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 27, 1997
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 October 30, 1997
----------------------------- -------------------------------
Common Stock, $0.01 par value 19,308,637
<PAGE>
INDEX
Part I. - Financial Information Page No.
--------
Consolidated Statements of Operations for the
Thirteen Weeks and Thirty-Nine Weeks
Ended September 27, 1997 and September 28, 1996 3
Consolidated Balance Sheets as of
September 27, 1997, December 31, 1996 and
September 28, 1996 4
Consolidated Statements of Cash Flows for the
Thirty-Nine Weeks Ended September 27, 1997 and
September 28, 1996 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 9-12
Part II. - Other Information 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K 13
Exhibit Index 13
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------------- -----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------ ------------ ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $225,239 $180,438 $590,873 $ 466,254
Cost of sales, including buying and warehousing costs 135,993 111,280 360,792 290,345
----------- ----------- ----------- ------------
Gross profit 89,246 69,158 230,081 175,909
Selling, general and administrative expenses 76,229 59,879 213,808 166,615
----------- ----------- ----------- ------------
Operating profit 13,017 9,279 16,273 9,294
Interest expense, net 26 644 972 4,464
----------- ----------- ----------- ------------
Income before provision for income taxes 12,991 8,635 15,301 4,830
Provision for income taxes 5,459 3,669 6,429 2,061
----------- ----------- ----------- ------------
Net income $ 7,532 $ 4,966 $ 8,872 $ 2,769
=========== =========== =========== ============
Per share of common stock:
Net income $0.38 $0.26 $0.45 $0.14
----------- ----------- ----------- ------------
Weighted average shares outstanding 19,913 19,268 19,792 19,268
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 27, 1997, December 31, 1996 and September 28, 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 27, December 31, September 28,
1997 1996 1996
------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 15,719 $ 26,914 $ 2,899
Accounts receivable, net 16,737 17,384 13,991
Inventories 225,716 202,134 206,764
Prepaid expenses and other current assets 9,174 10,360 10,119
---------- --------- ---------
Total current assets 267,346 256,792 233,773
Property and equipment, net 149,771 138,508 137,262
Goodwill, net 21,738 22,376 22,588
Deferred charges and other noncurrent assets, net 5,789 6,281 6,178
---------- --------- ---------
Total assets $ 444,644 $ 423,957 $ 399,801
========== ========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 98,605 $ 92,529 $ 80,774
Accrued expenses and other current liabilities 65,754 53,207 34,896
Due to related parties -- -- 61,498
---------- --------------- ----------
Total current liabilities 164,359 145,736 177,168
Long-term note -- 13,500 --
Deferred income taxes and other
long-term liabilities 17,528 14,994 13,176
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;
19,308,262 issued and outstanding at
September 27, 1997 and 19,267,758 at
December 31, 1996 193 193 --
Additional paid-in capital 204,347 200,189 172,382
Retained earnings 58,217 49,345 37,075
----------- ----------- ----------
Total shareholders' equity 262,757 249,727 209,457
----------- ----------- ----------
Total liabilities and shareholders' equity $ 444,644 $ 423,957 $ 399,801
=========== =========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Thirty-Nine Weeks Ended
September 27, September 28,
1997 1996
------------------- ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,872 $ 2,769
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 13,058 10,760
Deferred income taxes 2,495 2,595
Loss on disposal of assets 1,342 602
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 647 (36)
Increase in inventories (23,582) (29,871)
Decrease in prepaid expenses
and other current assets 1,440 1,032
Increase in deferred charges
and other noncurrent assets -- (100)
Increase in accounts payable 17,925 295
Increase (decrease) in accrued expenses
and other liabilities 19,686 (5,663)
----------- ------------
Net cash provided by (used in) operating activities 41,883 (17,617)
------------ -----------
Cash flows from investing activities:
Additions to property and equipment (24,534) (39,915)
------------ -----------
Cash flows from financing activities:
Decrease in due to related parties (10,000) (57,154)
Capital contributions by CVS -- 130,010
Decrease in book overdrafts (18,544) (16,647)
----------- -------------
Net cash (used in) provided by financing activities (28,544) 56,209
----------- ------------
Net decrease in cash and cash equivalents (11,195) (1,323)
Cash and cash equivalents at beginning of year 26,914 4,222
---------- ------------
Cash and cash equivalents at end of period $ 15,719 $ 2,899
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Linens 'n Things, Inc. (formerly Bloomington, MN., L.T., Inc.) and subsidiaries
(collectively the "Company") operated 170 stores, including 146 superstores, in
36 states across the United States as of September 27, 1997. The Company's
superstores average approximately 35,000 square feet while traditional stores
average approximately 10,000 square feet. The Company's stores emphasize a broad
assortment of home textiles, housewares and home accessories, carrying both
national brand and private label goods.
2. Basis of Presentation
The accompanying consolidated financial statements, except for the December 31,
1996 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 27, 1997 and September 28,
1996 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, 1996, 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, 1996 consolidated balance sheet amounts have been derived from
the Company's audited consolidated balance sheet amounts.
3. Initial Public Offering
The Company was a wholly-owned subsidiary of CVS Corporation ("CVS"), formerly
Melville Corporation, until November 26, 1996, when CVS completed an initial
public offering ("IPO") of 13,000,000 shares of the Company's common stock.
Immediately following the IPO, CVS owned approximately 32.5% of the Company's
outstanding common stock, having retained 6,267,758 shares. On May 30, 1997, CVS
sold 6,267,658 shares of the Company's common stock in a secondary offering,
retaining 100 shares of the Company's common stock.
During 1996, CVS acquired 100 shares of common stock of Linens 'n Things Center,
Inc. ("LNT Center"), a newly formed California corporation, for $130,010,000. In
June, 1996, CVS contributed all outstanding shares of common stock of
Bloomington, MN., L.T., Inc. to LNT Center. In addition, CVS made a capital
contribution of $28,000,000 to LNT Center during October, 1996. Subsequently,
CVS contributed all outstanding shares of common stock of LNT Center to Linens
'n Things, Inc., a newly formed Delaware corporation. The accompanying
consolidated financial statements are presented as if Linens 'n Things, Inc. had
existed and owned LNT Center and Bloomington, MN., L.T., Inc. throughout 1996.
Immediately prior to the consummation of the IPO, the authorized capital stock
of the Company was changed from 100 shares of common stock, par value $.01 per
share, to 60 million shares of common stock, par value $.01 per share, and each
issued and outstanding share of common stock was converted into 192,677.58
shares of common stock.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Short-Term Borrowing Arrangements
Prior to the IPO, all financing was provided to the Company by CVS. Interest
rates charged on borrowings from CVS were based on CVS' commercial paper
borrowing rates. In connection with the IPO, the Company repaid all short-term
indebtedness to CVS and entered into a three-year, $125 million senior revolving
credit facility agreement (the "Credit Agreement") with third party
institutional lenders. 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 stipulated in the Credit Agreement. As of
September 27, 1997, the Company was in compliance with all terms and conditions
of the Credit Agreement. The Credit Agreement allows for $20 million in
borrowings from uncommitted lines of credit outside of the Credit Agreement. As
of September 27, 1997, the Company had no borrowings under the Credit Agreement
or against the uncommitted lines of credit. The average short-term borrowing
rate for the thirty-nine week period ended September 27, 1997 was 6.4%.
5. Long-Term Note
In conjunction with the IPO, the Company issued a four-year, $13.5 million
subordinated note (the "Note") to CVS. The Note consisted of a $10 million
tranche ("Tranche A") and a $3.5 million tranche ("Tranche B"). The Note
contained no principal amortization prior to maturity in December 2000, and
required quarterly interest payments at the 90-day LIBOR rate plus the
applicable spread under the Credit Agreement described above. The Note also
provided for a reduction of principal by CVS, at varying amounts, based upon the
proceeds from any sales of the Company's common stock by CVS together with the
market value of the common stock that CVS continued to own at December 31, 1997.
On May 30, 1997, CVS sold 6,267,658 shares of its remaining shares of Common
Stock. As a result of the proceeds from the secondary offering, CVS reduced
Tranche B by 100% and therefore the $3.5 million was converted into equity by
the Company at the completion of the sale. On July 21, 1997, the Company
pre-paid Tranche A utilizing cash flows from operations. The Note contained no
pre-payment penalties. The average borrowing rate for the Note for the
thirty-nine week period ended September 27, 1997 was 7.2%.
6. Recent Accounting Pronouncement
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS No. 128") was issued. SFAS No. 128 simplifies the standards
for computing earnings per share, and makes the United States standards for
computing earnings per share more comparable to international standards. SFAS
No. 128 requires the presentation of "basic" earnings per share (which excludes
dilution) and "diluted" earnings per share. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of prior period earnings per share presented. The Company
does not believe the adoption of SFAS No. 128 in fiscal 1997 will have a
significant impact on the Company's reported earnings per share.
<PAGE>
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 27, 1997 and September 28, 1996, 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 27, 1997 and September 28, 1996.
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, 1996 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, 1997, 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, 1996, is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/S/ KPMG Peat Marwick LLP
New York, New York
October 15, 1997
<PAGE>
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 27, 1997 Compared with Thirteen Weeks Ended
September 28, 1996
Net sales increased 24.8% to $225.2 million for the thirteen weeks ended
September 27, 1997, compared with $180.4 million for the same period last year,
primarily as a result of new store openings since September 28, 1996. Comparable
store net sales for the thirteen weeks ended September 27, 1997 increased 8.0%
at the Company's superstore locations and 6.7% for the Company as a whole.
Traditional store net sales were less than 7% of total net sales during the
thirteen weeks ended September 27, 1997, and will continue to represent a
declining percentage of total net sales as more superstores are opened and
traditional stores are closed. Comparable store net sales were strong across all
major geographic regions. The Company's average net sales per superstore were
$5.8 million for the fifty-two weeks ended September 27, 1997, up from $5.4
million for the same period in 1996. The Company's average superstore net sales
per square foot were $175 for the fifty-two weeks ended September 27, 1997, up
from $170 for the fifty-two week period ending September 28, 1996.
During the thirteen weeks ended September 27, 1997, the Company opened eight
superstores and closed six stores, as compared with opening four superstores and
closing three stores during the thirteen weeks ended September 28, 1996. At
September 27, 1997, the Company operated 170 stores, of which 146 were
superstores, as compared with 156 stores, of which 117 were superstores, at
September 28, 1996. Store square footage increased 25% to 5,201,000 at September
27, 1997 compared with 4,147,000 at September 28, 1996.
For the thirteen weeks ended September 27, 1997, net sales of "things"
merchandise increased approximately 40% over the same period in 1996, while net
sales of "linens" merchandise increased approximately 20% over the same period
in 1996. This is consistent with the Company's strategy to increase the
penetration of "things" merchandise. The increase in net sales of "things"
merchandise resulted primarily from the growth in the number of superstore
locations, which carry a larger line of "things" merchandise, as well as the
overall expansion of the product categories in existing stores.
Gross profit for the thirteen weeks ended September 27, 1997 was $89.2 million,
or 39.6% of net sales, compared with $69.2 million, or 38.3% of net sales, for
the same period in 1996. The increase in gross profit was related to increased
penetration of "things" business, which has higher margins than "linens"
business, reduced freight costs from the leveraging of the Company's
distribution center and overall improved selling mix. Gross margin for both
"linens" and "things" merchandise increased consistent with the Company's
consolidated results.
Selling, general and administrative expenses ("SG&A") for the thirteen weeks
ended September 27, 1997 were $76.2 million, or 33.8% of net sales, compared
with $59.9 million, or 33.2% of net sales, for the same period in 1996. This
increase is primarily a function of the number of store openings and closings.
The increase is also due to immature stores having higher occupancy costs as a
percent of net sales, reflecting 36 stores opened in 1996 and 16 stores opened
through September 27, 1997.
Operating profit for the thirteen weeks ended September 27, 1997 increased to
$13.0 million, or 5.8% of net sales, compared with $9.3 million, or 5.1% of net
sales, for the same period in 1996.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net interest expense (including commitment fees in connection with the $125
million Credit Agreement) for the thirteen weeks ended September 27, 1997 was
$26,000 compared with $644,000 for the same period in 1996. The Company was in a
net average investment position of $10.6 million (in cash equivalents) for the
thirteen weeks ended September 27, 1997 as compared with net average borrowings
of $30.2 million for the same period in 1996. The reduction in net average
borrowings is a result of the capital contributions from CVS of $158.0 million
in 1996, prior to the IPO, as well as improved operating performance.
See "Liquidity and Capital Resources."
The Company's income tax expense for the thirteen weeks ended September 27, 1997
was $5.5 million as compared with $3.7 million for the same period in 1996.
Net income for the thirteen weeks ended September 27, 1997 increased to $7.5
million or $0.38 per share, compared with $5.0 million or $0.26 per share, for
the same period in 1996.
Thirty-Nine Weeks Ended September 27, 1997 Compared with Thirty-Nine Weeks Ended
September 28, 1996
Net sales increased 26.7% to $590.9 million for the thirty-nine weeks ended
September 27, 1997 compared with $466.3 million for the same period in 1996,
primarily as a result of new store openings since September 28, 1996. Comparable
store net sales for the thirty-nine weeks ended September 27, 1997 increased
7.8% at the Company's superstore locations and 6.2% for the Company as a whole.
Traditional store net sales were less than 7% of total net sales during the
thirty-nine weeks ended September 27, 1997, and will continue to represent a
declining percentage of total net sales as more superstores are opened and
traditional stores are closed.
During the thirty-nine weeks ended September 27, 1997, the Company opened
sixteen superstores and closed fifteen stores, as compared with opening eighteen
superstores and closing seventeen stores during the thirty-nine weeks ended
September 28, 1996.
For the thirty-nine weeks ended September 27, 1997, net sales of "things"
merchandise increased approximately 40% over the same period in 1996, while net
sales of "linens" merchandise increased approximately 20% over the same period
in 1996. This is consistent with the Company's strategy to increase the
penetration of "things" merchandise. The increase in net sales of "things"
merchandise resulted primarily from the growth in the number of superstore
locations, which carry a larger line of "things" merchandise, as well as the
overall expansion of the product categories in existing stores.
Gross profit for the thirty-nine weeks ended September 27, 1997 was $230.1
million, or 38.9% of net sales, compared with $175.9 million, or 37.7% of net
sales, for the same period in 1996. The improvement in gross profit was related
to an increase in all components of margin which included lower freight costs
from the leveraging of the Company's distribution center, and lower clearance
markdowns. 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 27, 1997 were $213.8
million, or 36.2% of net sales, compared with $166.6 million, or 35.7% of net
sales for the same period in 1996. The increase in SG&A is attributed to the
number of store openings and closings. The increase is also due to immature
stores having higher occupancy costs as a percent of net sales, reflecting 36
stores opened in 1996 and 16 stores opened through September 27, 1997. In
addition, during the thirty-nine weeks ended September 28, 1996, the Company
recorded a $0.5 million insurance recovery gain associated with damage to one of
its stores caused by severe winter conditions. The Company also incurred
additional expenses operating as a stand alone company that were not incurred
during the same period in 1996.
<PAGE>
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 27, 1997 increased to
$16.3 million, or 2.8% of net sales, compared with $9.3 million or 2.0% of net
sales for the same period in 1996.
Net interest expense (including commitment fees in connection with the $125
million Credit Agreement) for the thirty-nine weeks ended September 27, 1997 was
$1.0 million compared with $4.5 million during the same period in 1996. The
reduction in net interest expense is due to a reduction in net average
borrowings, which were $7.5 million for the thirty-nine weeks ended September
27, 1997 as compared with $97.0 million for the same period in 1996. The
reduction in net average borrowings is a result of the capital contributions
from CVS of $158.0 million in 1996, prior to the IPO, as well as improved
operating performance. See "Liquidity and Capital Resources."
The Company's income tax expense for the thirty-nine weeks ended September 27,
1997 was $6.4 million compared with $2.1 million for the same period in 1996.
Net income for the thirty-nine weeks ended September 27, 1997 was $8.9 million,
or $0.45 per share, compared with $2.8 million, or $0.14 per share, for the same
period in 1996.
Liquidity and Capital Resources
The Company's capital requirements are primarily capital investments in new
stores, new store inventory purchases and seasonal working capital. 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 $125 million three-year senior revolving credit
facility and a $20 million uncommitted line of credit. Management currently
believes that the Company's cash flows from operations, 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 provided by operating activities for the thirty-nine weeks ended
September 27, 1997 was $41.9 million compared with net cash used in operating
activities of $17.6 million for the same period in 1996. The increase in net
cash provided by operating activities was due to improved inventory management
and an increase in net income. The Company has reduced inventory per square foot
by 13% compared to last year resulting in an overall increase in inventory of 9%
compared to a sales increase of 26.7%. In addition accounts payable increased
over last year due to increased inventory levels and timing of vendor payments.
Net cash used in investing activities during the thirty-nine weeks ended
September 27, 1997 was $24.5 million compared with $39.9 million for the same
period in 1996. The decrease from the thirty-nine week period in 1996 is
associated with the timing and number of the Company's new store openings.
Net cash used in financing activities during the thirty-nine weeks ended
September 27, 1997 was $28.5 million compared with net cash provided by
financing activities of $56.2 million for the same period in 1996. Net cash used
during the thirty-nine weeks ended September 27, 1997 was the result primarily
of the timing of the settlement of vendor payments as well as the prepayment of
the $10 million CVS Note. Net cash provided during the thirty-nine weeks ended
September 28, 1996 was the result primarily of CVS' capital contribution which
was used to repay the intercompany debt.
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.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Seasonality
The Company's business is subject to substantial seasonal variations.
Historically, the Company has realized a significant portion of its net sales
and substantially all of its net income for the year during the third and fourth
quarters, with a majority of net sales and net income for such quarters realized
in the fourth quarter. 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 foregoing contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. The statements may be
identified by such forward-looking terminology such as "expect", "believe",
"may", "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,
availability of suitable future store locations and schedule of store expansion
plans. 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.
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On May 6, 1997, the Company held its Annual Meeting of Shareholders. At the
Annual Meeting, Philip E. Beekman was elected as a director, with 14,861,496
shares voted for and 1,013,155 shares for which a vote was withheld. Directors
whose term of office continued following the meeting were: Norman Axelrod,
Charles C. Conaway and Stanley P. Goldstein. Also at the Annual Meeting, on a
proposal to approve the adoption of the Company's 1996 Incentive Compensation
Plan for purposes of Section 162(m) of the Internal Revenue Code, 9,750,093
votes were cast in favor of such proposal, 4,946,361 votes were cast against and
5,395 votes abstained.
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 27, 1997.
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:---------------------------------------------
James M. Tomaszewski
Senior Vice President, Chief Financial Officer
Date: November 12, 1997
<TABLE>
<CAPTION>
EXHIBIT 11
LINENS 'N THINGS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands, except per share data)
For the Thirteen Weeks Ended For the Thirty-Nine Weeks Ended
------------------------------------ --------------------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------------ ----------------- ------------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
FINANCIAL STATEMENT PRESENTATION
Weighted average number of shares outstanding 19,913 19,268 19,792 19,268
================== ================= =================== ==================
Net income applicable to common shares $7,532 $4,966 $8,872 $2,769
================== ================= =================== ==================
Per share amounts
Net income per share $0.38 $0.26 $0.45 $0.14
================== ================= =================== ==================
PRIMARY
Weighted average number of shares outstanding 19,913 19,268 19,792 19,268
================== ================= =================== ==================
Net income applicable to common shares $7,532 $4,966 $8,872 $2,769
================== ================= =================== ==================
Per share amounts
Net income per share $0.38 $0.26 $0.45 $0.14
================== ================= =================== ==================
FULLY DILUTED
Weighted average number of shares outstanding
and fully diluted common share equivalents 19,984 19,268 19,957 19,268
================== ================= =================== ==================
Net income applicable to common shares $7,532 $4,966 $8,872 $2,769
================== ================= =================== ==================
Per share amounts
Net income per share $0.38 $0.26 $0.45 $0.14
================== ================= =================== ==================
</TABLE>
EXHIBIT 15
Accountants' Acknowledgment
Linens 'n Things, Inc.
Clifton, New Jersey
Board of Directors:
Re: Registration Statements Numbers 333-26819 and 333-26827 on Form S-8
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 15, 1997 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 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-27-1997
<CASH> 15,719
<SECURITIES> 0
<RECEIVABLES> 16,737
<ALLOWANCES> 0
<INVENTORY> 225,716
<CURRENT-ASSETS> 267,346
<PP&E> 197,096
<DEPRECIATION> 47,325
<TOTAL-ASSETS> 444,644
<CURRENT-LIABILITIES> 164,359
<BONDS> 0
0
0
<COMMON> 193
<OTHER-SE> 262,564
<TOTAL-LIABILITY-AND-EQUITY> 444,644
<SALES> 590,873
<TOTAL-REVENUES> 590,873
<CGS> 360,792
<TOTAL-COSTS> 213,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 972
<INCOME-PRETAX> 15,301
<INCOME-TAX> 6,429
<INCOME-CONTINUING> 8,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,872
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
