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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended OCTOBER 27, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ...... to ......
Commission file number 1-9769
LANDS' END, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2512786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lands' End Lane, Dodgeville, WI 53595
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, 608-935-9341
including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of December 11, 2000:
Common stock, $.01 par value 29,189,372 shares outstanding
LANDS' END, INC. & SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Statements of Operations for the
Three Months Ended October 27, 2000, and
October 29, 1999.................................. 3
Consolidated Statements of Operations for the
Nine Months Ended October 27, 2000, and
October 29, 1999.................................. 4
Consolidated Balance Sheets at October 27, 2000, and
January 28, 2000 ................................. 5
Consolidated Statements of Cash Flows for the
Nine Months Ended October 27, 2000, and
October 29, 1999 ................................. 6
Notes to Consolidated Financial Statements........... 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 11-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.......................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 18
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 18
Item 5. Other Information.................................... 18
Item 6. Exhibits and Reports on Form 8-K..................... 18
Signature..................................................... 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
Oct. 27, Oct. 29
2000 1999
(unaudited)
Net sales $336,391 $325,970
Cost of sales 190,663 185,157
Gross profit 145,728 140,813
Selling, general and
administrative expenses 136,232 127,189
Reversal of non-recurring charge - (176)
Income from operations 9,496 13,800
Other income (expense):
Interest expense (801) (558)
Interest income 235 17
Other (1,878) 631
Total other income (expense) (2,444) 90
Income before income taxes 7,052 13,890
Income tax provision 2,609 5,139
Net income $ 4,443 $ 8,751
Basic earnings per share $ 0.15 $ 0.29
Diluted earnings per share $ 0.15 $ 0.28
Basic weighted average shares outstanding 30,290 30,125
Diluted weighted average shares
outstanding 30,491 31,071
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
3
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Nine months ended
Oct. 27, Oct. 29,
2000 1999
(unaudited)
Net sales $857,981 $870,195
Cost of sales 468,483 485,732
Gross profit 389,498 384,463
Selling, general and
administrative expenses 381,409 352,904
Reversal of non-recurring charge - (1,774)
Income from operations 8,089 33,333
Other income (expense):
Interest expense (1,148) (1,525)
Interest income 1,454 55
Other (3,865) (573)
Total other expense (3,559) (2,043)
Income before income taxes 4,530 31,290
Income tax provision 1,676 11,577
Net income $ 2,854 $ 19,713
Basic earnings per share $ 0.09 $ 0.66
Diluted earnings per share $ 0.09 $ 0.64
Basic weighted average shares outstanding 30,261 30,064
Diluted weighted average shares outstanding 30,681 30,831
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
4
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
Oct. 27, January 28,
2000 2000
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 20,031 $ 76,413
Receivables, net 21,992 17,753
Inventory 260,503 162,193
Prepaid advertising 42,586 16,572
Other prepaid expenses 8,769 5,816
Deferred income tax benefits 10,661 10,661
Total current assets 364,542 289,408
Property, plant and equipment, at cost:
Land and buildings 103,371 102,776
Fixtures and equipment 200,078 175,910
Leasehold improvements 4,453 4,453
Construction in progress 1,301 -
Total property, plant and equipment 309,203 283,139
Less-accumulated depreciation
and amortization 131,581 117,317
Property, plant and equipment, net 177,622 165,822
Intangibles, net 670 966
Total assets $542,834 $456,196
Liabilities and shareholders' investment
Current liabilities:
Lines of credit $ 70,239 $ 11,724
Accounts payable 109,940 74,510
Reserve for returns 8,521 7,869
Accrued liabilities 39,722 43,754
Accrued profit sharing 184 2,760
Income taxes payable 1,136 10,255
Total current liabilities 229,742 150,872
Deferred income taxes 9,117 9,117
Shareholders' investment:
Common stock, 40,221 shares issued 402 402
Donated capital 8,400 8,400
Additional paid-in capital 31,541 29,709
Deferred compensation (147) (236)
Accumulated other comprehensive income 3,688 2,675
Retained earnings 457,284 454,430
Treasury stock, 9,977 and 10,071
shares at cost, respectively (197,193) (199,173)
Total shareholders' investment 303,975 296,207
Total liabilities and shareholders'
investment $542,834 $456,196
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
5
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
Oct. 27, Oct. 29,
2000 1999
(unaudited)
Cash flows from (used for) operating activities:
Net income $ 2,854 $ 19,713
Adjustments to reconcile net income to
net cash flows from operating activities:
Non-recurring credit - (1,774)
Depreciation and amortization 17,220 15,178
Deferred compensation expense 89 126
Loss on disposal of fixed assets 40 540
Changes in current assets and liabilities:
Receivables, net (4,239) 346
Inventory (98,310) (11,613)
Prepaid advertising (26,014) (11,747)
Other prepaid expenses (2,953) 1,665
Accounts payable 35,430 12,129
Reserve for returns 652 (348)
Accrued liabilities (2,611) (4,583)
Accrued profit sharing (2,576) (1,034)
Income taxes payable (9,119) (10,344)
Tax benefit of stock options 1,832 2,715
Other 1,013 (1,265)
Net cash flows from (used for) operating activities (86,692) 9,704
Cash flows used for investing activities:
Cash paid for capital additions (30,185) (12,745)
Net cash flows used for investing activities (30,185) (12,745)
Cash flows from (used for) financing activities:
Net proceeds from short-term debt 58,515 2,407
Purchases of treasury stock (2,249) (4,507)
Issuance of treasury stock 4,229 6,589
Net cash flows from financing activities 60,495 4,489
Net increase(decrease)in cash and cash equivalents (56,382) 1,448
Beginning cash and cash equivalents 76,413 6,641
Ending cash and cash equivalents $ 20,031 $ 8,089
Supplemental cash flow disclosures:
Interest paid $ 954 $ 1,444
Income taxes paid 8,841 19,288
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
6
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim financial statements
The condensed consolidated financial statements included herein have been
prepared by Lands' End, Inc. (the company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, and in the
opinion of management contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the company believes that the disclosures are
adequate to make the information presented not misleading. The results of
operations for the interim periods disclosed within this report are not
necessarily indicative of future financial results. These consolidated
financial statements are condensed and should be read in conjunction with
the financial statements and the notes thereto included in the company's
latest Annual Report on Form 10-K, which includes financial statements for
the year ended January 28, 2000.
2. Reclassification
Certain financial statement amounts have been reclassified to be consistent
with the current presentation.
3. Derivative instruments and hedging activities
As of July 31, 1999, the company adopted the Financial Accounting
Standards Board's (FASB's) Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(Statement 133). Statement 133 unifies accounting and financial
reporting standards for forward contracts, options, other derivative
instruments, and related hedging activities. Statement 133 requires, in
part, that the company report all derivative instruments in the statement
of financial position as assets or liabilities at their fair value. The
treatment of subsequent changes in fair value depends on whether hedge
accounting is available. For the third quarter of fiscal 2001, a loss of
$1.9 million was recorded in other expenses, compared with a gain of $0.6
million in the third quarter of fiscal 2000. For the nine months ended
October 27, 2000, a loss of $4.5 million primarily due to the weakening
of the German Mark and British Pound against the U.S. Dollar was recorded
in other expenses, compared with a loss of $40 thousand for the same time
period last year.
At the date merchandise is sold to a foreign subsidiary or purchased from
a foreign third party, the hedging relationship is terminated and
subsequent gains and losses on the hedging derivative instrument are
reported in earnings. At the date of the ultimate sale of the
merchandise by the foreign subsidiary to a third party or purchase from a
foreign third party, the gain or loss previously deferred in equity is
recognized in earnings. The company estimates that net hedging gains of
$2.2 million will be reclassified from accumulated other comprehensive
income into earnings within the 12 months between October 28, 2000 and
October 26, 2001.
7
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Earnings per share
The following table discloses the computation of the diluted earnings per
share and the basic earnings per share.
Three months ended Nine months ended
Oct. 27, Oct. 29, Oct. 27, Oct. 29,
(In thousands, except per 2000 1999 2000 1999
share data)
Net income $ 4,443 $ 8,751 $ 2,854 $ 19,713
Average shares of common
stock outstanding 30,290 30,125 30,261 30,064
Incremental shares from assumed
exercise of stock options 201 946 420 767
Diluted weighted average shares
of common stock outstanding 30,491 31,071 30,681 30,831
Basic earnings per share $ 0.15 $ 0.29 $ 0.09 $ 0.66
Diluted earnings per share $ 0.15 $ 0.28 $ 0.09 $ 0.64
5. Comprehensive income
In accordance with Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," the following table presents the
company's comprehensive income (in thousands):
Three months ended Nine months ended
Oct. 27, Oct. 29, Oct. 27, Oct. 29,
2000 1999 2000 1999
Net income $ 4,443 $ 8,751 $ 2,854 $19,713
Other comprehensive income:
Foreign currency translation
adjustments (467) 992 (1,954) 790
Net unrealized gains (losses)
on forward contracts and
options 331 (2,055) 2,967 (2,055)
Comprehensive income $ 4,307 $ 7,688 $ 3,867 $18,448
6. Non-recurring charge and related reversal
During fiscal year 1999, in connection with changes in executive
management, the company announced a Plan designed to reduce administrative
and operational costs stemming from duplicative responsibilities and
certain non-profitable operations. This Plan included the reduction of
staff positions, the closing of three outlet stores, the liquidation of the
Willis & Geiger operations, and the termination of a licensing agreement
with MontBell Co. Ltd. A non-recurring charge of $12.6 million was
recorded in fiscal 1999 related to these matters.
8
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Below is a summary of related costs for the nine months ended October 27,
2000 and the remaining reserve balance (included as a component of accrued
liabilities in the accompanying balance sheets).
Balance Costs Balance
(In thousands) 1/28/00 Incurred 10/27/00
Severance costs $ 1,007 $ (958) $ 49
Asset impairments 31 - 31
Facility exit costs and other 107 - 107
Total $ 1,145 $ (958) $ 187
7. Segment disclosure
The company has three business segments consisting of Core (regular
monthly and prospecting catalogs, First Person and Lands' End for Men),
Specialty (Kids, Corporate Sales, and Coming Home catalogs and Willis &
Geiger in the prior year) and International (foreign-based operations in
Japan, United Kingdom and Germany).
Segment sales represent sales to external parties. Sales from the
Internet, export sales shipped from the United States, and liquidation
sales are included in the respective business segments. Segment income
before income taxes is revenue less direct and allocable operating
expenses, which includes interest expense and interest income. Segment
identifiable assets are those that are directly used in or identified
with segment operations. "Other" includes corporate expenses, inter-
company eliminations, currency gains and losses, and other income and
deduction items that are not allocated to segments.
Pertinent financial data by operating segment for the periods ended
October 27, 2000 and October 29, 1999 are as follows (in thousands):
Three months ended October 27, 2000
Inter- Consoli-
Core Specialty national Other dated
Net sales $185,551 $122,712 $ 28,128 $ - $336,391
Income (loss) before
income taxes 284 9,566 (738) (2,060) 7,052
Identifiable assets 303,521 167,404 71,909 - 542,834
Depreciation and
amortization 2,918 2,085 588 - 5,591
Capital expenditures 8,756 5,497 386 - 14,639
Interest expense 414 233 154 - 801
Interest income $ 78 $ 96 $ 61 $ - $ 235
9
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended October 29, 1999
Inter- Consoli-
Core Specialty national Other dated
Net sales $177,481 $116,913 $ 31,576 $ - $325,970
Income (loss) before
income taxes (1,538) 14,332 456 640 13,890
Identifiable assets 257,510 140,577 76,794 - 474,881
Depreciation and
amortization 2,526 1,757 620 - 4,903
Capital expenditures 4,211 2,498 550 - 7,259
Interest expense 254 164 140 - 558
Interest income $ 7 $ 4 $ 6 $ - $ 17
Nine months ended October 27, 2000
Inter- Consoli-
Core Specialty national Other dated
Net sales $496,688 $273,941 $ 87,352 $ - $857,981
Income (loss) before
income taxes (792) 12,784 (2,748) (4,714) 4,530
Identifiable assets 303,521 167,404 71,909 - 542,834
Depreciation and
amortization 9,956 5,491 1,773 - 17,220
Capital expenditures 18,640 10,280 1,265 - 30,185
Interest expense 465 257 426 - 1,148
Interest income $ 866 $ 478 $ 110 $ - $ 1,454
Nine months ended October 29, 1999
Inter- Consoli-
Core Specialty national Other dated
Net sales $502,255 $274,867 $ 93,073 $ - $870,195
Income (loss) before
income taxes (1) 5,182 28,420 (1,691) (621) 31,290
Identifiable assets 257,510 140,577 76,794 - 474,881
Depreciation and
amortization 8,662 4,728 1,788 - 15,178
Capital expenditures 7,440 4,062 1,243 - 12,745
Interest expense 673 367 485 - 1,525
Interest income $ 20 $ 11 $ 24 $ - $ 55
(1) Includes a reversal of non-recurring charges of $0.5 million and
$1.3 million allocated to the specialty and core segments,
respectively.
10
Item 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS
Results of Operations
Consolidated results for the three months ended October 27, 2000,
compared with three months ended October 29, 1999
The company's net sales for its third quarter of fiscal 2001 totaled $336.4
million, up 3 percent from sales of $326.0 million in the same quarter last
year. Sales grew stronger throughout the quarter, principally from gains
in the core business segment and the specialty business segment. There was
strong performance in the traditional and newly enhanced outerwear
categories, as well as other core products. Page circulation was up by 12
percent, over half of which was increased prospecting and customer
reactivation. Sales from the core business segment rose nearly 5 percent,
led by the monthly and prospecting catalogs; and specialty business segment
sales were also up 5 percent, led by double-digit growth in Corporate
Sales. However, sales from the international business segment were down 11
percent, compared with the same period last year, mostly due to weaker
European currencies relative to the dollar. Sales on the company's
Internet site www.landsend.com were about 65 percent above those in the
same quarter last year. Sales for the first 6 weeks of the current fourth
quarter show the company's net sales increased 11% from the comparable
period in the prior year.
Gross profit in the quarter just ended was $145.7 million, or 43.3 percent
of net sales, compared with $140.8 million, or 43.2 percent of net sales,
in the similar quarter last year. While the company achieved a 150 basis
point improvement in initial markup, it was mostly offset by steeper
markdowns on liquidated merchandise. Liquidations of excess inventory were
17 percent of net sales in the quarter just ended, compared with 16 percent
in the prior year.
For the third quarter this year, selling, general and administrative
expenses increased 7.1 percent to $136.2 million, compared with $127.2
million in last year's third quarter. As a percentage of net sales, SG&A
ratio was 40.5 percent, compared with 39.0 percent in the similar period
last year. The increase in the SG&A ratio was mostly the result of
increased page circulation, primarily due to the company's prospecting and
customer reactivation efforts, and also higher information services
expense.
Third quarter ending inventory was $261 million, compared with $231 million
a year ago and $379 million two years ago. The company shipped about 90
percent of items at the time of order placement during the quarter just
ended, consistent with its high standards of customer service.
Net income for the quarter just ended was $4.4 million, compared with the
$8.8 million earned in the same quarter last year. Diluted earnings per
share for the quarter just ended were $0.15, compared with $0.28 in the
prior year. Net income for the quarter just ended includes a foreign
currency exchange after-tax loss of $1.2 million, while the prior year's
similar quarter included a foreign currency exchange after-tax gain of $0.4
million. Foreign currency exchange gains or losses will occur in response
to currency market movements and the company's hedging strategy and are
recorded as other income or expense.
11
Segment results for the three months ended October 27, 2000 and
October 29, 1999
Three months ended Three months ended
Segment net sales October 27, 2000 October 29, 1999
(Amounts in thousands) Amount % of Net Sales Amount % of Net Sales
Core $185,551 55.2% $177,481 54.4%
Specialty 122,712 36.5% 116,913 35.9%
International 28,128 8.3% 31,576 9.7%
Total net sales $336,391 100.0% $325,970 100.0%
Income (loss) before income taxes
(Amounts in thousands)
Three months ended Three months ended
October 27, 2000 October 29, 1999
Amount % of Net Sales Amount % of Net Sales
Core $ 284 0.1% $(1,538) (0.5%)
Specialty 9,566 2.8% 14,332 4.4%
International (738) (0.2%) 456 0.2%
Other (2,060) (0.6%) 640 0.2%
Income before
income taxes $ 7,052 2.1% $13,890 4.3%
The core segment's net sales increased $8.1 million from the prior year,
primarily from increased circulation of monthly and prospecting full-
price catalogs. The specialty segment's net sales increased $5.8 million
from last year, principally from our double-digit growth in Corporate
Sales business-to-business division. The international segment's net
sales decreased $3.4 million from the prior year, primarily the result of
weaker European currencies relative to the dollar.
For the third quarter this fiscal year compared to last year, the core
segment's pretax income increased $1.8 million, the specialty segment's
pretax income decreased $4.8 million, and the international segment's
pretax income decreased $1.2 million.
Consolidated results for the nine months ended October 27, 2000,
compared with nine months ended October 29, 1999
For the nine months just ended, net sales were $858.0 million, down 1
percent from sales of $870.2 million during the same period last year.
Excluding $13 million in sales from the discontinued Willis & Geiger
business in the prior year, net sales in the current fiscal year were about
flat, compared with the prior year. Year to date, Internet sales increased
68 percent, compared with last year.
Gross profit for the first nine months of fiscal 2001 was $389.5 million,
compared with $384.5 million in the same nine-month period last year. As a
percentage of net sales, gross profit increased from 44.2 percent in fiscal
2000 to 45.4 percent in fiscal 2001. The increase in gross profit was
mainly due to higher initial margins, primarily associated with sourcing
improvements.
12
Selling, general and administrative expenses increased 8.1 percent to
$381.4 million in the first nine months of fiscal 2001 from $352.9 million
in the same period last year. As a percentage of net sales, selling,
general and administrative expenses increased to 44.5 percent in fiscal
2001 from 40.6 percent in fiscal 2000. The increase in the SG&A ratio in
the first nine months of fiscal 2001 was primarily the result of higher
catalog advertising and national advertising costs and fixed expenses
(primarily information technology related).
Net income for the first nine months of fiscal 2001 was $2.9 million, or
$0.09 per diluted share, compared with net income of $19.7 million, or
$0.64 per share in the same period a year ago. Last year's first nine
months includes an addition to net income (after-tax) of $1.1 million, or
$0.04 per share, from the reversal of a portion of the non-recurring charge
taken in the fourth quarter of fiscal year 1999.
Segment results for the nine months ended October 27, 2000 and
October 29, 1999
Nine months ended Nine months ended
Segment net sales October 27, 2000 October 29, 1999
(Amounts in thousands) Amount % of Net Sales Amount % of Net Sales
Core $496,688 57.9% $502,255 57.7%
Specialty 273,941 31.9% 274,867 31.6%
International 87,352 10.2% 93,073 10.7%
Total net sales $857,981 100.0% $870,195 100.0%
Income (loss) before income taxes
(Amounts in thousands)
Nine months ended Nine months ended
October 27, 2000 October 29, 1999
Amount % of Net Sales Amount % of Net Sales
Core $ (792) (0.1%) $ 5,182 0.6%
Specialty 12,784 1.5% 28,420 3.3%
International (2,748) (0.4%) (1,691) (0.2%)
Other (4,714) (0.5%) (621) (0.1%)
Income before
income taxes $ 4,530 0.5% $31,290 3.6%
For the first nine months of the year, the core segment's net sales
decreased $5.6 million from the prior year, due to the weakness
experienced in the first half of the fiscal year.
The specialty segment's net sales decreased $0.9 million from the prior
year. Excluding last year's first nine months of net sales of about $13
million from the company's discontinued Willis & Geiger business, the
specialty segment had a sales increase of $12.0 million. This sales
increase was principally from our Corporate Sales business-to-business
division, partially offset by a decrease in the Kids and Coming Home
divisions.
13
The international segment's net sales decreased $5.7 million from the
prior year. The decrease was mainly the result of weaker European
currencies relative to the dollar.
For the first nine months of this fiscal year compared to last year, the
core segment's pretax income decreased by $6.0 million, the specialty
segment's pretax income decreased by $15.6 million and the international
segment pretax income decreased by $1.1 million.
Seasonality of business
The company's business is highly seasonal. Historically, a
disproportionate amount of the company's net sales and a majority of its
profits have been realized during the fourth quarter. If the company's
sales were materially different from seasonal norms during the fourth
quarter, the company's annual operating results could be materially
affected. In addition, as the company continues to refine its marketing
efforts by experimenting with the timing of its catalog mailings, quarterly
results may fluctuate. Accordingly, results for the individual quarters
are not necessarily indicative of the results to be expected for the entire
year.
Liquidity and capital resources
To date, the bulk of the company's working capital needs have been met
through funds generated from operations and from short-term bank loans.
The company's principal need for working capital has been to meet peak
inventory requirements associated with its seasonal sales pattern. In
addition, the company's resources have been used to make asset additions
and to purchase treasury stock.
At October 27, 2000, the company had unsecured domestic credit facilities
totaling $200 million, of which $55 million had been used, along with a
reduction of the facility of nearly $42 million for outstanding letters of
credit. The company also maintains foreign credit lines for use in foreign
operations totaling the equivalent of approximately $51 million as of
October 27, 2000, of which about $15 million was used.
Since fiscal 1990, the company's board of directors has authorized the
company from time to time to purchase a total of 12.7 million shares of
treasury stock. The company purchased about 69 thousand shares of treasury
stock, of which 19 thousand shares was the result of options exercised,
during the nine months ended October 27, 2000. The company completed the
repurchase of the remaining authorized shares available on November 30,
2000. On December 4, 2000, the board of directors authorized the purchase
of up to 2,000,000 additional shares of the company's common stock, which
will be made from time to time on the New York Stock Exchange or otherwise.
As of December 11, 2000, 12.7 million shares have been purchased, and there
is a balance of 2.0 million shares available to the company.
Capital investment
Capital expenditures for fiscal 2001 are currently planned to be about $45
million, of which about $30 million had been expended through October 27,
2000. Major projects to date pertained mainly to investing in our
information technology. The company believes that its cash flow from
operations and borrowings under its current credit facilities will provide
adequate resources to meet its capital requirements, treasury stock
purchases and operational needs for the foreseeable future.
14
Possible future changes
A 1992 Supreme Court decision confirmed that the Commerce Clause of the
United States Constitution prevents a state from requiring the collection
of its use tax by a mail order company unless the company has a physical
presence in the state. However, there continues to be uncertainty due to
inconsistent application of the Supreme Court decision by state and
federal courts. The company attempts to conduct its operations in
compliance with its interpretation of the applicable legal standard, but
there can be no assurance that such compliance will not be challenged.
In recent challenges, various states have sought to require companies to
begin collection of use taxes and/or pay taxes from previous sales. The
company has not received assessments from any state.
The Supreme Court decision also established that Congress has the power
to enact legislation that would permit states to require collection of
use taxes by mail order companies. Congress has from time to time
considered proposals for such legislation. The company anticipates that
any legislative change, if adopted, would be applied only on a
prospective basis.
In October 1998, The Internet Tax Freedom Act was signed into law. Among
the provisions of this Act is a three-year moratorium on multiple and
discriminatory taxes on electronic commerce. An Advisory Commission was
appointed to study electronic commerce tax issues and submitted its final
report to Congress on April 3, 2000. Among other recommendations, the
majority of the Advisory Commission favors the extension of the
moratorium for an additional five years, until 2006, and greater
uniformity and simplification of the state sales and use tax systems. We
are currently analyzing the Commission's full report, Congress' response,
and any other proposed changes in the sales and use tax laws and policies
in general.
Business outlook as stated in our earnings release dated November 9, 2000
As stated in our earnings release dated November 9, 2000, the company now
expects an improvement in gross profit margin of about 115-135 basis
points over last year, rather than 200 as previously announced, mainly
due to continuing higher than expected liquidations and greater than
expected demand associated with price promotions on multiple-item
purchases.
Through the first 9 months of the year, page circulation has increased by
8 percent. As previously announced, the company plans to increase page
circulation by 20 percent for the fourth quarter, as holiday catalogs are
added back to the mailing plan and the timing of holiday mailings is
shifted. In view of these plans and the emphasis on the holiday period,
the company's expectations regarding sales growth for the fourth quarter
and the full year remain unchanged. The company continues to expect the
fourth quarter to show substantial improvement in both sales and
earnings, and also continues to expect somewhat positive sales growth for
the full year. However, based on continuing pressure on gross profit
margins in the first six weeks of the fourth quarter, the company expects
earnings for the full year to be flat to somewhat below the prior year,
rather than somewhat positive as previously stated.
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Statement regarding forward-looking information
Statements in this document and in the company's earnings releases that
are not historical, including, without limitation, statements regarding
our plans, expectations, assumptions, and estimations for fiscal 2001
sales, gross profit margin, and earnings, as well as anticipated sales
trends, timing of catalogs and future development of our business
strategy, are forward-looking. As such, these statements are subject to
a number of risks and uncertainties. Future results may be materially
different from those expressed or implied by these statements due to a
number of factors.
Currently, we believe that the principal factors that create uncertainty
about our future results are the following: customer response to our
merchandise offerings, circulation changes and other initiatives; the mix
of our sales between full price and liquidation merchandise; general
economic or business conditions, both domestic and foreign; effects of
shifting patterns of e-commerce versus catalog purchases; costs
associated with printing and mailing catalogs; dependence on consumer
seasonal buying patterns; and fluctuations in foreign currency exchange
rates. Our future results could, of course, be affected by other factors
as well. More information about these risks and uncertainties may be
found in the company's 10-K filings with the S.E.C.
The company does not undertake to publicly update or revise its forward-
looking statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not be
realized.
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Item 3: Quantitative and Qualitative Disclosure About Market Risk
The company uses derivative instruments to hedge, and therefore attempts
to reduce its exposure to the effects of currency fluctuations on cash
flows. The company is subject to foreign currency risk related to its
transactions with operations in the Japan, United Kingdom, Germany and
with foreign third-party vendors. The company's foreign currency risk
management policy is to hedge the majority of merchandise purchases by
foreign operations and from foreign third-party vendors, which includes
forecasted transactions, through the use of foreign exchange forward
contracts and options to minimize this risk. The company's policy is not
to speculate in derivative instruments for profit on the exchange rate
price fluctuation, trade in currencies for which there are no underlying
exposures, or enter into trades for any currency to intentionally
increase the underlying exposure. Derivative instruments used as hedges
must be effective at reducing the risk associated with the exposure being
hedged and must be designated as a hedge at the inception of the
contract.
As of October 27, 2000, the company had net outstanding foreign currency
forward contracts totaling about $59.3 million. Due to foreign currency
exchange fluctuations, during the third quarter of fiscal 2001, a loss of
$1.9 million was recorded in other expenses, compared with a gain of $0.6
million in the third quarter of fiscal 2000. For the first nine months
of fiscal 2001, a loss of $4.5 million primarily due to the weakening of
the German Mark and British Pound against the U.S. Dollar was recorded in
other expenses, compared with a loss of $40 thousand for the same time
period last year.
The company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its short-term
borrowing and investment activities at variable interest rates. As of
October 27, 2000, the company had no outstanding financial instruments
related to its debt or investments.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings presently pending, except
for routine litigation incidental to the business, to which Lands'
End, Inc., is a party or of which any of its property is the
subject.
Items 2 and 3 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders for
the quarter ended October 27, 2000.
Item 5. Other Information
Jeffrey A. Jones joined the company as chief operating officer
in December 2000. Prior to joining Lands' End, Jones spent the
last seven years with Shopko Stores, Inc., and its subsidiary,
Provantage Health Service, Inc., both in Wisconsin. He served as
Shopko's senior vice president and chief financial officer until
1997. At that time, he was named chief operating officer and
later served as chief executive officer of Provantage, which was
recently sold to Merck, Inc. After graduating with a B.A. in
Accounting from the University of Maryland in 1971, Jones spent 13
years with Arthur Andersen & Co. His career includes chief
financial and chief operating officer positions with various
companies, including retail.
Stephen A.(Chip) Orum, executive vice president and chief
financial officer, plans to retire in early spring 2001, in line
with his long-time plan to pursue personal and family interests.
Orum joined Lands' End as vice president and chief financial
officer in 1991. He was promoted to senior vice president in 1992
and named executive vice president in 1994.
Two members of the company's board of directors, David B. Heller
and Howard G. Krane, plan to resign as board members in late
January 2001 at the end of the company's fiscal year. Mr. Heller
and Mr. Krane have served as directors since 1986 when the company
went public. Each is resigning to make time for other interests.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
There were no exhibits filed as part of this report.
(b) Reports on Form 8-K
A report on Form 8-K was filed on August 15, 2000,
pertaining to the company's results for the second quarter
ended July 28, 2000, and the business outlook for the fiscal
year.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, its duly authorized officer and chief financial officer.
LANDS' END, INC.
Date: December 11, 2000 By /s/ STEPHEN A. ORUM
Stephen A. Orum
Executive Vice President,
and Chief Financial Officer
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