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 27, 1998
Commission File Number 1-12381
Linens 'n Things, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3463939
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6 Brighton Road, Clifton, New Jersey 07015
(Address of principal executive offices) (Zip Code)
(973) 778-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at July 15, 1998
Common Stock, $0.01 par value 38,968,078
<PAGE>
INDEX
<TABLE>
<CAPTION>
Part I. - Financial Information Page No.
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<S> <C>
Consolidated Statements of Operations for the
Thirteen Weeks and Twenty-Six Weeks
Ended June 27,1998 and June 28, 1997 3
Consolidated Balance Sheets as of June 27, 1998,
December 31, 1997 and June 28, 1997 4
Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended June 27, 1998 and June 28, 1997 5
Notes to Consolidated Financial Statements 6-7
Independent Auditors' Review Report 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Part II. - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
Exhibit Index 13
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<TABLE>
<CAPTION>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------------------- ------------------------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
---------------- ---------------- ----------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 222,094 $ 185,723 $ 440,131 $ 365,634
Cost of sales, including buying and warehousing costs 133,218 113,204 267,925 224,800
---------------- ---------------- ----------------- --------------
Gross profit 88,876 72,519 172,206 140,834
Selling, general and administrative expenses 84,179 70,204 165,312 137,575
---------------- ---------------- ----------------- --------------
Operating profit 4,697 2,315 6,894 3,259
Interest expense (income), net 103 609 (100) 945
---------------- ---------------- ----------------- --------------
Income before provision for income taxes 4,594 1,706 6,994 2,314
Provision for income taxes 1,768 716 2,693 972
---------------- ---------------- ----------------- --------------
Net income $ 2,826 $ 990 $ 4,301 $ 1,342
================ ================ ================= ==============
Per share of common stock:
Basic
Net income $ 0.07 $ 0.03 $ 0.11 $ 0.03
Weighted average shares outstanding 38,885 38,536 38,824 38,536
Diluted
Net income $ 0.07 $ 0.03 $ 0.11 $ 0.03
Weighted average shares outstanding 40,500 39,394 40,354 39,296
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 27, 1998, December 31, 1997 and June 28, 1997
(in thousands, except share amounts)
June 27, December 31, June 28,
1998 1997 1997
------------------ ----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,858 $ 39,882 $ 3,148
Accounts receivable, net 17,559 13,764 12,776
Inventories 271,265 223,188 208,376
Prepaid expenses and other current assets 15,848 13,058 9,064
------------------ ----------------- -----------------
Total current assets 309,530 289,892 233,364
Property and equipment, net 158,101 154,480 144,211
Goodwill, net 21,101 21,526 21,951
Deferred charges and other noncurrent assets, net 6,207 6,201 5,953
------------------ ----------------- -----------------
Total assets $ 494,939 $ 472,099 $ 405,479
================== ================= =================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 119,888 $ 98,418 $ 73,271
Accrued expenses and other current liabilities 55,291 68,099 46,065
Short-term debt -- -- 840
------------------ ----------------- -----------------
Total current liabilities 175,179 166,517 120,176
Long-term note -- -- 10,000
Deferred income taxes and other long-term liabilities 32,903 25,547 20,722
Shareholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized;
none issued and outstanding -- -- --
Common stock, $.01 par value;
60,000,000 shares authorized;
38,898,106 issued and outstanding at
June 27, 1998, 38,633,840 at December 31,
1997 and 38,536,916 at June 28, 1997 389 386 385
Additional paid-in capital 208,093 204,514 203,509
Retained earnings 79,436 75,135 50,687
Treasury stock, at cost; 69,868 shares at June 27,
1998 (1,061) -- --
------------------ ----------------- -----------------
Total shareholders' equity 286,857 280,035 254,581
Total liabilities and shareholders' equity $ 494,939 $ 472,099 $ 405,479
================== ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Twenty-Six Weeks Ended
-----------------------------------------
June 27, June 28,
1998 1997
------------------- ------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,301 $ 1,342
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 10,218 8,627
Deferred income taxes 209 1,452
Loss on disposal of assets 517 697
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (3,795) 4,608
Increase in inventories (48,077) (6,242)
(Increase) decrease in prepaid expenses
and other current assets (2,151) 1,550
Increase in deferred charges (354) --
Increase (decrease) in accounts payable 4,536 (2,605)
Increase (decrease) in accrued expenses
and other liabilities 1,580 (4,560)
------------------- ------------------
Net cash (used in) provided by operating activities (33,016) 4,869
------------------- ------------------
Cash flows from investing activities:
Additions to property and equipment (13,584) (14,274)
------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of short-term debt -- 840
Proceeds from common stock issued under
stock incentive plans 3,582 --
Increase in treasury stock (1,061) --
Increase (decrease) in book overdrafts 9,055 (15,201)
------------------- ------------------
Net cash provided by (used in) financing activities 11,576 (14,361)
------------------- ------------------
Net decrease in cash and cash equivalents (35,024) (23,766)
Cash and cash equivalents at beginning of year 39,882 26,914
------------------- ------------------
Cash and cash equivalents at end of period $ 4,858 $ 3,148
=================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements, except for the December 31,
1997 consolidated balance sheet, are unaudited. In the opinion of management,
the accompanying consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly the
financial position of the Company as of June 27,1998 and June 28,1997 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, 1997, included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. All significant intercompany accounts and
transactions have been eliminated.
The December 31, 1997 consolidated balance sheet amounts have been derived from
the Company's audited consolidated balance sheet amounts.
2. Short-Term Borrowing Arrangements
The Company has available a three-year, $90 million senior revolving credit
facility agreement, as amended (the "Credit Agreement") with third party
institutional lenders expiring March 31, 2001. The amount of borrowings can be
increased up to $125 million provided certain terms and conditions contained in
the Credit Agreement are met. The Credit Agreement contains certain financial
covenants, including those relating to the maintenance of a minimum tangible net
worth, a minimum fixed charge coverage ratio, and a maximum leverage ratio, as
defined in the Credit Agreement. Interest on all borrowings is determined based
upon several alternative rates as stipulated in the Credit Agreement. As of June
27, 1998, the Company was in compliance with all terms and conditions of the
Credit Agreement. The Credit Agreement also allows for up to $25 million in
borrowings from uncommitted lines of credit outside of the Credit Agreement. As
of June 27, 1998, the Company had no borrowings under the Credit Agreement or
against the uncommitted lines of credit.
3. Long-Term Note
In conjunction with the initial public offering, the Company issued a four-year,
$13.5 million subordinated note (the "Note") to CVS. The Note provided for
forgiveness by CVS, at varying amounts, based upon the proceeds from any sales
by CVS of the Company's common stock together with the market value of any
common stock that CVS continued to own at December 31, 1997. In May 1997, CVS
sold 6,267,658 of its remaining shares of Common Stock, on a pre-split basis,
representing substantially all of its holdings (at December 31, 1997, CVS owned
no shares of the Company's common stock). As a result of the net proceeds
received, $3.5 million of the Note was forgiven and contributed as equity by
CVS. In July 1997, the Company prepaid the remaining $10.0 million to CVS
utilizing cash flows from operations. The Note contained no pre-payment
penalties.
4. Recent Accounting Pronouncement
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" which requires a
dual presentation of earnings per share--basic and diluted. Basic earnings per
share has been computed by dividing net income by the weighted average number of
shares outstanding of 38,885,000 and 38,536,000 for the thirteen weeks ended
June 27, 1998 and June 28, 1997, respectively and 38,824,000 and 38,536,000 for
the twenty-six weeks ended June 27, 1998 and June 28, 1997, respectively.
Diluted earnings per share has been computed by dividing net income by the
weighted average number of shares outstanding including the dilutive effects of
stock options and deferred stock grants. The weighted average shares outstanding
for the diluted earnings per share calculation were 40,500,000 and 39,394,000
for the thirteen weeks ended June 27, 1998 and June 28, 1997, respectively and
40,354,000 and 39,296,000 for the twenty-six weeks ended June 27, 1998 and June
28, 1997, respectively.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont.'d
5. Stockholders' Equity
On April 14, 1998, the Board of Directors of the Company approved a two-for-one
split of its common stock to be effected in the form of a stock dividend. The
stock dividend was one additional share of common stock for each outstanding
share of common stock and was distributed on May 7, 1998 to shareholders of
record on April 24, 1998. Unless otherwise stated, all references to common
shares outstanding and earnings per share in the financial statements, notes to
consolidated financial statements, and management's discussion and analysis of
financial condition and results of operations are on a post-split basis.
Additions to treasury stock represent a contribution of restricted shares of the
Company's common stock to the deferred compensation plan (see Note 6 below).
6. Deferred Compensation Plan
The Company has a deferred compensation plan (the "Plan") established to enable
key employees of the Company, as designated by the Company, to defer
compensation, including stock and stock denominated awards. Participation is
voluntary and participants can elect to make contributions to the Plan.
Participants are 100% vested in their own deferrals to the Plan at all times. At
June 27, 1998 the liability under the Plan, which is reflected in other
long-term liabilities, was $5.2 million.
7. The Year 2000 Issue
The Company conducted a comprehensive review of its computer systems to identify
the systems that could be affected by the Year 2000 ("Y2K") problem and
developed a plan to resolve the issue. The Y2K problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. Management presently
believes that the Company has substantially completed its Y2K conversion for the
majority of its computer systems which are now Y2K compliant. However, there can
be no assurance that the systems of other companies on which the Company's
systems rely also will be timely converted or that any such failure to convert
by another company would not have an adverse effect on the Company's systems or
operations.
<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 27, 1998 and June 28, 1997, 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 27, 1998 and June 28, 1997. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Linens 'n Things, Inc. and
Subsidiaries as of December 31, 1997 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 4, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1997, is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
New York, New York
July 14, 1998
<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 27, 1998 Compared with Thirteen Weeks Ended June 28,
1997
Net sales increased 19.6% to $222.1 million for the thirteen weeks ended June
27, 1998, up from $185.7 million for the same period in 1997, primarily as a
result of new store openings since June 28, 1997. During 1998, the Company
shifted the timing of its semi-annual clearance event, normally held in June to
the Fall season. In spite of this shift, comparable store net sales for the
thirteen weeks ended June 27, 1998 were consistent with last year at 6.0% for
the entire chain. However, comparable store net sales would have been positively
impacted for the thirteen weeks ended June 27, 1998 had the Company not shifted
its clearance event. Comparable store net sales continued to remain strong
across most major geographic regions, particularly in the Northeast.
During the thirteen weeks ended June 27, 1998, the Company opened eight
superstores and closed four stores, as compared with opening seven superstores
and closing four stores during the same period in 1997. At June 27, 1998, the
Company operated 178 stores, of which 163 were superstores, as compared with 168
stores, of which 138 were superstores, at June 28, 1997. Store square footage
increased approximately 17% to 5,787,000 at June 27, 1998 compared with
4,964,000 at June 28, 1997.
For the thirteen weeks ended June 27, 1998, net sales of "things" merchandise
increased approximately 30% over the same period in 1997, while net sales of
"linens" merchandise increased approximately 15% over the same period in 1997.
This is consistent with the Company's strategy to increase the penetration of
"things" merchandise. The increase in net sales of "things" merchandise is the
result of the continued maturation of this business as well as the overall
expansion of the product categories in existing stores.
Gross profit for the thirteen weeks ended June 27, 1998 was $88.9 million, or
40.0% of net sales, compared with $72.5 million, or 39.0% of net sales, for the
same period in 1997. The increase in gross profit was due to improvements in the
selling mix as well as lower markdowns due to the shift in the clearance event
from the second quarter to the Fall season. These improvements were partially
offset by a slight increase in logistics expense as a percentage of net sales.
Selling, general and administrative expenses ("SG&A") for the thirteen weeks
ended June 27, 1998 were $84.2 million, or 37.9% of net sales, compared with
$70.2 million, or 37.8% of net sales, for the same period in 1997. This increase
as a percentage of net sales is primarily a function of the shift in the
clearance event which impacted expenses by reducing sales leverage. In addition,
although advertising expenses were reduced by shifting the clearance event to
the Fall season, this savings was offset by additional selling expense as the
Company continues to improve guest service levels through increased staffing.
Management believes the improvement in guest service has contributed to the
strong comparable store net sales performance. In addition, the Company incurred
$500,000 of costs in the second quarter relating to the implementation of the
tax planning initiatives designed to reduce the Company's effective tax rate,
which was previously announced on February 4, 1998.
Operating profit for the thirteen weeks ended June 27, 1998 increased to $4.7
million, or 2.1% of net sales, compared with $2.3 million, or 1.2% of net sales,
for the same period in 1997.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company incurred net interest expense of approximately $103,000 (including
commitment fees in connection with the Credit Agreement) for the thirteen weeks
ended June 27, 1998 compared with approximately $609,000 for the same period in
1997. The savings in interest expense compared to the same period in 1997 was
primarily due to the fact that the Company was in a net average borrowing
position of $1.3 million for the thirteen weeks ended June 27, 1998 as compared
with $25.0 million for the same period in 1997. Also contributing to the savings
were lower fees from renegotiation of the $90 million Credit Agreement which was
amended effective March 31, 1998. The reduction in net average borrowings is a
result of the elimination of the $13.5 million note to CVS ($10.0 million
payment and $3.5 million forgiveness from CVS), as well as improved operating
performance. See "Liquidity and Capital Resources."
The Company's income tax expense for the thirteen weeks ended June 27, 1998 was
$1.8 million as compared with $0.7 million for the same period in 1997. Through
tax planning initiatives, the Company expects to reduce its effective tax rate
to approximately 38.5% for the year ending December 31, 1998, as compared with
42.0% for the year ended December 31, 1997. The effect of this reduction in tax
rate is expected to be maintained going forward.
Net income for the thirteen weeks ended June 27, 1998 increased to $2.8 million
or $0.07 per share, compared with $990,000, or $0.03 per share, for the same
period in 1997. Both per share amounts are adjusted for the stock split as
indicated in Note 5 to the consolidated financial statements.
Twenty-Six Weeks Ended June 27, 1998 Compared with Twenty-Six Weeks Ended June
28,1997
Net sales increased 20.4% to $440.1 million for the twenty-six weeks ended June
27, 1998 as compared with $365.6 million for the same period in 1997, primarily
as a result of new store openings since June 28, 1997. Comparable store net
sales for the twenty-six weeks ended June 27, 1998 increased 6.7% for the entire
chain as compared with 5.9% for the same period in 1997. During the twenty-six
weeks ended June 27, 1998, the Company opened eleven superstores and closed nine
stores, as compared with having opened eight superstores and closed nine stores
during the same period in 1997.
For the twenty-six weeks ended June 27, 1998, net sales of "things" merchandise
increased approximately 25% over the same period in 1997, while net sales of
"linens" merchandise increased approximately 15% over the same period in 1997.
This is consistent with the Company's strategy to increase the penetration of
"things" merchandise. The increase in net sales of "things" merchandise is the
result of the continued maturation of this business, as well as the overall
expansion of the product categories in existing stores.
Gross profit for the twenty-six weeks ended June 27, 1998 was $172.2 million, or
39.1% of net sales, compared with $140.8 million, or 38.5% of net sales, for the
same period in 1997. The increase in gross profit was due to improvements in the
selling mix as well as lower markdowns due to the shift in the clearance event
from the second quarter to the fall season. These improvements were partially
offset by a slight increase in logistics expense as a percentage of net sales.
Gross margin for both "linens" and "things" merchandise increased consistent
with the Company's consolidated results.
SG&A expenses for the twenty-six weeks ended June 27, 1998 were $165.3 million,
or 37.6% of net sales, compared with $137.6 million, or 37.6% of net sales, for
the same period in 1997. The SG&A expense rate for the twenty-six weeks ended
June 27, 1998 was impacted by the shift in the clearance event which impacted
expenses by reducing sales leverage. In addition, the Company incurred $1.0
million of expenses relating to the implementation of the tax planning
initiatives designed to reduce the effective tax rate, which was previously
announced on February 4, 1998.
<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 27, 1998 increased to $6.9
million, or 1.6% of net sales, as compared with $3.3 million, or 0.9% of net
sales, for the same period in 1997.
Net interest income (net of commitment fees in connection with the $90 million
Credit Agreement) for the twenty-six weeks ended June 27, 1998 was approximately
$100,000 compared with net interest expense of approximately $945,000 during the
same period in 1997. The savings in interest expense compared to the same period
in 1997 was primarily due to the fact that the Company was in a net average
investment position of $12.4 million during the twenty-six week period ending
June 27, 1998 as compared with a net average borrowing position of $16.6 million
for the same period in 1997. Also contributing to the savings were lower fees
from renegotiation of the $90 million Credit Agreement which was amended
effective March 31, 1998. The reduction in net average borrowings is a result of
the elimination of the $13.5 million note to CVS ($10.0 million payment and $3.5
million forgiveness from CVS), as well as improved operating performance. See
"Liquidity and Capital Resources."
The Company's income tax expense for the twenty-six weeks ended June 27, 1998
was $2.7 million compared with $972,000 for the same period in 1997. Through tax
planning initiatives, the Company expects to reduce its effective tax rate to
approximately 38.5% for the year ending December 31, 1998, as compared with
42.0% for the year ended December 31, 1997. The effect of this reduction in tax
rate is expected to be maintained going forward.
Net income for the twenty-six weeks ended June 27, 1998 was $4.3 million, or
$0.11 per share, compared with $1.3 million, or $0.03 per share, for the same
period in 1997.
Liquidity and Capital Resources
The Company's capital requirements are primarily investments in new stores, new
store inventory purchases and seasonal working capital, as well as a second
distribution center which is currently planned to open in the second quarter of
1999. These requirements are funded through a combination of internally
generated cash from operations, credit extended by suppliers and short-term
borrowings.
The Company has available a $90 million three year revolving credit facility, as
amended, expiring March 31, 2001, which can be increased up to $125 million
provided certain terms and conditions contained in the Credit Agreement are met.
This agreement allows for up to $25 million in borrowings from uncommitted lines
of credit. Management currently believes that the Company's cash flows from
operations, credit extended by suppliers, the revolving credit facility and the
uncommitted lines of credit will be sufficient to handle anticipated capital
expenditures and working capital requirements in the foreseeable future.
Net cash used in operating activities for the twenty-six weeks ended June 27,
1998 was $33.0 million compared with net cash provided by operating activities
of $4.9 million for the same period in 1997. This change is primarily a result
of an increase in inventory levels of $48.1 million, an increase of 30%, which
was due to the shift in the clearance event to the Fall season, as well as an
increase in the number of stores and store inventory levels in order to support
the comparable store net sales growth. This increase was offset by an increase
in accounts payable over last year which was due to increased inventory levels
and the timing of vendor payments.
Net cash used in investing activities during the twenty-six weeks ended June 27,
1998 was $13.6 million compared with $14.3 million for the same period in 1997.
This decrease from the same period in 1997 is associated with the timing and
number of the Company's new store openings.
Net cash provided by financing activities during the twenty-six weeks ended June
27, 1998 was $11.6 million compared with net cash used in financing activities
of $14.4 million for the same period in 1997. Net cash provided during the
twenty-six weeks ended June 27, 1998 was primarily the result of the timing and
settlement of vendor payments as well as the proceeds received from common stock
issued under stock incentive plans. Net cash used during the twenty-six weeks
ended June 28, 1997 was primarily the result of the timing of the settlement of
vendor payments.
<PAGE>
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Inflation
The Company does not believe that its operating results have been materially
affected by inflation during the preceding three years. There can be no
assurance, however, that the Company's operating results will not be affected by
inflation in the future.
Seasonality
The Company's business is subject to substantial seasonal variations.
Historically, the Company has realized a significant portion of its net sales
and net income for the year during the third and fourth quarters. The Company's
quarterly results of operations may also fluctuate significantly as a result of
a variety of other factors, including the timing of new store openings. The
Company believes this is the general pattern associated with its segment of the
retail industry. Consequently, comparisons between quarters are not necessarily
meaningful and the results for any quarter are not necessarily indicative of
future results.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of The Private Securities Litigation Reform Act of 1995. The
statements are made a number of times throughout the document and may be
identified by forward-looking terminology as "expect," "believe," "may," "will,"
"intend" or similar statements or variations of such terms. Such forward-looking
statements involve certain material risks and uncertainties including levels of
sales, store traffic, acceptance of product offerings and fashions, competitive
pressures from other superstore retailers and from department stores which carry
other products including certain designer products not carried by the Company's
stores, 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 6 - Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
11 Computation of Net Income Per Common Share
15 Letter re unaudited interim financial information
27 Financial Data Schedule (filed electronically with SEC only)
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K dated April 14, 1998 (date of
earliest event reported) reporting that the Board of Directors approved
a two-for-one split of the Company's common stock to be effected in the
form of a stock dividend.
Additionally, the Company filed a report on Form 8-K dated March 31,
1998 (date of earliest event reported) reporting that the Company
entered into a credit agreement with The Bank of New York and BNY
Capital Markets, Inc. which amends and restates its previous credit
agreement dated as of November 20, 1996.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINENS 'N THINGS, INC.
(Registrant)
WILLIAM T. GILES
By:-----------------------------------
William T. Giles
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
Date: July 22, 1998
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<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 Twenty-Six Weeks Ended
-------------------------------- -----------------------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------------- ------------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Basic
Weighted-average number of shares outstanding 38,885 38,536 38,824 38,536
============== ============= ============ =============
Net income applicable to common shares $ 2,826 $ 990 $ 4,301 $ 1,342
============== ============= ============ =============
Per-share amounts
Net income per share $0.07 $0.03 $0.11 $0.03
============== ============= ============ =============
Diluted
Weighted-average number of shares outstanding 40,500 39,394 40,354 39,296
============== ============= ============ =============
Net income applicable to common shares $ 2,826 $ 990 $ 4,301 $ 1,342
============== ============= ============ =============
Per-share amounts
Net income per share $0.07 $0.03 $0.11 $0.03
============== ============= ============ =============
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EXHIBIT 15
Accountants' Acknowledgment
Linens 'n Things, Inc.
Clifton, New Jersey
Board of Directors:
Re: Registration Statements Numbers 333-26819,
333-26827 and 333-55803 on Form S-8
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 14, 1998 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
KPMG PEAT MARWICK LLP
New York, New York
July 22, 1998
<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-31-1998
<PERIOD-END> JUN-27-1998
<CASH> 4,858
<SECURITIES> 0
<RECEIVABLES> 17,559
<ALLOWANCES> 0
<INVENTORY> 271,265
<CURRENT-ASSETS> 309,530
<PP&E> 216,519
<DEPRECIATION> 58,418
<TOTAL-ASSETS> 494,939
<CURRENT-LIABILITIES> 175,179
<BONDS> 0
0
0
<COMMON> 389
<OTHER-SE> 286,468
<TOTAL-LIABILITY-AND-EQUITY> 494,939
<SALES> 440,131
<TOTAL-REVENUES> 440,131
<CGS> 267,925
<TOTAL-COSTS> 165,312
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (100)
<INCOME-PRETAX> 6,994
<INCOME-TAX> 2,693
<INCOME-CONTINUING> 4,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,301
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 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> 188,549
<DEPRECIATION> 44,338
<TOTAL-ASSETS> 405,479
<CURRENT-LIABILITIES> 120,176
<BONDS> 0
0
0
<COMMON> 385
<OTHER-SE> 254,196
<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> 0.03
<EPS-DILUTED> 0.03
</TABLE>
