SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 5, 2003
Commission File Number 1-12381
LINENS 'N THINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3463939
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6 Brighton Road, Clifton, New Jersey 07015
(Address of principal executive offices) (Zip Code)
(973) 778-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined by Rule 12b-2 of the Securities Exchange Act).
Yes X No
----- -----
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at August 13, 2003
----- ------------------------------
Common Stock, $0.01 par value 44,189,368
INDEX
-----
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
Thirteen and Twenty-Six Weeks Ended July 5, 2003
and June 29, 2002 3
Condensed Consolidated Balance Sheets as of July 5, 2003
January 4, 2003 and June 29, 2002 4
Condensed Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended July 5, 2003
and June 29, 2002 5
Notes to Condensed Consolidated Financial Statements 6-10
Independent Auditors' Review Report 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------------- -----------------------------
July 5, June 29, July 5, June 29,
2003 2002 2003 2002
------------- ------------ -------------- -------------
Net sales $523,672 $461,918 $1,004,143 $918,829
Cost of sales, including buying and distribution costs
304,974 269,052 587,780 544,764
------------- ------------ -------------- -------------
Gross profit 218,698 192,866 416,363 374,065
Selling, general and administrative expenses 209,180 183,076 403,405 355,280
------------- ------------ -------------- -------------
Operating profit 9,518 9,790 12,958 18,785
Interest income (14) (3) (70) (7)
Interest expense 302 756 434 1,435
------------- ------------ -------------- -------------
Interest expense, net 288 753 364 1,428
------------- ------------ -------------- -------------
Income before provision for income taxes 9,230 9,037 12,594 17,357
Provision for income taxes 3,526 3,451 4,812 6,631
------------- ------------ -------------- -------------
Net income $5,704 $5,586 $7,782 $10,726
============= ============ ============== =============
Basic earnings per share $0.13 $0.14 $0.18 $0.26
============= ============ ============== =============
Diluted earnings per share $0.13 $0.13 $0.17 $0.26
============= ============ ============== =============
See accompanying notes to condensed consolidated financial statements.
3
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
July 5, January 4, June 29,
2003 2003 2002
------------------- ------------------ -------------------
(Unaudited) (Audited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,446 $ 86,605 $ 20,069
Accounts receivable 39,027 41,168 32,054
Inventories 715,644 615,256 624,431
Prepaid expenses and other current assets 29,940 27,279 11,547
Current deferred taxes -- 2,671 21,268
------------------- ------------------ -------------------
Total current assets 794,057 772,979 709,369
Property and equipment, net 376,006 348,445 342,318
Goodwill, net 18,126 18,126 18,126
Deferred charges and other noncurrent assets, net 10,765 10,931 12,286
------------------- ------------------ -------------------
Total assets $ 1,198,954 $ 1,150,481 $ 1,082,099
=================== ================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 279,607 $ 233,877 $ 253,896
Accrued expenses and other current liabilities 125,303 163,783 130,990
Short-term borrowings 16,874 1,831 15,884
Current deferred taxes 8,676 -- --
------------------- ------------------ -------------------
Total current liabilities 430,460 399,491 400,770
Deferred income taxes and other long-term liabilities 89,144 82,269 71,784
------------------- ------------------ -------------------
Total liabilities 519,604 481,760 472,554
Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding -- -- --
Common stock, $0.01 par value;
135,000,000 shares authorized; 44,361,771 shares
issued and 44,132,225 shares outstanding at July 5,
2003; 44,322,351 shares issued and 44,085,470 shares
outstanding at January 4, 2003; and 44,259,708 shares
issued and 44,027,403 shares outstanding at June 29,
2002
444 444 442
Additional paid-in capital 347,538 346,251 345,301
Retained earnings 336,963 329,181 270,661
Accumulated other comprehensive income (loss) 919 (386) (181)
Treasury stock, at cost; 229,546 shares at July 5,
2003, 236,881 shares at January 4, 2003, and 232,305
shares at June 29, 2002 (6,514) (6,769) (6,678)
------------------- ------------------ -------------------
Total shareholders' equity 679,350 668,721 609,545
------------------- ------------------ -------------------
Total liabilities and shareholders' equity $ 1,198,954 $ 1,150,481 $ 1,082,099
=================== ================== ===================
See accompanying notes to condensed consolidated financial statements.
4
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Twenty-Six Weeks Ended
-------------------------------------------
July 5, June 29,
2003 2002
-------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,782 $ 10,726
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 26,346 21,499
Deferred income taxes 17,969 4,598
Loss on disposal of assets 741 612
Federal tax benefit from common stock issued under stock
incentive plans (18) 397
Changes in assets and liabilities:
Decrease in accounts receivable 2,216 8,786
Increase in inventories (96,637) (130,937)
(Increase) decrease in prepaid expenses and other
current assets (4,392) 5,173
Increase in deferred charges and other
noncurrent assets (201) (3,528)
Increase in accounts payable 44,537 72,906
Decrease in accrued expenses and other liabilities (40,031) (20,029)
-------------------- -------------------
Net cash used in operating activities (41,688) (29,797)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (51,965) (50,979)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from common stock issuance -- 95,814
Proceeds from common stock issued under stock
incentive plans 1,305 3,890
Increase (decrease) in short-term borrowings 14,690 (14,578)
Issuance of treasury stock 255 268
-------------------- -------------------
Net cash provided by financing activities 16,250 85,394
-------------------- -------------------
Effect of exchange rate changes on cash and cash
equivalents 244 14
Net (decrease) increase in cash and cash equivalents (77,159) 4,632
Cash and cash equivalents at beginning of period 86,605 15,437
-------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,446 $ 20,069
==================== ===================
CASH PAID DURING THE YEAR FOR:
Interest (net of amounts capitalized) $ 533 $ 1,637
Income taxes $ 11,038 $ 15,199
See accompanying notes to condensed consolidated financial statements.
5
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. Basis of Presentation
The accompanying condensed consolidated financial statements, except for the
January 4, 2003 consolidated balance sheet, are unaudited. In the opinion of
management, the accompanying condensed consolidated financial statements contain
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position of the Company as of July 5, 2003 and June
29, 2002 and the results of operations for the respective thirteen weeks and
twenty-six weeks then ended and cash flows for the respective twenty-six weeks
then ended. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Because of the seasonality of the specialty
retailing business, operating results of the Company on a quarterly basis may
not be indicative of operating results for the full year.
These condensed consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the fiscal year
ended January 4, 2003 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission. All significant intercompany
accounts and transactions have been eliminated.
2. Earnings Per Share
The calculation of basic and diluted earnings per share ("EPS") is as follows:
Periods ended July 5, 2003
(in thousands, except EPS)
Thirteen Week Period Twenty-Six Week Period
--------------------------------------- ---------------------------------------
Net Net
income Shares EPS income Shares EPS
------------ ----------- --------- ------------ ----------- ---------
Basic $5,704 44,118 $0.13 $7,782 44,108 $0.18
Effect of outstanding stock options
and deferred stock grants - 427 - - 426 0.01
------------ ----------- --------- ------------ ----------- ---------
Diluted $5,704 44,545 $0.13 $7,782 44,534 $0.17
============ =========== ========= ============ =========== =========
Periods ended June 29, 2002
(in thousands, except EPS)
Thirteen Week Period Twenty-Six Week Period
--------------------------------------- ---------------------------------------
Net Net
income Shares EPS income Shares EPS
------------ ----------- --------- ------------ ----------- ---------
Basic $5,586 40,940 $0.14 $10,726 40,792 $0.26
Effect of outstanding stock options
and deferred stock grants - 1,380 0.01 - 1,219 -
------------ ----------- --------- ------------ ----------- ---------
Diluted $5,586 42,320 $0.13 $10,726 42,011 $0.26
============ =========== ========= ============ =========== =========
Options for which the exercise price was greater than the average market price
of common shares for the period ended July 5, 2003 and June 29, 2002 were not
included in the computation of diluted earnings per share. These consisted of
options totaling approximately 2,555,000 shares and 29,900 shares for the
thirteen weeks and approximately 2,555,000 shares and 700,435 shares for the
twenty-six weeks ended July 5, 2003 and June 29, 2002, respectively.
6
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont'd
------------------------------------------------------------
3. Short-Term Borrowing Arrangements
In June 2002, the Company amended and extended its $150 million senior revolving
credit facility agreement (the "Credit Agreement") with third party
institutional lenders to expire April 20, 2005. The Credit Agreement allows for
up to $40 million of borrowings from additional lines of credit outside of the
Credit Agreement. As of July 5, 2003, the additional lines of credit include
committed facilities of approximately $26 million that expire on June 16, 2004
and are subject to annual renewal arrangements. Interest on all borrowings is
determined based upon several alternative rates, including a fixed margin above
LIBOR. The Credit Agreement contains certain financial covenants, including
those relating to the maintenance of a minimum tangible net worth, a minimum
fixed charge coverage ratio, and a maximum leverage ratio. As of July 5, 2003,
the Company was in compliance with the terms of the Credit Agreement. The Credit
Agreement limits, among other things, the amount of cash dividends the Company
may pay. Under the Credit Agreement, the amount of dividends that the Company
may pay may not exceed the sum of $25 million plus on a cumulative basis an
amount equal to 50% of the consolidated net income for each fiscal quarter,
commencing with the fiscal quarter ending March 30, 2002. The Company has never
paid cash dividends and does not anticipate paying cash dividends in the future.
The Company is required under the Credit Agreement to reduce the balance of
outstanding domestic borrowings to zero for 30 consecutive days during each
period beginning on December 1st of any fiscal year and ending on March 15th of
the following fiscal year. At various times throughout 2003 and 2002, the
Company borrowed against its credit facility for seasonal working capital needs.
As of July 5, 2003, the Company had $10 million in borrowings under the Credit
Agreement and $6.9 million in borrowings under the additional lines of credit at
a weighted-average interest rate of 3.0%. The Company also had $49.4 million of
letters of credit outstanding as of July 5, 2003, which included standby letters
of credit issued primarily under the Credit Agreement and import letters of
credit used for merchandise purchases. The Company is not obligated under any
formal or informal compensating balance requirements.
4. Comprehensive Income
Comprehensive income for the thirteen and twenty-six weeks ended July 5, 2003
and June 29, 2002 is as follows:
(in thousands) Thirteen Weeks Ended Twenty-Six Weeks Ended
July 5, June 29, July 5, June 29,
2003 2002 2003 2002
-------------------------- --------------------------
COMPREHENSIVE INCOME:
Net Income $5,704 $5,586 $7,782 $10,726
Other comprehensive income --
Foreign currency translation adjustment 825 231 1,305 236
----------- ----------- ----------- -----------
Comprehensive income $6,529 $5,817 $9,087 $10,962
=========== =========== =========== ===========
5. Restructuring and Asset Impairment Charge
In fiscal 2001, the Company developed and committed to a strategic initiative
designed to improve store performance and profitability. This initiative called
for the closing of certain under-performing stores, which did not meet the
Company's profit objectives. In connection with this initiative, the Company
recorded a pre-tax restructuring and asset impairment charge of $37.8 million
($23.7 million after-tax) in the fourth quarter of fiscal 2001. A pre-tax
reserve of $20.5 million was established for estimated lease commitments for
stores to be closed. This reserve is included in accrued expenses. The reserve
considers estimated sublease income. Because all of the stores were leased the
Company is not responsible for the disposal of property other than fixtures. A
pre-tax reserve of $9.5 million was recorded as a reduction in property and
equipment for fixed asset impairments for these stores. The fixed asset
impairments represent fixtures and leasehold improvements. A pre-tax reserve of
$4.0 million was established for other estimated miscellaneous store closing
costs. Additionally, a pre-tax reserve of $3.8 million was recorded in cost of
sales for estimated inventory markdowns below cost for the stores to be closed.
Certain components of the restructuring charge were based on estimates and may
be subject to change in the future. The Company has closed all of the initially
identified store closures other than one store, which was reversed, and one,
which is expected to be closed during fiscal 2003.
7
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont'd
-----------------------------------------------------
The following is a summary of activity of the reserve for the restructuring and
asset impairments charge as of July 5, 2003 ($ in millions):
Remaining at Usage Remaining at
1/04/03 2003 7/05/03
------------------- ------------------- ------------------
(Audited) (Unaudited) (Unaudited)
Cash components:
Lease commitments $ 19.4 $ 0.7 $20.1
Other 2.8 $(2.7) 0.1
------------------- ------------------- ------------------
Total $ 22.2 $(2.0) $20.2
=================== =================== ==================
The 2003 activity primarily consists of payments for lease commitments and
miscellaneous store closing costs.
6. Stock Incentive Plans
The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, no compensation cost has been recognized in
connection with stock options under these plans in the accompanying Condensed
Consolidated Financial Statements. The compensation cost that has been charged
against income for restricted stock grants was $0.3 million and $0.5 million for
the thirteen weeks ended July 5, 2003 and June 29, 2002, respectively, and $0.4
million and $1.2 million for the twenty-six weeks ended July 5, 2003 and June
29, 2002, respectively. The following table illustrates the effect on net income
and net income per share presented "as reported" and as if compensation cost had
been recognized in accordance with the provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" for the thirteen and twenty-six weeks ended July
5, 2003 and June 29, 2002:
Thirteen week period ending Twenty-six week period ending
JULY 5, JUNE 29, JULY 5, JUNE 29,
(in thousands, except per share data) 2003 2002 2003 2002
---------------------------------------------------------------------------------------------------------
NET INCOME:
As reported....................... $5,704 $5,586 $7,782 $10,726
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method
for all awards, net of related
tax effects...................... (2,058) (1,687) (3,586) (3,073)
---------------------------------------------------------------
Proforma.......................... $3,646 $3,899 $4,196 $7,653
NET INCOME PER SHARE OF COMMON STOCK:
Basic:
As reported...................... $0.13 $0.14 $0.18 $0.26
Pro forma........................ $0.08 $0.10 $0.10 $0.19
Diluted:
As reported...................... $0.13 $0.13 $0.17 $0.26
Pro forma........................ $0.08 $0.09 $0.09 $0.18
---------------------------------------------------------------------------------------------------------
The effects of applying SFAS No. 123 in this disclosure are not necessarily
indicative of future amounts.
8
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont'd
------------------------------------------------------------
7. Guarantees
The Company has assigned property at one of its retail locations. Under such
assignment, the Company guarantees the payment of rent over the specified lease
term in the event of non-performance. As of July 5, 2003, the maximum potential
amount of future payments the Company could be required to make under such
guarantee is approximately $1.1 million.
8. Recent Accounting Pronouncements
In January 2003, the Emerging Issues Task Force ("EITF") issued EITF 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor," which states that cash consideration received from a
vendor is presumed to be a reduction of the prices of the vendor's products or
services and should, therefore, be characterized as a reduction of Cost of
Merchandise Sold when recognized in the Company's Consolidated Statements of
Earnings. That presumption is overcome when the consideration is either a
reimbursement of specific, incremental and identifiable costs incurred to sell
the vendor's products, or a payment for assets or services delivered to the
vendor. EITF 02-16 is effective for contracts entered into or modified after
December 31, 2002. The Company does not expect this issue to have a material
impact on the Company's fiscal 2003 consolidated financial statements since the
Company has entered into substantially all of its current vendor contracts prior
to December 31, 2002. The Company is currently reviewing all vendor agreements.
As vendor agreements are initiated or modified in fiscal 2004, the Company will
change its method of accounting for vendor allowances in accordance with EITF
02-16. The Company believes that this one time change in accounting is expected
to materially impact its 2004 consolidated financial statements and that a
reasonable estimate of this impact will be determined by the fourth quarter of
fiscal 2003. This accounting change will have no impact on the Company's cash
flows or the expected amount of funds to be received from vendors. In addition,
following implementation of EITF 02-16, there will be no earnings impact in
subsequent periods other than for future net changes in such vendor allowances.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No.
143 addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. This statement requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. This statement is effective for
the Company in fiscal 2003. The adoption of SFAS No. 143 did not have a material
impact on the Company's Consolidated Financial Statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS No. 146"). This Statement requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. The Company is required to adopt the provisions of SFAS No. 146 for exit
or disposal activities, if any, initiated after December 31, 2002. The adoption
of SFAS No. 146 did not impact the consolidated financial position or results of
operations, although it can be expected to impact the timing of liability
recognition associated with future exit activities, if any.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of SFAS No. 123" ("SFAS
No. 148"). This statement amends SFAS Statement No. 123 ("SFAS No.123"),
"Accounting for Stock-Based Compensation", and provides alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, the statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used. For the thirteen and
twenty-six week periods ended July 5, 2003 and June 29, 2002, the Company
accounted for stock options using the intrinsic value method prescribed under
APB Opinion 25, and accordingly, the Company did not recognize compensation
expense for stock options. The Company continues to account for stock-based
compensation using APB Opinion No. 25 and has not adopted the recognition
provisions of SFAS No. 123, as amended by SFAS No. 148. However, the Company has
adopted the disclosure provisions and has included this information in Note 6 to
the Company's Condensed Consolidated Financial Statements.
9
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont'd
------------------------------------------------------------
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN No. 46"). FIN No. 46 explains how to identify
variable interest entities and how an enterprise assesses its interests in a
variable interest entity to decide whether to consolidate that entity. The
Company has evaluated FIN No. 46 and determined that this interpretation did not
have a material impact on the Company's consolidated financial statements as the
Company has no variable interest entities.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"). SFAS No. 150 clarifies the accounting for certain financial instruments
with characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on the
Company's Condensed Consolidated Financial Statements.
10
Independent Auditors' Review Report
-----------------------------------
The Board of Directors and Shareholders
Linens 'n Things, Inc.:
We have reviewed the condensed consolidated balance sheets of Linens 'n Things,
Inc. and Subsidiaries as of July 5, 2003 and June 29, 2002, and the related
condensed consolidated statements of operations and cash flows for the thirteen
and twenty-six week periods then ended and the related condensed consolidated
statements of cash flows for the twenty-six week periods ended July 5, 2003 and
June 29, 2002. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Linens 'n Things, Inc. and Subsidiaries as of January 4, 2003 (presented herein)
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated February 4, 2003 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of January 4, 2003 is fairly
presented, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
KPMG LLP
New York, New York
July 23, 2003
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
The following discussion and analysis should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this document.
General
-------
Linens `n Things, Inc. (the "Company") is one of the leading national format
retailers of home textiles, housewares and home accessories, carrying both
national brand and private label goods. As of July 5, 2003, the Company operated
415 stores in 45 states and in four provinces across Canada.
Critical Accounting Policies
----------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts and timing of revenues and of
expenses during the reporting periods. The Company's management believes the
following critical accounting estimates involve significant estimates and
judgments inherent in the preparation of the Condensed Consolidated Financial
Statements The Company bases these estimates on historical results and various
other assumptions believed to be reasonable at the time. Management of the
Company has discussed the development and selection of these critical accounting
estimates with the Audit Committee of the Company's Board of Directors.
Valuation of Inventory: Inventories are valued using the lower of cost or market
value, determined by the retail inventory method ("RIM"). Under RIM, the
valuation of inventories at cost and the resulting gross margins are determined
by applying a calculated cost-to-retail ratio to the retail value of
inventories. RIM is an averaging method that is used in the retail industry due
to its practicality. Inherent in the RIM calculation are certain significant
management judgments and estimates including, among others, merchandise mark-on,
mark-up, markdowns and shrinkage based on historical experience between the
dates of physical inventories, all of which significantly impact the ending
inventory valuation at cost. The methodologies utilized by the Company in its
application of the RIM are consistent for all periods presented. Such
methodologies include the development of the cost-to-retail ratios, the
development of shrinkage and aged inventory reserves and the accounting for
price changes.
Sales Returns: The Company estimates future sales returns and, when material,
records a provision in the period that the related sales are recorded based on
historical return rates. Should actual returns differ from the Company's
estimates, the Company may be required to revise estimated sales returns. As
such, estimating sales returns requires management judgment. In preparing our
financial statements the sales returns reserve was approximately $4.7 million,
$5.5 million and $4.8 million as of July 5, 2003, January 4, 2003 and June 29,
2002, respectively.
Impairment of Assets: With the adoption of SFAS No. 142, the Company will review
goodwill for possible impairment at least annually. Impairment losses are
recognized when the implied fair value of goodwill is less than its carrying
value. The Company periodically evaluates long-lived assets other than goodwill
for indicators of impairment. The Company's judgments regarding the existence of
impairment indicators are based on market conditions and operational
performance. Future events could cause the Company to conclude that impairment
indicators exist and that the value of long-lived assets and goodwill is
impaired. As of July 5, 2003, January 4, 2003 and June 29, 2002, the Company's
net value for property and equipment was approximately $376.0 million, $348.4
million and $342.3 million, respectively, and goodwill was $18.1 million, as of
July 5, 2003, January 4, 2003, and June 29, 2002.
Store Closure Costs: Prior to the adoption of SFAS No. 146, the Company records
estimated store closure costs, such as fixed asset write-offs, estimated lease
commitment costs net of estimated sublease income, markdowns for inventory that
will be sold below cost, and other miscellaneous store closing costs, in the
period in which management determines to close a store. Such estimates may be
subject to change should actual costs differ. In the fourth quarter of fiscal
2001, the Company recorded a reserve of $37.8 million ($23.7 million after-tax)
related to the closing of certain under-performing stores. As of July 5, 2003,
January 4, 2003, and June 29, 2002 the Company had $20.2 million, $22.2 million
12
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, con't
-------------------------------------------------------
and $23.6 million respectively, remaining related to this reserve. The Company
is negotiating the lease buyouts or sub-lease agreements for these stores and
based upon final resolution of such negotiations, such estimates may be subject
to change. The Company is required to adopt the provisions of SFAS No. 146 for
exit or disposal activities, if any, initiated after December 31, 2002. Although
the Company believes the adoption of SFAS No. 146 will not materially impact the
consolidated financial position or results of operations, it can be expected to
impact the timing of liability recognition associated with future exit
activities, if any.
Self Insurance: The Company purchases third party insurance for workers'
compensation, medical, auto and general liability that exceeds certain levels
for each type of insurance program. However, the Company is responsible for the
payment of claims under these insured excess limits. The Company establishes
accruals for its insurance programs based on available claims data and
historical trend and experience, as well as loss development factors prepared by
third party actuaries. In preparing the estimates, the Company also considers
the nature and severity of the claims, analysis provided by third party claims
administrators, as well as current legal, economic and regulatory factors.
The Company evaluates the accrual and the underlying assumptions periodically
and makes adjustments as needed. The ultimate cost of these claims may be
greater than or less than the established accrual. While the Company believes
that the recorded amounts are adequate, there can be no assurances that changes
to management's estimates will not occur due to limitations inherent in the
estimate process. In the event the Company determines the accruals should be
increased or reduced, the Company would record such adjustments in the period in
which such determination is made.
The accrued obligation for these self-insurance programs was approximately $9.4
million, $9.5 million and $7.1 million as of July 5, 2003, January 4, 2003 and
June 29, 2002, respectively.
Litigation: The Company records an estimated liability related to various claims
and legal actions arising in the ordinary course of business, which is based on
available information and advice from outside counsel where applicable. As
additional information becomes available, the Company assesses the potential
liability related to its pending claims and may adjust its estimates
accordingly.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JULY 5, 2003 COMPARED WITH THIRTEEN WEEKS ENDED JUNE 29,
2002
Net sales for the thirteen weeks ended July 5, 2003 increased 13.4% to $523.7
million, up from $461.9 million for the same period last year. The increase in
net sales is primarily the result of new store openings since June 29, 2002. At
July 5, 2003, the Company operated 415 stores, including 16 stores in Canada, as
compared with 367 stores, including 13 stores in Canada, at June 29, 2002. Store
square footage increased 11.7% to 14.3 million at July 5, 2003 compared with
12.8 million at June 29, 2002. During the thirteen weeks ended July 5, 2003, the
Company opened 16 stores and closed one store as compared with opening 21 stores
and closing two stores during the same period last year.
Comparable store net sales increased 0.1% for the thirteen weeks ended July 5,
2003 compared with an increase of 3.6% for the same period last year. Sales
benefited from consistently good overall performance of the Company's functional
housewares business. This was offset somewhat by softness in the overall
textiles business and lower sales of the Company's seasonal merchandise as a
result of the cooler spring weather.
In addition to the cost of inventory sold, the Company includes its buying and
distribution expenses in its cost of sales. Buying expenses include all direct
and indirect costs to procure merchandise. Distribution expenses include the
cost of operating the Company's distribution centers and freight expense related
to transporting merchandise. Gross profit for the thirteen weeks ended July 5,
2003 was $218.7 million, or 41.8% of net sales, compared with $192.9 million, or
41.8% of net sales, for the same period last year. Gross profit was impacted by
a slight increase in promotional activity in comparison to the prior year. The
Company's markdown rate also slightly increased to clear seasonal inventory as a
result of softer sales of the Company's seasonal merchandise. This was offset,
in part, by the continued leverage of the Company's supply chain costs.
13
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, con't
-------------------------------------------------------
The Company's selling, general and administrative ("SG&A") expenses consist of
store selling expenses, occupancy costs, advertising expenses and corporate
office expenses. SG&A expenses for the thirteen weeks ended July 5, 2003 were
$209.2 million, or 39.9% of net sales, compared with $183.1 million, or 39.6% of
net sales, for the same period last year. Store payroll costs increased in line
with plan to support the Company's guest service initiatives and occupancy costs
were de-leveraged reflecting net comparable sales performance.
Operating profit for the thirteen weeks ended July 5, 2003 was $9.5 million, or
1.8% of net sales, compared with $9.8 million, or 2.1% of net sales, for the
same period last year.
Net interest expense for the thirteen weeks ended July 5, 2003 decreased to $0.3
million from $0.8 million during the same period last year. The decrease in net
interest expense is mainly due to lower average borrowings as well as lower
interest rates.
The Company's income tax expense was $3.5 million for both the thirteen weeks
ended July 5, 2003 and June 29, 2002. The Company's effective tax rate was 38.2%
for both the thirteen weeks ended July 5, 2003 and June 29, 2002.
As a result of the factors described above, net income for the thirteen weeks
ended July 5, 2003 was $5.7 million, or $0.13 per share on a diluted basis,
compared with $5.6 million, or $0.13 per share on a diluted basis for the same
period last year.
TWENTY-SIX WEEKS ENDED JULY 5, 2003 COMPARED WITH TWENTY-SIX WEEKS ENDED JUNE
29, 2002
Net sales increased 9.3% to $1,004.1 million for the twenty-six weeks ended July
5, 2003, up from $918.8 million for the same period last year, primarily as a
result of new store openings since June 29, 2002. During the twenty-six weeks
ended July 5, 2003, the Company opened 32 stores and closed eight stores
compared with opening 28 stores and closing four stores during the same period
last year.
Comparable store net sales for the twenty-six weeks ended July 5, 2003 declined
1.5% as compared with an increase of 3.1% for the same period last year. The
decline in comparable store net sales can be primarily attributed to a decline
in consumer traffic as a result of the slowing economy. In addition, sales were
impacted by softness in the overall textile business and lower sales of the
Company's seasonal merchandise as a result of the cooler spring weather. This
was somewhat offset by consistently good overall performance of the Company's
functional housewares business.
Gross profit for the twenty-six weeks ended July 5, 2003 was $416.4 million, or
41.5% of net sales, compared with $374.1 million, or 40.7% of net sales, for the
same period last year. The increase in gross profit as a percent of net sales
was primarily due to an improvement in the management of markdowns. In addition,
the Company continues to leverage its supply chain costs as well as increase its
penetration of proprietary product, which has more favorable gross margins.
SG&A expenses for the twenty-six weeks ended July 5, 2003 were $403.4 million,
or 40.2% of net sales, compared with $355.3 million, or 38.7 % of net sales, for
the same period last year. The increase as a percentage of net sales is
primarily attributable to the de-leveraging of occupancy costs reflecting
comparable store net sales performance and a greater investment in store payroll
as a result of the Company's initiatives to improve overall guest service
levels. In addition, the Company recorded a charge of approximately $2.4 million
in connection with the departure of the Company's president during the first
quarter of 2003.
Operating profit for the twenty-six weeks ended July 5, 2003 was $13.0 million,
or 1.3% of net sales, compared with $18.8 million, or 2.0% of net sales, for the
same period last year.
The Company incurred net interest expense of $0.4 million for the twenty-six
weeks ended July 5, 2003, compared with $1.4 million for the same period in
2002. The decrease in net interest expense is mainly due to lower average
borrowings as well as lower interest rates.
14
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, con't
-------------------------------------------------------
The Company's income tax expense for the twenty-six weeks ended July 5, 2003 was
$4.8 million compared with $6.6 million for the same period last year. The
Company's effective tax rate was 38.2% for both the twenty-six weeks ended July
5, 2003 and June 29, 2002.
Net income for the twenty-six weeks ended July 5, 2003 was $7.8 million, or
$0.17 per share on a diluted basis, compared with $10.7 million, or $0.26 per
share on a diluted basis, for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for new store expenditures, new
store inventory purchases and seasonal working capital. These requirements have
been funded through a combination of internally generated cash flows from
operations, credit extended by suppliers and short-term borrowings.
In June 2002, the Company amended and extended its $150 million senior revolving
credit facility agreement (the "Credit Agreement") with third party
institutional lenders to expire April 20, 2005. The Credit Agreement allows for
up to $40 million in borrowings from additional lines of credit outside of the
Credit Agreement. As of July 5, 2003, the additional lines of credit include
committed facilities of approximately $26 million expiring on June 16, 2004 and
are subject to annual renewal arrangements. The Company was in compliance with
the terms of the Credit Agreement as of July 5, 2003. The Company had $10
million borrowings under the Credit Agreement and $6.9 million in borrowings
under the additional lines of credit at a weighted-average interest rate of 3.0%
as of July 5, 2003. The Company also had $49.4 million of letters of credit
outstanding as of July 5, 2003, which included standby letters of credit issued
primarily under the Credit Agreement and import letters of credit used for
merchandise purchases. The Company is not obligated under any formal or informal
compensating balance requirements. See Note 3 to the Condensed Consolidated
Financial Statements. The Company maintains a trade payables arrangement with
General Electric Capital Corporation ("GECC") under which GECC purchases the
Company's payables at a discount directly from the Company's suppliers prior to
the payables due date, thereby permitting a supplier to receive payment prior to
the due date of the payable, with the Company sharing in part of the GECC
discount.
Net cash used in operating activities for the twenty-six weeks ended July 5,
2003 was $41.7 million compared with $29.8 million for the same period last
year. This change was primarily attributed to the timing of vendor payments and
the increase in inventory. Inventory increased by approximately $96.6 million
for the twenty-six weeks ended July 5, 2003 as a result of new store additions
and additional investments in inventory as a result of the Company's in stock
initiative.
Net cash used in investing activities for the twenty-six weeks ended July 5,
2003 was $52.0 million, compared with $51.0 million for the same period last
year. The Company opened 32 new stores for the twenty-six weeks ended July 5,
2003 compared with 28 new stores for the same period of last year. The second
quarter of 2002 also included expenditures related to the Company's third
distribution center, which opened during the second quarter of last year. The
Company currently estimates capital expenditures will be approximately $80
million to $85 million in fiscal 2003, primarily for an estimated 55 new stores,
maintenance of existing stores, and system enhancements.
Net cash provided by financing activities for the twenty-six weeks ended July 5,
2003 was $16.3 million compared with $85.4 million for the same period last
year. Short-term borrowing increased approximately $14.7 million for the
twenty-six weeks ended July 5, 2003. In addition, the Company had a common stock
offering of 3.3 million shares in the second quarter of fiscal 2002 that raised
a net $95.8 million.
15
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, con't
-------------------------------------------------------
Management regularly reviews and evaluates its liquidity and capital needs. The
Company experiences peak periods for its cash needs during the course of its
fiscal year, with peak periods generally expected during the second quarter and
fourth quarter of the fiscal year. As the Company's business continues to grow
and its current store expansion plan is implemented, such peak periods may
require increases in the amounts available under its credit facilities from
those currently existing and/or other debt or equity funding. Management
currently believes that the Company's cash flows from operations, credit
extended by suppliers, its existing credit facilities, and its uncommitted lines
of credit will be sufficient to fund its expected capital expenditures, working
capital and non-acquisition business expansion requirements for at least the
next 12 to 18 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Emerging Issues Task Force ("EITF") issued EITF 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor," which states that cash consideration received from a
vendor is presumed to be a reduction of the prices of the vendor's products or
services and should, therefore, be characterized as a reduction of Cost of
Merchandise Sold when recognized in the Company's Consolidated Statements of
Earnings. That presumption is overcome when the consideration is either a
reimbursement of specific, incremental and identifiable costs incurred to sell
the vendor's products, or a payment for assets or services delivered to the
vendor. EITF 02-16 is effective for contracts entered into or modified after
December 31, 2002. The Company does not expect this issue to have a material
impact on the Company's fiscal 2003 consolidated financial statements since the
Company has entered into substantially all of its current vendor contracts prior
to December 31, 2002. The Company is currently reviewing all vendor agreements.
As vendor agreements are initiated or modified in fiscal 2004, the Company will
change its method of accounting for vendor allowances in accordance with EITF
02-16. The Company believes that this one time change in accounting is expected
to materially impact its 2004 consolidated financial statements and that a
reasonable estimate of this impact will be determined by the fourth quarter of
fiscal 2003. This accounting change will have no impact on the Company's cash
flows or the expected amount of funds to be received from vendors. In addition,
following implementation of EITF 02-16, there will be no earnings impact in
subsequent periods other than for future net changes in such vendor allowances.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of SFAS No. 123" ("SFAS
No. 148"). This statement amends SFAS Statement No. 123 ("SFAS No.123"),
"Accounting for Stock-Based Compensation", and provides alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, the statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used. For the thirteen and
twenty-six week periods ended July 5, 2003 and June 29, 2002, the Company
accounted for stock options using the intrinsic value method prescribed under
APB Opinion 25, and accordingly, the Company did not recognize compensation
expense for stock options. The Company continues to account for stock-based
compensation using APB Opinion No. 25 and has not adopted the recognition
provisions of SFAS No. 123, as amended by SFAS No. 148. However, the Company has
adopted the disclosure provisions and has included this information in Note 6 to
the Company's Condensed Consolidated Financial Statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN No. 46"). FIN No. 46 explains how to identify
variable interest entities and how an enterprise assesses its interests in a
variable interest entity to decide whether to consolidate that entity. The
Company has evaluated FIN No. 46 and determined that this interpretation did not
have a material impact on the Company's consolidated financial statements as the
Company has no variable interest entities.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"). SFAS No. 150 clarifies the accounting for certain financial instruments
with characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on the
Company's Condensed Consolidated Financial Statements.
16
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, con't
-------------------------------------------------------
INFLATION
The Company does not believe that its operating results have been materially
affected by inflation during the preceding three years. There can be no
assurance, however, that the Company's operating results will not be affected by
inflation in the future.
SEASONALITY
The Company's business is subject to substantial seasonal variations.
Historically, the Company has realized a significant portion of its net sales
and net income for the year during the third and fourth quarters. The Company's
quarterly results of operations may also fluctuate significantly as a result of
a variety of other factors, including the timing of new store openings. The
Company believes this is the general pattern associated with its segment of the
retail industry and expects this pattern will continue in the future.
Consequently, comparisons between quarters are not necessarily meaningful and
the results for any quarter are not necessarily indicative of future results.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. The statements are made a
number of times and may be identified by such forward-looking terminology as
"expect," "believe," "may," "will," "could", "intend," "plan," "target" and
terms or variations of such terms. All of our information and statements
regarding our outlook for the future including future revenues, comparable sales
performance, earnings and other future financial and stores' performance,
constitutes forward-looking statements. All our forward-looking statements are
based on our current expectations, assumptions, estimates and projections about
our Company and involve substantial risks and uncertainties. Some of those risks
and uncertainties which could cause actual results to differ materially include
levels of sales, store traffic, acceptance of product offerings and fashions and
our ability to anticipate and successfully respond to changing consumer tastes
and preferences, the success of our new business concepts and seasonal concepts,
the performance of our new stores, competitive pressures from other home
furnishings retailers, the success of the Canadian expansion, availability of
suitable future store locations, schedule of store expansion and of planned
closings, the impact of the bankruptcies and consolidations in our industry,
including any impact of the recent bankruptcy announcement and proposed sale of
assets of Pillotex, unusual weather patterns, the impact on consumer spending as
a result of the slower consumer economy, a continued highly promotional retail
environment, any significant variations between actual amounts and the amounts
estimated for those matters identified as our critical accounting estimates as
well as other significant accounting estimates made in the preparation of our
financial statements, the impact of new accounting pronouncements (including
EITF 02-16) on future reported results, and our ability to successfully
implement our strategic initiatives. Actual results may differ materially from
such forward-looking statements. These and other important risk factors are
included in the "Risk Factors" section of the Company's Registration Statement
on Form S-3 as filed with the Securities and Exchange Commission on June 18,
2002, and in our most recent Annual Report on Form 10-K and subsequent reports
filed with the Securities and Exchange Commission. Many such factors will be
important in determining our actual future results and you are urged to
carefully consider all such factors. In light of the substantial uncertainty
inherent in such forward-looking statements, you should not consider their
inclusion to be a representation that such forward-looking matters will in fact
be achieved. The Company assumes no obligation for updating any such
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting such forward-looking statements.
17
LINENS `N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, con't
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company continuously evaluates the market risk associated with its financial
instruments. Market risks relating to the Company's operations result primarily
from changes in interest rates and foreign exchange rates. The Company does not
engage in financial transactions for trading or speculative purposes.
INTEREST RATE RISK:
The Company's financial instruments include cash and cash equivalents and
short-term borrowings. The Company's obligations are short-term in nature and
generally have less than a 30-day commitment. The Company is exposed to interest
rate risks primarily through borrowings under the Credit Agreement. Interest on
all borrowings is based upon several alternative rates as stipulated in the
Credit Agreement, including a fixed margin above LIBOR. As of July 5, 2003, the
Company had $10 million in borrowings under the Credit Agreement and $6.9
million in borrowings under the additional lines of credit at a weighted-average
interest rate of 3.0% (see Note 3 to the Condensed Consolidated Financial
Statements). The Company believes that its interest rate risk is minimal as a
hypothetical 10% increase or decrease in interest rates in the associated debt's
variable rate would not materially affect the Company's results from operations
or cash flows. The Company does not use derivative financial instruments in its
investment portfolio.
FOREIGN CURRENCY RISK:
The Company enters into some purchase obligations outside of the United States,
which are predominately settled in U.S. dollars, and therefore, the Company has
only minimal exposure to foreign currency exchange risks. The Company does not
hedge against foreign currency risks and believes that foreign currency exchange
risk is immaterial.
In addition, the Company operated 16 stores in Canada as of July 5, 2003. The
Company believes its foreign currency translation risk is minimal, as a
hypothetical 10% strengthening or weakening of the U.S. dollar relative to the
Canadian dollar would not materially affect the Company's results from
operations or cash flow.
Since fiscal year end 2002, there have been no material changes in market risk
exposures.
Item 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer, with the
assistance of other members of the Company's management, have evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are
effective.
The Company's Chief Executive Officer and Chief Financial Officer have also
concluded that there have not been any changes in the Company's internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial reporting.
18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 1, 2003 the Company held its Annual Meeting of Shareholders. At the
Annual Meeting, Philip E. Beekman was re-elected as director of the Company,
with 39,093,878 shares voted for and 612,065 shares withheld, and Harold F.
Compton was re-elected as director of the Company, with 37,155,142 shares voted
for and 2,550,801 shares withheld. Directors whose term of office continued
following the meeting were Norman Axelrod, Morton E. Handel, Stanley P.
Goldstein and Robert Kamerschen.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
15 Letter re unaudited interim financial information
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) REPORTS ON FORM 8-K:
The Company furnished a Current Report on Form 8-K dated April 10,
2003 in reference to a press release dated April 10, 2003 reporting
certain information regarding the Company's sales and earnings outlook
for the first quarter ended April 5, 2003.
The Company furnished a Current Report on Form 8-K dated April 23,
2003 in reference to a press release dated April 23, 2003 reporting
the Company's sales and earnings results for its first quarter ended
April 5, 2003.
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINENS 'N THINGS, INC.
(Registrant)
By: /s/ William T. Giles
----------------------
William T. Giles
Executive Vice President, Chief Financial
Officer
(Duly authorized officer and
principal financial officer)
Date: August 19, 2003
20