SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended April 2, 1994
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 0-16930
EGGHEAD, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1296187
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22011 S.E. 51st Street
Issaquah, Washington 98027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 391-0800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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
Indicate by check mark if disclosure of delinquet filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this this Form 10-K or any amendment
to this Form 10-K.
To the best of Egghead, Inc.'s knowledge, the aggregate market value of the
voting stock held by non-affiliates of the registrant at May 27, 1994 was
$117,558,819.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Outstanding at
Class May 27, 1994
Common Stock, $.01 par value 17,121,438 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: Portions of
the registrant's definitive Proxy Statement relating to the Company's 1994
Annual Meeting of Shareholders are incorporated by reference into Part III of
this Form 10-K.
PAGE 1 OF 42 PAGES
EXHIBIT INDEX APPEARS ON PAGE 39
EGGHEAD, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 16
Item 8. Financial Statements and Supplementary Data . . . . . . 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . 37
PART III
Item 10. Directors and Executive Officers of the Registrant . . . 38
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . 38
Item 13. Certain Relationships and Related Transactions . . . . . 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 39
PART I
Item 1. Business
General
Egghead, Inc. (Egghead or the Company), a personal computer (PC)
software and hardware reseller, serves a diverse customer base
consisting of businesses, government agencies, educational institutions,
and individuals. As of April 2, 1994, the Company had 13 corporate,
government, and education (CGE) regional sales support centers, 189
company-operated retail stores, and two mail order groups.
Egghead, Inc., a Washington corporation, was incorporated in 1988 and is
the successor to a corporation which was incorporated in Washington in
1984. Egghead, Inc. is the parent company of DJ&J Software Corporation,
Eggspert Software, Ltd., EH Direct, Inc., and Egghead International,
Inc. EH Direct, Inc. is the parent company of MPI Corporation, d/b/a,
Rocky Mountain Computer Outfitters.
DJ&J Software Corporation, the Company's primary operating subsidiary,
was incorporated in Washington in 1983. Eggspert Software, Ltd., a
Canadian subsidiary, was incorporated in fiscal year 1989. EH Direct,
Inc. and Egghead International, Inc., were incorporated in Washington in
fiscal year 1994. Unless the context indicates otherwise, references to
the "Company" and "Egghead" include Egghead, Inc., and its subsidiaries.
In fiscal years 1994, 1993, and 1992, sales to corporations, government
agencies, and educational institutions served by Egghead's CGE sales
group accounted for approximately 52%, 56%, and 57% of the Company's
total net sales, respectively. The remaining net sales were generated
through its retail stores and mail order groups, mainly from sales to
individuals and small businesses.
Egghead's CGE sales group targets three main types of accounts:
corporations, government agencies nationwide (federal, state, and
local), and educational institutions. These customers are served by
well-trained outside sales representatives and inside sales support
staff, who provide customers with competitive prices, fast delivery, and
individualized service.
Egghead's retail stores offer a broad in-store selection of products at
competitive prices, as well as special order capabilities for additional
products. On April 2, 1994, the Company operated stores located
throughout the United States and Western Canada in 56 western cities, 61
eastern cities, and 48 mid-western cities. The Company employs a
knowledgeable sales staff committed to providing customers with software
technology solutions. The Company will continue to evaluate individual
store performance and make changes in the ordinary course of business in
fiscal year 1995.
Market Overview
The software industry is undergoing a noticeable degree of consolidation
as large software publishers acquire either other software publishers or
complete software products. Smaller software publishers are attempting
to concentrate on specialized products in limited markets.
Both businesses and individual consumers have shown an increasing
preference for integrated software packages which combine word
processing, spreadsheet, presentation, and database software. These
integrated packages are appealing to the consumer for several reasons.
The purchase cost of an integrated software package is lower than if the
individual components were purchased separately. In addition,
integration reduces some of the complexity and learning time involved in
using software. Integrated software packages also help standardize the
computing environment for Local Area Networks (LANs), which are becoming
more common in the business world. This shift toward integration and
standardization is viewed by many companies as a way to significantly
reduce the cost of supporting PC applications in their organizations.
The growing market for workgroup computing software has also affected
the corporate, government, and education segments. This category of
software provides the ability for groups of people to exchange messages,
documents, and data easily over an electronic network, and has become
increasingly important to businesses as a tool for increasing employee
efficiency. Many software publishers continue to develop and improve
workgroup software, and view workgroup computing as one of the most
important applications of computer technology in this decade.
The increasing complexity of software has lead many organizations to
seek additional technical, asset management, and software distribution
services. Many organizations are now outsourcing their microcomputer
software servicing, and developing partnerships between software
resellers and technical service firms.
Prices of microprocessor chips continue to fall due to increased
competition among computer manufacturers. Competitors in the IBM*-
compatible PC microprocessor market, and the availability of new types
of microprocessors in the market (i.e., Power PC by Motorola/IBM),
continue to force PC prices down. Lower PC prices have resulted in
increased sales of PCs to businesses and individual consumers.
Price performance improvements in microcomputer hardware and the
availability of CD-ROM technology have had a dramatic impact on the
retail segment of the market. Sales of PC hardware accessories, such as
multimedia hardware and modems, have increased as consumers enhance
their PCs. Multimedia capability has enabled home users to more
effectively use microcomputers for educational and entertainment
purposes.
Products and Services
Egghead sells PC software programs and related products, PC hardware,
computer-related magazines and books, tutorials, and selected peripheral
devices and accessories. Certain of these products are sold under the
"Egghead" private label. Egghead has approximately 1,600 software
programs (including both IBMr-compatible and Appler Macintoshr software
packages) and other products in its retail stores, and thousands more
available for delivery from the Company's distribution centers or
through special order.
The Company's CGE sales group also sells volume license agreements and
vendor maintenance agreements. Volume license agreements typically
entitle customers to predetermined price discounts based on their
purchase volume. Maintenance agreements entitle customers to all
upgrades of certain products during a specified period of time. Due to
the significant cost savings to corporate, government, and education
customers, management believes this trend toward volume license and
maintenance agreements will continue.
The Company offers a broad array of customer support services to assist
customers in the selection and administration of their software
purchases, including the following:
Custom Updates and Eggstras (CUESM) program - a preferred customer
membership program providing discounts and other benefits in the
retail stores. CUESM also provides the Company with a valuable
database of customers, their PC equipment profiles, and a history of
their software purchases.
Customer Usage Report - a report for corporate, government, and
education customers that lists purchasing activity for up to the
previous 15 months. Over 600 of these reports are generated for
customers each month.
Eggheadr Express* - a Windows-based PC application which allows
customers to verify price and inventory, send orders, check the
status of orders, and exchange messages with Egghead electronically.
Electronic Bulletin Board - a comprehensive library of the most
commonly needed patches and drivers which can be down-loaded to CGE
customers.
Electronic Data Interchange (EDI) - the ability to conduct business
electronically using electronic business documents based on published
national and industry standards. As of April 2, 1994, the Company
conducted business with over 50 customers using EDI. In fiscal year
1994, the Company extended this system to transactions with
suppliers.
Master Upgrade Agreement - a single agreement authorizing a U.S.
organization to upgrade products from sixteen manufacturers without
the administrative burden of collecting the title pages, serial
numbers, or other proof of ownership for previous versions.
Price List Updates - each month the Company updates a list of
approximately 200 core products and their prices. This list is
available to any CGE customer who requests it.
Product Information Centers - a CD-ROM-based system updated monthly
with information on certain products. Articles can be obtained from
all major personal computer publications and sent to customers as
requested.
Software Asset ManagementSM (SAMSM) - a service which provides
corporate, government, and education customers with an inventory of
their software assets, guidance on licensing issues, and a suggested
plan for future purchases.
Technical Support - a "help desk" support service that helps the
Company's corporate contract customers resolve difficult
compatibility problems and provides technical support.
Volume License and Maintenance Contract Administration - includes
contract execution, disk duplication and documentation fulfillment,
vendor reporting, and other contract administration services for
volume license agreements and vendor maintenance agreements between
vendors and Egghead customers.
Workflow Development - consulting services to define, develop, and
implement a more efficient workflow process to streamline customers'
business practices.
Marketing, Advertising, and Promotion
Egghead's marketing philosophy is to position itself as the reseller of
choice by providing the customer with the best value in terms of
competitive prices, selection, service, and convenience. In addition,
Egghead strives to create primary demand for the products it sells. The
Company's strategy to meet these objectives is to use aggressive
advertising and marketing efforts.
The Company's advertising campaign emphasizes a broad selection of
available merchandise and competitive prices. Advertising is also used
to promote major new product launches.
Egghead's primary advertising medium is direct mail, which is used to
target the highly identifiable segment of the population which owns
and/or uses computers. In addition to a database of more than 2.3
million of its CUE customers, Egghead sends regular direct mail product
promotions to purchased lists of computer owners. The Company also uses
newspaper, both local and national, as well as national computer
publications, as part of its media mix.
Egghead has entered into cooperative advertising and other promotional
and market development fund agreements with numerous manufacturers and
distributors. The funds obtained through these agreements assist the
Company in achieving high visibility in the marketplace.
Customers
Egghead has a diverse customer base and uses specific marketing
strategies to target different customer segments. The first three
segments, corporations, government agencies, and educational
institutions, are served mainly by Egghead's CGE sales group. The
fourth and fifth segments, individuals and small businesses, are served
by Egghead's retail store operations and mail order groups.
Corporate, Government, and Education Sales Group
Corporate Customers. Egghead's CGE sales group competes for customers
in the United States and Canada by providing customers a wide selection
of products, competitive prices, convenience, support services, and
technology consulting services. The Company also has a call center in
Appledoorn, The Netherlands to support the needs of its corporate
customers with operations in Western Europe.
The CGE sales force provides product demonstrations and seminars,
processes orders quickly and accurately, and provides value-added
customer support services for its customers in a number of other ways.
For further information on services provided, see the Products and
Services section beginning on page 4.
Egghead's CGE sales force, supported by an on-line sales order entry
system, orders software and related products from the Company's
distribution centers for quick delivery directly to the customer.
Despite large aggregate purchases, most individual orders by the
Company's customers are for a small number of items and require prompt
delivery to different locations. The Company also continues to be a
leader in providing EDI support for its corporate customers.
CGE outside sales representatives work in one of the 13 regional sales
support centers, in their homes, or in a sales office to provide
personal service to businesses in their trading area. The 13 regional
sales support centers are located in ten states and Canada. Inside
sales support staff and technical sales support representatives work out
of the regional sales support centers. All sales personnel provide
individualized attention and knowledgeable service to customers.
The Company currently has thousands of corporate and government sales
accounts, including major customers such as AT&T, The Boeing Company,
International Business Machines Corporation, and 3M (Minnesota Mining
and Manufacturing). In fiscal 1994, no single customer represented more
than 3% of the Company's total net sales.
Government Agencies. The Company has a government accounts program that
targets federal, state, and local governmental entities throughout the
United States. Egghead is currently an authorized Federal Government
General Services Administration (GSA) Schedule C vendor under an
agreement which expires on March 31, 1995. Government agencies
typically require competitive prices, prompt delivery to different
locations, and unique ordering and billing procedures.
Educational Institutions. The Company's educational sales group targets
educational institutions nationwide. As the number of PCs in schools
continues to grow, so does the need for software.
Retail Operations
Egghead's retail stores are designed to provide a pleasant shopping
environment for walk-in customers, primarily individuals who purchase PC
software for their personal use and/or for use in a small business. A
knowledgeable sales force assists customers in selecting software and
related products.
Egghead's retail stores offer customers competitive prices, a wide
selection of products, excellent service, and convenient store
locations. Each store stocks approximately 1,600 products, including
software, books, and accessories, with thousands more available through
the Company's distribution centers or through special order.
A typical Egghead store contains approximately 1,900 square feet of
retail selling space. Most of the stores are located in strip shopping
centers. Egghead stores are located where the Company's customers live
and work to save them time when they shop. Egghead provides in-store
demonstration of software, with most stores having three personal
computers for use by customers in evaluating software in the stores:
two IBMr PC compatibles and an Appler Macintoshr. The Company is
continually examining its retail store format in order to meet the needs
of its customers.
The Company's retail operations also include two mail order businesses,
1-800-EGGHEAD and Rocky Mountain Computer Outfitters (formerly Mac's
Place).
Merchandising
Egghead purchases most of its products through a central merchandise
buying department. Inventory levels and product mix are based upon
rates of sale, seasonality, and store demographics and size. The
Company also special orders non-inventoried software products to satisfy
customers' special needs.
Egghead's decision to buy merchandise directly from manufacturers or
through distributors is determined on a transaction-by-transaction basis
depending on cost, availability, and potential product obsolescence.
For certain products, Egghead has sufficient sales volume to purchase
directly from manufacturers at volume discounts. The Company purchases
software and other products directly from more than 250 manufacturers.
Egghead minimizes the administrative overhead associated with buying
products from hundreds of smaller manufacturers by using a limited
number of distributors.
Egghead conducts business with major vendors including Microsoft, Lotus,
and WordPerfect. In fiscal years 1994, 1993, and 1992, sales derived
from software programs supplied by Microsoft represented approximately
28%, 26% and 20% of total net sales, respectively.
Egghead has certain exchange and return privileges with many of its
vendors, which typically include time, volume, and other limitations.
These exchange and return privileges allow the Company to reduce the
risk of loss resulting from obsolete and defective merchandise.
Distribution
Most inventory that Egghead purchases is received in one of the
Company's distribution facilities before it is sent to a customer or to
a retail store. Some purchases are sent directly from vendors or
distributors to stores or customers. The Company's distribution
facilities also process most returned merchandise. Orders from the
Company's CGE sales group are filled from the distribution facilities
every week day. Orders from the Company's retail stores are filled on a
weekly basis. The Company leases a 121,000 square foot facility in
Sacramento, California, and a 125,000 square foot facility in Lancaster,
Pennsylvania.
Egghead's distribution system recently became ISO9003 certified. ISO
(International Standards Organization) has a series of standards for
quality assurance which are accepted by the European community and by
more than 50 nations worldwide. The Company was required to develop,
document, and define its quality assurance system and quality management
practices to become ISO9003 certified.
The manner in which microcomputer software products are sold and
distributed is changing rapidly. Other methods of distribution, such as
Volume License and Maintenance contracts and Electronic Software
Distribution (ESD), could have an impact on how the Company distributes
products in the future.
Competition
The business of selling microcomputer software is very competitive. The
Company currently competes with other "direct sales" organizations,
other software retailers, value-added resellers, computer and office
superstores, consumer electronic superstores, mass merchandisers, mail-
order companies, and software publishers that sell directly to end-
users.
Egghead's primary competition from other software "direct sales"
organizations, comes from Corporate Software, Inc., Software Spectrum,
Softmart, Inc., and 1-800-Software. Egghead also competes with "value-
added resellers," such as Governmental Technical Services, Inc., a
company that focuses mainly on selling in the government marketplace.
Other software retail competitors include mall-based stores such as
Electronics Boutique, Babbages, and Software Etc. Management believes
these stores offer a less extensive PC software product selection than
Egghead and are generally less price competitive.
Computer and office superstores, such as CompUSA, Computer City, Micro
Center, and Office Depot provide significant competition for Egghead's
retail stores in the markets in which they are located. These stores
are very price competitive. Computer superstores typically offer a wide
product selection, while office superstores have a more limited
selection. Management believes the customer service offered by computer
and office superstores for software products is generally limited.
Consumer electronic superstores, such as Best Buy and Circuit City are a
growing source of competition for the Company's retail stores in the
markets in which they operate. Although they are very price
competitive, management believes these stores have a more limited
software product assortment and offer less customer service for software
products than Egghead.
Mass merchandisers, such as Wal-Mart and Sears, and warehouse clubs,
such as SAM's and Price/Costco, generally concentrate on basic software
products and carry relatively few titles. Customer service by mass
merchandisers and warehouse clubs for software products is very
limited.
Mail-order businesses, such as MicroWarehouse and PC Connection, are
another important retail channel for software sales. Mail-order
businesses generally compete based on low prices but provide limited
customer service and do not provide demonstration capabilities.
Software publishers continue to directly market and sell to end-users.
There has also been a continuing trend of software publishers offering
new software products at deeply discounted introductory prices.
Management believes that software publishers generally do not offer the
breadth of product selection or scope of services necessary to maintain
corporate accounts.
Because the microcomputer software market is very competitive, software
resellers typically have low gross margins and operating income as a
percentage of sales. Therefore, the Company's profitability is highly
dependent upon effective internal and cost controls.
Employees
At April 2, 1994, Egghead had approximately 2,500 employees, (including
temporary employees) consisting of approximately 1,700 retail personnel,
300 CGE personnel (including both sales and administrative personnel),
200 distribution center employees, and 300 headquarters personnel. None
of the Company's employees is represented by a union.
Trademarks and Tradenames
"EGGHEADr," "EGGHEAD DISCOUNT SOFTWAREr," "EGG CARTONr," "EGGSPERTr,"
the "PROFESSOR EGGHEADr" design, and "EGGCESSORIESr," are registered in
the United States Patent and Trademark Office as service marks or
trademarks of the Company. The Company also does business under the
trade names "Egghead Software" and "Egghead Discount Software." In
addition, the Company is the owner of a number of common law trademarks
and service marks, including "SOFTWARE ASSET MANAGEMENTSM," "SAMSM,"
"CUESM," "EGGHEADr EXPRESS*," and certain "EGG" combination words. The
Company believes the strength of its trademarks and service marks
benefits its business and intends to continue to protect and promote its
registered and common law trademarks and service marks.
Environmental Laws
Compliance with federal, state, and local laws enacted for protection of
the environment has had no material effect upon Egghead's capital
expenditures, earnings, or competitive position. The Company does not
anticipate any material adverse effects in the future based on the
nature of its operations and the current thrust of such laws.
Item 2. Properties
At April 2, 1994, Egghead operated 13 Corporate, Government, and
Education (CGE) regional sales support centers in ten states and Canada,
and operated 189 retail stores in 30 states, the District of Columbia,
and Canada. Most of the Company's stores are located in strip shopping
centers to provide customers convenient access. The Company has not
opened, nor does it intend to open, retail stores on a franchise basis.
As of April 2, 1994, the Company's retail stores and CGE regional sales
support centers were located as follows:
Number of Number of
Retail CGE Regional Sales
Location Outlets Support Centers
Arizona 3 -
Canada 3 2
California 50 2
Colorado 4 1
Connecticut 2 -
District of Columbia 3 -
Florida 4 -
Georgia 3 1
Illinois 16 1
Indiana 2 -
Kansas 1 -
Maryland 8 -
Massachusetts 10 1
Michigan 6 -
Minnesota 4 1
Missouri 2 -
New Jersey 11 -
New Mexico 1 -
New York 10 -
Nevada 1 -
North Carolina 4 -
Ohio 4 -
Oklahoma 1 -
Oregon 4 -
Pennsylvania 7 1
Rhode Island 1 -
Tennessee 1 -
Texas 4 1
Utah 1 -
Virginia 9 1
Washington 7 1
Wisconsin 2 -
Total 189 13
The Company leases all of its retail stores under leases expiring from
fiscal 1995 to fiscal 2000. The Company expects that those leases with
terms expiring during fiscal year 1995 could be renewed under
substantially similar terms. Substantially all of the Company's leases
provide for a minimum monthly rent that is either constant or adjusts
periodically throughout the lease term, including renewal periods.
The Company leases its CGE regional sales support centers under leases
expiring from fiscal 1995 through fiscal 1997.
The Company leases its administrative offices in Issaquah, Washington;
distribution facilities in Lancaster, Pennsylvania, and in Sacramento,
California; and an additional storage facility in Kent, Washington. The
lease terms on the Company's administrative and distribution facilities
expire from fiscal 1996 to fiscal 2000, with renewal options available.
The Company owns one office building in Kalispell, Montana, which is
occupied by the Company's mail order subsidiary, Rocky Mountain Computer
Outfitters.
See Note 4 of Notes to Consolidated Financial Statements on page 31 for
additional information about the Company's leases.
Item 3. Legal Proceedings
On June 9, 1994, the Company announced that it had settled a
shareholders' lawsuit originally filed against the Company, a current
officer, and two former officers who were also directors. The current
officer had recently been dismissed from the suit. The action,
originally entitled Finucan v. Egghead, et al., was filed in federal
court in Seattle in September 1993 and is alleged to be brought on
behalf of all purchasers of the Company's common stock between February
11, 1992, and November 18, 1992, (other than the individual defendants
and other individuals and entities otherwise affiliated with the
Company). The settlement, which is subject to approval of the court,
calls for a cash payment by the Company of $2.625 million. Net of
expected insurance recovery, the settlement and related attorneys' fees
resulted in a pretax charge of $1.2 million in fiscal year 1994 ($0.04
per share, net of income tax impact).
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders in the
fourth quarter of fiscal year 1994.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters
Market and Market Price for Common Stock
Egghead's common stock, $0.01 par value, is traded over the counter
under the symbol EGGS and is quoted as part of the NASDAQ National
Market System.
The closing market prices per share of the Company's common stock during
the fiscal years ended April 3, 1993, and April 2, 1994, respectively,
are set forth below. The prices reflect last sale prices as reported by
NASDAQ.
High Low
Quarter ended July 18, 1992 $27.50 $16.25
Quarter ended October 10, 1992 18.75 8.25
Quarter ended January 2, 1993 12.00 7.75
Quarter ended April 3, 1993 11.00 7.75
Quarter ended July 24, 1993 $9.88 $7.38
Quarter ended October 16, 1993 8.63 6.75
Quarter ended January 8, 1994 9.75 7.00
Quarter ended April 2, 1994 10.63 8.63
Holders
The approximate number of holders of record of Egghead's common stock as
recorded on the books of Egghead's Registrar and Transfer Agent as of
May 27, 1994, was 1,618.
Dividends
The Company has never paid cash dividends on its capital stock and does
not plan to pay cash dividends in the foreseeable future. The Company's
revolving line of credit restricts the payment of dividends by the
Company. See Note 3 of Notes to Consolidated Financial Statements on
page 30.
Item 6. Selected Financial Data
Fiscal Year
1994 1993 1992 1991 1990
(Dollars in thousands,
except per share data)
Consolidated Statements of
Operations Data:
Net sales $778,327 $725,447 $664,850 $518,542 $456,342
Cost of sales, including
certain buying, occupancy,
and distribution costs 675,377 618,618 549,850 427,840 376,302
Gross margin 102,950 106,829 115,000 90,702 80,040
Selling, general, and
administrative expense 89,496 85,070 84,262 68,332 75,294
Depreciation and amortization
expense, net of amounts
included in cost of sales 8,681 7,062 5,254 4,985 6,049
Provision for restructuring
costs 4,400 2,700 - - -
Provision for shareholder
litigation 1,200 - - 800 3,100
Operating income (loss) (827) 11,997 25,484 16,585 (4,403)
Other (expense) income:
Interest expense (82) (248) (342) (444) (1,106)
Interest income 352 290 515 222 96
Other, net (285) (679) (313) 166 (1,667)
Income (loss) before income
taxes (842) 11,360 25,344 16,529 (7,080)
Income tax benefit/(provision) 328 (4,430) (9,631) (1,166) (586)
Net income (loss) $(514) $6,930 $15,713 $15,363 $(7,666)
Per share amounts:
Primary earnings (loss)
per share $(0.03) $0.41 $0.92 $0.92 $(0.47)
Fully diluted earnings (loss)
per share $(0.03) $0.41 $0.90 N/A N/A
Note: Fiscal year 1993 had 53 weeks. All other fiscal years presented had 52
weeks.
See Notes to Consolidated Financial Statements.
Fiscal Year
1994 1993 1992 1991 1990
(Dollars in thousands)
Operating Data:
Number of retail stores:
Open at end of period 189 205 182 187 200
Opened during period 3 33 5 1 19
Closed during period 19 10 10 14 15
Weighted average number
open during period (1) 197 195 182 190 202
Number of Retail stores open
at the end of each month
of fiscal 1994:
April 1993 204
May 1993 203
June 1993 200
July 1993 202
August 1993 199
September 1993 195
October 1993 194
November 1993 194
December 1993 194
January 1994 192
February 1994 191
March 1994 189
Balance Sheet Data:
Working capital $119,838 $121,711 $115,338 $100,165 $78,924
Total assets 256,010 263,216 235,349 192,329 169,908
Bank loans - - - - 12,000
Long-term debt - - - - -
Shareholders' equity 143,416 142,990 135,233 115,170 98,436
(1) Calculated by dividing the total number of store days open during
the period by the number of days in that period.
See Notes to Consolidated Financial Statements.
Selected financial data for each quarter of fiscal years 1994 and 1993 follows
(in millions, except per share data). Fiscal quarters are such that the first
quarter consists of 16 weeks, the second and third quarters are each 12 weeks,
and the fourth quarter consists of the remaining 12 or 13 weeks. Fiscal year
1994 had 52 weeks and fiscal year 1993 had 53 weeks. The fourth quarter of
fiscal 1993 had 13 weeks, compared to 12 weeks in the fourth quarter of fiscal
1994.
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1993 1994 1993 1994 1993 1994 1993
Net sales $218.2 $202.1 $156.7 $139.5 $208.6 $188.3 $194.9 $195.6
Gross margin 32.3 30.3 21.0 20.0 25.6 26.9 24.0 29.7
Selling, general, and
administrative
expense 28.9 25.5 18.2 17.2 21.1 19.2 21.3 23.2
Provision for
restructuring
costs 4.4 - - - - 2.1 - 0.6
Provision for
shareholder
litigation - - - - 0.1 - 1.1 -
Operating income
(loss) (3.5) 2.8 0.9 1.2 2.3 4.0 (0.5) 4.0
Income (loss) before
income taxes (3.3) 2.8 0.8 1.1 2.3 3.8 (0.6) 3.7
Net income (loss)(2.0) 1.7 0.5 0.7 1.4 2.3 (0.4) 2.2
Earnings (loss)
per share $(0.12) $0.10 $0.03 $0.04 $0.08 $0.14 $(0.02) $0.13
The following table shows the relationship of certain items included in the
Company's quarterly Consolidated Statements of Operations expressed as a
percentage of net sales:
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1993 1994 1993 1994 1993 1994 1993
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin 14.8 15.0 13.4 14.3 12.3 14.3 12.3 15.2
Selling, general,
and administrative
expense 13.2 12.6 11.6 12.3 10.2 10.2 10.9 11.9
Provision for
restructuring
costs 2.0 - - - - 1.1 - 0.3
Provision for
shareholder
litigation - - - - - - 0.6 -
Operating income
(loss) (1.6) 1.4 0.6 0.9 1.1 2.1 (0.3) 2.0
Income (loss) before
income taxes (1.5) 1.4 0.5 0.8 1.1 2.0 (0.3) 1.9
Net income
(loss) (0.9)% 0.9% 0.3% 0.5% 0.7% 1.2% (0.2)% 1.1%
Effective the beginning of fiscal 1995, the Company will change it's fiscal
quarters such that each quarter will consist of 13 weeks. The quarterly
results the Company would have reported if the 13-week quarter format was used
during fiscal 1994 are shown on page 36.
See Notes to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company uses a 52/53 week fiscal year, ending on the Saturday
nearest March 31 of each year. Fiscal years 1994 and 1992 each had 52
weeks and fiscal year 1993 had 53 weeks. All references herein to
fiscal 1994, 1993, and 1992 relate to the fiscal years ended April 2,
1994, April 3, 1993, and March 28, 1992, respectively.
Effective the beginning of fiscal 1995, the Company will change it's
fiscal quarters such that each quarter will consist of 13 weeks. The
quarterly results the Company would have reported if the 13-week quarter
format was used during fiscal 1994 are shown on page 36.
Results of Operations
The following table shows the relationship of certain items included in
the Company's Consolidated Statements of Operations expressed as a
percentage of net sales:
1994 1993 1992
Net sales 100.0% 100.0% 100.0%
Cost of sales, including certain
buying,occupancy, and
distribution costs 86.8 85.3 82.7
Gross margin 13.2 14.7 17.3
Selling, general, and administrative
expense 11.5 11.7 12.7
Depreciation and amortization expense,
net of amounts included in cost
of sales 1.1 1.0 0.8
Provision for restructuring costs 0.6 0.4 -
Provision for shareholder litigation 0.1 - -
Operating income (loss) (0.1) 1.6 3.8
Income (loss) before income taxes (0.1) 1.6 3.8
Income tax benefit/(provision) - (0.6) (1.4)
Net income (loss) (0.1)% 1.0% 2.4%
Net sales increased $72.4 million, or 10%, to $778.3 million in fiscal
1994 compared to $705.9 million in fiscal 1993, excluding the 53rd week,
which were $41.0 million, or 6%, greater than net sales of $664.9
million in fiscal 1992. Including the 53rd week in fiscal 1993, fiscal
1994 net sales increased $52.9 million, or 7%, compared to fiscal 1993.
During the last week of fiscal 1993, the Company launched a promotion
for the sale of Microsoftr DOS 6.0 (DOS 6). Major new product releases
by the Company's vendors have historically had a positive affect on
sales.
Net sales of $194.9 million for the fourth quarter of fiscal 1994
increased $18.9 million, or 11%, compared to $176.0 million in the
fourth quarter of fiscal 1993, excluding the extra week. Including the
extra week in the fourth quarter of fiscal 1993, fourth quarter fiscal
1994 net sales decreased $0.7 million.
Corporate, Government and Education Sales
Corporate, government and education (CGE) sales operations generated
$404.8 million of net sales in fiscal 1994, a $9.8 million, or 2%,
increase compared to $395.0 million in fiscal 1993, excluding the 53rd
week, which were $18.5 million, or 5%, greater than net sales of $376.5
million in fiscal 1992. Including the 53rd week in fiscal 1993, fiscal
1994 CGE sales increased $0.9 million. CGE sales accounted for 52%,
56%, and 57% of total net sales in fiscal 1994, 1993, and 1992,
respectively.
The Company lowered prices during the second quarter of fiscal 1994 in
both its CGE and retail businesses to improve its competitive position.
During the second half of fiscal 1994, there was a decrease in the
average selling price per unit for CGE compared to last year, while the
number of units sold increased slightly. Management believes its
restructuring initiative in CGE affected sales during fiscal 1994. See
further discussion on restructuring in the provision for restructuring
costs section on page 19.
Management believes the fiscal 1993 CGE sales increase was mainly due to
expanding into new markets and major new product introductions during
fiscal 1993. This improvement was partially offset by slow-downs in
buying by some of the Company's major customers in the aerospace and
government industries during fiscal 1993. The Company also experienced
increased CGE sales competition in many markets during fiscal 1993,
which affected sales compared to fiscal 1992.
Total CGE sales of $93.4 million in the fourth quarter of fiscal 1994
decreased $0.3 million compared to $93.7 million in the fourth
quarter of fiscal 1993, excluding the extra week. Including the 53rd
week in fiscal 1993, fiscal 1994 fourth quarter CGE sales decreased $9.2
million, or 9%. As previously noted, during the last week of fiscal
1993, the Company launched a promotion for the sale of DOS 6.
Retail
Retail sales operations generated $373.5 million of net sales in fiscal
1994, a $62.6 million, or 20% increase, compared to $310.9 million in
fiscal 1993, excluding the 53rd week, which were 8% greater than net
sales of $288.4 million in fiscal 1992. Including the 53rd week in
fiscal 1993, fiscal 1994 retail sales increased $51.9 million, or 16%.
Retail sales accounted for 48%, 44%, and 43%, of total sales in fiscal
1994, 1993, and 1992, respectively.
Comparable retail store sales increased 13% in fiscal 1994 compared to
fiscal 1993, excluding the 53rd week. As previously noted, the Company
lowered prices during the second quarter of fiscal 1994 to improve its
competitive position. The number of units sold in retail increased
during fiscal year 1994, compared to last year.
There was also an increase in mail order sales in fiscal 1994 due mainly
to the acquisition of a new mail order subsidiary, Rocky Mountain
Computer Outfitters (Computer Outfitters), formerly Mac's Place, during
the second quarter of fiscal 1994.
Management believes the fiscal 1993 sales growth was mainly due to the
net addition of 23 stores from the end of fiscal 1992 to April 3, 1993.
Excluding the 53rd week in fiscal 1993, comparable retail store sales
were flat compared to fiscal 1992. Management believes the comparison
of fiscal 1993 to fiscal 1992 was affected by a promotion for a major
product introduction run during the beginning of fiscal 1992 (DOS 5) and
the momentum gained from that promotion, which resulted in record
comparable retail store sales growth of 31% in fiscal 1992 compared to
fiscal 1991.
Total retail sales of $101.5 million in the fourth quarter of fiscal
1994 increased $19.2 million, or 23%, compared to $82.3 million in the
fourth quarter of fiscal 1993 excluding the extra week. Including the
53rd week in fiscal 1993, fiscal 1994 fourth quarter retail sales
increased $8.5 million, or 9%.
Comparable retail store sales increased approximately 18% in the fourth
quarter of fiscal 1994 compared to the fourth quarter of fiscal 1993,
excluding the extra week.
During fiscal 1994, the Company opened three stores and closed 19,
operating a total of 189 stores at April 2, 1994. This compares to the
addition of 33 retail stores, closure of ten, and relocation of four
during fiscal 1993. The Company will continue to evaluate individual
store performance and make changes during the ordinary course of
business during fiscal 1995.
Gross margin (net sales minus cost of sales, including certain buying,
occupancy, and distribution costs) as a percentage of net sales was
13.2% in fiscal 1994, compared to 14.7% and 17.3% in fiscal years 1993
and 1992, respectively. The Company lowered prices in both its CGE and
Retail businesses during the second quarter of fiscal 1994 to improve
its competitive position. As discussed in the Company's previous Forms
10-Q and fiscal 1993 Form 10-K, gross margin as a percentage of sales
had been affected by industry-wide pricing pressure related to both
competitors' pricing and vendors' pricing.
The factors discussed above which reduced gross margin as a percentage
of sales in fiscal 1994 were partially offset by certain costs, such as
retail occupancy and distribution costs, remaining relatively constant
while sales increased. Also offsetting the decline was the impact of
retail sales making up a larger percentage of total sales compared to
last year. Retail sales, compared to CGE sales, typically have higher
margins and lower volume per transaction.
Gross margin as a percentage of net sales was 12.3% in the fourth
quarter of fiscal 1994, unchanged from 12.3% in the third quarter.
The decrease in gross margin as a percentage of sales from fiscal 1992
to fiscal 1993 also resulted mainly from industry-wide pricing pressure
related to both competitors' pricing and vendors' pricing. Also
contributing to the gross margin decline were lower-margin products
making up a larger percentage of total sales in fiscal year 1993
compared to fiscal year 1992 and the Company's commitment to price
products competitively in its CGE and Retail businesses.
In addition, the Company launched its CUE membership program in the
first quarter of fiscal 1993, which offers retail customers a 5%
discount on retail purchases, as well as special events and promotional
mailings tailored to their individual needs.
Selling, general, and administrative (SG&A) expense as a percentage of
net sales was 11.5% in fiscal 1994, compared to 11.7%, and 12.7% in
fiscal years 1993 and 1992, respectively. The fiscal 1994 amount
includes savings resulting from restructuring actions initiated by
management to lower the Company's cost structure to improve its ability
to compete. See further discussion in the provision for restructuring
costs section on the following page.
Most of the savings associated with this restructuring were offset by a
decrease in marketing revenue and additional expenses from Computer
Outfitters, the Company's new mail order subsidiary.
During fiscal 1995, management plans to continue to invest in strategic
projects, facilities, and technology that will support the Company's
continued growth and improve long-term productivity and efficiency.
The improvement in SG&A expense as a percentage of sales from 12.7% in
fiscal 1992 to 11.7% in fiscal 1993 was mainly due to a decrease in
marketing expense as a percentage of net sales. In fiscal 1992, as part
of the Company's DOS 5 promotion, the Company's retail customers were
given a $20 rebate at the point of sale for completing a questionnaire
regarding the type of hardware or software they owned or used. The
rebates were recorded as marketing expense. This decrease in SG&A
expense as a percentage of net sales from fiscal 1992 to fiscal 1993 was
partially offset by costs of company-wide expansion and costs of adding
or enhancing programs and systems in fiscal 1993.
Depreciation and amortization expense, net of amounts included in cost
of sales, was $8.7 million in fiscal 1994, compared to $7.1 million and
$5.3 million in fiscal years 1993 and 1992, respectively. The increases
from fiscal 1993 to fiscal 1994 and from fiscal 1992 to fiscal 1993
resulted from additions to property and equipment, as discussed on
page 20.
Provision for restructuring costs was $4.4 million, or 0.6% of net
sales, in fiscal 1994. During fiscal 1994, the Company lowered its cost
structure to improve its ability to compete. The $4.4 million included
employee relocation costs, severance costs, and early lease termination
costs.
During the third and fourth quarters of fiscal 1993, the Company
established a reserve for restructuring charges totaling $2.7 million.
The reserve was primarily related to reorganizing the Company's CGE
sales group to improve customer service. In addition, other Company
departments were reduced in size due to the impact of the reorganization
in CGE and for improved efficiency.
Provision for shareholder litigation of $1.2 million in fiscal 1994
represents a charge for the settlement and related attorneys' fees, net
of an expected insurance recovery, related to the legal proceedings
described in Note 10 of Notes to Consolidated Financial Statements on
page 36.
Operating income (loss), as a result of the foregoing factors, was a
loss of $0.8 million in fiscal 1994, compared to income of $12.0 million
and $25.5 million in fiscal years 1993 and 1992, respectively. The
fiscal 1994 operating loss was negatively impacted by the $4.4 million
provision for restructuring costs and the $1.2 million provision for
shareholder litigation previously discussed, and the operating results
of Computer Outfitters.
Financial Condition
Net accounts receivable increased $11.5 million from $64.7 million at
April 3, 1993, to $76.2 million at April 2, 1994. The increase was due
partly to an increase in credit card receivables due to a new payment
schedule. This change was made in exchange for lower fees. Also
contributing to the increase was a receivable for the estimated
insurance recovery related to the settlement of the shareholder
litigation discussed above.
Merchandise inventories decreased $20.1 million, or 15%, from $137.2
million at April 3, 1993, to $117.1 million at the end of fiscal 1994.
Inventory for a major new product introduction was received just prior
to the end of fiscal 1993. In addition, the Company had 16 fewer stores
at the end of fiscal 1994 than at the end of fiscal 1993. The decrease
also reflects an effort by management to increase inventory turns.
Current and non-current deferred income taxes totaling $11.1 million and
$9.8 million at April 2, 1994, and April 3, 1993, respectively, resulted
from taxes paid on temporary differences which caused taxable income to
exceed financial reporting income.
Net property and equipment decreased $1.8 million, from $21.2 million at
the end of fiscal 1993, to $19.4 million at April 2, 1994. The decrease
resulted primarily from depreciation taken on the Company's existing
base of fixed assets partially offset by additions to property and
equipment in the ordinary course of business and the acquisition of
certain assets of Computer Outfitters during fiscal 1994.
Accounts payable decreased $7.3 million, from $98.4 million at April 3,
1993, to $91.1 million at April 2, 1994. Accounts payable as a
percentage of total inventory (leveraging) was 78% and 72% at the end of
fiscal years 1994 and 1993, respectively. The Company continues to pay
vendors according to the negotiated terms.
Liquidity and Capital Resources
Cash provided by operating activities was $8.7 million in fiscal 1994
compared to $17.0 million and $6.3 million in fiscal years 1993 and
1992, respectively. A decrease in inventory, net of a decrease in
accounts payable, resulted in a $12.9 million source of cash in fiscal
1994, compared to fiscal 1993 when an increase in inventory, net of an
increase in accounts payable resulted in a $0.1 million use of cash.
This improvement was offset by a reduction in net income, a larger
increase in net accounts receivable in fiscal 1994 compared to fiscal
1993, and a smaller increase in accrued liabilities in fiscal 1994,
compared to fiscal 1993. For further information see the Consolidated
Statements of Cash Flows on page 26.
The $10.7 million increase in cash provided by operating activities in
fiscal 1993 compared to fiscal 1992 resulted mainly from smaller
increases in merchandise inventories and in trade and non-trade
receivables in fiscal 1993 than in fiscal 1992. This was partially
offset by a decrease in net income in fiscal 1993 compared to fiscal
1992.
During fiscal 1994, the Company financed its working capital
requirements and capital expenditures with proceeds from operations and
short-term borrowings. Effective October 1, 1993, the Company entered
into a revolving loan agreement with two banks providing for unsecured
borrowings of up to $50,000,000 through September 30, 1994. Each bank
provides a $25,000,000 line of credit and one bank serves as agent for
the agreement. The Company may elect interest rates on the notes based
on the rate for overnight funds or on the agent bank's rate on
certificates of deposit, LIBOR, or prime rate. The agreement contains a
number of covenants, including a restriction on the payment of dividends
and minimum capital ratio, net worth, and working capital requirements.
The Company was in compliance with all financial covenants as of the end
of fiscal 1994. The Company had no outstanding borrowings under the
revolving loan agreement at April 2, 1994.
Capital expenditures in fiscal 1994 totaled approximately $9.5 million.
Capital expenditures consisted mainly of new personal computers (PCs)
for the stores, CGE sales, and headquarters personnel, a new telephone
system, and acquisition of certain assets of Mac's Place, Inc.
The PCs were purchased primarily to upgrade existing machines to enable
all employees to use workgroup computing software, which increases
efficiency by allowing employees to exchange messages, documents, and
other data over an electronic network. The telephone system was
purchased in order to support the corporate office and one of the CGE
regional sales support centers.
During the second quarter of fiscal 1994, the Company purchased certain
assets of Mac's Place, Inc., a mail order company. The Company also
purchased a building, including the land on which it is situated, in
Kalispell, Montana, which is occupied by Computer Outfitters (formerly
Mac's Place, Inc.).
Capital expenditures in fiscal 1993 totaled approximately $10.3 million.
Capital expenditures consisted mainly of new PCs for the stores, CGE
sales, and headquarters personnel. The PCs were purchased primarily to
upgrade existing machines to enable employees to run recent software
releases that the Company sells to its customers, as well as to install
PCs in the new stores for software demonstration.
In addition, the Company installed AS/400 computers in its two
distribution centers during the first quarter of fiscal 1993 to
facilitate the use of barcoding for receiving and shipping merchandise
inventory. The Company also added leasehold improvements and purchased
fixtures for the opening of new stores.
The Company expects that cash requirements for the foreseeable future
will be satisfied by cash flow from operations and borrowings under the
lines of credit. Depending on its rate of growth, the Company may
require additional financing, including bank borrowings and further
issuances of debt and/or equity securities.
Inflation
The Company does not believe that its business has been affected to any
significant degree by inflation.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Egghead, Inc.:
We have audited the accompanying consolidated balance sheets of Egghead, Inc.
(a Washington corporation) and subsidiaries as of April 2, 1994 and April 3,
1993, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
April 2, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Egghead, Inc. and
subsidiaries as of April 2, 1994 and April 3, 1993, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended April 2, 1994, in conformity with generally accepted accounting
principles.
Arthur Andersen & Co.
Seattle, Washington,
June 7, 1994
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
ASSETS
April 2, April 3,
1994 1993
Current assets:
Cash and cash equivalents (Note 1) $ 25,677 $ 26,386
Accounts receivables, net of allowance for
doubtful accounts of $3,432 and $2,391,
respectively (Note 1) 76,241 64,720
Merchandise inventories (Note 1) 117,106 137,158
Prepaid expenses and other current assets 3,717 3,219
Current deferred income taxes (Notes 1 and 5) 8,085 7,850
Total current assets 230,826 239,333
Property and equipment, net (Notes 1 and 2) 19,351 21,214
Non-current deferred income taxes (Notes 1 and 5) 3,014 1,927
Other assets 2,819 742
$256,010 $263,216
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 3) $ - $ -
Accounts payable (Note 1) 91,055 98,410
Accrued liabilities (Note 1) 19,144 17,707
Income taxes payable (Note 5) 494 795
Current portion of capital lease obligations 295 710
Total current liabilities 110,988 117,622
Capital lease obligations, less current
portion (Note 4) 184 1,097
Deferred rent (Note 1) 1,422 1,507
Total liabilities 112,594 120,226
Commitments and contingencies (Note 4)
Shareholders' equity (Notes 1, 3 and 6)
Common stock, $.01 par value:
50,000,000 shares authorized; 17,121,438
and 16,982,737 shares issued and
outstanding, respectively 171 170
Additional paid-in capital 120,287 119,242
Retained earnings 22,958 23,578
Total shareholders' equity 143,416 142,990
$256,010 $263,216
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
1994 1993 1992
Net sales $778,327 $725,447 $664,850
Cost of sales, including certain buying,
occupancy and distribution costs 675,377 618,618 549,850
Gross margin 102,950 106,829 115,000
Selling, general, and administrative expense 89,496 85,070 84,262
Depreciation and amortization expense, net of
amounts included in cost of sales 8,681 7,062 5,254
Provision for restructuring costs 4,400 2,700 -
Provision for shareholder litigation (Note 10) 1,200 - -
Operating income (loss) (827) 11,997 25,484
Other (expense) income:
Interest expense (82) (248) (342)
Interest income 352 290 515
Other, net (285) (679) (313)
Income (loss) before income taxes (842) 11,360 25,344
Income tax benefit/(provision) (Notes 1 and 5) 328 (4,430) (9,631)
Net income (loss) $(514) $6,930 $15,713
Earnings (loss) per share (Note 1):
Primary:
Earnings (loss) per share $(0.03) $0.41 $0.92
Weighted average common shares and
common equivalent shares outstanding 17,088 17,090 17,074
Fully Diluted:
Earnings (loss) per share $(0.03) $0.41 $0.90
Weighted average common shares and
common equivalent shares outstanding 17,088 17,090 17,403
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Amounts in thousands)
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
Balance,
March 30, 1991 16,614 $166 $113,989 $1,015 $115,170
Stock issued for
cash, pursuant
to stock
option plan 261 3 2,720 - 2,723
Tax benefit related
to stock options - - 1,221 - 1,221
Stock issued for
cash, pursuant
to employee stock
purchase plan 35 - 406 - 406
Net income - - - 15,713 15,713
Balance,
March 28, 1992 16,910 169 118,336 16,728 135,233
Stock issued for
cash, pursuant
to stock
option plan 19 - 220 - 220
Tax benefit related
to stock options - - 82 - 82
Stock issued for
cash, pursuant
to employee stock
purchase plan 44 1 520 - 521
Stock granted as
compensation 10 - 84 - 84
Translation
adjustment - - - (80) (80)
Net income - - - 6,930 6,930
Balance,
April 3, 1993 16,983 170 119,242 23,578 142,990
Stock issued for
cash, pursuant
to employee stock
purchase plan 70 1 487 - 488
Tax benefit related
to stock options - - 6 - 6
Stock granted as
compensation 68 - 552 - 552
Translation
adjustment - - - (106) (106)
Net loss - - - (514) (514)
Balance,
April 2, 1994 17,121 $171 $120,287 22,958 $143,416
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
1994 1993 1992
Cash flows from operating activities:
Net income (loss) $(514) $6,930 $15,713
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 10,250 9,083 7,240
Deferred rent (85) 132 (171)
Deferred income taxes (1,322) (2,165) (2,303)
Stock issued as compensation 552 - -
Loss on disposition of property
and equipment 327 1,080 165
Changes in assets and liabilities:
Account receivable, net (11,796) (2,155) (12,583)
Merchandise inventories 19,948 (14,689) (26,141)
Prepaid expenses and other
current assets (499) (979) 1,479
Other assets (2,288) (52) 5
Accounts payable (7,040) 14,613 19,829
Accrued liabilities 1,449 5,281 2,354
Income taxes payable (295) (40) 707
Total adjustments 9,201 10,109 (9,419)
Net cash provided by operating
activities 8,687 17,039 6,294
Cash flows from investing activities:
Additions to property and equipment (9,483) (10,261) (11,028)
Proceeds from sale of equipment 117 107 57
Net cash used by investing
activities (9,366) (10,154) (10,971)
Cash flows from financing activities:
Proceeds from stock issuances 488 825 3,129
Payments made on capital lease
obligations (493) (595) (140)
Net cash provided (used) by
financing activities (5) 230 2,989
Effect of exchange rates on cash (25) (29) -
Net increase (decrease) in cash and cash
equivalents (709) 7,086 (1,688)
Cash and cash equivalents at beginning
of period 26,386 19,300 20,988
Cash and cash equivalents at end of period $25,677 $26,386 $19,300
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
1994 1993 1992
Supplemental disclosures of cash paid
during the year (in thousands):
Interest $76 $224 $296
Income taxes 1,314 6,802 11,226
Supplemental disclosure of non-cash
investing and financing activities:
Capital lease obligations totaling $0.9 million and $1.6 million were recorded
in fiscal years 1993 and 1992, respectively, when the Company acquired new
equipment. In fiscal 1994, a $0.9 million capital lease obligation was
eliminated when the Company upgraded equipment.
In fiscal years 1994, 1993 and 1992, the Company recorded tax benefits of
$6,000, $82,000, and $1,221,000, respectively, resulting from the exercise of
non-qualified stock options and the disqualifying disposition of shares
acquired through incentive stock options and the employee stock purchase plan.
These tax benefits have been added to additional paid-in capital.
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All references herein to fiscal 1994, 1993, and 1992 relate to the fiscal
years ended April 2, 1994, Aril 3, 1993, and March 28, 1992, respectively.
Note 1 Summary of Significant Accounting Policies
Business
Egghead, Inc. sells personal computer software and related products
through its wholly-owned subsidiaries, DJ&J Software Corporation (DJ&J,
d/b/a Egghead Software) and Eggspert Software, Ltd. (Eggspert, a
Canadian subsidiary), EH Direct, Inc. (EH Direct), and Egghead
International, Inc. (Egghead International). References to "the
Company" and "Egghead" include Egghead, Inc., its predecessors, and its
subsidiaries.
Consolidation
The Consolidated Financial Statements include the accounts of Egghead,
Inc. and its wholly-owned subsidiaries, DJ&J, Eggspert, EH Direct, and
Egghead International, and include all such adjustments and
reclassifications necessary to eliminate the effect of significant
intercompany accounts and transactions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
The carrying amount of cash equivalents approximates fair value because
of the short-term maturity of those instruments.
Accounts Receivable
Company sales made on credit generally have terms of net 30 days. The
sales and corresponding trade receivables are recorded upon merchandise
shipment. The Company records provisions for doubtful accounts and
sales returns and allowances based upon historical experience.
Certain advertising and promotional expenditures are reimbursable from
suppliers under cooperative advertising and other promotional and market
development fund arrangements. Amounts qualifying for reimbursement are
recorded as receivables from the suppliers and as a corresponding
reduction of net advertising expense in the period the expenditure
occurs. Also included in accounts receivable are credit card
receivables and amounts due from vendors for returned inventory and
other programs. The Company records a provision for uncollectible
vendor receivables based upon historical experience.
Merchandise Inventories
The majority of merchandise inventories are accounted for using the
moving weighted average cost method. The remainder are accounted for
using the first-in first-out cost method. All inventories are stated at
the lower of cost or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation of equipment,
furniture, and fixtures is provided using the straight-line method over
their estimated useful lives ranging from three to seven years.
Depreciation of the building is provided using the straight-line method
over a 30-year estimated useful life. Amortization of leasehold
improvements is provided using the straight-line method over the lesser
of the lease term or the assets' estimated useful lives.
Accounts Payable
Outstanding checks included in accounts payable were $11.9 million and
$13.3 million at April 2, 1994, and April 3, 1993, respectively.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 1 Summary of Significant Accounting Policies (continued)
Accrued Liabilities
Accrued compensation and benefits included in accrued liabilities were
$4.6 million and $6.6 million at April 2, 1994 and April 3, 1993,
respectively. The fiscal 1993 balance was higher due mainly to having
an extra week of payroll and benefits accrued at April 3, 1993, due to
having an extra week in fiscal 1993.
Deferred Rent
Certain store lease agreements provide for scheduled rent increases or
for rent payments to commence at a date later than the date of
occupancy. In these cases, the Company recognizes the aggregate rent
expense when the retail store opens on a straight-line basis over the
lease term.
Income Taxes
The Company determines its income tax accounts in accordance with
Statement of Financial Accounting Standards No. 109. Deferred income
taxes result primarily from temporary differences in certain items for
income tax and financial reporting purposes.
Earnings (Loss) Per Share
Primary earnings per share amounts are computed using the weighted
average number of common shares and dilutive common equivalent shares
outstanding during each period using the treasury stock method. Common
equivalent shares result from the assumed exercise of stock options and
from the conversion of cash related to the employee stock purchase plan
into common shares based upon the terms of the plan. The effect of
common equivalent shares was not included in computation of the loss per
share amount for the fiscal year ended April 2, 1994, because it was
anti-dilutive.
Foreign Currency Translation
Balance sheet accounts of DJ&J's Canadian branch are translated into
U.S. dollars at the exchange rate on the balance sheet date. Revenues,
costs, and expenses are translated at average exchange rates prevailing
during the fiscal year. Net translation gains or losses are recorded as
a component of retained earnings.
Fiscal Years
The Company uses a 52/53 week fiscal year, ending on the Saturday
nearest March 31 of each year. Fiscal quarters are such that the first
quarter consists of 16 weeks, the second and third quarters are each 12
weeks, and the fourth quarter consists of the remaining 12/13 weeks.
Fiscal year 1993 had 53 weeks, and fiscal years 1994 and 1992 each had
52 weeks.
Effective the beginning of fiscal year 1995, the Company will change
fiscal quarters such that each quarter will consist of 13 weeks. See
Note 8 for the Company's fiscal 1994 quarterly financial results as they
would have been reported if the Company had been using the 13-week
quarters.
Reclassifications
Certain reclassifications have been made to the fiscal 1993 and 1992
financial statements to conform to the fiscal 1994 presentation.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 2 Property and Equipment
The components of property and equipment at April 2, 1994 and
April 3, 1993 were as follows (in thousands):
April 2, April 3,
1994 1993
Land and building $1,547 $-
Equipment 31,674 29,015
Leasehold improvements 9,053 9,135
Furniture and fixtures 8,988 9,246
51,262 47,396
Less accumulated depreciation and
amortization (31,911) (26,182)
Property and equipment, net $19,351 $21,214
Note 3 Lines of Credit
Effective October 1, 1993, the Company entered into a revolving loan
agreement with two banks providing for unsecured borrowings of up to
$50,000,000 through September 30, 1993. Each bank provides a
$25,000,000 line of credit and one bank serves as agent for the
agreement. The Company may elect interest rates on the notes based on
the rate for overnight funds or on the agent bank's rate on certificates
of deposit, LIBOR, or prime rate. The agreement contains a number of
covenants, including a restriction on the payment of dividends and
minimum capital ratio, net worth, and working capital requirements. The
Company was in compliance with all financial covenants as of
April 2, 1994.
A summary of borrowings under the lines of credit follows (in
thousands):
Fiscal year
1994 1993 1992
Maximum amount outstanding $5,950 $21,600 $26,000
Average amount outstanding $350 $3,665 $5,395
Weighted average interest rate 3.9% 4.2% 5.5%
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 4 Leases
The Company leases its retail stores, CGE regional sales support
centers, head-quarters, and distribution facilities under operating
leases with terms on most leases ranging from one to eleven years. The
terms on the remaining leases are month to month. Some leases contain
renewal options of one to five years which the Company may exercise at
the end of the initial lease term. The leases generally require the
Company to pay taxes, insurance, and certain common area maintenance
costs.
Aggregate rental expense, including common area maintenance charges, for
all operating leases for the fiscal years ended 1994, 1993, and 1992 was
approximately $18,012,000, $17,939,000, and $14,622,000, respectively.
As of April 2, 1994, future minimum rental payments under non-cancelable
operating and capital leases for retail stores, CGE sales offices,
headquarters and distribution facilities, and equipment consisted of the
following (in thousands):
Capital Operating
Fiscal Year leases leases
1995 $312 $14,805
1996 188 13,249
1997 - 11,297
1998 - 7,671
1999 - 3,917
Thereafter - 1,038
Total minimum payments 500 $51,977
Less interest (21)
Present value of minimum
lease payments 479
Less current portion (295)
Capital lease obligations,
less current portion $184
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 5 Income Taxes
The provision (benefit) for income taxes is comprised of the following (in
thousands):
Fiscal year
1994 1993 1992
Current:
Federal $777 $5,316 $9,692
State 217 1,279 2,242
994 6,595 11,934
Deferred:
Federal (1,152) (1,888) (2,048)
State (170) (277) (255)
(1,322) (2,165) (2,303)
Total $(328) $4,430 $9,631
Deferred income taxes result primarily from temporary differences in certain
items for income tax and financial reporting purposes. The tax effects of
temporary differences giving rise to the deferred tax assets are as follows:
April 2, April 3,
1994 1993
Accounts receivables $942 $1,166
Merchandise inventories 3,532 4,148
Property and equipment 2,644 1,758
Other assets 54 -
Accrued liabilities 3,736 2,571
Deferred rent 191 134
Total deferred tax assets $11,099 $9,777
Income tax differs from the amount computed by applying the statutory Federal
tax rate to income (loss) before taxes as follows:
Fiscal year
1994 1993 1992
Statutory Federal tax rate (34.0)% 34.0% 34.0%
State taxes, net of Federal benefit 2.6 5.3 5.3
Tax exempt interest income (11.9) (0.7) (0.6)
Other, net 4.3 0.4 (0.7)
(39.0)% 39.0% 38.0%
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 6 Stock Option and Stock Purchase Plans
Employee Stock Purchase Plan
The Egghead, Inc. 1989 Employee Stock Purchase Plan currently provides
options to acquire the Common Stock of the Company to substantially all
full-time and certain other employees at the lesser of 85% of the fair
market value of the Common Stock on August 1 of the first and second
plan years and July 1 thereafter or 85% of the fair market value on the
following July 31 of the first plan year and June 30 of each plan year
thereafter. Under the plan, a maximum of 650,000 shares were reserved
for issuance. As of April 2, 1994, there were 428,906 shares available
for future issuance.
The 1993 Stock Option Plan
In September 1993, the Company's shareholders approved the 1993 Stock
Option Plan (the "1993 Plan"), under which 2,000,000 shares of the
Company's Common Stock have been reserved for issuance. The 1993 Plan
replaces the 1986 Combined Incentive and Non-Qualified Stock Option Plan
(the "1986 Combined Plan") under which 2,000,000 shares were originally
reserved for issuance. The number of shares reserved for issuance under
the 1993 Plan will be increased by the shares reserved for issuance
under the 1986 Combined Plan that (i) are not subject to outstanding
stock options and (ii) are presently subject to outstanding stock
options which subsequently are canceled or expire. No additional stock
options will be granted under the 1986 Combined Plan.
Options granted, exercised, and canceled under the above Plans are
summarized as follows:
Fiscal year
1994 1993 1992
Outstanding, beginning
of year 1,184,338 786,208 744,794
Options granted 250,000 548,465 424,955
Options exercised - (19,363) (202,443)
Options canceled (732,016) (130,972) (181,098)
Outstanding, end of year 702,322 1,184,338 786,208
Exercisable, end of year 237,497 291,702 136,783
Available for grant in
future years 2,589,458 107,442 524,935
Price of Options:
Granted during year $7.50-$8.13 $8.38-$17.00 $13.75-$17.00
Exercised during year - $6.25-$13.75 $2.08-$13.50
Canceled during year $8.37-17.00 $6.25-$19.50 $6.25-$13.50
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 6 Stock Option and Stock Purchase Plans (continued)
The Non-employee Director Stock Option Plan
In September 1993, the Company's shareholders approved the Non-employee
Director Stock Option Plan (the "Director Plan"), under which 175,000
shares of the Company's Common Stock have been reserved for issuance.
As of April 2, 1994, 121,000 shares are available for grant and 54,000
shares are subject to outstanding options which have been granted at
prices ranging from $7.25 to $8.06. As of April 2, 1994, none of the
outstanding options were vested.
The Directors' Plan
In October 1987, the Board of Directors approved the Directors'
Nonqualified Stock Option Plan (the "Directors' Plan"), whereby each of
the outside Company directors was granted a nonqualified stock option to
purchase 10,000 shares of Common Stock at $11.25. The options were
fully vested at the date of grant. Under the Plan, 90,000 shares of
Common Stock were issued pursuant to the exercise of options. The
remaining 10,000 shares expired in December 1992 when the Plan
terminated.
The Executive Plan
In February 1989, the Board of Directors approved four-year employment
agreements and stock option agreements for three executive officers who
are no longer with the Company, Stuart Sloan, Ronald Weinstein, and
Matthew Griffin, whereby the officers' compensation was based on equity
incentives. Each drew an annual salary of $1 per year during their term
of employment. Options to acquire up to 1,700,000 shares of common
stock are authorized under the Plan. As of April 2, 1994, 325,000
shares are available for grant and 1,375,000 are subject to outstanding
options which have been granted to the above named executive officers of
the Company at prices ranging from $10.38 to $20.00, with a weighted
average exercise price of $13.21. All outstanding options are vested
and expire in February 1999. As of April 2, 1994, none of the options
had been exercised.
Note 7 401(k) Plan
The Company has a 401(k) retirement plan for the benefit of its
employees. After six months of full-time employment, an employee is
eligible to participate in the plan. Employee contributions are matched
by the Company at 50% of each employee's contribution up to 4% of their
compensation. The Company's contributions are fully vested upon the
completion of two years of service. The Company's contributions were
approximately $571,000, $558,000, and $327,000 in fiscal years 1994,
1993, and 1992, respectively.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 8 Selected Quarterly Consolidated Financial Information
(Unaudited)
Selected financial data for each quarter of fiscal years 1994 and 1993
is as follows (in millions, except per share data):
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1993 1994 1993 1994 1993 1994 1993
Net sales $218.2 $202.1 $156.7 $139.5 $208.6 $188.3 $194.9 $195.6
Gross margin 32.3 30.3 21.0 20.0 25.6 26.9 24.0 29.7
Selling,
general, and
administrative
expense 28.9 25.5 18.2 17.2 21.1 19.2 21.3 23.2
Provision for
restructuring
costs 4.4 - - - - 2.1 - 0.6
Provision for
shareholder
litigation - - - - 0.1 - 1.1 -
Operating income
(loss) (3.5) 2.8 0.9 1.2 2.3 4.0 (0.5) 4.0
Income (loss)
before income
taxes (3.3) 2.8 0.8 1.1 2.3 3.8 (0.6) 3.7
Net income
(loss) (2.0) 1.7 0.5 0.7 1.4 2.3 (0.4) 2.2
Earnings (loss)
per share $(0.12) $0.10 $0.03 $0.04 $0.08 $0.14 $(0.02) $0.13
Effective the beginning of fiscal 1995, the Company will change it's
fiscal quarters such that each quarter will consist of 13 weeks. If the
Company would have reported using the 13-week quarter format during
fiscal 1994, the quarterly results would have been reported as follows
(in millions, except per share data):
Fiscal Year 1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net sales $180.8 $165.4 $222.6 $209.5
Gross margin 26.8 23.1 27.3 25.7
Selling, general, and administrative
expense 23.6 20.6 22.6 22.7
Provision for restructuring costs 4.4 - - -
Provision for shareholder litigation - - 0.1 1.1
Operating income (loss) (3.1) 0.5 2.4 (0.6)
Income (loss) before income taxes (3.0) 0.4 2.4 (0.6)
Net income (loss) (1.8) 0.3 1.4 (0.4)
Earnings (loss) per share $(0.11) $0.02 $0.08 $(0.02)
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 9 Concentration of Credit Risk
During fiscal years 1994 and 1993, the Company granted credit to
substantially all of its corporate and government sales customers.
Approximately 15% and 14% of the Company's accounts receivable were from
customers in various segments of the United States government at April
2, 1994 and April 3, 1993, respectively. The financial position of
these and other customers was considered in determining the allowance
for doubtful accounts.
Note 10 Subsequent Event
On June 9, 1994, the Company announced that it had settled a
shareholders' lawsuit originally filed against the Company, a current
officer, and two former officers who were also directors. The current
officer had recently been dismissed from the suit. The action,
originally entitled Finucan v. Egghead, et al., was filed in federal
court in Seattle in September 1993 and is alleged to be brought on
behalf of all purchasers of the Company's common stock between February
11, 1992, and November 18, 1992, (other than the individual defendants
and other individuals and entities otherwise affiliated with the
Company). The settlement, which is subject to approval of the court,
calls for a cash payment by the Company of $2.625 million. Net of
expected insurance recovery, the settlement and related attorneys' fees
resulted in a pretax charge of $1.2 million in fiscal year 1994 ($0.04
per share, net of income tax impact).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Part III, Item 10, is incorporated by
reference from Egghead, Inc.'s definitive Proxy Statement relating to
Egghead, Inc.'s 1994 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days of April 2, 1994.
Item 11. Executive Compensation
The information required by Part III, Item 11, is incorporated by
reference from Egghead, Inc.'s definitive Proxy Statement relating to
Egghead, Inc.'s 1994 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days of April 2, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by Part III, Item 12, is incorporated by
reference from Egghead, Inc.'s definitive Proxy Statement relating to
Egghead, Inc.'s 1994 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days of April 2, 1994.
Item 13. Certain Relationships and Related Transactions
The information required by Part III, Item 13, is incorporated by
reference from Egghead, Inc.'s definitive Proxy Statement relating to
Egghead, Inc.'s 1994 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days of April 2, 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
A) Documents filed as a part of this report:
1. Financial Statements
The Consolidated Financial Statements, Notes thereto, Financial
Statement Schedules (none), and Accountants' Report thereon are
included in Part II, Item 8, of this report.
2a. Exhibits
(i) 3.1 Restated Articles of Incorporation of the Company
(iii) 3.2 Amended Bylaws of the Company
(i) 10.1 House Account Agreement (U.S.) with Lotus Development
Corporation dated September 4, 1986.
10.2 First amendment to House Account Agreement (U.S.) with
Lotus Development Corporation dated May 12, 1989.
(Previously filed with registrant's Form 10-K for the
fiscal year ended March 31, 1990, as Exhibit 10.1a.)
(iv) 10.3 * Microsoft 1992 Reseller Agreement dated June 26, 1992.
(iv) 10.4 * Extension of Microsoft 1992 Reseller Agreement dated
November 31, 1992.
(iv) 10.5 * Microsoft January - June, 1993 Reseller Rebate and
Marketing Fund Agreement.
(x) 10.6 * Microsoft 1993/1994 Channel Agreement dated July 1, 1993.
(x) 10.7 * Rebate and Marketing Fund Addendum to the 1993/1994
Microsoft Channel Agreement dated November 1, 1993.
(x) 10.8 * Amendment to the Microsoft 1993/1994 Channel Agreement
(appointment as a Major Chain Reseller) dated
November 10, 1993.
(x) 10.9 * Reseller agreement with WordPerfect Corporation dated
April 1, 1994.
10.10 (Intentionally left blank.)
10.11 (Intentionally left blank.)
10.12 (Intentionally left blank.)
10.13 (Intentionally left blank.)
10.14 (Intentionally left blank.)
10.15 Lease, as amended, dated June 9, 1988, between Sammamish
Park Place I Limited Partnership as Landlord and DJ&J
Software Corporation as Tenant regarding the Company's
administrative headquarters. (Previously filed with
registrant's Form 10-K for the fiscal year ended
April 1, 1989, as Exhibit 10.46.)
10.16 First Amendment to June 9, 1988 lease between Sammamish
Park Place I Limited Partnership and DJ&J Software
Corporation dated October 4, 1989. (Previously filed with
registrant's Form 10-K for the fiscal year ended
March 31, 1990, as Exhibit 10.46a.)
10.17 Lease dated March 23, 1992 between Sammamish Park Place II
Limited Partnership as Landlord and DJ&J Software
Corporation as Tenant regarding the Company's
administrative headquarters. (Previously filed with
registrant's Form 10-K for the fiscal year ended
March 28, 1992, as Exhibit 10.47.)
10.18 (Intentionally left blank.)
(iii) 10.19 Lease dated March 23, 1989, between The CHY Company as
Landlord and DJ&J Software as Tenant regarding the
Company's Sacramento distribution facility.
(iii) 10.20 First amendment to lease between The CHY Company as
Landlord and DJ&J Software, as Tenant regarding the
Company's Sacramento distribution facility.
10.21 (Intentionally left blank.)
(i) 10.22 Lease Agreement dated January 7, 1988, with Granite
Properties, a limited partnership, as Landlord and DJ&J
Software Corporation, as Tenant regarding Lancaster
distribution facility.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K (continued)
(i) 10.23 Master License Agreement dated February 12, 1988, with
Staples, Inc. as Licensor and DJ&J Software Corporation as
Licensee, regarding an exclusive right to sell items in
Staples' discount stores.
10.24 First Amendment to Master License Agreement between
Staples, Inc. and DJ&J Software Corporation dated November
14, 1990. (Previously filed with registrant's Form 10-K
for the fiscal year ended March 30, 1991, as same Exhibit
number.)
10.25 (Intentionally left blank.)
10.26 (Intentionally left blank.)
(i) 10.27 Form of Indemnification Agreement between the Company and
its directors.
(i) 10.28 Form of Indemnification Agreement between DJ&J Software
Corporation and its directors.
(iv) 10.29 Revolving Loan Agreement dated September 30, 1992, among
Security Pacific Bank Washington, N.A. and U.S. Bank of
Washington, National Association, Egghead, Inc., and DJ&J
Software Corporation.
10.30 Revolving Loan Agreement dated September 30, 1993 among
Security Pacific Bank Washington, N.A. and U.S. Bank of
Washington, National Association, Egghead, Inc., and DJ&J
Software Corporation. (Previously filed with registrant's
Form 10-Q dated October 16, 1993, as same exhibit number.)
(iv) 10.31 ** Executive employment between Egghead, Inc. and Ronald P.
Erickson dated February 22, 1993.
(iv) 10.32 ** Executive employment agreement between Egghead, Inc. and
Timothy E. Turnpaugh dated February 22, 1993.
(x) 10.32a** Amended and restated executive employment agreement
between Egghead, Inc. and Timothy E. Turnpaugh dated
June 1993.
(x) 10.32b** Separation agreement between Egghead, Inc. and DJ&J
Software Corporation (the "Company") and Timothy E.
Turnpaugh dated August 25, 1993.
10.33 ** Executive employment agreement between Egghead, Inc. and
Terence M. Strom dated June 28, 1993. (Previously filed
with registrant's Form 10-Q dated October 16, 1993, as
Exhibit 10.34.)
(ii) 10.34 ** Egghead, Inc. 1989 Executive Retention Incentive Stock
Option Plan.
(ii) 10.35 ** Egghead, Inc. 1989 Executive Retention Incentive Stock
Option Agreement between Egghead, Inc. and Stuart M.
Sloan dated February 23, 1989.
(ii) 10.36 ** Egghead, Inc. 1989 Executive Retention Non-Qualified Stock
Option Agreement between Egghead, Inc. and Stuart M. Sloan
dated February 23, 1989.
(iii) 10.36a** Amendment No. 1 to Egghead, Inc. 1989 Executive Retention
Non-Qualified Stock Option Agreement between Egghead, Inc.
and Stuart M. Sloan dated April 17, 1991.
10.37 (Intentionally left blank.)
10.38 (Intentionally left blank.)
(ii) 10.39 ** Egghead, Inc. 1989 Executive Retention Incentive Stock
Option Agreement between Egghead, Inc. and Ronald A.
Weinstein dated February 23, 1989.
(iii) 10.39a** Amendment No. 1 to Egghead, Inc. 1989 Executive Retention
Incentive Stock Option Agreement between Egghead, Inc. and
Ronald A. Weinstein dated April 17, 1991.
(ii) 10.40 ** Egghead, Inc. 1989 Executive Retention Non-Qualified Stock
Option Agreement between Egghead, Inc. and Ronald A.
Weinstein dated February 23, 1989.
(iii) 10.40a** Amendment No. 1 to Egghead, Inc. 1989 Executive Retention
Non-Qualified Stock Option Agreement between Egghead, Inc.
and Ronald A. Weinstein dated April 17, 1991.
10.41 (Intentionally left blank.)
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K (continued)
10.42 (Intentionally left blank.)
(ii) 10.43 ** Egghead, Inc. 1989 Executive Retention Incentive Stock
Option Agreement between Egghead, Inc. and Matthew J.
Griffin dated February 23, 1989.
(ii) 10.44 ** Egghead, Inc. 1989 Executive Retention Non-Qualified Stock
Option Agreement between Egghead, Inc. and Matthew J.
Griffin dated February 23, 1989.
(iii) 10.44a** Egghead, Inc. 1989 Executive Retention Non-Qualified Stock
Option Agreement between Egghead, Inc., and Matthew J.
Griffin dated April 17, 1991.
10.45 (Intentionally left blank.)
10.46 (Intentionally left blank.)
10.47 (Intentionally left blank.)
10.48 ** Egghead, Inc. 1989 Employee Stock Purchase plan.
(Previously filed with registrant's Form S-8 dated June
23, 1990, as Exhibit 10.)
10.49 ** Egghead, Inc. 1993 Stock Option Plan. (Previously filed
with registrant's Form 10-Q dated October 16, 1993, as
Exhibit 10.31.)
10.50 ** Egghead, Inc. Nonemployee Director Stock Option Plan.
(Previously filed with registrant's Form 10-Q dated
October 16, 1993, as Exhibit 10.32.)
(x) 21.1 Schedule of subsidiaries.
(x) 23.1 Consent of Independent Public Accountants.
24.1 Power of Attorney (See Page 42).
2b. Form 8-K
None.
(i) Previously filed with registrant's Registration Statement on Form
S-1, Registration No. 33-21472, as same Exhibit number.
(ii) Previously filed with the registrant's Form 8-K dated February
23, 1989, as Exhibit numbers 10.1 to 10.13.
(iii) Previously filed with registrant's Form 10-K for the fiscal year
ended March 28, 1992, as same Exhibit number.
(iv) Previously filed with registrant's Form 10-K for the fiscal year
ended April 3, 1993, as same Exhibit number.
(x) Filed herewith.
* Confidential portions of this exhibit have been omitted and filed
separately with the Commission pursuant to an Application for
Confidential Treatment under Rule 24b-2 under the Securities
Exchange Act of 1934. Each exhibit has been marked to identify
the confidential portions that are omitted.
** Designates management contract or compensatory plan or
arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the city of Issaquah, State of Washington, on June 9, 1994.
EGGHEAD, INC.
By /s/Terence M. Strom
Terence M. Strom
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Terence M. Strom and Carolyn J. Tobias, or either of them, his
attorneys-in-fact, with the power of substitution, for him in any and
all capacities, to sign any amendments to this report, and to file the
same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on June 9, 1994, on
behalf of the Registrant and in the capacities indicated.
Signature Title
/s/Terence M. Strom President, Chief Executive Officer,
Terence M. Strom and Director (Principal Executive
Officer)
/s/Carolyn J. Tobias Senior Vice President, Chief
Carolyn J. Tobias Financial Officer (Principal
Financial and Accounting Officer)
/s/ Paul G. Allen Director
Paul G. Allen
Director
Richard P. Cooley
/s/ Ronald P. Erickson Director
Ronald P. Erickson
/s/ Steven E. Lebow Director
Steven E. Lebow
Director
Linda Fayne Levinson
Director
George P. Orban
/s/ Samuel N. Stroum Director
Samuel N. Stroum