SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Quarter Ended August 1, 1998 Commission File Number 0-15898
DESIGNS, INC.
----------------------------
(Exact name of registrant as
specified in its charter)
Delaware 04-2623104
- -------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
66 B Street, Needham, MA 02494
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(781) 444-7222
------------------------
(Registrant's telephone
number, including area code)
Indicate by "X" whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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 the latest practicable date.
Class Outstanding as of August 1, 1998
----- --------------------------------
Common 15,864,000
DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
August 1, 1998, August 2, 1997 and January 31, 1998
(In thousands, except share data)
August 1, August 2, January 31,
1998 1997 1998
(unaudited) (unaudited)
------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,079 $ 355 $ 1,473
Accounts receivable 166 234 115
Inventories 62,176 80,376 54,972
Income taxes refundable and deferred 4,777 14,115 13,857
Prepaid expenses 4,885 5,703 1,015
-----------------------------------
Total current assets 73,083 100,783 71,432
Property and equipment, net of
accumulated depreciation and amortization 29,990 40,275 35,307
Other assets:
Deferred income taxes 6,362 2,700 6,362
Intangible assets, net 2,787 3,040 2,945
Other assets 934 251 353
----------------------------------
Total assets $113,156 $147,049 $ 116,399
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,582 $ 16,893 $ 8,821
Accrued expenses and other
current liabilities 6,832 11,444 6,129
Accrued rent 3,259 2,848 2,751
Reserve for severance and store closings 310 6,123 1,799
Notes payable 4,626 12,950 9,828
----------------------------------
Total current liabilities 32,609 50,258 29,328
Minority interest 4,276 5,397 4,691
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000
shares authorized, none issued
Common Stock, $0.01 par value, 50,000,000
shares authorized, 16,145,000, 15,904,000
and 16,012,000 shares issued at
August 1, 1998, August 2, 1997
and January 31, 1998, respectively 161 159 160
Additional paid-in capital 53,862 53,373 53,652
Retained earnings 24,249 39,689 30,395
Treasury stock at cost, 281,000 shares (1,827) (1,827) (1,827)
Deferred compensation (174) - -
---------------------------------
Total stockholders' equity 76,271 91,394 82,380
---------------------------------
Total liabilities and stockholders' equity $ 113,156 $ 147,049 $ 116,399
=================================
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
-----------------------------
August 1, August 2,
1998 1997
-----------------------------
Sales $ 47,078 $ 64,543
Cost of goods sold including
occupancy 37,741 67,128
------------------------------
Gross profit (loss) 9,337 (2,585)
Expenses:
Selling, general and administrative 11,767 16,949
Restructuring charge - 6,046
Depreciation and amortization 2,738 2,881
-----------------------------
Total expenses 14,505 25,876
-----------------------------
Operating income (loss) (5,168) (28,461)
Interest expense 115 255
Interest income 19 13
-----------------------------
Income (loss) before minority
interest and income taxes (5,264) (28,703)
Less minority interest (190) (410)
-----------------------------
Income (loss) before income taxes (5,074) (28,293)
Provision (benefit) for income taxes (1,980) (11,712)
------------------------------
Net income (loss) $ (3,094) $ (16,581)
==============================
Earnings per share- Basic and Diluted $ (0.20) $(1.06)
Weighted average number of common shares
outstanding- Basic and Diluted 15,773 15,622
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Six Months Ended
------------------------
August 1, August 2,
1998 1997
------------------------
Sales $ 90,478 $ 120,013
Cost of goods sold including
occupancy 71,765 109,112
------------------------
Gross profit (loss) 18,713 10,901
Expenses:
Selling, general and administrative 23,713 33,004
Restructuring charge - 6,046
Depreciation and amortization 5,229 5,667
------------------------
Total expenses 28,942 44,717
------------------------
Operating income (loss) (10,229) (33,816)
Interest expense 306 406
Interest income 39 68
------------------------
Income (loss) before minority
interest and income taxes (10,496) (34,154)
Less minority interest (416) (427)
------------------------
Income (loss) before income taxes (10,080) (33,727)
Provision (benefit) for income taxes (3,934) (13,963)
------------------------
Net income (loss) $ (6,146) $ (19,764)
========================
Earnings per share- Basic and Diluted $(0.39) $(1.27)
Weighted average number of common shares
outstanding- Basic and Diluted 15,755 15,613
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Twelve Months Ended
-----------------------------
August 1, August 2,
1998 1997
-----------------------------
Sales $ 236,191 $ 283,746
Cost of goods sold including
occupancy 190,021 223,338
------------------------------
Gross profit (loss) 46,170 60,408
Expenses:
Selling, general and administrative 56,366 65,703
Restructuring charge 1,600 6,046
Depreciation and amortization 10,796 10,920
------------------------------
Total expenses 68,762 82,669
------------------------------
Operating income (loss) (22,592) (22,261)
Interest expense 751 515
Interest income 116 654
------------------------------
Income (loss) before minority
interest and income taxes (23,227) (22,122)
Less minority interest (312) 212
------------------------------
Income (loss) before income taxes (22,915) (22,334)
Provision (benefit) for income taxes (7,470) (9,425)
------------------------------
Net income (loss) $(15,445) $(12,909)
===============================
Earnings per share- Basic and Diluted $ (0.98) $ (0.82)
Weighted average number of common shares
outstanding- Basic and Diluted 15,717 15,658
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
---------------------------
August 1, August 2,
1998 1997
---------------------------
Cash flows from operating activities:
Net loss $ (6,146) $ (19,764)
Adjustments to reconcile to net cash
provided by (used for) operating activities:
Depreciation and amortization 5,229 5,667
Minority interest (415) (427)
Loss on sale of investments - 102
Loss from disposal of property
and equipment 204 4
Changes in operating assets and liabilities:
Accounts receivable 49 239
Inventories (7,204) (10,193)
Prepaid expenses (3,870) (350)
Reserve for severance and store closings (1,490) 17,123
Income taxes refundable and deferred 9,080 (14,308)
Accounts payable 8,761 4,700
Accrued expenses and other current liabilities 832 4,398
Accrued rent 509 450
---------------------
Net cash provided by (used for) operating activities 5,539 (12,359)
---------------------
Cash flows from investing activities:
Additions to property and equipment (216) (7,399)
Incurrence of pre-opening costs - (320)
Proceeds from disposal of property and equipment 100 1
Sale and maturity of investments - 5,888
(Increase) reduction in other assets (651) 51
Distributions to joint venture partner - (900)
---------------------
Net cash used for investing activities (767) (2,679)
---------------------
Cash flows from financing activities:
Net (payments) borrowings under credit facility (5,202) 11,950
Issuance of common stock under option program (1) 36 53
---------------------
Net cash (used for) provided by financing activities (5,166) 12,003
---------------------
Net decrease in cash and cash equivalents (394) (3,035)
Cash and cash equivalents:
Beginning of the year 1,473 3,390
---------------------
End of the quarter $1,079 $ 355
=====================
(1) Net of related tax effect.
The accompanying notes are an integral part of the
consolidated financial statements.
DESIGNS, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments as well as a provision for impairment of assets
and store closings recorded for the six months ended August 2, 1997) necessary
for a fair presentation of the interim financial statements. These financial
statements do not include all disclosures associated with annual financial
statements and, accordingly, should be read in conjunction with the notes
contained in the Company's audited consolidated financial statements for the
year ended January 31, 1998. The Company's business has historically been
seasonal in nature and the results of the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
2. Minority Interest
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the
Company, and a subsidiary of Levi's Only Stores, Inc., a wholly-owned
subsidiary of Levi Strauss & Co., entered into a partnership agreement (the
"Partnership Agreement") to sell Levi's(R) brand jeans and jeans-related
products in Original Levi's Stores(TM) and Levi's(R) Outlet stores. The joint
venture established under the Partnership Agreement is known as The Designs/OLS
Partnership (the "OLS Partnership"). The operating results of the OLS
Partnership are consolidated with the financial statements of the Company for
the three, six and twelve months ended August 1, 1998. Minority interest at
August 1, 1998 represents LDJV Inc.'s 30% interest in the OLS Partnership.
During the second quarter of fiscal 1998, the OLS Partnership made no
distributions of "excess cash" to its partners in accordance with the terms of
the Partnership Agreement and it distributed a total of $3.0 million in "excess
cash" to its partners during the second quarter of fiscal 1997.
3. Boston Trading Ltd., Inc. Acquisition
On May 2, 1995, the Company acquired certain assets of Boston Trading Ltd., Inc.
In accordance with the terms of the Asset Purchase Agreement dated April 21,
1995, the Company paid $5.4 million in cash, financed by operations, and
delivered a self-styled non-negotiable promissory note in the original principal
amount of $1 million (the "Purchase Note") payable in two equal annual
installments through May 2, 1997. In the first quarter of fiscal 1996, the
Company asserted rights of indemnification under the Asset Purchase Agreement.
In accordance with that Agreement, the Company, when exercising its
indemnification rights, has the right, among other courses of action, to offset
against the payment of principal and interest due and payable under the Purchase
Note, the value of its indemnification claim. Accordingly, based on these
indemnification rights, the Company ultimately did not make either of the
$500,000 payments of principal due on the Purchase Note on May 2, 1996 and May
2, 1997. Nevertheless, the Company continued to pay interest on the original
principal amount of the Purchase Note through May 2, 1996 and continued to pay
interest thereafter through November 2, 1997 on $500,000 of principal. In
January 1998, Atlantic Harbor, Inc. (formerly known as "Boston Trading Ltd.,
Inc.") filed a lawsuit against the Company for refusing to pay the purportedly
outstanding principal amount of the Purchase Note. Thereafter, the Company filed
claims against Atlantic Harbor, Inc. and its stockholders alleging that the
Company was damaged in excess of $1 million because of the breach of certain
representations and warranties concerning, among other things, the existence and
condition of certain foreign trademark registrations and license agreements.
Barring unforeseen circumstances, management of the Company does not believe
that the result of this litigation will have a material adverse impact on the
Company's business or financial condition.
4. Credit Facility
On June 4, 1998 the Company entered into a Loan and Security Agreement with a
subsidiary of BankBoston, N.A., BankBoston Retail Finance Inc., as agent for the
lender(s) named therein (the "Credit Agreement"). The Credit Agreement
established a new credit facility which replaced the Company's $25 million
credit facility with BankBoston, N.A. The new credit facility, which terminates
on June 4, 2001, consists of a revolving line of credit permitting the Company
to borrow up to $50 million. Under this facility, the Company has the ability to
cause the lender(s) to issue documentary and standby letters of credit up to $5
million. The Company's obligations under the Credit Agreement are secured by a
lien on all of the Company's assets, except the assets of the OLS Partnership.
The ability of the Company to borrow under the Credit Agreement is subject to a
number of conditions including the accuracy of certain representations and
compliance with tangible net worth and fixed charge coverage ratio covenants.
The availability of the unused revolving line of credit is limited to specified
percentages of the value of the Company's eligible inventory determined under
the Credit Agreement, ranging from 60% to 65%. At the option of the Company,
borrowings under this facility bear interest at BankBoston N.A.'s prime rate or
at LIBOR-based fixed rates. The Credit Agreement contains certain covenants and
events of default customary for credit facilities of this nature, including
limitations on payment of dividends by the Company. The Company is subject to a
prepayment penalty if it terminates the Credit Agreement prior to June 4, 2000.
At August 1, 1998, the Company had borrowings of $3.6 million outstanding under
this facility and had two outstanding standby letters of credit totaling
approximately $236,000. The Company was in compliance with all debt covenants at
the end of the second quarter.
5. Net Income Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), and all historical net income per share data
has been restated to conform to the provisions of this statement. The following
table reconciles the numerator and the denominator of the basic and diluted
earnings per share (EPS) as shown on the Consolidated Statements of Income.
(In thousands, except per share data)
For the For the For the
Three months ended Six months ended Twelve months ended
8/1/98 8/2/97 8/1/98 8/2/97 8/1/98 8/2/97
Basic EPS Computation
Numerator:
Net income (loss) $(3,094) $(16,581) $(6,146) $(19,764) $(15,445) $(12,909)
Denominator:
Weighted average
common shares
outstanding 15,773 15,622 15,755 15,613 15,717 15,658
----------------------------------------------------------
Basic EPS $(0.20) $(1.06) $(0.39) $(1.27) $(0.98) $ (0.82)
==========================================================
Diluted EPS Computation
Numerator:
Net income (loss) $(3,094) $(16,581) $(6,146) $(19,764) $(15,445) $(12,909)
Denominator:
Weighted average
common shares
outstanding 15,773 15,622 15,755 15,613 15,717 15,658
---------------------------------------------------------
Diluted EPS $(0.20) $(1.06) $(0.39) $(1.27) $(0.98) $ (0.82)
=========================================================
The following shares were excluded from the computation of diluted earnings per
share as the inclusion of these shares would have been anti-dilutive.
Anti-dilutive shares for the three, six and twelve months ended August 1, 1998
were 2,000, 7,000 and 15,000 shares, respectively. Anti-dilutive shares for the
three, six and twelve months ended August 2, 1997 were 41,000, 49,000 and 53,000
shares, respectively.
Options to purchase shares of the Company's Common Stock of 1,921,000 shares for
the three, six and twelve months ended August 1, 1998 and 2,158,750, 2,143,750
and 2,158,750 shares for the three, six and twelve months ended August 2, 1997,
respectively, were outstanding during the respective periods but were not
included in the computation of diluted EPS because the exercise price of the
options was greater than the average market price per share of the Common Stock
for the periods reported.
6. Comprehensive Income
The Company adopted the Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" for the fiscal year ending January 30, 1999.
This Statement requires that all components of comprehensive income be reported
prominently in the financial statements. For the Company, the only adjustment
for comprehensive income is deferred compensation. Total comprehensive income
for the three, six and twelve months ending August 1, 1998 were as follows:
(In thousands)
Three Months Six Months Twelve Months
Net loss $ (3,094) $(6,146) $(15,445)
Deferred compensation (174) (174) (174)
-------- -------- ---------
Comprehensive income (loss) $(3,268) $(6,320) $(15,619)
There were no adjustments for comprehensive income(loss) for the same periods
in the prior year.
7. Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. SFAS 131 becomes effective for fiscal years
beginning after December 15, 1997. The Company is required to adopt this
standard for the fiscal year ending January 30, 1999. The Company has not yet
determined the impact of this standard.
8. Subsequent Event
On August 17, 1998, the Company announced the signing of a letter of
understanding to acquire from Levi's Only Stores, Inc., subject to certain
conditions and barring unforeseen circumstances, 25 outlet stores carrying
Levi's(R) and Dockers(R) brand products that are located in the eastern United
States. The acquisition includes, among other things, the purchase of all
inventory and fixed assets associated with these stores and the assumption of
store leases. The Company agreed to pay an amount, subject to adjustment, equal
to the net book value of the stores, which is approximately $12 million.
Part I. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Sales for the second quarter of fiscal 1998 were $47.1 million as compared to
sales of $64.5 million in the second quarter of fiscal 1997. Sales for the six
month year-to-date and rolling twelve month periods decreased 24.6 percent and
16.8 percent, respectively, compared to these same periods in the prior year.
Comparable store sales decreased 23 percent for the second quarter of fiscal
1998 and 21 percent for the six month year-to-date period as compared to the
same periods in fiscal 1997. Comparable stores are retail locations that have
been open at least 13 months. Of the 121 stores the Company operated as of
August 1, 1998, 105 were comparable stores. The $29.5 million year-to-date
sales decline was primarily due to lower sales of men's and women's Levi's(R)
brand jeans and tops. Approximately 23 percent of the year-to-date decrease
was the result of the closure of 31 stores in fiscal 1997 and 5 stores in
fiscal 1998. Sales for the rolling twelve months ended August 1, 1998 were
$236.2 million compared to $283.7 million for the rolling twelve months ended
August 2, 1997. As previously reported by national and trade press, the
Levi's(R) brand has experienced a decline in U.S. market share. This has
affected the Company's sales of Levi's(R) brand merchandise. In the first six
months of fiscal 1998, approximately 64 percent of the Company's revenue was
generated by sales in Levi's(R) Outlet by Designs stores. The Company
anticipates that decreases in comparable store sales will continue through
the remainder of fiscal 1998.
Gross margin rate (including the costs of occupancy) for the second quarter of
fiscal 1998 equaled 19.8 percent of sales as compared with (4.0) percent of
sales for the same period in the prior year. Gross margin in the second quarter
of the prior year was negatively affected by 21.6 percentage points primarily
due to markdowns recorded as part of the strategic shift away from private label
product development and sourcing operations. Gross margin in the second quarter
of fiscal 1997, before these markdowns, was 17.6% of sales. The 2.2 percentage
point improvement in gross margin, before the fiscal 1997 second quarter
markdowns associated with the shift in strategy, is primarily the result of
decreased permanent markdowns in all store formats and the elimination of the
poor performing Boston Traders(R) brand product from the merchandise mix.
Additionally, margin was positively impacted by decreased promotional markdowns
and fewer promotional events as well as an increase in initial margins on
certain Levi's(R) Outlet merchandise. The increase in merchandise margin was
offset by negative leverage in occupancy of 3.0 percent due to a lower sales
base. Gross margin rate for the six and rolling twelve month periods ended
August 1, 1998 was 20.7 percent and 19.5 percent of sales, respectively,
compared to 9.1 percent and 21.3 percent of sales for the same periods ended
August 2, 1997. The changes in the gross margin rate for the six and rolling
twelve month periods are similarly attributable to merchandise markdowns and
fabric reserves recorded in the second quarter of fiscal 1997 related to the
Company's shift in strategy away from its private label product line,
adjustments for inventory shrinkage against physical inventory results recorded
in the fourth quarter of fiscal 1997 and reserves recorded against pending
resolutions of vendor discussions regarding proofs of delivery of certain goods.
Selling, general and administrative expenses equaled $11.8 million or 25.0
percent of sales in the second quarter, compared with $16.9 million or 26.3
percent of sales in the second quarter of the prior year. Store payroll expense,
the largest component of selling, general and administrative expenses, equaled
12.0 percent of sales for the second quarter of fiscal 1998, compared with 12.1
percent in the second quarter of the prior year. The $5.1 million decrease for
the quarter in selling, general and administrative expenses is primarily due to
reduced payroll expense as a result of the sales shortfall, expense reduction
actions taken in fiscal 1997, and ongoing expense reduction programs implemented
by the Company. Selling, general and administrative expenses for the six and
rolling twelve months ended August 1, 1998 decreased to $23.7 million and $56.4
million, respectively, compared to $33.0 million and $65.7 million for the
comparable periods in the prior fiscal year. These decreases are similarly
attributable to lower store payroll as a result of sales shortfalls and the
Company's continuing cost reduction efforts.
In the second quarter of fiscal 1997, the Company recorded a non-recurring
pre-tax charge of $20 million, or $(0.75) per share after tax, related to the
Company's shift in strategy away from the vertically integrated Boston
Traders(R) private label concept to a strategy with greater emphasis on name
brands. Approximately $13.9 million of this charge related to merchandise
markdowns and cancellation of fabric commitments is accounted for in cost of
goods sold for the twelve months ended August 1, 1998. The remaining
approximately $6.1 million related to lease terminations, asset impairment
charges, severance and other costs is included in the restructuring charge for
the same period. In the fourth quarter of fiscal 1997 the Company recorded an
additional non-recurring pre-tax charge of $1.6 million, or $(0.06) per share
after tax, related to the Company's January 1998 reduction in force. This charge
is also included in the restructuring charge for the twelve months ended August
1, 1998.
Depreciation and amortization expense of $2.7 million for the second quarter of
fiscal 1998 decreased by 5 percent compared with depreciation and amortization
expense of $2.9 million for the same period in fiscal 1997. This decrease is
principally due to the write off of fixed assets in fiscal 1997 related to the
closing of 33 stores. For the six and rolling twelve month periods ended August
1, 1998, depreciation and amortization decreased by 8 percent and 1 percent,
respectively, primarily due to the closing of 36 stores partially offset by the
timing of new and remodeled stores in the prior year.
Interest expense was $115,000 and $255,000 in the second quarter of fiscal 1998
and fiscal 1997, respectively. For the six month period, interest expense was
$306,000 as compared to $406,000 in the prior year. These decreases are
attributable to lower average borrowing levels under the Company's revolving
credit facility for the three and six month periods ended August 1, 1998 as
compared with the same periods in the prior year. For the rolling twelve month
period, interest expense was $751,000 as compared to $515,000 for the prior
year. This increase is attributable to the higher average borrowing levels in
the third and fourth quarters of fiscal 1997. The Company anticipates, barring
unforeseen circumstances, that interest expense for fiscal 1998 will be
approximately the same as the prior year due to the anticipated borrowing under
the Company's revolving facility to fund the acquisition of 25 outlet stores
which is discussed more fully below.
Interest income for the second quarter of fiscal 1998 was $19,000 compared to
$13,000 in the first quarter of fiscal year 1997. For the six-month and rolling
twelve-month periods, interest income was $39,000 and $116,000, respectively,
as compared to $68,000 and $654,000 for the comparable periods in the prior
year. The decrease in interest income is attributable to lower average
investment balances compared to same periods in the prior year. The Company
anticipates that interest income will be minimal through fiscal 1998.
Net loss for the second quarter of fiscal year 1998 equaled $3.1 million or
$0.20 per share, as compared with a net loss of $16.6 million, or $1.06 per
share. Net loss for the six month period ended August 1, 1998 equaled $6.2
million, or $0.39 per share, as compared to a net loss equal to $19.8 million,
or $1.27 per share. The impact of the non-recurring charge included in the three
and six months ended August 2, 1997 was $20 million, or $0.75 per share. Net
loss, on a rolling twelve month basis, was $15.4 million or $0.98 per share, as
compared with a net loss of $12.9 million, or $0.82 per share in the prior
comparable period. The net loss for the twelve months ended August 1, 1998
includes the impact of a non-recurring charge of $1.6 million, or $0.06 per
share recorded in the fourth quarter of fiscal 1997. As discussed above, the net
loss for the twelve months ended August 2, 1997 includes the impact of a
non-recurring charge of $20.0 million or $0.75 per share.
The Company continues to test its multi-branded store concept. Six of the eleven
stores included in this test operate under the Boston Trading Co.(R) and five
operate under the BTC(TM) name. Some of the brands featured include Levi's(R),
silverTab(TM), Buffalo Jeans, Polo(R) Jeans, Tommy(R) Jeans (by Tommy Hilfiger),
DKNY(R), CK Calvin Klein(R), Lucky Brand(R) Jeans, Enyce(R), FUBU(R), Mecca(R),
Mossimo(R), Phat Farm(R) and other brands targeted to a young customer. In the
first six months of fiscal 1998 the Company generated $4.1 million in sales of
other name brand products compared to $73,000 for the first six months of fiscal
1997. The Company intends to continue its test of these and other brands in the
BTC and Designs store formats through fiscal 1998 and may convert certain of its
Designs stores to this format or incorporate certain of these new brands into
the Designs stores based on the results of this test.
In an effort to improve the performance of the Boston Traders(R) Outlet store
locations, following the end of the second quarter the Company converted four of
these locations to Buffalo Jeans Factory Stores. Buffalo Jeans Factory Stores
sell in-season merchandise as well as manufacturers close outs from this upscale
Canadian maker of fashion apparel. Over time, based on the performance of the
four test stores, other Boston Traders(R) Outlet stores could be converted to
this format.
SEASONALITY
The Company's business is seasonal, reflecting increased consumer buying in the
"Fall" and "Holiday" seasons. Historically, the second half of each fiscal year
provides a greater portion of the Company's annual sales and operating income.
In recent years, the Company's percentage of outlet store business has increased
in relation to total sales. Accordingly, the Company's third and fourth
quarters, although continuing to generate a greater proportion of total sales,
has become less significant to total sales as had previously been the case. This
is due to a difference in seasonality of the Company's outlet business as
compared with the mall-based specialty stores.
LIQUIDITY AND CAPITAL RESOURCES
On August 17, 1998, the Company announced that it had signed a letter of
understanding for the acquisition of 25 outlet stores from Levi's Only Stores,
Inc., a subsidiary of Levi Strauss & Co. The outlet store acquisition involves
16 Dockers(R) Outlet stores and nine Levi's(R) Outlet stores located in the
eastern United States. Under the letter of understanding, the Company agreed to
pay an amount equal to the net book value of the 25 stores, which is
approximately $12 million. The Company plans, barring unforeseen circumstances,
to complete the purchase of these stores during the third quarter of fiscal
1998. The acquisition is subject to the negotiation of a definitive purchase
agreement, approvals by regulatory authorities and the board of directors of the
parties.
The Company's primary cash needs are for operating expenses, including cash
outlays associated with inventory purchases and capital expenditures for new and
remodeled stores, as well as for the purchase of 25 outlet stores from Levi's
Only Stores, Inc. The Company expects that cash flow from operations, short-term
revolving borrowings, federal and state net operating loss carryforwards, and
trade credit will enable it to finance its current working capital, store
remodeling and acquisition requirements. Levi Strauss & Co.'s sale of 25 outlet
stores reflects its decision to concentrate its retail efforts primarily on the
operation of brand image stores in major urban markets such as New York, Boston,
Chicago, Los Angeles, and San Francisco. These urban stores serve as marketing
vehicles for Levi Strauss & Co. to showcase its Levi Strauss & Co. product
lines. As a result of this tightened retail focus, the Company and Levi
Strauss & Co. will consider implications for stores, which are operated by the
joint venture.
WORKING CAPITAL AND CASH FLOWS
To date, the Company has financed its working capital requirements and store
opening, restructuring program and remodeling programs with cash flow from
operations, income tax refunds, borrowings under the Company's credit facility
and proceeds from Common Stock offerings. Cash provided by operations for the
first six months of fiscal 1998 was $5.5 million as compared to cash used for
operations of $12.4 million for the same period in the prior year. This $17.9
million improvement is primarily the result of the receipt of a federal income
tax refund, lower inventory purchases, expense control initiatives, the closure
of non-performing stores and the timing of other working capital accounts.
The Company's cash and investment position at August 1, 1998 was approximately
$1.1 million, compared to $355,000 at August 2, 1997. At August 1, 1998, the
Company had borrowings of $3.6 million outstanding under its revolving credit
facility as compared to borrowings outstanding of $11.9 million at August 2,
1997. The Company expects that average borrowings in the second half of fiscal
1998 will be similar to those in the same period in the prior year as a result
of borrowings under the facility to fund the anticipated acquisition of 25
outlet stores from Levi's Only Stores, Inc. as described above.
The Company's working capital at August 1, 1998 was approximately $40.5 million,
compared to $50.5 million at August 2, 1997. This decrease in working capital
was primarily attributable to significant decreases in inventory. At August 1,
1998, total inventory equaled $62.2 million, compared to $80.4 million at August
2, 1997. The decrease of 23 percent in the Company's inventory level was
primarily due to the liquidation of Boston Traders(R) brand products, the
closing of 36 stores and reduced purchases of Levi Strauss & Co. brand
merchandise. At the end of the second quarter of fiscal 1998, Levi's(R),
Dockers(R) and other name brands represented 99 percent of inventory. The
remaining 1 percent of inventory, or $600,000 represented Boston Traders(R)
product being liquidated in the Company's Boston Traders(R) Outlet stores. The
Company continues to evaluate and, within the discretion of management, act upon
opportunities to purchase substantial quantities of Levi's(R) brand products for
its Levi's(R) Outlet stores.
The Company's trade payables to Levi Strauss & Co., its principal vendor,
generally are due 30 days after the date of invoice. At August 1, 1998, the
accounts payable balance was $17.6 million as compared with a balance of $16.9
million at August 2, 1997. In the prior year, the Company sourced its own
Boston Traders(R) brand product predominately with off shore vendors. Payment
to these vendors generally occurred earlier then payments to domestics vendors
because the Company used letters of credit, which required payment upon
presentation of shipping documents. During the second quarter of 1998 the
Company was current with all outstanding merchandise payables to vendors.
The Company expects, barring unforeseen circumstances, that purchases of
branded merchandise from vendors other than Levi Strauss & Co. will be in
accordance with customary industry credit terms.
On June 4, 1998 the Company entered into a Loan and Security Agreement with a
subsidiary of BankBoston, N.A., BankBoston Retail Finance Inc., as agent for the
lender(s) named therein (the "Credit Agreement"). The Credit Agreement
established a new credit facility which replaced the Company's $25 million
credit facility with BankBoston, N.A. The new credit facility, which terminates
on June 4, 2001, consists of a revolving line of credit permitting the Company
to borrow up to $50 million. Under this facility, the Company has the ability to
cause the lender(s) to issue documentary and standby letters of credit up to $5
million. The Company's obligations under the Credit Agreement are secured by a
lien on all of the Company's assets, except the assets of the OLS Partnership.
The ability of the Company to borrow under the Credit Agreement is subject to a
number of conditions including the accuracy of certain representations and
compliance with tangible net worth and fixed charge coverage ratio covenants.
The availability of the unused revolving line of credit is limited to specified
percentages of the value of the Company's eligible inventory determined under
the Credit Agreement, ranging from 60% to 65%. At the option of the Company,
borrowings under this facility bear interest at BankBoston N.A.'s prime rate or
at LIBOR-based fixed rates. The Credit Agreement contains certain covenants and
events of default customary for credit facilities of this nature, including
limitations on payment of dividends by the Company. The Company is subject to a
prepayment penalty if it terminates the Credit Agreement prior to June 4, 2000.
At August 1, 1998, the Company had borrowings of $3.6 million outstanding under
this facility and had two outstanding standby letters of credit totaling
approximately $236,000. The Company was in compliance with all debt covenants at
the end of the second quarter. The Company expects to borrow funds under this
credit facility in the third quarter in order to complete the outlet store
acquisition described above.
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the Company,
and a subsidiary of Levi's Only Stores, Inc., a wholly-owned subsidiary of Levi
Strauss & Co., entered into a partnership agreement (the "Partnership
Agreement") to sell Levi's(R) brand jeans and jeans-related products. The joint
venture that was established by the Partnership Agreement is known as The
Designs/OLS Partnership (the "OLS Partnership"). The term of the joint venture
is ten years; however, the Partnership Agreement contains certain exit rights
that enable either partner to buy or sell its interest in the joint venture
after five years. At the end of the first quarter of fiscal 1998 there were
eleven Original Levi's Stores(TM) and eleven Levi's(R) Outlet stores. As
described above, because of decisions by Levi Strauss & Co. to tighten its
retail focus, the Company and Levi Strauss & Co. are reviewing the implications
of these decisions for the OLS Partnership.
During the second quarter of fiscal 1998, the OLS Partnership made no
distributions of "excess cash" to its partners in accordance with the terms of
the Partnership Agreement.
During the third quarter of fiscal 1996, the Company entered into a one year
Credit Agreement (the "OLS Credit Agreement") with the OLS Partnership and
Levi's Only Stores, Inc. under which the Company and Levi's Only Stores, Inc.
are committed to make advances to the OLS Partnership in amounts up to $3.5
million and $1.5 million, respectively. During the third quarter of fiscal 1997,
the term of the OLS Credit Agreement was extended through September 30, 1998,
unless terminated earlier pursuant to other provisions of the OLS Credit
Agreement. This credit facility bears interest at BankBoston, N.A.'s prime rate.
The OLS Credit Agreement also provides that there may not be credit advances
outstanding on the last day of the fiscal year. There were no borrowings under
this facility through August 1, 1998.
CAPITAL EXPENDITURES
Total cash outlays for capital expenditures for the first six months of fiscal
1998 were $216,000, which represents the cost of store and corporate capital
expenditures. Total cash outlays for the first six months of fiscal 1997 were
$7.4 million. During the first six months of fiscal 1997, the Company opened
six new Boston Trading Co.(R) stores, remodeled one Levi's(R) Outlet by Designs
store and five Boston Traders(R) Outlet stores. During the six month period
ended August 1, 1998, the Company closed one Designs store as its lease expired
in addition to the remaining two stores closed as part of the previously
announced store closing program.
Most of the Company's computer and process control systems were designed to use
only two digits to represent years. As a result, they may not recognize "00" as
representing the Year 2000, but rather the year 1900, which could result in
errors or system failures. The Company is in the process of converting
technology and its information systems to be Year 2000 compliant. The Company
expects to spend approximately $500,000 in conversion and upgrade costs,
primarily in fiscal 1998 to accomplish this. Barring unforeseen circumstances,
the Company anticipates that the conversion will be complete by the end of
calendar year 1999.
On May 2, 1995, the Company acquired certain assets of Boston Trading Ltd., Inc.
("Boston Trading") in accordance with the terms of an Asset Purchase Agreement
dated April 21, 1995. The Company paid $5.4 million in cash, financed by
operations, and delivered a self-styled non-negotiable promissory note in the
original principal amount of $1 million (the "Purchase Note"). The principal
amount of the Purchase Note was payable in two equal installments through May
1997. In the first quarter of fiscal 1996, the Company asserted certain
indemnification rights under the Asset Purchase Agreement. In accordance with
the Asset Purchase Agreement, the Company, when exercising its indemnification
rights, has the right, among other courses of action, to offset against the
payment of principal and interest due and payable under the Purchase Note the
value of its indemnification claim. Accordingly, based on these indemnification
rights, the Company ultimately did not make either of the $500,000 payments of
principal on the Purchase Note that were due on May 2, 1996 and May 2, 1997.
Nevertheless, the Company continued to pay interest on the original principal
amount of the Purchase Note through May 2, 1996 and continued to pay interest
thereafter through November 2, 1997 on $500,000 of principal. The portion of the
principal amount of the Purchase Note ultimately to be paid by the Company
depends upon whether its claims are satisfied by Boston Trading and its
stockholders.
In November 1996, the Company and Levi Strauss & Co. entered into a trademark
license agreement (the "Outlet License Agreement") which provides the terms upon
which the Company is permitted to use the Levi Strauss & Co. batwing trademark
in connection with the operations of the Company's Levi's(R) Outlet by Designs
stores. The Outlet License Agreement authorizes the Company, subject to certain
terms and conditions, to operate the Levi's(R) Outlet by Designs stores using
the Levi's(R) batwing trademark in 25 states in the eastern portion of the
United States. Subject to certain default provisions, the term of the Outlet
License Agreement will expire on July 31, 2001, and the license for any
particular store is the period co-terminous with the lease term for such store
(including extension options in effect in November 1996). The leases (including
extension options in effect in November 1996) relating to approximately
two-thirds of the Levi's(R) Outlet by Designs stores open at August 1, 1998
expire in or prior to fiscal 2009 and all, except for five such leases, expire
in or prior to fiscal 2011.
The Company continually evaluates discretionary investments in new projects
that may complement its existing business. Further, as leases expire, the
Company may lose the right to use the Levi's(R) trademark in connection with
certain Levi's(R) Outlet by Designs stores. The Company continues to evaluate
the performance of its existing stores and to consider ways to enhance its
businesses. As a result of this process, certain store locations could be
closed or relocated within a shopping center in the future.
In 1986, the Company opened its first outlet store featuring Levi Strauss & Co.
brand products. Because of the success of this store format, the Company opened
and now operates 58 Levi's(R) Outlet by Designs stores carrying Levi's(R) and
Dockers(R) brand products. Since 1995 the joint venture opened and operates 11
Levi's(R) Outlet stores that carry exclusively Levi's(R) brand products. Despite
the fact that through the period ending August 1, 1998, comparable store sales
in these stores have been negative, both of the Levi's(R) Outlet store groups
are profitable and, barring unforeseen circumstances, are expected to generate
a profit in fiscal 1998.
Levi Strauss & Co. has recently announced a shift in corporate strategy and will
concentrate its retail efforts primarily on brand image specialty stores
located in major urban markets. As a result of this change in Levi Strauss & Co.
strategy, the Company has an opportunity to purchase from a wholly owned
subsidiary of Levi Strauss & Co. nine Levi's(R) and 16 Dockers(R) Outlet stores
located in the Company's outlet territory. As discussed above, the Company
recently announced that it had signed a letter of understanding that, subject
to the satisfaction of certain conditions, would result in the Company acquiring
this group of 25 outlet stores. Although the group of stores to be acquired have
also experienced negative comparable store sales results in fiscal 1998, the
Company believes, barring unforeseen circumstances, that the group of 25 stores
to be acquired will be profitable, on a pro-forma basis, for the fiscal year
ending January 30, 1999 and for the period from September 30, 1998 (the
anticpated closing date of the acquistion) through January 30, 1999. The
Company sees opportunities to improve upon the performance of the 25 new stores
once these stores are integrated into its store operations, thereby leveraging
the Company's existing outlet store infrastructure in areas such as store
operating and payroll expenses.
The foregoing discussion of the Company's results of operations, liquidity,
capital resources and capital expenditures includes certain forward-looking
information. Such forward-looking information requires management to make
certain estimates and assumptions regarding the Company's expected strategic
direction and the related effect of such plans on the financial results of the
Company. Accordingly, actual results and the Company's implementation of its
plans and operations may differ materially from forward-looking statements made
by the Company. The Company encourages readers of this information to refer to
Exhibit 99 of the Company's Annual Report on Form 10-K, previously filed with
the United States Securities and Exchange Commission on May 1, 1998, which
identifies certain risks and uncertainties that may have an impact on future
earnings and the direction of the Company.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Part II. Other Information
ITEM 1. Legal Proceedings
In January 1998 Atlantic Harbor, Inc. (formerly known as "Boston
Trading Ltd., Inc.") filed a lawsuit against the Company for failing to pay the
outstanding principal amount of the Purchase Note. Thereafter, the Company filed
claims against Atlantic Harbor, Inc. and its stockholders alleging that the
Company was damaged in excess of $1 million because of the breach of certain
representations and warranties concerning the existence and condition of certain
foreign trademark registrations and license agreements. Barring unforeseen
circumstances, management of the Company does not believe that the result of
this litigation will have a material adverse effect on the Company's business or
financial condition.
The Company is a party to other litigation and claims arising in the
normal course of its business. Barring unforeseen circumstances, management does
not expect the results of these actions to have a material adverse effect on the
Company's business or financial condition.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
On June 9, 1998, the Company held its Annual Meeting of Stockholders.
At the meeting, stockholders holding at least 12,442,294 shares of the Common
Stock, $0.01 par value, cast votes in favor of each of Stanley I. Berger,
Joel H. Reichman, James G. Groninger, Bernard M. Manuel, Melvin I. Shapiro
and Peter L. Thigpen as directors of the Company and no more than 2,631,718
shares were withheld from any one of the foregoing.
ITEM 6. Exhibits and Reports on Form 8-K
A. Reports on Form 8-K:
The Company reported under Item 5 of Form 8-K, dated June 15, 1998,
that the Company entered into an Amended and Restated Loan and Security
Agreement (the "Credit Agreement") with BankBoston Retail Finance Inc., a
subsidiary of BankBoston, N.A., as agent for the lender(s) identified in the
Credit Agreement, establishing a $50 million credit facility.
The Company reported under Item 4 of Form 8-K, dated June 26, 1998,
that on June 19, 1998 the Company dismissed its principal independent
accountants, Coopers & Lybrand L.L.P. The Company also reported that on June 24,
1998, the Company engaged Arthur Andersen LLP as its new principal independent
accountants.
B. Exhibits:
3.1 Restated Certificate of Incorporation of the Company,
as amended (included as Exhibit 3.1 to Amendment No. 3 of the
Company's Registration Statement on Form S-1 (No. 33-13402), and
incorporated herein by reference). *
3.2 Certificate of Amendment to Restated Certificate of Incorporation,
as amended, dated June 22, 1993 (included as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q dated June 17, 1996, and
incorporated herein by reference). *
3.3 Certificate of Designations, Preferences and Rights of a Series
of Preferred Stock of the Company establishing Series A Junior
Participating Cumulative Preferred Stock dated May 1, 1995
(included as Exhibit 3.2 to the Company's Annual Report on Form
10-K dated May 1, 1996, and incorporated herein by reference). *
3.4 By-Laws of the Company, as amended (included as Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q dated December
12, 1995, and incorporated herein by reference). *
4.1 Shareholder Rights Agreement dated as of May 1, 1995 between the
Company and its transfer agent (included as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated May 1, 1995, and
incorporated herein by reference). *
4.2 First Amendment dated as of October 6, 1997 to the Shareholder
Rights Agreement dated as of May 1, 1995 between the Company its
transfer agent (included as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated October 9, 1997, and incorporated herein
by reference). *
10.1 1987 Incentive Stock Option Plan, as amended (included as
Exhibit 10.1 to the Company's Annual Report on Form 10-K dated
April 29, 1993, and incorporated herein by reference). *
10.2 1987 Non-Qualified Stock Option Plan, as amended (included as
Exhibit 10.2 to the Company's Annual Report on Form 10-K
dated April 29, 1993, and incorporated herein by reference). *
10.3 1992 Stock Incentive Plan, as amended (included as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
dated June 16, 1998, and incorporated herein by reference). *
10.4 Senior Executive Incentive Plan effective beginning with the
fiscal year ended February 1, 1997 (included as Exhibit 10.4
to the Company's Quarterly Report on Form 10-Q dated
September 17, 1996, and incorporated herein by reference). *
10.5 License Agreement between the Company and Levi Strauss & Co.
dated as of April 14, 1992 (included as Exhibit 10.8 to the
Company's Annual Report on Form 10-K dated April 29, 1993,
and incorporated herein by reference). *
10.6 Trademark License Agreement between the Company and Levi
Strauss & Co. dated as of November 15, 1996 (included as
Exhibit 10.5 to the Company's Annual Report on Form 10-K dated
May 1, 1997, and incorporated herein by reference). *
10.7 Credit Agreement between the Company and BankBoston, N.A.
dated as of December 10, 1997 (included as Exhibit 10.1 to
the Company's Current Report on Form 8-K dated January 5, 1998,
and incorporated herein by reference). *
10.8 First Amendment to Credit Agreement dated as of January 31, 1998,
between the Company and BankBoston, N.A. (included as
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
April 1, 1998, and incorporated herein by reference). *
10.9 Amended and Restated Credit Agreement dated as of June 4, 1998,
between the Company and BankBoston Retail Finance Inc. (included
as Exhibit 10.1 to the Company's Current Report on Form 8-K dated
June 11, 1998, and incorporated herein by reference). *
10.10 Fee letter dated as of June 4, 1998, between the Company and
BankBoston Retail Finance Inc. (included as Exhibit 10.2 to
the Company's Current Report on Form 8-K dated June 11, 1998,
and incorporated herein by reference). *
10.11 Participation Agreement among Designs JV Corp. (the "Designs
Partner"), the Company, LDJV Inc. (the "LOS Partner"), Levi's
Only Stores, Inc. ("LOS"), Levi Strauss & Co. ("LS&CO") and Levi
Strauss Associates Inc. ("LSAI") dated January 28, 1995
(included as Exhibit 10.1 to the Company's Current Report
on Form 8-K dated April 24, 1995, and incorporated herein by
reference). *
10.12 Partnership Agreement of The Designs/OLS Partnership (the "OLS
Partnership") between the LOS Partner and the Designs Partner
dated January 28, 1995 (included as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated April 24, 1995, and incorporated
herein by reference). *
10.13 Glossary executed by the Designs Partner, the Company, the LOS
Partner, LOS, LS&CO, LSAI and the OLS Partnership dated
January 28, 1995 (included as Exhibit 10.3 to the Company's
Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.14 Sublicense Agreement between LOS and the LOS Partner dated
January 28, 1995 (included as Exhibit 10.4 to the Company's
Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.15 Sublicense Agreement between the LOS Partner and the OLS
Partnership dated January 28, 1995 (included as Exhibit 10.5
to the Company's Current Report on Form 8-K dated
April 24, 1995, and incorporated herein by reference). *
10.16 License Agreement between the Company and the OLS Partnership
dated January 28, 1995 (included as Exhibit 10.6 to the
Company's Current Report on Form 8-K dated April 24, 1995,
and incorporated herein by reference). *
10.17 Administrative Services Agreement between the Company and
the OLS Partnership dated January 28, 1995 (included as
Exhibit 10.7 to the Company's Current Report on Form 8-K
dated April 24, 1995, and incorporated herein by reference). *
10.18 Credit Agreement among the Company, LOS and the OLS Partnership
dated as of October 1, 1996 (included as Exhibit 10.15 to the
Company's Quarterly Report on Form 10-Q dated December 17, 1996,
and incorporated herein by reference). *
10.19 First Amendment to Credit Agreement among the Company, LOS
and the OLS Partnership dated as of October 29, 1997 (included
as Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q
dated December 16, 1997, and incorporated herein by reference). *
10.20 Asset Purchase Agreement between LOS and the Company relating
to the sale of stores located in Minneapolis, Minnesota dated
January 28, 1995 (included as Exhibit 10.9 to the Company's
Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.21 Asset Purchase Agreement among Boston Trading Ltd., Inc.,
Designs Acquisition Corp., the Company and others dated
April 21, 1995 (included as 10.16 to the Company's Quarterly
Report on Form 10-Q dated September 12, 1995, and
incorporated herein by reference). *
10.22 Non-Negotiable Promissory Note between the Company and Atlantic
Harbor, Inc., formerly known as Boston Trading Ltd., Inc.,
dated May 2, 1995 (included as 10.17 to the Company's Quarterly
Report on Form 10-Q dated September 12, 1995, and incorporated
herein by reference). *
10.23 Employment Agreement dated as of October 16, 1995 between the
Company and Joel H. Reichman (included as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated December 6, 1995,
and incorporated herein by reference). *
10.24 Employment Agreement dated as of October 16, 1995 between the
Company and Scott N. Semel (included as Exhibit 10.2 to the
Company's Current Report on Form 8-K dated December 6, 1995,
and incorporated herein by reference). *
10.25 Employment Agreement dated as of May 9, 1997 between the
Company and Carolyn R. Faulkner (included as Exhibit 10.23 to
the Company's Quarterly Report on Form 10-Q dated June 17, 1997,
and incorporated herein by reference). *
10.26 Separation Agreement dated as of February 9, 1998 between the
Company and Mark S. Lisnow (included as Exhibit 10.26 to
the Company's Annual Report on Form 10-K dated May 1, 1998,
and incorporated herein by reference). *
11 Statement re: computation of per share earnings.
27.1 Financial Data Schedule for the six months ended August 1, 1998
27.2 Financial Data Schedule Restated for the six months ended
August 2, 1997
99 Report of the Company dated May 1, 1998 concerning certain
cautionary statements of the Company to be taken into account
in conjunction with consideration and review of the Company's
publicly-disseminated documents (including oral statements made
by others on behalf of the Company) that include forward looking
information (included as Exhibit 99 to the Company`s Annual
Report on Form 10-K dated May 1, 1998 and incorporated
herein by reference). *
* Previously filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DESIGNS, INC.
September 15, 1998 By: /S/ JOEL H. REICHMAN
-----------------------------
Joel H. Reichman
President and Chief Executive
Officer
EX-11
EARNINGS PER SHARE
Exhibit 11. Statement Re: Computation of Per Share Earnings
EX-11
EARNINGS PER SHARE
Three months Six Months Twelve Months
August 1, 1998 August 1, 1998 August 1, 1998
________________________________ _________
(in thousands except per share data)
Basic EPS Computation
Numerator:
Net income (loss) $ (3,094) $ (6,146) $(15,445)
Denominator:
Weighted average
common shares outstanding 15,773 15,755 15,717
______________________________________
Basic EPS $ (0.20) $ (0.39) $ (0.98)
Diluted EPS Computation
Numerator:
Net income (loss) $ (3,094) $ (6,146) $(15,445)
Denominator:
Weighted average common
shares outstanding 15,773 15,755 15,717
Stock options, excluding
anti-dilutive options of 2, 7,
and 15 shares for the three,
six and twelve months ending
August 1, 1998, respectively. --- --- ---
______________________________________
Total Shares 15,773 15,755 15,717
Diluted EPS $ (0.20) $ (0.39) $ ( 0.98)
Three months Six Months Twelve Months
August 2, 1997 August 2, 1997 August 2, 1997
_____________________________________________
(in thousands except per share data)
Basic EPS Computation
Numerator:
Net income (loss) $ (16,581) $ (19,764) $(12,909)
Denominator:
Weighted average
common shares outstanding 15,622 15,613 15,658
Basic EPS $ (1.06) $ (1.27) $ (0.82)
Diluted EPS Computation
Numerator:
Net income (loss) $ (16,581) $ (19,764) $(12,909)
Denominator:
Weighted average common
shares outstanding 15,622 15,613 15,658
Stock options, excluding
anti-dilutive options 41, 49
and 53 shares for the three six
and twelve months ending
August 2, 1997, respectively. --- --- ---
Total Shares 15,622 15,613 15,658
Diluted EPS $ (1.06) $ (1.27) $ (0.82)
====================================
5
1,000
6-MOS
JAN-30-1999
MAY-03-1998
AUG-01-1998
1,079
0
166
0
62,176
73,083
68,667
36,677
113,156
32,609
0
0
0
161
76,110
113,156
90,478
90,478
71,765
71,765
28,942
0
306
(10,080)
(3,934)
(6,146)
0
0
0
(6,146)
(0.39)
(0.39)
5
1,000
6-MOS
JAN-31-1998
MAY-04-1997
AUG-02-1997
355
0
234
0
80,376
100,783
77,702
37,427
147,049
50,258
0
0
0
159
91,235
147,049
120,013
120,013
109,112
109,112
44,717
0
406
(33,727)
(13,963)
(19,764)
0
0
0
(19,764)
(1.27)
(1.27)
