-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PtDcSbIInuAW7TU4EdZctk6rFl+LFzFxKVKtpszM8XPIaPTqri2JLGVBnX7s9cAI 0u/A04hnDs8x61OX5dQSmA== 0000927796-98-000290.txt : 19981111 0000927796-98-000290.hdr.sgml : 19981111 ACCESSION NUMBER: 0000927796-98-000290 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980926 FILED AS OF DATE: 19981110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINENS N THINGS INC CENTRAL INDEX KEY: 0001023052 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES [5700] IRS NUMBER: 223463939 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12381 FILM NUMBER: 98742992 BUSINESS ADDRESS: STREET 1: 6 BRIGHTON RD CITY: CLIFTON STATE: NJ ZIP: 07015 BUSINESS PHONE: 9737781300 MAIL ADDRESS: STREET 1: 6 BRIGHTON RD CITY: CLIFTON STATE: NJ ZIP: 07015 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 26, 1998 Commission File Number 1-12381 LINENS 'N THINGS, INC. (Exact name of registrant as specified in its charter) Delaware 22-3463939 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 6 Brighton Road, Clifton, New Jersey 07015 (Address of principal executive offices) (Zip Code) (973) 778-1300 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares outstanding of the issuer's Common Stock: Class Outstanding at November 5, 1998 Common Stock, $0.01 par value 38,941,705
INDEX Part I. - Financial Information Page No. -------- Consolidated Statements of Operations for the Thirteen Weeks and Thirty-Nine Weeks Ended September 26,1998 and September 27, 1997 3 Consolidated Balance Sheets as of September 26, 1998, December 31, 1997 and September 27, 1997 4 Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended September 26, 1998 and September 27, 1997 5 Notes to Consolidated Financial Statements 6-7 Independent Auditors' Review Report 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 Part II. - Other Information 14 Item 6 - Exhibits and Reports on Form 8-K 14 Exhibit Index 14
LINENS 'N THINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share amounts) Thirteen Weeks Ended Thirty-Nine Weeks Ended ---------------------------------- ------------------------------------- September 26, September 27, September 26, September 27, 1998 1997 1998 1997 ---------------- ----------------- ---------------- ---------------- (Unaudited) (Unaudited) Net sales $278,642 $225,239 $718,773 $590,873 Cost of sales, including buying and warehousing costs 167,450 135,993 435,375 360,792 ---------------- ----------------- ---------------- ---------------- Gross profit 111,192 89,246 283,398 230,081 Selling, general and administrative expenses 93,168 76,229 258,480 213,808 ---------------- ----------------- ---------------- ---------------- Operating profit 18,024 13,017 24,918 16,273 Interest expense, net 105 26 5 972 ---------------- ----------------- ---------------- ---------------- Income before provision for income taxes 17,919 12,991 24,913 15,301 Provision for income taxes 6,901 5,459 9,594 6,429 ---------------- ----------------- ---------------- ---------------- Net income $ 11,018 $ 7,532 $15,319 $ 8,872 ================ ================= ================ ================ Per share of common stock: Basic Net income $0.28 $0.20 $0.39 $0.23 Weighted average shares outstanding 38,955 38,617 38,868 38,563 Diluted Net income $0.27 $0.19 $0.38 $0.23 Weighted average shares outstanding 40,508 39,676 40,387 39,423
See accompanying notes to consolidated financial statements.
LINENS 'N THINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of September 26, 1998, December 31, 1997 and September 27, 1997 (in thousands, except share amounts) September 26, December 31, September 27, 1998 1997 1997 ------------------ ----------------- ------------------- (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 15,847 $ 39,882 $ 15,719 Accounts receivable, net 19,810 13,764 16,737 Inventories 294,161 223,188 225,716 Prepaid expenses and other current assets 16,586 13,058 9,174 ------------------ ----------------- ------------------- Total current assets 346,404 289,892 267,346 Property and equipment, net 164,093 154,480 149,771 Goodwill, net 20,889 21,526 21,738 Deferred charges and other noncurrent assets, net 5,477 6,201 5,789 ------------------ ----------------- ------------------- Total assets $ 536,863 $ 472,099 $ 444,644 ================== ================= =================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 136,807 $ 98,418 $ 98,605 Accrued expenses and other current liabilities 66,741 68,099 60,909 ------------------ ----------------- ------------------- Total current liabilities 203,548 166,517 159,514 Deferred income taxes and other long-term liabilities 34,355 25,547 22,373 Shareholders' equity: Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued and outstanding -- -- -- Common stock, $.01 par value; 60,000,000 shares authorized; 38,975,698 issued and 38,922,365 outstanding at September 26, 1998, 38,633,840 issued and outstanding at December 31, 1997 and 38,616,524 at September 27, 1997 390 386 386 Additional paid-in capital 209,507 204,514 204,154 Retained earnings 90,453 75,135 58,217 Treasury stock, at cost; 53,333 shares at September 26, 1998 (1,390) -- -- ------------------ ----------------- ------------------- Total shareholders' equity 298,960 280,035 262,757 Total liabilities and shareholders' equity $ 536,863 $ 472,099 $ 444,644 ================== ================= ===================
See accompanying notes to consolidated financial statements.
LINENS 'N THINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Thirty-Nine Weeks Ended ----------------------------------------- September 26, September 27, 1998 1997 ------------------- ------------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 15,319 $ 8,872 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 15,766 13,058 Deferred income taxes 2,056 2,495 Loss on disposal of assets 652 1,342 Changes in assets and liabilities: (Increase) decrease in accounts receivable (6,046) 647 Increase in inventories (70,973) (23,582) (Increase) decrease in prepaid expenses and other current assets (2,889) 1,440 Decrease in deferred charges 197 -- Increase in accounts payable 22,836 17,925 Increase in accrued expenses and other liabilities 12,565 19,686 ------------------- ------------------ Net cash (used in) provided by operating activities (10,517) 41,883 ------------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (24,867) (24,534) ------------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in due to related parties -- (10,000) Proceeds from common stock issued under stock incentive plans 4,997 -- Purchase of treasury stock (1,390) -- Increase (decrease) in book overdrafts 7,742 (18,544) ------------------- ------------------ Net cash provided by (used in) financing activities 11,349 (28,544) ------------------- ------------------ Net decrease in cash and cash equivalents (24,035) (11,195) Cash and cash equivalents at beginning of year 39,882 26,914 ------------------- ------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,847 $ 15,719 =================== ==================
See accompanying notes to consolidated financial statements. LINENS 'N THINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying consolidated financial statements, except for the December 31, 1997 consolidated balance sheet, are unaudited. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of September 26, 1998 and September 27, 1997 and the results of operations for the respective thirteen and thirty-nine weeks then ended and cash flows for the thirty-nine weeks then ended. Because of the seasonality of the specialty retailing business, operating results of the Company on a quarterly basis may not be indicative of operating results for the full year. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 1997, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. All significant intercompany accounts and transactions have been eliminated. The December 31, 1997 consolidated balance sheet amounts have been derived from the Company's audited consolidated balance sheet amounts. 2. Short-Term Borrowing Arrangements The Company has available a three-year, $90 million senior revolving credit facility agreement (the "Credit Agreement") with third party institutional lenders expiring March 31, 2001. The amount of borrowings can be increased up to $125 million provided certain terms and conditions contained in the Credit Agreement are met. The Credit Agreement contains certain financial covenants, including those relating to the maintenance of a minimum tangible net worth, a minimum fixed charge coverage ratio, and a maximum leverage ratio, as defined in the Credit Agreement. Interest on all borrowings is determined based upon several alternative rates as set forth in the Credit Agreement. As of September 26, 1998, the Company was in compliance with all terms and conditions of the Credit Agreement. The Credit Agreement also allows for up to $25 million in borrowings from uncommitted lines of credit outside of the Credit Agreement. As of September 26, 1998, the Company had no borrowings under the Credit Agreement or against the uncommitted lines of credit. 3. Long-Term Note In conjunction with its 1996 initial public offering, the Company issued a four-year, $13.5 million subordinated note (the "Note") to CVS. The Note provided for forgiveness by CVS, at varying amounts, based upon the proceeds from any sales by CVS of the Company's common stock together with the market value of any common stock that CVS continued to own at December 31, 1997. In May 1997, CVS sold 6,267,658 of its remaining shares of Common Stock, on a pre-split basis, representing substantially all of its holdings (at December 31, 1997, CVS owned no shares of the Company's common stock). As a result of the net proceeds received, $3.5 million of the Note was forgiven and contributed as equity by CVS. In July 1997, the Company prepaid the remaining $10.0 million to CVS utilizing cash flows from operations. The Note contained no pre-payment penalties. LINENS 'N THINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont.'d 4. Recent Accounting Pronouncement Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which requires a dual presentation of earnings per share--basic and diluted. Basic earnings per share has been computed by dividing net income by the weighted average number of shares outstanding of 38,955,000 and 38,617,000 for the thirteen weeks ended September 26, 1998 and September 27, 1997, respectively, and 38,868,000 and 38,563,000 for the thirty-nine weeks ended September 26, 1998 and September 27, 1997, respectively. Diluted earnings per share has been computed by dividing net income by the weighted-average number of shares outstanding including the dilutive effects of stock options and deferred stock grants. The weighted-average shares outstanding for the diluted earnings per share calculation were 40,508,000 and 39,676,000 for the thirteen weeks ended September 26, 1998 and September 27, 1997, respectively, and 40,387,000 and 39,423,000 for the thirty-nine weeks ended September 26, 1998 and September 27, 1997, respectively. 5. Stockholders' Equity On April 14, 1998, the Board of Directors of the Company approved a two-for-one split of its common stock to be effected in the form of a stock dividend. The stock dividend was one additional share of common stock for each outstanding share of common stock and was distributed on May 7, 1998 to shareholders of record on April 24, 1998. Unless otherwise stated, all references to common shares outstanding and earnings per share in the financial statements, notes to consolidated financial statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations are on a post-split basis. 6. Deferred Compensation Plan The Company has a deferred compensation plan (the "Plan") established to enable key employees of the Company, as designated by the Company, to defer compensation, including stock and stock denominated awards. Participation is voluntary and participants can elect to make contributions to the Plan. Participants are 100% vested in their own deferrals to the Plan at all times. At September 26, 1998, the liability under the Plan, which is reflected in other long-term liabilities, was $4.0 million. Independent Auditors' Review Report The Board of Directors and Shareholders Linens 'n Things, Inc.: We have reviewed the consolidated balance sheets of Linens 'n Things, Inc. and Subsidiaries as of September 26, 1998 and September 27, 1997, and the related consolidated statements of operations for the thirteen and thirty-nine week periods then ended and the related consolidated statements of cash flows for the thirty-nine week periods ended September 26, 1998 and September 27, 1997. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Linens 'n Things, Inc. and Subsidiaries as of December 31, 1997 and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 4, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1997, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG Peat Marwick LLP New York, New York October 13, 1998 LINENS 'N THINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company and the notes thereto appearing elsewhere in this document. Results of Operations Thirteen Weeks Ended September 26, 1998 Compared with Thirteen Weeks Ended September 27, 1997 Net sales increased 23.7% to $278.6 million for the thirteen weeks ended September 26, 1998, up from $225.2 million for the same period in 1997, primarily as a result of new store openings since September 27, 1997. During 1998, the Company shifted the timing of its semi-annual clearance event, normally held in June, to the Fall season. Comparable store net sales for the thirteen weeks ended September 26, 1998 were 11.2% as compared with 6.7% for the same period last year. Taking into account the shift in the clearance event from the second quarter to the third quarter, the combined comparable store net sales for the second and third quarters were 8.8% as compared with 6.4% for the same time period last year. Comparable store net sales as a whole continued to remain strong across most major geographic regions. During the thirteen weeks ended September 26, 1998, the Company opened six superstores and closed one store, compared with opening eight superstores and closing six stores during the same period in 1997. At September 26, 1998, the Company operated 183 stores, of which 169 were superstores, compared with 170 stores, of which 146 were superstores, at September 27, 1997. Store square footage increased approximately 15.2% to 5,990,000 at September 26, 1998 compared with 5,201,000 at September 27, 1997. For the thirteen weeks ended September 26, 1998, net sales of "things" merchandise increased approximately 30% over the same period in 1997, while net sales of "linens" merchandise increased approximately 20% over the same period in 1997. This is consistent with the Company's strategy to increase the penetration of "things" merchandise. The increase in net sales of "things" merchandise is the result of the continued maturation of this business as well as the overall expansion of the product categories in existing stores. Gross profit for the thirteen weeks ended September 26, 1998 was $111.2 million, or 39.9% of net sales, compared with $89.2 million, or 39.6% of net sales, for the same period in 1997. The increase in gross profit was primarily due to improvements in the selling mix. These improvements were offset by a slight increase in markdowns due to the shift in the clearance event from the second quarter to the third quarter as well as increased freight costs that were due to timing of receipts. Selling, general and administrative expenses ("SG&A") for the thirteen weeks ended September 26, 1998 were $93.2 million, or 33.4% of net sales, compared with $76.2 million, or 33.8% of net sales, for the same period in 1997. This decrease as a percentage of net sales is primarily a function of increased sales leverage through strong comparable store net sales coupled with fewer store openings and closings than in the same period in 1997. However, these savings were offset by additional selling expense as the Company continues to improve guest service levels through increased payroll. Management believes the improvement in guest service has contributed to the strong comparable store net sales performance. Operating profit for the thirteen weeks ended September 26, 1998 increased to $18.0 million, or 6.5% of net sales, compared with $13.0 million, or 5.8% of net sales, for the same period in 1997. LINENS 'N THINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company incurred net interest expense of approximately $105,000 (including commitment fees in connection with the Company's $90 million credit agreement) for the thirteen weeks ended September 26, 1998, compared with approximately $26,000 for the same period in 1997. The slight increase in net interest expense compared with the same period in 1997 was primarily due to the fact that the Company was in a net average borrowing position of $1.6 million for the thirteen weeks ended September 26, 1998, compared with a net average investment position of $10.6 million for the same period in 1997. This increase was offset through lower commitment fees from renegotiation of the $90 million credit agreement that was amended effective March 31, 1998. See "Liquidity and Capital Resources." The Company's income tax expense for the thirteen weeks ended September 26, 1998 was $6.9 million as compared with $5.5 million for the same period in 1997. Through tax planning initiatives, the Company has reduced its effective tax rate to approximately 38.5% for the year ending December 31, 1998, compared with 42.0% for the year ended December 31, 1997. Net income for the thirteen weeks ended September 26, 1998 increased to $11.0 million or $0.27 per share, compared with $7.5 million, or $0.19 per share, for the same period in 1997. Both per share amounts are adjusted for the stock split as indicated in Note 5 to the consolidated financial statements. Thirty-Nine Weeks Ended September 26, 1998 Compared with Thirty-Nine Weeks Ended September 27, 1997 Net sales increased 21.6% to $718.8 million for the thirty-nine weeks ended September 26, 1998 compared with $590.9 million for the same period in 1997, primarily as a result of new store openings since September 27, 1997. Comparable store net sales for the thirty-nine weeks ended September 26, 1998 increased 8.4% compared with 6.2% for the same period in 1997. During the thirty-nine weeks ended September 26, 1998, the Company opened 17 superstores and closed 10 stores, compared with opening 16 superstores and closing 15 stores during the same period in 1997. For the thirty-nine weeks ended September 26, 1998, net sales of "things" merchandise increased approximately 30% over the same period in 1997, while net sales of "linens" merchandise increased approximately 20% over the same period in 1997. This is consistent with the Company's strategy to increase the penetration of "things" merchandise. The increase in net sales of "things" merchandise is the result of the continued maturation of this business, as well as the overall expansion of the product categories in existing stores. Gross profit for the thirty-nine weeks ended September 26, 1998 was $283.4 million, or 39.4% of net sales, compared with $230.1 million, or 38.9% of net sales, for the same period in 1997. The increase in gross profit was due to improvements in the selling mix as well as lower markdowns. These improvements were partially offset by a slight increase in freight expense as a percentage of net sales. Gross margin for both "linens" and "things" merchandise increased consistent with the Company's consolidated results. SG&A expenses for the thirty-nine weeks ended September 26, 1998 were $258.5 million, or 36.0% of net sales, compared with $213.8 million, or 36.2% of net sales, for the same period in 1997. The SG&A expense rate for the thirty-nine weeks ended September 26, 1998 was primarily leveraged through a strong comparable store net sales increase as well as fewer store closings. This has been offset in part by additional selling expenses as the Company continues to improve guest service levels, as well as $1.0 million of expenses relating to the implementation of the tax planning initiatives designed to reduce the effective tax rate. LINENS `N THINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating profit for the thirty-nine weeks ended September 26, 1998 increased to $24.9 million, or 3.5% of net sales, as compared with $16.3 million, or 2.8% of net sales, for the same period in 1997. Net interest expense (including commitment fees in connection with the Company's $90 million credit agreement) for the thirty-nine weeks ended September 26, 1998 was approximately $5,000 compared with approximately $972,000 during the same period in 1997. The savings in interest expense compared with the same period in 1997 was primarily due to the fact that the Company was in a net average investment position of $7.7 million during the thirty-nine week period ending September 26, 1998 as compared with a net average borrowing position of $7.5 million for the same period in 1997. Also contributing to the savings were lower fees from renegotiation of the $90 million credit agreement that was amended effective March 31, 1998. The reduction in net average borrowings is a result of the elimination of the $13.5 million note to CVS ($10.0 million payment and $3.5 million forgiveness from CVS), as well as improved operating performance. See "Liquidity and Capital Resources." The Company's income tax expense for the thirty-nine weeks ended September 26, 1998 was $9.6 million compared with $6.4 million for the same period in 1997. Through tax planning initiatives, the Company has reduced its effective tax rate to approximately 38.5% for the year ending December 31, 1998, as compared with 42.0% for the year ended December 31, 1997. Net income for the thirty-nine weeks ended September 26, 1998 was $15.3 million, or $0.38 per share, compared with $8.9 million, or $0.23 per share, for the same period in 1997. Liquidity and Capital Resources The Company's capital requirements are primarily investments in new stores, new store inventory purchases and seasonal working capital, as well as a second distribution center which is currently planned to open during the second quarter of 1999. These requirements are funded through a combination of internally generated cash from operations, credit extended by suppliers and short-term borrowings. The Company has available a $90 million three year revolving credit facility expiring March 31, 2001, which can be increased up to $125 million provided certain terms and conditions contained in the credit agreement are met. This agreement allows for up to $25 million in borrowings from uncommitted lines of credit. Management currently believes that the Company's cash flows from operations, credit extended by suppliers, the revolving credit facility and the uncommitted lines of credit will be sufficient for anticipated capital expenditures and working capital requirements in the foreseeable future. Net cash used in operating activities for the thirty-nine weeks ended September 26, 1998 was $10.5 million compared with net cash provided by operating activities of $41.9 million for the same period in 1997. This change is primarily a result of an increase in inventory levels of 30% over the prior year offset by an increase in accounts payable. The increase in inventory primarily reflects the opening of new stores since the same period last year, as well as the Company's decision to maintain and improve its in-stock position, which is consistent with the Company's approach to improve guest service. Excluding the impact of new stores, the increase in inventory, which was done both on a category basis as well as a store basis, was in response to the strong comparable store net sales increase the Company has achieved throughout 1998. Net cash used in investing activities during the thirty-nine weeks ended September 26, 1998 was $24.9 million compared with $24.5 million for the same period in 1997. The slight increase is associated with the timing and number of the Company's new store openings. LINENS `N THINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net cash provided by financing activities during the thirty-nine weeks ended September 26, 1998 was $11.3 million compared with net cash used in financing activities of $28.5 million for the same period in 1997. Net cash provided during the thirty-nine weeks ended September 26, 1998 was primarily the result of the timing and settlement of vendor payments as well as the proceeds received from common stock issued under stock incentive plans. Net cash used during the thirty-nine weeks ended September 27, 1997 was primarily the result of the timing and settlement of vendor payments as well as the $10.0 million payment of the CVS note. Year 2000 The Company has conducted a comprehensive review of its computer systems to identify material systems that could be affected by the "Year 2000" issue and has developed an implementation plan intended to address this issue. The Company has adopted a five-phase Year 2000 program consisting of: Phase I: Identification and ranking of the components of the Company's systems, equipment and significant suppliers and vendors that may be vulnerable to Year 2000 problems Phase II: Assessment of items identified in Phase I Phase III: Remediation or replacement of non-compliant internal systems and components and determination of solutions for non-compliant suppliers and vendors Phase IV: Testing of systems and components following remediation Phase V: Developing contingency plans to address the most reasonably likely worst case Year 2000 scenarios The identification and assessment phases of the Year 2000 program have been substantially completed and these phases included both the Company's significant information technology systems and hardware ("IT Systems") and the Company's significant non-information technology equipment known to have microchips or other embedded technology ("non-IT Equipment"). The Company has also substantially completed the remediation phase for its IT Systems and its non-IT Equipment and substantially completed testing its "mission critical" IT Systems. The Company currently expects to complete the testing phase including installation and testing of Year 2000 versions, by the end of the first quarter of 1999. The Company will continue periodic testing during fiscal 1999 for new installations, versions or changes. Virtually all the compliance has been performed and is currently expected to be performed using internal resources. In addition to Year 2000 implementation for the Company's internal systems and equipment, the Company is communicating with significant suppliers, vendors and other third parties with whom the Company has a business relationship with, to determine their state of readiness with respect to Year 2000. Assessment of significant third party Year 2000 readiness is expected to be substantially completed in early 1999. Failure of significant suppliers, vendors or other third parties to timely address and remedy Year 2000 problems or to develop and effect appropriate contingency plans could have a material adverse effect on the Company's business and operations. The Company believes that the geographically disbursed nature of its business and its large supplier and vendor base should minimize such potential adverse effects. The Company presently believes that with modifications to existing software and conversions to new software for certain applications, the Year 2000 problem will not cause a significant disruption of its operations. However, the Year 2000 problem is unique and the Company's Year 2000 compliance program is based on various assumptions and expectations that cannot be assured. Potential risks include loss of electric power or certain communication links, other disruptions to its business such as delayed deliveries from suppliers, as well as disruptions to the distribution channels, including ports, transportation services and the Company's own Distribution Center. The Company is in the process of developing a contingency plan, which is expected to be completed by approximately the second quarter of 1999 and will be based on its continuing assessment of potential risks. LINENS `N THINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company does not expect the costs associated with addressing Year 2000 issues to be material to the Company's financial condition or results of operations. Costs incurred to date have been expensed and were budgeted costs funded through operating cash flows. The costs associated with the completion of Year 2000 will be expensed as incurred and are not currently expected to have a material adverse impact on the Company's financial position or results of operations. The Company's cost estimates do not include costs associated with addressing and resolving issues as a result of the failure of third parties to become Year 2000 compliant. Inflation The Company does not believe that its operating results have been materially affected by inflation through the past year. There can be no assurance, however, that the Company's operating results will not be affected by inflation in the future. Seasonality The Company's business is subject to substantial seasonal variations. Historically, the Company has realized a significant portion of its net sales and net income for the year during the third and fourth quarters. The Company's quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new store openings and the scheduling of sale events. The Company believes this is the general pattern associated with its segment of the retail industry. Consequently, comparisons between quarters are not necessarily meaningful and the results for any quarter are not necessarily indicative of future results. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. The statements are made a number of times throughout the document and may be identified by forward-looking terminology as "expect," "believe," "may," "will," "intend" or similar statements or variations of such terms. Such forward-looking statements involve certain material risks and uncertainties including levels of sales, store traffic, acceptance of product offerings and fashions, competitive pressures from other home furnishings retailers, availability of suitable future store locations, schedule of store expansion plans and Year 2000 issues relating to technology. These and other important factors that may cause actual results to differ materially from such forward-looking statements are included in the "Risk Factors" section of the Company's Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on May 29, 1997, and may be contained in subsequent reports filed with the Securities and Exchange Commission. You are urged to consider such factors. The Company assumes no obligation for updating any such forward-looking statements. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 11 Computation of Net Income Per Common Share 15 Letter re unaudited interim financial information 27 Financial Data Schedule (filed electronically with SEC only) (b) Reports on Form 8-K: No Current Reports on Form 8-K were filed by the Company during the thirteen week period ended September 26, 1998. SIGNATURE Pursuant to the requirements 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. LINENS 'N THINGS, INC. (Registrant) By:___________________________________ William T. Giles Chief Financial Officer (Duly authorized officer and principal financial officer) Date: November 10, 1998 EX-11 2 COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
EXHIBIT 11 LINENS 'N THINGS, INC. AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE (IN THOUSANDS, EXCEPT SHARE AMOUNTS) FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED -------------------------------- ----------------------------------- SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27, 1998 1997 1998 1997 -------------- ------------- ------------ ------------- (UNAUDITED) (UNAUDITED) Basic Weighted-average number of shares outstanding 38,955 38,617 38,868 38,563 ============== ============= ============ ============= Net income applicable to common shares $ 11,018 $ 7,532 $ 15,319 $ 8,872 ============== ============= ============ ============= Per-share amounts Net income per share $0.28 $0.20 $0.39 $0.23 ============== ============= ============ ============= Diluted Weighted-average number of shares outstanding 40,508 39,676 40,387 39,423 ============== ============= ============ ============= Net income applicable to common shares $ 11,018 $ 7,532 $ 15,319 $ 8,872 ============== ============= ============ ============= Per-share amounts Net income per share $0.27 $0.19 $0.38 $0.23 ============== ============= ============ =============
EX-15 3 ACCOUNTANTS' ACKNOWLEDGMENT EXHIBIT 15 Accountants' Acknowledgment Linens 'n Things, Inc. Clifton, New Jersey Board of Directors: Re: Registration Statements Numbers 333-26819, 333-26827 and 333-55803 on Form S-8 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated October 13, 1998 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. KPMG Peat Marwick LLP New York, New York November 10, 1998 EX-27 4 ARTICLE 5 FDS FOR 3RD QUARTER 10-Q
5 APPENDIX A TO ITEM 601(C) OF REGULATION S-K COMMERCIAL AND INDUSTRIAL COMPANIES ARTICLE 5 OF REGULATION S-X (IN THOUSANDS, EXCEPT PER SHARE DATA) 9-MOS DEC-31-1998 SEP-26-1998 15,847 0 19,810 0 294,161 346,404 226,655 62,562 536,863 203,548 0 0 0 390 298,570 536,863 718,773 718,773 435,375 258,480 0 0 5 24,913 9,594 15,319 0 0 0 15,319 0.39 0.38
EX-27 5 ARTICLE 5 FDS FOR 3D QTR 10-Q
5 Appendix A to Item 601(c) of Regulation S-K Commercial and Industrial Companies Article 5 of Regulation S-X (In thousands except per share data) 9-MOS DEC-31-1997 SEP-27-1997 15,719 0 16,737 0 225,716 267,346 197,096 47,325 444,644 159,514 0 0 0 386 262,371 444,644 590,873 590,873 360,792 213,808 0 0 972 15,301 6,429 8,872 0 0 0 8,872 0.23 0.23
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