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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended May 3, 2002
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 4, 2002:
Common stock, $.01 par value 30,037,942,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 May 3, 2002, and
April 27, 2001.................................... 3
Consolidated Balance Sheets at May 3, 2002,
and February 1, 2002............................. 4
Consolidated Statements of Cash Flows for the
Three Months Ended May 3, 2002, and
April 27, 2001.................................... 5
Notes to Consolidated Financial Statements........... 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 11-15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 17
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 17
Item 6. Exhibits and Reports on Form 8-K..................... 17-18
Signature..................................................... 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
May 3, April 27,
2002 2001
(unaudited)
Revenue
Net merchandise sales $314,628 $287,117
Shipping and handling revenue 26,547 24,003
Total revenue 341,175 311,120
Cost of sales
Cost of merchandise sales 157,914 154,913
Shipping and handling costs 26,325 24,263
Total cost of sales 184,239 179,176
Gross profit 156,936 131,944
Selling, general and
administrative expenses 131,292 121,438
Income from operations 25,644 10,506
Other income (expense):
Interest expense (281) (233)
Interest income 498 636
Other 745 (1,536)
Total other income (expense), net 962 (1,133)
Income before income taxes 26,606 9,373
Income tax provision 10,110 3,515
Net income $ 16,496 $ 5,858
Basic earnings per share $ 0.55 $ 0.20
Diluted earnings per share $ 0.54 $ 0.20
Basic weighted average shares
outstanding 30,004 29,380
Diluted weighted average shares
outstanding 30,553 29,620
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)
May 3, February 1,
2002 2002
(unaudited)
Assets
Current assets:
Cash and cash equivalents $114,422 $122,091
Receivables, net 17,388 13,297
Inventory 215,717 227,220
Prepaid advertising 18,742 15,710
Other prepaid expenses 9,738 8,361
Deferred income tax benefits 15,905 15,905
Total current assets 391,912 402,584
Property, plant and equipment, at cost:
Land and buildings 117,624 117,785
Fixtures and equipment 107,872 105,588
Computer hardware and software 118,366 116,000
Leasehold improvements 4,877 4,837
Total property, plant and equipment 348,739 344,210
Less-accumulated depreciation
and amortization 154,971 150,342
Property, plant and equipment, net 193,768 193,868
Intangibles, net 2,696 2,668
Total assets $588,376 $599,120
Liabilities and shareholders' investment
Current liabilities:
Lines of credit $ 16,502 $ 16,169
Accounts payable 69,275 83,363
Reserve for returns 7,238 9,384
Accrued liabilities 51,727 46,910
Accrued profit sharing 2,373 4,781
Income taxes payable 13,944 24,957
Total current liabilities 161,059 185,564
Deferred income taxes 11,376 12,838
Shareholders' investment:
Common stock, 40,221 shares issued 402 402
Donated capital 8,400 8,400
Additional paid-in capital 39,777 39,568
Deferred compensation (37) (56)
Accumulated other comprehensive income 958 3,343
Retained earnings 572,499 556,003
Treasury stock, 10,208 and 10,236
shares at cost, respectively (206,058) (206,942)
Total shareholders' investment 415,941 400,718
Total liabilities and shareholders'
investment $588,376 $599,120
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
May 3, April 27,
2002 2001
(unaudited)
Cash flows from (used for) operating activities:
Net income $ 16,496 $ 5,858
Adjustments to reconcile net income to net
cash flows used for operating activities-
Depreciation and amortization 7,258 6,235
Deferred compensation expense 19 18
Deferred income taxes (1,462) 2,684
Loss on disposal of fixed assets 276 -
Tax benefit of stock options 209 450
Changes in current assets and liabilities:
Receivables, net (4,091) 2,668
Inventory 11,503 (9,350)
Prepaid advertising (3,032) (3,174)
Other prepaid expenses (1,377) 768
Accounts payable (14,088) (29,016)
Reserve for returns (2,146) (1,774)
Accrued liabilities 4,128 (4,779)
Accrued profit sharing (2,408) (1,602)
Income taxes payable (11,013) (13,610)
Other (2,416) (1,497)
Net cash flows used for operating activities (2,144) (46,121)
Cash flows used for investing activities:
Cash paid for capital additions (6,742) (9,361)
Net cash flows used for investing activities (6,742) (9,361)
Cash flows from (used for) financing activities:
Proceeds from short-term debt 333 4,633
Purchases of common stock (9) (4)
Issuance of treasury stock 893 2,093
Net cash flows from financing activities 1,217 6,722
Net decrease in cash and cash equivalents (7,669) (48,760)
Beginning cash and cash equivalents 122,091 75,351
Ending cash and cash equivalents $114,422 $ 26,591
Supplemental cash flow disclosures:
Interest paid $ 281 $ 233
Income taxes paid 21,055 17,000
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
Note 1. Summary of significant accounting policies
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
(S.E.C.), 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 February 1, 2002.
Pending acquisition
On May 13, 2002, Lands' End announced that it had entered into a
definitive agreement with Sears, Roebuck and Co. (Sears) for Sears to
acquire 100 percent of the outstanding common stock of Lands' End in a
cash tender offer for $62 a share, or approximately $1.9 billion (the
"Transaction"). Additional information on this "Transaction" can be
obtained from filings on behalf of the company with the S.E.C. commencing
on May 13, 2002.
Reclassifications
Certain financial statement amounts have been reclassified to be
consistent with the current presentation.
Foreign currency translations and transactions
Financial statements of the foreign subsidiaries and foreign-denominated
assets are translated into U.S. dollars in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 52. Translation
adjustments of the financial statements of the foreign subsidiaries are
recorded in accumulated other comprehensive income, which is a component
of shareholders' investment. Gains and losses resulting from the
translation of other foreign-denominated assets and foreign currency
transactions are recorded as other income and expense in the consolidated
statements of operations. For the periods ended May 3, 2002 and April
27, 2001, a gain of $0.1 million and a loss of $0.4 million were
recorded, respectively.
6
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative instruments and hedging activities
The company has transactions with foreign subsidiaries, which expose
the company to variability in foreign currency cash flows. To
mitigate this risk, the company enters into foreign exchange forward
contracts and options with a maximum hedging period of 24 months.
Such foreign exchange forward contracts and options are treated as
cash flow hedges for accounting purposes with the fair value of the
derivative instruments recorded on the consolidated balance sheet as
assets or liabilities and, to the extent that it is effective, it is
recorded to accumulated other comprehensive income. The company has no
other freestanding or embedded derivative instruments.
The impact from cash flow hedges for the first quarter of fiscal 2003 was
a net gain of $0.8 million, compared to a net loss of $0.3 million in the
first quarter of fiscal 2002, which is included in other income and
expense on the consolidated statements of operations. The company
estimates that net hedging gains of $0.6 million will be reclassified
from accumulated other comprehensive income into earnings through lower
cost of sales and other income and expense within the 12 months between
May 4, 2002 and May 2, 2003.
Earnings per share
The following table discloses the computation of diluted earnings per
share and basic earnings per share.
Three months ended
(In thousands, except per share data) May 3, 2002 April 27, 2001
Net income $ 16,496 $ 5,858
Average shares of common stock
outstanding 30,004 29,380
Incremental shares from assumed
exercise of stock options 549 240
Diluted weighted average shares of
common stock outstanding 30,553 29,620
Basic earnings per share $ 0.55 $ 0.20
Diluted earnings per share $ 0.54 $ 0.20
7
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive income
In accordance with Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," the following table presents the
company's comprehensive income.
Three months ended
(In thousands) May 3, 2002 April 27, 2001
Net income $ 16,496 $ 5,858
Other comprehensive income:
Foreign currency translation
adjustments 404 (619)
Unrealized loss on forward
contracts and options (2,789) (878)
Comprehensive income $ 14,111 $ 4,361
Segment disclosure
Segment net merchandise 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 net merchandise sales less direct
and allocated 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 currency
gains and losses, corporate expenses, intercompany eliminations, and
other income and expense items that are not allocated to segments.
The following tables include pertinent financial data by operating
segment for the quarters ended May 3, 2002 and April 27, 2001 (1).
Three months ended May 3, 2002
Inter- Consoli-
Core Specialty national Other dated
(In thousands)
Net merchandise sales $197,484 $ 85,499 $ 31,645 $ - $314,628
Income before income
taxes 20,350 3,823 1,513 920 26,606
Identifiable assets 358,423 176,536 53,417 - 588,376
Depreciation and
amortization 4,512 2,223 523 - 7,258
Capital expenditures 4,259 2,097 386 - 6,742
Interest expense 89 39 153 - 281
Interest income 326 141 31 - 498
8
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 27, 2001
Inter- Consoli-
(In thousands) Core Specialty national Other dated
Net merchandise sales $172,693 $ 86,294 $ 28,130 $ - $287,117
Income (loss) before
income taxes 8,108 2,799 (1,251) (283) 9,373
Identifiable assets 274,260 135,084 61,406 - 470,750
Depreciation and
amortization 3,787 1,865 583 - 6,235
Capital expenditures 6,201 3,054 106 - 9,361
Interest expense 21 10 202 - 233
Interest income 275 137 224 - 636
(1) Fiscal 2002 has been restated to conform to fiscal 2003
presentation.
New accounting standard not yet adopted
In April 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145, "Rescission of FASB Statements no. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections". Statement 145
rescinds Statement 4, "Reporting Gains and Losses from Extinguishment of
Debt-an amendment of APB Opinion No. 30", which required all gains and
losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect.
As a result, the criteria set forth by APB Opinion 30 will now be used to
classify those gains and losses. Statement 64 amended Statement 4, and
is no longer necessary because Statement 4 has been rescinded. Statement
44 was issued to establish accounting requirements for the effects of
transition to the provisions of the Motor Carrier Act of 1980. Statement
145 also amends Statement 13 to require that certain lease modifications
that have economic effects similar to sale-leaseback transactions be
accounted for in the same manner as sale-leaseback transactions. This
Statement also makes non-substantive technical corrections to existing
pronouncements. SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002 with earlier adoption encouraged. The company does
not expect the provisions of SFAS No. 145 to have a material impact on
the company's consolidated financial position, results of operations, or
cash flows and intends to adopt SFAS No. 145 for the 2003 fiscal year.
9
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Shareholder's investment
Stock options
Pursuant to shareholder approval in May 2002, the company increased from
5.5 million to 6.7 million the number of shares of common stock, either
authorized and unissued shares or treasury shares, that may be issued
pursuant to the exercise of options granted under the company's Stock
Option Plan (for employees). As of June 4, 2002, a total of 2,762,006
shares of company common stock have been issued pursuant to the exercise
of stock options awarded under the Stock Option Plan (for employees) and
Non-Employee Director Stock Option Plan. In addition, a total of
2,788,051 stock options are currently outstanding.
Per the company's stock option plans, consummation of the tender offer by
Sears, Roebuck and Co. shall cause all company stock options to fully
vest and become exercisable. Upon completion of the merger, each
unexercised and outstanding stock option will be cancelled and exchanged
for a cash payment equal to the excess of $62 over the grant price, less
applicable taxes.
10
Item 2.
Management's Discussion
and Analysis
Results of Operations
Three Months Ended May 3, 2002, compared with
Three Months Ended April 27, 2001
On May 13, 2002, Lands' End announced that it had entered into a definitive
agreement with Sears, Roebuck and Co. for Sears to acquire 100 percent of
the outstanding common stock of Lands' End in a cash tender offer for $62 a
share, or approximately $1.9 billion (the "Transaction"). Additional
information on this "Transaction" can be obtained from filings on behalf of
the company with the S.E.C. commencing on May 13, 2002.
Total revenue for the first quarter just ended was $341.2 million, up 10
percent from $311.1 million in the prior year's first quarter. In the
quarter just ended, growth in the core business segment was led by strength
in the women's division. The co-ed division showed modest growth, and men's
showed a modest decline. In the specialty segment, the Kids and Home
divisions were relatively flat; and Business Outfitters was slightly down.
All international businesses had strong sales increases when measured in
their local currencies, and overall international sales in U.S. dollars were
improved from last year. Internet sales at landsend.com were $79 million in
the quarter just ended, compared with $54 million in the prior year.
Gross profit for the quarter just ended was $157 million, or 46.0 percent of
total revenue, compared with $132 million, or 42.4 percent of total revenue
in the prior year. Merchandise gross profit margin rose due to higher
initial margins from improved sourcing, as well as from lower levels of
liquidations and lower provisions for inventory reserves. Lower
liquidations of excess inventory were due to a change in timing of our post-
holiday clearance catalog that shifted revenue into the fourth quarter of
last year.
Liquidation of excess inventory was 8 percent of net merchandise sales for
the first quarter, compared with 11 percent in the prior year. Inventory
was $216 million as of May 3, 2002, up 9 percent from $198 million at the
same time last year. Inventory is currently in line with the sales increase
and with planned levels, and the quality of inventory is improved from the
prior year.
For the first quarter this year, selling, general and administrative (SG&A)
expenses were $131 million, up 8 percent from $121 million in the prior
year. As a percentage of total revenue, SG&A was 38.5 percent, compared
with 39.0 percent in the prior year. Stronger customer response resulted in
increased productivity per catalog page, resulting in relatively lower
catalog costs. These improvements were partially offset by higher accruals
for employee compensation and profit-sharing expense, both due to improved
profitability.
Net income for the quarter just ended was $16.5 million, and diluted
earnings per share were $0.54, compared with net income of $5.9 million, or
$0.20, for the same period last year.
11
Segment results
The company has three business segments consisting of Core (regular
monthly and prospecting catalogs, Lands' End Women and Lands' End Men),
Specialty (Kids, Business Outfitters, and Home catalogs) and
International (foreign-based operations in Japan, United Kingdom and
Germany). "Other" includes currency gains and losses, corporate
expenses, intercompany eliminations, and other income and deduction items
that are not allocated to segments.
The core segment's net merchandise sales were $197.5 million,
representing 62.8 percent of the company's net merchandise sales and an
increase of $24.8 million from the prior year. The women's and co-ed
divisions accounted for the strong growth in the core segment. The core
segment's pretax income increased $12.2 million from the prior year.
The specialty segment's net merchandise sales were $85.5 million, which
were 27.2 percent of the company's net merchandise sales and $0.8 million
below the prior year. This sales decrease was principally from our
Business Outfitters and Kids divisions. The specialty segment's pretax
income increased $1.0 million from the prior year.
The international segment's net merchandise sales were $31.6 million,
which were 10.0 percent of total net merchandise sales and $3.5 million
above the prior year. The increase was mainly from the German and United
Kingdom businesses. The international segment's pretax income increased
by $2.8 million from the prior year.
Segment net merchandise sales for the three months ended (1)
(Amounts in thousands)
Net Merchandise Sales
May 3, 2002 April 27, 2001
Amount % of Net Sales Amount % of Net Sales
Core $197,484 62.8% $172,693 60.1%
Specialty 85,499 27.2% 86,294 30.1%
International 31,645 10.0% 28,130 9.8%
Total net sales $314,628 100.0% $287,117 100.0%
(1) Shipping and handling revenue is excluded.
Income (loss) before income taxes for the three months ended (2)
(Amounts in thousands)
May 3 2002 April 27, 2001
Amount % of Revenue Amount % of Revenue
Core $20,350 6.0% $ 8,108 2.6%
Specialty 3,823 1.1% 2,799 0.9%
International 1,513 0.4% (1,251) (0.4%)
Other 920 0.3% (283) (0.1%)
Income before
income taxes $26,606 7.8% $ 9,373 3.0%
(2) Percentages are based on total revenue.
12
Seasonality of business
The company's business is highly seasonal. Historically, a
disproportionate amount of the company's revenue and a majority of its
profits have been realized during the fourth quarter. If the company's
sales were materially different from seasonal norms during the fourth
quarter, the company's annual operating results could be materially
affected. In addition, as the company continues to refine its marketing
efforts by experimenting with the timing of its catalog mailings,
quarterly results may fluctuate. Accordingly, results for the individual
quarters are not necessarily indicative of the results to be expected for
the entire year.
Liquidity and capital resources
To date, the bulk of the company's working capital needs have been met
through funds generated from operations and from short-term bank loans.
The company's principal need for working capital has been to meet peak
inventory requirements associated with its seasonal sales pattern. In
addition, the company's resources have been used to make asset additions
and purchase treasury stock.
The company has a 3-year $200 million senior unsecured revolving credit
agreement ("Credit facility) with a syndicate of banks to provide funding
for working capital for operations and general corporate purposes. The
Credit facility will mature on November 4, 2004, with a provision for a
one-year extension, subject to lender approval. Additionally, the
company may request that the lenders increase the total commitment to an
amount not to exceed $250 million. Indebtedness under the Credit
facility bears interest calculated, at the company's option, at either
defined base rate, LIBOR plus a margin based on the company's fixed
charge coverage ratio or competitive bid rates. Under the Credit
facility, the company is required to pay a facility fee based on the
total commitment and to maintain certain financial ratios, including
fixed charge coverage and total indebtedness to earnings before interest,
taxes, depreciation and amortization (EBITDA). At May 3, 2002, the only
reduction to this Credit facility was about $31 million of outstanding
letters of credit.
The company also maintains foreign credit lines for use in foreign
operations totaling the equivalent of approximately $43 million as of
May 3, 2002, of which about $17 million was outstanding.
Since fiscal 1990, the company's board of directors has authorized the
company from time to time to purchase a total of 14.7 million shares of
treasury stock. As of June 4, 2002, 13.1 million shares have been
purchased, and there is a balance of 1.6 million shares available to the
company.
13
Capital investment
Capital expenditures for fiscal 2003 are currently planned to be about
$35 million, of which about $7 million had been expended through May 3,
2002. Major projects to date have been investments in our information
technology and certain material handling equipment. The company believes
that its cash flow from operations and borrowings under its current
credit facilities will provide adequate resources to meet its capital
requirements, operational needs and treasury stock purchases for the
foreseeable future.
Possible future changes
A 1992 Supreme Court decision confirmed that the U.S. Constitution's
Commerce Clause bars 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. The company attempts to conduct its operations in compliance with
its interpretation of this legal standard. However, there continues to be
uncertainty due to inconsistent application of the Supreme Court decision
by state and federal courts. While the company has not received
assessments from any state, there can be no assurance the company's
compliance will not be challenged. The amount of potential assessments, if
any, cannot be reasonably estimated.
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. In October 1998, the Internet Tax Freedom
Act was enacted. Among other things, this act placed a three-year
moratorium on multiple and discriminatory taxes on electronic commerce and
appointed an Advisory Commission to study tax issues related to electronic
and other forms of commerce. In its final report to Congress on April 3,
2000, the Advisory Commission favored the extension of the moratorium and
greater uniformity and simplification of the state sales and use tax
systems. The moratorium has since been extended until November 1, 2003.
Also, there have been several other initiatives at the congressional and
state levels to implement the Advisory Commission's recommendations to
modify current sales and use tax laws and policies. We continue to monitor
this activity and its potential effect on the company's collection
obligations. The company anticipates that any legislative change, if
adopted, would be applied only on a prospective basis.
Business Outlook
On April 9, 2002, Lands' End updated its business outlook and filed it with
the Securities and Exchange Commission on a form 8-K. Because of the
Transaction described previously, no further guidance is being provided at
this time.
14
Statement regarding forward-looking information
Statements in this document that are not historical, including, without
limitation, statements regarding our plans, expectations, assumptions, and
estimations for the Transaction or for fiscal 2003 revenues, gross profit
margin, and earnings, as well as anticipated sales trends and future
development of our business strategy, are considered forward-looking and
speak only as of today's date. As such, these statements are subject to a
number of risks and uncertainties. Future results may be materially
different from those expressed or implied by these statements due to a
number of factors. Currently, we believe that the principal factors that
create uncertainty about our future results are the following: customer
response to our merchandise offerings, circulation changes and other
initiatives; the mix of our sales between full price and liquidation
merchandise; overall consumer confidence and general economic conditions,
both domestic and foreign; effects of weather on customer purchasing
behavior; effects of shifting patterns of e-commerce versus catalog
purchases; costs associated with printing and mailing catalogs and
fulfilling orders; dependence on consumer seasonal buying patterns;
fluctuations in foreign currency exchange rates; and changes that may have
different effects on the various sectors in which we operate (e.g., rather
than individual consumers, the Business Outfitters division, included in
the specialty segment, sells to numerous corporations, and certain of these
sales are for their corporate promotional activities). Our future results
could, of course, be affected by other factors as well. Also, the
Transaction is not yet completed and is subject to a two-thirds minimum
tender condition. More information about these risks and uncertainties may
be found in the company's 8-K and 10-K filings with the S.E.C.
The company does not undertake to publicly update or revise its forward-
looking statements even if experience or future changes make it clear that
any projected results expressed or implied therein will not be realized.
Additional information
This document is neither an offer to purchase nor a solicitation of an
offer to sell securities of Lands' End. On May 17, 2002, a tender offer
(referenced above) commenced, Sears, Roebuck and Co. filed a tender offer
statement with the U.S. Securities and Exchange Commission, and Lands' End
filed a solicitation/recommendation statement with respect to the offer.
Investors and Lands' End stockholders are strongly advised to read the
tender offer statement (including an offer to purchase, letter of
transmittal and related tender documents) and the related
solicitation/recommendation statement because they will contain important
information. These documents are available at no charge at the S.E.C.'s
Web site at www.sec.gov and may also be obtained by calling (800) 732-7780
and selecting option three.
15
Item 3: Quantitative and Qualitative Disclosure About Market Risk
The company attempts to reduce its exposure to the effects of currency
fluctuations on cash flows by using derivative instruments to hedge. The
company is subject to foreign currency risk related to its transactions
with operations in Japan, Germany and United Kingdom 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 May 3, 2002, the company had outstanding foreign currency forward
contracts totaling about $60.5 million and options totaling nearly $4.9
million, compared in the prior year of nearly $59 million for foreign
currency forward contracts and almost $16 million option contracts
outstanding.
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
May 3, 2002, the company had no outstanding financial instruments related
to its debt or investments.
16
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 22, 2002,
pursuant to the Notice of Annual Meeting of Shareholders and Proxy
Statement dated April 22, 2002, the voting results were as
follows:
(a) Each of the three nominees (David F. Dyer, Cheryl A. Francis
and Richard C. Marcus were elected to the Board of Directors
as follows:
Director's name Shares voted FOR Shares WITHHELD
David F. Dyer 27,732,045 193,918
Cheryl A. Francis 27,689,341 236,622
Richard C. Marcus 27,688,010 237,953
(b) The appointment of Ernst & Young LLP as independent public
accountants for the company for the fiscal year ending
January 31, 2003, was approved (27,491,817 shares voted FOR;
424,256 shares voted AGAINST; and 9,589 shares ABSTAINED).
(c) Approve an amendment to the company's stock option plan
(22,965,071 shares voted FOR; 4,822,876 shares voted AGAINST;
and 137,715 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
The following reports were filed on Form 8-K during the
three-month period ended May 3, 2002:
Form 8-K filed on February 14, 2002, announcing the company's
raising of its earnings guidance for fiscal 2002, ended
February 1, 2002.
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Form 8-K filed on February 28, 2002, regarding the company's
meeting with members of the financial community in New York,
New York, on Wednesday, February 27, 2002.
Form 8-K was filed on March 15, 2002, announcing its fourth
quarter performance and fiscal year 2002 results.
Form 8-K under Item 4 filed on March 28, 2002, announcing
changes in Registrant's Certifying Accountant.
Form 8-K filed on April 9, 2002, updating its business
outlook for fiscal 2003, ended January 31, 2003.
Form 8-K/A under Item 4 filed on April 12, 2002, for changes
in Registrant's Certifying Accountant
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, its duly authorized officer and chief financial officer.
LANDS' END, INC.
Date: June 4, 2002 By /s/ DONALD R. HUGHES
Donald R. Hughes
Senior Vice President,
and Chief Financial Officer
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