 $ 12,983 $ 21,633 $ 17,571
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share:
Basic $ 0.53 $ 0.45 $ 0.74 $ 0.61
Diluted $ 0.48 $ 0.41 $ 0.69 $ 0.57
Weighted average common and common
equivalent shares for net income
per share computations:
Basic 29,090 28,987 29,081 28,942
Diluted 34,260 34,209 34,218 34,163
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
EAGLE HARDWARE & GARDEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS ENDED
----------------------------
JULY 31, AUGUST 1,
1998 1997
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income 21,633 17,571
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8,298 7,130
Deferred income taxes 105 1,182
Changes in operating assets and liabilities:
Trade and other accounts receivable 2,239 (171)
Merchandise inventories (10,940) (22,260)
Prepaid expenses (1,467) (1,436)
Other assets (4,805) (474)
Preopening costs 824 1,444
Accounts payable and outstanding checks 20,120 5,796
Income taxes payable 4,691 4,878
Accrued liabilities 7,111 2,144
Other 357 133
------- -------
26,533 (1,634)
------- -------
Net cash provided by operating activities 48,166 15,937
------- -------
INVESTING ACTIVITIES:
Capital expenditures for property and equipment (50,529) (28,768)
Sales of short-term investments 0 31,330
------- -------
Net cash (used in) provided by investing activities (50,529) 2,562
------- -------
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 18,823
Payments on long-term borrowings and capital leases (3,619) (1,239)
Other 565 1,368
------- -------
Net cash provided by financing activities 28,946 18,952
------- -------
Increase in cash and cash equivalents 26,583 37,451
Cash and cash equivalents at beginning of period 63,557 20,738
------- -------
Cash and cash equivalents at end of period 90,140 58,189
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest $6,217 $4,326
Income taxes $7,419 $3,508
</TABLE>
See accompanying notes to consolidated financial statements.
11
<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 July 31, 1998, the consolidated results of
operations for the 13-week and 26-week periods ended July 31, 1998, and August
1, 1997, and consolidated cash flows for the 26-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 August 18, 1998, the Company had signed agreements to purchase
property for nine additional store sites at a cost of approximately $45.5
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 and has signed an agreement to lease a
future store site. These leases will be finalized upon successful resolution of
various contingencies.
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 26 WEEKS ENDED
-------------------------- ------------------------
JULY 31, AUGUST 1, JULY 31, AUGUST 1,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income as reported and used for
basic computation $15,371 $12,983 $21,633 $17,571
Add (where dilutive):
Tax effected interest and amortization
of debt expense on convertible debt 919 919 1,837 1,837
--------- --------- --------- ---------
Net income used for diluted computation $16,290 $13,902 $23,470 $19,408
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of common shares
outstanding used for basic computation 29,090 28,987 29,081 28,942
Add (where dilutive):
Shares applicable to stock options 385 437 352 436
Assumed exercise of convertible debt 4,785 4,785 4,785 4,785
--------- --------- --------- ---------
Adjusted shares outstanding used for
diluted computation 34,260 34,209 34,218 34,163
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic net income per share $0.53 $0.45 $0.74 $0.61
Diluted net income per share $0.48 $0.41 $0.69 $0.57
</TABLE>
12
<PAGE>
FIFTH AMENDMENT
TO
EAGLE HARDWARE & GARDEN, INC.
PROFIT SHARING/RETIREMENT SAVINGS PLAN
Pursuant to authority vested in the corporate officers of Eagle Hardware
& Garden, Inc., a Washington corporation, by resolution of its Board of
Directors, the Eagle Hardware & Garden, Inc. Profit Sharing/Retirement
Savings Plan ("Plan") is hereby amended, effective January 1, 1998, as
follows:
1. INITIAL INVESTMENT ELECTION IN DIRECTED PORTFOLIO ACCOUNT -- Section
4.10(B)2 shall be amended to allow participants to make initial
investment fund elections in one percent (1%) increments.
2. INVESTMENT FUND IN DIRECTED PORTFOLIO ACCOUNT -- Section 4.10(B)1
shall be amended to delete the provision requiring the trustee to
follow a direction of the Committee to maintain cash or cash
equivalents as liquidity in the Trust Fund.
3. LIMITATIONS ON INVESTMENT CHANGES IN DIRECTED PORTFOLIO ACCOUNT --
Section 4.10(B)4 shall be amended to allow participants to change
investment accounts and future contribution rates on a daily basis.
Section 4.10(B)4 shall be further amended to allow participants to
make changes in existing investment elections in one percent (1%)
increments.
4. ELIMINATION OF GAP PERIOD INCOME FOR CORRECTIVE DISTRIBUTIONS --
Section 1.29 shall be amended to eliminate the requirement that "gap
period" income be included when calculating income for purposes of
making corrective distributions.
5. VALUATION DATE MEASURED BY NYSE -- Section 1.57.1 shall be amended
to provide that daily valuation shall take place on any business day
during the Plan Year during which the New York Stock Exchange is
open for business.
6. AUTHORIZED DISTRIBUTIONS FOR ACCOUNTS LESS THAN $5,000 -- Sections
6.4(a) and 6.5(b) shall be amended to change each reference to
$3,500 therein to $5,000.
7. TRUSTEE INVESTMENT POWERS AND DUTIES -- Sections 7.2 and 7.3 shall
be amended by deleting both of such sections in their entirety, and
replacing them with the new Section 7.2 set forth in the attached
Exhibit A, which is incorporated herein by this reference, and which
provides that the Trustee shall act as a nondiscretionary Trustee.
This document shall constitute one of the documents under which the Plan
is administered until the amendments made hereby are reflected in an
amendment and
<PAGE>
restatement of the Plan. This amendment shall supersede any conflicting
provisions in the plan document, as previously amended.
EAGLE HARDWARE & GARDEN, INC. COMMITTEE UNDER THE
EAGLE HARDWARE &
GARDEN, INC. RETIREMENT
SAVINGS PLAN
By /s/ [Illegible] By: /s/ [Illegible]
------------------------- -------------------------
Its President/CEO Date: 6/1/98
------------------------- -------------------------
(Title of Officer)
Date: 6/1/98 By: /s/ [Illegible]
------------------------ --------------------------
Date: 6/1/98
--------------------------
<PAGE>
Exhibit A
Section 7.2 Investment Powers and Duties of the Trustee
A. Nondiscretionary Trustee
The Trustee shall be a nondiscretionary trustee. The Trustee shall have
no discretion or authority with respect to the investment of the Trust
Fund and shall act solely as a directed trustee of the funds contributed
to the Trust Fund.
B. Investment Directions
The Trustee shall effect and change investment of the Trust Fund
pursuant to proper directions as and when reported to the Trustee. If
participant direction of investments is permitted under the plan, the
Administrator shall establish procedures for a participant's proper
direction of investment. The Administrator shall communicate all
investment directions in writing. The Trustee shall neither effect nor
change any such investments without proper direction, and shall have no
right, duty, or responsibility to recommend investments or investment
changes.
C. Investment Manager
The Employer may from time to time in its sole discretion appoint, an
investment manager as defined in Section 3(38) of the Employee
Retirement Income Security Act of 1974. The Employer shall notify the
Trustee of any appointment of an investment manager by delivering to the
Trustee an executed copy of the instrument under which the investment
manager was appointed to act as such hereunder and shall specify to the
Trustee that portion of the Trust Fund which shall be subject to
investment management. During the term of such appointment, the
investment manager shall have the sole responsibility for the investment
and reinvestment of that portion of the Trust Fund subject to its
investment management. The Trustee may maintain a separate account
within the Trust Fund for the assets of the Trust Fund subject to
investment management. The Employer may terminate its appointment of an
investment manager at any time and shall in writing notify the Trustee
of such termination. Any investment manager shall exercise such of the
powers enumerated in Section D and otherwise contained in this Agreement
with respect to that portion of the Trust Fund subject to its investment
management as may be provided in the instrument under which the
investment manager was appointed to act as such hereunder.
1
<PAGE>
D. Investment Authority
With respect to any Plan asset which is not subject to the provisions of
Sections B and C of this Article II, the Trustee, as a directed trustee,
is authorized and empowered, by way of limitation, with the following
rights, powers and duties, each of which the nondiscretionary Trustee
exercises solely as directed Trustee in accordance with the written
direction of the Employer:
1. to invest all or any part of the assets of the Trust in any
collective investment trust or group trust which provides for the
pooling of the assets of plan described in Code Section 401(a) and
exempt from tax under Code Section 501(a). The provisions of the
documents governing such collective investment trusts or group
trusts, as amended from time to time, shall govern any investment
therein and are adopted by and made a part of the Plan and this
Trust Agreement. If this Trust fails to be treated as tax-exempt
under the Code or loses its status as such, the Employer shall
immediately so notify the Trustee and the Trustee shall, without
further notice or direction, remove the Trust assets from any such
collective investment trust or group trust maintained by the
Trustee, its affiliates, or other entity;
2. to invest and reinvest the Trust Fund in securities or other
property, real or personal, within or without the United States,
including, without limitation, interests or part interests in any
bond and mortgage or note and mortgage, certificates of deposit,
commercial paper and other short-term or demand obligations,
secured or unsecured, whether issued by governmental or
quasi-governmental agencies or corporations or by any firm or
corporation. Notwithstanding the foregoing, the Trustee shall not
make investments in securities or other property outside the United
States unless (i) the indicia of ownership thereof are held within
the jurisdiction of the District Courts of the United States or
(ii) the Secretary of the Department of Labor shall have granted
the Trustee permission to make such investments and in no event
shall anything contained herein be deemed to purport to authorize
any investment or reinvestment in violation of the requirements of
the Employee Retirement Income Security Act of 1974;
3. to enter into one or more insurance contracts with one or more
legal reserve life insurance companies and, subject to the
provisions of this Agreement, to remit any payments which it may
receive hereunder to any such insurance company, and to delegate
powers in connection with the administration of the portion of the
Trust Fund invested in any such insurance contract, to the
insurance company issuing such insurance contract;
4. to sell property at public or private sale for cash or upon credit
or partly for cash and partly upon credit and upon such terms and
conditions as it shall deem proper. No purchaser shall be bound or
liable for the application of the proceeds of any such sale;
5. to exchange any securities or property held by it for other
securities or property, or partly for such securities or property
and partly for cash, and to exercise conversion, subscription,
option and similar rights with respect to any securities held by
it, and to make payments in connection therewith;
2
<PAGE>
6. to vote in person or by proxy at corporate or other meetings and to
participate in or consent to any voting trust, reorganization,
dissolution, merger or other action affecting any securities in its
possession or the issuers thereof, and to make payments in
connection therewith;
7. to improve any real property;
8. to acquire, hold or dispose of property in unregistered form, or in
its name without designation of fiduciary capacity, or in the name
of its nominee, to deposit any property in a depository or clearing
corporation and to deposit with the federal reserve bank in its
district any securities the principal and interest of which the
United States or any department, agency or instrumentality thereof
has agreed to pay or has guaranteed payment;
9. to compromise and adjust all debts or claims due to or made against
it;
10. to make distributions in cash or in specific property, real or
personal, or an undivided interest therein, or partly in cash and
partly in such property; and
11. to retain in cash so much of the Trust Fund as the Administrator
may direct to satisfy liquidity needs of the Plan and to deposit
any cash held in the Trust Fund in any bank or savings account or
short term investment fund.
3
<PAGE>
FOURTH AMENDMENT
TO
EAGLE HARDWARE & GARDEN, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Pursuant to authority vested in the corporate officers of Eagle Hardware
& Garden, Inc., a Washington corporation, by resolution of its Board of
Directors, the Eagle Hardware & Garden, Inc. Employee Stock Ownership Plan
("Plan") is hereby amended, effective January 1, 1998, as follows:
1. AUTHORIZED DISTRIBUTIONS FOR ACCOUNTS LESS THAN $5,000 -- Sections
6.4 and 7.6 shall be amended to change each reference to $3,500
therein to $5,000.
2. TIMING OF DISTRIBUTIONS UPON TERMINATION -- Section 6.1(a) shall be
amended to provide that distribution of a Participant's Account
shall commence as soon as administratively feasible following the
participant's termination of employment, provided that the
participant consents to a distribution in accordance with Section
6.4. If the participant does not consent to a distribution, then an
account exceeding $5,000 will not be distributed until the
participant reaches age 65.
This document shall constitute one of the documents under which the Plan
is administered until the amendments made hereby are reflected in an
amendment and restatement of the Plan. This amendment shall supersede any
conflicting provisions in the plan document, as previously amended.
EAGLE HARDWARE & GARDEN, INC. COMMITTEE UNDER
EAGLE HARDWARE &
GARDEN, INC. EMPLOYEE STOCK
OWNERSHIP PLAN
By /s/ [Illegible] By: /s/ [Illegible]
------------------------- -------------------------
Its President/CEO Date: 6/1/98
------------------------- -------------------------
(Title of Officer)
Date: 6/1/98 By: /s/ [Illegible]
------------------------ --------------------------
Date: 6/1/98
--------------------------
<PAGE>
FIRST AMENDMENT TO
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
This FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW
INSTRUCTIONS ("Amendment") is made and entered into this 13th day of July,
1998, by and between NEVADA INVESTMENT HOLDINGS, INC., a Nevada corporation
("Seller") and EAGLE HARDWARE & GARDEN, INC., a Washington corporation, or
assigns as may be allowed herein ("Buyer")
R E C I T A L S:
A. Seller and Buyer entered into that certain Agreement of
Purchase and Sale and Joint Escrow Instructions dated May 27, 1998,
("Agreement") pursuant to which Seller agreed to sell and Buyer agreed to
buy that certain real property more particularly described in the Agreement
("Property").
B. Pursuant to the Agreement, Seller and Buyer have opened Escrow No.
98-6872JD ("Escrow") with First American Title Insurance Company of San Diego
("Escrow Holder").
C. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to such terms in the Agreement.
D. Seller and Buyer desire to amend the Agreement as hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Seller and Buyer hereby agree to amend the Agreement and the Escrow
Instructions to Escrow Holder as follows:
1. SUPPLEMENTAL DEPOSIT. Within three (3) business days of the date of
this Amendment, Buyer shall deposit into Escrow the amount of $25,000.00
("Supplemental Deposit"). The Supplemental Deposit shall be invested by
Escrow Holder in the same manner as the Deposit. The Supplemental Deposit
shall be applied against and credited to the Purchase Price. In the event of
Buyer's default under this Agreement, the Supplemental Deposit shall be
considered the same as the other Deposit(s) and, together with accrued
interest thereon, shall be released and delivered to Seller as liquidated
damages. In the event that (i) Seller deposits into Escrow a fully executed
counterpart original of an agreement with TRU Properties, Inc., terminating
their lease in the Shopping Center (for the Kids R Us store) as of September
30, 1998, and (ii) the Closing of this transaction does not take place within
the time period set forth in the Agreement for any reason whatsoever other
than default of Seller, the Supplemental Deposit, (together with any other
Deposit, First, Second or Third, which may be required to be delivered or
released to Seller) shall be released and delivered by Escrow Holder to Seller
without need of any further instruction.
2. JOINT PREPARATION. This Amendment is to be deemed to have been
prepared jointly by the parties. Any uncertainty or ambiguity regarding the
provisions of this Amendment shall not be interpreted against any party as a
draftsman of such document, but shall be resolved by application of all other
principles of law regarding interpretation of contracts.
3. COUNTERPARTS.
<PAGE>
4. EFFECT OF AMENDMENT. Except as expressly amended hereby, all terms
and conditions of the Agreement shall continue in full force and effect. The
Agreement, as amended hereby, constitutes the entire agreement of the parties
and no further modification of the Agreement shall be binding and effective
unless evidenced by an agreement, in writing, signed by both Seller and Buyer.
2
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have executed this Amendment as of
the date first above written.
BUYER: EAGLE HARDWARE & GARDEN, INC.
By: /s/ Richard T. Takata
-----------------------------------------
Richard T. Takata
President and C.E.O.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Typed name: [ILLEGIBLE]
-----------------------------------------
Its: Executive Vice President - Administration
-----------------------------------------
SELLER: NEVADA INVESTMENT HOLDINGS, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Typed name: [ILLEGIBLE]
-----------------------------------------
Its: Authorized Signatory
-----------------------------------------
By: /s/ Michael W. Holmes
-----------------------------------------
Typed name: Michael W. Holmes
-----------------------------------------
Its: Authorized Signatory
-----------------------------------------
ACCEPTANCE BY ESCROW HOLDER:
First American Title Insurance Company hereby acknowledges that it has
received a fully executed original of the foregoing FIRST AMENDMENT TO
AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS and
agrees to be bound by and perform the terms thereof as such terms apply to
Escrow Holder.
FIRST AMERICAN TITLE INSURANCE COMPANY
By: /s/ [ILLEGIBLE]
-------------------------------
Typed name: [ILLEGIBLE]
-------------------------------
Its: Certified Escrow Officer
------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-1999
<PERIOD-END> JUL-31-1998
<CASH> 90,140
<SECURITIES> 0
<RECEIVABLES> 7,290
<ALLOWANCES> 5,066
<INVENTORY> 213,773
<CURRENT-ASSETS> 314,078
<PP&E> 406,911
<DEPRECIATION> 48,547
<TOTAL-ASSETS> 684,301
<CURRENT-LIABILITIES> 137,507
<BONDS> 180,435
0
0
<COMMON> 265,569
<OTHER-SE> 93,166
<TOTAL-LIABILITY-AND-EQUITY> 684,301
<SALES> 558,196
<TOTAL-REVENUES> 558,196
<CGS> 401,325
<TOTAL-COSTS> 401,325
<OTHER-EXPENSES> 119,392
<LOSS-PROVISION> 2,221
<INTEREST-EXPENSE> 5,629
<INCOME-PRETAX> 34,068
<INCOME-TAX> 12,435
<INCOME-CONTINUING> 21,633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,633
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.69
</TABLE>
