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 May 2, 1997
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 June 12, 1997:
Common stock, $.01 par value 32,285,430 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 May 2, 1997, and
May 3, 1996....................................... 3
Consolidated Balance Sheets at May 2, 1997,
and January 31, 1997.............................. 4
Consolidated Statements of Cash Flows for the
Three Months Ended May 2, 1997, and
May 3, 1996....................................... 5
Notes to Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 9
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 9
Item 6. Exhibits and Reports on Form 8-K..................... 9
Signature..................................................... 10
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
May 2, May 3,
1997 1996
Net sales $244,720 $211,835
Cost of sales 131,988 117,098
Gross profit 112,732 94,737
Selling, general and
administrative expenses 102,165 87,084
Income from operations 10,567 7,653
Other income (expense):
Interest expense (142) (96)
Interest income 956 26
Gain on sale of subsidiary 7,805 -
Other (342) (235)
Total other income (expense), net 8,277 (305)
Income before income taxes 18,844 7,348
Income tax provision 7,538 2,939
Net income $ 11,306 $ 4,409
Net income per share $ 0.35 $ 0.13
Weighted average shares outstanding 32,391 33,631
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
3
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 2, January 31,
1997 1997
Assets
Current assets:
Cash and cash equivalents $ 56,906 $ 92,827
Receivables 12,536 8,739
Inventory 157,970 142,445
Prepaid advertising 13,276 11,066
Other prepaid expenses 5,016 5,440
Deferred income tax benefits 11,522 11,522
Total current assets 257,226 272,039
Property, plant and equipment, at cost:
Land and buildings 71,726 72,360
Fixtures and equipment 100,376 98,642
Leasehold improvements 5,068 4,291
Construction in progress 4,717 1,337
Total property, plant and equipment 181,887 176,630
Less-accumulated depreciation and amortization 75,915 72,946
Property, plant and equipment, net 105,972 103,684
Intangibles, net 930 2,322
Total assets $364,128 $378,045
Liabilities and shareholders' investment
Current liabilities:
Lines of credit $ 18,715 $ 11,195
Accounts payable 68,364 76,585
Reserve for returns 4,332 5,184
Accrued liabilities 23,384 28,141
Accrued profit sharing 507 2,937
Income taxes payable 10,012 21,524
Total current liabilities 125,314 145,566
Deferred income taxes 8,814 8,814
Long-term liabilities - 660
Shareholders' investment:
Common stock, 40,221 shares issued 402 402
Donated capital 8,400 8,400
Additional paid-in capital 26,274 26,230
Deferred compensation (1,300) (1,370)
Currency translation adjustments 709 378
Retained earnings 322,367 311,061
Treasury stock, 7,948 and 7,778
shares at cost, respectively (126,852) (122,096)
Total shareholders' investment 230,000 223,005
Total liabilities and shareholders' investment $364,128 $378,045
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
4
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
May 2, May 3,
1997 1996
(unaudited)
Cash flows from operating activities:
Net income $ 11,306 $ 4,409
Adjustments to reconcile net income to net
cash flows from operating activities-
Depreciation and amortization 4,048 3,320
Deferred compensation expense 70 83
After-tax gain on sale of subsidiary (4,683) -
Loss on disposal of fixed assets 558 118
Changes in current assets and liabilities
excluding the effects of acquisitions
and divestitures:
Receivables (4,112) (2,375)
Inventory (21,361) 2,305
Prepaid advertising (2,210) 2,567
Other prepaid expenses (1,297) 1,145
Accounts payable (3,763) (7,816)
Reserve for returns (852) (1,078)
Accrued liabilities (3,485) (1,254)
Accrued profit sharing (2,430) (1,445)
Income taxes payable (14,634) (10,285)
Other (285) 30
Net cash flows used for operating activities (43,130) (10,276)
Cash flows from investing activities:
Cash paid for capital additions
businesses acquired (7,905) (2,183)
Proceeds from sale of subsidiary 12,350 -
Net cash flows from (used for) investing activities 4,445 (2,183)
Cash flows from financing activities:
Proceeds from short-term debt 7,520 477
Tax effect of exercise of stock options - 31
Purchases of treasury stock (4,756) (1,356)
Net cash flows from (used for) financing activities 2,764 (848)
Net decrease in cash and cash equivalents (35,921) (13,307)
Beginning cash and cash equivalents 92,827 17,176
Ending cash and cash equivalents $ 56,906 $ 3,869
Supplemental cash flow disclosures:
Interest paid $ 142 $ 99
Income taxes paid 19,572 13,180
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
5
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim financial statements
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 31, 1997.
2. Reclassification
Certain financial statement amounts have been reclassified to be consistent
with the current presentation.
3. 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.
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. For the quarter ended May 2, 1997, SFAS No.
128 would not have had a material impact on the company's reported earnings
per share calculation.
6
Item 2. Management's Discussion
and Analysis
Results of Operations
Three Months Ended May 2, 1997, compared with
Three Months Ended May 3, 1996
The company's net sales in the first quarter of fiscal 1998 increased 15.5
percent to $245 million from $212 million in the same quarter last year. The
increase in sales for the quarter just ended was broadbased, led by the
specialty businesses and also coming from the core business, represented by
the company's regular monthly and prospecting catalogs, and the international
business. Higher sales were primarily due to an increase in the number of
pages mailed and increased productivity, or sales per page. During the first
five weeks of the second quarter of fiscal 1998, the year-over-year sales
increase trend has been somewhat weaker than in the first quarter.
First quarter ending inventory was $158 million, compared with $163 million a
year ago.
Gross profit in the quarter just ended was $112.7 million, or 46.1 percent of
net sales, compared with $94.7 million, or 44.7 percent of net sales, in the
first quarter of the prior year. The increase in gross profit margin was due
to higher initial markups and to less steep markdowns of liquidated
merchandise. Liquidations of excess inventory were about 7 percent of net
sales in the first quarter of both the current and prior year.
For the first quarter this year, selling, general and administrative expenses
increased 17 percent to $102.2 million, compared with $87.1 million for last
year's first quarter. As a percentage of net sales, SG&A was 41.7 percent,
compared with 41.1 percent in the similar period last year. The increase in
the SG&A ratio was mainly due to increased bonus and profit sharing, due to
higher profitability, and to relatively higher net shipping costs and wages.
These expenses were higher primarily because of a lower rate of first-time
fulfillment of customer orders. The increase in the SG&A ratio was partially
offset by relatively lower costs or producing and mailing catalogs, mainly due
to lower paper prices than in the prior year.
Net income for the quarter just ended was $11.3 million, or $0.35 per share.
This includes an after-tax gain of $4.7 million from the sale of the company's
majority interest in The Territory Ahead. Excluding this gain, net income for
the quarter was $6.6 million or $0.20 per share, compared with the $4.4
million, or $0.13 per share, earned 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.
7
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 purchase treasury stock and make asset
additions.
The company will continue to explore investment opportunities arising from the
expansion of its international businesses and the development of new
businesses. While this investment spending has had some negative short term
impact on earnings, it is not expected to have a material effect on liquidity.
At May 2, 1997, the company 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 $37 million as of May 2, 1997, of which $18.7 million was used.
The company has a separate $20 million bank facility available to fund
treasury stock purchases and capital expenditures. This facility runs through
May 31, 1998.
Since fiscal 1990, the company's board of directors has authorized the company
from time to time to purchase a total of 10.7 million shares of treasury
stock. As of June 12, 1997, 8.9 million shares have been purchased, and there
is a balance of 1.8 million shares available to the company.
Capital expenditures for fiscal 1998 are currently planned to be about $43
million, of which about $8 million had been expended through May 2, 1997.
Major projects to date as of May 2, 1997, included expansion of distribution
facilities in Dodgeville, WI, replacement of corporate aircraft, and new
computer hardware and software. The company believes that its cash flow from
operations and borrowings under its current credit facilities will provide
adequate resources to meet its capital requirements and operational needs for
the foreseeable future.
8
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
At the Annual meeting of Shareholders held on May 14, 1997, pursuant
to the Notice of Annual Meeting of Shareholders and Proxy Statement
dated April 14, 1997, the voting results were as follows:
(a) Each of the three nominees (Richard C. Anderson, William E.
Ferry and Howard G. Krane) were elected to the Board of
Directors. Richard C. Anderson had holders of 30,206,272 shares
voted FOR and 255,968 shares WITHHELD. William E. Ferry had
holders of 30,218,696 shares voted FOR and 243,544 shares
WITHHELD. Howard G. Krane had holders of 30,216,484 shares
voted FOR and 245,756 shares WITHHELD;
(b) The company's Non-Employee Director Stock Option Plan was
approved (29,763,037 shares voted FOR; 645,513 shares voted
AGAINST; and 53,690 shares ABSTAINED).
(c) The appointment of Arthur Andersen LLP as independent public
accountants for the company for the fiscal year ending
January 30, 1998 was ratified (30,421,725 shares voted FOR;
21,471 shares voted AGAINST; and 19,044 shares ABSTAINED).
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) Eighth Amendment to Loan Agreement
between the company and the American
National Bank and Trust Company of
Chicago, dated May 31, 1997 1
(11) Statement of recomputation of
earnings per share 2
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three-month
period ended May 2, 1997.
9
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: June 12, 1997 By /s/ BRADLEY K. JOHNSON
Bradley K. Johnson
Senior Vice President,
Chief Administrative Officer
and Chief Financial Officer
10
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-
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 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
First Amendment to the Lands' End 2 S-8
Retirement Plan. October 1995
(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
Sixth Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated
December 6, 1995. 1 10-K 1996
11
Table Exhibit Document
Number Description of Item Number Description
(10) Seventh Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated
December 30, 1996. 1 10-K 1997
Buying Agreement between the company 7 10-Q
and European Buying Agency, Ltd. November 1990
Salaried Incentive Bonus Plan 9 S-1
Annual Incentive Plan and Long-Term
Incentive Plan Proxy 1996
Stock Option Plan of the company 1 10-K 1995
Non-Employee Director Stock Option Plan Proxy 1997
Amended and Restated Retirement Plan,
dated February 1, 1992. 3 10-K 1994
Form of Director Deferred Compensation 10-Q
Agreement 1 July 1995
(13) Annual Report to Shareholders for the
fiscal year ended January 31, 1997 10-K 1997
12
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
May 2, 1997 May 3, 1996
Net income.............................. $ 11,306 $ 4,409
Average shares of common stock
outstanding during the period.......... 32,391 33,631
Incremental shares from assumed
exercise of stock options (primary).... 374 42
32,765 33,673
Primary earnings per share.............. $ 0.35 $ 0.13
Average shares of common stock
outstanding during the period.......... 32,391 33,631
Incremental shares from assumed exercise
of stock options (fully diluted)....... 374 127
32,765 33,758
Fully diluted earnings per share........ $ 0.35 $ 0.13
Average shares of common stock
outstanding during the period........... 32,391 33,631
Basic earnings per share................ $ 0.35 $ 0.13
Exhibit 10.1
EIGHTH AMENDMENT TO LOAN AGREEMENT
THIS EIGHTH AMENDMENT ("Amendment") is entered into as of this 31st day
of May, 1997, by and between LANDS' END, INC., a Delaware corporation
("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, as amended from time to time, in exchange for Bank's agreement
to lend monies to Borrower (the "Loan Agreement"); and
WHEREAS, the Bank and Borrower wish to extend the time within which
disbursement of 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, 1998.
2. This Amendment shall be incorporated into and made a part of the Loan
Agreement and all other related loan documents executed by Borrower.
3. 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.
4. This Amendment shall be governed by, and construed in accordance with, the
internal laws of the State of Illinois.
5. 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
By: TERRY R. JANES
Terry R. Janes, Treasurer
ACCEPTED BY:
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
By: PETER B. HARRISON, JR.
Peter B. Harrison, Jr.
Its: Commercial Banking Officer