-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OWTRdHA27OxF433ORwq7O8SKLNA0vfHqAqQdG/eXQiF1FZK2xSMwyj7dP3vM0ysm ov1N4oK7NmFENkyilSJuUg== /in/edgar/work/20000608/0000799288-00-000060/0000799288-00-000060.txt : 20000919 0000799288-00-000060.hdr.sgml : 20000919 ACCESSION NUMBER: 0000799288-00-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000428 FILED AS OF DATE: 20000608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDS END INC CENTRAL INDEX KEY: 0000799288 STANDARD INDUSTRIAL CLASSIFICATION: [5961 ] IRS NUMBER: 362512786 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09769 FILM NUMBER: 651102 BUSINESS ADDRESS: STREET 1: ONE LANDS END LN CITY: DODGEVILLE STATE: WI ZIP: 53595 BUSINESS PHONE: 6089359341 MAIL ADDRESS: STREET 1: ONE LANDS END LANE STREET 2: ONE LANDS END LANE CITY: DODGEVILLE STATE: WI ZIP: 53595 10-Q 1 0001.txt =========================================================================== 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 April 28, 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 June 8, 2000: Common stock, $.01 par value 30,295,097 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 April 28, 2000, and April 30, 1999.................................... 3 Consolidated Balance Sheets at April 28, 2000, and January 28, 2000.............................. 4 Consolidated Statements of Cash Flows for the Three Months Ended April 28, 2000, and April 30, 1999.................................... 5 Notes to Consolidated Financial Statements........... 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 10-15 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................... 16 Item 4. Submission of Matters to a Vote of Security Holders.................................. 16 Item 6. Exhibits and Reports on Form 8-K..................... 16 Signature..................................................... 17 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 April 28, April 30, 2000 1999 (Unaudited) Net sales $266,045 $289,609 Cost of sales 145,146 164,175 Gross profit 120,899 125,434 Selling, general and administrative expenses 119,579 116,286 Reversal of non-recurring charge - (1,323) Income from operations 1,320 10,471 Other income (expense): Interest expense (130) (609) Interest income 719 2 Other (1,445) 468 Total other income (expense), net (856) (139) Income before income taxes 464 10,332 Income tax provision 172 3,823 Net income $ 292 $ 6,509 Basic earnings per share $ 0.01 $ 0.22 Diluted earnings per share $ 0.01 $ 0.21 Basic weighted average shares outstanding 30,199 30,007 Diluted weighted average shares outstanding 30,835 30,488 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 3 LANDS' END, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) April 28, January 28, 2000 2000 (unaudited) Assets Current assets: Cash and cash equivalents $ 45,078 $ 76,413 Receivables, net 17,141 17,753 Inventory 179,143 162,193 Prepaid advertising 21,877 16,572 Other prepaid expenses 7,981 5,816 Income taxes receivable 63 - Deferred income tax benefits 10,661 10,661 Total current assets 281,944 289,408 Property, plant and equipment, at cost: Land and buildings 102,788 102,776 Fixtures and equipment 178,717 175,910 Leasehold improvements 4,453 4,453 Total property, plant and equipment 285,958 283,139 Less-accumulated depreciation and amortization 123,702 117,317 Property, plant and equipment, net 162,256 165,822 Intangibles, net 637 966 Total assets $444,837 $456,196 Liabilities and shareholders' investment Current liabilities: Lines of credit $ 18,412 $ 11,724 Accounts payable 72,638 74,510 Reserve for returns 6,014 7,869 Accrued liabilities 36,154 43,754 Accrued profit sharing 186 2,760 Income taxes payable - 10,255 Total current liabilities 133,404 150,872 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 (204) (236) Accumulated other comprehensive income 3,413 2,675 Retained earnings 454,722 454,430 Treasury stock, 9,925 and 10,071 shares at cost, respectively (195,958) (199,173) Total shareholders' investment 302,316 296,207 Total liabilities and shareholders' investment $444,837 $456,196 The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 4 LANDS' END, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended April 28, April 30, 2000 1999 (unaudited) Cash flows from (used for) operating activities: Net income $ 292 $ 6,509 Adjustments to reconcile net income to net cash flows from operating activities- Non-recurring credit - (1,323) Depreciation and amortization 5,990 5,342 Deferred compensation expense 32 44 Loss on disposal of fixed assets - 534 Changes in current assets and liabilities: Receivables, net 612 1,797 Inventory (16,950) 27,375 Prepaid advertising (5,305) 396 Other prepaid expenses (2,165) 1,128 Accounts payable (1,872) (25,769) Reserve for returns (1,855) (1,515) Accrued liabilities (4,653) (9,332) Accrued profit sharing (2,574) (1,937) Income taxes payable (10,318) (12,916) Other 2,570 696 Net cash flows used for operating activities (36,196) (8,971) Cash flows used for investing activities: Cash paid for capital additions (5,042) (1,114) Net cash flows used for investing activities (5,042) (1,114) Cash flows from (used for) financing activities: Proceeds from short-term debt 6,688 8,936 Purchases of treasury stock (1,014) (3,899) Issuance of treasury stock 4,229 4,586 Net cash flows from financing activities 9,903 9,623 Net decrease in cash and cash equivalents (31,335) (462) Beginning cash and cash equivalents 76,413 6,641 Ending cash and cash equivalents $ 45,078 $ 6,179 Supplemental cash flow disclosures: Interest paid $ 130 $ 584 Income taxes paid 8,748 14,987 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Interim financial statements The condensed consolidated financial statements included herein have been prepared by Lands' End, Inc. (the company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and in the opinion of management contain all adjustments (consisting primarily of 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. Reclassifications 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 first quarter of fiscal 2001, a loss of $1.5 million was recognized in other expenses, compared with a gain of $1.0 million in the first quarter of fiscal 2000. 6 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As required by Statement 133, the company assesses hedge effectiveness at least quarterly. For the quarter ended April 28, 2000, a net loss of $15 thousand was recognized in other expense due to hedge ineffectiveness and fair value changes excluded from the company's effectiveness assessments. 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 currently 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 reclassified into earnings. The company estimates that net hedging gains of $1.3 million will be reclassified from accumulated other comprehensive income into earnings within the 12 months between April 29, 2000 and April 27, 2001. 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 (In thousands, except per share data) April 28, 2000 April 30, 1999 Net income $ 292 $ 6,509 Average shares of common stock outstanding 30,199 30,007 Incremental shares from assumed exercise of stock options 636 481 Diluted weighted average shares of common stock outstanding 30,835 30,488 Basic earnings per share $ 0.01 $ 0.22 Diluted earnings per share $ 0.01 $ 0.21 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 April 28, 2000 April 30, 1999 Net income $ 292 $ 6,509 Other comprehensive income: Foreign currency translation adjustments (1,251) (746) Unrealized gain on forward contracts and options 1,989 - Comprehensive income $ 1,030 $ 5,763 7 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Below is a summary of related costs for the quarter ended April 28, 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 4/28/00 Severance costs $ 1,007 $ (518) $ 489 Asset impairments 31 - 31 Facility exit costs and other 107 - 107 Total $ 1,145 $ (518) $ 627 7. Segment disclosure 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, and other income and deduction items that are not allocated to segments. 8 LANDS' END, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pertinent financial data by operating segment for the quarters ended April 28, 2000 and April 30, 1999 are as follows (in thousands): Quarter ended April 28, 2000 Inter- Consoli- Core Specialty national Other dated Net sales $160,660 $ 78,965 $ 26,420 $ - $266,045 Income (loss) before income taxes 2,062 2,056 (1,872) (1,782) 464 Identifiable assets 256,395 126,018 62,424 - 444,837 Depreciation and amortization 3,618 1,778 594 - 5,990 Capital expenditures 1,657 815 120 - 2,592 Interest expense 26 13 91 - 130 Interest income $ 475 $ 233 $ 11 $ - $ 719 Quarter ended April 30, 1999 Inter- Consoli- Core Specialty national Other dated Net sales $174,488 $ 85,852 $ 29,269 $ - $289,609 Income (loss) before income taxes (1) 4,289 7,584 (1,998) 457 10,332 Identifiable assets 237,913 117,181 64,247 - 419,341 Depreciation and amortization 3,180 1,567 595 - 5,342 Capital expenditures 634 313 167 - 1,114 Interest expense 276 136 197 - 609 Interest income $ 1 $ 1 $ - $ - $ 2 (1) Includes a reversal of non-recurring charges of $0.9 million and $0.4 million allocated to the specialty and core segments, respectively. 9 Item 2. Management's Discussion and Analysis Results of Operations Three Months Ended April 28, 2000, compared with Three Months Ended April 30, 1999 The company's net sales in the first quarter of fiscal 2001, decreased 8 percent to $266 million from $290 million in the same quarter last year. Excluding last year's first quarter sales from the company's discontinued Willis & Geiger business, sales in this year's first quarter were down 4.6 percent from the prior year, on 5 percent fewer catalog pages circulated. The sales decline was due to several factors: elimination of the Willis & Geiger business, which contributed about $11 million in liquidation sales in the prior year's first quarter; and the planned later mailings of the May primary catalog and a women's tailored catalog, which the company expects will shift about $11 million in sales into the second quarter. Other factors were weakness in the Kids division, which had one less mailing during the period; soft sales in Japan, and a disappointing performance of the company's prospecting catalogs. Sales in the core business segment, represented by the primary monthly, prospecting and tailored clothing catalogs, were down 8 percent. The specialty business segment, composed of Corporate Sales, Kids and Coming Home, showed a sales increase of 5 percent, excluding Willis & Geiger. Sales in the international business segment, composed of operations in Japan, the U.K. and Germany, were down approximately 10 percent. Sales for the first 4 weeks of the current second quarter show the company's primary catalogs are generally performing on plan, while some of the specialty catalogs show continued weakness. (See Business Outlook) On the positive side, the company experienced strong acceptance of its revamped merchandising line in its primary catalogs, especially in the women's division, which was introduced during the quarter just ended. In addition, Corporate Sales continued its strong double-digit growth, and Internet sales at www.landsend.com were about double, compared with the same quarter last year. Gross profit in the quarter just ended was $120.9 million, or 45.4 percent of net sales, compared with $125.4 million, or 43.3 percent of net sales, in the first quarter of the prior year. The improvement in gross profit margin was due to higher initial margins primarily associated with sourcing improvements and a lower level of sales of liquidated merchandise. In the quarter just ended, liquidation of excess inventory was about 11 percent of net sales, compared with about 12 percent last year, which excludes the Willis & Geiger liquidations. For the first quarter this year, selling, general and administrative expenses were $119.6 million, or 44.9 percent of net sales, compared with $116.3 million, or 40.2 percent, in the same period last year. The increase in the SG&A ratio was primarily due to the lower sales volume. National advertising costs were about $4 million higher than in the prior year, and systems development expenses were also relatively higher. These increases were partially offset by a 5 percent reduction in pages circulated. 10 First quarter ending inventory was $179 million, down about 7 percent from $192 million in the prior year. Our first-time fulfillment rate for the quarter just ended was about 88 percent, consistent with our annual goal for exceptional customer service. Net income for the quarter just ended was $292 thousand, and diluted earnings per share were $0.01, compared with $6.5 million, or $0.21, in the same period last year. Last year's first quarter includes an addition to net income (after-tax) of $0.8 million, or $0.03 per share, from the reversal of a portion of the non-recurring charge taken during fiscal 1999. This reversal was mainly due to better-than-anticipated sell- through on Willis & Geiger liquidations and favorable lease terminations related to two store closings. Segment results The company has three business segments consisting of Core (regular monthly and prospecting catalogs, First Person and Beyond Buttondowns), Specialty (Kids, Corporate Sales, and Coming Home catalogs) and International (foreign-based operations in Japan, United Kingdom and Germany). "Other" includes corporate expenses, intercompany eliminations, and other income and deduction items that are not allocated to segments. (See Note 7.) Core segment's net sales were $160.7 million or 60.4 percent of total net sales in fiscal 2001, which represents a decrease of $13.8 million from the prior year. Within the core operating segment, sales from the monthly and prospecting full-price catalogs were down from the prior year due to reduced circulation and pages mailed. Also, the planned later mailings of the May primary catalog and a First Person catalog is expected to shift sales from the first quarter into the second quarter. Specialty segment's net sales were $79.0 million or 29.7 percent of total net sales in fiscal 2001, which represents a decrease of $6.9 million from the prior year. Excluding last year's first quarter net sales of about $11 million from the company's discontinued Willis & Geiger business, the specialty segment had a sales increase of $4.0 million. This sales increase was principally from our Corporate Sales business-to- business division, partially offset by lower Kids' sales. International segment's net sales were $26.4 million or 10.0 percent of total net sales in fiscal 2001, which represents a decrease of $2.8 million from the prior year. The decrease was the result of lower sales primarily in Japan. Core's income before income taxes decreased by $2.2 million to $2.1 million in fiscal 2001 from $4.3 million in the prior year. Core's decrease in income before income taxes was the result of lower sales volume, as well as increased national advertising costs. Specialty's income before income taxes decreased by $5.5 million to $2.1 million in fiscal 2001 primarily due to increased national advertising costs, and the effect of the discontinued Willis & Geiger business. International's loss before income taxes improved by $0.1 million to a loss of $1.9 million in fiscal 2001 from a loss of $2.0 million last year. International's decrease in income before income taxes was attributed mainly to the sales decrease in Japan. 11 Segment net sales (Amounts in thousands) Net Sales April 28, 2000 April 30, 1999 Amount % of Net Sales Amount % of Net Sales Core $160,660 60.4% $174,488 60.3% Specialty 78,965 29.7% 85,852 29.6% International 26,420 9.9% 29,269 10.1% Total net sales $266,045 100.0% $289,609 100.0% Income before income taxes (Amounts in thousands) April 28, 2000 April 30, 1999 Amount % of Net Sales Amount % of Net Sales Core $ 2,062 0.8% $ 4,289 1.5% Specialty 2,056 0.8% 7,584 2.6% International (1,872) (0.7%) (1,998) (0.7%) Other (1,782) (0.7%) 457 0.2% Income before income taxes $ 464 0.2% $10,332 3.6% 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 purchase treasury stock and make asset additions. At April 28, 2000, the company had unsecured domestic credit facilities totaling $200 million, of which the only reduction of this facility was about $23 million of outstanding letters of credit. The company also maintains foreign credit lines for use in foreign operations totaling the equivalent of approximately $52 million as of April 28, 2000, of which $18 million was outstanding. 12 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. As of June 8, 2000, 11.6 million shares have been purchased, and there is a balance of 1.1 million shares available to the company. The company purchased 18 thousand shares of treasury stock during the quarter ended April 28, 2000. Capital investment Capital expenditures for fiscal 2001 are currently planned to be about $50 million, of which about $2.6 million had been expended through April 28, 2000. Major projects to date related primarily 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 treasury stock purchases, capital requirements and operational needs for the foreseeable future. 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 on Electronic Commerce was appointed to study and report back to Congress on whether, and if so, how, electronic commerce should be taxed. The Commission 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. 13 Business Outlook In the first quarter of fiscal 2001, the company launched its revamped merchandise line, offering more new and enhanced products than ever before, and customer acceptance is strong. The company expects an improvement in gross profit margin of about 225 basis points for the full fiscal year, due to changes in sourcing and more successful negotiations with vendors. The initiative over the last four quarters to reduce unprofitable mailings with significant cuts in circulation is completed, and the company will now focus on growth from a more productive base. The mailing strategy includes an overall 6 percent increase in page circulation for the year, most of which will take place in the fourth quarter when holiday catalogs will be added back to the mailing plan. Given these plans, the fourth quarter will represent the largest improvement over the prior year in both sales and earnings. Based on current sales trends, the company is updating certain aspects of its business outlook, which it most recently revised in its May 11, 2000 earnings release. The company maintains its expectations for the second quarter of the current fiscal year will show positive sales and earnings growth, compared with the same period in the prior year. Excluding last year's first half sales of $12.5 million from the discontinued Willis & Geiger business, the company expects first half sales to be relatively flat, compared with the prior year, rather than showing a low-single-digit increase, as stated earlier. The company continues to anticipate weaker earnings for the first six months of the current fiscal year, compared with the same period a year ago. For the full year, the company expects sales to increase at about the same rate as its planned six percent increase in page circulation, while earlier comments indicated a sales increase somewhat above six percent. The company continues to expect a 225 basis point improvement in gross profit margin for the full fiscal year and also maintains its profit goal of about 7.0 percent pretax profit as a percent of net sales. Statement regarding forward-looking information Statements in this report (including, but not limited to, the Management's Discussion and Analysis) that are not historical, including, without limitation, statements regarding our goals for fiscal 2001 sales, gross profit margin, pretax profit and earnings, as well as anticipated sales trends, timing of catalogs and future development of our business strategy, are considered forward-looking in this report. 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 new merchandise introductions, circulation changes and other initiatives; 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. 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. 14 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 United Kingdom, Japan, 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 April 28, 2000, the company had net outstanding foreign currency forward contracts totaling about $49 million. For the first quarter of fiscal 2001, a loss of $1.5 million was recognized in other expenses, compared with a gain of $1.0 million in the first quarter of fiscal 2000. 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 April 28, 2000, the company had no outstanding financial instruments related to its debt or investments. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings There are no material legal proceedings presently pending, except for routine litigation incidental to the business, to which Lands' End, Inc., is a party or of which any of its property is the subject. Items 2 and 3 are not applicable and have been omitted. Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders held on May 24, 2000, pursuant to the Notice of Annual Meeting of Shareholders and Proxy Statement dated April 24, 2000, the voting results were as follows: (a) Each of the two nominees (Richard C. Anderson and Howard G. Krane) were elected to the Board of Directors as follows: Director's name Shares voted FOR Shares WITHHELD Richard C. Anderson 25,292,940 329,853 Howard G. Krane 25,293,593 329,200 (c) The appointment of Arthur Andersen LLP as independent public accountants for the company for the fiscal year ending January 26, 2001, was approved (25,588,597 shares voted FOR; 18,202 shares voted AGAINST; and 15,994 shares ABSTAINED). Item 5 is not applicable and has been omitted 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 There were no reports filed on Form 8-K during the three-month period ended April 28, 2000. 16 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, its duly authorized officer and chief financial officer. LANDS' END, INC. Date: June 8, 2000 By /s/ STEPHEN A. ORUM Stephen A. Orum Executive Vice President, and Chief Financial Officer 17 EX-27 2 0002.txt
5 This schedule contains summary financial information extracted from the Consolidated Statements of Operations and the Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS 3-MOS JAN-26-2001 JAN-28-2000 APR-28-2000 APR-30-1999 45,078 6,179 0 0 17,141 19,286 0 0 179,143 192,311 281,944 263,145 285,958 261,273 123,702 106,002 444,837 419,341 133,404 160,769 0 0 0 0 0 0 402 402 301,914 250,037 444,837 419,341 266,045 289,609 266,045 289,609 145,146 164,175 145,146 164,175 1,606 603 0 0 130 609 464 10,332 172 3,823 292 6,509 0 0 0 0 0 0 292 6,509 $0.01 $0.22 $0.01 $0.21
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