September 8, 1995
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-Q for the quarter ended July 28,
1995
Sincerely,
KATHY GIES
Lands' End, Inc.
One Lands' End Lane
Dodgeville, WI 53595
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended July 28, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
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, 608-935-9341
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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of September 8, 1995:
Common stock, $.01 par value 33,914,616 shares outstanding
LANDS' END, INC. & SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Statements of Operations for the
Three Months Ended July 28, 1995, and
July 29, 1994..................................... 3
Consolidated Statements of Operations for the
Six Months Ended July 28, 1995, and
July 29, 1994..................................... 4
Consolidated Balance Sheets at July 28, 1995,
and January 27, 1995.............................. 5
Consolidated Statements of Cash Flows for the
Six Months Ended July 28, 1995, and
July 29, 1994..................................... 6
Notes to Consolidated Financial Statements........... 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 14-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 17
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 17
Item 6. Exhibits and Reports on Form 8-K..................... 17
Signature..................................................... 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
July 28, July 29,
1995 1994
(unaudited)
Net sales $189,064 $179,833
Cost of sales 106,341 102,509
Gross profit 82,723 77,324
Selling, general and
administrative expenses 80,540 71,607
Income from operations 2,183 5,717
Other income (expense):
Interest expense, net (699) (266)
Other 1,329 200
Total other income
(expense), net 630 (66)
Income before income taxes 2,813 5,651
Income tax provision 1,118 2,238
Net income $ 1,695 $ 3,413
Net income per share $ 0.05 $ 0.10
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
3
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Six months ended
July 28, July 29,
1995 1994
(unaudited)
Net sales $396,186 $366,844
Cost of sales 222,254 209,803
Gross profit 173,932 157,041
Selling, general and
administrative expenses 169,777 143,514
Income from operations 4,155 13,527
Other income (expense):
Interest expense, net (1,083) (247)
Other 1,933 437
Total other income, net 850 190
Income before income taxes 5,005 13,717
Income tax provision 2,003 5,418
Net income $ 3,002 $ 8,299
Net income per share $ 0.09 $ 0.23
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
4
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 28, January 27,
1995 1995
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,864 $ 5,426
Receivables 6,062 4,459
Inventory 199,847 168,652
Prepaid expenses 18,442 11,219
Deferred income tax benefit 9,580 8,412
Total current assets 236,795 198,168
Property, plant and equipment, at cost:
Land and buildings 70,007 69,798
Fixtures and equipment 80,523 74,745
Leasehold improvements 2,077 1,862
Construction in progress 927 -
Total property, plant and equipment 153,534 146,405
Less-accumulated depreciation and amortization 55,505 49,414
Property, plant and equipment, net 98,029 96,991
Intangibles, net 2,393 2,453
Total assets $337,217 $297,612
Liabilities and shareholders' investment
Current liabilities:
Lines of credit $ 60,699 $ 7,539
Current maturities of long-term debt 40 40
Accounts payable 63,084 52,762
Reserve for returns 2,504 5,011
Accrued liabilities 19,951 25,952
Accrued profit sharing 95 1,679
Income taxes payable 318 9,727
Total current liabilities 146,691 102,710
Deferred income taxes 5,379 5,379
Long-term liabilities 268 395
Shareholders' investment:
Common stock, 40,221 shares issued 402 402
Donated capital 8,400 8,400
Paid-in capital 25,830 25,817
Deferred compensation (1,291) (1,421)
Currency translation adjustments 473 284
Retained earnings 232,556 229,554
Treasury stock, 5,881 and 5,395
shares at cost, respectively (81,491) (73,908)
Total shareholders' investment 184,879 189,128
Total liabilities and shareholders' investment $337,217 $297,612
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
5
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
July 28, July 29,
1995 1994
(unaudited)
Cash flows (used for) from operating activities:
Net income $ 3,002 $ 8,299
Adjustments to reconcile net income to net
cash flows from operating activities-
Depreciation and amortization 6,437 5,007
Deferred compensation expense 130 174
Deferred income taxes (1,168) -
Changes in current assets and liabilities
excluding the effects of acquisitions:
Receivables (1,603) 2,474
Inventory (31,195) (42,608)
Prepaid expenses (7,223) (224)
Income taxes receivable - (530)
Accounts payable 10,322 (2,790)
Reserve for returns (2,507) (1,457)
Accrued liabilities (6,001) 497
Accrued profit sharing (1,584) (2,098)
Income taxes payable (9,409) (12,528)
Other 62 152
Net cash flows used for operating activities (40,737) (45,632)
Cash flows (used for) from investing activities:
Cash paid for capital additions and
businesses acquired (7,415) (15,192)
Net cash flows used for investing activities (7,415) (15,192)
Cash flows (used for) from financing activities:
Proceeds from short-term debt 53,160 64,125
Tax effect of exercise of stock options 13 24
Purchases of treasury stock (7,583) (23,104)
Net cash flows from financing activities 45,590 41,045
Net increase (decrease) in cash
and cash equivalents (2,562) (19,779)
Beginning cash and cash equivalents 5,426 21,569
Ending cash and cash equivalents $ 2,864 $ 1,790
Supplemental cash flow disclosures:
Interest paid $ 882 $ 193
Income taxes paid 14,030 18,035
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
6
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to July 28, 1995, and the three months
ended July 28, 1995, and July 29, 1994, is unaudited)
The condensed consolidated financial statements included herein have been
prepared by Lands' End, Inc. (the company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, and in the
opinion of management contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the company believes that the disclosures are adequate
to make the information presented not misleading. The results of operations
for the interim periods disclosed within this report are not necessarily
indicative of future financial results. These consolidated financial
statements are condensed and should be read in conjunction with the financial
statements and the notes thereto included in the company's latest Annual
Report on Form 10-K, which includes financial statements for the year ended
January 27, 1995.
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.
Principles of consolidation
The consolidated financial statements include the accounts of the company and
its subsidiaries after elimination of intercompany accounts and transactions.
Fiscal year
The company utilizes a 52-53 week fiscal year ending on the Friday nearest
January 31. Fiscal 1996 will be a 53-week year ending on February 2, 1996.
The additional week will be added in the fourth quarter of fiscal 1996.
Fair values of financial instruments
The fair value of financial instruments does not materially differ from their
carrying values.
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 $19.7 million and $18.9 million higher than reported at
July 28, and January 27, 1995, respectively.
Catalog costs
Prepaid expenses primarily consist of catalog production and mailing costs
that have not yet been fully amortized over the expected revenue stream, which
is within six months from the date catalogs are mailed. The company's
reporting of such advertising costs is in conformance with the provisions of
the AICPA Statement of Position No. 93-7, "Reporting on Advertising Costs,"
which became effective for the company in the first quarter of fiscal 1996.
7
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to July 28, 1995, and the three months
ended July 28, 1995, and July 29, 1994, is unaudited)
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 5 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 of goodwill in excess of the fair market value of
net assets of businesses purchased. Goodwill is being amortized over 40 years
on a straight-line basis. Other intangibles are amortized over a shorter
life. Total accumulated amortization of these intangibles was $0.4 million
and $0.3 million as of July 28, and January 27, 1995, respectively.
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 34.6 million and 35.0 million for the
three-month periods ended July 28, 1995, and July 29, 1994, respectively; and
34.7 million and 35.4 million for the six-month periods ended July 28, 1995,
and July 29, 1994, respectively. Common stock equivalents includes awards,
grants and stock options which have been issued by the company. The common
stock equivalents do not significantly dilute basic earnings per share.
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.
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.
The company enters into forward exchange contracts 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 July 28, 1995,
the company had forward exchange contracts, maturing through August 1996, to
sell approximately 1.2 billion yen and to purchase approximately 3.2 million
Canadian dollars. There were no material deferred gains or losses related to
the outstanding forward exchange contracts as of July 28, 1995.
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 July 28, 1995, the
company had outstanding letters of credit of approximately $24.6 million, all
of which had expiration dates of less than 1 year.
The counterparty to the financial instruments discussed above is primarily two
large financial institutions; management believes the risk of counterparty
nonperformance on these financial instruments is not significant.
8
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to July 28, 1995, and the three months
ended July 28, 1995, and July 29, 1994, is unaudited)
Foreign currency translation
Financial statements of the foreign subsidiaries are translated into U.S.
dollars in accordance with the provisions of SFAS 52. Translation adjustments
are accumulated in a separate component of stockholder's equity. Foreign
currency translation gains were $0.5 million and $0.2 million for the six-
month periods ended July 28, 1995 and July 29, 1994, respectively.
Postretirement benefits
The company does not currently provide any postretirement benefits for
employees other than profit sharing.
Reclassification
Certain financial statement amounts have been reclassified to be consistent
with the fiscal 1996 presentation.
NOTE 2. ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement Nos. 112 and
115, "Employer's Accounting for Post-employment Benefits" and "Accounting for
Certain Investments in Debt and Equity Securities," respectively. The company
adopted these standards in fiscal 1995, and there is no material impact on its
financial statements.
NOTE 3. SHAREHOLDERS' INVESTMENT
Capital stock
The company currently has 160 million shares of $0.01 par value common stock.
The company has authorized 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 dividends, voting and conversion rights, redemption provisions,
liquidation preferences, and other rights and restrictions of the preferred
stock.
Treasury stock
The company's board of directors has authorized the purchase of a total of 8.2
million shares of the company's common stock. A total of 6.7 million and 6.2
million shares had been purchased as of July 28, and January 27, 1995,
respectively.
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 ten-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.
9
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to July 28, 1995, and the three months
ended July 28, 1995, and July 29, 1994, is unaudited)
The following table reflects the activity under the stock award and stock
grant plans:
Awards Grants
Balance at January 29, 1993 141,320 12,000
Granted 27,200 -
Forfeited (3,600) -
Vested (15,760) (2,000)
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 (2,240) -
Balance at July 28, 1995 110,420 0
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 Vested
Options Price Options
Balance at January 29, 1993 1,060,000 $ 9.81 216,000
Granted 637,200 $19.12
Exercised (8,000) $12.69
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 (16,000) $13.78
Forfeited (50,800) $16.29
Balance at July 28, 1995 741,700 $14.72 219,120
10
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to July 28, 1995, and the three months
ended July 28, 1995, and July 29, 1994, is unaudited)
The above options currently outstanding vest over a 5 year period from the
date of grant. The outstanding options expire as follows:
1995 - 100,000
2001 - 72,000
2002 - 40,000
2003 - 201,600
2005 - 328,100
741,700
NOTE 4. INCOME TAXES
Under the liability method prescribed by the Statement of Financial Accounting
Standards 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 that give rise to deferred tax assets and liabilities as
of July 28, and January 27, 1995, are as follows (in thousands):
Current Deferred Long-term Deferred
Tax Benefit Tax Liabilities
July 28, Jan. 27, July 28, Jan. 27,
1995 1995 1995 1995
Catalog advertising $(1,539) $(1,539) $ - $ -
Inventory 6,792 7,052 - -
Employee benefits 1,243 1,243 - -
Reserve for returns 1,406 1,406 - -
Depreciation - - 5,379 5,379
Foreign operating loss
carryforwards - - (807) (807)
Valuation allowance - - 807 807
Other 1,678 250 - -
Total $ 9,580 $ 8,412 $ 5,379 $ 5,379
The valuation allowance required under SFAS No. 109 has been established for
the deferred income tax benefits related to certain subsidiary loss
carryforwards, which may not be realized.
In the periods presented, the differences between income taxes at the
statutory federal income tax rate of 35 percent, and income taxes reported in
the consolidated statements of operations are due primarily to the effect of
state income taxes.
NOTE 5. LINES OF CREDIT
During the second quarter of fiscal 1996, the company increased its unsecured
lines of credit on an incremental basis, from a total of $110 million to a
total of $160 million. There was $49.7 million outstanding at July 28, at
interest rates averaging 6.4%, compared to no outstanding amount on January
27, 1995.
11
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to July 28, 1995, and the three months
ended July 28, 1995, and July 29, 1994, is unaudited)
In addition, the company has unsecured lines of credit with foreign banks
totaling the equivalent of $23 million for a wholly owned foreign subsidiary.
There was $11.0 million outstanding at July 28, compared to $7.5 as of January
27, 1995, at interest rates averaging 2.3%.
NOTE 6. LONG-TERM DEBT
There was no long-term debt as of July 28, and January 27, 1995.
The company has an agreement that expires December 31, 1995, with a bank for a
$20 million credit facility available to fund treasury stock purchases and
capital expenditures. During the second quarter of fiscal 1996, this facility
has been temporarily converted to an unsecured line of credit (see note 5
above).
NOTE 7. 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 $2.7 million and $2.0 million for the three-
month periods ended July 28, 1995, and July 29, 1994, respectively. Rental
expense for the six-month periods ended July 28, 1995, and July 29, 1994, was
$5.7 million and $4.1 million, respectively.
Total future fiscal year commitments under these leases as of July 28, 1995,
are as follows (in thousands):
1996 (six months) $ 4,392
1997 8,832
1998 6,179
1999 3,864
2000 2,682
After 2000 3,936
$ 29,885
NOTE 8. 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 $0.4 million for the three-month periods
ended July 28, 1995, and July 29, 1994. Total expenses were $0.9 million and
$1.1 million for the six-month periods ended July 28, 1995, and July 29, 1994,
respectively.
NOTE 9. ACQUISITION AND ANTICIPATED DISPOSITION
In July 1994, the company formed a wholly-owned subsidiary that acquired the
marketing rights and assets of MontBell America, Inc., which designs, develops
and distributes premier technical outdoor clothing and equipment through the
wholesale channel to outdoor specialty stores, primarily in the United States.
Then in February 1995, the company announced its intention to sell its wholly-
owned subsidiary MontBell America, Inc.
12
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to July 28, 1995, and the three months
ended July 28, 1995, and July 29, 1994, is unaudited)
In March 1993, the company purchased a majority interest in a catalog company,
The Territory Ahead. Merchandise offered in the catalog consists of private
label sportswear, accessories and luggage. Beginning in 2003, the minority
shareholders have the option to require the company to purchase their shares,
and the company will have the option to require the minority shareholders to
sell their shares in The Territory Ahead. The price per share would be based
on the fair market value of The Territory Ahead.
Results of operations of MontBell America, Inc., and The Territory Ahead were
not material to the company, and as a result, no pro forma data is presented.
The transactions were accounted for using the purchase method. The excess of
the purchase price over the fair value of net assets was recorded as goodwill.
The operating results of MontBell America, Inc., and The Territory Ahead are
included in the consolidated financial statements of the company from their
respective dates of acquisition.
13
Item 2. Management's Discussion
and Analysis
Results of Operations
Three Months Ended July 28, 1995, compared with
Three Months Ended July 29, 1994
The company's net sales in the second quarter of fiscal 1996 increased 5.1
percent to $189.1 million from $179.8 million in the second quarter of fiscal
1995. The company's international businesses, as well as its new and
specialty businesses, accounted for the sales increase in the second quarter,
as it had in the preceding quarter. Sales from the company's core business,
represented by the monthly and prospecting catalogs, were flat compared with
last year, despite an increase in the number of catalogs mailed. Customer
sales per catalog mailed in the U.S. continue to be lower into the third
quarter.
The second quarter ending inventory was about $200 million, compared with
about $195 million a year ago.
Gross profit in the quarter just ended was $82.7 million, or 43.8 percent of
net sales, compared with $77.3 million, or 43.0 percent of net sales, in the
second quarter of the prior year. The increase in gross profit margin was due
to stronger growth in higher margin businesses and lower merchandise costs,
primarily the result of improvements in domestic and off-shore sourcing.
Liquidations of excess inventory were about 9 percent of net sales in the
quarter just ended, compared with about 10 percent in the prior year.
For the second quarter this year, selling, general and administrative expenses
increased 12.5 percent to $80.5 million, compared with $71.6 million for the
similar quarter last year. As a percentage of net sales, SG&A was 42.6
percent, compared with 39.8 percent in the same period last year. The
increase in the SG&A ratio was primarily the result of higher paper prices and
postal rates, as well as lower sales per catalog mailed in the U.S.
International and new businesses, which have higher operating costs,
experienced stronger growth rates during the quarter compared with the
company's core and specialty businesses. This also had a negative impact on
the SG&A ratio.
Net income for the quarter just ended was $1.7 million, or 5 cents per share,
down 50 percent from the $3.4 million, or 10 cents per share, earned in the
prior year. In the current year's second quarter, net income benefitted from
$0.7 million in foreign currency gains, recorded as other income.
Six Months Ended July 28, 1995, compared with
Six Months Ended July 29, 1994
The company's net sales in the first six months of fiscal 1996 increased 8
percent to $396.2 million from $366.8 million in the same period last year.
The increase in net sales was due primarily to the same factors disclosed
above for the three months ended July 28, 1995.
14
Gross profit of $173.9 million for the first six months of fiscal 1996
increased 10.8 percent from $157.0 million in the same six-month period last
year. As a percentage of net sales, gross profit increased from 42.8 percent
in fiscal 1995 to 43.9 percent in fiscal 1996. The increase in gross profit
was due principally to the same factors disclosed above for the second quarter
ended July 28, 1995. Year-to-date liquidation sales were about 10 percent,
compared with 9 percent during the same period last year.
Selling, general and administrative expenses increased 18.3 percent to $169.8
million in the first six months of fiscal 1996 from $143.5 million in the same
period last year. As a percentage of net sales, selling, general and
administrative expenses increased to 42.9 percent in fiscal 1996 from 39.1
percent in fiscal 1995. The increase in selling, general and administrative
expenses was the result of the same factors mentioned above for the second
quarter ended July 28, 1995.
Net income in the first half of fiscal 1996 was $3.0 million, or 9 cents per
share, compared with $8.3 million, or 23 cents per share in the prior year.
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, quarter results may fluctuate. Accordingly, results for
the individual quarters are not necessarily indicative of the results to be
expected for the entire year.
Liquidity and capital resources
To date, the bulk of the company's working capital needs have been met through
funds generated from operations and from short-term bank loans. The company's
principal need for working capital has been to meet peak inventory
requirements associated with its seasonal sales pattern. In addition, the
company's resources have been used to make asset additions, purchase treasury
stock, pay cash dividends to shareholders, and acquire new businesses.
During fiscal 1995, the board of directors evaluated its dividend practice
whereby it had paid annual dividends. Given the company's intent to buy back
additional shares, the board determined that the current practice was no
longer desirable and payment of a cash dividend is not planned for the
foreseeable future.
The company continues to explore investment opportunities arising from the
expansion of its international businesses, the development of new businesses
and the acquisition of existing businesses. While this investment spending
has had a negative impact on earnings, it is not expected to have a material
effect on liquidity.
During the second quarter of fiscal 1996, the company increased its unsecured
bank credit lines on an incremental basis from a total of $110 million to a
total of $160 million, which is the amount available as of the date of filing.
15
At July 28, 1995, the company had used $49.7 million primarily to fund
inventory purchases. The company also maintains foreign credit lines for use
in foreign operations totaling the equivalent of approximately $23 million, of
which $11.0 million was used at July 28, 1995. The company has a separate $20
million bank facility available to fund treasury stock purchases and capital
expenditures. This agreement has been temporarily converted to an unsecured
line of credit and is included in the $160 million above. This facility runs
through December 31, 1995.
Since June 1989, the company's board of directors has authorized the company
from time to time to purchase a total of 8.2 million shares of treasury stock,
of which 7.1 million shares have been purchased as of September 8, 1995. For
further information, see note 3 to the consolidated financial statements.
Capital expenditures for fiscal 1996 are currently planned to be about $20
million, of which about $7 million had been expended through July 28, 1995.
Major projects include new computer hardware and software and material
handling equipment.
Possible future changes
Congress has from time to time considered proposals that would require mail
order companies to collect and remit sales and use tax in states where the
company does not have a physical presence. As it is anticipated that the
change, if adopted, will be applied prospectively, the company believes there
would be no material impact on financial results.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings presently pending, except for
routine litigation incidental to the business, to which Lands' End,
Inc., is a party or of which any of its property is the subject.
Items 2 and 3 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders for the
quarter ended July 28, 1995, other than those disclosed in the Form
10-Q dated April 28, 1995, reporting the results of the company's
annual meeting.
Item 5 is not applicable and has been omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed as part of this report:
Table Exhibit
Number Description Number
(10) Form of Director Deferred
Compensation Agreement 1
(11) Statement of recomputation of
earnings per share 2
(b) Reports on Form 8-K
A report on Form 8-K was filed July 5, 1995, reporting a meeting
with members of the financial community in New York, New York,
on Thursday, May 18, 1995.
17
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, its duly authorized officer and chief financial officer.
LANDS' END, INC.
Date: September 8, 1995 By /s/ STEPHEN A. ORUM
Stephen A. Orum
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
18
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. 33-
46133) 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 each document so
filed is stated next to the description of such exhibit. The file number for
all other documents is 1-9769.
Table Exhibit Document
Number Description of Item Number Description
(3) Articles of Incorporation and By-Laws:
Certificate of Incorporation of the
company, as amended through
October 3, 1986. 1 S-1
Amendment to Certificate of
Incorporation of the company, 3 10-Q
dated August 10, 1987. October 1987
Amendment to Certification of Incorporation 4 10-Q
of 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 Certificate to evidence 1 10-Q
the Common stock. August 1990
(10) Material Contracts:
Form of letter from bank approving
the company's unsecured line of
credit and corresponding note. 7 10-K 1992
Term Loan Note and Loan Agreement
between the company and the
American National Bank and Trust 11 10-Q
Company of Chicago. August 1990
First Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated 13 10-Q
June 1, 1991. August 1991
19
Table Exhibit Document
Number Description of Item Number Description
(10) Second Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated
January 27, 1992. 15 10-K 1992
Third Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated
December 11, 1992. 16 10-K 1993
Fourth Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated
December 1, 1993. 1 10-K 1994
Fifth Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated 2 10-Q
November 22, 1994. October 1994
Buying Agreement between the company 7 10-Q
and European Buying Agency, Ltd. November 1990
Salaried Incentive Bonus Plan 9 S-1
Second Amended and Restated 1989
Restricted Stock Plan of the 12 10-Q
company. November 1991
Stock Option Plan of the company 1 10-K 1995
Amended and Restated Retirement Plan,
dated February 1, 1992. 3 10-K 1994
(13) Annual Report to Shareholders for the
fiscal year ended January 27, 1995 10-K 1995
20
Exhibit 10.1
LANDS' END, INC.
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is entered into on ____, ___, ____ by and between
Lands' End, Inc., a Delaware corporation (the "Company"), and ______________
("Director").
Director is a non-employee member of the Board of Directors of the
Company. The Company and Director mutually desire to enter into a
compensation agreement whereby Director will irrevocably elect to defer
receipt of payment for his services as a member of the Board and whereby the
payments so deferred will be adjusted to reflect the performance of the
Company's common stock during the deferral period.
In consideration of the foregoing, the parties agree as follows:
1. The Company shall pay and Director shall receive compensation
for any and all services rendered by him as a director of the Company from and
after the date hereof to the extent, at the time, and in the manner
hereinafter provided.
2. The Company shall establish and maintain two bookkeeping
accounts, the first to be known as Director's Deferred Compensation Cash
Account (hereinafter referred to as the "Cash Account"), and the second to be
known as Director's Deferred Compensation Stock Account (hereinafter referred
to as the "Stock Account").
(a) Cash Account
The Company shall regularly credit to the Cash Account (i) the
dollar amount that Director would otherwise (but for this Agreement)
have been entitled to receive for his services as a director of the
Board in accordance with the terms and provisions of any plan,
policy, agreement or resolution duly adopted by the Board from time
to time, (ii) the dollar amount of dividends that would have been
payable, as of the record date applicable to any cash dividend on
the Company's common stock (the "Common Stock"), with respect to a
number of shares of Common Stock equal to the number of notional
shares credited to the Stock Account as of such record date and
(iii) the amount of cash or other property that would have been
payable as a result of any stock dividend or split,
recapitalization, merger, consolidation or similar change or
distribution, with respect to a number of shares of Common Stock
equal to the number of notional shares then credited to the Stock
Account. Such credits shall continue for so long as there shall be
notional shares of Common Stock credited to the Stock Account.
-1-
(b) Stock Account
On the tenth day (or, if such day is not a business day, the
next business day thereafter) of February, May, August and November
of each year, the Company shall determine the number of whole shares
of Common Stock that could have been purchased on such date with the
amounts then in the Cash Account, based upon the closing price of
such shares as reported for such date in The Wall Street Journal. A
number of notional shares corresponding to such share amount shall
then be credited to the Stock Account and the amount in the Cash
Account shall be reduced accordingly. In addition, the Stock
Account shall be credited with notional securities equal to the
amount of securities that would have been payable, as a result of
any stock dividend or split, recapitalization, merger, consolidation
or similar change or distribution, with respect to a number of
shares of Common Stock equal to the number of notional shares then
credited to such Account.
The foregoing accounts shall be established for bookkeeping purposes only,
shall not represent either a cash deposit or actual shares, shall not give
Director any special right in cash or shares held or owned by the Company,
shall be unfunded and unsecured, and shall not give rise to any cause of
action by Director against the Company, except at such time as Director shall
become entitled to receive payment of compensation in accordance with the
terms of this Agreement. Amounts payable under the terms of this Agreement
shall be paid from the general assets of the Company. The Company shall
furnish Director quarterly statements showing the current balances in each of
the foregoing accounts.
3. Director shall be entitled to receive, in cash, all amounts
payable hereunder in ____ annual installments, commencing on ___, ___, ____,
except in the event of Director's death, disability or termination of service
as a director of the Board prior to such date, in which case Director (or his
beneficiary designated in accordance with paragraph 4 below) shall be entitled
to receive such payments commencing on the first business day of April in the
calendar year following such death, disability or termination of service. The
amount of each such payment shall be determined by dividing (a) the sum of (i)
the amount then credited to the Cash Account and (ii) the fair market value of
a number of shares of Common Stock equal to the number of notional shares then
credited to the Stock Account (as determined by multiplying such number by the
closing price of the Common Stock as reported for the last business day
preceding the date of such payment in The Wall Street Journal), by (b) the
number of payments then remaining due hereunder.
4. Any payments due hereunder that have not been paid to Director
during his lifetime shall be paid to his surviving spouse or to any other
person he may have designated in a writing filed with the Company for such
purpose. The Company may rely upon the last of any such written designations
in its possession in making any such payments, which shall be made at the same
time(s) and in the same amount(s) as would have been made to Director had he
survived. Any payments due hereunder that have not been paid to the
Director's surviving spouse (or other beneficiary designated in accordance
with this paragraph) during the lifetime of such person may be paid to the
executor or administrator of the estate of such person; such payments shall be
made at the same time(s) and in the same amount(s) as would have been made to
Director had he survived.
-2-
5. The rights of Director (or his surviving spouse or other
designated beneficiary) to receive payments hereunder are personal and are not
subject to acceleration or assignment, and the Company shall have no liability
for payments hereunder to any person at any time or in any manner other than
as herein provided. Notwithstanding the foregoing, the Company shall have the
right, upon resolution duly adopted by its Board of Directors (without giving
effect to any vote by Director), to pay in cash, in advance of any scheduled
date or dates provided for herein, all or any part of the aggregate amount of
payments that would otherwise be due hereunder.
6. This agreement may be amended only in writing with the consent
of Director and the Company, provided that no such amendment shall have
retroactive effect or modify the cash nature of the amounts payable to
Director hereunder, and provided further, that any such amendment shall become
effective only as to the next succeeding calendar quarter following the date
of such amendment and thereafter.
7. This Agreement shall be binding upon, and shall inure to the
benefit of, the successors and assigns of the Company.
8. If any provision of this Agreement shall be held illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions hereof, and this Agreement shall be construed and
enforced as if the invalid provisions had never been set forth herein. As
used herein, the masculine includes the feminine, the singular includes the
plural and the plural includes the singular.
9. This Agreement shall be considered a contract under, and shall
for all purposes be construed in accordance with and governed by the laws of,
the State of Wisconsin.
* * * *
-3-
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in its name and on its behalf pursuant to the authorization of its Board of
Directors, and Director has hereunto set his hand, all on the date first above
written.
LANDS' END, INC.
By:________________________________
Its:_______________________________
___________________________________
-4-
Exhibit 11.2
COMPUTATION OF EARNINGS PER SHARE
LANDS' END, INC. & SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Three months ended Six Months Ended
07/28/95 07/29/94 07/28/95 07/29/94
Net income............................. $ 1,695 $ 3,413 $ 3,002 $ 8,299
Average shares of common stock
outstanding during the period.......... 34,625 35,046 34,671 35,446
Incremental shares from assumed
exercise of stock options (primary).... 82 605 93 690
34,707 35,651 34,764 36,136
Primary earnings per share............. $ 0.05 $ 0.10 $ 0.09 $ 0.23
Average shares of common stock
outstanding during the period.......... 34,625 35,046 34,671 35,446
Incremental shares from assumed exercise
of stock options (fully diluted)....... 82 605 93 690
34,707 35,651 34,764 36,136
Fully diluted earnings per share....... $ 0.05 $ 0.10 $ 0.09 $ 0.23
Average shares of common stock
outstanding during the period.......... 34,625 35,046 34,671 35,446
Basic earnings per share............... $ 0.05 $ 0.10 $ 0.09 $ 0.23