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 June 28, 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 August 5, 1997
----------------------------- -----------------------------
Common Stock, $0.01 par value 19,308,262
<PAGE>
INDEX
Part I. - Financial Information Page No.
--------
Consolidated Statements of Operations for the
Thirteen Weeks and Twenty-Six Weeks
Ended June 28, 1997 and June 29, 1996 3
Consolidated Balance Sheets as of
June 28, 1997, December 31, 1996 and June 29, 1996 4
Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended June 28, 1997 and June 29, 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
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------- ------------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
------------- -------------- ------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $185,723 $ 147,649 $ 365,634 $ 285,816
Cost of sales, including buying and warehousing costs 113,204 91,397 224,800 179,066
------------- -------------- ------------ --------------
Gross profit 72,519 56,252 140,834 106,750
------------- -------------- ------------ --------------
Selling, general and administrative expenses 70,204 55,226 137,575 106,735
------------- -------------- ------------ --------------
Operating profit 2,315 1,026 3,259 15
Interest expense, net 609 1,737 945 3,820
------------- -------------- ------------ --------------
Income (loss) before provision for
(benefit from) income taxes 1,706 (711) 2,314 (3,805)
Provision for (benefit from) income taxes 716 (301) 972 (1,608)
------------- -------------- ------------ --------------
Net income (loss) $ 990 $ (410) $ 1,342 $ (2,197)
============= ============== ============ ==============
Per share of common stock:
Net income (loss) $ 0.05 $ (0.02) $ 0.07 $ (0.11)
------------- -------------- ------------ --------------
Weighted average shares outstanding 19,795 19,268 19,756 19,268
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 28, 1997, December 31,1996 and June 29, 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 28, December 31, June 29,
1997 1996 1996
-------- ------------ ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,148 $ 26,914 $ 2,811
Accounts receivable, net 12,776 17,384 15,484
Inventories 208,376 202,134 181,425
Prepaid expenses and other current assets 9,064 10,360 10,908
--------- --------- ---------
Total current assets 233,364 256,792 210,628
--------- --------- ---------
Property and equipment, net 144,211 138,508 118,440
Goodwill, net 21,951 22,376 22,800
Deferred charges and other noncurrent assets, net 5,953 6,281 6,280
--------- --------- ---------
Total assets $ 405,479 $ 423,957 $ 358,148
--------- --------- ---------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 73,271 $ 92,529 $ 72,440
Accrued expenses and other current liabilities 50,118 53,207 31,324
Short-term debt 840 -- --
Due to related parties -- -- 36,363
--------- ---------- ----------
Total current liabilities 124,229 145,736 140,127
Long-term note 10,000 13,500 --
Deferred income taxes and other
long-term liabilities 16,669 14,994 13,530
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;
19,268,458 issued and outstanding at
June 28, 1997 and 19,267,758 at
December 31, 1996 193 193 --
Additional paid-in capital 203,701 200,189 172,382
Retained earnings 50,687 49,345 32,109
---------- --------- ---------
Total shareholders' equity 254,581 249,727 204,491
---------- --------- ---------
Total liabilities and shareholders' equity $ 405,479 $ 423,957 $ 358,148
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
June 28, June 29,
1997 1996
------------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,342 $ (2,197)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 8,627 7,102
Deferred income taxes 1,452 2,193
Loss on disposal of assets 697 326
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 4,608 (1,529)
Increase in inventories (6,242) (4,532)
Decrease in prepaid expenses
and other current assets 1,550 807
Increase in deferred charges
and other noncurrent assets -- (24)
Decrease in accounts payable (2,605) (12,582)
Decrease in accrued expenses
and other liabilities (4,560) (2,542)
----------- -----------
Net cash provided by (used in) operating activities 4,869 (12,978)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (14,274) (17,548)
----------- -----------
Cash flows from financing activities:
Decrease in due to related parties -- (82,290)
Proceeds from issuance of short-term debt 840 --
Capital contributions by CVS -- 130,010
Decrease in book overdrafts (15,201) (18,605)
----------- ----------
Net cash (used in) provided by financing activities (14,361) 29,115
----------- ----------
Net decrease in cash and cash equivalents (23,766) (1,411)
Cash and cash equivalents at beginning of year 26,914 4,222
---------- ----------
Cash and cash equivalents at end of period $ 3,148 $ 2,811
========== ==========
</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 168 stores, including 138 superstores, in
35 states across the United States as of June 28, 1997. The Company's
superstores average 35,000 square feet while traditional stores average 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 June 28, 1997 and June 29, 1996 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, 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 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 June 28, 1997,
the Company was in compliance with all terms and conditions of the Credit
Agreement. On June 28, 1997, the Company had borrowings under the Credit
Agreement of $840,000. The Credit Agreement allows for $10 million in borrowings
from uncommitted lines outside of the Credit Agreement (see "Subsequent Event"
below). As of June 28, 1997, the Company had no borrowings against the
uncommitted lines of credit. The average short-term borrowing rate for the
second quarter ended June 28, 1997 was 6.5%.
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
contains no principal amortization prior to maturity in December 2000, and
requires quarterly interest payments at the 90-day LIBOR rate plus the
applicable spread under the Credit Agreement described above. The Note also
provides 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 which CVS continues 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. The average borrowing rate
for the Note during the second quarter ended June 28, 1997 was 7.2%.
6. Subsequent Event
On July 21, 1997, the Company paid the remaining balance under the Note
utilizing cash flows from operations (see "Long-Term Note" above). The Note
contained no pre-payment penalties. The Company also, at the same time,
re-negotiated its permitted allowance for borrowings from uncommitted lines
outside of the Credit Agreement to $20 million (see "Short-Term Borrowing
Arrangements" above).
7. 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. 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. 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.
<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 June 28, 1997 and June 29, 1996, 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 June 28, 1997 and June 29, 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
New York, New York
July 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 June 28, 1997 Compared to Thirteen Weeks Ended June 29,
1996
During the thirteen weeks ended June 28, 1997, the Company opened seven
superstores and closed four stores, as compared to opening eleven superstores
and closing four stores in the thirteen weeks ended June 29, 1996. At June 28,
1997, the Company operated 168 stores, of which 138 were superstores, as
compared to 155 stores, of which 113 were superstores, at June 29, 1996. Store
square footage increased 23% to 4,964,000 at June 28, 1997 compared to 4,034,000
at June 29, 1996.
Net sales increased 25.8% to $185.7 million for the thirteen weeks ended June
28, 1997, compared to $147.6 million for the same period last year, primarily as
a result of new store openings since June 29, 1996. Comparable store net sales
for the thirteen weeks ended June 28, 1997 increased 7.5% at the Company's
superstore locations and 6.0% for the Company as a whole. Traditional store net
sales were less than 7% of total net sales during the thirteen weeks ended June
28, 1997, and will continue to represent a declining percentage of total net
sales throughout the year as more superstores are opened and traditional stores
are closed. Comparable store net sales were strong across all major geographic
regions. The Company's second quarter sales gain comparison was moderated by a
shift in the Easter selling season. Net sales for the thirteen weeks ended March
29, 1997 reflected the entire Easter selling season while in 1996, the final
week of the Easter selling season fell in the thirteen weeks ended June 29,
1996. The Company's average net sales per superstore were $5.7 million for the
fifty-two weeks ended June 28, 1997, up from $5.2 million for the same period in
1996. For the fifty-two weeks ended June 28, 1997, average superstore net sales
per square foot increased to $173 from $171 in the prior fifty-two week period.
For the thirteen weeks ended June 28, 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
the "things" merchandise. The increase in net sales of "things" merchandise
primarily resulted 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 June 28, 1997 was $72.5 million, or
39.0% of net sales, compared to $56.3 million, or 38.1% of net sales, for the
same period in 1996. The increase in gross profit was primarily related to
improvements in all components of margin including lower freight costs as a
result of increased utilization of the Company's distribution center during the
thirteen weeks ended June 28, 1997 compared to the same period in 1996. 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 June 28, 1997 were $70.2 million, or 37.8% of net sales, compared to $55.2
million, or 37.4% of net sales, for the same period in 1996. This increase is
due to higher occupancy costs as a percent of net sales related to the
immaturity of the Company's superstore base which also reflects the eighteen
superstores the Company opened in the fourth quarter of 1996. The Company also
incurred additional SG&A expenses in connection with the secondary offering of
its common stock and operating as a stand alone company, which expenses were not
incurred during the same period in 1996, as well as slightly higher opening and
closing costs than the same period in 1996.
Operating profit for the thirteen weeks ended June 28, 1997 increased to $2.3
million, or 1.2% of net sales, compared to $1.0 million, or 0.7% 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 June 28, 1997 was
$609,000 compared to $1.7 million for the same period in 1996. The reduction in
net interest expense is due to a reduction in net average borrowings, which were
$25.0 million for the thirteen weeks ended June 28, 1997 as compared to $117.1
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 June 28, 1997 was
$716,000 as compared to a benefit of $301,000 for the same period in 1996.
Net income for the thirteen weeks ended June 28, 1997 increased to $990,000, or
$0.05 per share, compared to a net loss of $410,000, or ($0.02) per share, for
the same period in 1996.
Twenty-Six Weeks Ended June 28, 1997 Compared to Twenty-Six Weeks Ended June 29,
1996
During the twenty-six weeks ended June 28, 1997, the Company opened eight
superstores and closed nine stores, as compared to opening fourteen superstores
and closing fourteen stores during the twenty-six weeks ended June 29, 1996.
Net sales increased 27.9% to $365.6 million for the twenty-six weeks ended June
28, 1997 as compared to $285.8 million for the same period in 1996, primarily as
a result of new store openings since June 29, 1996. Comparable store net sales
for the twenty-six weeks ended June 28, 1997 increased 7.7% at the Company's
superstore locations and 5.9% for the Company as a whole. Traditional store net
sales were less than 9% of total net sales during the twenty-six weeks ended
June 28, 1997, and will continue to represent a declining percentage of total
net sales throughout the year as more superstores are opened and traditional
stores are closed. For the twenty-six weeks ended June 28, 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. The increase in net sales of "things" merchandise primarily
resulted 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 twenty-six weeks ended June 28, 1997 was $140.8 million, or
38.5% of net sales, compared to $106.8 million, or 37.3% of net sales, for the
same period in 1996. The improvements in gross profit were related to an
increase in all components of margin, lower freight costs due to the increased
utilization of the Company's distribution center as well as lower clearance
markdowns, primarily in the first quarter, as compared to the same period in
1996. Gross margin for both "linens" and "things" merchandise increased
consistent with the Company's consolidated results.
SG&A expenses for the twenty-six weeks ended June 28, 1997 were $137.6 million,
or 37.6% of net sales, compared to $106.8 million, or 37.3% of net sales for the
same period in 1996. The increase in SG&A is attributed to higher occupancy
costs as a percent of net sales related to the immaturity of the superstore base
which also reflects the eighteen superstores the Company opened in the fourth
quarter of 1996. In addition, during the twenty-six weeks ended June 29, 1996,
the Company recorded a $0.5 million insurance recovery gain associated with
damages to one of its stores caused by severe winter conditions. Also, during
the twenty-six weeks ended June 28, 1997, the Company incurred SG&A expenses in
connection with the secondary offering of its commmon stock and operating as a
stand alone company, which expenses 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 twenty-six weeks ended June 28, 1997 increased to $3.3
million, or 0.9% of net sales, as compared to $15,000 for the same period in
1996.
Net interest expense (including commitment fees in connection with the $125
million Credit Agreement) for the twenty-six weeks ended June 28, 1997 was
$945,000 compared to $3.8 million during the same period in 1996. The reduction
in net interest expense is due to a reduction in net average borrowings, which
were $16.6 million for the twenty-six weeks ended June 28, 1997 as compared to
$130.6 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 twenty-six weeks ended June 28, 1997
was $972,000 compared to a benefit of $1.6 million for the same period in 1996.
Net income for the twenty-six weeks ended June 28, 1997 was $1.3 million, or
$0.07 per share, compared to a net loss of $2.2 million, or ($0.11) 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 (as re-negotiated in July) uncommitted line of
credit. Management currently believes that the Company's cash flows from
operations, the revolving credit facility and the uncommitted line of credit
will be sufficient to fund anticipated capital expenditures and working capital
requirements for at least the next three years.*
Net cash provided by operating activities for the twenty-six weeks ended June
28, 1997 was $4.9 million compared to net cash used in operating activities of
$13.0 million for the same period in 1996. The increase in net cash provided by
operating activities was due primarily to a smaller reduction in current
liabilities than last year caused by the timing of vendor payments coupled with
a $3.5 million increase in net income. In addition, the decrease in accounts
receivable was primarily a result of the collection of 1996 year end tenant
allowances due from landlords. This was offset by only a slight increase in
inventory due to improved inventory management, as evidenced by the Company's
decrease in inventory per square foot by 7% from 1996 ($42 per square foot this
year compared with $45 per square foot last year).
Net cash used in investing activities during the twenty-six weeks ended June 28,
1997 was $14.3 million compared to $17.5 million for the same period in 1996.
The decrease from the twenty-six week period in 1996 is associated with the
timing of the Company's new store openings.
Net cash used in financing activities during the twenty-six weeks ended June 28,
1997 was $14.4 million compared to net cash provided by financing activities of
$29.1 million for the same period in 1996. Net cash used during the twenty-six
weeks ended June 28, 1997 was primarily the result of the timing of the
settlement of vendor payments. Net cash provided during the twenty-six weeks
ended June 28, 1996 was primarily the result 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 information within the meaning of The
Private Securities Litigation Reform Act of 1995. The statements are made a
number of times and may be identified by use of an asterisk ("*") or by such
forward-looking terminology as "expect", "believe", "will" or similar statements
or variations of such terms. Such forward-looking statements involve certain
risks and uncertainties including levels of sales, store competition and
acceptance of product offerings and fashions and, in each case, actual results
may differ materially from such forward-looking information. Certain additional
factors that may cause actual results to differ 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 as well as other periodic reports filed by the
Company with the Securities and Exchange Commission and 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 6 - Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Net Income (Loss) 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
three month period ended June 28, 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)
/S/ James M. Tomaszewski
-------------------------
James M. Tomaszewski
Senior Vice President, Chief Financial Officer
Date: August 8, 1997
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 July 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.
/S/ KPMG Peat Marwick
New York, New York
August 8, 1997
EXHIBIT 11
LINENS 'N THINGS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---------------------------- ------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
FINANCIAL STATEMENT PRESENTATION
Weighted - average number of
shares outstanding 19,795 19,268 19,756 19,268
=============== ============= ============== ===============
Net income (loss) applicable
to common shares $990 $(410) $1,342 $(2,197)
=============== ============= ============== ===============
Per-share amounts
Net income (loss) per share $0.05 $(0.02) $0.07 $(0.11)
=============== ============= ============== ===============
PRIMARY
Weighted - average number of
shares outstanding 19,795 19,268 19,756 19,268
=============== ============= ============== ===============
Net income (loss) applicable
to common shares $990 $(410) $1,342 $(2,197)
=============== ============= ============== ===============
Per-share amounts
Net income (loss) per share $0.05 $(0.02) $0.07 $(0.11)
=============== ============= ============== ===============
FULLY DILUTED
Weighted - average number of
shares outstanding and
fully diluted common share
equivalents 19,887 19,268 19,887 19,268
=============== ============= ============== ===============
Net income (loss) applicable
to common shares $990 $(410) $1,342 $(2,197)
=============== ============= ============== ===============
Per-share amounts
Net income (loss) per share $0.05 $(0.02) $0.07 $(0.11)
=============== ============= ============== ===============
</TABLE>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-28-1997
<CASH> 3,148
<SECURITIES> 0
<RECEIVABLES> 12,776
<ALLOWANCES> 0
<INVENTORY> 208,376
<CURRENT-ASSETS> 233,364
<PP&E> 144,211
<DEPRECIATION> 44,338
<TOTAL-ASSETS> 405,479
<CURRENT-LIABILITIES> 124,229
<BONDS> 10,000
0
0
<COMMON> 193
<OTHER-SE> 254,388
<TOTAL-LIABILITY-AND-EQUITY> 405,479
<SALES> 365,634
<TOTAL-REVENUES> 365,634
<CGS> 224,800
<TOTAL-COSTS> 137,575
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 945
<INCOME-PRETAX> 2,314
<INCOME-TAX> 972
<INCOME-CONTINUING> 1,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,342
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
