-----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, SFOhsNQZSv88YaPIlZMh7bW6sBodrQMp0EPAs7OA+OGeRtS/xXY+TTSzsBX8A6ve CtglsjeJ+pr21ChYrAWjRw== 0000927796-99-000223.txt : 19990818 0000927796-99-000223.hdr.sgml : 19990818 ACCESSION NUMBER: 0000927796-99-000223 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990703 FILED AS OF DATE: 19990817 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: 99694605 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 July 3, 1999 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 August 12, 1999 ----- ------------------------------ Common Stock, $0.01 par value 39,471,269
INDEX Part I. Financial Information Page No. Item 1. Financial Statements Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks Ended July 3, 1999 and June 27, 1998 3 Consolidated Balance Sheets as of July 3, 1999, December 31, 1998 and June 27, 1998 4 Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended July 3, 1999 and June 27, 1998 5 Notes to Consolidated Financial Statements 6 Independent Auditors' Review Report 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 13 (a) Exhibit Index 13 (b) Reports on Form 8-K 13
PART I - FINANCIAL INFORMATION Item 1. Financial Statements LINENS 'N THINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share amounts) (Unaudited) Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------------------- ------------------------------- July 3, 1999 June 27, 1998 July 3, 1999 June 27, 1998 ------------- -------------- -------------- ------------- Net sales $271,628 $222,094 $545,168 $440,131 Cost of sales, including buying and warehousing costs 160,733 133,218 327,581 267,925 ------------- -------------- -------------- ------------- Gross profit 110,895 88,876 217,587 172,206 Selling, general and administrative expenses 102,454 84,179 203,497 165,312 ------------- -------------- -------------- ------------- Operating profit 8,441 4,697 14,090 6,894 Interest expense (income), net 143 103 (55) (100) ------------- -------------- -------------- ------------- Income before provision for income taxes 8,298 4,594 14,145 6,994 Provision for income taxes 3,195 1,768 5,447 2,693 ------------- -------------- -------------- ------------- Net income $ 5,103 $ 2,826 $ 8,698 $4,301 ============= ============== ============= ============= Per share of common stock: Basic Net income per share $ 0.13 $ 0.07 $ 0.22 $ 0.11 Weighted average shares outstanding 39,362 38,885 39,259 38,824 Diluted Net income per share $ 0.12 $ 0.07 $ 0.21 $ 0.11 Weighted average shares outstanding 41,074 40,500 40,968 40,354
See accompanying notes to consolidated financial statements.
LINENS 'N THINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) July 3, December 31, June 27, 1999 1998 1998 ------------------ ------------------ ------------------- (Unaudited) (Unaudited) Assets Current assets: Cash and cash equivalents $ 3,901 $42,638 $ 4,858 Accounts receivable, net 22,368 22,814 17,559 Inventories 332,626 271,389 271,265 Prepaid expenses and other current assets 24,834 18,567 15,848 ------------------ ------------------ ------------------- Total current assets 383,729 355,408 309,530 Property and equipment, net 200,556 179,439 158,101 Goodwill, net 20,251 20,676 21,101 Deferred charges and other noncurrent assets, net 5,393 5,321 6,207 ------------------ ------------------ ------------------- Total assets $609,929 $560,844 $494,939 ================== ================== =================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $157,156 $115,754 $119,888 Accrued expenses and other current liabilities 73,239 84,761 55,291 ------------------ ------------------ ------------------- Total current liabilities 230,395 200,515 175,179 Deferred income taxes and other long-term liabilities 41,139 36,753 32,903 Shareholders' equity: Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding -- -- -- Common stock, $0.01 par value; 135,000,000 shares authorized at July 3, 1999 and 60,000,000 shares authorized at December 31, 1998 and June 27, 1998; 39,470,319 shares issued and 39,393,842 outstanding at July 3, 1999; 39,091,281 shares issued and 39,037,948 outstanding at December 31, 1998; and 38,898,106 shares issued and 38,828,238 outstanding at June 27, 1998 395 391 389 Additional paid-in capital 218,539 211,378 208,093 Retained earnings 121,895 113,197 79,436 Treasury stock, at cost, 76,477 shares at July 3, 1999; 53,333 at December 31, 1998 and 69,868 at June 27, 1998 (2,434) (1,390) (1,061) ------------------ ------------------ ------------------- Total shareholders' equity 338,395 323,576 286,857 ------------------ ------------------ ------------------- Total liabilities and shareholders' equity $609,929 $560,844 $494,939 ================== ================== ===================
See accompanying notes to consolidated financial statements. LINENS 'N THINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Twenty-Six Weeks Ended ----------------------------------------- July 3, June 27, 1999 1998 ------------------- ------------------ (Unaudited) Cash flows from operating activities: Net income $ 8,698 $ 4,301 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 12,637 10,218 Deferred income taxes 1,784 209 Loss on disposal of assets 542 517 Changes in assets and liabilities: Decrease (increase) in accounts receivable 446 (3,795) Increase in inventories (61,237) (48,077) Increase in prepaid expenses and other current assets (5,465) (2,151) Increase in deferred charges (429) (354) Increase in accounts payable 37,479 4,536 (Decrease) increase in accrued expenses and other liabilities (5,303) 1,580 ------------------- ------------------ Net cash used in operating activities (10,848) (33,016) ------------------- ------------------ Cash flows from investing activities: Additions to property and equipment (33,163) (13,584) ------------------- ------------------ Cash flows from financing activities: Proceeds and Federal tax benefit from common stock exercised under stock incentive plans 7,165 3,582 Increase in treasury stock (1,044) (1,061) (Decrease) increase in book overdrafts (847) 9,055 ------------------- ------------------ Net cash provided by financing activities 5,274 11,576 ------------------- ------------------ Net decrease in cash and cash equivalents (38,737) (35,024) Cash and cash equivalents at beginning of year 42,638 39,882 ------------------- ------------------ Cash and cash equivalents at end of period $ 3,901 $ 4,858 =================== ==================
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, 1998 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 July 3, 1999 and June 27, 1998 and the results of operations for the respective thirteen and twenty-six weeks then ended and cash flows for the twenty-six 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, 1998, 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, 1998 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. As of July 3, 1999, the Company was in compliance with the 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 July 3, 1999, the Company had no borrowings under the Credit Agreement or against the uncommitted lines of credit. 3. 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 approximately 39,362,000 and 38,885,000 for the thirteen weeks ended July 3, 1999 and June 27, 1998, respectively, and approximately 39,259,000 and 38,824,000 for the twenty-six weeks ended July 3, 1999 and June 27, 1998, 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 approximately 41,074,000 and 40,500,000 for the thirteen weeks ended July 3, 1999 and June 27, 1998, respectively, and approximately 40,968,000 and 40,354,000 for the twenty-six weeks ended July 3, 1999 and June 27, 1998, respectively. 4. 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 July 3, 1999, the liability under the Plan, which is reflected in other long-term liabilities, was $5.5 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 July 3, 1999 and June 27, 1998, and the related consolidated statements of operations for the thirteen and twenty-six week periods then ended and the related consolidated statements of cash flows for the twenty-six week periods ended July 3, 1999 and June 27, 1998. 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, 1998 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 3, 1999, 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, 1998, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG LLP New York, New York July 21, 1999 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 July 3, 1999 Compared with Thirteen Weeks Ended June 27, 1998 Net sales increased 22.3% to $271.6 million for the thirteen weeks ended July 3, 1999, up from $222.1 million for the same period in 1998, primarily as a result of new store openings since June 27, 1998. Comparable store net sales for the thirteen weeks ended July 3, 1999 increased 6.4% as compared with an increase of 6.0% for the same period last year. Comparable store net sales as a whole continued to remain strong across most major geographic regions. During the thirteen weeks ended July 3, 1999, the Company opened eleven stores and closed three stores, compared with opening eight stores and closing four stores during the same period last year. At July 3, 1999, the Company operated 204 stores, of which 196 were superstores, compared with 178 stores, of which 163 were superstores, at June 27, 1998. Store square footage increased 19.6% to 6,924,000 at July 3, 1999 compared with 5,787,000 at June 27, 1998. For the thirteen weeks ended July 3, 1999, net sales of "things" merchandise increased approximately 30% over the same period in 1998, while net sales of "linens" merchandise increased approximately 15% over the same period in 1998. 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 new and existing stores. Gross profit for the thirteen weeks ended July 3, 1999 was $110.9 million, or 40.8% of net sales, compared with $88.9 million, or 40.0% of net sales, for the same period last year. The increase in gross profit was due primarily to improvements in the selling mix which included a higher penetration of seasonal merchandise which has a higher markon. This was offset in part by logistics costs related to the start up of the Company's second distribution center. Selling, general and administrative expenses for the thirteen weeks ended July 3, 1999 were $102.5 million, or 37.7% of net sales, compared with $84.2 million, or 37.9% of net sales, for the same period last year. This decrease as a percentage of net sales is primarily a function of increased leverage through strong comparable store net sales coupled with fewer store closings than in the same period last year. However, these savings were partially offset by additional selling expense as the Company continues to invest in payroll in order to improve guest service levels. Management believes the improvement in guest service has contributed to the strong comparable store net sales performance. Operating profit for the thirteen weeks ended July 3, 1999 increased to $8.4 million, or 3.1% of net sales, compared with $4.7 million, or 2.1% of net sales, for the same period last year. The Company incurred net interest expense of approximately $143,000 (including commitment fees in connection with the Company's $90 million credit agreement) for the thirteen weeks ended July 3, 1999, compared with approximately $103,000 for the same period in 1998. The Company's income tax expense for the thirteen weeks ended July 3, 1999 was approximately $3.2 million as compared with $1.8 million for the same period last year. The Company's effective tax rate was 38.5% for the thirteen weeks ending July 3, 1999 and June 27, 1998. LINENS 'N THINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income for the thirteen weeks ended July 3, 1999 increased to $5.1 million, or $0.12 per share, compared with $2.8 million, or $0.07 per share, for the same period last year. Twenty-Six Weeks Ended July 3, 1999 Compared with Twenty-Six Weeks Ended June 27, 1998 Net sales increased 23.9% to $545.2 million for the twenty-six weeks ended July 3, 1999, up from $440.1 million for the same period in 1998, primarily as a result of new store openings since June 27, 1998. Comparable store net sales for the twenty-six weeks ended July 3, 1999 increased 6.4% as compared with an increase of 6.7% for the same period last year. Comparable store net sales as a whole continued to remain strong across most major geographic regions. During the twenty-six weeks ended July 3, 1999, the Company opened fourteen stores and closed six stores, compared with opening eleven stores and closing nine stores during the same period last year. For the twenty-six weeks ended July 3, 1999, net sales of "things" merchandise increased approximately 30% over the same period in 1998, while net sales of "linens" merchandise increased approximately 15% over the same period in 1998. 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 new and existing stores. Gross profit for the twenty-six weeks ended July 3, 1999 was $217.6 million, or 39.9% of net sales, compared with $172.2 million, or 39.1% of net sales, for the same period last year. The increase in gross profit was due primarily to improvements in the selling mix which included a higher penetration of seasonal merchandise which has a higher markon. This was offset in part by logistics costs related to start up costs of the Company's second distribution center. Selling, general and administrative expenses for the twenty-six weeks ended July 3, 1999 were $203.5 million, or 37.3% of net sales, compared with $165.3 million, or 37.6% of net sales, for the same period last year. This decrease as a percentage of net sales is primarily a function of increased leverage through strong comparable store net sales coupled with fewer store closings than in the same period last year. However, these savings were partially offset by additional selling expense as the Company continues to invest in payroll in order to improve guest service levels. Management believes the improvement in guest service has contributed to the strong comparable store net sales performance. Operating profit for the twenty-six weeks ended July 3, 1999 increased to $14.1 million, or 2.6% of net sales, compared with $6.9 million, or 1.6% of net sales, for the same period last year. The Company earned net interest income of approximately $55,000 (net of commitment fees in connection with the Company's $90 million credit agreement) for the twenty-six weeks ended July 3, 1999, compared with approximately $100,000 for the same period in 1998. The Company's income tax expense for the twenty-six weeks ended July 3, 1999 was $5.4 million as compared with $2.7 million for the same period last year. The Company's effective tax rate was 38.5% for the twenty-six weeks ending July 3, 1999 and June 27, 1998. Net income for the twenty-six weeks ended July 3, 1999 increased to $8.7 million, or $0.21 per share, compared with $4.3 million, or $0.11 per share, for the same period last year. 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 that became fully functional in June 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 to fund anticipated capital expenditures and working capital requirements in the foreseeable future. Net cash used in operating activities for the twenty-six weeks ended July 3, 1999 was $10.8 million compared with $33.0 million for the same period last year. The decrease in net cash used in operating activities was due to an increase in accounts payable as compared with last year resulting from increased inventory levels and the timing of vendor payments. The increase in inventory primarily resulted from the increased number of new stores since June 27, 1998. Net cash used in investing activities during the twenty-six weeks ended July 3, 1999 was $33.2 million compared with $13.6 million for the same period last year. The increase is associated with the timing and number of the Company's new store openings, as well as capital expenditures for the second distribution center located in southern New Jersey which became fully functional in June 1999. Also, more of the stores scheduled for remodel were completed earlier in the year as compared with the prior year. Net cash provided by financing activities during the twenty-six weeks ended July 3, 1999 was $5.3 million compared with $11.6 million for the same period last year. Net cash provided during the twenty-six weeks ended July 3, 1999 was primarily the result of proceeds and Federal tax benefits related to common stock exercised under stock incentive plans, offset by the timing and settlement of vendor payments. 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, the principal components of which are: Phase I: Identification and ranking of those internal Company systems, technology and equipment considered critical or substantially important to the flow of its operations; and communication with certain significant suppliers and vendors to the Company concerning their Year 2000 readiness Phase II: Assessment of items identified in Phase I Phase III: Remediation or replacement of non-compliant identified internal systems and components and determination of solutions for non-compliant suppliers and vendors Phase IV: Testing of systems and components LINENS `N THINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Phase V: Developing a contingency plan to address the most reasonably likely worst case scenarios with respect to Year 2000 The identification and assessment phases of the Year 2000 program with respect to the Company's systems and equipment have been completed for the Company's mission critical and other major information technology systems and hardware ("IT Systems") and for the Company's non-information technology equipment known to the Company to have microchips or other embedded technology and considered critical or substantially important to the flow of its operations ("non-IT Company Equipment"). The Company has also completed the remediation phase for its IT Systems and its non-IT Company Equipment and completed testing for its mission critical IT Systems. The Company currently expects to complete the testing phase for its IT Systems and non-IT Company Equipment, including installation and testing of Year 2000 versions, by the end of the third 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 continues to be in the process of communicating with major business suppliers and vendors in order to endeavor to determine their state of readiness with respect to Year 2000. Assessment of significant third party Year 2000 readiness is expected to be completed by the third quarter of 1999. Failure of 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 tend to 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, failure of one or more of the Company's internal systems which disrupt its normal sales or other operations, failure of suppliers or vendors (or of entities which supply products, services or materials to them) to be Year 2000 ready, 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 centers. The Company is in the process of developing a contingency plan for certain mission critical systems, which is expected to be substantially completed during the third quarter of 1999 and will be based on its continuing assessment of potential risks. The Company does not expect the costs associated with this Year 2000 project (including internal personnel costs) 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 be Year 2000 compliant or for implementing any contingency plans. LINENS `N THINGS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Inflation The Company does not believe that its operating results have been materially affected by inflation during the preceding three years. 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. The Company believes this is the general pattern associated with its segment of the retail industry and expects this pattern will continue in the future. Consequently, comparisons between quarters are not necessarily meaningful and the results for any quarter are not necessarily indicative of future results. Forward-Looking Statements The 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 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 and schedule of store expansion plans, any potential disruptions to the Company's operations caused by any Year 2000 failures related to the Company's systems, equipment or third parties. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not Applicable. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On April 21, 1999, the Company held its Annual Meeting of Shareholders. At the Annual Meeting, Norman Axelrod and Charles C. Conaway were re-elected as directors of the Company, with 31,789,118 shares voted for and 485,418 shares withheld for Mr. Axelrod and 31,819,296 shares voted for and 455,240 shares withheld for Mr. Conaway. Directors whose term of office continued following the meeting were: Stanley P. Goldstein, Philip E. Beekman and Harold F. Compton. Also at the Annual Meeting of Shareholders, the proposal to increase the authorized common stock to 135,000,000 shares was passed with 28,505,503 shares voted for, 3,758,015 shares voted against and 11,018 shares abstaining. 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: The Company filed a Current Report on Form 8-K dated May 5, 1999 setting forth a copy of the Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation increasing the number of authorized shares of common stock from 60 million shares to 135 million shares. 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) WILLIAM T. GILES By:-------------------------------------- William T. Giles Vice President, Chief Financial Officer (Duly authorized officer and principal financial officer) Date: August 13, 1999 EX-11 2 EX. 11 - STATEMENT OF COMPUTATION OF NET EARNINGS LINENS 'N THINGS, INC. AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE (in thousands, except share amounts) Thirteen Weeks Ended Twenty-Six Weeks Ended July 3, June 27, July 3, June 27, 1999 1998 1999 1998 --------------- ------------- --------------- ------------ (Unaudited) (Unaudited) Basic Weighted-average number of shares outstanding 39,362 38,885 39,259 38,824 =============== ============= =============== ============ Net income applicable to common shares $5,103 $ 2,826 $ 8,698 $ 4,301 =============== ============= =============== ============ Per share amounts Net income per share $0.13 $0.07 $0.22 $0.11 =============== ============= =============== ============ Diluted Weighted-average number of shares outstanding 41,074 40,500 40,968 40,354 =============== ============= =============== ============ Net income applicable to common shares $5,103 $ 2,826 $ 8,698 $ 4,301 =============== ============= =============== ============ Per share amounts Net income per share $0.12 $0.07 $0.21 $0.11 =============== ============= =============== ============
EX-15 3 EX. 15 - UNAUDITED INTERIM FINANCIAL INFORMATION Accountants' Acknowledgment Linens 'n Things, Inc. Clifton, New Jersey Board of Directors: Re: Registration Statements Numbers 333-26819, 333-26827, 333-55803 and 333-71903 on Form S-8 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated April 19, 1999 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 LLP New York, New York August 13, 1999 EX-27 4 FDS -- ARTICLE 5
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) 6-MOS DEC-31-1999 JUL-03-1999 3,901 0 22,368 0 332,626 383,729 277,948 77,392 609,929 230,395 0 0 0 395 338,000 609,929 545,168 545,168 327,581 203,497 0 0 (55) 14,145 5,447 8,698 0 0 0 8,698 0.22 0.21
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