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 July 3, 1999
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 12, 1999
----- ------------------------------
Common Stock, $0.01 par value 39,471,269
<PAGE>
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INDEX
<S> <C>
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Statements of Operations for the
Thirteen and Twenty-Six Weeks Ended July 3, 1999
and June 27, 1998 3
Consolidated Balance Sheets as of July 3, 1999,
December 31, 1998 and June 27, 1998 4
Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended July 3, 1999
and June 27, 1998 5
Notes to Consolidated Financial Statements 6
Independent Auditors' Review Report 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
(a) Exhibit Index 13
(b) Reports on Form 8-K 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------------- -------------------------------
July 3, 1999 June 27, 1998 July 3, 1999 June 27, 1998
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $271,628 $222,094 $545,168 $440,131
Cost of sales, including buying and warehousing costs 160,733 133,218 327,581 267,925
------------- -------------- -------------- -------------
Gross profit 110,895 88,876 217,587 172,206
Selling, general and administrative expenses 102,454 84,179 203,497 165,312
------------- -------------- -------------- -------------
Operating profit 8,441 4,697 14,090 6,894
Interest expense (income), net 143 103 (55) (100)
------------- -------------- -------------- -------------
Income before provision for income taxes 8,298 4,594 14,145 6,994
Provision for income taxes 3,195 1,768 5,447 2,693
------------- -------------- -------------- -------------
Net income $ 5,103 $ 2,826 $ 8,698 $4,301
============= ============== ============= =============
Per share of common stock:
Basic
Net income per share $ 0.13 $ 0.07 $ 0.22 $ 0.11
Weighted average shares outstanding 39,362 38,885 39,259 38,824
Diluted
Net income per share $ 0.12 $ 0.07 $ 0.21 $ 0.11
Weighted average shares outstanding 41,074 40,500 40,968 40,354
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
July 3, December 31, June 27,
1999 1998 1998
------------------ ------------------ -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,901 $42,638 $ 4,858
Accounts receivable, net 22,368 22,814 17,559
Inventories 332,626 271,389 271,265
Prepaid expenses and other current assets 24,834 18,567 15,848
------------------ ------------------ -------------------
Total current assets 383,729 355,408 309,530
Property and equipment, net 200,556 179,439 158,101
Goodwill, net 20,251 20,676 21,101
Deferred charges and other noncurrent assets, net 5,393 5,321 6,207
------------------ ------------------ -------------------
Total assets $609,929 $560,844 $494,939
================== ================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $157,156 $115,754 $119,888
Accrued expenses and other current liabilities 73,239 84,761 55,291
------------------ ------------------ -------------------
Total current liabilities 230,395 200,515 175,179
Deferred income taxes and other long-term liabilities 41,139 36,753 32,903
Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding -- -- --
Common stock, $0.01 par value; 135,000,000 shares
authorized at July 3, 1999 and 60,000,000 shares
authorized at December 31, 1998 and June 27, 1998;
39,470,319 shares issued and 39,393,842 outstanding
at July 3, 1999; 39,091,281 shares issued and
39,037,948 outstanding at December 31, 1998;
and 38,898,106 shares issued and 38,828,238
outstanding at June 27, 1998 395 391 389
Additional paid-in capital 218,539 211,378 208,093
Retained earnings 121,895 113,197 79,436
Treasury stock, at cost, 76,477 shares at
July 3, 1999; 53,333 at
December 31, 1998 and 69,868 at
June 27, 1998 (2,434) (1,390) (1,061)
------------------ ------------------ -------------------
Total shareholders' equity 338,395 323,576 286,857
------------------ ------------------ -------------------
Total liabilities and shareholders' equity $609,929 $560,844 $494,939
================== ================== ===================
</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
-----------------------------------------
July 3, June 27,
1999 1998
------------------- ------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,698 $ 4,301
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 12,637 10,218
Deferred income taxes 1,784 209
Loss on disposal of assets 542 517
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 446 (3,795)
Increase in inventories (61,237) (48,077)
Increase in prepaid expenses and other
current assets (5,465) (2,151)
Increase in deferred charges (429) (354)
Increase in accounts payable 37,479 4,536
(Decrease) increase in accrued expenses and
other liabilities (5,303) 1,580
------------------- ------------------
Net cash used in operating activities (10,848) (33,016)
------------------- ------------------
Cash flows from investing activities:
Additions to property and equipment (33,163) (13,584)
------------------- ------------------
Cash flows from financing activities:
Proceeds and Federal tax benefit from common
stock exercised under stock incentive plans 7,165 3,582
Increase in treasury stock (1,044) (1,061)
(Decrease) increase in book overdrafts (847) 9,055
------------------- ------------------
Net cash provided by financing activities 5,274 11,576
------------------- ------------------
Net decrease in cash and cash equivalents (38,737) (35,024)
Cash and cash equivalents at beginning of year 42,638 39,882
------------------- ------------------
Cash and cash equivalents at end of period $ 3,901 $ 4,858
=================== ==================
</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,
1998 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 July 3, 1999 and June 27, 1998 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, 1998, 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, 1998 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. As of July 3, 1999, the Company was in compliance with the
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 July 3, 1999, the Company had no borrowings under
the Credit Agreement or against the uncommitted lines of credit.
3. 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 approximately 39,362,000 and 38,885,000 for the thirteen
weeks ended July 3, 1999 and June 27, 1998, respectively, and approximately
39,259,000 and 38,824,000 for the twenty-six weeks ended July 3, 1999 and June
27, 1998, 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 approximately 41,074,000 and 40,500,000 for the thirteen weeks
ended July 3, 1999 and June 27, 1998, respectively, and approximately 40,968,000
and 40,354,000 for the twenty-six weeks ended July 3, 1999 and June 27, 1998,
respectively.
4. 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
July 3, 1999, the liability under the Plan, which is reflected in other
long-term liabilities, was $5.5 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 July 3, 1999 and June 27, 1998, 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 July 3, 1999 and June 27, 1998. 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, 1998 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 3, 1999, 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, 1998, is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
KPMG LLP
New York, New York
July 21, 1999
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 July 3, 1999 Compared with Thirteen Weeks Ended June 27,
1998
Net sales increased 22.3% to $271.6 million for the thirteen weeks ended July 3,
1999, up from $222.1 million for the same period in 1998, primarily as a result
of new store openings since June 27, 1998. Comparable store net sales for the
thirteen weeks ended July 3, 1999 increased 6.4% as compared with an increase of
6.0% for the same period last year. Comparable store net sales as a whole
continued to remain strong across most major geographic regions.
During the thirteen weeks ended July 3, 1999, the Company opened eleven stores
and closed three stores, compared with opening eight stores and closing four
stores during the same period last year. At July 3, 1999, the Company operated
204 stores, of which 196 were superstores, compared with 178 stores, of which
163 were superstores, at June 27, 1998. Store square footage increased 19.6% to
6,924,000 at July 3, 1999 compared with 5,787,000 at June 27, 1998.
For the thirteen weeks ended July 3, 1999, net sales of "things" merchandise
increased approximately 30% over the same period in 1998, while net sales of
"linens" merchandise increased approximately 15% over the same period in 1998.
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 new and existing stores.
Gross profit for the thirteen weeks ended July 3, 1999 was $110.9 million, or
40.8% of net sales, compared with $88.9 million, or 40.0% of net sales, for the
same period last year. The increase in gross profit was due primarily to
improvements in the selling mix which included a higher penetration of seasonal
merchandise which has a higher markon. This was offset in part by logistics
costs related to the start up of the Company's second distribution center.
Selling, general and administrative expenses for the thirteen weeks ended July
3, 1999 were $102.5 million, or 37.7% of net sales, compared with $84.2 million,
or 37.9% of net sales, for the same period last year. This decrease as a
percentage of net sales is primarily a function of increased leverage through
strong comparable store net sales coupled with fewer store closings than in the
same period last year. However, these savings were partially offset by
additional selling expense as the Company continues to invest in payroll in
order to improve guest service levels. Management believes the improvement in
guest service has contributed to the strong comparable store net sales
performance.
Operating profit for the thirteen weeks ended July 3, 1999 increased to $8.4
million, or 3.1% of net sales, compared with $4.7 million, or 2.1% of net sales,
for the same period last year.
The Company incurred net interest expense of approximately $143,000 (including
commitment fees in connection with the Company's $90 million credit agreement)
for the thirteen weeks ended July 3, 1999, compared with approximately $103,000
for the same period in 1998.
The Company's income tax expense for the thirteen weeks ended July 3, 1999 was
approximately $3.2 million as compared with $1.8 million for the same period
last year. The Company's effective tax rate was 38.5% for the thirteen weeks
ending July 3, 1999 and June 27, 1998.
<PAGE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income for the thirteen weeks ended July 3, 1999 increased to $5.1 million,
or $0.12 per share, compared with $2.8 million, or $0.07 per share, for the same
period last year.
Twenty-Six Weeks Ended July 3, 1999 Compared with Twenty-Six Weeks Ended June
27, 1998
Net sales increased 23.9% to $545.2 million for the twenty-six weeks ended July
3, 1999, up from $440.1 million for the same period in 1998, primarily as a
result of new store openings since June 27, 1998. Comparable store net sales for
the twenty-six weeks ended July 3, 1999 increased 6.4% as compared with an
increase of 6.7% for the same period last year. Comparable store net sales as a
whole continued to remain strong across most major geographic regions.
During the twenty-six weeks ended July 3, 1999, the Company opened fourteen
stores and closed six stores, compared with opening eleven stores and closing
nine stores during the same period last year.
For the twenty-six weeks ended July 3, 1999, net sales of "things" merchandise
increased approximately 30% over the same period in 1998, while net sales of
"linens" merchandise increased approximately 15% over the same period in 1998.
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 new and existing stores.
Gross profit for the twenty-six weeks ended July 3, 1999 was $217.6 million, or
39.9% of net sales, compared with $172.2 million, or 39.1% of net sales, for the
same period last year. The increase in gross profit was due primarily to
improvements in the selling mix which included a higher penetration of seasonal
merchandise which has a higher markon. This was offset in part by logistics
costs related to start up costs of the Company's second distribution center.
Selling, general and administrative expenses for the twenty-six weeks ended July
3, 1999 were $203.5 million, or 37.3% of net sales, compared with $165.3
million, or 37.6% of net sales, for the same period last year. This decrease as
a percentage of net sales is primarily a function of increased leverage through
strong comparable store net sales coupled with fewer store closings than in the
same period last year. However, these savings were partially offset by
additional selling expense as the Company continues to invest in payroll in
order to improve guest service levels. Management believes the improvement in
guest service has contributed to the strong comparable store net sales
performance.
Operating profit for the twenty-six weeks ended July 3, 1999 increased to $14.1
million, or 2.6% of net sales, compared with $6.9 million, or 1.6% of net sales,
for the same period last year.
The Company earned net interest income of approximately $55,000 (net of
commitment fees in connection with the Company's $90 million credit agreement)
for the twenty-six weeks ended July 3, 1999, compared with approximately
$100,000 for the same period in 1998.
The Company's income tax expense for the twenty-six weeks ended July 3, 1999 was
$5.4 million as compared with $2.7 million for the same period last year. The
Company's effective tax rate was 38.5% for the twenty-six weeks ending July 3,
1999 and June 27, 1998.
Net income for the twenty-six weeks ended July 3, 1999 increased to $8.7
million, or $0.21 per share, compared with $4.3 million, or $0.11 per share, for
the same period last year.
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 that became fully functional in June 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 to fund anticipated capital
expenditures and working capital requirements in the foreseeable future.
Net cash used in operating activities for the twenty-six weeks ended July 3,
1999 was $10.8 million compared with $33.0 million for the same period last
year. The decrease in net cash used in operating activities was due to an
increase in accounts payable as compared with last year resulting from increased
inventory levels and the timing of vendor payments. The increase in inventory
primarily resulted from the increased number of new stores since June 27, 1998.
Net cash used in investing activities during the twenty-six weeks ended July 3,
1999 was $33.2 million compared with $13.6 million for the same period last
year. The increase is associated with the timing and number of the Company's new
store openings, as well as capital expenditures for the second distribution
center located in southern New Jersey which became fully functional in June
1999. Also, more of the stores scheduled for remodel were completed earlier in
the year as compared with the prior year.
Net cash provided by financing activities during the twenty-six weeks ended July
3, 1999 was $5.3 million compared with $11.6 million for the same period last
year. Net cash provided during the twenty-six weeks ended July 3, 1999 was
primarily the result of proceeds and Federal tax benefits related to common
stock exercised under stock incentive plans, offset by the timing and settlement
of vendor payments.
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, the principal components
of which are:
Phase I: Identification and ranking of those internal Company systems,
technology and equipment considered critical or substantially
important to the flow of its operations; and communication with
certain significant suppliers and vendors to the Company concerning
their Year 2000 readiness
Phase II: Assessment of items identified in Phase I
Phase III: Remediation or replacement of non-compliant identified
internal systems and components and determination of solutions for
non-compliant suppliers and vendors
Phase IV: Testing of systems and components
<PAGE>
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Phase V: Developing a contingency plan to address the most reasonably
likely worst case scenarios with respect to Year 2000
The identification and assessment phases of the Year 2000 program with respect
to the Company's systems and equipment have been completed for the Company's
mission critical and other major information technology systems and hardware
("IT Systems") and for the Company's non-information technology equipment known
to the Company to have microchips or other embedded technology and considered
critical or substantially important to the flow of its operations ("non-IT
Company Equipment"). The Company has also completed the remediation phase for
its IT Systems and its non-IT Company Equipment and completed testing for its
mission critical IT Systems. The Company currently expects to complete the
testing phase for its IT Systems and non-IT Company Equipment, including
installation and testing of Year 2000 versions, by the end of the third 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 continues to be in the process of communicating with
major business suppliers and vendors in order to endeavor to determine their
state of readiness with respect to Year 2000. Assessment of significant third
party Year 2000 readiness is expected to be completed by the third quarter of
1999. Failure of 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 tend to 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, failure of one or
more of the Company's internal systems which disrupt its normal sales or other
operations, failure of suppliers or vendors (or of entities which supply
products, services or materials to them) to be Year 2000 ready, 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 centers. The Company is in the
process of developing a contingency plan for certain mission critical systems,
which is expected to be substantially completed during the third quarter of 1999
and will be based on its continuing assessment of potential risks.
The Company does not expect the costs associated with this Year 2000 project
(including internal personnel costs) 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 be Year 2000 compliant or for implementing any
contingency plans.
<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 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 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 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 and schedule of store expansion plans, any potential disruptions to
the Company's operations caused by any Year 2000 failures related to the
Company's systems, equipment or third parties. 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 21, 1999, the Company held its Annual Meeting of Shareholders. At the
Annual Meeting, Norman Axelrod and Charles C. Conaway were re-elected as
directors of the Company, with 31,789,118 shares voted for and 485,418 shares
withheld for Mr. Axelrod and 31,819,296 shares voted for and 455,240 shares
withheld for Mr. Conaway. Directors whose term of office continued following the
meeting were: Stanley P. Goldstein, Philip E. Beekman and Harold F. Compton.
Also at the Annual Meeting of Shareholders, the proposal to increase the
authorized common stock to 135,000,000 shares was passed with 28,505,503 shares
voted for, 3,758,015 shares voted against and 11,018 shares abstaining.
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 Current Report on Form 8-K dated May 5, 1999 setting forth a
copy of the Certificate of Amendment to the Company's Amended and Restated
Certificate of Incorporation increasing the number of authorized shares of
common stock from 60 million shares to 135 million shares.
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
Vice President, Chief
Financial Officer
(Duly authorized officer
and principal financial officer)
Date: August 13, 1999
<TABLE>
LINENS 'N THINGS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands, except share amounts)
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
--------------- ------------- --------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Basic
Weighted-average number of shares outstanding 39,362 38,885 39,259 38,824
=============== ============= =============== ============
Net income applicable to common shares $5,103 $ 2,826 $ 8,698 $ 4,301
=============== ============= =============== ============
Per share amounts
Net income per share $0.13 $0.07 $0.22 $0.11
=============== ============= =============== ============
Diluted
Weighted-average number of shares outstanding 41,074 40,500 40,968 40,354
=============== ============= =============== ============
Net income applicable to common shares $5,103 $ 2,826 $ 8,698 $ 4,301
=============== ============= =============== ============
Per share amounts
Net income per share $0.12 $0.07 $0.21 $0.11
=============== ============= =============== ============
</TABLE>
Accountants' Acknowledgment
Linens 'n Things, Inc.
Clifton, New Jersey
Board of Directors:
Re: Registration Statements Numbers 333-26819, 333-26827,
333-55803 and 333-71903 on Form S-8
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated April 19, 1999 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 LLP
New York, New York
August 13, 1999
<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-31-1999
<PERIOD-END> JUL-03-1999
<CASH> 3,901
<SECURITIES> 0
<RECEIVABLES> 22,368
<ALLOWANCES> 0
<INVENTORY> 332,626
<CURRENT-ASSETS> 383,729
<PP&E> 277,948
<DEPRECIATION> 77,392
<TOTAL-ASSETS> 609,929
<CURRENT-LIABILITIES> 230,395
<BONDS> 0
0
0
<COMMON> 395
<OTHER-SE> 338,000
<TOTAL-LIABILITY-AND-EQUITY> 609,929
<SALES> 545,168
<TOTAL-REVENUES> 545,168
<CGS> 327,581
<TOTAL-COSTS> 203,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (55)
<INCOME-PRETAX> 14,145
<INCOME-TAX> 5,447
<INCOME-CONTINUING> 8,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,698
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.21
</TABLE>
