SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K405
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934. (FEE REQUIRED)
For the fiscal year ended January 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934. (NO FEE REQUIRED)
For the transition period from ...... to ......
Commission file number 1-9769
LANDS' END, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2512786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lands' End Lane, Dodgeville, WI 53595
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code: 608-935-9341
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
As of March 21, 1997, the aggregate market value of the Common Stock of the
registrant held by non-affiliates of the registrant was $373,548,917.
The number of shares of Common Stock ($0.01 par value) outstanding as of
March 21, 1997, was 32,408,830.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Notice of 1997 Annual Meeting and Part III, Items 10,
Proxy Statement dated April 14, 1997 11, 12 and 13
Lands' End, Inc. & Subsidiaries
Index To
Annual Report On Form 10-K
For Year Ended January 31, 1997
Part I. Page
----
Item 1. Business ............................................. 3-9
Executive Officers of the Registrant ................. 9
Item 2. Properties ........................................... 10-11
Item 3. Legal Proceedings .................................... 11
Item 4. Submission of Matters to a Vote of Security Holders .. 11
Part II.
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters ................................ 12
Item 6. Selected Consolidated Financial Data ................. 13
Item 7. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ...... 14-19
Item 8. Consolidated Financial Statements and Supplementary
Data ............................................... 20-35
Item 9. Changes in and Disagreements on Accounting and
Consolidated Financial Disclosure................... 36
Part III.
Item 10. Directors and Executive Officers of the Registrant.... 36
Item 11. Executive Compensation ............................... 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management ......................................... 36
Item 13. Certain Relationships and Related Transactions ....... 36
Part IV.
Item 14. Exhibits, Consolidated Financial Statement Schedules,
and Reports on Form 8-K ............................ 37
Signatures .......................................................... 38
2
PART I.
Item 1. Business
Lands' End, Inc., is a leading direct merchant of traditionally styled,
casual clothing for men, women and children, accessories, domestics,
shoes and soft luggage. The company strives to provide products of
exceptional quality at prices representing honest value, enhanced by a
commitment to excellence in customer service and an unconditional
guarantee. The company offers its products principally through regular
mailings of its monthly primary catalogs and its specialty catalogs.
The company's growth strategy has three key elements. First, the
company seeks to increase sales from its regular catalogs in the United
States both by expanding its customer base and by increasing sales to
its existing customers through improvements in its merchandise offerings
and creative presentations. Second, the company endeavors to generate
additional sales by making targeted mailings of its specialty catalogs
to existing and prospective customers. Third, the company is actively
pursuing opportunities to apply its merchandising, marketing and order
fulfillment skills abroad by continuing its efforts in the United
Kingdom and Japan and by the launching of operations in Germany.
Date of Incorporation
The Registrant was incorporated in Illinois in 1963 and became a
Delaware corporation in 1986.
Catalogs and Marketing
Lands' End views each catalog issue as a unique opportunity to
communicate with its customers. Products are described in visual and
editorial detail in which the company shares its view of the benefits
and features of its merchandise. The catalogs use such techniques as
background stories, monthly publication and distinctive covers to
stimulate the reader's interest, combining a consistent theme with
varying monthly features.
During fiscal 1997, the company mailed 12 issues of its regular
monthly (primary) catalog with an average of 147 pages per issue from
its U.S. based operations. Worldwide, the company mailed approximately
211 million full-price catalogs, including specialty catalogs and
abridged issues.
Regular (Primary) and Prospector Catalogs (U.S. Based Operations)
Each issue of the regular catalog offers certain basic product lines for
men and women (including knit shirts, sweaters, dress and sport shirts,
casual pants, dresses, skirts, accessories, and soft luggage) that
customers have come to expect. The regular catalog also offers seasonal
merchandise, such as swimsuits, outerwear and holiday gifts. In
addition to the mailings of the regular catalog, each year Lands' End
generally mails two end-of-season clearance catalogs, interim catalogs
3
and a "Last Chance Before Christmas" catalog. The company mails an
abridged version of its regular catalog to prospective customers who
are identified based on lists of magazine subscribers and customers of
other direct marketers and on lists compiled of households meeting
certain demographic criteria. In addition, the company identifies
prospective new customers through its national advertising campaign.
Specialty Catalogs (U.S. Based Operations)
In fiscal 1991, the company introduced Kids, Coming Home, and Beyond
Buttondowns. The Kids catalog offers children's clothing. The Coming
Home catalog offers domestic products, primarily bedding and bath items.
Beyond Buttondowns offers men's tailored clothing and accessories. In
fiscal 1994, the company introduced Textures, which was revamped as
First Person Singular in fiscal 1997. First Person Singular features
women's tailored clothing and accessories. In fiscal 1997, the company
mailed six issues each of its Kids and Coming Home catalogs, four issues
of its Beyond Buttondowns catalogs, and two issues of its First Person
Singular catalogs.
In fiscal 1994, the company purchased a majority interest in The
Territory Ahead. In fiscal 1997, The Territory Ahead mailed 7 issues of
its catalogs. Also in fiscal 1997, the company signed a non-binding
letter of intent to sell its majority interest in The Territory Ahead.
In the first quarter of fiscal 1998, the company sold The Territory
Ahead and will record an after-tax gain of approximately $5.0 million.
In fiscal 1994, Corporate Sales, the company's business-to-business
catalog, was introduced. Corporate Sales offers quality products to
groups, teams and clubs or to companies that use Lands' End's
merchandise for corporate premiums or incentive programs. The company's
embroidery capabilities allow for the design and monogram of unique
logos or emblems for groups. In fiscal 1997, the company mailed five
issues of its Corporate Sales catalogs.
In fiscal 1995, the company purchased the trademark of Willis &
Geiger Company, a respected brand that offers apparel and related
products targeted to the outdoor enthusiast. There were four issues of
Willis & Geiger catalogs mailed in fiscal 1997.
Lands' End had a licensing agreement with MontBell (Japan) from
July 1994 to January 1996, through its wholly owned subsidiary
MontBell America, Inc. Then in January 1997, the company entered into a
licensing agreement with MontBell Company, Ltd. (Japan), headquartered
in Osaka, Japan, giving Lands' End exclusive rights to use the MONTBELL
trademark in the United States, Canada, Mexico, and Europe. Under this
new agreement, Lands' End has an exclusive license to use the MONTBELL
trademark and product designs in association with the manufacturing,
marketing and selling of MONTBELL products as a separate line in Lands'
End's regular monthly catalog.
In fiscal 1998, the company will launch its first Kid's Uniform catalog.
This catalog will target the growing uniform trend in many school
districts, including public ones. 4
Pan International (U.S. Based Operations)
Through the company's Pan International business, regular mailings of
primary and prospecting catalogs are sent to customers in more than 175
countries throughout the world.
The company discontinued its licensing agreement with Myer Direct in
Australia, but will continue to develop this counter-seasonal business
through its Dodgeville operations instead.
International (Foreign Based Operations)
In September 1991, the company launched its first United Kingdom (U.K.)
catalog denominated in British pound sterling. In August 1993, the
company opened a telephone order and distribution center in
Oakham, England, which allowed the company to fill orders locally and
greatly reduce delivery time to U.K. customers. Construction of a new
office building and distribution center in Oakham will commence in
fiscal 1998. Thirteen issues of the pound-denominated U.K. catalog were
mailed in fiscal 1997.
In the fall of 1994, the company launched operations in Japan, and in
fiscal 1997, the company mailed six issues of the Japanese-language,
yen-denominated catalog. The company's phone center and administrative
functions operate from its Yokohama offices. The distribution center
moved to Fujieda from Maebashi in fiscal 1997 to accommodate future
growth. Packages are delivered from this warehouse in Fujieda which
is managed by Lands' End's employees, but is supported by an independent
fulfillment company.
In August 1996, the company launched its first German-language,
Deutschemark-denominated catalog. Two issues were mailed during fiscal
1997. The company's phone center and administrative functions operate
from its Mettlach offices. Orders are packed and shipped from the
Lands' End European distribution center in Oakham, England.
Alternative Media
The company believes that ways of reaching customers other than by
regular catalog mailings may become increasingly important in the
future. The company actively experiments with alternative technologies
and offers services to its customers on the Internet's World Wide Web.
The company will continue to explore the development of interactive
shopping to meet its customer's expectations. However, marketing the
company's products through regular and specialty catalogs is expected to
remain the primary means of communicating with customers.
Customers
A principal factor in the company's success to date has been the
development of its own list of active customers, many of whom have been
identified through their response to the company's advertising. At the
5
end of fiscal 1997, the company's mailing list consisted of about 25.6
million persons, approximately 9.6 million of whom are viewed as
"customers" because they have made at least one purchase from the
company within the last 36 months. The company routinely updates and
refines this list prior to individual catalog mailings to monitor
customer interest as reflected in criteria such as the recency,
frequency, dollar amount, and product type of purchases.
The company believes that its customer list has desirable demographic
characteristics and is well-suited to the products offered in the
company's catalogs. A customer research survey conducted by the company
in the United States during 1996 indicated that approximately 51 percent
of its customers were in the 35-54 age group and had median incomes of
$60,000. This research indicated that approximately 83 percent of
customers attended or graduated from college.
The company conducts a national advertising campaign intended to build
the company's reputation and to attract new customers. In fiscal 1997,
this advertising appeared in about 60 national magazines, as well as on
national television and radio. In addition, the company advertises in
approximately 100 national, regional and local publications in Canada,
the U.K., Japan, the Middle East, and in Pacific Rim countries.
Product Development
Lands' End concentrates on traditional clothing and other products that
are classically inspired, simply styled and quality crafted to meet the
changing tastes of the company's customers rather than to mimic the
changing fads of the fashion world. At the same time, the company seeks
to maintain customer interest by developing new product offerings,
improving existing core products and reinforcing its value positioning.
The company continues to incorporate innovations in fabric, construction
and detail that add value and excitement and differentiate Lands' End
from the competition. In order to ensure that products are manufactured
to the company's quality standards at reasonable prices, product
managers, designers and quality assurance specialists develop the
company's own product. They also specify the fibers, fabric
construction and manufacturing source for each item and are responsible
for the styling and quality features of the products.
As part of its "direct merchant" philosophy, Lands' End deals directly
with its suppliers and seeks to avoid intermediaries. All goods are
produced by independent manufacturers, except for most of our soft
luggage which is assembled at the company's own facilities. During
fiscal 1997, the company purchased merchandise from more than 470
domestic and foreign manufacturers, and no single manufacturer accounted
for more than 10 percent of company purchases in each of the last three
fiscal years. In fiscal 1997, nearly 37% of our merchandise was
imported. The remaining 63% of our merchandise was purchased through
United States based suppliers who may source portions of their
production through programs in Central America. The company will
continue to take advantage of worldwide sourcing without sacrificing
6
customer service or quality standards. The availability and cost of
certain foreign products may be affected by United States trade policies
and the value of the United States dollar relative to foreign
currencies.
Order Entry and Fulfillment
The company attempts to simplify catalog shopping as much as possible
and believes that its fulfillment systems are among the best in the
United States. Lands' End utilizes toll-free telephone numbers which
may be called 24 hours a day, seven days a week (except Christmas Day)
to place orders or to request a catalog. Approximately 80 - 90 percent
of catalog orders are placed by telephone. Telephone calls are answered
by as many as 2,800 well-trained sales representatives who utilize on-
line computer terminals to enter customer orders and to retrieve
information about product characteristics and availability. Additional
services are provided through the use of AT&T language lines to serve
foreign customers and TDD (telephone device for the deaf). The
company's three U.S. telephone centers are located in Dodgeville, Cross
Plains and Reedsburg, Wisconsin. International telephone centers are
located in Oakham, England, Yokohama, Japan and Mettlach, Germany.
The company has achieved efficiencies in order entry and fulfillment
that permits the shipment of in-stock orders on the following day,
except orders requiring monogramming or inseaming, which typically
require one or two extra days. The company's sales representatives
enter orders into an on-line order entry and inventory control system.
Computer processing of orders is performed each night on a batch basis,
at which time picking tickets are printed with bar codes for optical
scanning. Inventory is picked based on the location of individual
products rather than orders, followed by computerized sorting and
transporting of goods to multiple packing stations and shipping zones.
The computerized inventory control system also handles the receipt of
shipments from manufacturers, permitting faster access to newly arrived
merchandise, as well as the handling of customer return items.
Orders are generally shipped by United Parcel Service (UPS) at various
tiered rates dependent upon the total dollar value of each customer's
order. Other expedited delivery services are available at additional
charges. The company utilizes a two-day UPS service at standard rates,
enhancing its customer service.
Merchandise Liquidation
Liquidations, sales of overstocks and end-of-season merchandise at
reduced prices, were approximately 9 percent, 11 percent and 10 percent
of net sales in fiscal 1997, 1996 and 1995, respectively. A majority of
liquidation sales were made through catalogs and other print media.
The balance was sold principally through the company's outlet and inlet
retail stores.
7
Competition
The company's principal competitors are retail stores, including
specialty shops, department stores, and other catalog companies. The
company may also face increased competition from other retailers as the
number of television shopping channels and the variety of merchandise
offered through electronic media increase. The apparel retail business
in general is intensely competitive. Lands' End competes principally on
the basis of merchandise value (quality and price), its established
customer list and customer service, including fast order fulfillment and
its unqualified guarantee.
The company is one of the leading catalog companies in the U.S. The
company attributes the growth in the catalog industry to many factors
including customer convenience, widespread use of credit cards, the use
of toll-free telephone lines, customers having less time to shop in
stores, and purchasing of product on-line through various computer
networks. At the same time, the catalog business is subject to
uncertainties in the economy, which result in fluctuating levels of
overall consumer spending. Due to the lead times required for catalog
production and distribution, catalog retailers may not be able to
respond as quickly as traditional retailers in an environment of rapidly
changing prices.
Trademarks
The company uses the trademarks of "Lands' End" and "Coming Home" on
products and catalogs. Some of the trademarks used in the catalogs
include "Super-T" shirts, "Squall" jackets and "Drifter" sweaters. With
the exception of "Lands' End" and "Coming Home", the company believes
that loss or abandonment of any particular trademark would not
significantly affect its business.
Seasonality of Business
The company's business is highly seasonal. Historically, a
disproportionate amount of the company's net sales and a majority of its
profits have been realized during the fourth quarter. If the company's
sales were materially different from seasonal norms during the fourth
quarter, the company's annual operating results could be materially
affected. In addition, as the company continues to refine its marketing
efforts by experimenting with the timing of its catalog mailings,
quarterly results may fluctuate. Accordingly, results for the
individual quarters are not necessarily indicative of the results to be
expected for the entire year.
Employees
The company believes that its skilled and dedicated workforce is one of
its key resources. Employees are not covered by collective bargaining
agreements, and the company considers its employee relations to be
excellent. As a result of the highly seasonal nature of the company's
business, the size of the company's workforce varies, ranging from
8
approximately 5,700 to 8,400 individuals in fiscal 1997. During the
peak winter season of fiscal 1997, approximately 4,300 of the company's
approximately 8,400 employees were temporary employees.
Executive Officers of the Registrant
The following are the executive officers of the company:
Michael J. Smith, 36, is President and Chief Executive Officer of the
company. In 1983, Mr. Smith entered the employ of the company as a
Market Research Analyst, became Circulation Manager of Planning in 1985,
and was promoted to Manager of Merchandise Planning and Research in
1988. In 1990, he was named Managing Director of Coming Home and was
elected Vice President of that business in 1991. He assumed his present
position and was elected as director of the company in December 1994.
William E. Ferry, 56, is Vice Chairman of Sales since rejoining the
company in July 1996. Mr. Ferry served as Executive Vice President,
Merchandising, with the company between 1981 and 1986. Mr. Ferry was
the President and Chief Executive Officer for Eastern Mountain Sports
from 1986 until 1996. He has been serving as a director of the company
since November 1996.
Stephen A. (Chip) Orum, 51, is Executive Vice President and Chief
Operating Officer. Mr. Orum joined the company as Vice President and
Chief Financial Officer in June 1991, and was appointed Senior Vice
President and Chief Financial Officer in February 1993. He was promoted
to his present position in October 1994. Mr. Orum was employed by Jos.
A. Bank Clothiers, Inc. since 1982 in various capacities, reaching the
position of Executive Vice President and Chief Financial Officer.
Bradley K. Johnson, 40, is Senior Vice President, Chief Administrative
Officer and Chief Financial Officer. Mr. Johnson joined the company in
May 1996 assuming his current position. He was employed by Wilsons The
Leather Experts, a subsidiary of Melville Co. since 1989 in various
capacities, reaching the position of Vice President of Operations and
Chief Financial Officer.
Francis P. Schaecher, 49, is Senior Vice President of Operations. Mr.
Schaecher joined the company in 1982 as Operations Manager. He served
as Vice President of Operations from 1983 until 1990, at which time he
assumed his present position.
All executive officers serve at the pleasure of the Board of Directors.
There is no family relationship between any of the executive officers of
the company. None of the company's directors or executive officers were
involved in any criminal proceeding (excluding traffic violations or
similar misdemeanors) nor was any such person a party to any civil
proceeding of a judicial or administrative body of competent
jurisdiction as a result of which such person was or is subject to a
judgment decree or final order enjoining future violations of or
prohibiting or mandating activities subject to federal or state
securities laws or finding any violation with respect to such laws.
9
Item 2. Properties
The following table sets forth certain information of the company
and its subsidiaries relating to their principal facilities as of
January 31, 1997. None of these properties is subject to mortgage or
collateral assignment.
Type of
Location Interest
Domestic Properties:
Wisconsin:
Warehouses in Dodgeville and Reedsburg Owned
Phone centers and offices in Dodgeville,
Cross Plains and Reedsburg Owned
Activity Center in Dodgeville Owned
Hangars in Madison and Mineral Point Owned
Outlet stores in Brookfield, Fox Point,
Madison, Oshkosh, and Dodgeville Leased
Offices in Madison Leased
Iowa:
Manufacturing plants in West Union and Elkader Owned
Outlet stores in Iowa City and West Des Moines Leased
Illinois:
Outlet stores in Chicago, Evanston, Lombard,
Niles, Schaumburg, Vernon Hills, Champaign,
Springfield, and Rockford Leased
Minnesota:
Inlet (B) stores in Richfield and Minnetonka Leased
New York:
Inlet store in Rochester Leased
California:
Warehouse, phone center, offices, and retail Leased(A)
store in Santa Barbara
International Properties:
United Kingdom:
Warehouse, phone center, outlet store, Leased
and offices in Oakham
Outlet store in Bicester Village Leased
Japan:
Warehouse in Fujieda City Leased
Offices and phone center in Yokohama Leased
Germany:
Offices and phone center in Mettlach Leased
The company believes that its facilities are in good condition, well
maintained and suitable for their intended uses. The company will expand
10
its facilities in Dodgeville, Wisconsin, and the United Kingdom to allow
for future growth. The company plans to open additional inlet and outlet
retail stores.
(A) Leased by The Territory Ahead
(B) The company introduced its "inlet" (originally known only as outlet)
concept during fiscal 1997 with the opening of its store in
Richfield, Minnesota. The "inlet" store enhances the traditional
outlet "overstock" store and offers face-to-face catalog shopping
within a store. The "inlet" stores carry a limited selection of
Lands' End signature items at regular catalog prices, along with
expanded customer service that catalog customers have come to
expect.
Item 3. Legal Proceedings
There are no material legal proceedings presently pending, except for
routine litigation incidental to the business, to which the company
is a party or of which any of its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended January 31, 1997.
11
PART II.
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
Market Information
The common stock of the company is listed and traded on the New York
Stock Exchange. The stock tables in most daily newspapers list the
company as "LandsE". Ticker symbol: LE. See Item 10 "Consolidated
Quarterly Analysis" for information on the high and low stock prices of
the company's common stock. The closing price of the company's
stock on the New York Stock Exchange on March 21, 1997, was $27 7/8 per
share.
Shareholders
As of March 21, 1997, the number of shareholders of record of common
stock of the company was 2,581. This number excludes shareholders whose
stock is held in nominee or street name by brokers.
Dividends
See Item 7 "Liquidity and capital resources" of Management's Discussion
and Analysis for the company's decision not to pay cash dividends during
fiscal years 1997, 1996 and 1995.
Stock Split
In May 1994, the company declared a two-for-one split in the company's
common stock that was effected as a stock dividend payable on June 15,
1994, to shareholders of record as of May 31, 1994.
12
Item 6. Selected Consolidated Financial Data
FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY (unaudited)
(In thousands, except per share data)
Fiscal Year
Fiscal Year 1997 1996 1995 19942 1993
Income statement data:
Net sales $1,118,743 $1,031,548 $992,106 $869,975 $733,623
Pretax income 84,919 50,925 59,663 69,870 54,033
Percent to net sales 7.6% 4.9% 6.0% 8.0% 7.4%
Net income before
cumulative effect of
change in accounting 50,952 30,555 36,096 42,429 33,500
Cumulative effect of
accounting change - - - 1,300 -
Net income 50,952 30,555 36,096 43,729 33,500
Per share of common stock: 1
Net income per share
before cumulative
effect of change in
accounting $1.54 $0.89 $1.03 $1.18 $0.92
Cumulative effect of
change in accounting - - - .04 -
Net income per share $1.54 $0.89 $1.03 $1.22 $0.92
Cash dividends per share - - - $0.10 $0.10
Common shares outstanding 32,442 33,659 34,826 35,912 36,056
Balance sheet data:
Current assets $272,039 $222,089 $198,168 $192,276 $137,531
Current liabilities 145,566 114,744 102,717 91,049 67,315
Property, plant, equipment
and intangibles, net 106,006 101,408 99,444 81,554 74,272
Total assets 378,045 323,497 297,612 273,830 211,803
Noncurrent liabilities 9,474 7,561 5,767 5,496 5,100
Shareholders'
investment 223,005 201,192 189,128 177,285 139,388
Other data:
Net working capital $126,473 $107,345 $ 95,451 $101,227 $ 70,216
Capital expenditures 17,992 14,780 27,005 16,958 9,965
Depreciation and
amortization expense 13,558 12,456 10,311 8,286 7,900
Return on average
shareholders'
investment 24% 16% 20% 28% 25%
Return on average assets 15% 10% 13% 18% 16%
1. Share data reflects the two-for-one stock split declared in May 1994.
2. Effective January 30, 1993, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" which
was recorded as a change in accounting principle at the beginning of
fiscal 1994 with an increase to net income of $1.3 million or $0.04 per
share.
13
Item 7. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
Results of operations for fiscal 1997, compared with fiscal 1996
Fiscal 1997 was a year of marked improvement. Sales began to improve
strongly in the last part of the third quarter. Because of this, we began
the holiday season with lower than optimal inventory levels and had to
disappoint more customers than in past seasons. Gross profit margins
improved throughout the year, as did the performance of the catalogs,
resulting in a 67 percent increase in net income for the year. Lands' End
operates on a 52-53 week year. Fiscal 1997 and fiscal 1995 were 52-week
years, and fiscal 1996 was a 53-week year.
Consolidated statements of operations presented as a percentage of net
sales:
For the period ended
January 31, February 2, January 27,
1997 1996 1995
Net sales 100.0% 100.0% 100.0%
Cost of sales 54.5 57.0 57.6
Gross profit 45.5 43.0 42.4
Selling, general and
administrative expenses 37.9 38.0 36.0
Charges from sale of subsidiary 0.1 0.2 0.4
Income from operations 7.5 4.8 6.0
Interest income (expense), net 0.1 (0.3) (0.2)
Other 0.0 0.4 0.2
Income before income taxes 7.6 4.9 6.0
Income tax provision 3.0 1.9 2.4
Net income 4.6% 3.0% 3.6%
14
Net sales grew by 8.5 percent
Net sales for the 52-week year just ended totaled $1.119 billion, compared
with $1.032 billion in the prior 53-week year, an increase of 8.5 percent.
Our sales increase in fiscal 1997 came mainly from growth in our specialty,
and international businesses, as well as from growth in our core business,
represented by the monthly and prospecting catalogs. This is primarily the
result of improvements in overall catalog productivity, or sales per page,
especially in our specialty catalogs. Productivity improvements and growth
in the core U.S. business were the result of stronger creative
presentations and more compelling products. The core U.S. business
accounted for about 60 percent of total net sales in the year just ended.
For the year, worldwide, we mailed 211 million full-price catalogs,
compared to the prior year's 200 million. However, the total number of
pages mailed was reduced by about 3 percent.
Our inventory balance at the end of fiscal 1997 was $142 million, down 14
percent from fiscal 1996 ending inventory of $165 million. Because of
strong sales in the third quarter of fiscal 1997, we entered the holiday
season with lower inventory levels and were unable to fill orders at our
usual seasonal rate in the fourth quarter. For the year, we shipped 86
percent of items ordered by customers at the time the order was placed,
compared with 90 percent in the prior year. This resulted in disappointing
many of our customers and increased both lost sales and the cost of
shipping a higher level of backorders.
Gross profit margin improved
Gross profit increased 15 percent to $510 million in fiscal 1997, compared
with $444 million in fiscal 1996. As a percentage of net sales, gross
profit rose to 45.5 percent in fiscal 1997, compared with 43.0 percent in
fiscal 1996. Our gross profit margin improvement was primarily due to
lower costs associated with liquidating overstocked product, lower
merchandise costs through improvements in sourcing and from a greater
proportion of sales from higher margin businesses. Liquidation of out-of-
season and overstocked merchandise was 9 percent of net sales in fiscal
1997, compared with 11 percent in the prior year.
In fiscal 1997, inflationary pressure was low, and costs of inventory
purchases increased 1.0 percent, compared with 1.8 percent in fiscal 1996.
Selling, general and administrative expenses
Selling, general and administrative (SG&A) expenses rose 8 percent in
fiscal 1997 to $424 million, from $392 million in fiscal 1996. As a
percentage of sales, SG&A was 37.9 percent in fiscal 1997, compared with
38.0 percent in fiscal 1996. Increased productivity of the catalogs, as
well as a larger number of orders and higher average order volume,
benefitted our SG&A expenses. This was mostly offset by increased bonus
and profit sharing expenses associated with our improved profitability.
For the year as a whole, paper prices were flat. The cost of producing and
mailing catalogs represented about 42 percent and 43 percent of total SG&A
in fiscal 1997 and 1996, respectively.
15
Depreciation and amortization expense was $13.6 million, up 9 percent from
the prior year, primarily because of equipment, buildings, computer
hardware, and computer software. Rental expense was $12.8 million, up 11
percent, mainly due to increased computer-related rentals and building
rentals. In fiscal 1997, we opened two additional stores in Minnesota and
one in New York to liquidate excess inventory.
Utilization of credit lines decreased
Because of lower inventory levels throughout the year, borrowing under our
short-term lines of credit decreased, reducing our interest expense by more
than $2 million from fiscal 1996. With more cash to invest, our interest
income increased to $1.1 million in fiscal 1997 from $0.3 million in fiscal
1996. In addition, we purchased about $30 million in treasury stock and
spent $18 million in capital expenditures. Our lines of credit peaked at
$27 million in October 1996, compared with a peak of $104 million in the
prior year. At January 31, 1997, we had short-term debt outstanding for
foreign subsidiaries of $11.2 million and no long-term debt outstanding.
Net income increased
Net income in fiscal 1997 was $51.0 million, up 67 percent from the $30.6
million earned in the prior year. Earnings per common share for the year
just ended were $1.54, compared with $0.89 per share in fiscal 1996.
As previously reported, we took after-tax charges to earnings in the third
quarter of fiscal 1997 of $840,000, or a reduction of $0.03 per share, and
in the fourth quarter of fiscal 1996 of $1.1 million, also a reduction of
$0.03 per share. These charges were in connection with the fiscal 1996
sale of our wholly owned subsidiary MontBell America, Inc. Before the
effect of these after-tax charges, net income for fiscal 1997 was $51.8
million, or $1.57 per share, compared with $31.7 million, or $0.92 per
share in fiscal 1996. The company's investment in MontBell America, Inc.
is zero as of January 31, 1997.
The Territory Ahead sold
During the first quarter of fiscal 1998, the company sold its majority
interest in The Territory Ahead to The International Cornerstone Group,
Inc. of Boston, Massachusetts, resulting an after-tax gain of approximately
$5.0 million. The after-tax gain will be recorded in the first quarter of
fiscal 1998.
Fiscal 1996 compared with fiscal 1995
Fiscal 1996 was a tough year. Soft apparel demand throughout the industry,
coupled with significant cost increases in paper prices and postal rates,
affected Lands' End greatly. Our sales increase was weak, and
profitability declined. However, there were encouraging results from our
strong growth in Japan, in the United Kingdom and from new business
ventures. Additionally, customer reaction to the quality improvements made
in some of our core products was rewarding.
Net sales for the 53-week year of fiscal 1996 totaled $1.032 billion,
compared with $0.992 billion in the prior 52-week year, an increase of 4
percent. Adjusting for the one-week difference, sales in fiscal 1996 rose
3 percent compared to fiscal 1995. Sales in the United States from our
core monthly and prospecting catalogs were down from fiscal 1995 and
16
accounted for about two-thirds of total net sales. More than the entire
increase in sales in fiscal 1996 came from growth in international and new
businesses. Because of higher paper prices and postal rates, we reduced
prospecting for new customers in fiscal 1996 and also slightly reduced the
total number of pages mailed. This resulted in fewer new customers
acquired in fiscal 1996 compared with the prior year. Worldwide, the
number of full-price catalogs mailed increased by about 5 percent to 200
million in fiscal 1996 from 191 million in fiscal 1995.
Inventory was at $165 million at the end of fiscal 1996, compared with $169
million at the end of fiscal 1995. For the year, we were able to ship
about 90 percent of items ordered by customers at the time the order was
placed, compared with 88 percent in fiscal 1995.
Gross profit increased
Gross profit increased 5 percent to $444 million in fiscal 1996, compared
with $421 million in fiscal 1995. As a percentage of net sales, gross
profit rose to 43.0 percent in fiscal 1996 and 42.4 percent in fiscal 1995.
The improvement in gross profit margin was mainly due to lower merchandise
costs, primarily from improvements in sourcing, as well as from a greater
proportion of sales from higher margin businesses. Liquidation of out-of-
season and overstocked merchandise was about 11 percent of net sales in
fiscal 1996 and 10 percent in fiscal 1995.
Costs of inventory purchases increased 1.8 percent in fiscal 1996, compared
to 0.1 percent in fiscal 1995.
Selling, general and administrative expenses
Selling, general and administrative expenses rose 10 percent in fiscal 1996
to $392 million, from $358 million in fiscal 1995. As a percentage of
sales, SG&A increased to 38.0 percent in fiscal 1996 from 36.0 percent in
fiscal 1995. The increase in the SG&A ratio was primarily due to higher
paper prices and postal rates and lower sales per catalog mailed in the
United States. Higher paper prices and postal rates increased expenses by
about $20 million in fiscal 1996. The costs of producing and mailing
catalogs represented about 43 percent of total SG&A in fiscal 1996 and 41
percent in fiscal 1995. Other operating expenses as a percentage of sales
were about the same as the prior year. While payroll costs were relatively
higher in fiscal 1996, this was mostly offset by lower bonuses and
consulting fees.
Depreciation and amortization expense was $12.5 million, up 21 percent from
the prior year, mainly for computer software and equipment. Rental expense
was $11.6 million, up 34 percent, primarily due to increased computer-
related rentals and building rentals.
Utilization of credit lines remained stable
Because of stable inventory levels throughout the year, borrowing under our
short-term lines of credit to meet peak inventory needs was about the same
as in the prior year. During fiscal 1996, the company purchased about $20
million in treasury stock and spent $15 million in capital expenditures.
Our lines of credit peaked at $104 million in October 1995, compared with a
peak of $106 million in the prior year. At February 2, 1996, we had only
short-term debt outstanding for a foreign subsidiary of $9.3 million and no
long-term debt outstanding.
17
Net income decreased
Net income was $30.6 million, down 15 percent from the $36.1 million earned
in fiscal 1995. Earnings per common share in fiscal 1996 were $0.89,
compared with $1.03 per share in fiscal 1995. Net income after taxes for
fiscal 1996 included $2.4 million in foreign currency exchange gains,
recorded as other income.
As previously reported, we took after-tax charges to earnings in the fourth
quarter of fiscal 1996 of $1.1 million, a reduction of $0.03 per share, and
in the fourth quarter of fiscal 1995 of $2.1 million, a reduction of $0.06
per share. These were in connection with the sale of our wholly owned
subsidiary, MontBell America, Inc. Before the effect of these after-tax
charges, net income for fiscal 1996 was $31.7 million, or $0.92 per share,
compared with $38.2 million, or $1.09 per share in fiscal 1995.
The Christmas season is our busiest
Our business is highly seasonal. The fall/winter season is a five-month
period ending in December. In the longer spring/summer season, orders are
fewer and the merchandise offered generally has lower unit selling prices
than products offered in the fall/winter season. As a result, net sales
are usually substantially greater in the fall/winter season, and SG&A as a
percentage of net sales is usually higher in the spring/summer season.
Additionally, as we continue to refine our marketing efforts by
experimenting with the timing of our catalog mailings, quarterly results
may fluctuate.
Nearly 40 percent of our annual sales came in the fourth quarter of fiscal
years 1997 and 1996. About 75 percent and 85 percent of before-tax profit
was realized in the same quarter of fiscal 1997 and 1996, respectively.
Liquidity and capital resources
To date, the bulk of our working capital needs have been met through funds
generated from operations and from short-term bank loans. Our principal
need for working capital has been to meet peak inventory requirements
associated with our seasonal sales pattern. In addition, our resources
have been used to purchase treasury stock and make asset additions.
During fiscal 1995, the board of directors evaluated its dividend practice
whereby it had paid annual dividends. Given our intent to buy back
additional shares, the payment of a cash dividend is not planned for the
foreseeable future.
We will continue to explore investment opportunities arising from the
expansion of our international businesses and the development of new
businesses. While this investment spending has had some negative impact on
earnings, it is not expected to have a material effect on liquidity.
At January 31, 1997, we had unsecured domestic credit facilities totaling
$110 million, all of which was unused. The company also maintains foreign
credit lines for use in foreign operations totaling the equivalent of
approximately $38 million, of which $11.2 million was used at January 31,
1997. The company has a separate $20 million bank facility available to
fund treasury stock purchases and capital expenditures. This facility runs
through May 31, 1997, at which time the company expects to renew it.
18
The company's board of directors authorized the purchase of up to 1.0
million shares and 1.5 million shares of the company's common stock in July
1996 and January 1997, respectively. Of the total of those 2.5 million
shares, 0.6 million shares had been purchased as of January 31, 1997.
Since fiscal 1990, the company's board of directors has authorized the
purchase of a total of 10.7 million shares of the company's common stock.
A total of 1.3 million, 1.3 million, and 1.4 million shares have been
purchased in the fiscal years ended January 31, 1997, February 2, 1996, and
January 27, 1995, respectively. The total cost of the purchases was $30.1
million, $20.0 million, and $28.0 million for fiscal 1997, 1996 and 1995,
respectively.
Capital investment
Capital investment was about $18 million in fiscal 1997. Major projects
included new computer hardware and software, leasehold improvements for new
retail stores and the expansion of distribution facilities in Dodgeville,
Wisconsin.
In the coming year, we plan to invest about $43 million in capital
improvements. Major projects will include an additional office building
and the expansion of distribution facilities in Dodgeville, Wisconsin, a
new distribution and phone center in Oakham, England, new computer hardware
and software, and material handling equipment. We believe cash flow from
operations and borrowings under our current credit facilities will provide
adequate resources to meet our capital requirements and operational needs
for the foreseeable future.
Possible future changes
A 1992 Supreme Court decision confirmed that the Commerce Clause of the
United States Constitution prevents a state from requiring the collection
of its use tax by a mail order company unless the company has a physical
presence in the state. However, there continues to be uncertainty due to
inconsistent application of the Supreme Court decision by state and federal
courts. The company attempts to conduct its operations in compliance with
its interpretation of the applicable legal standard, but there can be no
assurance that such compliance will not be challenged.
In recent challenges, various states have sought to require companies to
begin collection of use taxes and/or pay taxes from previous sales. The
company has not received assessments from any state.
The Supreme Court decision also established that Congress has the power to
enact legislation which would permit states to require collection of use
taxes by mail order companies. Congress has from time to time considered
proposals for such legislation. The company anticipates that any
legislative change, if adopted, would be applied only on a prospective
basis.
The possible future changes discussed above are forward looking, subject to
numerous uncertainties and accordingly, not necessarily indicative of
actual future results.
19
Item 8. Consolidated Financial Statements and Supplementary Data
Consolidated Statements of Operations
Lands' End, Inc. & Subsidiaries
(In thousands, except per share data)
For the period ended
January 31, February 2, January 27,
1997 1996 1995
Net sales $1,118,743 $1,031,548 $992,106
Cost of sales 609,168 588,017 571,265
Gross profit 509,575 443,531 420,841
Selling, general and
administrative expenses 424,390 392,484 357,516
Charges from sale of subsidiary 1,400 1,882 3,500
Income from operations 83,785 49,165 59,825
Other income (expense):
Interest expense (510) (2,771) (1,769)
Interest income 1,148 253 307
Other 496 4,278 1,300
Total other income (expense), net 1,134 1,760 (162)
Income before income taxes 84,919 50,925 59,663
Income tax provision 33,967 20,370 23,567
Net income $ 50,952 $ 30,555 $ 36,096
Net income per share $ 1.54 $ 0.89 $ 1.03
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
20
Consolidated Balance Sheets
Lands' End, Inc. & Subsidiaries
(In thousands) January 31, February 2,
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 92,827 $ 17,176
Receivables 8,739 8,064
Inventory 142,445 164,816
Prepaid advertising 11,066 15,824
Other prepaid expenses 5,440 5,295
Deferred income tax benefits 11,522 10,914
Total current assets 272,039 222,089
Property, plant and equipment, at cost:
Land and buildings 72,360 72,248
Fixtures and equipment 98,642 83,880
Leasehold improvements 4,291 2,912
Construction in progress 1,337 -
Total property, plant and equipment 176,630 159,040
Less-accumulated depreciation and amortization 72,946 60,055
Property, plant and equipment, net 103,684 98,985
Intangibles, net 2,322 2,423
Total assets $378,045 $323,497
Liabilities and shareholders' investment
Current liabilities:
Lines of credit $ 11,195 $ 9,319
Accounts payable 76,585 62,380
Reserve for returns 5,184 4,555
Accrued liabilities 28,141 23,751
Accrued profit sharing 2,937 1,483
Income taxes payable 21,524 13,256
Total current liabilities 145,566 114,744
Deferred income taxes 8,814 7,212
Long-term liabilities 660 349
Shareholders' investment:
Common stock, 40,221 shares issued 402 402
Donated capital 8,400 8,400
Additional paid-in capital 26,230 26,165
Deferred compensation (1,370) (1,193)
Currency translation adjustments 378 360
Retained earnings 311,061 260,109
Treasury stock, 7,778 and 6,561
shares at cost, respectively (122,096) (93,051)
Total shareholders' investment 223,005 201,192
Total liabilities and shareholders' investment $378,045 $323,497
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
21
Consolidated Statement of Shareholders' Investment
Lands' End, Inc. & Subsidiaries
(In thousands)
For the period ended
Jan. 31, 1997 Feb. 2, 1996 Jan. 27, 1995
Common Stock
Beginning balance $ 402 $ 402 $ 201
Two-for-one stock split - - 201
Ending balance $ 402 $ 402 $ 402
Donated Capital Balance $ 8,400 $ 8,400 $ 8,400
Additional Paid-in Capital
Beginning balance $ 26,165 $ 25,817 $ 24,888
Tax benefit of stock
options exercised 65 348 1,130
Two-for-one stock split - - (201)
Ending balance $ 26,230 $ 26,165 $ 25,817
Deferred Compensation
Beginning balance $ (1,193) $ (1,421) $ (2,001)
Issuance of treasury stock (494) - -
Amortization of deferred
compensation 317 228 580
Ending balance $ (1,370) $ (1,193) $ (1,421)
Foreign Currency Translation
Beginning balance $ 360 $ 284 $ 246
Adjustment for the year 18 76 38
Ending balance $ 378 $ 360 $ 284
Retained Earnings
Beginning balance $ 260,109 $229,554 $193,460
Net income 50,952 30,555 36,096
Issuance of treasury stock - - (2)
Ending balance $ 311,061 $260,109 $229,554
Treasury Stock
Beginning balance $ (93,051) $(73,908) $(47,909)
Purchase of treasury stock (30,143) (20,001) (27,979)
Issuance of treasury stock 1,098 858 1,980
Ending balance $(122,096) $(93,051) $(73,908)
Total Shareholders' Investment $ 223,005 $201,192 $189,128
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
22
Consolidated Statements of Cash Flows
Lands' End, Inc. & Subsidiaries
(In thousands) Jan. 31, Feb. 2, Jan. 27,
1997 1996 1995
Cash flows from operating activities:
Net income $ 50,952 $ 30,555 $ 36,096
Adjustments to reconcile net income to net
cash flows from operating activities-
Depreciation and amortization 13,558 12,456 10,311
Deferred compensation expense 317 228 580
Deferred income taxes 994 (669) (2,645)
Loss on disposal of fixed assets 325 1,544 901
Changes in assets and liabilities excluding the
effects of acquisitions and divestitures:
Receivables (675) (4,888) (264)
Inventory 22,371 1,423 (16,544)
Prepaid advertising 4,758 (8,318) (580)
Other prepaid expenses (145) (1,611) 1,177
Accounts payable 14,205 9,618 (2,093)
Reserve for returns 629 (456) 1,104
Accrued liabilities 4,390 (2,208) 8,509
Accrued profit sharing 1,454 (196) (597)
Income taxes payable 8,268 3,877 (1,671)
Other 394 37 177
Net cash flows from operating activities 121,795 41,392 34,461
Cash flows from investing activities:
Cash paid for capital additions and
businesses acquired (18,481) (13,904) (32,102)
Proceeds from divestiture - 1,665 -
Net cash flows used for investing activities (18,481) (12,239) (32,102)
Cash flows from financing activities:
Proceeds from short-term borrowings 1,876 1,780 7,539
Payment of long-term debt - (40) (40)
Purchases of treasury stock (30,143) (20,001) (27,979)
Issuance of treasury stock 604 858 1,978
Net cash flows used for financing activities (27,663) (17,403) (18,502)
Net increase (decrease) in cash
and cash equivalents 75,651 11,750 (16,143)
Beginning cash and cash equivalents 17,176 5,426 21,569
Ending cash and cash equivalents $ 92,827 $ 17,176 $ 5,426
Supplemental cash flow disclosures:
Interest paid $ 517 $ 2,833 $ 2,828
Income taxes paid 25,261 16,896 27,595
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
23
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
Note 1. Summary of significant accounting policies
Nature of business
Lands' End, Inc., (the company) is a direct marketer of traditionally
styled apparel, domestics (primarily bedding and bath items), soft
luggage, and other products. The company's primary market is the United
States, and other markets include the Pacific Basin area, Europe and
Canada.
Principles of consolidation
The consolidated financial statements include the accounts of the company
and its subsidiaries after elimination of intercompany accounts and
transactions.
Year-end
The company's fiscal year is comprised of 52-53 weeks ending on the Friday
closest to January 31. Fiscal 1997 was a 52-week year that ended on
January 31, 1997. Fiscal 1996 was a 53-week year that ended on
February 2, 1996. The additional week was added in the fourth quarter of
fiscal 1996. Fiscal 1995 was a 52-week year that ended on January 27,
1995.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Inventory
Inventory, primarily merchandise held for sale, is stated at last-in,
first-out (LIFO) cost, which is lower than market. If the first-in,
first-out (FIFO) method of accounting for inventory had been used,
inventory would have been approximately $23.1 million and $22.4 million
higher than reported at January 31, 1997 and February 2, 1996,
respectively.
Advertising
The company expenses the costs of advertising for magazines, television,
radio, and other media the first time the advertising takes place, except
for direct-response advertising, which is capitalized and amortized over
its expected period of future benefits.
Direct-response advertising consists primarily of catalog production and
mailing costs which are generally amortized within three months from the
date catalogs are mailed.
24
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
Advertising costs reported as prepaid assets were $11.1 million and $15.8
million as of January 31, 1997, and February 2, 1996, respectively.
Advertising expense was $195.7 million, $188.3 million and $162.0 million
for fiscal years ended January 31, 1997, February 2, 1996, and January 27,
1995, respectively.
Depreciation
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets, which are 20 to 30 years for
buildings and land improvements and five to 10 years for leasehold
improvements and furniture, fixtures, equipment, and software. The
company provides one-half year of depreciation in the year of addition
and retirement.
Intangibles
Intangible assets consist primarily of goodwill which is being amortized
over 40 years on a straight-line basis. Other intangibles are amortized
up to a period of five years. Total accumulated amortization of these
intangibles as reflected on the Consolidated Balance Sheets was $0.8
million and $0.4 million at January 31, 1997, and February 2, 1996,
respectively.
Reserve for losses on customer returns
At the time of sale, the company provides a reserve equal to the gross
profit on projected merchandise returns, based on its prior returns
experience.
Net income per share
Net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during each period. The
weighted average common shares outstanding were 33.1 million, 34.2 million
and 35.2 million for fiscal years 1997, 1996 and 1995, respectively.
Common stock equivalents include awards, grants and stock options which
have been issued by the company. The common stock equivalents do not
significantly dilute earnings per share.
Financial instruments with off-balance-sheet risk
The company is party to financial instruments with off-balance-sheet risk
in the normal course of business to reduce its exposure to fluctuations
in foreign currency exchange rates and to meet financing needs.
25
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
The company enters into forward exchange contracts and options to hedge
anticipated foreign currency transactions during the upcoming seasons.
The purpose of the company's foreign currency hedging activities is to
protect the company from the risk that the eventual dollar cash flows
resulting from these transactions will be adversely affected by changes in
exchange rates. At January 31, 1997, the company had forward exchange
contracts, maturing through January 1998, to sell approximately 2.2
billion Japanese yen and 8.3 million British pounds and to purchase
approximately 3.4 million Canadian dollars. In addition, the company
purchased forward currency options to sell 0.5 billion Japanese yen
through December 1997. The gains and losses on the outstanding forward
exchange contracts are reflected in the financial statements in the period
in which the currency fluctuation occurs.
The company also uses import letters of credit to purchase foreign-sourced
merchandise. The letters of credit are primarily U.S. dollar-denominated
and are issued through third-party financial institutions to guarantee
payment for such merchandise within agreed-upon time periods. At
January 31, 1997, the company had outstanding letters of credit of
approximately $22 million, all of which had expiration dates of less
than one year.
The counterparties to the financial instruments discussed above are
primarily two large financial institutions; management believes the risk
of counterparty nonperformance on these financial instruments is not
significant.
Foreign currency and transactions
Financial statements of the foreign subsidiaries are translated into U.S.
dollars in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 52. Translation adjustments are
accumulated in a separate component of stockholder's equity. Foreign
currency transaction gains and losses reflected on the Consolidated
Statements of Operations included a gain of $0.2 million, $4.1 million and
$0.8 million in fiscal 1997, 1996, and 1995, respectively.
Fair values of financial instruments
The fair value of financial instruments does not materially differ from
their carrying values.
Reclassifications
Certain financial statement amounts have been reclassified to be
consistent with the fiscal 1997 presentation.
Accounting standards
In fiscal 1997, the company adopted SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". There has been no material impact on the company's consolidated
financial statements since adopting this standard.
26
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". The standard revises the computation and
presentation of earnings per share and will be adopted by the company in
the fourth quarter of fiscal 1998. The company does not expect the
adoption of this standard to have a material impact on the reported
earnings per share.
Note 2. Shareholders' investment
Two-for-one stock split
In May 1994, the company declared a two-for-one split (effected as a stock
dividend) in the company's common stock. The stock split resulted in an
increase in the stated capital of the company from $201,103 to $402,206
with a corresponding reduction in paid-in capital. All share data
reflects the May 1994 two-for-one stock split.
Capital stock
The company currently has 160 million shares of $0.01 par value common
stock. The company is authorized to issue 5 million shares of preferred
stock, $0.01 par value. The company's board of directors has the
authority to issue shares and to fix dividend, voting and conversion
rights, redemption provisions, liquidation preferences, and other rights
and restrictions of the preferred stock. No preferred shares have been
issued.
Treasury stock
The company's board of directors has authorized the purchase of a total of
10.7 million shares of the company's common stock. A total of 8.8
million, 7.5 million and 6.2 million shares had been purchased as of
January 31, 1997, February 2, 1996, and January 27, 1995, respectively.
Treasury stock summary: For the period ended
Jan. 31, 1997 Feb. 2, 1996 Jan. 27, 1995
Beginning balance 6,561,298 5,394,972 2,154,235
Two-for-one stock split - - 2,154,235
Purchase of stock 1,284,270 1,282,326 1,380,502
Issuance of stock (67,310) (116,000) (294,000)
Ending Balance 7,778,258 6,561,298 5,394,972
Stock awards and grants
The company has a restricted stock award plan. Under the provisions of
the plan, a committee of the company's board of directors may award shares
of the company's common stock to its officers and key employees. Such
shares vest over a five- or 10-year period on a straight-line basis from
the date of the award.
In addition, the company granted shares of its common stock to individuals
as an inducement to enter the employ of the company.
27
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
The following table reflects the activity under the stock award and stock
grant plans:
Awards Grants
Balance at January 28, 1994 149,160 10,000
Granted - -
Forfeited (15,940) (10,000)
Vested (17,860) -
Balance at January 27, 1995 115,360 0
Granted - -
Forfeited (2,700) -
Vested (15,980) -
Balance at February 2, 1996 96,680 0
Granted - 25,000
Forfeited (6,560) -
Vested (15,000) -
Balance at January 31, 1997 75,120 25,000
The granting of these awards and grants has been recorded as deferred
compensation based on the fair market value of the shares at the date of
grant. Compensation expense under these plans is recorded as shares
vest.
Stock options
The company has 2.5 million shares of common stock, either authorized
and unissued shares or treasury shares, that may be issued pursuant to the
exercise of options granted under the company's stock option plan.
Options are granted at the discretion of a committee of the company's
board of directors to officers and key employees of the company. No
option may have an exercise price less than the fair market value per
share of the common stock at the date of grant.
Activity under the stock option plan is as follows:
Average
Exercise Exercisable
Options Price Options
Balance at January 28, 1994 1,689,200 $13.31 340,000
Granted - -
Exercised (294,000) 6.72
Forfeited (928,800) 15.27
Balance at January 27, 1995 466,400 13.56 195,480
Granted 342,100 16.50
Exercised (116,000) 7.40
Forfeited (70,800) 17.55
Balance at February 2, 1996 621,700 15.87 150,240
Granted 647,000 20.52
Exercised (42,310) 14.28
Forfeited (75,990) 16.69
Balance at January 31, 1997 1,150,400 $18.49 193,140
28
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
The range of options outstanding as of January 31, 1997 is as follows:
Weighted
Average
Weighted Average Remaining
Price Number of Options Exercise Price Contractual
Range Shares Exercis- Exercis- Life
Per Share Outstanding able Outstanding able (In years)
$12.00-$15.99 196,000 140,000 $ 13.91 $ 13.75 5.9
16.00-$19.99 759,600 26,260 18.14 16.50 9.6
Over $20.00 194,800 26,880 24.41 20.75 9.2
1,150,400 193,140 $ 18.49 $ 15.10 8.9
The options above generally have a 10-year term and vest over five years.
Stock-Based Compensation
During fiscal 1996 the company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by the statement, the company
will continue to account for its stock-based compensation plans as
presented by APB Opinion No. 25 and related interpretations. Accordingly,
compensation costs related to the stock awards and grants were $0.3
million, $0.2 million and $0.6 million in fiscal 1997, 1996 and 1995,
respectively. The company has included the additional disclosures
required by SFAS No. 123; however, the pro forma impact of determining
compensation cost based on the fair value of stock options is not
material.
Note 3. Income taxes
The components of the provision for income taxes for each of the periods
presented are as follows (in thousands):
Period ended,
January 31, February 2, January 27,
1997 1996 1995
Current:
Federal $ 27,980 $ 17,996 $ 22,154
State 4,993 3,043 4,058
Deferred 994 (669) (2,645)
$ 33,967 $ 20,370 $ 23,567
29
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
The difference between income taxes at the statutory federal income tax
rate of 35 percent and income tax reported in the statements of
operations is as follows (in thousands):
Period ended,
January 31, February 2, January 27,
1997 1996 1995
Tax at statutory
federal tax rate $ 29,720 $ 17,825 $ 20,882
State income taxes,
net of federal benefit 3,314 2,018 2,156
Other 933 527 529
$ 33,967 $ 20,370 $ 23,567
Under the liability method prescribed by the SFAS No. 109, "Accounting for
Income Taxes," deferred taxes are provided based upon enacted tax laws and
rates applicable to the periods in which taxes become payable.
Temporary differences which give rise to deferred tax assets and
liabilities as of January 31, 1997 and February 2, 1996 are as follows
(in thousands):
Jan. 31, 1997 Feb. 2, 1996
Deferred tax assets:
Catalog advertising $ (2,180) $ (1,415)
Inventory 7,315 8,602
Employee benefits 3,244 1,918
Reserve for returns 2,074 1,822
Other 1,069 (13)
Total $ 11,522 $ 10,914
Deferred tax liabilities:
Depreciation $ 9,201 $ 7,980
Foreign operating
loss carryforwards (843) (527)
Valuation allowance 843 527
Other (387) (768)
Total $ 8,814 $ 7,212
The valuation allowance required under SFAS No. 109 has been established
for the deferred income tax benefits related to certain subsidiary loss
carryforwards, which management currently estimates may not be realized.
These carryforwards do not expire.
Note 4. Lines of credit
The company has unsecured domestic lines of credit with various U.S. banks
totaling $110 million. There were no amounts outstanding at January 31,
1997 and February 2, 1996.
30
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
In addition, the company has unsecured lines of credit with foreign banks
totaling the equivalent of approximately $38 million for its wholly owned
foreign subsidiaries. There was $11.2 million outstanding at January 31,
1997 at interest rates averaging 3.6 percent, compared to $9.3 million as
of February 2, 1996.
Note 5. Long-term debt
There was no long-term debt as of January 31, 1997 and February 2, 1996.
The company has an agreement which expires May 31, 1997 with a bank
for a $20 million credit facility available to fund treasury stock
purchases and capital expenditures. The company intends to renew this
facility. As of January 31, 1997, the company was in compliance with
lending conditions and covenants related to this debt facility.
Note 6. Leases
The company leases store and office space and equipment under various
leasing arrangements. The leases are accounted for as operating leases.
Total rental expense under these leases was $12.8 million, $11.6 million
and $8.6 million for the years ended January 31, 1997, February 2, 1996,
and January 27, 1995, respectively.
Total future fiscal year commitments under these leases as of January 31,
1997 are as follows (in thousands):
1998 $11,298
1999 8,397
2000 6,051
2001 3,136
2002 2,488
After 2002 9,798
$41,168
Note 7. Retirement plan
The company has a retirement plan which covers most regular employees and
provides for annual contributions at the discretion of the board of
directors. Also included in the plan is a 401(k) feature which allows
employees to make contributions, and the company matches a portion of
those contributions. Total expense provided under this plan was $5.0
million, $3.2 million and $3.5 million for the years ended January 31,
1997, February 2, 1996 and January 27, 1995, respectively.
Note 8. Divestitures
The Territory Ahead
During the first quarter of fiscal 1998, the company sold its majority
interest in The Territory Ahead to The International Cornerstone Group,
Inc. of Boston, Massachusetts, resulting in an after-tax gain of
approximately $5.0 million. The after-tax gain will be recorded in the
first quarter of fiscal 1998.
31
Notes to Consolidated Financial Statements
Lands' End, Inc. & Subsidiaries
MontBell
In July 1994, the company formed a wholly owned subsidiary that acquired
the marketing rights and assets of MontBell America, Inc. In fiscal 1996,
the company sold those marketing rights and assets to a wholly owned
subsidiary of Outdoor Industry Group, Inc. In connection with this sale,
the company has taken after-tax charges to earnings of $0.8 million, $1.1
million and $2.1 million in fiscal 1997, 1996 and 1995, respectively. The
company's investment in MontBell America, Inc. is zero as of January 31,
1997.
Sales and results of operations of MontBell America, Inc., and The
Territory Ahead were not material to the consolidated financial
statements.
Note 9. Sales and use tax
A 1992 Supreme Court decision confirmed that the Commerce Clause of the
United States Constitution prevents a state from requiring the collection
of its use tax by a mail order company unless the company has a physical
presence in the state. However, there continues to be uncertainty due to
inconsistent application of the Supreme Court decision by state and
federal courts. The company attempts to conduct its operations in
compliance with its interpretation of the applicable legal standard, but
there can be no assurance that such compliance will not be challenged.
In recent challenges various states have sought to require companies to
begin collection of use taxes and/or pay taxes from previous sales. The
company has not received assessments from any state. The amount of
potential assessments, if any, cannot be reasonably estimated.
The Supreme Court decision also established that Congress has the power to
enact legislation which would permit states to require collection of use
taxes by mail order companies. Congress has from time to time considered
proposals for such legislation. The company anticipates that any
legislative change, if adopted, would be applied only on a prospective
basis.
32
Note 10. Consolidated Quarterly Analysis (unaudited)
(In Thousands, except per share data)
Fiscal 1997
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Net Sales $211,835 $196,160 $287,420 $423,328
Gross profit 94,737 89,469 126,087 199,282
Pretax income 7,348 4,926 10,319 62,326
Net income $ 4,409 $ 2,950 $ 6,157 $ 37,436
Net income per share $ 0.13 $ 0.09 $ 0.19 $ 1.15
Common shares outstanding 33,609 32,994 32,831 32,442
Market price of shares
outstanding:
- market high 19 7/8 24 3/4 23 1/8 30 1/4
- market low 14 5/8 18 1/8 19 7/8 21 1/8
Fiscal 1996
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Net sales $207,122 $189,064 $235,887 $399,475
Gross profit 90,677 82,069 98,991 171,794
Pretax income 2,192 2,813 2,941 42,979
Net income $ 1,307 $ 1,695 $ 1,766 $ 25,787
Net income per share $ 0.04 $ 0.05 $ 0.05 $ 0.77
Common shares outstanding 34,686 34,536 33,784 33,659
Market price of shares
outstanding:
- market high 19 1/2 17 17 3/4 15 1/2
- market low 15 14 5/8 14 3/8 12 7/8
The unaudited quarterly financial data above has been restated from the
company's previously filed Forms 10-K and 10-Q to reflect certain
reclassifications from selling, general and administrative expenses to
cost of sales during fiscal 1996.
33
RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The management of Lands' End, Inc. and its subsidiaries has the responsibility
for preparing the accompanying financial statements and for their integrity
and objectivity. The statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis. The
consolidated financial statements include amounts that are based on
management's best estimates and judgments. Management also prepared the other
information in the annual report and is responsible for its accuracy and
consistency with the consolidated financial statements.
The company's consolidated financial statements have been audited by Arthur
Andersen LLP, independent certified public accountants. Management has made
available to Arthur Andersen LLP all the company's financial records
and related data, as well as the minutes of shareholders' and directors'
meetings. Furthermore, management believes that all representations made to
Arthur Andersen LLP during its audit were valid and appropriate.
Management of the company has established and maintains a system of internal
control that provides for appropriate division of responsibility, reasonable
assurance as to the integrity and reliability of the consolidated financial
statements, the protection of assets from unauthorized use or disposition, the
prevention and detection of fraudulent financial reporting, and the
maintenance of an active program of internal audits. Management believes
that, as of January 31, 1997, the company's system of internal control is
adequate to accomplish the objectives discussed herein.
Two directors of the company, not members of management, serve as the audit
committee of the board of directors and are the principal means through which
the board supervises the performance of the financial reporting duties of
management. The audit committee meets with management, the internal audit
staff and the company's independent auditors to review the results of the
audits of the company and to discuss plans for future audits. At these
meetings, the audit committee also meets privately with the internal audit
staff and the independent auditors to assure its free access to them.
/s/ MICHAEL J. SMITH /s/ BRADLEY K. JOHNSON
Michael J. Smith Bradley K. Johnson
Chief Executive Officer Senior Vice President and
Chief Financial Officer
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Lands' End, Inc.:
We have audited the accompanying consolidated balance sheets of Lands' End,
Inc. (a Delaware corporation) and its subsidiaries as of January 31, 1997, and
February 2, 1996, and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended January 31, 1997. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lands' End, Inc. and
subsidiaries as of January 31, 1997, and February 2, 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended January 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 7, 1997
35
Part II continued
Item 9. Changes in and Disagreements on Accounting and Consolidated Financial
Disclosure
The company has had no change in, or disagreements with, its independent
certified public accountants on accounting and financial disclosure.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to directors of the
company is incorporated herein by reference to pages 2 through 5 of
the Lands' End, Inc. Notice of 1997 Annual Meeting and Proxy Statement
dated April 14, 1997 (the "Proxy Statement").
The information required by this item with respect to executive
officers of the company is included on page 9 in Part I of this
Form 10-K report.
Item 11. Executive Compensation
The information required by this item is incorporated herein by
reference to pages 5 through 10 of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to page 12 of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to pages 4 and 5 of the Proxy Statement.
36
PART IV.
Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports
on Form 8-K
(a) 1. Consolidated Financial Statements
See index on page 2.
2. Exhibits
Table Exhibit
Number Description Number
------ ----------- -------
(10) Seventh Amendment to Loan Agreement 1
between the company and the
American National Bank and Trust
Company of Chicago, dated
December 30, 1996
(11) Statement of recomputation of
earnings per share 2
(23) Consent of Arthur Andersen LLP 3
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
three-month period ended January 31, 1997.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on April 28, 1997.
LANDS' END, INC.
By /s/ BRADLEY K. JOHNSON
---------------------------
Bradley K. Johnson
Senior Vice President,
Chief Administrative Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities shown, as of April 28, 1997.
/s/ GARY C. COMER Chairman of the Board and Director
- ---------------------------
Gary C. Comer
/s/ RICHARD C. ANDERSON Vice Chairman of the Board and Director
- ---------------------------
Richard C. Anderson
/s/ MICHAEL J. SMITH President and Chief Executive Officer
- --------------------------- and Director
Michael J. Smith
/s/ WILLIAM E. FERRY Vice Chairman of Sales and Director
- ---------------------------
William E. Ferry
/s/ JOHN N. LATTER Director
- ---------------------------
John N. Latter
/s/ DAVID B. HELLER Director
- ---------------------------
David B. Heller
/s/ HOWARD G. KRANE Director
- ---------------------------
Howard G. Krane
38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTARY SCHEDULE
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in the Lands' End, Inc. annual
report to shareholders included in this Form 10-K and have issued our report
thereon dated March 7, 1997. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule on page 40 of this
Form 10-K is the responsibility of the company's management and is presented
for the purpose of complying with the Securities and Exchange Commission's
rules and is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein
in relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 28, 1997
39
LANDS' END, INC. & SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance, Amounts Write-Offs Balance,
Beginning Charged to Against End of
of Period Net Income Reserve Period
--------- ---------- ------- ------
Reserve for Returns:
Year Ended January 31, 1997 $ 4,555 $150,820 $150,191 $ 5,184
======= ======== ======== ========
Year Ended February 2, 1996 $ 5,011 $145,626 $146,082 $ 4,555
======= ======== ========= ========
Year Ended January 27, 1995 $ 3,907 $148,643 $147,539 $ 5,011
======= ======== ======== ========
40
LIST OF DOCUMENTS INCORPORATED BY REFERENCE
In addition to the exhibits filed with this report, the exhibits listed
below have been heretofore filed with the Securities and Exchange
Commission as exhibits to the company's registration statement on Form S-8
(File No. 033-63461) and on Form S-1 (File No. 33-08217) or to other filings
with the Commission and are incorporated herein as exhibits by reference,
pursuant to Rule 24 of the SEC Rules of Practice. The exhibit number of the
document so filed is stated next to the description of such exhibit. The file
number for all other documents is 1-9769.
Table Description Exhibit Doc
Number of Item Number Desc
------ ----------- ------- ----
(3) Articles of Incorporation and By-laws:
Certificate of Incorporation of the company, 1 S-1
as amended through October 3, 1986.
Amendment to Certification of Incorporation of 3 10-Q
the company, dated August 10, 1987. Oct 1987
Amendment to Certificate of Incorporation of 4 10-Q
the company, dated May 20, 1994. July 1994
Amended and Restated By-laws of the company. 2 10-K
1993
(4) Equity Instrument and Agreements relating
to Debt Obligations:
Form of Stock Certificate to evidence the 1 10-Q
Common stock. Aug 1990
First Amendment to the Lands' End 2 S-8
Retirement Plan Oct 1995
(10) Material Contracts:
Form of letter from bank approving the 7 10-K
company's unsecured line of credit 1992
and corresponding note.
Term Loan Note and Loan Agreement between 11 10-Q
the company and the American National Aug 1990
Bank and Trust Company of Chicago.
Sixth Amendment to Loan Agreement between the 1 10-K
company and the American National Bank 1996
and Trust Company of Chicago, dated
December 6, 1995
41
Table Description Exhibit Doc
Number of Item Number Desc
------ ----------- ------- -----
(10) Buying Agreement between the company and 7 10-Q
the European Buying Agency, Ltd. Nov 1990
Salaried Incentive Bonus Plan 9 S-1
Annual Incentive Plan and Long-Term Proxy
Incentive Plan 1996
Stock Option Plan of the company 1 10-K
1995
Amended and Restated Retirement Plan, 3 10-K
dated February 1, 1992 1994
Form of Director Deferred Compensation 1 10-Q
Agreement July 1995
42
Exhibit 10.1
SEVENTH AMENDMENT TO LOAN AGREEMENT
THIS SEVENTH AMENDMENT ("Amendment") is entered into as of this 30th
day of December 1996, by and between LANDS' END, INC. ("Borrower"), and
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("Bank").
WHEREAS, Borrower executed in favor of Bank a Loan Agreement dated
July 19, 1990, in exchange for Bank's agreement to lend monies to Borrower
(the "Loan Agreement"); which Loan Agreement has been amended by First
Amendment to Loan Agreement dated as of June 1, 1991, a Second Amendment to
Loan Agreement dated as of January 27, 1992, a Third Amendment to Loan
Agreement dated as of December 11, 1992, a Fourth Amendment to Loan
Agreement dated as of December 1, 1993, a Fifth Amendment dated as of
November 22, 1994, and a Sixth Amendment dated as of December 6th, 1995
(said Loan Agreement and Amendments herein referred to as the "Loan
Agreement"); and
WHEREAS, the Bank and Borrower wish to extend the time within which
disbursement of the Term Loan may be made; and
WHEREAS, the parties hereto desire and have agreed to enter into this
Amendment in order to amend certain terms of the Loan Agreement; and
NOW, THEREFORE, in consideration of the above recitals, the mutual
promises and agreements of the parties set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree to amend the Loan Agreement as
follows:
1. Extension of Final Disbursement Date. The Final Disbursement Date
under the Loan Agreement is hereby extended to May 31, 1997.
2. Amendment to Section 5.19, entitled - "Capital Expenditure".
Section 5.19 of the Loan Agreement is hereby deleted in its
entirety.
3. This Amendment shall be incorporated into and made a part of the
Loan Agreement and all other related loan documents executed by
Borrower.
4. All terms and provisions of the Loan Agreement and all other
related loan documents between Borrower and Bank, except as
expressly modified herein, shall continue in full force and
effect, and Borrower hereby confirms each and every one of its
obligations under the Loan Agreement as amended herein.
5. This Amendment shall be governed by, and construed in accordance
with, the internal laws of the State of Illinois.
6. This Amendment shall inure to the benefit of Bank's successors and
assigns, and shall be binding upon Borrower's successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
LANDS' END, INC.
a Delaware corporation
TERRY R. JANES
By: Terry R. Janes, Treasurer
ACCEPTED BY:
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
PETER B. HARRISON, JR.
By: Peter B. Harrison, Jr.
Its: Commercial Banking Officer
Exhibit 11.2
COMPUTATION OF EARNINGS PER SHARE
LANDS' END, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Three Months Ended Twelve Months Ended
Jan. 31, Feb. 2, Jan. 31, Feb. 2,
1997 1996 1997 1996
Net income $37,436 $25,787 $50,952 $30,555
Average shares of common stock
outstanding during the period 32,552 33,676 33,078 34,230
Incremental shares from assumed
exercise of stock options
(primary) 345 10 193 28
32,897 33,686 33,271 34,258
Primary earnings per share $ 1.14 $ 0.77 $ 1.53 $ 0.89
Average shares of common stock
outstanding during the period 32,552 33,676 33,078 34,230
Incremental shares from assumed
exercise of stock options
(fully diluted) 401 18 401 28
32,953 33,694 33,479 34,258
Fully diluted earnings per share $ 1.14 $ 0.77 $ 1.52 $ 0.89
Average shares of common stock
outstanding during the period 32,552 33,676 33,078 34,230
Basic earnings per share $ 1.15 $ 0.77 $ 1.54 $ 0.89
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K into the Company's previously
filed Registration Statement on Form S-8 (File No. 033-63461).
/s/ ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 28, 1997
* * * * *
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