Egghead announces first-quarter results.SPOKANE, Wash.--(BUSINESS WIRE)--Aug. 1, 1996--Egghead Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : EGGS) today reported results for its first quarter ended June 29, 1996. These results reflect the discontinuance Cessation; ending; giving up. The discontinuance of a lawsuit, also known as a dismissal or a non-suit, is the voluntary or involuntary termination of an action. DISCONTINUANCE, pleading. A chasm or interruption in the pleading. 2. of operations for the Corporate Government and Educational division (CGE CGE Computable General Equilibrium CGE Conference des Grandes Ecoles (French) CGE Carrier Grade Edition (COTS Linux platform) CGE Classic Gaming Expo (game) ) which was sold on May 13, 1996. The company's consolidated revenue from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for the first quarter was $78.6 million, a decrease of 7% from the $84.7 million in revenue for the same period of the previous year. Net loss for the first quarter from continuing operations was $7.6 million, or $0.43 per share, compared to the net loss of $3.3 million, or $0.19 per share, for the same period of the previous year. Comparable store sales results only include Egghead's retail stores. Excluded from this statistic statistic, n a value or number that describes a series of quantitative observations or measures; a value calculated from a sample. statistic a numerical value calculated from a number of observations in order to summarize them. are sales through Direct Response and the Egghead Internet site (www.egghead.com). Comparable store sales for the first quarter decreased 7% from the same period last year. Total retail sales were also affected by a reduction in the average number of stores in full operation to 162 during the first quarter, down from 169 stores during the first quarter of the previous year. During the first quarter, Egghead closed six stores and opened one new store, for a total of 20 stores with the new store format in operation to date. The company has signed leases to open five new stores before the end of the third quarter. Results from the new store format have been mixed. Experience with Egghead's new store format indicates that relocated re·lo·cate v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates v.tr. To move to or establish in a new place: relocated the business. v.intr. and remodeled stores in existing markets have shown encouraging results. Eleven stores remodeled and expanded had sales increases of approximately 30% over their performance in the same period of the previous year. Opening new stores in new markets has not been as successful as remodeling remodeling /re·mod·el·ing/ (re-mod´el-ing) reorganization or renovation of an old structure. bone remodeling and expanding stores in existing markets. The company will therefore continue to relocate re·lo·cate v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates v.tr. To move to or establish in a new place: relocated the business. v.intr. and remodel re·mod·el tr.v. re·mod·eled also re·mod·elled, re·mod·el·ing also re·mod·el·ling, re·mod·els also re·mod·els To make over in structure or style; reconstruct. stores in existing markets as leases expire. As of March 30, 1996, the company had three stores on month-to-month leases, 22 stores with leases expiring in fiscal 1997 (ending March 29, 1997) and 75 stores with leases expiring in fiscal 1998 (ending March 28, 1998). Management is continuing to revise the merchandise assortment in new and remodeled stores with a view to further improve store revenues. The company will also seek additional sites in existing markets, where appropriate. The initial gross margin for retail operations was 19% during the first quarter, an improvement over the 16% initial gross margin for the previous quarter and consistent with results for the same period of the previous fiscal year. The company has made selective price adjustments in order to improve its initial gross margin. Total reported gross margin for the first quarter was $6.6 million or 8.4% of sales as compared to $10.0 million or 11.8% of sales for the same period of the previous year, a decrease of $3.4 million. Initial gross margin dollars for the first quarter were $1.2 million lower than the same period of the previous year primarily due to the total consolidated sales decline of 7%. In addition, costs were higher in the first quarter vs. the same period of the previous fiscal year by $0.6 million for retail occupancy costs Occupancy costs are the whole life costs of buildings and their associated land from occupancy until disposal. These costs may be incurred on a regular or irregular basis. Occupancy costs are those costs related to occupying a space including; rent, real estate taxes, personal , $0.6 million for shrinkage Shrinkage The amount by which inventory on hand is shorter than the amount of inventory recorded. Notes: The missing inventory could be due to theft, damage, or book keeping errors. , $0.4 million for distribution costs distribution costs distribute npl → Vertriebskosten pl , and $0.3 million for merchandising overhead costs overhead costs see fixed costs. . Rebates income also declined $0.4 million. During the first quarter, the company's selling, general and administrative expense (SG&A), net of amounts included in cost of sales, was $17.9 million, an increase of $3.6 million from the $14.3 million in the same period of the previous fiscal year. Several one-time restructure costs were recorded in the first quarter, totaling $2.4 million. Included in this total is $1.4 million related to remaining lease obligations on Egghead's former headquarters and the relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. of the company's headquarters, $0.6 million related to the consolidation of distribution facilities and $0.4 million of severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when expense for the reduction of approximately 50 corporate staff. SG&A expenses related to retail operations were $0.8 million higher in the first quarter as compared to the same period of the previous year. The increase was mainly due to payroll and benefits of $0.2 million, store signs of $0.3 million and other items of $0.3 million. Remaining SG&A expenses in total were higher in the first quarter as compared to the same period of the previous year by $0.2 million mainly as a result of higher systems costs in the areas of contract labor and maintenance contracts. The Statement of Financial Accounting Standards No. 121 (SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 121), which Egghead adopted during the first quarter, requires the company to write down to fair market value any assets not contributing positive returns. The impact on retail operations in the first quarter was $0.2 million and is included in SG&A. During the first quarter, the company closed a distribution center in Wilmington, OH, and implemented a 40% reduction in operations at its distribution center in Lancaster, PA. The company also managed the required fulfillment ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. of orders and the collection of accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying from former CGE customers which is required for periods of 120 and 150 days, respectively, after the CGE sale date of May 13, 1996. The CGE sale agreement requires Egghead to maintain human and computer resources to support discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets . After the fulfillment period, the company will be able to more fully adjust its cost structure and totally focus on the remaining retail company. During the first quarter, Egghead spent approximately $0.4 million on ELEKOM, its electronic commerce subsidiary. Including the first quarter investment, Egghead, has invested a cumulative total of $1.9 million in ELEKOM. The company's board of directors has authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: a total investment to be made in ELEKOM of $3.0 million during fiscal 1997. ELEKOM formed strategic agreements with American Express American Express (NYSE: AXP), sometimes known as "AmEx" or "Amex", is a diversified global financial services company, headquartered in New York City. The company is best known for its credit card, charge card and traveler's cheque businesses. and IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) during the first quarter, and continues to market its complete electronic commerce solution to potential customers. During the first quarter, the company reported a gain on the sale of CGE. The sales price for the CGE division was $45.0 million in cash, which did not include CGE's current accounts receivable that are being liquidated DAMAGES, LIQUIDATED, contracts. When the parties to a contract stipulate for the payment of a certain sum, as a satisfaction fixed and agreed upon by them, for the not doing of certain things particularly mentioned in the agreement, the sum so fixed upon is called liquidated damages. (q.v. in an orderly manner. The reported gain on disposal of discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. , net of tax, was $22.3 million or $1.27 per share. The reported gain includes the sale proceeds of $45.0 million less fixed asset and lease write- offs of $1.2 million, transaction, legal and accounting fees of $2.0 million, transition period employment costs of $1.8 million, costs related to the fulfillment period of $3.4 million, and taxes of $14.3 million. The first quarter reported loss from discontinued operations was $14.5 million or $0.83 per share. The major components of the loss include accounts receivable and inventory write-offs of $12.5 million, write-offs and equipment lease buyouts of $4.9 million, warehouse closing cost of $3.2 million and operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. , severance and other costs of $3.2 million. These charges were offset by a tax benefit of $9.3 million. The adoption of SFAS 121 also resulted in an additional charge of $0.7 million after tax or $0.04 per share related to the company's Kalispell, Montana Kalispell is a city in Flathead County, Montana, USA. The population was 14,223 at the 2000 census. A 2004 estimate placed its population at 17,381. It is the county seat of Flathead CountyGR6. , property, which is held for sale and the related goodwill. The company's balance sheet was strengthened during the first quarter as a result of the sale of CGE. The increase in the cash balance is primarily due to the $45.0 million gross proceeds from the sale of CGE and a reduction in the net current assets Net current assets The difference between current assets and current liabilities, also known as working capital. net current assets See working capital. of discontinued operations of $64.7 million which primarily relates to the collection of accounts receivable. These positive factors on the cash balance were partially offset by a reduction in accounts payable from $119.3 million on March 30, 1996, to $98.2 million on June 29, 1996, a decrease of $21.1 million. The decline of accounts payable is primarily attributable to a reduction from the abnormally high level of payables on March 30, 1996, of approximately $11.0 million and the reduction of payables related to volume license and maintenance contracts (VLAM VLAM Vlaams Promotiecentrum Voor Agro-en Visserijmarketing VLAM Vertical Line Array Measurement ) of $10.0 million. The remaining VLAM accounts payable balance of approximately $18.0 million is expected to be paid down as a result of the sale of CGE. As a result of first quarter activities, most of the assets related to the CGE transaction have been converted to cash. Egghead Inc. is a leading retailer of computer software, hardware and accessories with 159 retail stores located throughout the country and corporate offices located in Spokane, Wash. This news release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that involve risks and uncertainties, including risks related to the highly competitive nature of the computer software, hardware and other related products retailing industry, the seasonality and quarterly fluctuation Fluctuation A price or interest rate change. of financial results, the early stage of the company's new merchandising store format, the dependence of the company's sales on the purchase and use of personal computers and software, and the development stage of the company's subsidiary ELEKOM, and the risks detailed in the company's SEC reports, including the report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended March 30, 1996. Actual results may differ materially. -0-
EGGHEAD INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per-share data)
13 Weeks Ended
(unaudited)
Jun 29, Jul 1,
1996 1995
Net sales $ 78,646 $ 84,690 Cost of sales, including certain buying, occupancy, and distribution costs 72,036 74,718 Gross margin 6,610 9,972 Selling, general, and administrative expense 17,934 14,286 Depreciation and amortization expense, net of amounts included in cost of sales 1,747 1,801 Operating loss (13,071) (6,115) Other (expense) income: Interest expense (13) (21) Interest income 799 693 Other, net (131) 55 Loss from continuing operations before income taxes, effects of discontinued operations and cumulative effect of change in accounting principle (12,416) (5,388) Income tax benefit 4,842 2,102 Net loss from continuing operations before effects of discontinued operations and cumulative effect of change in accounting principle (7,574) (3,286) Discontinued operations: Income (loss) from discontinued operations, net of tax (14,548) 124 Gain on disposal of discontinued operations, net of tax 22,286 -- Income from discontinued operations 7,738 124 Net income before cumulative effect of change in accounting principle 164 (3,162) Cumulative effect of change in accounting principle, net of tax (711) -- Net income (loss) $ (547) $ (3,162)
Earning (loss) per share:
Continuing operations (43 cents)(19 cents)
Discontinued operations:
Income (loss) from discontinued operations (83 cents) 1 cent
Gain on disposal of discontinued operations 1.27 --
Change in accounting principle (4 cents) --
Earnings (loss) per share (3 cents)(18 cents) Weighted average common shares outstanding 17,555 17,172
Consolidated Balance Sheets
(Dollars in thousands)
Jun 29, 1996 Mar 30, 1996
ASSETS
Current assets:
Cash and cash equivalents $ 94,938 $ 49,590
Non-trade accounts receivables,
net of allowance for doubtful
accounts of $3,239 and $2,098,
respectively 30,020 24,079
Merchandise inventories, net 83,348 84,712
Prepaid expenses and other
current assets 9,745 9,455
Current deferred income taxes 5,612 4,859
Discontinued operations -- net
current assets 7,099 71,796
Total current assets 230,762 244,491
Property and equipment, net 26,438 29,495
Non-current deferred income taxes 4,221 4,221
Other assets 604 1,621
Discontinued operations -- net long-
term assets -- 1,727
$ 262,025 $ 281,555
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ -- $ --
Accounts payable 98,238 119,341
Accrued liabilities 13,822 15,817
Income taxes payable -- --
Current portion of capital lease
obligations 302 295
Liabilities related to CGE
disposal 9,761 5,650
Total current liabilities 122,123 141,103
Capital lease obligations, less
current portion 182 280
Deferred rent 875 903
Total liabilities 123,180 142,286
Commitments and contingencies
Shareholders' equity:
Common stock, 1 cent par value:
50 million shares authorized;
17,562,954 and 17,546,548
shares issued and outstanding,
respectively 176 176
Additional paid-in capital 124,227 124,104
Retained earnings 14,442 14,989
Total shareholders' equity 138,845 139,269
$ 262,025 $ 281,555
CONTACT: Egghead Inc., Spokane, Wash. Edward Wozniak, 509/891-4851 or Fi.Comm See comms. Ltd. Michael Newman Michael Newman (born 1957) was a Los Angeles County lifeguard for 20 years and a firefighter. Newman started his career as a lifeguard at the age of 10 when he joined the junior lifeguards. He excelled at swimming and water sports and attended Pacific Palisades High School. , 800/790-0569 |
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