-----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, FYp/j20MqPP0Wvl5yV7GaMigoVcewwUS4oZNCAkYRstpQB5J77NN/DSqTGdHkeyX mvE85k/E6Jgi+7rI4nlgAA== 0000799288-95-000018.txt : 19951211 0000799288-95-000018.hdr.sgml : 19951211 ACCESSION NUMBER: 0000799288-95-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951027 FILED AS OF DATE: 19951208 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDS END INC CENTRAL INDEX KEY: 0000799288 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 362512786 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09769 FILM NUMBER: 95600360 BUSINESS ADDRESS: STREET 1: ONE LANDS END LANE CITY: DODGEVILLE STATE: WI ZIP: 53595 BUSINESS PHONE: 6089359341 MAIL ADDRESS: STREET 2: ONE LANDS END LANE CITY: DODGEVILLE STATE: WI ZIP: 53595 10-Q 1 December 8, 1995 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: Pursuant to the requirements of the Securities Exchange Act of 1934, we are transmitting herewith the attached Form 10-Q for the quarter ended October 27, 1995. Sincerely, KATHY GIES Lands' End, Inc. One Lands' End Lane Dodgeville, WI 53595 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-Q (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarter Ended October 27, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ...... to ...... Commission file number 1-9769 LANDS' END, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-2512786 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Lands' End Lane, Dodgeville, WI 53595 (Address of principal executive (Zip code) offices) Registrant's telephone number, 608-935-9341 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock as of December 8, 1995: Common stock, $.01 par value 33,689,990 shares outstanding LANDS' END, INC. & SUBSIDIARIES INDEX TO FORM 10-Q Page PART I. FINANCIAL INFORMATION Number Item 1. Financial Statements Consolidated Statements of Operations for the Three Months Ended October 27, 1995, and October 28, 1994.................................. 3 Consolidated Statements of Operations for the Nine Months Ended October 27, 1995, and October 28, 1994.................................. 4 Consolidated Balance Sheets at October 27, 1995, and January 27, 1995.............................. 5 Consolidated Statements of Cash Flows for the Nine Months Ended October 27, 1995, and October 28, 1994.................................. 6 Notes to Consolidated Financial Statements........... 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 14-16 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................... 17 Item 4. Submission of Matters to a Vote of Security Holders.................................. 17 Item 6. Exhibits and Reports on Form 8-K..................... 17 Signature..................................................... 18 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements LANDS' END, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three months ended October 27, October 28, 1995 1994 (unaudited) Net sales $235,887 $246,209 Cost of sales 135,977 146,033 Gross profit 99,910 100,176 Selling, general and administrative expenses 98,399 93,539 Income from operations 1,511 6,637 Other income (expense): Interest expense, net (1,296) (971) Other 2,726 665 Total other income (expense), net 1,430 (306) Income before income taxes 2,941 6,331 Income tax provision 1,175 2,498 Net income $ 1,766 $ 3,833 Net income per share $ 0.05 $ 0.11 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 3 LANDS' END, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Nine months ended October 27, October 28, 1995 1994 (unaudited) Net sales $632,073 $613,053 Cost of sales 358,231 355,836 Gross profit 273,842 257,217 Selling, general and administrative expenses 268,176 237,053 Income from operations 5,666 20,164 Other income (expense): Interest expense, net (2,379) (1,218) Other 4,659 1,102 Total other income, net 2,280 (116) Income before income taxes 7,946 20,048 Income tax provision 3,178 7,916 Net income $ 4,768 $ 12,132 Net income per share $ 0.14 $ 0.34 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 4 LANDS' END, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) October 27, January 27, 1995 1995 (unaudited) Assets Current assets: Cash and cash equivalents $ 3,201 $ 5,426 Receivables 8,171 4,459 Inventory 260,091 168,652 Prepaid expenses 27,395 11,219 Deferred income tax benefit 9,592 8,412 Total current assets 308,450 198,168 Property, plant and equipment, at cost: Land and buildings 71,668 69,798 Fixtures and equipment 82,943 74,745 Leasehold improvements 2,349 1,862 Total property, plant and equipment 156,960 146,405 Less-accumulated depreciation and amortization 58,365 49,414 Property, plant and equipment, net 98,595 96,991 Intangibles, net 2,351 2,453 Total assets $409,396 $297,612 Liabilities and shareholders' investment Current liabilities: Lines of credit $104,066 $ 7,539 Current maturities of long-term debt 40 40 Accounts payable 94,291 52,762 Reserve for returns 4,369 5,011 Accrued liabilities 22,079 25,952 Accrued profit sharing 500 1,679 Income taxes payable 1,620 9,727 Total current liabilities 226,965 102,710 Deferred income taxes 5,379 5,379 Long-term liabilities 258 395 Shareholders' investment: Common stock, 40,221 shares issued 402 402 Donated capital 8,400 8,400 Paid-in capital 25,830 25,817 Deferred compensation (1,242) (1,421) Currency translation adjustments (46) 284 Retained earnings 234,322 229,554 Treasury stock, 6,470 and 5,395 shares at cost, respectively (90,872) (73,908) Total shareholders' investment 176,794 189,128 Total liabilities and shareholders' investment $409,396 $297,612 The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 5 LANDS' END, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Nine Months Ended October 27, October 28, 1995 1994 (unaudited) Cash flows (used for) from operating activities: Net income $ 4,768 $ 12,132 Adjustments to reconcile net income to net cash flows from operating activities- Depreciation and amortization 9,469 8,339 Deferred compensation expense 179 415 Loss on sales of fixed assets - 96 Deferred income taxes (1,180) - Changes in current assets and liabilities excluding the effects of acquisitions: Receivables (3,712) 891 Inventory (91,439) (102,408) Prepaid expenses (16,176) (5,010) Income taxes receivable - (417) Accounts payable 41,529 17,740 Reserve for returns (642) 736 Accrued liabilities (3,873) 4,479 Accrued profit sharing (1,179) (1,816) Income taxes payable (8,107) (12,528) Other (467) 335 Net cash flows used for operating activities (70,830) (77,016) Cash flows (used for) from investing activities: Cash paid for capital additions and businesses acquired (10,971) (26,489) Net cash flows used for investing activities (10,971) (26,489) Cash flows (used for) from financing activities: Proceeds from short-term debt 96,527 106,252 Tax effect of exercise of stock options 13 614 Purchases of treasury stock (16,964) (23,910) Net cash flows from financing activities 79,576 82,956 Net increase (decrease) in cash and cash equivalents (2,225) (20,549) Beginning cash and cash equivalents 5,426 21,569 Ending cash and cash equivalents $ 3,201 $ 1,020 Supplemental cash flow disclosures: Interest paid $ 1,916 $ 902 Income taxes paid 14,030 20,107 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 6 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to October 27, 1995, and the three months ended October 27, 1995, and October 28, 1994, is unaudited) The condensed consolidated financial statements included herein have been prepared by Lands' End, Inc. (the company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and in the opinion of management contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the interim periods disclosed within this report are not necessarily indicative of future financial results. These consolidated financial statements are condensed and should be read in conjunction with the financial statements and the notes thereto included in the company's latest Annual Report on Form 10-K, which includes financial statements for the year ended January 27, 1995. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of business Lands' End, Inc., (the company) is a direct marketer of traditionally styled apparel, domestics (primarily bedding and bath items), soft luggage, and other products. Principles of consolidation The consolidated financial statements include the accounts of the company and its subsidiaries after elimination of intercompany accounts and transactions. Fiscal year The company utilizes a 52-53 week fiscal year ending on the Friday nearest January 31. Fiscal 1996 will be a 53-week year ending on February 2, 1996. The additional week will be added in the fourth quarter of fiscal 1996. Fair values of financial instruments The fair value of financial instruments does not materially differ from their carrying values. Inventory Inventory, primarily merchandise held for sale, is stated at last-in, first- out (LIFO) cost, which is lower than market. If the first-in, first-out (FIFO) method of accounting for inventory had been used, inventory would have been approximately $20.6 million and $18.9 million higher than reported at October 27, and January 27, 1995, respectively. Catalog costs Prepaid expenses primarily consist of catalog production and mailing costs that have not yet been fully amortized over the expected revenue stream, which is within six months from the date catalogs are mailed. The company's reporting of such advertising costs is in conformance with the provisions of the AICPA Statement of Position No. 93-7, "Reporting on Advertising Costs," which became effective for the company in the first quarter of fiscal 1996. 7 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to October 27, 1995, and the three months ended October 27, 1995, and October 28, 1994, is unaudited) Depreciation Depreciation expense is calculated using the straight-line method over the estimated useful lives of the assets, which are 20 to 30 years for buildings and land improvements and 5 to 10 years for leasehold improvements and furniture, fixtures, equipment, and software. The company provides one-half year of depreciation in the year of addition and retirement. Intangibles Intangible assets consist of goodwill in excess of the fair market value of net assets of businesses purchased. Goodwill is being amortized over 40 years on a straight-line basis. Other intangibles are amortized over a shorter life. Total accumulated amortization of these intangibles was $0.4 million and $0.3 million as of October 27, and January 27, 1995, respectively. Net income per share Net income per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. The weighted average common shares outstanding were 33.9 million and 34.9 million for the three-month periods ended October 27, 1995, and October 28, 1994, respectively; and 34.4 million and 35.3 million for the nine-month periods ended October 27, 1995, and October 28, 1994, respectively. Common stock equivalents includes awards, grants and stock options which have been issued by the company. The common stock equivalents do not significantly dilute basic earnings per share. Reserve for losses on customer returns At the time of sale, the company provides a reserve equal to the gross profit on projected merchandise returns, based on its prior returns experience. Financial instruments with off-balance-sheet risk The company is party to financial instruments with off-balance-sheet risk in the normal course of business to reduce its exposure to fluctuations in foreign currency exchange rates and to meet financing needs. The company enters into forward exchange contracts to hedge anticipated foreign currency transactions during the upcoming seasons. The purpose of the company's foreign currency hedging activities is to protect the company from the risk that the eventual dollar cash flows resulting from these transactions will be adversely affected by changes in exchange rates. At October 27, 1995, the company had forward exchange contracts, maturing through January 1997, to sell approximately 2.1 billion yen and 2.4 million British pounds, and to purchase approximately 1.8 million Canadian dollars. The gains and losses on the outstanding forward exchange contracts are reflected in the financial statements in the period in which the currency fluctuation occurs. The company also uses import letters of credit to purchase foreign-sourced merchandise. The letters of credit are primarily U.S. dollar-denominated and are issued through third-party financial institutions to guarantee payment for such merchandise within agreed upon time periods. At October 27, 1995, the company had outstanding letters of credit of approximately $20.2 million, all of which had expiration dates of less than 1 year. 8 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to October 27, 1995, and the three months ended October 27, 1995, and October 28, 1994, is unaudited) The counterparty to the financial instruments discussed above is primarily two large financial institutions; management believes the risk of counterparty nonperformance on these financial instruments is not significant. Foreign currency translation Financial statements of the foreign subsidiaries are translated into U.S. dollars in accordance with the provisions of SFAS 52. Translation adjustments are accumulated in a separate component of stockholder's equity. Foreign currency translation gains were not material for the nine-month periods ended October 27, 1995 and October 28, 1994, respectively. Postretirement benefits The company does not currently provide any postretirement benefits for employees other than profit sharing. Reclassification Certain financial statement amounts have been reclassified to be consistent with the fiscal 1996 presentation. NOTE 2. ACCOUNTING CHANGES The Financial Accounting Standards Board has issued Statement Nos. 112 and 115, "Employer's Accounting for Post-employment Benefits" and "Accounting for Certain Investments in Debt and Equity Securities," respectively. The company adopted these standards in fiscal 1995, and there is no material impact on its financial statements. NOTE 3. SHAREHOLDERS' INVESTMENT Capital stock The company currently has 160 million shares of $0.01 par value common stock. The company has authorized 5 million shares of preferred stock, $0.01 par value. The company's board of directors has the authority to issue shares and to fix dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions of the preferred stock. Treasury stock The company's board of directors has authorized the purchase of a total of 8.2 million shares of the company's common stock. A total of 7.3 million and 6.2 million shares had been purchased as of October 27, and January 27, 1995, respectively. Stock awards and grants The company has a restricted stock award plan. Under the provisions of the plan, a committee of the company's board of directors may award shares of the company's common stock to its officers and key employees. Such shares vest over a ten-year period on a straight-line basis from the date of the award. In addition, the company granted shares of its common stock to individuals as an inducement to enter the employ of the company. 9 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to October 27, 1995, and the three months ended October 27, 1995, and October 28, 1994, is unaudited) The following table reflects the activity under the stock award and stock grant plans: Awards Grants Balance at January 29, 1993 141,320 12,000 Granted 27,200 - Forfeited (3,600) - Vested (15,760) (2,000) Balance at January 28, 1994 149,160 10,000 Granted - - Forfeited (15,940) (10,000) Vested (17,860) - Balance at January 27, 1995 115,360 0 Granted - - Forfeited (2,700) - Vested (8,240) - Balance at October 27, 1995 104,420 0 The granting of these awards and grants has been recorded as deferred compensation based on the fair market value of the shares at the date of grant. Compensation expense under these plans is recorded as shares vest. Stock options The company has 2.5 million shares of common stock, either authorized and unissued shares or treasury shares, that may be issued pursuant to the exercise of options granted under the company's stock option plan. Options are granted at the discretion of a committee of the company's board of directors to officers and key employees of the company. No option may have an exercise price less than the fair market value per share of the common stock at the date of grant. Activity under the stock option plan is as follows: Average Exercise Vested Options Price Options Balance at January 29, 1993 1,060,000 $ 9.81 216,000 Granted 637,200 $19.12 Exercised (8,000) $12.69 Balance at January 28, 1994 1,689,200 $13.31 340,000 Granted - - Exercised (294,000) $ 6.72 Forfeited (928,800) $15.27 Balance at January 27, 1995 466,400 $13.56 195,480 Granted 342,100 $16.50 Exercised (16,000) $13.78 Forfeited (50,800) $16.29 Balance at October 27, 1995 741,700 $14.72 223,120 10 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to October 27, 1995, and the three months ended October 27, 1995, and October 28, 1994, is unaudited) The above options currently outstanding vest over a 5 year period from the date of grant. The outstanding options expire as follows: 1995 - 100,000 2001 - 72,000 2002 - 40,000 2003 - 201,600 2005 - 328,100 741,700 NOTE 4. INCOME TAXES Under the liability method prescribed by the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," deferred taxes are provided based upon enacted tax laws and rates applicable to the periods in which taxes become payable. Temporary differences that give rise to deferred tax assets and liabilities as of October 27, and January 27, 1995, are as follows (in thousands): Current Deferred Long-term Deferred Tax Benefit Tax Liabilities Oct. 27, Jan. 27, Oct. 27, Jan. 27, 1995 1995 1995 1995 Catalog advertising $(1,539) $(1,539) $ - $ - Inventory 6,792 7,052 - - Employee benefits 1,243 1,243 - - Reserve for returns 1,406 1,406 - - Depreciation - - 5,379 5,379 Foreign operating loss carryforwards - - (807) (807) Valuation allowance - - 807 807 Other 1,690 250 - - Total $ 9,592 $ 8,412 $ 5,379 $ 5,379 The valuation allowance required under SFAS No. 109 has been established for the deferred income tax benefits related to certain subsidiary loss carryforwards, which may not be realized. In the periods presented, the differences between income taxes at the statutory federal income tax rate of 35 percent, and income taxes reported in the consolidated statements of operations are due primarily to the effect of state income taxes. NOTE 5. LINES OF CREDIT The company has unsecured lines of credit with various banks totaling $110 million. There was $90.7 million outstanding at October 27, at interest rates averaging 6.3%, compared to no outstanding amount on January 27, 1995. In addition, the company has unsecured lines of credit with foreign banks totaling the equivalent of $23 million for a wholly owned foreign subsidiary. There was $13.4 million outstanding at October 27, at interest rates averaging 1.8%, compared to $7.5 as of January 27, 1995. 11 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to October 27, 1995, and the three months ended October 27, 1995, and October 28, 1994, is unaudited) NOTE 6. LONG-TERM DEBT There was no long-term debt as of October 27, and January 27, 1995. The company has an agreement that expires December 31, 1995, with a bank for a $20 million credit facility available to fund treasury stock purchases and capital expenditures. NOTE 7. LEASES The company leases store and office space and equipment under various leasing arrangements. The leases are accounted for as operating leases. Total rental expense under these leases was $3.0 million and $1.8 million for the three- month periods ended October 27, 1995, and October 28, 1994, respectively. Rental expense for the nine-month periods ended October 27, 1995, and July 29, 1994, was $8.6 million and $5.8 million, respectively. Total future fiscal year commitments under these leases as of October 27, 1995, are as follows (in thousands): 1996 (three months) $ 2,470 1997 9,197 1998 6,420 1999 3,969 2000 2,714 After 2000 4,025 $28,795 NOTE 8. RETIREMENT PLAN The company has a retirement plan which covers most regular employees and provides for annual contributions at the discretion of the board of directors. Also included in the plan is a 401(k) feature which allows employees to make contributions and the company matches a portion of those contributions. Total expense provided under this plan was $0.8 million and $0.7 million for the three-month periods ended October 27, 1995, and October 28, 1994, respectively. Total expenses were $1.7 million and $1.8 million for the nine- month periods ended October 27, 1995, and October 28, 1994, respectively. As of October 1, 1995, the "Lands' End, Inc. Retirement Plan" was amended to allow certain participants to invest participant elective contributions, employer matching contributions, and profit sharing contributions in a "Lands' End, Inc. Stock Fund" established primarily for investing in common stock of the company at the fair market value. The company has assigned 200,000 shares for this plan. NOTE 9. ACQUISITION AND ANTICIPATED DISPOSITION In July 1994, the company formed a wholly-owned subsidiary that acquired the marketing rights and assets of MontBell America, Inc., which designs, develops and distributes premier technical outdoor clothing and equipment through the wholesale channel to outdoor specialty stores, primarily in the United States. In February 1995, the company announced its intention to sell its wholly-owned subsidiary MontBell America, Inc. 12 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information pertaining to October 27, 1995, and the three months ended October 27, 1995, and October 28, 1994, is unaudited) In March 1993, the company purchased a majority interest in a catalog company, The Territory Ahead. Merchandise offered in the catalog consists of private label sportswear, accessories and luggage. Beginning in 2003, the minority shareholders have the option to require the company to purchase their shares, and the company will have the option to require the minority shareholders to sell their shares in The Territory Ahead. The price per share would be based on the fair market value of The Territory Ahead. Results of operations of MontBell America, Inc., and The Territory Ahead were not material to the company, and as a result, no pro forma data is presented. The transactions were accounted for using the purchase method. The excess of the purchase price over the fair value of net assets was recorded as goodwill. The operating results of MontBell America, Inc., and The Territory Ahead are included in the consolidated financial statements of the company from their respective dates of acquisition. NOTE 10: SALES AND USE TAX A 1992 Supreme Court decision confirmed that the Commerce Clause of the United States Constitution prevents a state from requiring the collection of its use tax by a mail order company unless the company has a physical presence in the state. However, there continues to be uncertainty due to inconsistent application of the Supreme Court by state and federal courts. The company attempts to conduct its operations in compliance with its interpretation of the applicable legal standard, but there can be no assurance that such compliance will not be challenged. In recent challenges various states have sought to require companies to begin collection of use taxes and/or pay use taxes from previous sales. The Supreme Court decision also established that Congress has the power to enact legislation which would permit states to require collection of use taxes by mail order companies. Congress has from time to time considered proposals for such legislation. The company anticipates that any legislative change, if adopted, would be applied only on a prospective basis. 13 Item 2. Management's Discussion and Analysis Results of Operations Three Months Ended October 27, 1995, compared with Three Months Ended October 28, 1994 The company's net sales in the third quarter of fiscal 1996 decreased 4.2 percent to $235.9 million from $246.2 million in the third quarter of fiscal 1995. During the quarter just ended, sales from the company's core business, represented by the monthly and prospecting catalogs, were lower than the prior year. While the number of catalogs mailed was increased during the quarter just ended, the average number of pages per catalog was reduced. The decline in sales was partially offset by strong sales increases from the company's international businesses. The lower sales trend in the company's core business has continued into the fourth quarter. The third quarter ending inventory was about $260 million, compared with about $255 million a year ago. Gross profit in the quarter just ended was $99.9 million, or 42.4 percent of net sales, compared with $100.2 million, or 40.7 percent of net sales, in the third quarter of the prior year. The increase in gross profit margin was due to lower merchandise costs, primarily the result of sourcing improvements, and stronger growth in higher margin businesses. Liquidations of excess inventory were about 13 percent of net sales in the quarter just ended, compared with about 15 percent last year. For the third quarter this year, selling, general and administrative expenses increased 5.2 percent to $98.4 million, compared with $93.5 million for the similar quarter last year. As a percentage of net sales, SG&A was 41.7 percent, compared with 38.0 percent in the same period last year. The increase in the SG&A ratio was primarily the result of higher paper prices and postal rates, as well as lower sales per catalog mailed in the U.S. International and new businesses, which have higher operating costs, experienced stronger growth rates during the quarter compared with the company's core and specialty businesses. This also had a negative impact on the SG&A ratio. Net income for the quarter just ended was $1.8 million, or 5 cents per share, down 54 percent from the $3.8 million, or 11 cents per share, earned in the prior year. Net income after taxes for the current year's third quarter includes $1.4 million attributable to foreign currency exchange gains, recorded as other income. Foreign currency exchange gains or losses will occur in response to currency market movements and the company's hedging strategy. Nine Months Ended October 27, 1995, compared with Nine Months Ended October 28, 1994 The company's net sales in the first nine months of fiscal 1996 increased 3.1 percent to $632.1 million from $613.1 million in the same period last year. The company's international businesses, as well as its new and specialty businesses, accounted for the increase in net sales. 14 Gross profit of $273.8 million for the first nine months of fiscal 1996 increased 6.5 percent from $257.2 million in the same nine-month period last year. As a percentage of net sales, gross profit increased from 42.0 percent in fiscal 1995 to 43.3 percent in fiscal 1996. The increase in gross profit was due principally to the same factors disclosed above for the third quarter ended October 27, 1995. Year-to-date liquidation sales were about 11 percent, compared with 12 percent during the same period last year. Selling, general and administrative expenses increased 13.1 percent to $268.2 million in the first nine months of fiscal 1996 from $237.1 million in the same period last year. As a percentage of net sales, selling, general and administrative expenses increased to 42.4 percent in fiscal 1996 from 38.7 percent in fiscal 1995. The increase in selling, general and administrative expenses was the result of the same factors mentioned above for the third quarter ended October 27, 1995. Net income in the first nine months of fiscal 1996 was $4.8 million, or 14 cents per share, compared with $12.1 million, or 34 cents per share in the prior year. Seasonality of Business The company's business is highly seasonal. Historically, a disproportionate amount of the company's net sales and a majority of its profits have been realized during the fourth quarter. If the company's sales were materially different from seasonal norms during the fourth quarter, the company's annual operating results could be materially affected. In addition, as the company continues to refine its marketing efforts by experimenting with the timing of its catalog mailings, quarterly results may fluctuate. Accordingly, results for the individual quarters are not necessarily indicative of the results to be expected for the entire year. Liquidity and capital resources To date, the bulk of the company's working capital needs have been met through funds generated from operations and from short-term bank loans. The company's principal need for working capital has been to meet peak inventory requirements associated with its seasonal sales pattern. In addition, the company's resources have been used to purchase treasury stock, make asset additions, and acquire new businesses. During fiscal 1995, the board of directors evaluated its dividend practice whereby it had paid annual dividends. Given the company's intent to buy back additional shares, the board determined that the current practice was no longer desirable and payment of a cash dividend is not planned for the foreseeable future. The company continues to explore investment opportunities arising from the expansion of its international businesses, the development of new businesses and the acquisition of existing businesses. While this investment spending has had a negative impact on earnings, it is not expected to have a material effect on liquidity. At October 27, 1995, the company had unsecured domestic credit facilities totaling $110 million, of which the company had used $90.7 million primarily to fund inventory purchases. The company also maintains foreign credit lines for use in foreign operations totaling the equivalent of approximately $23 million, of which $13.4 million was used at October 27, 1995. 15 The company has a separate $20 million bank facility available to fund treasury stock purchases and capital expenditures. This facility runs through December 31, 1995. Since June 1989, the company's board of directors has authorized the company from time to time to purchase a total of 8.2 million shares of treasury stock, of which 7.4 million shares have been purchased as of December 8, 1995. For further information, see note 3 to the consolidated financial statements. Capital expenditures for fiscal 1996 are currently planned to be about $16 million, of which about $11 million had been expended through October 27, 1995. Major projects include new computer hardware and software and material handling equipment. Possible future changes A 1992 Supreme Court decision confirmed that the Commerce Clause of the United States Constitution prevents a state from requiring the collection of its use tax by a mail order company unless the company has a physical presence in the state. However, there continues to be uncertainty due to inconsistent application of the Supreme Court by state and federal courts. The company attempts to conduct its operations in compliance with its interpretation of the applicable legal standard, but there can be no assurance that such compliance will not be challenged. In recent challenges various states have sought to require companies to begin collection of use taxes and/or pay use taxes from previous sales. The Supreme Court decision also established that Congress has the power to enact legislation which would permit states to require collection of use taxes by mail order companies. Congress has from time to time considered proposals for such legislation. The company anticipates that any legislative change, if adopted, would be applied only on a prospective basis. 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings There are no material legal proceedings presently pending, except for routine litigation incidental to the business, to which Lands' End, Inc., is a party or of which any of its property is the subject. Items 2 and 3 are not applicable and have been omitted. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders for the quarter ended October 27, 1995. Item 5 is not applicable and has been omitted. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibit is filed as part of this report: Table Exhibit Number Description Number (11) Statement of recomputation of earnings per share 1 (b) Reports on Form 8-K There were no reports filed on Form 8-K during the three-month period ended October 27, 1995. 17 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, its duly authorized officer and chief financial officer. LANDS' END, INC. Date: December 8, 1995 By /s/ STEPHEN A. ORUM Stephen A. Orum Executive Vice President, Chief Operating Officer and Chief Financial Officer 18 LIST OF DOCUMENTS INCORPORATED BY REFERENCE In addition to the exhibits filed with this report, the exhibits listed below have been heretofore filed with the Securities and Exchange Commission as exhibits to the company's registration statement on Form S-8 (File No. 33- 46133) and on Form S-1 (File No. 33-08217) or to other filings with the Commission and are incorporated herein as exhibits by reference, pursuant to Rule 24 of the SEC Rules of Practice. The exhibit number of each document so filed is stated next to the description of such exhibit. The file number for all other documents is 1-9769. Table Exhibit Document Number Description of Item Number Description (3) Articles of Incorporation and By-Laws: Certificate of Incorporation of the company, as amended through October 3, 1986. 1 S-1 Amendment to Certificate of Incorporation of the company, 3 10-Q dated August 10, 1987. October 1987 Amendment to Certification of Incorporation 4 10-Q of the company, dated May 20, 1994 July 1994 Amended and Restated by-Laws of the company. 2 10-K 1993 (4) Equity Instrument and Agreements relating to Debt Obligations: Form of Certificate to evidence 1 10-Q the Common stock. August 1990 First Amendment to the Lands' End S-8 Retirement Plan 2 October 1995 (10) Material Contracts: Form of letter from bank approving the company's unsecured line of credit and corresponding note. 7 10-K 1992 Term Loan Note and Loan Agreement between the company and the American National Bank and Trust 11 10-Q Company of Chicago. August 1990 Fourth Amendment to Loan Agreement between the company and the American National Bank and Trust Company of Chicago, dated December 1, 1993. 1 10-K 1994 19 Exhibit Document Number Description of Item Number Description (10) Fifth Amendment to Loan Agreement between the company and the American National Bank and Trust Company of Chicago, dated 2 10-Q November 22, 1994. October 1994 Buying Agreement between the company 7 10-Q and European Buying Agency, Ltd. November 1990 Salaried Incentive Bonus Plan 9 S-1 Second Amended and Restated 1989 Restricted Stock Plan of the 12 10-Q company. November 1991 Stock Option Plan of the company 1 10-K 1995 Amended and Restated Retirement Plan, dated February 1, 1992. 3 10-K 1994 Form of Director Deferred Compensation 10-Q Agreement 1 July 1995 (13) Annual Report to Shareholders for the fiscal year ended January 27, 1995 10-K 1995 20 Exhibit 11.1 COMPUTATION OF EARNINGS PER SHARE LANDS' END, INC. & SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share amounts) Three months ended Nine Months Ended 10/27/95 10/28/94 10/27/95 10/28/94 Net income............................. $ 1,766 $ 3,833 $ 4,768 $ 12,132 Average shares of common stock outstanding during the period.......... 33,918 34,872 34,417 35,252 Incremental shares from assumed exercise of stock options (primary).... 93 353 93 407 34,011 35,225 34,510 35,659 Primary earnings per share............. $ 0.05 $ 0.11 $ 0.14 $ 0.34 Average shares of common stock outstanding during the period.......... 33,918 34,872 34,417 35,252 Incremental shares from assumed exercise of stock options (fully diluted)....... 93 353 93 407 34,011 35,225 34,510 35,659 Fully diluted earnings per share....... $ 0.05 $ 0.11 $ 0.14 $ 0.34 Average shares of common stock outstanding during the period.......... 33,918 34,872 34,417 35,252 Basic earnings per share............... $ 0.05 $ 0.11 $ 0.14 $ 0.34 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS, AND COMPUTATION OF EARNINGS PER SHARE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND EXHIBIT. 1,000 9-MOS FEB-2-1996 OCT-27-1995 $3201 0 8171 0 260091 308450 156960 58365 409396 226965 0 402 0 0 176392 409396 632073 632073 358231 268176 (4659) 0 2379 7946 3178 4768 0 0 0 $4768 $0.14 $0.14
-----END PRIVACY-ENHANCED MESSAGE-----