SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Quarter Ended November 2, 1996 Commission File Number 0-15898
DESIGNS, INC.
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(Exact name of registrant as
specified in its charter)
Delaware 04-2623104
- ------------------------------ ------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
66 B Street, Needham, MA 02194
- ----------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(617) 444-7222
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(Registrant's telephone
number, including area code)
Indicate by "X" whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of November 2, 1996
----- ----------------------------------
Common 15,751,983 shares
DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
November 2, 1996, October 28, 1995 and February 3, 1996
(In thousands, except share data)
(Unaudited)
November 2, October 28, February 3,
1996 1995 1996
-------- -------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 19,954 $ 18,367 $ 13,941
Short-term investments --- --- 5,978
Accounts receivable 838 970 473
Inventories 70,766 63,801 58,008
Deferred income taxes 922 1,579 922
Pre-opening costs, net 202 1,236 884
Prepaid expenses 5,142 1,092 3,968
------ ----- -----
Total current assets 97,824 87,045 84,174
Property and equipment, net of
accumulated depreciation and
amortization 39,652 34,473 36,083
Other assets:
Long-term investments 5,847 11,514 6,050
Deferred income taxes 2,720 1,542 2,698
Intangible assets 3,128 2,709 2,901
Other assets 586 757 743
------ ------ -----
Total assets $ 149,757 $ 138,040 $ 132,649
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,476 $ 11,811 $ 8,185
Accrued expenses and other
current liabilities 10,354 9,224 8,346
Accrued rent 2,737 3,058 2,586
Income taxes payable 1,789 2,484 ----
Current portion of
long-term note 1,000 500 500
----- ----- ----
Total current liabilities 33,356 27,077 19,617
Long-term note payable ---- 500 500
Minority interest (Note 2) 6,510 6,526 6,447
Stockholders' equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized, none
issued Common Stock, $0.01 par
value, 50,000,000 shares authorized,
15,752,000, 15,746,000 and
15,818,000 shares issued
at November 2, 1996, October 28,
1995 and February 3, 1996
respectively 159 158 158
Additional paid-in capital 53,307 52,656 52,767
Retained earnings 57,201 51,123 53,160
Less treasury stock, 120,500
shares at cost (776) ---- ----
------ ------ ------
Total stockholders' equity 109,891 103,937 106,085
------- ------- -------
Total liabilities and
stockholders' equity $ 149,757 $ 138,040 $ 132,649
======= ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
------------------
November 2, October 28,
1996 1995
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Sales $ 84,958 $ 89,217
Cost of goods sold
including occupancy
57,312 59,903
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Gross profit 27,646 29,314
Expenses:
Selling, general and
administrative 17,025 18,453
Restructuring (income) - -
Depreciation and
amortization 2,704 2,347
------ ------
Total expenses 19,729 20,800
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Operating income 7,917 8,514
Interest expense 46 67
Interest income 325 393
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Income before minority interest
and income taxes 8,196 8,840
Less minority interest 248 289
----- -----
Income before income taxes 7,948 8,551
Provision for income taxes 3,284 3,517
----- -----
Net income $ 4,664 $ 5,034
===== =====
Net income per common and common
equivalent share $ 0.30 $ 0.32
Weighted average common and common
equivalent shares outstanding 15,810 15,765
The accompanying notes are an integral part of the
consolidated financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
-----------------
November 2, October 28,
1996 1995
-------- -------
Sales $ 210,818 $ 213,546
Cost of goods sold including
occupancy 146,450 148,159
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Gross profit 64,368 65,387
Expenses:
Selling, general and
administrative 50,262 48,569
Restructuring (income) - (2,200)
Depreciation and
amortization 7,854 6,294
------ ------
Total expenses 58,116 52,663
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Operating income 6,252 12,724
Interest expense 134 154
Interest income 905 1,116
----- -----
Income before minority
interest and income taxes 7,023 13,686
Less minority interest 104 395
----- ------
Income before income taxes 6,919 13,291
Provision for income taxes 2,846 5,469
----- ------
Net income $ 4,073 $ 7,822
===== =====
Net income per common and
common equivalent share $ 0.26 $ 0.50
Weighted average common and
common equivalent shares
outstanding 15,814 15,760
The accompanying notes are an integral part of the
consolidated financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Twelve Months Ended
-------------------
November 2, October 28,
1996 1995
-------- -------
Sales $ 298,346 $ 293,350
Cost of goods sold
including occupancy 210,281 201,457
------- -------
Gross profit 88,065 91,893
Expenses:
Selling, general and
administrative 68,682 62,675
Restructuring (income) - (5,400)
Depreciation and
amortization 10,312 8,109
------ ------
Total expenses 78,994 65,384
------ ------
Operating income 9,071 26,509
Interest expense 176 173
Interest income 1,380 1,535
----- -----
Income before minority
interest and income taxes 10,275 27,871
Less minority interest 134 395
------ ------
Income before income taxes 10,141 27,476
Provision for income taxes 4,119 11,135
------ ------
Net income 6,022 16,341
====== ======
Net income per common and
common equivalent share $ 0.38 $ 1.04
Weighted average common and common
equivalent shares
outstanding 15,803 15,755
The accompanying notes are an integral part of the
consolidated financial statements.
DESIGNS, INC.
STATEMENTS OF CASH FLOWS
(In thousands-Unaudited)
Nine Months Ended
-----------------
November 2, October 28,
1996 1995
-------- --------
Cash flows from operating
activities:
Net income $ 4,073 $ 7,822
Adjustments to reconcile to net
cash provided by operating
activities:
Depreciation and amortization 7,854 6,294
Deferred income taxes --- ---
Minority interest 104 395
Loss on sale of investments 17 71
Loss from disposal of property
and equipment 390 1,065
Changes in operating assets and liabilities:
Accounts receivable (365) 3,253
Inventories (12,758) (8,131)
Prepaid expenses (1,173) (121)
Income taxes payable 1,789 2,484
Accounts payable 9,291 (1,399)
Accrued expenses and
other current liabilities 2,464 3,280
Accrued rent 151 (4,632)
------ ------
Net cash provided by operating
activities 11,837 10,381
------ ------
Cash flows from investing activities:
Additions to property and
equipment (11,163) (13,786)
Incurrence of pre-opening cost (265) (1,508)
Proceeds from disposal of property
and equipment 61 170
Sale and maturity of investments 6,126 4,852
Reduction (increase) in other assets 171 (157)
------ ------
Net cash used for investing activities (5,070) (10,429)
------ -------
Cash flows from financing activities:
Payment for aquisition of a
business --- (5,428)
Proceeds from minority shareholder --- 1,560
Distribution to minority shareholder --- (178)
Purchase of treasury stock (776) ---
Issuance of common stock under
option program (1) 22 37
------ -------
Net cash used in financing activities (754) (4,009)
------ -------
Net increase (decrease) in cash and
cash equivalents 6,013 (4,057)
Cash and cash equivalents:
Beginning of the year 13,941 22,424
------ ------
End of the quarter $ 19,954 $ 18,367
====== ======
Supplementary Cash Flow Disclosure
Cash paid, net:
Interest $ 84 $ 70
Taxes 940 3,139
(1) Including tax benefit
The accompanying notes are an integral part of the
consolidated financial statements.
DESIGNS, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
interim consolidated financial statements. These financial statements do not
include all disclosures associated with annual financial statements and,
accordingly, should be read in conjunction with the notes contained in
the Company's audited consolidated financial statements for the fiscal year
ended February 3, 1996. The Company's business has historically been
seasonal in nature and the results of the interim periods presented are
not necessarily indicative of the results to be expected for the full
fiscal year.
2. Minority Interest
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the
Company, entered into a partnership agreement with LDJV Inc.
(the "Partnership Agreement") establishing a joint venture to sell Levi's(R)
brand products and jeans-related products in Original Levi's(R) Stores(TM)
and Levi's(R) Outlet stores. LDJV Inc. is a wholly-owned subsidiary of
Levi's Only Stores, Inc., which is a wholly-owned subsidiary of Levi
Strauss & Co. The partnership established pursuant to the Partnership
Agreement is known as The Designs/OLS Partnership (the "OLS Partnership").
The operating results of the OLS Partnership are consolidated with the
financial statements of the Company for the three, nine and twelve
months ended November 2, 1996. Minority interest at November 2, 1996
represents LDJV Inc.'s 30% interest in the OLS Partnership.
In accordance with the Partnership Agreement, the OLS Partnership
distributed $110,000 and $592,000 to its partners for the nine months ended
November 2, 1996 and October 28, 1995, respectively. This cash
distribution represented funds sufficient to pay taxes associated with the
earnings of the OLS Partnership for the nine month periods ended. During
the third quarter of fiscal 1995, the partners made additional capital
contributions of cash totaling $5.2 million to the Partnership. There
have been no capital contributions made during fiscal year 1996.
3. Restructuring
In fiscal 1993, the Company recorded a non-recurring pre-tax charge of $15.0
million which covered the costs associated with the closing of 15 of its
poorest performing Designs stores. The costs to close these 15 stores
totaled $9.6 million, comprised of $6.1 million of cash and $3.5 million of
noncash costs. Total costs of $9.6 million to close the 15 stores were less
than the original pre-tax estimate, primarily due to favorable negotiations
with landlords. A portion of the remaining reserve of $5.4 million was
recognized in the fourth quarter of fiscal 1994 and the remaining portion was
recognized in the first quarter of fiscal 1995 as non-recurring pre-tax
income.
4. Boston Trading Ltd., Inc. Acquisition
On May 2, 1995, the Company acquired certain assets of Boston Trading
Ltd., Inc. In accordance with the terms of the Asset Purchase Agreement
dated April 21, 1995, the Company paid $5.4 million in cash, financed by
operations, and delivered a non-negotiable promissory note in the principal
amount of $1 million payable in two equal annual installments through May
1997 (the "Purchase Note").
In the first quarter of fiscal 1996, the Company asserted certain
indemnification rights under the Asset Purchase Agreement. In accordance
with the Asset Purchase Agreement, the Company, when exercising its
indemnification rights, has the right to offset against the payment of
principal and interest due and payable under the Purchase Note.
Accordingly, the Company did not make the $500,000 payment of principal
on the Purchase Note that was due on May 2, 1996. The Company has paid
all interest due through November 2, 1996 in accordance with the terms of
the Purchase Note.
5. Credit Facility
On July 24, 1996, the Company entered into an amended and restated credit
agreement (the "Credit Agreement") with BayBank, N.A. and State Street Bank
and Trust Company under which the banks established a credit facility for the
Company. This credit facility, which terminates on June 30, 1999, consists
of: (i) a revolving line of credit permitting the Company to borrow
up to $15 million, and (ii) a commercial and trade letters of credit
facility under which letters of credit, in aggregate amounts up to
$45 million, may be issued for the Company's inventory purchases.
Under the revolving line of credit portion of the facility, the Company
has the ability to issue standby letters of credit up to a total of
$750,000. Loans made under this portion of the facility bear interest,
subject to adjustment, at BayBank, N.A.'s prime rate or LIBOR-based
fixed rate. The Company may increase the letters of credit portion of the
facility in increments of $15 million up to a total of $45 million.
The terms of the Credit Agreement require the Company to maintain
specific net worth, inventory turnover and cash flow ratios.
At November 2, 1996, the Company had outstanding letters of credit
totaling approximately $7.1 million.
6. Joint Venture Credit Agreement
During the third quarter of fiscal 1996 the Company entered into a
Credit Agreement (the "OLS Credit Agreement") with the OLS Partnership
and Levi's Only Stores, Inc. under which the Company and Levi's Only Stores,
Inc. are committed to make advances to the OLS Partnership in the amounts of
up to $3.5 million and $1.5 million, respectively. This credit facility bears
interest at BayBank, N.A.'s prime rate and terminates on September 30, 1997,
unless terminated earlier pursuant to other provisions of the OLS Credit
Agreement. This Agreement provides that there will be no unpaid
credit advances outstanding on the last day of the fiscal year. There were
no credit advances outstanding under this facility as of November 2, 1996.
7. Stock Repurchase
During the third quarter of fiscal 1995, the Company announced that its
Board of Directors authorized the repurchase of up to 2 million shares
of the Company's common stock. During the fiscal year 1996, the
Company has repurchased and, as of November 2, 1996, held in treasury 120,500
shares at a cost of $776,000. During fiscal year 1994, the Company repurchased
and retired 260,000 shares at a cost of $2,050,000. These shares were
accounted for as a reduction in common stock and additional paid in
capital.
Part I. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 1996 decreased 5 percent to
$84.9 million from $89.2 million in the third quarter of fiscal 1995.
Sales for the nine month and rolling twelve month periods ended November 2,
1996 decreased 1 percent and increased 2 percent as compared with the
same periods in the prior year. Comparable store sales decreased 4
percent for the third quarter of fiscal 1996 and 6 percent for the year
to date period. Comparable stores are retail locations that are open at
least 13 months. Of the 150 stores that the Company operated as of
November 2, 1996, 138 were comparable stores.
Gross margin rate, including the costs of occupancy, for the third quarter
of fiscal 1996 equaled 32.5 percent of sales, compared with 32.9 percent of
sales for the third quarter in the prior year. The decrease was primarily
attributable to the deleveraging of occupancy expense on a lower sales base,
partially offset by an improved merchandise margin. For the nine months,
gross margin rate remained relatively unchanged at 30.5 percent of sales
and 30.6 percent of sales for the periods ending November 2, 1996 and
October 28, 1995, respectively. For the rolling twelve month periods,
gross margin decreased to 29.5 percent of sales as compared to 31.3 percent
of sales in the prior period primarily due to increased occupancy costs as
a percentage of sales.
Selling, general and administrative expenses for the third quarter equaled
20.0 percent of sales, compared with 20.7 percent in the prior year.
Continued management of expenses such as store payroll, advertising and
store supplies contributed to this improvement in selling, general and
administrative expenses as a percentage of sales, which partially offset
costs associated with the development of the Boston Traders(R) brand product
line. Selling, general and administrative expenses for the nine month and
rolling twelve month periods equaled 23.8 percent and 23.0 percent of sales,
respectively, compared to 22.7 percent and 21.4 percent of sales for
comparable periods in the prior year. The increase is attributable to
the acquisition and development of the Boston Traders(R) brand.
In fiscal 1993, the Company recorded a non-recurring pre-tax charge of $15.0
million which covered the costs associated with the closing of 15 of its
poorest performing Designs stores. Total costs of $9.6 million,
comprised of $6.1 million of cash and $3.5 million of noncash costs, to
close the 15 stores were less than the original pre-tax estimate, primarily
due to favorable negotiations with landlords. A portion of the remaining
reserve of $5.4 million was recognized in the first quarter of fiscal 1995
and the remaining portion was recognized in the fourth quarter of fiscal
1994 as non-recurring pre-tax income.
Depreciation and amortization expense of $2.7 million, $7.8 million and
$10.3 million for the three, nine and twelve month periods increased by
15.2 percent, 24.8 percent and 27.2 percent, respectively, as compared to the
same periods in the prior year. Depreciation and amortization expense
reflected the capital expenditures associated with new store openings,
the Company's new corporate offices, the upgrade of information and
technology systems hardware and merchandising management software.
Interest expense was $46,000 and $67,000 in the third quarters of fiscal 1996
and fiscal 1995, respectively. This reduction was attributable to the
decrease in the average borrowing balance. For the nine month year to date
period interest expense decreased to $134,000 from $154,000 in the prior
period. On a rolling 12 month basis, interest expense increased to $176,000
as compared to $173,000 in the prior period. The increase is attributable
to interest payments made in connection with the non-negotiable promissory
note issued in conjunction with the acquisition of certain assets of Boston
Trading, Ltd., Inc. in May 1995. There were no borrowings under the Company's
revolving credit facility during the first nine months of fiscal 1996.
Interest income for the third quarter was $325,000 compared to $393,000
in the third quarter of fiscal year 1995. The decrease in interest income is
attributable to lower investment balances compared to the prior year. For
the nine month and rolling twelve month periods interest income of $905,000
and $1.4 million decreased compared with $1.2 and $1.5 million, respectively,
for the same periods last year. This decrease was due to lower average
investment balances as compared to the prior year.
Net income for the third quarter of fiscal year 1996 was $4.7 million or
$0.30 per share, compared with net income of $5.0 million, or $0.32 per share,
for the third quarter in the prior fiscal year. For the nine month period
ended November 2, 1996, the Company reported net income of $4.1 million,
or $0.26 per share compared with $7.8 million, or $0.50 per share, for the
corresponding period in the prior year. The results for the nine months ended
October 28, 1995 included the recognition of $2.2 million, or $0.08 per
share, of nonrecurring pretax income related to the fiscal 1993 restructuring
program as more fully described above.
Net income, on a rolling 12 month basis, was $6.0 million, or $0.38 per share,
as compared with $16 million, or $1.04 per share in the prior comparable
period. Net income for the rolling twelve month period ended October 28,
1995 included the impact of restructuring income of $5.4 million or $0.20
per share.
SEASONALITY
The Company's business is seasonal, reflecting increased consumer buying
in the "Fall" and "Holiday" seasons. Historically, the second half of
each fiscal year provides a greater portion of the Company's annual sales and
operating income.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of the Company's liquidity, capital resources and
capital expansion plans includes certain forward-looking information. Such
forward-looking information requires management to make certain estimates and
assumptions regarding the Company's expected strategic direction and the
related effect of such plans on the financial results of the Company.
Actual results and strategic directions may differ from those estimates
and assumptions. The Company encourages readers of this information to
refer to the Company's Current Report on Form 8-K, previously filed with
the United States Securities and Exchange Commission on April 30, 1996,
which identifies certain risks and uncertainties that may impact the
future earnings and direction of the Company.
The Company's primary cash needs are for operating expenses, including cash
outlays associated with the development of the Boston Traders(R) branded
product line, seasonal inventory purchases and capital expenses for
information technology, new and remodeled stores and acquisitions.
WORKING CAPITAL AND CASH FLOWS
To date, the Company has financed its working capital requirements and
expansion program with cash flow from operations, borrowings and proceeds
from common stock offerings. Cash provided by operations for the first
nine months of fiscal 1996 was $11.4 million as compared to cash provided
for operations of $10.4 million for the comparable nine month period in
the prior fiscal year. The Company's working capital at November 2, 1996
was approximately $64.5 million compared to approximately $60.0 million
on October 28, 1995. This increase primarily was attributable to the
maturity of certain long-term investments.
At November 2, 1996 total inventories were $70.8 million, an increase of $7.0
million from the prior year. This increase is primarily due to increased
availability of merchandise for the Company's Levi's(R) Outlet by Designs
stores and new OLS Partnership Levi's(R) Outlet stores, offset partially
by a reduction in inventory due to closed stores as well as continued efforts
by the Company to manage inventory levels.
The Company's trade payables to Levi Strauss & Co., its principal vendor,
generally are due 30 days after the date of invoice. Variations in the
amount of trade payables outstanding at the end of different periods relate
to the timing of purchases. In the second quarter of fiscal 1995, the
Company began sourcing its own merchandise with various off-shore and
domestic vendors. To date, the Company makes payments to these vendors
through the issuance of letters of credit, which require payment upon
shipment of merchandise. The Company anticipates that the use of this
payment method will be proportionate to its Boston Traders(R) product
purchases.
On July 24, 1996, the Company entered into an amended and restated credit
agreement (the "Credit Agreement") with BayBank, N.A. and State Street Bank
and Trust Company under which the banks established a credit facility for the
Company. This credit facility, which terminates on June 30, 1999, consists of:
(i) a revolving line of credit permitting the Company to borrow up to $15
million, and (ii) a commercial and trade letters of credit facility under
which letters of credit, in aggregate amounts up to $45 million, may be
issued for the Company's inventory purchases. Under the revolving line of
credit portion of the facility, the Company has the ability to issue
standby letters of credit up to a total of $750,000. Loans made under this
portion of the facility bear interest, subject to adjustment, at BayBank,
N.A.'s prime rate or LIBOR-based fixed rate. The Company may increase
the letters of credit portion of the facility in increments of $15 million
up to a total of $45 million. The terms of the Credit Agreement require
the Company to maintain specific net worth, inventory turnover and cash
flow ratios. At November 2, 1996, the Company had outstanding letters of
credit totaling approximately $7.1 million.
During the third quarter of fiscal 1996 the Company entered into a
Credit Agreement (the "OLS Credit Agreement") with the OLS Partnership (as
defined below) and Levi's Only Stores, Inc. under which the Company and Levi's
Only Stores, Inc. are committed to make advances to the OLS Partnership (as
defined below) in the amounts of up to $3.5 million and $1.5 million,
respectively. This credit facility bears interest at BayBank, N.A.'s prime
rate and terminates on September 30, 1997 unless terminated earlier pursuant
to other provisions of the OLS Credit Agreement. This Agreement provides
that there will be no unpaid credit advances outstanding on the last day of
the fiscal year. There were no credit advances outstanding under this
facility as of November 2, 1996.
During the third quarter of fiscal 1995, the Company announced that its Board
of Directors authorized the repurchase of up to 2 million shares of the
Company's common stock. During fiscal year 1996, the Company has repurchased
and, as of November 2, 1996, held in treasury 120,500 shares at a cost of
$776,000. During fiscal year 1994, the Company repurchased and
retired 260,000 shares at a total cost of $2,050,000. These shares were
accounted for as a reduction in common stock and additional paid in capital.
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the
Company, and a subsidiary of Levi's Only Stores, Inc., a wholly-owned
subsidiary of Levi Strauss & Co., entered into a partnership agreement
(the "Partnership Agreement") to sell Levi's(R) brand products and
jeans-related products. The joint venture that was established by the
Partnership Agreement is known as The Designs/OLS Partnership (the "OLS
Partnership"). The term of the joint venture is ten years; however, the
Partnership Agreement contains certain exit rights that enable either
partner to buy the other partner's interest or sell its own interest,
in the joint venture after five years. The OLS Partnership may open up
to thirty-five to fifty Original Levi's(R) Stores(TM) and Levi's(R) Outlet
stores throughout eleven Northeast states and the District of Columbia
through the end of fiscal 1999. At the end of the third quarter of fiscal
1996 the Partnership owned and operated eleven Original Levi's(R) Stores(TM)
and ten Levi's(R) Outlet stores.
It is the intention of the partners in the joint venture that the OLS
Partnership's working capital and funds for its future expansion will
come from its operations, capital contributions, loans from the partners
and borrowings from third parties. During the third quarter of fiscal 1995,
the partners made cash capital contributions totaling $5.2 million to
the OLS Partnership.
In June 1994, Levi Strauss & Co. advised the Company that it did not see any
additional growth in the Levi's(R) Outlet by Designs store format, other than
new outlet stores that might be opened by the OLS Partnership. As such, the
Company does not currently plan to open any Levi's(R) Outlet by Designs stores
during the remainder of fiscal 1996. In addition, the OLS Partnership has
opened and is expected to open its own Levi's(R) Outlet stores, which may
impact the availability of goods to the Company's Levi's(R) Outlet by Designs
stores.
CAPITAL EXPENDITURES
In the second quarter of fiscal 1995, the Company acquired certain assets of
Boston Trading Ltd., Inc. This acquisition was completed so that the Company
would own the Boston Traders(R) brand name, certain Boston Traders(R) outlet
store assets, various trademark licenses and inventory. The Company currently
plans to use the Boston Traders(R) brand to transition from being a single
vendor retailer to a vertically integrated retailer featuring the Boston
Traders(R) brand and select Levi Strauss & Co. brands. Barring
unforeseen circumstances, the Company plans to open five new Boston Trading
Co.(SM) stores in the first quarter of 1997, which will predominantly feature
Boston Traders(R) brand product.
During the first nine months of fiscal 1996, the Company remodeled seven
Levi's(R) Outlet by Designs stores and one Boston Traders(R) outlet store.
Total cash outlays of $11.1 million and $13.8 million during the first nine
months of the fiscal year 1996 and 1995 respectively, represent the costs
of new and remodeled stores, relocation of the Company's corporate offices,
as well as other corporate capital spending during the periods.
The Company continually evaluates discretionary investments in new projects
that may complement its existing business. Further, as leases expire,
the Company continues to evaluate the performance of its existing stores.
As a result of this process, certain store locations could be closed or
relocated within a shopping center in the future.
The Company expects that cash flow from operations, short-term borrowings and
available cash will enable it to finance its current working capital,
remodeling and expansion requirements during the remainder of fiscal 1996.
Part II. Other Information
ITEM 1. Legal proceedings
The Company is a party to litigation and claims arising in the normal
course of its business. Barring unforeseen circumstances, management
does not expect the results of these actions to have a material adverse
effect on the Company's business or financial condition.
ITEM 6. Exhibits and Reports on Form 8-K
A. Reports on Form 8-K:
The Company reported under item 5 on Form 8-K, dated August 7,
1996, that on July 24, 1996 the Company entered into an Amended
and Restated Credit Agreement among the Company, BayBank, N.A.
and State Street Bank and Trust Company.
The Company reported under item 5 on Form 8-K, dated October
11, 1996, that the timing and price of additional repurchases
of shares of common stock, under the Company's stock repurchase
program adopted in October 1994, will be determined in the
discretion of management of the Company based upon market
conditions and the price of such shares.
B. Exhibits:
3.1 Restated Certificate of Incorporation of the Company,
as amended (included as Exhibit 3.1 to Amendment No. 3
to the Company's Registration Statement on Form S-1
(No. 33-13402), and incorporated herein by reference). *
3.2 Certificate of Amendment to Restated Certificate of
Incorporation, as amended, dated June 22, 1993 (included
as Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q dated June 17, 1996, and incorporated herein by
reference). *
3.3 Certificate of Designations, Preferences and Rights of a
Series of Preferred Stock of the Company establishing
Series A Junior participating Cumulative Preferred Stock
dated May 1, 1995 (included as Exhibit 3.2 to the
Company's Annual Report on Form 10-K dated May 1, 1996,
and incorporated herein by reference). *
3.4 By-Laws of the Company, as amended (included as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q dated
December 12, 1995, and incorporated herein by reference). *
4.1 Shareholder Rights Agreement dated as of May 1, 1995
between the Company and its transfer agent (included
as Exhibit 4.1 to the Company's Current Report on Form
8-K dated May 1, 1995, and incorporated herein by
reference). *
10.1 1987 Incentive Stock Option Plan, as amended (included
as Exhibit 10.1 to the Company's Annual Report on Form
10-K dated April 29, 1993, and incorporated herein by
reference). *
10.2 1987 Non-Qualified Stock Option Plan, as amended
(included as Exhibit 10.2 to the Company's Annual Report
on Form 10-K dated April 29, 1993, and incorporated
herein by reference). *
10.3 1992 Stock Incentive Plan, as amended (included as
Exhibit A to the Company's definitive proxy
statement dated May 10, 1994, and incorporated
herein by reference). *
10.4 Senior Executive Incentive Plan effective for the fiscal
year ending February 1, 1997 (included as Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q dated
September 17, 1996, and incorporated herein by reference). *
10.5 License Agreement between the Company and Levi Strauss
& Co. dated as of April 14, 1992 (included as Exhibit
10.8 to the Company's Annual Report on Form 10-K dated
April 29, 1993, and incorporated herein by reference.) *
10.6 Amended and Restated Credit Agreement among the
Company, BayBank, N.A., and State Street
Bank and Trust Company dated as of July 24, 1996
(included as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated August 7, 1996, and
incorporated herein by reference). *
10.7 Consulting Agreement between the Company and
Stanley I. Berger dated December 21, 1994 (included
as Exhibit 10.7 to the Company's Annual Report on
Form 10-K dated April 28, 1995, and incorporated
herein by reference). *
10.8 Participation Agreement among Designs JV Corp.
(the "Designs Partner"), the Company, LDJV Inc.
(the "LOS Partner"), Levi's Only Stores, Inc. ("LOS"),
Levi Strauss & Co. ("LS&CO") and Levi Strauss
Associates Inc. ("LSAI") dated January 28, 1995
(included as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.9 Partnership Agreement of The Designs/OLS Partnership
(the "OLS Partnership") between the LOS Partner and
the Designs Partner dated January 28, 1995 (included
as Exhibit 10.2 to the Company's Current Report on Form
8-K dated April 24, 1995, and incorporated herein by
reference). *
10.10 Glossary executed by the Designs Partner, the Company,
the LOS Partner, LOS, LS&CO, LSAI and the OLS Partnership
dated January 28,1995 (included as Exhibit 10.3 to
the Company's Current Report on Form 8-K dated April 24,
1995, and incorporated herein by reference). *
10.11 Sublicense Agreement between LOS and the LOS Partner
dated January 28, 1995 (included as Exhibit 10.4
to the Company's Current Report on Form 8-K dated
April 24, 1995, and incorporated herein by reference). *
10.12 Sublicense Agreement between the LOS Partner and the
Partnership dated January 28, 1995 (included as Exhibit
10.5 to the Company's Current Report on Form 8-K dated
April 24, 1995, and incorporated herein by reference). *
10.13 License Agreement between the Company and the OLS
Partnership dated January 28, 1995 (included as
Exhibit 10.6 to the Company's Current Report on Form
8-K dated April 24, 1995, and incorporated herein
by reference). *
10.14 Administrative Services Agreement between the Company
and the OLS Partnership dated January 28, 1995 (included
as Exhibit 10.7 to the Company's Current Report on Form
8-K dated April 24, 1995, and incorporated herein by
reference). *
10.15 Credit Agreement among the Company, LOS and the OLS
Partnership dated as of October 1, 1996.
10.16 Asset Purchase Agreement between LOS and the Company
relating to the stores located in Minneapolis, Minnesota
dated January 28, 1995 (included as Exhibit 10.9 to the
Company's Current Report on Form 8-K dated April 24,
1995, and incorporated herein by reference). *
10.17 Asset Purchase Agreement between LOS and the Company
relating to the store located in Cambridge, Massachusetts
dated January 28, 1995 (included as Exhibit 10.10 to the
Company's Current Report on Form 8-K dated April 24,
1995, and incorporated herein by reference). *
10.18 Asset Purchase Agreement among Boston Trading Ltd., Inc.,
Designs Acquisition Corp., the Company and others dated
April 21, 1995 (included as 10.16 to the Company's
Quarterly Report on Form 10-Q dated September 12,
1995, and incorporated herein by reference). *
10.19 Non-Negotiable Promissory Note between the Company
and Atlantic Harbor, Inc., formerly known as Boston
Trading Ltd., Inc., dated May 2, 1995 (included as
10.17 to the Company's Quarterly Report on Form
10-Q dated September 12, 1995, and incorporated
herein by reference). *
10.20 Employment Agreement dated as of October 16, 1995
between the Company and Joel H. Reichman (included as
Exhibit 10.1 to the Company's Current Report on Form 8-K
dated December 6, 1995, and incorporated herein by
reference). *
10.21 Employment Agreement dated as of October 16, 1995
between the Company and Scott N. Semel (included as
Exhibit 10.2 to the Company's Current Report on Form 8-K
dated December 6, 1995, and incorporated herein by
reference). *
10.22 Employment Agreement dated as of October 16, 1995
between the Company and Mark S. Lisnow (included as
Exhibit 10.3 to the Company's Current Report on Form
8-K dated December 6, 1995, and incorporated herein
by reference). *
10.23 Employee Separation Agreement dated as August 7, 1996
between the Company and William D. Richins (included
as Exhibit 10.26 to the Company's Quarterly Report on
Form 10-Q dated September 17, 1996, and incorporated
herein by reference). *
11. Schedule of Earnings Per Share
27. Financial Data Schedule
99. Report of the Company dated April 30, 1996 concerning
certain cautionary statements of the Company to be taken
into account in conjunction with the consideration and
review of the company's publicly disseminated documents
(including oral statements made by others on behalf of the
Company) that include forward looking information (included
as Exhibit 99 to the Company's Current Report on Form 8-K
dated April 30, 1996, and incorporated herein by
reference). *
* Previously filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DESIGNS, INC.
By: /s/ Carolyn R. Faulkner
-----------------------
Carolyn R. Faulkner,
Chief Financial Officer
Dated: December 17, 1996