SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JULY 2, 2005
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COMMISSION FILE NUMBER 1-12381
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LINENS 'N THINGS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3463939
---------------------------------- ----------------------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
6 Brighton Road, Clifton, New Jersey 07015
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (973) 778-1300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve 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 in Rule 12b-2 of the Exchange Act). Yes [X] No[ ]
Number of shares outstanding as of August 1, 2005: 45,290,079
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the
Thirteen and Twenty-Six Weeks Ended July 2, 2005 and July 3, 2004 3
Condensed Consolidated Balance Sheets as of July 2, 2005,
January 1, 2005 and July 3, 2004 4
Condensed Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended July 2, 2005 and July 3, 2004 5
Notes to Condensed Consolidated Financial Statements 6 - 10
Report of Independent Registered Public Accounting Firm 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 - 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
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 19
SIGNATURES 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 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
--------------- ---------------- --------------- ---------------
NET SALES $ 573,317 $ 578,749 $ 1,144,263 $ 1,131,549
Cost of sales, including buying and
distribution costs 336,374 346,073 670,927 677,627
--------------- ---------------- --------------- ---------------
GROSS PROFIT 236,943 232,676 473,336 453,922
Selling, general and administrative expenses 245,702 231,475 487,856 453,763
--------------- ---------------- --------------- ---------------
OPERATING (LOSS) INCOME (8,759) 1,201 (14,520) 159
Interest income (129) (30) (624) (168)
Interest expense 867 1,075 2,085 1,972
--------------- ---------------- --------------- ---------------
Interest expense, net 738 1,045 1,461 1,804
--------------- ---------------- --------------- ---------------
(LOSS) INCOME BEFORE (BENEFIT) PROVISION
FOR INCOME TAXES (9,497) 156 (15,981) (1,645)
(Benefit) provision for income taxes (3,565) 59 (5,975) (630)
--------------- ---------------- --------------- ---------------
NET (LOSS) INCOME $ (5,932) $ 97 $ (10,006) $ (1,015)
=============== ================ =============== ==============
BASIC LOSS PER SHARE $ (0.13) $ -- $ (0.22) $ (0.02)
=============== ================ =============== ==============
FULLY DILUTED LOSS PER SHARE $ (0.13) $ -- $ (0.22) $ (0.02)
=============== ================ =============== ==============
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 2, 2005 JANUARY 1, 2005 JULY 3, 2004
(UNAUDITED) (AUDITED) (UNAUDITED)
----------------- ------------------ ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 22,193 $ 204,009 $ 18,990
Accounts receivable 34,250 25,766 27,490
Inventories 799,077 715,184 763,514
Prepaid expenses and other current assets 41,287 38,335 33,146
Current deferred taxes 1,620 685 404
----------------- ------------------ ----------------
TOTAL CURRENT ASSETS 898,427 983,979 843,544
Property and equipment, net of accumulated depreciation of
$424,928, $382,813 and $341,597 at July 2, 2005, January
1, 2005 and July 3, 2004, respectively 584,346 578,816 559,676
Goodwill, net 18,126 18,126 18,126
Deferred charges and other noncurrent assets, net 13,012 10,963 7,916
----------------- ------------------ ----------------
TOTAL ASSETS $ 1,513,911 $ 1,591,884 $ 1,429,262
================= ================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 244,842 $ 245,635 $ 238,142
Accrued expenses and other current liabilities 137,506 212,644 122,905
Current deferred taxes -- 6,014 11,282
Short-term borrowings -- -- 6,045
----------------- ------------------ ----------------
TOTAL CURRENT LIABILITIES 382,348 464,293 378,374
Deferred income taxes and other long-term liabilities 330,974 318,238 306,685
----------------- ------------------ ----------------
TOTAL LIABILITIES 713,322 782,531 685,059
----------------- ------------------ ----------------
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; 45,540,958 shares issued and
45,283,393 shares outstanding at July 2, 2005;
45,460,467 shares issued and 45,200,896 shares
outstanding at January 1, 2005; and 45,371,540 shares
issued and 45,118,658 shares outstanding at July 3,
2004 455 455 454
Additional paid-in capital 374,538 372,627 370,520
Retained earnings 430,908 440,914 379,378
Accumulated other comprehensive income 2,047 2,619 1,089
Treasury stock, at cost; 257,565 shares at
July 2, 2005; 259,571 shares at January 1, 2005; and
252,882 shares at July 3, 2004 (7,359) (7,262) (7,238)
----------------- ------------------ ----------------
TOTAL SHAREHOLDERS' EQUITY 800,589 809,353 744,203
----------------- ------------------ ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,513,911 $ 1,591,884 $ 1,429,262
================= ================== ================
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 2, JULY 3,
2005 2004
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,006) $ (1,015)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 43,675 38,989
Deferred income taxes (3,105) 4,392
Loss on disposal of assets 339 776
Federal tax benefit from common stock issued
under stock incentive plans 144 1,279
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (8,533) 2,029
Increase in inventories (85,260) (63,925)
(Increase) decrease in prepaid expenses and
other current assets (2,433) 272
Increase in deferred charges and
other noncurrent assets (2,152) (1,662)
Decrease in accounts payable (345) (11,667)
Decrease in accrued expenses and other liabilities (64,817) (41,880)
----------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (132,493) (72,412)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (50,454) (57,437)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issued under stock incentive plans 1,769 6,762
Increase in short-term borrowings -- 6,011
(Increase) decrease in treasury stock (97) 102
----------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,672 12,875
----------------- ----------------
Effect of exchange rate changes on cash and cash
equivalents (541) (165)
Net decrease in cash and cash equivalents (181,816) (117,139)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 204,009 136,129
----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,193 $ 18,990
================= ================
CASH PAID DURING THE YEAR FOR:
Interest (net of amounts capitalized) $ 2,000 $ 2,035
Income taxes $ 30,476 $ 10,726
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 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 Linens 'n
Things, Inc. and its subsidiaries (collectively, the "Company") as of July 2,
2005 and July 3, 2004 and the results of operations for the respective thirteen
and twenty-six weeks then ended and cash flows for the twenty-six weeks then
ended. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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 1, 2005 (collectively, the "Audited Statements"), included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC"). All significant intercompany accounts and transactions have
been eliminated.
On July 1, 2005, the Company filed Amendment No. 1 on Form 10-Q/A ("Form
10-Q/A") to its Quarterly Report on Form 10-Q for the quarterly period ended
July 3, 2004, initially filed with the SEC on August 6, 2004. Form 10-Q/A was
filed to reflect the restatement of the Company's Condensed Consolidated
Financial Statements for the thirteen week and twenty-six week periods ended
July 3, 2004 and July 5, 2003 related to its correction for the accounting for
leases and other immaterial adjustments and reclassifications - see the
Explanatory Statement and Note 2 in Form 10-Q/A. All prior period disclosures
included herein give effect to the correction and other immaterial adjustments
and reclassifications.
2. EARNINGS (LOSS) PER SHARE
The calculation of basic and fully diluted earnings (loss) per share ("EPS") is
as follows:
PERIODS ENDED JULY 2, 2005
(IN THOUSANDS, EXCEPT EPS)
---------------------------------------------------------------------------
THIRTEEN WEEKS TWENTY-SIX WEEKS
----------------------------------- -----------------------------------
Net Net
Loss Shares EPS Loss Shares EPS
--------- ---------- ---------- --------- ---------- ----------
BASIC $ (5,932) 45,265 $ (0.13) $(10,006) 45,242 $ (0.22)
Effect of outstanding
stock options and
deferred stock grants -- 320 -- -- 405 --
--------- ---------- ---------- --------- ---------- ----------
FULLY DILUTED $ (5,932) 45,585 $ (0.13) $(10,006) 45,647 $ (0.22)
========= ========== ========== ========= ========== ==========
PERIODS ENDED JULY 3, 2004
(IN THOUSANDS, EXCEPT EPS)
---------------------------------------------------------------------------
THIRTEEN WEEKS TWENTY-SIX WEEKS
----------------------------------- -----------------------------------
Net Net
Income Shares EPS Loss Shares EPS
--------- ---------- ---------- --------- ---------- ----------
BASIC $ 97 45,089 $ -- $ (1,015) 44,993 $ (0.02)
Effect of outstanding
stock options and
deferred stock grants -- 982 -- -- 1,096 --
--------- ---------- ---------- --------- ---------- ----------
FULLY DILUTED $ 97 46,071 $ -- $ (1,015) 46,089 $ (0.02)
========= ========== ========== ========= ========== ==========
6
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
Options for which the exercise price was greater than the average market price
of common shares for the periods ended July 2, 2005 and July 3, 2004 were not
included in the computation of fully diluted earnings per share. These consisted
of options totaling approximately 3,533,000 shares and 606,000 shares for the
thirteen weeks and approximately 2,994,000 shares and 312,000 shares for the
twenty-six weeks then ended.
3. SHORT-TERM BORROWING ARRANGEMENTS
In November 2004, the Company entered into a $250 million senior revolving
credit facility agreement (the "Credit Agreement") with third party
institutional lenders to expire November 23, 2009. The Credit Agreement allows
for up to $50 million of additional unsecured indebtedness under lines of credit
outside of the Credit Agreement. As of July 2, 2005, the additional lines of
credit included a committed facility of approximately $4.0 million that expires
on July 31, 2005. To replace this expiring line of credit, as well as other
lines of credit totaling $24 million, which expired during June 2005, the
Company entered into a new unsecured credit facility in the amount of $32
million on July 29, 2005. This credit line facility expires July 29, 2008. The
Credit Agreement replaced the $150 million senior revolving credit facility
amended June 2002, which allowed for up to $40 million in borrowings from
additional lines of credit outside the agreement (the "2002 Credit Agreement").
Under the Credit Agreement, 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 2, 2005, the Company was in
compliance with its covenants under the Credit Agreement. Under the Credit
Agreement, the amount of dividends that the Company may pay may not exceed the
sum of $50 million plus, on a cumulative basis, an amount equal to 25% of the
consolidated net income for each fiscal quarter, commencing with the fiscal
quarter ending April 3, 2004. The Company has never paid cash dividends and does
not currently anticipate paying cash dividends in the future. As of July 2,
2005, the Company had no borrowings under the Credit Agreement and no borrowings
under the additional lines of credit. At various times during the twenty-six
weeks ended July 2, 2005 and July 3, 2004, the Company borrowed against its
Credit Agreement and the 2002 Credit Agreement, respectively, for working
capital needs. The Company also had $84.8 million of letters of credit
outstanding as of July 2, 2005, 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 (LOSS)
Comprehensive income (loss) for the thirteen and twenty-six weeks ended July 2,
2005 and July 3, 2004 is as follows (in thousands):
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
--------------------------------- ---------------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
--------------- --------------- --------------- ---------------
Net (loss) income $ (5,932) $ 97 $ (10,006) $ (1,015)
Other comprehensive loss - foreign
currency translation adjustment (389) (89) (572) (302)
--------------- --------------- --------------- ---------------
COMPREHENSIVE (LOSS) INCOME $ (6,321) $ 8 $ (10,578) $ (1,317)
=============== =============== =============== ===============
7
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
5. 2001 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 and other
current liabilities. 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 writedown 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 charge of
$3.8 million was recorded in cost of sales for estimated inventory markdowns
below cost for the stores to be closed. Certain components of the restructuring
charge were based on estimates and may be subject to change in the future. The
Company has closed all of the initially identified stores other than one store,
which the Company decided to keep open and whose reserve was reversed, and one
other store which is expected to be closed during fiscal 2005.
The following table displays a roll forward of the activity and significant
components of the 2001 restructuring and asset impairment charge and the
reserves remaining as of July 2, 2005 ($ in millions):
REMAINING AT USAGE REMAINING AT
JANUARY 1, 2005 2005 JULY 2, 2005
(AUDITED) (UNAUDITED) (UNAUDITED)
----------------- --------------- ----------------
CASH COMPONENTS:
Lease commitments $9.0 $(2.8) $6.2
----------------- --------------- ----------------
TOTAL $9.0 $(2.8) $6.2
================= =============== ================
The 2005 usage primarily consists of payments for lease commitments. The 2005
activity also includes the reversal of estimated lease commitment costs of
approximately $3.9 million which were not needed, offset by an increase to lease
commitment costs of approximately $3.5 million due to changes in estimates based
on current negotiations. The restructuring reserve balance is included in
accrued expenses and other current liabilities in the Condensed Consolidated
Balance Sheet.
6. STOCK INCENTIVE PLANS
In accordance with the provisions of SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of SFAS No. 123" ("SFAS
No. 148"), the Company elected not to adopt the fair value based method of
accounting for its stock-based compensation plans, but continues to apply the
recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, the Company does not recognize compensation
expense for stock option grants and amortizes restricted stock unit grants at
fair market value at the date of grant over specified vesting periods in the
accompanying Condensed Consolidated Financial Statements. The compensation cost
that has been charged against income for restricted stock unit grants was $0.3
million and $0.2 million for the thirteen weeks ended July 2, 2005 and July 3,
2004, respectively, and $0.5 million and $0.3 million for the twenty-six weeks
ended July 2, 2005 and July 3, 2004, respectively. The Company has complied with
the disclosure requirements of SFAS No. 148. Set forth below are the Company's
net income (loss) and net loss per share presented "as reported" and as if
compensation cost had been recognized in accordance with the provisions of SFAS
No. 148 for the thirteen and twenty-six weeks ended July 2, 2005 and July 3,
2004:
8
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
THIRTEEN WEEKS ENDING TWENTY-SIX WEEKS ENDING
----------------------------- ------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
---------------------------------------------------------------------------------------- ------------------------------
NET (LOSS) INCOME:
As reported $ (5,932) $ 97 $ (10,006) $ (1,015)
Add: stock-based employee compensation expense
included in net (loss) income as reported, net of
related tax effects 160 101 306 198
----------------------------- ------------------------------
(5,772) 198 (9,700) (817)
Deduct: total stock-based employee compensation
expense determined under the fair value based
method of accounting for all awards, net of
related tax effects 1,637 1,926 3,248 3,776
----------------------------- ------------------------------
Pro forma $ (7,409) $ (1,728) $ (12,948) $ (4,593)
============================= ==============================
NET LOSS PER SHARE OF COMMON STOCK:
BASIC:
As reported $ (0.13) $ -- $ (0.22) $ (0.02)
Pro forma (0.16) (0.04) (0.29) (0.10)
FULLY DILUTED:
As reported $ (0.13) $ -- $ (0.22) $ (0.02)
Pro forma (0.16) (0.04) (0.29) (0.10)
---------------------------------------------------------------------------------------------------------------------------
7. GUARANTEES
The Company has assigned property at a retail location in which the Company
guarantees the payment of rent over the specified lease term in the event of
non-performance. As of July 2, 2005, the maximum potential amount of future
payments the Company could be required to make under such guarantee is
approximately $0.8 million.
8. ACCOUNTS PAYABLE
The Company maintains a trade payables program with General Electric Capital
Corporation ("GECC") under which GECC pays participating Company suppliers the
amount due from the Company in advance of the original due date. In exchange for
the earlier payment, these suppliers accept a discounted payment. On the
original due date of the payables, the Company pays GECC the full amount.
Pursuant to the agreement, any favorable economics realized by GECC for
transactions under this program are shared with the Company. The Company
recognizes the total vendor discount realized by GECC as a reduction of the cost
of inventory in the Condensed Consolidated Balance Sheets and records the share
of the vendor discount due GECC as interest expense in the Condensed
Consolidated Statements of Operations. At July 2, 2005, January 1, 2005 and July
3, 2004, the Company owed approximately $44.1 million, $65.0 million and $76.4
million, respectively, to GECC under this program, which was included in
accounts payable. Either party may terminate the program for any reason upon 30
days prior written notice. The maximum amount permitted under the program was
$95 million as of July 2, 2005.
In addition, included in accounts payable are amounts for gift card liabilities
of $26.9 million, $30.5 million and $25.1 million as of July 2, 2005, January 1,
2005 and July 3, 2004, respectively.
9
LINENS 'N THINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
9. INCOME TAXES
On October 22, 2004 the American Job Creation Act of 2004 (the "Act") was signed
into law. The Act contains numerous amendments and additions to the U.S.
corporate income tax rules. None of these changes, either individually or in the
aggregate, is expected to have a significant effect on the Company's income tax
liability. The Company does not expect to take advantage of the Act's
repatriation provisions.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
"Share-Based Payment" ("SFAS No. 123 (Revised 2004)"). SFAS No. 123 (Revised
2004) requires the Company to recognize the grant-date fair value of stock
option grants as compensation expense in the Condensed Consolidated Statements
of Operations but expresses no preference for a type of valuation method to use
in determining the fair value of options. Under SFAS No. 123 (Revised 2004), the
Company would have been required to implement the standard as of the beginning
of the first interim period that begins after June 15, 2005 (the Company's
fiscal year 2005 third quarter). On April 14, 2005, the SEC adopted a new rule
that allows the Company to implement SFAS No. 123 (Revised 2004) at the
beginning of its next fiscal year, instead of the next interim reporting period,
that begins after June 15, 2005. Accordingly, the Company will implement SFAS
No. 123 (Revised 2004) as of the beginning of its first fiscal quarter of 2006.
Currently, the Company discloses the effect on net income and earnings per share
related to the expensing of options as a note to its Condensed Consolidated
Financial Statements (see Note 6). The Company is currently evaluating the
effect of this change in accounting treatment.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29." This Statement requires that
exchanges should be recorded and measured at the fair value of the assets
exchanged, with certain exceptions. The Statement is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of this Statement will not have a material effect on the Company's
financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4." This Statement amends the guidance to clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current period charges. In
addition, this Statement requires that allocation of fixed production overheads
to the costs of conversions be based on the normal capacity of the production
facilities. The Statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of this Statement will
not have a material effect on the Company's financial position or results of
operations.
10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 2, 2005 and July 3, 2004, and the related
condensed consolidated statements of operations 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 2, 2005 and July 3, 2004.
These condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board
(United States), 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 U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Linens 'n Things, Inc. and Subsidiaries as of January 1, 2005
(presented herein) and the related consolidated statements of operations,
shareholders' equity and comprehensive income, and cash flows for the year then
ended (not presented herein); and in our report dated March 31, 2005 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 1, 2005 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/S/ KPMG LLP
KPMG LLP
New York, New York
August 9, 2005
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
Condensed 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 large
format specialty retailers of home textiles, housewares and home accessories,
carrying both national brands and private label goods. As of July 2, 2005, the
Company operated 516 stores in 45 states and in five provinces across Canada.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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. These critical accounting
estimates are discussed in detail in our 2004 Annual Report on Form 10-K.
VALUATION OF INVENTORY: Merchandise inventory is a significant portion of the
Company's balance sheet, representing approximately 53% of total assets at July
2, 2005. 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.
The methodologies utilized by the Company in its application of RIM are
consistent for all periods presented. Such methodologies include the development
of the cost-to-retail ratios, the development of shrinkage reserves and the
accounting for price changes. At any one time, inventories include items that
have been written down to the Company's best estimate of their realizable value.
Factors considered in estimating realizable value include the age of merchandise
and anticipated demand. Actual realizable value could differ materially from
this estimate based upon future customer demand or economic conditions.
SALES RETURNS: The Company estimates future sales returns and 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. Although these
estimates have not varied materially from historical provisions, estimating
sales returns requires management judgment as to changes in preferences and
quality of products being sold, among other things; therefore, these estimates
may vary materially in the future. The sales returns calculations are regularly
compared with actual return experience. In preparing its financial statements as
of July 2, 2005, January 1, 2005 and July 3, 2004, the Company's sales returns
reserve was approximately $5.6 million, $7.4 million and $5.8 million,
respectively.
IMPAIRMENT OF ASSETS: With the adoption of SFAS No. 142, "Goodwill and Other
Intangible Assets", the Company reviews goodwill for possible impairment at
least annually. Impairment losses are recognized when the implied fair value of
goodwill is less than its carrying value. In accordance with the provisions of
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
the Company periodically evaluates long-lived assets other than goodwill for
indicators of impairment. As of July 2, 2005, January 1, 2005 and July 3, 2004,
the Company's net value for property and equipment was approximately $584.3
million, $578.8 million and $559.7 million, respectively, and goodwill was
approximately $18.1 million on each of these dates.
12
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CON'T
STORE CLOSURE COSTS: In fiscal 2001, the Company recorded a pre-tax
restructuring and asset impairment charge of $37.8 million ($23.7 million
after-tax) related to the closing of certain under-performing stores. As of July
2, 2005, January 1, 2005 and July 3, 2004, the Company had $6.2 million, $9.0
million and $12.6 million, respectively, remaining related to this reserve. The
Company has closed all of the initially identified stores other than one store,
which the Company decided to keep open and whose reserve was reversed, and one
other store which is expected to be closed during fiscal 2005. The Company
continues to negotiate and/or explore lease buyouts or sublease agreements for
these stores. The activity in the twenty-six week period ended July 2, 2005
includes the reversal of estimated lease commitment costs of approximately $3.9
million which were not needed, offset by an increase to lease commitment costs
of approximately $3.5 million due to changes in estimates based on current
negotiations. Final settlement of these reserves is predominantly a function of
negotiations with unrelated third parties, and, as such, these estimates may be
subject to change in the future.
SELF-INSURANCE: The Company purchases third party insurance for worker's
compensation, medical, auto and general liability costs that exceed 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. The accrued obligation for these
self-insurance programs was approximately $11.5 million as of July 2, 2005,
$14.5 million as of January 1, 2005 and $13.1 million as of July 3, 2004.
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 2, 2005 COMPARED WITH THIRTEEN WEEKS ENDED JULY 3,
2004
Net sales for the thirteen weeks ended July 2, 2005 decreased approximately 0.9%
to $573.3 million, down from $578.7 million for the same period last year. The
Company believes that sales decreased primarily due to a decline in guest
traffic. Guest traffic was negatively impacted by lean inventories in certain
categories, resulting from the unusually large number of product transitions
during the first half of the year. At July 2, 2005, the Company operated 516
stores, including 29 stores in Canada, as compared with 473 stores, including 22
stores in Canada, at July 3, 2004. Store square footage increased approximately
7.6% to 17.3 million at July 2, 2005 compared with 16.1 million at July 3, 2004.
During the thirteen weeks ended July 2, 2005, the Company opened 17 stores as
compared with opening 12 stores during the same period last year.
Comparable net sales decreased 6.8% for the thirteen weeks ended July 2, 2005
compared to an increase of 0.2% for the same period last year. Softness in
comparable net sales for the quarter can be primarily attributable to a decline
in guest traffic.
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 2,
2005 was $236.9 million, or 41.3% of net sales, compared with $232.7 million, or
40.2% of net sales, for the same period last year. During the second quarter of
fiscal 2005, gross profit was impacted by improved merchandise acquisition costs
largely offset by an increase in markdowns associated with the acceleration of
the Company's transition to newer assortments. In addition, the implementation
of EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor" had a greater impact on gross profit in
the prior period.
The Company's selling, general and administrative expenses ("SG&A") consist of
store selling expenses, occupancy costs, advertising expenses and corporate
office expenses. SG&A expenses for the thirteen weeks ended July 2, 2005 were
$245.7 million, or 42.8% of net sales, compared with $231.5 million, or 40.0% of
net sales, for the same period last year. The increase in SG&A is primarily due
to an increase in occupancy costs as a result of new store additions since July
3, 2004. In addition, because of the decline in net sales compared to the prior
year, fixed costs such as occupancy and corporate office expenses as a
percentage of net sales are greater.
13
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CON'T
Operating loss for the thirteen weeks ended July 2, 2005 was approximately $8.8
million or (1.5%) of net sales, compared with operating income of $1.2 million,
or 0.2% of net sales, for the same period last year.
Net interest expense for the thirteen weeks ended July 2, 2005 decreased to
approximately $0.7 million from $1.0 million during the same period last year
primarily due to lower average borrowings.
The Company's income tax benefit was approximately $3.6 million for the thirteen
weeks ended July 2, 2005, compared with income tax expense of $0.1 million for
the same period last year. Due to a decrease in effective foreign tax rates, a
change in the mix of earnings within jurisdictions and a reduction in
nondeductible expenses, the Company's effective tax rate for the thirteen weeks
ended July 2, 2005 declined to 37.5% compared to 38.2% for the same period last
year.
As a result of the factors described above, net loss for the thirteen weeks
ended July 2, 2005 was approximately $5.9 million or $(0.13) per share on a
fully diluted basis, compared with net income of $0.1 million, or flat earnings
per share on a fully diluted basis for the same period last year.
TWENTY-SIX WEEKS ENDED JULY 2, 2005 COMPARED WITH TWENTY-SIX WEEKS ENDED JULY 3,
2004
Net sales increased 1.1% to $1,144.3 million for the twenty-six weeks ended July
2, 2005, up from $1,131.5 million for the same period last year, primarily as a
result of sales attributable to new stores opened since July 3, 2004 offset by
weakness in guest traffic. During the twenty-six weeks ended July 2, 2005, the
Company opened 25 stores and closed one store compared with opening 33 stores
and closing no stores during the same period last year.
Comparable net sales for the twenty-six weeks ended July 2, 2005 decreased
approximately 6.1% as compared with an increase of 2.3% for the same period last
year. The decrease in comparable net sales for the twenty-six weeks ended July
2, 2005 is primarily due to a decline in guest traffic resulting from the
unusually high amount of product transitions that the Company has been
implementing.
Gross profit for the twenty-six weeks ended July 2, 2005 was $473.3 million, or
41.4% of net sales, compared with $453.9 million, or 40.1% of net sales, for the
same period last year. During the twenty-six weeks ended July 2, 2005, gross
profit was impacted by improved merchandise acquisition costs largely offset by
an increase in markdowns associated with the acceleration of the Company's
transition to newer assortments. In addition, the implementation of EITF 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor" had a greater impact on gross profit in the prior
period.
SG&A expenses for the twenty-six weeks ended July 2, 2005 were $487.8 million,
or 42.7% of net sales, compared with $453.7 million, or 40.1% of net sales, for
the same period last year. The increase in SG&A is primarily due to higher store
selling expenses and occupancy costs as a result of new store additions since
July 3, 2004, and higher promotional expense. In addition, due to the Company's
sales performance, particularly in the second quarter, fixed costs such as
occupancy and corporate office expenses as a percentage of net sales are
greater.
Operating loss for the twenty-six weeks ended July 2, 2005 was $14.5 million, or
(1.3%) of net sales, compared with operating profit of $0.2 million, or zero
percent of net sales, for the same period last year.
The Company incurred net interest expense of $1.5 million for the twenty-six
weeks ended July 2, 2005, compared with $1.8 million for the same period last
year. The decrease in net interest expense is mainly due to higher interest
income from short-term investments.
The Company's income tax benefit was approximately $6.0 million for the
twenty-six weeks ended July 2, 2005, compared with an income tax benefit of $0.6
million for the same period last year. Due to a decrease in effective foreign
tax rates, a change in the mix of earnings within jurisdictions and a reduction
in nondeductible expenses, the Company's effective tax rate for the twenty-six
weeks ended July 2, 2005 declined to 37.4% compared to 38.2% for the same period
last year.
As a result of the factors described above, net loss for the twenty-six weeks
ended July 2, 2005 was $10.0 million, or $(0.22) per share on a fully diluted
basis, compared with a net loss of $1.0 million, or $(0.02) per share on a fully
diluted basis for the same period last year.
14
LINENS 'N THINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CON'T
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 November 2004, the Company entered into a $250 million senior revolving
credit facility agreement (the "Credit Agreement") with third party
institutional lenders to expire November 23, 2009. The Credit Agreement allows
for up to $50 million of additional unsecured indebtedness under lines of credit
outside of the Credit Agreement. As of July 2, 2005, the additional lines of
credit included a committed facility of approximately $4.0 million that expires
on July 31, 2005. To replace this expiring line of credit, as well as other
lines of credit totaling $24 million, which expired during June 2005, the
Company entered into a new unsecured credit facility in the amount of $32
million on July 29, 2005. This credit line facility expires July 29, 2008. As of
July 2, 2005, the Company was in compliance with its covenants under the Credit
Agreement. As of July 2, 2005, the Company had no borrowings under the Credit
Agreement and no borrowings under the additional lines of credit. In accordance
with the seasonal nature of the Company's business, the Company may from time to
time borrow under its Credit Agreement and additional lines of credit, including
during the third quarter. These borrowings are not currently expected to peak in
excess of approximately $70 million for the third quarter, and are intended to
be used for working capital and similar general corporate needs. The Company
also had $84.8 million of letters of credit outstanding as of July 2, 2005,
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. At July 2, 2005,
January 1, 2005 and July 3, 2004, the Company owed approximately $44.1 million,
$65.0 million and $76.4 million, respectively, to GECC under this program, which
was included in accounts payable. Either party may terminate the program for any
reason upon 30 days prior written notice. The Company does not anticipate that
discontinuance of the availability of the GECC program would result in a
material disruption to the supply of merchandise to the Company, nor would it
have a material adverse effect on the Company's financial position, results of
operations or cash flows. The maximum amount permitted under the program was $95
million as of July 2, 2005.
Net cash used in operating activities for the twenty-six weeks ended July 2,
2005 was $132.5 million compared with net cash of $72.4 million used in
operating activities for the same period last year. The increase in cash used
between periods is primarily due to an increase in inventories due to new store
additions, an increase in income tax payments, the timing of receivable
collections for guest-related credit card and debit card transactions and for
landlord allowances and the increase in the Company's net loss compared to last
year.
Net cash used in investing activities for the twenty-six weeks ended July 2,
2005 was $50.5 million, compared with $57.4 million for the same period last
year. The decrease in cash used between periods is primarily due to the timing
of new store openings. The Company currently estimates capital expenditures will
be approximately $125 million in fiscal 2005, primarily to open approximately 50
new stores, maintenance of existing stores, and system enhancements.
Net cash provided by financing activities for the twenty-six weeks ended July 2,
2005 was $1.7 million compared with $12.9 million for the same period last year.
The decrease is due to lower proceeds from common stock issued under stock
incentive plans. Additionally, the Company had no borrowings as of July 2, 2005
compared to $6.0 million as of July 3, 2004.
Management regularly reviews and evaluates its liquidity and capital needs. The
Company experiences peak periods for its cash needs generally 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 access to 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.
15
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
The foregoing Management's Discussion and Analysis as well as other portions of
this Quarterly Report on Form 10-Q, contain 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," "intend," "plan,"
"target," "outlook," "comfortable with" and similar 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 condition, impact, results and performance, constitute
forward-looking statements. All our forward-looking statements are based on our
current expectations, assumptions, estimates and projections about our Company
and involve certain significant risks and uncertainties, including the levels of
sales, store traffic, the results and success of our back-to-school and holiday
selling seasons, acceptance of product offerings and fashions and our ability to
anticipate and successfully respond to changing consumer tastes and preferences,
our ability to anticipate and control our operating and selling expenses, the
success of our new business concepts, seasonal concepts, new brands and new
merchandise initiatives, the performance of our new stores, substantial
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, unusual weather patterns, the impact on consumer
spending as a result of the slower consumer economy, a 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 and our ability to successfully implement our strategic
initiatives.
If these or other risks or uncertainties materialize, or if our estimates or
underlying assumptions prove inaccurate, actual results could differ materially
from any future results, express or implied by our 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 are contained in our
reports filed with the Securities and Exchange Commission, including our Annual
Report on Form 10-K and our Quarterly Reports on Form 10-Q. You are urged to
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 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, even if such results or changes make
it clear that any projected results will not be realized.
Our forward-looking statements are as of the date of this filing only.
16
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 and its
uncommitted credit facilities. 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 2, 2005, the Company had no borrowings under the
Credit Agreement and no borrowings under the additional lines of credit (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.
The Company operated 29 stores in Canada as of July 2, 2005. 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 2004, there have been no material changes in market risk
exposures.
17
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, including its Chief Executive Officer and Chief
Financial Officer, have evaluated the effectiveness of the design and operation
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
Quarterly Report on Form 10-Q. Based upon that evaluation, the Company's Chief
Executive Officer and the Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective, as of the end of the
period covered by this Quarterly Report on Form 10-Q.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no significant changes to the Company's internal control over
financial reporting during the most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
18
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held May 5, 2005, the shareholders of the
Company voted on the following item:
To elect two directors for a three-year term
The nominees for directors were elected based upon the following votes:
VOTES
NOMINEE VOTES FOR WITHHELD
---------------------- ---------------- ---------------
Norman Axelrod 40,734,963 732,981
Morton E. Handel 40,604,490 863,454
ITEM 6. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
10.1 Linens 'n Things, Inc. Supplemental Executive Retirement
Plan as amended and restated effective as of January 1,
2005. Incorporated by reference to the Company's Current
Report on Form 8-K filed June 21, 2005.
10.2 Linens 'n Things, Inc. Defined Contribution Supplemental
Executive Retirement Plan effective as of July 1, 2004.
Incorporated by reference to the Company's Current Report on
Form 8-K filed June 21, 2005.
10.3 Letter Agreement dated May 5, 2005 to the Employment
Agreement dated as of October 11, 2000 as amended through
November 29, 2004. Incorporated by reference to the
Company's Current Report on Form 8-K filed June 21, 2005.
15 Acknowledgment of Independent Registered Public Accounting
Firm.
31.1 Certification of Norman Axelrod, Chairman and Chief
Executive Officer of the Company, pursuant to Securities
Exchange Act Rule 13a-14(a).
31.2 Certification of William T. Giles, Executive Vice President
and Chief Financial Officer of the Company, pursuant to
Securities Exchange Act Rule 13a-14(a).
32 Certifications pursuant to 18 U.S.C. Section 1350, as
adopted Pursuant to Section 906 of The Sarbanes-Oxley Act Of
2002, by Norman Axelrod, Chairman and Chief Executive
Officer of the Company, and William T. Giles, Executive Vice
President and Chief Financial Officer of the Company.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
LINENS 'N THINGS, INC.
DATED: August 10, 2005 BY: /s/ Norman Axelrod
-----------------
NAME: Norman Axelrod
TITLE: Chairman and Chief
Executive Officer
DATED: August 10, 2005 BY: /s/ William T. Giles
--------------------
NAME: William T. Giles
TITLE: Executive Vice President
and Chief Financial Officer
20