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 26, 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 November 5, 1998
Common Stock, $0.01 par value 38,941,705
<PAGE>
<TABLE>
<CAPTION>
INDEX
Part I. - Financial Information Page No.
--------
<S> <C>
Consolidated Statements of Operations for the
Thirteen Weeks and Thirty-Nine Weeks
Ended September 26,1998 and September 27, 1997 3
Consolidated Balance Sheets as of September 26, 1998,
December 31, 1997 and September 27, 1997 4
Consolidated Statements of Cash Flows for the
Thirty-Nine Weeks Ended September 26, 1998
and September 27, 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 9-13
Part II. - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
Exhibit Index 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------------- -------------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
---------------- ----------------- ---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $278,642 $225,239 $718,773 $590,873
Cost of sales, including buying and warehousing costs 167,450 135,993 435,375 360,792
---------------- ----------------- ---------------- ----------------
Gross profit 111,192 89,246 283,398 230,081
Selling, general and administrative expenses 93,168 76,229 258,480 213,808
---------------- ----------------- ---------------- ----------------
Operating profit 18,024 13,017 24,918 16,273
Interest expense, net 105 26 5 972
---------------- ----------------- ---------------- ----------------
Income before provision for income taxes 17,919 12,991 24,913 15,301
Provision for income taxes 6,901 5,459 9,594 6,429
---------------- ----------------- ---------------- ----------------
Net income $ 11,018 $ 7,532 $15,319 $ 8,872
================ ================= ================ ================
Per share of common stock:
Basic
Net income $0.28 $0.20 $0.39 $0.23
Weighted average shares outstanding 38,955 38,617 38,868 38,563
Diluted
Net income $0.27 $0.19 $0.38 $0.23
Weighted average shares outstanding 40,508 39,676 40,387 39,423
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 26, 1998, December 31, 1997 and September 27, 1997
(in thousands, except share amounts)
September 26, December 31, September 27,
1998 1997 1997
------------------ ----------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,847 $ 39,882 $ 15,719
Accounts receivable, net 19,810 13,764 16,737
Inventories 294,161 223,188 225,716
Prepaid expenses and other current assets 16,586 13,058 9,174
------------------ ----------------- -------------------
Total current assets 346,404 289,892 267,346
Property and equipment, net 164,093 154,480 149,771
Goodwill, net 20,889 21,526 21,738
Deferred charges and other noncurrent assets, net 5,477 6,201 5,789
------------------ ----------------- -------------------
Total assets $ 536,863 $ 472,099 $ 444,644
================== ================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 136,807 $ 98,418 $ 98,605
Accrued expenses and other current liabilities 66,741 68,099 60,909
------------------ ----------------- -------------------
Total current liabilities 203,548 166,517 159,514
Deferred income taxes and other long-term liabilities 34,355 25,547 22,373
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;
38,975,698 issued and 38,922,365 outstanding
at September 26, 1998, 38,633,840 issued and
outstanding at December 31, 1997 and 38,616,524 at
September 27, 1997 390 386 386
Additional paid-in capital 209,507 204,514 204,154
Retained earnings 90,453 75,135 58,217
Treasury stock, at cost; 53,333 shares at
September 26, 1998 (1,390) -- --
------------------ ----------------- -------------------
Total shareholders' equity 298,960 280,035 262,757
Total liabilities and shareholders' equity $ 536,863 $ 472,099 $ 444,644
================== ================= ===================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Thirty-Nine Weeks Ended
-----------------------------------------
September 26, September 27,
1998 1997
------------------- ------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,319 $ 8,872
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 15,766 13,058
Deferred income taxes 2,056 2,495
Loss on disposal of assets 652 1,342
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (6,046) 647
Increase in inventories (70,973) (23,582)
(Increase) decrease in prepaid expenses
and other current assets (2,889) 1,440
Decrease in deferred charges 197 --
Increase in accounts payable 22,836 17,925
Increase in accrued expenses and other
liabilities 12,565 19,686
------------------- ------------------
Net cash (used in) provided by operating activities (10,517) 41,883
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (24,867) (24,534)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to related parties -- (10,000)
Proceeds from common stock issued under
stock incentive plans 4,997 --
Purchase of treasury stock (1,390) --
Increase (decrease) in book overdrafts 7,742 (18,544)
------------------- ------------------
Net cash provided by (used in) financing activities 11,349 (28,544)
------------------- ------------------
Net decrease in cash and cash equivalents (24,035) (11,195)
Cash and cash equivalents at beginning of year 39,882 26,914
------------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,847 $ 15,719
=================== ==================
</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 September 26, 1998 and September 27,
1997 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, 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 (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 set forth in the Credit Agreement. As of September
26, 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 September 26, 1998, the Company had no borrowings under the Credit Agreement
or against the uncommitted lines of credit.
3. Long-Term Note
In conjunction with its 1996 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.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont.'d
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 38,955,000 and 38,617,000 for the thirteen weeks ended
September 26, 1998 and September 27, 1997, respectively, and 38,868,000 and
38,563,000 for the thirty-nine weeks ended September 26, 1998 and September 27,
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 40,508,000 and 39,676,000 for the thirteen weeks ended
September 26, 1998 and September 27, 1997, respectively, and 40,387,000 and
39,423,000 for the thirty-nine weeks ended September 26, 1998 and September 27,
1997, respectively.
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.
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
September 26, 1998, the liability under the Plan, which is reflected in other
long-term liabilities, was $4.0 million.
<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 26, 1998 and September 27, 1997, 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 26, 1998 and September 27, 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
October 13, 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 September 26, 1998 Compared with Thirteen Weeks Ended
September 27, 1997
Net sales increased 23.7% to $278.6 million for the thirteen weeks ended
September 26, 1998, up from $225.2 million for the same period in 1997,
primarily as a result of new store openings since September 27, 1997. During
1998, the Company shifted the timing of its semi-annual clearance event,
normally held in June, to the Fall season. Comparable store net sales for the
thirteen weeks ended September 26, 1998 were 11.2% as compared with 6.7% for the
same period last year. Taking into account the shift in the clearance event from
the second quarter to the third quarter, the combined comparable store net sales
for the second and third quarters were 8.8% as compared with 6.4% for the same
time period last year. Comparable store net sales as a whole continued to remain
strong across most major geographic regions.
During the thirteen weeks ended September 26, 1998, the Company opened six
superstores and closed one store, compared with opening eight superstores and
closing six stores during the same period in 1997. At September 26, 1998, the
Company operated 183 stores, of which 169 were superstores, compared with 170
stores, of which 146 were superstores, at September 27, 1997. Store square
footage increased approximately 15.2% to 5,990,000 at September 26, 1998
compared with 5,201,000 at September 27, 1997.
For the thirteen weeks ended September 26, 1998, net sales of "things"
merchandise increased approximately 30% over the same period in 1997, while net
sales of "linens" merchandise increased approximately 20% 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 September 26, 1998 was $111.2 million,
or 39.9% of net sales, compared with $89.2 million, or 39.6% of net sales, for
the same period in 1997. The increase in gross profit was primarily due to
improvements in the selling mix. These improvements were offset by a slight
increase in markdowns due to the shift in the clearance event from the second
quarter to the third quarter as well as increased freight costs that were due to
timing of receipts.
Selling, general and administrative expenses ("SG&A") for the thirteen weeks
ended September 26, 1998 were $93.2 million, or 33.4% of net sales, compared
with $76.2 million, or 33.8% of net sales, for the same period in 1997. This
decrease as a percentage of net sales is primarily a function of increased sales
leverage through strong comparable store net sales coupled with fewer store
openings and closings than in the same period in 1997. However, these savings
were offset by additional selling expense as the Company continues to improve
guest service levels through increased payroll. Management believes the
improvement in guest service has contributed to the strong comparable store net
sales performance.
Operating profit for the thirteen weeks ended September 26, 1998 increased to
$18.0 million, or 6.5% of net sales, compared with $13.0 million, or 5.8% 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 $105,000 (including
commitment fees in connection with the Company's $90 million credit agreement)
for the thirteen weeks ended September 26, 1998, compared with approximately
$26,000 for the same period in 1997. The slight increase in net interest expense
compared with the same period in 1997 was primarily due to the fact that the
Company was in a net average borrowing position of $1.6 million for the thirteen
weeks ended September 26, 1998, compared with a net average investment position
of $10.6 million for the same period in 1997. This increase was offset through
lower commitment fees from renegotiation of the $90 million credit agreement
that was amended effective March 31, 1998. See "Liquidity and Capital
Resources."
The Company's income tax expense for the thirteen weeks ended September 26, 1998
was $6.9 million as compared with $5.5 million for the same period in 1997.
Through tax planning initiatives, the Company has reduced its effective tax rate
to approximately 38.5% for the year ending December 31, 1998, compared with
42.0% for the year ended December 31, 1997.
Net income for the thirteen weeks ended September 26, 1998 increased to $11.0
million or $0.27 per share, compared with $7.5 million, or $0.19 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.
Thirty-Nine Weeks Ended September 26, 1998 Compared with Thirty-Nine Weeks Ended
September 27, 1997
Net sales increased 21.6% to $718.8 million for the thirty-nine weeks ended
September 26, 1998 compared with $590.9 million for the same period in 1997,
primarily as a result of new store openings since September 27, 1997. Comparable
store net sales for the thirty-nine weeks ended September 26, 1998 increased
8.4% compared with 6.2% for the same period in 1997. During the thirty-nine
weeks ended September 26, 1998, the Company opened 17 superstores and closed 10
stores, compared with opening 16 superstores and closing 15 stores during the
same period in 1997.
For the thirty-nine weeks ended September 26, 1998, net sales of "things"
merchandise increased approximately 30% over the same period in 1997, while net
sales of "linens" merchandise increased approximately 20% 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 thirty-nine weeks ended September 26, 1998 was $283.4
million, or 39.4% of net sales, compared with $230.1 million, or 38.9% 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. These improvements
were partially offset by a slight increase in freight 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 thirty-nine weeks ended September 26, 1998 were $258.5
million, or 36.0% of net sales, compared with $213.8 million, or 36.2% of net
sales, for the same period in 1997. The SG&A expense rate for the thirty-nine
weeks ended September 26, 1998 was primarily leveraged through a strong
comparable store net sales increase as well as fewer store closings. This has
been offset in part by additional selling expenses as the Company continues to
improve guest service levels, as well as $1.0 million of expenses relating to
the implementation of the tax planning initiatives designed to reduce the
effective tax rate.
<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 26, 1998 increased to
$24.9 million, or 3.5% of net sales, as compared with $16.3 million, or 2.8% of
net sales, for the same period in 1997.
Net interest expense (including commitment fees in connection with the Company's
$90 million credit agreement) for the thirty-nine weeks ended September 26, 1998
was approximately $5,000 compared with approximately $972,000 during the same
period in 1997. The savings in interest expense compared with the same period in
1997 was primarily due to the fact that the Company was in a net average
investment position of $7.7 million during the thirty-nine week period ending
September 26, 1998 as compared with a net average borrowing position of $7.5
million for the same period in 1997. Also contributing to the savings were lower
fees from renegotiation of the $90 million credit agreement that 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 thirty-nine weeks ended September 26,
1998 was $9.6 million compared with $6.4 million for the same period in 1997.
Through tax planning initiatives, the Company has reduced 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.
Net income for the thirty-nine weeks ended September 26, 1998 was $15.3 million,
or $0.38 per share, compared with $8.9 million, or $0.23 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 during 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
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 for anticipated capital
expenditures and working capital requirements in the foreseeable future.
Net cash used in operating activities for the thirty-nine weeks ended September
26, 1998 was $10.5 million compared with net cash provided by operating
activities of $41.9 million for the same period in 1997. This change is
primarily a result of an increase in inventory levels of 30% over the prior year
offset by an increase in accounts payable. The increase in inventory primarily
reflects the opening of new stores since the same period last year, as well as
the Company's decision to maintain and improve its in-stock position, which is
consistent with the Company's approach to improve guest service. Excluding the
impact of new stores, the increase in inventory, which was done both on a
category basis as well as a store basis, was in response to the strong
comparable store net sales increase the Company has achieved throughout 1998.
Net cash used in investing activities during the thirty-nine weeks ended
September 26, 1998 was $24.9 million compared with $24.5 million for the same
period in 1997. The slight increase is associated with the timing and number of
the Company's new store openings.
<PAGE>
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided by financing activities during the thirty-nine weeks ended
September 26, 1998 was $11.3 million compared with net cash used in financing
activities of $28.5 million for the same period in 1997. Net cash provided
during the thirty-nine weeks ended September 26, 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
thirty-nine weeks ended September 27, 1997 was primarily the result of the
timing and settlement of vendor payments as well as the $10.0 million payment of
the CVS note.
Year 2000
The Company has conducted a comprehensive review of its computer systems to
identify material systems that could be affected by the "Year 2000" issue and
has developed an implementation plan intended to address this issue.
The Company has adopted a five-phase Year 2000 program consisting of:
Phase I: Identification and ranking of the components of the
Company's systems, equipment and significant suppliers and
vendors that may be vulnerable to Year 2000 problems
Phase II: Assessment of items identified in Phase I
Phase III: Remediation or replacement of non-compliant internal
systems and components and determination of solutions for
non-compliant suppliers and vendors
Phase IV: Testing of systems and components following
remediation
Phase V: Developing contingency plans to address the most
reasonably likely worst case Year 2000 scenarios
The identification and assessment phases of the Year 2000 program have been
substantially completed and these phases included both the Company's significant
information technology systems and hardware ("IT Systems") and the Company's
significant non-information technology equipment known to have microchips or
other embedded technology ("non-IT Equipment"). The Company has also
substantially completed the remediation phase for its IT Systems and its non-IT
Equipment and substantially completed testing its "mission critical" IT Systems.
The Company currently expects to complete the testing phase including
installation and testing of Year 2000 versions, by the end of the first quarter
of 1999. The Company will continue periodic testing during fiscal 1999 for new
installations, versions or changes. Virtually all the compliance has been
performed and is currently expected to be performed using internal resources.
In addition to Year 2000 implementation for the Company's internal systems and
equipment, the Company is communicating with significant suppliers, vendors and
other third parties with whom the Company has a business relationship with, to
determine their state of readiness with respect to Year 2000. Assessment of
significant third party Year 2000 readiness is expected to be substantially
completed in early 1999. Failure of significant suppliers, vendors or other
third parties to timely address and remedy Year 2000 problems or to develop and
effect appropriate contingency plans could have a material adverse effect on the
Company's business and operations. The Company believes that the geographically
disbursed nature of its business and its large supplier and vendor base should
minimize such potential adverse effects.
The Company presently believes that with modifications to existing software and
conversions to new software for certain applications, the Year 2000 problem will
not cause a significant disruption of its operations. However, the Year 2000
problem is unique and the Company's Year 2000 compliance program is based on
various assumptions and expectations that cannot be assured. Potential risks
include loss of electric power or certain communication links, other disruptions
to its business such as delayed deliveries from suppliers, as well as
disruptions to the distribution channels, including ports, transportation
services and the Company's own Distribution Center. The Company is in the
process of developing a contingency plan, which is expected to be completed by
approximately the second quarter of 1999 and will be based on its continuing
assessment of potential risks.
<PAGE>
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company does not expect the costs associated with addressing Year 2000
issues to be material to the Company's financial condition or results of
operations. Costs incurred to date have been expensed and were budgeted costs
funded through operating cash flows. The costs associated with the completion of
Year 2000 will be expensed as incurred and are not currently expected to have a
material adverse impact on the Company's financial position or results of
operations. The Company's cost estimates do not include costs associated with
addressing and resolving issues as a result of the failure of third parties to
become Year 2000 compliant.
Inflation
The Company does not believe that its operating results have been materially
affected by inflation through the past year. 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 and the
scheduling of sale events. 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 home furnishings retailers, availability of suitable future
store locations, schedule of store expansion plans and Year 2000 issues relating
to technology. 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:
No Current Reports on Form 8-K were filed by the Company during the
thirteen week period ended September 26, 1998.
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:___________________________________
William T. Giles
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
Date: November 10, 1998
<TABLE>
<CAPTION>
EXHIBIT 11
LINENS 'N THINGS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR THE THIRTEEN WEEKS ENDED FOR THE THIRTY-NINE WEEKS ENDED
-------------------------------- -----------------------------------
SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27,
1998 1997 1998 1997
-------------- ------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Basic
Weighted-average number of shares outstanding 38,955 38,617 38,868 38,563
============== ============= ============ =============
Net income applicable to common shares $ 11,018 $ 7,532 $ 15,319 $ 8,872
============== ============= ============ =============
Per-share amounts
Net income per share $0.28 $0.20 $0.39 $0.23
============== ============= ============ =============
Diluted
Weighted-average number of shares outstanding 40,508 39,676 40,387 39,423
============== ============= ============ =============
Net income applicable to common shares $ 11,018 $ 7,532 $ 15,319 $ 8,872
============== ============= ============ =============
Per-share amounts
Net income per share $0.27 $0.19 $0.38 $0.23
============== ============= ============ =============
</TABLE>
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 October 13, 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
November 10, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-26-1998
<CASH> 15,847
<SECURITIES> 0
<RECEIVABLES> 19,810
<ALLOWANCES> 0
<INVENTORY> 294,161
<CURRENT-ASSETS> 346,404
<PP&E> 226,655
<DEPRECIATION> 62,562
<TOTAL-ASSETS> 536,863
<CURRENT-LIABILITIES> 203,548
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 298,570
<TOTAL-LIABILITY-AND-EQUITY> 536,863
<SALES> 718,773
<TOTAL-REVENUES> 718,773
<CGS> 435,375
<TOTAL-COSTS> 258,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 24,913
<INCOME-TAX> 9,594
<INCOME-CONTINUING> 15,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,319
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.38
</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> 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> 159,514
<BONDS> 0
0
0
<COMMON> 386
<OTHER-SE> 262,371
<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> 0.23
<EPS-DILUTED> 0.23
</TABLE>
