UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark) |
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x |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended September 29, 2007 |
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or |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file numbers: |
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333-135646-12 |
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001-12381 |
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333-135646-11 |
LINENS HOLDING CO.
LINENS N THINGS, INC.
LINENS N THINGS CENTER, INC.
(Exact names of registrants as specified in their charters)
Delaware |
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20-4192917 |
Delaware |
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22-3463939 |
California |
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59-2740308 |
(States or other jurisdictions of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification Nos.) |
6 Brighton Road, Clifton, New Jersey 07015
(Address of principal executive offices) (Zip Code)
(973) 778-1300
(Registrants telephone number, including area code)
Indicate by check mark whether the registrants (1) have 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) have been subject to such filing requirements for the past 90 days:
Yes x No o
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o |
Accelerated Filer o |
Non-accelerated filer x |
Indicate by check mark whether the registrants are a shell company (as defined in Rule 12b-2 of the Act):
Yes o No x
As of October 31, 2007, there were 13,013,000 shares of Linens Holding Co. common stock, $0.01 par value, outstanding; 1,000 shares of Linens n Things, Inc. common stock, $0.01 par value, outstanding; and 100 shares of Linens n Things Center, Inc. common stock, no par value, outstanding.
INDEX
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Page No. |
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3 |
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Item 1. |
Financial Statements |
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4 |
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5 |
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6 |
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7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
34 |
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44 |
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46 |
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47 |
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47 |
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47 |
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47 |
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48 |
2
On November 8, 2005, Linens Merger Sub Co. was formed by affiliates of Apollo Management, L.P., and National Realty & Development Corp. and Silver Point Capital Fund Investments LLC (collectively, the Sponsors) to serve as a holding company. On February 14, 2006, Linens Merger Sub Co. merged with and into Linens n Things, Inc. (the Merger), and Linens n Things, Inc., as the surviving corporation, became a wholly owned subsidiary of Linens Holding Co. (the Company). The Merger was financed in part by the issuance of $650.0 million aggregate principal amount of Senior Secured Floating Rate Notes (the Notes) due 2014 of Linens n Things, Inc. and Linens n Things Center, Inc., a wholly owned subsidiary of Linens n Things, Inc. The Notes are guaranteed by the Company and each of its domestic subsidiaries (other than Linens n Things, Inc. and Linens n Things Center, Inc.). This report also contains the condensed consolidated financial statements of the Companys predecessor entity, Linens n Things, Inc. and its subsidiaries, for the period January 1, 2006 to February 13, 2006. The accompanying condensed consolidated financial statements are those of Linens Holding Co. and its subsidiaries. The Company has not presented separate financial statements for Linens n Things, Inc. and its subsidiaries or Linens n Things Center, Inc. and its subsidiaries (collectively, the Issuers as described in Note 13) because management has determined that the differences in such financial statements are minor. Unless the context requires otherwise, we, us, our, or the Company refer to Linens Holding Co. and its subsidiaries and, for periods prior to February 14, 2006, the Companys predecessor entity and its subsidiaries.
FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) with respect to the Companys financial condition, results of operations and business that is not historical information. All statements, other than statements of historical fact, included in this report are forward-looking statements. In particular, statements that the Company makes relating to its overall volume trends, industry forces, margin trends, anticipated capital expenditures and its strategies are forward-looking statements. When used in this document, the words believe, expect, anticipate, intend, estimate, project, plan, and similar expressions, as well as future or conditional verbs such as will, should, would and could, are intended to identify forward-looking statements.
These statements are based on assumptions and assessments made by the Companys management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. The Company believes there is a reasonable basis for its expectations and beliefs, but they are inherently uncertain, the Company may not realize its expectations and its beliefs may not prove correct. Any forward-looking statements are not guarantees of the Companys future performance and are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those described or implied by any such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Such factors include, without limitation: general economic conditions; changes in the retailing environment and consumer spending habits; inclement weather and natural disasters; competition from existing and potential competitors; the amount of merchandise markdowns; loss or retirement of key members of management; increases in the costs of borrowings and unavailability of additional debt or equity capital; impact of the Companys substantial indebtedness on its operating income and its ability to grow; the cost of labor; labor disputes; increased healthcare benefit costs; other costs and expenses; and other important factors that could cause actual results to differ materially from those described or implied by the forward-looking statements contained in this report.
3
PART I FINANCIAL INFORMATION
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands) (Unaudited)
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Thirteen Weeks Ended |
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Thirteen Weeks Ended |
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Net sales |
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$ |
666,791 |
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$ |
658,155 |
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Cost of sales, including buying and distribution costs |
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405,687 |
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388,579 |
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Gross profit |
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261,104 |
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269,576 |
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Selling, general and administrative expenses |
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300,927 |
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287,429 |
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Impairment of property and equipment |
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16,779 |
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Operating loss |
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(56,602 |
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(17,853 |
) |
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Interest income |
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(74 |
) |
(18 |
) |
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Interest expense |
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24,197 |
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23,572 |
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Interest expense, net |
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24,123 |
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23,554 |
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Other (income) expense, net |
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(1,539 |
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323 |
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Loss before provision (benefit) for income taxes |
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(79,186 |
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(41,730 |
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Provision (benefit) for income taxes |
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743 |
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(14,355 |
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Net loss |
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$ |
(79,929 |
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$ |
(27,375 |
) |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands) (Unaudited)
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Thirty-nine Weeks |
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February 14, 2006 to |
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January 1, 2006 to |
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(Successor Entity) |
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(Successor Entity) |
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(Predecessor |
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Net sales |
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$ |
1,831,922 |
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$ |
1,577,583 |
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$ |
284,971 |
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Cost of sales, including buying and distribution costs |
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1,110,417 |
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951,007 |
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180,675 |
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Gross profit |
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721,505 |
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626,576 |
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104,296 |
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Selling, general and administrative expenses |
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873,042 |
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708,113 |
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175,424 |
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Impairment of property and equipment |
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16,779 |
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Operating loss |
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(168,316 |
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(81,537 |
) |
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(71,128 |
) |
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Interest income |
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(338 |
) |
(137 |
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(668 |
) |
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Interest expense |
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74,084 |
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55,404 |
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Interest expense (income), net |
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73,746 |
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55,267 |
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(668 |
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Other income, net |
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(3,837 |
) |
(2,408 |
) |
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(1,286 |
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Loss before benefit for income taxes |
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(238,225 |
) |
(134,396 |
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(69,174 |
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Benefit for income taxes |
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(58,136 |
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(50,322 |
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(21,270 |
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Net loss |
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$ |
(180,089 |
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$ |
(84,074 |
) |
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$ |
(47,904 |
) |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)(Unaudited)
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September 29, |
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December 30, |
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September 30, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
12,101 |
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$ |
12,526 |
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$ |
11,394 |
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Accounts receivable |
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33,942 |
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37,063 |
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33,886 |
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Inventories |
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976,005 |
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793,002 |
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999,316 |
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Prepaid expenses and other current assets |
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17,253 |
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15,308 |
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66,788 |
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Current deferred taxes |
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13,788 |
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16,815 |
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12,225 |
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Total current assets |
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1,053,089 |
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874,714 |
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1,123,609 |
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Property and equipment, net of accumulated depreciation of $188,671, $100,616 and $74,339 at September 29, 2007, December 30, 2006 and September 30, 2006, respectively |
|
447,773 |
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530,829 |
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572,500 |
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Identifiable intangible assets, net |
|
144,583 |
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150,044 |
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155,361 |
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Goodwill |
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272,081 |
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267,830 |
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265,702 |
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Deferred financing costs and other noncurrent assets |
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41,001 |
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34,517 |
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35,218 |
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Total assets |
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$ |
1,958,527 |
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$ |
1,857,934 |
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$ |
2,152,390 |
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Liabilities and Shareholders Equity |
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Current liabilities: |
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|
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|
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Accounts payable |
|
$ |
267,054 |
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$ |
204,760 |
|
$ |
291,683 |
|
Accrued expenses and other current liabilities |
|
203,528 |
|
241,911 |
|
195,120 |
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Short-term borrowings |
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|
225,870 |
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|||
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|
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|
|
|
|
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Total current liabilities |
|
470,582 |
|
446,671 |
|
712,673 |
|
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Senior secured notes and other long-term debt |
|
978,180 |
|
689,876 |
|
652,092 |
|
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Noncurrent deferred income taxes |
|
67,914 |
|
125,977 |
|
170,491 |
|
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Other long-term liabilities |
|
59,611 |
|
50,667 |
|
48,512 |
|
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|
|
|
|
|
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|
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Total liabilities |
|
1,576,287 |
|
1,313,191 |
|
1,583,768 |
|
|||
|
|
|
|
|
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|
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Shareholders equity: |
|
|
|
|
|
|
|
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Common stock, $0.01 par value; 15,000,000 shares authorized; 13,013,000 shares issued and outstanding at September 29, 2007, December 30, 2006 and September 30, 2006 |
|
131 |
|
131 |
|
131 |
|
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Additional paid-in capital |
|
654,727 |
|
652,395 |
|
651,636 |
|
|||
Accumulated deficit |
|
(286,622 |
) |
(106,533 |
) |
(84,074 |
) |
|||
Accumulated other comprehensive income (loss) |
|
14,004 |
|
(1,250 |
) |
929 |
|
|||
|
|
|
|
|
|
|
|
|||
Total shareholders equity |
|
382,240 |
|
544,743 |
|
568,622 |
|
|||
|
|
|
|
|
|
|
|
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Total liabilities and shareholders equity |
|
$ |
1,958,527 |
|
$ |
1,857,934 |
|
$ |
2,152,390 |
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
|
|
Successor Entity |
|
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Predecessor Entity |
|
|||||
|
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Thirty-nine Weeks |
|
February 14, 2006 |
|
|
January 1, 2006 |
|
|||
|
|
|
|
|
|
|
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|
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Cash flows from operating activities: |
|
|
|
|
|
|
|
|
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Net loss |
|
$ |
(180,089 |
) |
$ |
(84,074 |
) |
|
$ |
(47,904 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
97,274 |
|
80,215 |
|
|
12,642 |
|
|||
Deferred income taxes |
|
(64,075 |
) |
(23,234 |
) |
|
(6,725 |
) |
|||
Share-based compensation |
|
2,330 |
|
3,363 |
|
|
12,484 |
|
|||
Amortization of deferred financing charges |
|
6,076 |
|
5,429 |
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|
43 |
|
|||
Loss on sales and disposals of property and equipment |
|
539 |
|
416 |
|
|
|
|
|||
Impairment of property and equipment |
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16,779 |
|
|
|
|
|
|
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Changes in assets and liabilities, net of effect of acquisition: |
|
|
|
|
|
|
|
|
|||
Decrease (increase) in accounts receivable |
|
3,580 |
|
12,047 |
|
|
(2,240 |
) |
|||
Increase in inventories |
|
(172,723 |
) |
(177,910 |
) |
|
(31,886 |
) |
|||
Decrease (increase) in prepaid expenses and other current assets |
|
1,625 |
|
(34,097 |
) |
|
(12,153 |
) |
|||
Decrease (increase) in identifiable intangible assets and other noncurrent assets |
|
119 |
|
(2,498 |
) |
|
9,580 |
|
|||
Increase in accounts payable |
|
56,488 |
|
59,051 |
|
|
12,010 |
|
|||
Decrease in accrued expenses and other liabilities |
|
(29,217 |
) |
(42,038 |
) |
|
(7,807 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
Net cash used in operating activities |
|
(261,294 |
) |
(203,330 |
) |
|
(61,956 |
) |
|||
|
|
|
|
|
|
|
|
|
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Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|||
Acquisition of the Predecessor Entity, net of cash acquired(1) |
|
|
|
(1,205,502 |
) |
|
|
|
|||
Additions to property and equipment |
|
(31,247 |
) |
(48,776 |
) |
|
(10,956 |
) |
|||
Proceeds from sales of property and equipment |
|
5,400 |
|
3,100 |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Net cash used in investing activities |
|
(25,847 |
) |
(1,251,178 |
) |
|
(10,956 |
) |
|||
|
|
|
|
|
|
|
|
|
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Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|||
Issuance of common stock to Linens Investors LLC and others |
|
|
|
650,650 |
|
|
|
|
|||
Issuance of floating rate notes |
|
|
|
650,000 |
|
|
|
|
|||
Financing and direct acquisition costs |
|
(2,146 |
) |
(59,930 |
) |
|
|
|
|||
Premium paid for derivative financial instrument |
|
|
|
(700 |
) |
|
|
|
|||
Federal tax benefit from common stock issued under stock incentive plans |
|
|
|
|
|
|
4,298 |
|
|||
Net increase in borrowings under revolving credit facility |
|
290,380 |
|
225,870 |
|
|
|
|
|||
Decrease in treasury stock |
|
|
|
|
|
|
674 |
|
|||
Payments on mortgage note |
|
(2,076 |
) |
(38 |
) |
|
(10 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
Net cash provided by financing activities |
|
286,158 |
|
1,465,852 |
|
|
4,962 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Effect of exchange rate changes on cash and cash equivalents |
|
558 |
|
50 |
|
|
125 |
|
|||
Net (decrease) increase in cash and cash equivalents |
|
(425 |
) |
11,394 |
|
|
(67,825 |
) |
|||
Cash and cash equivalents at beginning of period |
|
12,526 |
|
|
|
|
158,158 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents at end of period |
|
$ |
12,101 |
|
$ |
11,394 |
|
|
$ |
90,333 |
|
|
|
|
|
|
|
|
|
|
|||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|||
Interest (net of amounts capitalized) |
|
$ |
66,709 |
|
$ |
35,397 |
|
|
$ |
135 |
|
Income taxes |
|
|
|
|
|
|
|
|
|||
Income taxes paid |
|
$ |
13,012 |
|
$ |
40,858 |
|
|
$ |
57 |
|
Income tax refunds |
|
$ |
1,351 |
|
$ |
2,229 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
Non-cash transactions: |
|
|
|
|
|
|
|
|
|||
Increase (decrease) in goodwill due to purchase accounting adjustments, net |
|
$ |
4,251 |
|
$ |
(283 |
) |
|
$ |
|
|
Decrease in accrued additions to property and equipment |
|
$ |
7,734 |
|
$ |
7,638 |
|
|
$ |
3,180 |
|
(1) In connection with the Merger, net cash settlements of approximately $20.0 million and $4.4 million for stock options and restricted stock units, respectively, are included in Acquisition of the Predecessor Entity, net of cash acquired.
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
7
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
On November 8, 2005, Linens Merger Sub Co. was formed by affiliates of Apollo Management, L.P., and National Realty & Development Corp. and Silver Point Capital Fund Investments LLC (collectively, the Sponsors) to serve as a holding company. On February 14, 2006, Linens Merger Sub Co. merged with and into Linens n Things, Inc. (the Merger), and Linens n Things, Inc., as the surviving corporation, became a wholly owned subsidiary of Linens Holding Co. (the Company). The acquisition and related financings are referred to collectively as the Transactions and are discussed in more detail in Note 3 to the audited consolidated financial statements included in the Companys 2006 Annual Report on Form 10-K. As a result of the consummation of the Transactions, a new entity (the Successor or Successor Entity) was formed for financial accounting purposes with an effective date of February 14, 2006, consisting of Linens Holding Co. and Subsidiaries. The condensed consolidated financial statements as of September 29, 2007 and September 30, 2006, for the thirty-nine weeks ended September 29, 2007 and for the period February 14, 2006 to September 30, 2006 show the financial position and results of operations and cash flows of the Successor Entity, Linens Holding Co. and Subsidiaries. The condensed consolidated financial statements for the period January 1, 2006 to February 13, 2006 show the results of operations and cash flows of Linens n Things, Inc. and Subsidiaries (the Predecessor or Predecessor Entity).
The accompanying condensed consolidated financial statements are unaudited. In the opinion of management, the accompanying condensed consolidated financial statements for the Successor Entity and Predecessor Entity include all normal and recurring adjustments that are considered necessary to present fairly the financial position and the results of operations and cash flows for the respective periods presented. As a result of the consummation of the Transactions, the condensed consolidated financial statements for the periods after February 13, 2006 are presented on a different basis than that for the periods before February 14, 2006 as a result of the application of purchase accounting as of February 14, 2006 and, therefore, are not comparable.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Because of the seasonality of the specialty retailing business, operating results of the Company on a quarterly or interim basis may not be indicative of operating results for the full year.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 30, 2006 included in the Companys 2006 Annual Report on Form 10-K available from the Securities and Exchange Commission (SEC) or through the Companys website at lnt.com posted on March 27, 2007 under SEC Filings. All significant intercompany accounts and transactions have been eliminated.
The accompanying condensed consolidated financial statements are those of Linens Holding Co. and its subsidiaries. The Company has not presented separate financial statements for Linens n Things, Inc. and its subsidiaries or Linens n Things Center, Inc. and its subsidiaries (collectively, the Issuers as described in Note 13) because management has determined that the differences in such financial statements are minor.
2. Share-based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123 (Revised 2004)), requiring the recognition of compensation cost for all equity classified awards granted, modified or settled after the effective date and for the unvested portion of awards outstanding as of the effective date using the fair-value measurement method. SFAS No. 123 (Revised 2004) revised SFAS No. 123, Accounting for Stock-Based Compensation, and superseded Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.
The Company recognizes the cost of all time-based employee stock options on a straight-line attribution basis and the cost of all performance-based employee stock options on an accelerated basis in accordance with Financial Accounting Standards Board Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans over their respective vesting periods, net of estimated forfeitures.
8
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
Share-based Compensation PlansPredecessor Entity
Prior to the completion of the Merger, the Predecessor granted stock options and restricted stock units for a fixed number of shares to employees and directors under share-based compensation plans, which are more fully described in Note 13 to the audited consolidated financial statements included in the Companys 2006 Annual Report on Form 10-K under Share-based Compensation PlansPredecessor Entity. The exercise prices of the stock options were equal to the fair market value of the underlying shares at the date of grant. Compensation expense for restricted stock awards was measured at fair value on the date of grant based on the number of shares granted and the quoted market price of the Predecessors common stock. Such value was recognized as an expense over the vesting period of the award adjusted for actual forfeitures.
Upon completion of the Merger and in accordance with the terms of the stock plans, all of the outstanding stock options became fully vested and immediately exercisable. Each option was valued at an amount equal to the excess of $28.00 over the underlying stock option exercise price, less applicable withholding taxes. Each restricted stock unit award was exercised at $28.00 in cash, without interest, less applicable withholding taxes.
There were no share-based grants during the period January 1, 2006 to February 13, 2006. The total intrinsic value of stock options and restricted stock units exercised due to the Merger was approximately $20.0 million and $4.4 million, respectively, for the period January 1, 2006 to February 13, 2006.
The total fair value of stock options and restricted stock units vested during the period from January 1, 2006 to February 13, 2006 was approximately $11.2 million and $4.0 million, respectively.
As of January 1, 2006, there was approximately $9.3 million and $3.2 million of total unrecognized compensation cost related to stock option grants and restricted stock unit awards, respectively, under the share-based compensation plans. The consummation of the Merger accelerated the recognition of compensation cost and, accordingly, all of this cost was included in selling, general and administrative expense in the condensed consolidated statements of operations for the period January 1, 2006 to February 13, 2006.
Share-based Compensation PlansSuccessor Entity
On February 14, 2006, the board of directors (the Board) and stockholders of Linens Holding Co. adopted the Linens Holding Co. Stock Option Plan (the Plan). The Plan provides employees or directors of the Company or its subsidiaries, who are in a position to contribute to the long-term success of these entities, with options to acquire shares in the Company to aid in attracting, retaining and motivating persons of outstanding ability. The Plan was amended in March 2006 to increase the number of shares of common stock, par value $0.01 per share, of Linens Holding Co. (the Common Stock) available for issuance under the Plan to 1,157,298 shares.
As of September 29, 2007, a total of 953,696 stock options were outstanding.
Stock options granted under the Plan to each optionee are equally divided between a Time Option and a Performance Option, as those terms are defined in the standard form of option grant letter. For each stock option granted the estimated fair market value of the underlying shares at the date of grant was less than or equal to the stock options exercise price of $50.00 per share, and expire seven years after the date of grant. Time Options become vested and exercisable in four equal installments on either (1) each of February 14, 2007, February 14, 2008, February 14, 2009, and February 14, 2010 with respect to options initially granted March 27, 2006 or (2) on each of the first four anniversaries of the date of grant for all other options. With respect to Performance Options and as provided for and defined in the standard form of grant letter, the stock options become vested and exercisable in two equal installments from a measurement date if, on such measurement date, the value per share equals or exceeds a target stock price.
9
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
The following is a summary of share-based option activity for the thirty-nine weeks ended September 29, 2007:
Successor Entity |
|
|||||||
Options |
|
Shares |
|
Weighted |
|
Weighted Term (years) |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2006 |
|
839,946 |
|
$ |
50.00 |
|
|
|
Options granted |
|
221,750 |
|
50.00 |
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
Canceled |
|
(108,000 |
) |
50.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 29, 2007 |
|
953,696 |
|
$ |
50.00 |
|
5.77 |
|
|
|
|
|
|
|
|
|
|
Exercisable at September 29, 2007 |
|
190,157 |
|
$ |
50.00 |
|
5.62 |
|
There are no provisions in the Plan for the issuance of restricted stock units.
The weighted-average grant date fair value of options granted during the thirty-nine weeks ended September 29, 2007 and the period February 14, 2006 to September 30, 2006 was $9.30 and $17.34, respectively.
There were no stock option exercises during the thirty-nine weeks ended September 29, 2007 and the period February 14, 2006 to September 30, 2006.
The following is a summary of the activity for nonvested stock option grants as of September 29, 2007 and the changes for the thirty-nine weeks then ended:
|
|
Successor Entity |
|
|||
|
|
Options |
|
Fair Value(1) |
|
|
Nonvested at December 30, 2006 |
|
736,946 |
|
$ |
17.41 |
|
Grants |
|
221,750 |
|
$ |
9.30 |
|
Vested |
|
(90,655 |
) |
$ |
16.59 |
|
Canceled |
|
(104,502 |
) |
$ |
16.91 |
|
|
|
|
|
|
|
|
Nonvested at September 29, 2007 |
|
763,539 |
|
$ |
15.22 |
|
(1) Represents the weighted-average grant date fair value per option, using the Monte Carlo simulation option-pricing model for Performance Options, and the Black-Scholes option-pricing model for Time Options.
The total fair value of stock options vested during the thirty-nine weeks ended September 29, 2007 and the period February 14, 2006 to September 30, 2006 was approximately $1.5 million and $1.6 million, respectively.
As of September 29, 2007, there was approximately $7.7 million of total unrecognized compensation cost related to stock option grants both under and outside the Plan. This cost is expected to be recognized over a remaining weighted-average period of 2.3 years. The compensation cost that has been charged against income for stock option grants was approximately $0.9 million and $1.0 million for the thirteen weeks ended September 29, 2007 and September 30, 2006, respectively. The compensation cost that has been charged against income for stock option grants was approximately $2.3 million and $3.4 million for the thirty-nine weeks ended September 29, 2007 and for the period February 14, 2006 to September 30, 2006, respectively. Such compensation cost is included in selling, general and administrative expenses in the condensed consolidated statements of operations.
10
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
Prior to the adoption of SFAS 123 (Revised 2004) the Company used the Black-Scholes option-pricing model for estimating the fair value for all options granted. Beginning in the first quarter of 2006, the Company used the Monte Carlo simulation option-pricing model for estimating the fair value of Performance Options and the Black-Scholes option-pricing model for Time Options. This change was made in order to provide a better estimate of fair value. The Monte Carlo option-pricing model is particularly useful in the valuation of options with complicated features that make them difficult to value through a straight-forward Black-Scholes-style computation.
Presented below is a comparative summary of valuation assumptions for grants issued in each of the indicated periods:
Valuation Assumptions: |
|
Thirteen Weeks Black-Scholes) |
|
Thirteen Weeks |
|
||
Weighted-average calculated value of options granted |
|
$ |
9.03 |
|
$ |
16.43 |
|
Expected volatility (1) |
|
N/A |
|
N/A |
|
||
Weighted-average volatility (1) |
|
30.6 |
% |
36.2 |
% |
||
Weighted-average expected term (in years) |
|
3.6 |
|
3.6 |
|
||
Dividend yield |
|
|
|
|
|
||
Risk-free interest rate |
|
4.2% - 5.1 |
% |
4.6% - 5.0 |
% |
||
Weighted-average risk-free interest rate |
|
4.6 |
% |
4.8 |
% |
||
Weighted average expected annual forfeiture |
|
1.2 |
% |
1.6 |
% |
||
Valuation Assumptions: |
|
Thirty-nine Weeks |
|
February 14, 2006 |
|
|
January 1, 2006 to |
|
||
Weighted-average calculated value of options granted |
|
$ |
9.30 |
|
$ |
17.34 |
|
|
No Grants |
|
Expected volatility (1) |
|
N/A |
|
N/A |
|
|
No Grants |
|
||
Weighted-average volatility (1) |
|
33.6 |
% |
37.9 |
% |
|
No Grants |
|
||
Weighted-average expected term (in years) |
|
3.4 |
|
3.7 |
|
|
No Grants |
|
||
Dividend yield |
|
|
|
|
|
|
No Grants |
|
||
Risk-free interest rate |
|
4.2% - 5.1 |
% |
4.6% - 5.2 |
% |
|
No Grants |
|
||
Weighted-average risk-free interest rate |
|
4.6 |
% |
4.8 |
% |
|
No Grants |
|
||
Weighted average expected annual forfeiture |
|
1.9 |
% |
3.8 |
% |
|
No Grants |
|
||
(1) The Company used the average of the historical volatility of each of the component companies included in the Standard & Poors Specialty Retail Index as a substitute for expected volatility.
It is not possible for the Company, whose stock is not publicly traded, to use Company-specific volatility in determining a reasonable estimate of fair value of options granted. Accordingly, the Company is required to use an alternative measurement method. Under the alternative measurement method, a nonpublic entity uses a calculated volatility, determined by applying the historical volatility of an appropriate index of public entities, as an input to the valuation models. The Company used the Standard & Poors Specialty Retail Index for a period approximating the expected term as this index most closely approximates the Companys applicable operating industry. Expected term of share options granted represents the period of time that the option grants are expected to be outstanding. The Company is not expected to pay dividends and, accordingly, the dividend yield is zero. The risk-free interest rate within the expected term was based on the U.S. Treasury yield curve in effect at the time of grant.
11
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
Share-based employee compensation expense included in net loss in the condensed consolidated statements of operations, net of related tax effects, is detailed as follows:
|
|
Successor Entity |
|
|
Predecessor |
|
|||||
(In thousands) |
|
Thirty-nine |
|
February 14, |
|
|
January 1, 2006 |
|
|||
Compensation expense: |
|
|
|
|
|
|
|
|
|||
Stock option grants |
|
$ |
2,330 |
|
$ |
3,363 |
|
|
$ |
9,305 |
|
Restricted stock units |
|
|
|
|
|
|
3,179 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
2,330 |
|
3,363 |
|
|
12,484 |
|
|||
|
|
|
|
|
|
|
|
|
|||
Benefit for income taxes: |
|
|
|
|
|
|
|
|
|||
Stock option grants |
|
(569 |
) |
(1,258 |
) |
|
(2,861 |
) |
|||
Restricted stock units |
|
|
|
|
|
|
(978 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
|
(569 |
) |
(1,258 |
) |
|
(3,839 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
Share-based employee compensation expense, net of related tax effects |
|
$ |
1,761 |
|
$ |
2,105 |
|
|
$ |
8,645 |
|
3. Comprehensive Loss
Comprehensive loss for the thirteen weeks ended September 29, 2007 and September 30, 2006 is as follows:
(In thousands) |
|
Thirteen Weeks |
|
Thirteen Weeks |
|
||
Net loss |
|
$ |
(79,929 |
) |
$ |
(27,375 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
||
Cumulative translation adjustments |
|
6,007 |
|
(127 |
) |
||
Unrealized loss on hedge arrangements(1) |
|
(22 |
) |
(898 |
) |
||
|
|
|
|
|
|
||
Comprehensive loss |
|
$ |
(73,944 |
) |
$ |
(28,400 |
) |
(1) On July 7, 2006 the Issuers entered into a zero cost interest rate collar agreement to hedge the cash flows associated with the LIBOR component of the interest rate on the Notes. On July 7, 2006 the Issuers also purchased a one-year forward-starting interest rate cap agreement which takes effect on January 15, 2008 (see Note 9 for disclosures regarding these derivatives).
12
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
Comprehensive loss for the thirty-nine weeks ended September 29, 2007, the period February 14, 2006 to September 30, 2006 and the period January 1, 2006 to February 13, 2006 is as follows:
|
|
Successor Entity |
|
|
Predecessor |
|
|||||
(In thousands) |
|
Thirty-nine |
|
February 14, |
|
|
January 1, |
|
|||
Net loss |
|
$ |
(180,089 |
) |
$ |
(84,074 |
) |
|
$ |
(47,904 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|||
Cumulative translation adjustments |
|
15,227 |
|
1,827 |
|
|
253 |
|
|||
Unrealized gain (loss) on hedge arrangements(1) |
|
27 |
|
(898 |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Comprehensive loss |
|
$ |
(164,835 |
) |
$ |
(83,145 |
) |
|
$ |
(47,651 |
) |
(1) On July 7, 2006 the Issuers entered into a zero cost interest rate collar agreement to hedge the cash flows associated with the LIBOR component of the interest rate on the Notes. On July 7, 2006 the Issuers also purchased a one-year forward-starting interest rate cap agreement which takes effect on January 15, 2008 (see Note 9 for disclosures regarding these derivatives).
4. Impairment of Property and Equipment
During the thirteen weeks ended September 29, 2007, the Company initiated a formal impairment analysis of both tangible and intangible long-term assets. Based on this analysis, the Company determined that the carrying value of certain property and equipment exceeded its related estimated future undiscounted cash flows. As a result, the Company reduced the carrying value of property and equipment to its fair value by approximately $16.8 million.
5. Identifiable Intangible Assets (Including Goodwill)
The acquisition of Linens n Things, Inc. was accounted for as a business combination using the purchase method of accounting, whereby the purchase price (including liabilities assumed) was allocated to the assets acquired based on their estimated fair market values at the date of acquisition. Independent third-party appraisers were engaged to assist management and perform valuations of certain of the tangible and intangible assets acquired. The excess of the total purchase price over the fair value of the Companys net assets was allocated to goodwill.
Goodwill
The following table presents an analysis of the change in goodwill for the thirty-nine weeks ended September 29, 2007:
(in thousands) |
|
Amount |
|
|
|
|
|
|
|
Balance at December 30, 2006 |
|
$ |
267,830 |
|
Pre-existing tax adjustments |
|
12,634 |
|
|
Pre-existing book adjustments |
|
(11,130 |
) |
|
Other foreign currency translation |
|
2,747 |
|
|
|
|
|
|
|
Balance at September 29, 2007 |
|
$ |
272,081 |
|
13
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
Identifiable Intangible Assets
The carrying amount and accumulated amortization of identifiable intangible assets consists of the following:
(in thousands) |
|
September 29, |
|
December 30, |
|
September 30, |
|
|||
|
|
|
|
|
|
|
|
|||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|||
Credit card customer relationships |
|
$ |
10,257 |
|
$ |
10,129 |
|
$ |
10,163 |
|
Customer list |
|
406 |
|
406 |
|
406 |
|
|||
Favorable leases |
|
23,941 |
|
23,852 |
|
27,373 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
34,604 |
|
34,387 |
|
37,942 |
|
|||
Less: accumulated amortization |
|
(12,709 |
) |
(7,031 |
) |
(5,269 |
) |
|||
|
|
|
|
|
|
|
|
|||
Total intangible assets subject to amortization |
|
21,895 |
|
27,356 |
|
32,673 |
|
|||
Total indefinite-lived trademarks |
|
122,688 |
|
122,688 |
|
122,688 |
|
|||
|
|
|
|
|
|
|
|
|||
Total identifiable intangible assets |
|
$ |
144,583 |
|
$ |
150,044 |
|
$ |
155,361 |
|
Customer list has an estimated life of 5 years, credit card customer relationships have an estimated life of 3 years and favorable leases have an average estimated life of 8 years. For the thirteen weeks ended September 29, 2007 and September 30, 2006 amortization expense of $1.9 million and $2.5 million, respectively, was recorded by the Company and is included in selling, general and administrative expenses in the condensed consolidated statements of operations. For the thirty-nine weeks ended September 29, 2007, the period February 14, 2006 to September 30, 2006 and the period January 1, 2006 to February 13, 2006, amortization expense of $5.6 million, $5.7 million and $0.02 million, respectively, was recorded by the Company.
The following is a summary table representing the remaining amortization of identifiable intangible assets, net, with definitive lives, by year (in thousands):
Fiscal Year |
|
Amortization |
|
|
2007 (September 30, 2007 to December 29, 2007) |
|
$ |
1,855 |
|
2008 |
|
6,538 |
|
|
2009 |
|
3,141 |
|
|
2010 |
|
2,416 |
|
|
2011 |
|
2,041 |
|
|
2012 and thereafter |
|
5,904 |
|
|
|
|
|
|
|
Total |
|
$ |
21,895 |
|
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities includes amounts due customers principally for gift card, customer rebate and sales return liabilities of $48.5 million, $55.3 million and $40.0 million as of September 29, 2007, December 30, 2006 and September 30, 2006, respectively. Income from gift cards that are not expected to be redeemed is recorded in other income, net in the condensed consolidated statements of operations. Such amounts recognized for the thirteen weeks ended September 29, 2007 and September 30, 2006 were approximately $1.1 million and $1.0 million, respectively. Such amounts recognized for the thirty-nine weeks ended September 29, 2007, the period February 14, 2006 to September 30, 2006 and the period January 1, 2006 to February 13, 2006 were approximately $2.7 million, $2.6 million and $0.5 million, respectively.
14
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
7. Senior Secured Notes, Asset-based Revolving Credit Facility and Other Long-Term Debt
Senior secured notes, asset-based revolving credit facility and other long-term debt consists of the following:
(in thousands) |
|
September 29, |
|
December 30, |
|
September 30, |
|
|||
|
|
|
|
|
|
|
|
|||
Senior secured floating rate notes due 2014 |
|
$ |
650,000 |
|
$ |
650,000 |
|
$ |
650,000 |
|
Asset-based revolving credit facility |
|
328,180 |
|
37,800 |
|
|
(1) |
|||
Mortgage note payable |
|
|
|
2,076 |
|
2,092 |
|
|||
|
|
|
|
|
|
|
|
|||
|
|
$ |
978,180 |
|
$ |
689,876 |
|
$ |
652,092 |
|
(1) $225,870 in borrowings outstanding under the asset-based revolving credit facility was classified as short-term borrowings as of September 30, 2006.
Senior Secured Floating Rate Notes Due 2014
Senior secured floating rate notes due 2014 consist of $650.0 million aggregate principal amount of Senior Secured Floating Rate Notes due 2014 of Linens n Things, Inc. and Linens n Things Center, Inc.
The Notes bear interest at a per annum rate equal to LIBOR plus 5.625%, which is to be paid every three months on January 15, April 15, July 15 and October 15. The interest rate on the Notes is reset quarterly. The Notes mature on January 15, 2014. As of September 29, 2007 the interest rate on the Notes was 11.0%, based on a LIBOR rate of 5.4%.
On July 7, 2006 the Issuers entered into a zero cost interest rate collar agreement to hedge the cash flows associated with the LIBOR component of the interest rate on the Notes. On July 7, 2006 the Issuers also purchased a one-year forward-starting interest rate cap agreement which takes effect on January 15, 2008 (see Note 9).
Deferred financing costs of approximately $31 million relating to the Notes are being amortized over eight years using the effective interest method.
The Notes are fully and unconditionally guaranteed jointly and severally on a senior basis by the Company and by certain of the Companys domestic subsidiaries other than the Issuers (collectively, the Note Guarantors), and are secured by first-priority liens on all of the Companys and Note Guarantors equipment, intellectual property rights and related general intangibles and the capital stock of the Issuers and certain subsidiaries and by second-priority liens on the Issuers and the Note Guarantors inventory, accounts receivable, cash, securities and other general intangibles. The lien on capital stock may be released under certain circumstances. As a result of the filing and effectiveness of a registration statement on Form S-4 with the SEC with respect to the Notes, the Issuers and the Note Guarantors became subject to applicable SEC rules with respect to information required to be included in the prospectus in the registration statement. To the extent that the securities of any Issuer or Note Guarantor constitute collateral for the Notes and the value of the securities equals or exceeds 20% of the principal amount, or $130.0 million of the Notes, separate financial statements of the Issuer or Note Guarantor would be required under these SEC rules to be included in the Companys SEC filings. The indenture that governs the Notes provides, however, with respect to any direct or indirect subsidiary of Linens n Things, Inc., that the securities of the subsidiary are released from the lien on capital stock on the date that the lien triggers this separate financial statement requirement. Accordingly, for any subsidiary with securities that equal or exceed the 20% threshold, the lien on the capital stock securing the Notes has been released with respect to those securities. The lien on the capital stock of Linens n Things, Inc. remains in place.
If the Issuers sell certain assets or experience specific kinds of changes in control, the Issuers must offer to repurchase the Notes. The Issuers may, at their option, redeem the Notes at any time on or after January 15, 2008 at pre-determined prices. Prior to January 15, 2008, the Issuers may, at their option, redeem up to 35% of the Notes with the proceeds of certain sales of its equity or of its subsidiaries. Prior to January 15, 2008, the Issuers may, at their option, redeem the Notes at a price equal to 100% of the principal amount of the Notes plus a make-whole premium.
15
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
Senior Secured Asset-based Revolving Credit Facility
In February 2006, the Company entered into a new senior secured asset-based revolving credit facility agreement (the Original Credit Facility) with third-party institutional lenders, which expires February 14, 2011. In May 2007, the Company entered into an amended and restated credit agreement (the Old Credit Facility). The provisions of the Old Credit Facility are substantially the same as in the Original Credit Facility with several modifications that are generally favorable to the Company. The provisions of the Old Credit Facility were modified for: (i) a $100.0 million increase in the Old Credit Facility maximum availability from $600.0 million to $700.0 million; (ii) a decrease in the Excess Availability threshold for purposes of mandatory compliance with certain financial ratio maintenance covenants from $75.0 million to $70.0 million; and (iii) several other modifications that are all favorable to the Company. A copy of the Old Credit Facility is attached as Exhibit 10.1 to Form 8-K filed with the SEC on May 29, 2007.
The Old Credit Facility provides senior secured financing of up to $700.0 million, subject to a borrowing base consisting of certain eligible inventory and receivables, minus certain reserves. A portion of the Old Credit Facility, not to exceed $40.0 million, is also available to a Canadian subsidiary of the Company subject to the Canadian borrowing base. The Company incurred deferred financing costs of approximately $17 million and $2 million related to the Original Credit Facility and the Old Credit Facility, respectively, which are being amortized over five years on a straight-line basis.
All obligations under the Old Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the Companys, the Issuers and the subsidiary guarantors assets, including: (1) a first-priority security interest in inventory, accounts receivable, cash, securities and other general intangibles; and (2) a second-priority security interest in equipment, intellectual property rights and related general intangibles and all of the capital stock of the Issuers and the capital stock of certain subsidiaries.
Borrowings under the Old Credit Facility bear interest at a rate equal to, at the borrowers option, either (a) an alternate base rate determined by reference to the higher of (1) the base rate in effect on such day and (2) the federal funds effective rate plus 0.50% or (b) a LIBOR rate, with respect to any Eurodollar borrowing, determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin. In addition to paying interest on outstanding principal under the Old Credit Facility, the Company is required to pay a variable rate commitment fee in respect of the unutilized commitments thereunder. The Old Credit Facility requires the Company to comply with financial ratio maintenance covenants if the excess availability under the Old Credit Facility, at any time, does not exceed $70.0 million and also contains certain restrictive covenants including the Companys ability to pay dividends and certain customary affirmative and negative covenants and events of default. During the thirty-nine weeks ended September 29, 2007, the Company always maintained excess availability above $70.0 million.
As of September 29, 2007, the Issuers had (i) $328.2 million in borrowings outstanding under the Old Credit Facility at an average interest rate of 6.9%; (ii) $12.1 million of cash on hand; (iii) $109.0 million of letters of credit outstanding issued under the Old Credit Facility, which includes standby letters of credit and import letters of credit used for merchandise purchases; and (iv) $238.5 million of excess availability under the Old Credit Facility.
In October 2007, the Company entered into a new senior secured asset-based revolving credit facility agreement (the New Credit Facility) with third-party institutional lenders, which expires October 24, 2012. The New Credit Facility replaced the Old Credit Facility described above (see Note 12).
Mortgage Note Payable
Mortgage note payable represented an 8.2% fixed-rate mortgage note on the land and building of one of the Companys closed stores. In July 2007 the land and building was sold and the mortgage was repaid.
16
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
8. Income Taxes (Including the Adoption of FIN No. 48)
Adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109
The Company is subject to tax in the United States and in various states and foreign jurisdictions. The Company, joined by its domestic subsidiaries, files a consolidated income tax return for Federal income tax purposes. With few exceptions, the Company is no longer subject to U.S. Federal, state and local income tax or non-U.S. income tax examinations by tax authorities for tax years before 2004. The Internal Revenue Service (IRS) commenced an examination of the Companys U.S. consolidated income tax returns for the years 2004 and 2005 and the period January 1, 2006 to February 13, 2006, inclusive, in the first quarter of 2007. Based on its work to date, the IRS has not proposed any adjustments to any of the Companys tax positions.
Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN No. 48), was issued in July 2006 and interprets FASB SFAS No. 109, Accounting for Income Taxes (SFAS No. 109). FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company, in its opening balance sheet for 2007, is required to reflect, as cumulative adjustments to the Companys retained earnings, the impact of FIN No. 48 on its income tax accruals for all prior years subject to adjustment by federal, state, local and foreign taxing authorities (open years). The Company has undertaken an analysis of all material tax positions in its tax accruals for all open years and has identified all of its outstanding tax positions and estimated the transition amounts with respect to each item at the effective date. The Company has determined that no adjustment to shareholders equity is required as a result of applying FIN No. 48. The Company expects no material change for the next twelve months as a result of adopting FIN No. 48. The Company will continue its policy of classifying interest on tax liabilities as part of the provision for income taxes. The Company does not anticipate any significant payments with respect to any tax assessments within the next twelve months.
The Company adopted the provisions of FIN No. 48 on December 31, 2006. As a result of the implementation of FIN No. 48, the Company recognized no change with respect to any unrealized tax benefits and therefore made no change to the December 31, 2006 opening retained earnings balance. A reconciliation of the beginning and ending amount of unrecognized tax benefits, including accrued interest and penalties, is as follows (in thousands):
|
|
Amount |
|
|
Beginning balance at December 31, 2006 (date of adoption) |
|
$ |
8,702 |
|
Additions for current year tax positions |
|
76 |
|
|
Additions for prior year tax positions |
|
4,821 |
|
|
Reductions for prior year tax positions |
|
|
|
|
Settlements |
|
|
|
|
Reductions due to a lapse of the applicable statute of limitations |
|
|
|
|
|
|
|
|
|
Ending balance at September 29, 2007 |
|
$ |
13,599 |
|
Included in the ending balance at September 29, 2007 are approximately $13.1 million of tax positions ($11.6 million net of tax benefits) for which the ultimate deductibility is highly certain but for which uncertainty exists as to the timing of such deductions.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as part of the provision for income taxes. At September 29, 2007 and December 31, 2006 (the date of adoption), accrued interest and penalties included in the FIN No. 48 reserve amounted to approximately $2.0 million and $0.9 million, respectively (net of tax benefits). The FIN No. 48 reserve is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. The Company recorded approximately $0.8 million and $1.2 million of interest and penalties during the thirteen weeks and thirty-nine weeks ended September 29, 2007, respectively, which is included in provision (benefit) for income taxes in the condensed consolidated statements of operations.
17
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
During the thirteen weeks ended September 29, 2007, the Company recorded income tax expense of approximately $0.7 million on a loss before taxes of $79.2 million at an effective income tax rate of 0.9%. A current quarter tax benefit on the loss before taxes was offset by a valuation allowance of $25.1 million which was recorded against United States net operating losses resulting in an effective income tax rate lower than the Federal statutory rate of 35%.
During the thirty-nine weeks ended September 29, 2007, the Company recorded an income tax benefit of approximately $58.1 million on a loss before taxes of $238.2 million at an effective tax benefit rate of 24.4%. The Federal statutory rate of 35.0% is higher than the effective tax benefit rate primarily due to the valuation allowance against United States net operating losses referred to in the immediately preceding paragraph and to different tax rules outside the United States.
In assessing the realizability of deferred tax assets included in the condensed consolidated balance sheets, management considers whether it is more likely than not that some portion or all of the tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In accordance with this policy and the requirements of SFAS No. 109, the valuation allowance of $25.1 million referred to above was recorded against United States net operating losses in the current quarter.
9. Derivative Financial Instruments
The Company accounts for derivative instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), as amended. In accordance with SFAS No. 133, the Company reports all derivative financial instruments on its balance sheet at fair value and has established criteria for designation and evaluation of effectiveness of transactions entered into for hedging purposes.
The Company employs derivative financial instruments to manage its exposure to interest rate changes and to limit the volatility and impact of interest rate changes on earnings and cash flows.
The Company does not enter into other derivative financial instruments for trading or speculative purposes. The Company faces credit risk if the counterparties to these transactions are unable to perform their obligations. However, the Company seeks to minimize this risk by entering into transactions with counterparties that are major financial institutions with high credit ratings.
The Company records unrealized gains and losses on derivative financial instruments qualifying as cash flow hedges in accumulated other comprehensive income (loss) on the condensed consolidated balance sheets, to the extent that hedges are effective. For derivative financial instruments which do not qualify as cash flow hedges, any changes in fair value would be recorded in the condensed consolidated statements of operations.
The Company may at its discretion terminate or de-designate any such hedging instrument agreements prior to maturity. At that time, any gains or losses previously reported in accumulated other comprehensive income (loss) on termination would amortize into interest expense or interest income to correspond to the recognition of interest expense or interest income on the hedged debt. If such debt instrument was also terminated, the gain or loss associated with the terminated derivative included in accumulated other comprehensive income (loss) at the time of termination of the debt would be recognized in the condensed consolidated statements of operations at that time.
On July 7, 2006 the Issuers entered into a zero cost interest rate collar agreement (the Collar Agreement) to hedge the cash flows associated with the LIBOR component of the interest rate on the Notes. The Collar Agreement provides for payments to be made to or received from the counterparty where the LIBOR component of the rate in effect for the Notes is below 4.45% or above 6.51% for a given reset period. Such payments represent the difference between the rates stated above in the Collar Agreement and those in effect on the Notes for the given reset period. Payment and reset dates under the Collar Agreement are matched exactly to those of the Notes. The Collar Agreement has an ultimate maturity of January 15, 2008. To the extent that the three-month LIBOR rate is below the Collar Agreement floor, payment is due from the Company to the counterparty for the difference. To the extent the three-month LIBOR rate is above the Collar Agreement cap, the Company is entitled to receive the difference from the counterparty. At the inception of the Collar Agreement, the Company determined that the hedging relationship would have no ineffectiveness, and the Company will continue to verify and document that the critical terms of the hedging instrument and the hedged item are exactly matched. At September 29, 2007, the notional amount of debt related to the Collar Agreement was $650.0 million and the fair value of the Collar Agreement was a de minimis liability.
18
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
On July 7, 2006 the Issuers also purchased a one-year forward-starting interest rate cap agreement (the Cap Agreement) which takes effect on January 15, 2008. The Cap Agreement provides for payments to be received from the counterparty where the LIBOR component of the rate in effect on a LIBOR-based borrowing arrangement is above 6.51% for a given reset period. Such payments represent the difference between the LIBOR rate stated above in the Cap Agreement and those in effect on a LIBOR-based borrowing arrangement for the given reset period. Payment and reset dates under the Cap Agreement are matched exactly to those of the LIBOR-based borrowing arrangement. The Cap Agreement has an ultimate maturity of January 15, 2009. The Issuers paid a premium of $0.7 million to purchase the Cap Agreement. The Cap Agreement consists of two components, a forward contract and an interest rate cap agreement. The Companys intent is to hedge the cash flow associated with the LIBOR component of the interest rate on a LIBOR-based borrowing arrangement beyond 6.51% for the period January 15, 2008 through January 15, 2009. The forward contract should enable the Company to achieve this objective. The Company will assess the effectiveness of the forward contract quarterly. Once the forward contract becomes an interest rate cap agreement, effectiveness will be assessed and documented as a new relationship. The interest rate cap agreement is expected to be perfectly effective at such time, and the Company will continue to subsequently verify and document that the critical terms of the interest rate cap agreement and the hedged item continue to match exactly over the remaining life of the relationship. At September 29, 2007, the notional amount of debt related to the Cap Agreement was $650.0 million and the fair value of the instrument was approximately a $0.02 million asset.
The Company has determined that the Collar Agreement and the Cap Agreement have been appropriately designated and documented as cash flow hedges under SFAS No. 133. As such, changes in the fair value of the Collar Agreement and the Cap Agreement have been recorded in accumulated other comprehensive income (loss) on the condensed consolidated balances sheets. During the thirteen weeks ended September 29, 2007 and September 30, 2006 the Company has recorded a loss of approximately $0.02 million and $0.9 million, respectively, in accumulated other comprehensive income (loss) related to these changes in fair value. During the thirty-nine weeks ended September 29, 2007 and the period February 14, 2006 to September 30, 2006 the Company has recorded a gain of approximately $0.03 million and a loss of approximately $0.9 million, respectively, in accumulated other comprehensive income (loss) related to these changes in fair value. The Collar Agreement and the Cap Agreement had no ineffectiveness and provided no amounts received or paid under the hedges that affected net loss during the period. Both agreements are expected to have no ineffectiveness during their contractual lives.
10. Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits, but does not require, companies to report at fair value the majority of recognized financial assets, financial liabilities and firm commitments. Under this standard, unrealized gains and losses on items for which the fair value option is elected are reported in earnings at each subsequent reporting date. The Company is currently assessing the effect SFAS No. 159 may have, if any, on its consolidated financial statements when it becomes effective as of the beginning of fiscal 2008.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS No. 158). SFAS No. 158 requires, among other items, recognition of the overfunded or underfunded status of an entitys defined benefit postretirement plan as an asset or liability, respectively, in the balance sheet, requires the measurement of defined benefit postretirement plan assets and obligations as of the end of the employers fiscal year, and requires recognition of changes in funded status of defined benefit postretirement plans in the year in which the changes occur in other comprehensive income. SFAS No. 158 is effective as of the end of the fiscal year ending after June 15, 2007 and early application is encouraged. The adoption of SFAS No. 158 is not expected to have a material effect on the Companys financial position or results of operations.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157) which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The Company is in the process of determining the effect, if any, that the adoption of SFAS No. 157 will have on its financial statements.
19
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB No. 108). SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 establishes an approach that requires quantification of financial statement errors based on the effects on each of the Companys financial statements and related financial statement disclosures. SAB No. 108 permits existing public companies to record the cumulative effect of initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. Additionally, the use of the cumulative effect transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose.
In June 2006, the FASBs Emerging Issues Task Force reached a consensus on Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation) (EITF 06-3). EITF 06-3 includes sales, use, value-added and some excise taxes that are assessed by a governmental authority on specific revenue-producing transactions between a seller and a customer. EITF 06-3 requires disclosure of the method of accounting for the applicable assessed taxes and the amount of assessed taxes included in revenues if such taxes are accounted for under the gross method. EITF 06-3 became effective for both interim and annual periods beginning in fiscal year 2007. EITF 06-3 did not impact the Companys method for recording these applicable assessed taxes because the Company has historically presented sales excluding such taxes, that is net presentation.
11. Related Party Transactions
Management Services Agreement
Upon consummation of the Merger, the Company entered into a management services agreement with Apollo Management V, L.P., NRDC Linens B LLC and Silver Point Capital Fund Investments LLC (each of whom is an affiliate of the Company). Under this management services agreement, the Sponsors agreed to provide to the Company certain investment banking, management, consulting, financial planning and real estate advisory services on an ongoing basis for a fee of $2.0 million per year. Under this management services agreement, Apollo Management V, L.P. also agreed to provide to the Company certain financial advisory and investment banking services from time to time in connection with major financial transactions that may be undertaken by it or its subsidiaries in exchange for fees customary for such services after taking into account Apollo Management V, L.P.s expertise and relationships within the business and financial community. Under this management services agreement, the Company also agreed to provide customary indemnification. In addition, the Company paid a transaction fee of $15.0 million in the aggregate (plus reimbursement of expenses) to the Sponsors for financial advisory services rendered in connection with the Merger. Thirty percent of this fee, or $4.5 million, was included as part of the purchase price and the remaining 70%, or $10.5 million, has been included in deferred financing costs. These services included assisting the Company in structuring the Merger, taking into account tax considerations and optimal access to financing, and assisting in the negotiation of the Companys material agreements and financing arrangements in connection with the Merger.
Stockholders Agreement
The only stockholders of the Company are Linens Investors, LLC, a limited liability company owned by the Sponsors, two executives of the Company, Robert J. DiNicola, Chairman and Chief Executive Officer, and F. David Coder, Executive Vice President, Store Operations, and one nonemployee director, George G. Golleher. Linens Investors, LLC has entered into a stockholders agreement with the Company, and each of the other stockholders have entered into joinder agreements to be bound by the stockholders agreement. The stockholders agreement sets forth certain provisions relating to the management of the Company. In addition, the stockholders agreement contains customary drag along rights, tag along rights, registration rights, restrictions on the transfer of the Companys common stock and an indemnity of the Sponsors.
20
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
12. Subsequent Event
In October 2007, the Company entered into a new senior secured asset-based revolving credit facility agreement with third-party institutional lenders, which expires October 24, 2012. The New Credit Facility replaced the Old Credit Facility, which is more fully described in Note 7.
The New Credit Facility extends $700.0 million of revolving credit facilities to the Company, comprised of (i) a $625.0 million Revolving Commitment and (ii) a $75.0 million Tranche B Commitment, both of which are subject to a borrowing base. A portion of the New Credit Facility, not to exceed $40.0 million, is also available to a Canadian subsidiary of the Company subject to the Canadian borrowing base. The borrowing base is a formula based on certain eligible inventory and receivables, minus certain reserves, and the New Credit Facility reflects increases in the Companys advance rates on this collateral, which will enhance the liquidity position of the Company in comparison to the Old Credit Facility. The New Credit Facility also eliminates all financial maintenance covenants. These changes will result in a material increase to the Companys aggregate borrowing base and excess availability as compared with the Old Credit Facility. As of September 29, 2007, if the New Credit Facility had been in effect at the end of the third quarter, the excess availability under the New Credit Facility on a pro forma basis would have been $255.5 million, which compares to $238.5 million under the Old Credit Facility. Insofar as the Old Credit Facility had a financial maintenance covenant (which as noted above has been eliminated in the New Credit Facility) that would have likely restricted the use of the last $70.0 million of availability, the effective increase in excess availability under the New Credit Facility would have been $87.0 million. Other terms and conditions in the New Credit Facility are similar to those under the Old Credit Facility.
All obligations under the New Credit Facility are unconditionally guaranteed by the Company and certain of its existing and future domestic subsidiaries. All obligations under the New Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of the borrowers, consisting of Linens n Things, Inc., Linens n Things Center, Inc. and Linens n Things Canada Corp. (collectively, the Borrowers), and the subsidiary guarantors, including: (i) a first-priority security interest in inventory, accounts receivable, cash, securities and other general intangibles; and (ii) a second-priority security interest in equipment, intellectual property rights and related general intangibles and all of the capital stock of Linens n Things, Inc. and the capital stock of certain subsidiaries.
Borrowings under the New Credit Facility bear interest at a rate equal to, at the Borrowers option, either (a) an alternate base rate determined by reference to the higher of (1) the base rate in effect on such day and (2) the federal funds effective rate plus 0.50% or (b) a LIBOR rate, with respect to any Eurodollar borrowing, determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin. The initial applicable margin for borrowings under the New Credit Facility is 0.25% with respect to alternate base rate borrowings and 1.50% with respect to LIBOR borrowings. The applicable margin with respect to Tranche B Loans (consisting of per annum rate margins) shall be 2.75% in the case of Eurodollar borrowings and, in the event the adjusted LIBOR rate is not available, 1.25% in the case of alternate base rate borrowings. The applicable margin for borrowings under the New Credit Facility will be subject to adjustment based on the excess availability under the New Credit Facility. In addition to paying interest on outstanding principal under the New Credit Facility, the Borrowers are required to pay a commitment fee, initially 0.375% per annum, in respect of the unutilized commitments thereunder and the commitment fee will be subject to adjustment based on the excess availability under the New Credit Facility. The New Credit Facility contains certain customary affirmative and negative covenants and events of default, but all financial maintenance covenants were eliminated. The Borrowers must also pay customary letter of credit fees and agency fees. The Borrowers initiated borrowings under the New Credit Facility on October 24, 2007 to meet operational working capital needs. A portion of the proceeds of the New Credit Facility was used to pay off the outstanding amounts under and terminate the Old Credit Facility which is more fully described in Note 7.
The New Credit Facility will require the Company to accelerate the writeoff of approximately $7.0 million of deferred financing costs related to the Old Credit Facility in the subsequent period.
A copy of the New Credit Facility is attached as Exhibit 10.1 to Form 8-K filed with the SEC on October 26, 2007.
13. Supplemental Condensed Consolidating Financial Information
On February 14, 2006 Linens n Things, Inc. and Linens n Things Center, Inc. (collectively, the Issuers) issued $650.0 million aggregate principal amount of Senior Secured Floating Rate Notes due 2014. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the Company, and by each of the Companys direct and indirect subsidiaries that guarantee the Companys asset-based revolving credit facility except for its Canadian subsidiaries. The Companys Canadian subsidiaries (the Non-Guarantors) are not guarantors of the Notes.
21
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, contd
The following tables present the supplemental condensed consolidating financial information for the Company (Parent), the Co-Issuers, the Guarantors (excluding the Company which is also a Guarantor but is separately presented) and the Non-Guarantors, together with eliminations, as of and for the periods indicated. The Company has not presented separate financial statements and other disclosures concerning the Co-Issuers, Guarantors and Non-Guarantors because management has determined that such information is not meaningful to investors. The accounting policies for Parent, Co-Issuers, Guarantors, and Non-Guarantors are the same as those more fully described in Note 2 to the audited consolidated financial statements included in the Companys 2006 Annual Report on Form 10-K under Summary of Significant Accounting Policies. The financial information may not necessarily be indicative of the financial position, results of operations or cash flows had the Parent, Co-Issuers, Guarantors and Non-Guarantors operated as independent entities.
The information (1) at September 29, 2007, December 30, 2006 and September 30, 2006 and (2) for the thirteen weeks ended September 29, 2007 and September 30, 2006, the thirty-nine weeks ended September 29, 2007 and the period February 14, 2006 to September 30, 2006, presents the financial position and results of operations and cash flows, respectively, of the Successor Entity. The information for the period January 1, 2006 to February 13, 2006 presents the results of operations and cash flows of the Predecessor Entity.
22
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Thirteen Week Period Ended September 29, 2007
(InThousands) (Unaudited)
|
|
Parent |
|
Co-Issuers |
|
Guarantors |
|
Non- |
|
Eliminations |
|
Consolidated |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales |
|
$ |
|
|
$ |
14,421 |
|
$ |
587,813 |
|
$ |
64,557 |
|
$ |
|
|
$ |
666,791 |
|
Cost of sales, including buying and distribution costs |
|
|
|
8,791 |
|
362,579 |
|
34,317 |
|
|
|
405,687 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross profit |
|
|
|
5,630 |
|
225,234 |
|
30,240 |
|
|
|
261,104 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling, general and administrative expenses |
|
|
|
5,589 |
|
269,094 |
|
26,244 |
|
|
|
300,927 |
|
||||||
Impairment of property and equipment |
|
|
|
|
|
16,779 |
|
|
|
|
|
16,779 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating profit (loss) |
|
|
|
41 |
|
(60,639 |
) |
3,996 |
|
|
|
(56,602 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
|
|
(3,586 |
) |
|
|
(74 |
) |
3,586 |
|
(74 |
) |
||||||
Interest expense |
|
|
|
|
|
27,437 |
|
346 |
|
(3,586 |
) |
24,197 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest (income) expense, net |
|
|
|
(3,586 |
) |
27,437 |
|
272 |
|
|
|
24,123 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other income, net |
|
|
|
(26 |
) |
(1,122 |
) |
(391 |
) |
|
|
(1,539 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) before income taxes |
|
|
|
3,653 |
|
(86,954 |
) |
4,115 |
|
|
|
(79,186 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Provision (benefit) for income taxes |
|
|
|
2,522 |
|
(3,201 |
) |
1,422 |
|
|
|
743 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income (loss) |
|
$ |
|
|
$ |
1,131 |
|
$ |
(83,753 |
) |
$ |
2,693 |
|
$ |
|
|
$ |
(79,929 |
) |
23
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Thirteen Week Period Ended September 30, 2006
(InThousands) (Unaudited)
|
|
Parent |
|
Co-Issuers |
|
Guarantors |
|
Non- Guarantors |
|
Eliminations |
|
Consolidated |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales |
|
$ |
|
|
$ |
16,195 |
|
$ |
590,722 |
|
$ |
51,238 |
|
$ |
|
|
$ |
658,155 |
|
Cost of sales, including buying and distribution costs |
|
|
|
9,396 |
|
353,872 |
|
25,311 |
|
|
|
388,579 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross profit |
|
|
|
6,799 |
|
236,850 |
|
25,927 |
|
|
|
269,576 |
|
||||||
Selling, general and administrative expenses |
|
|
|
5,377 |
|
262,126 |
|
19,926 |
|
|
|
287,429 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating profit (loss) |
|
|
|
1,422 |
|
(25,276 |
) |
6,001 |
|
|
|
(17,853 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
|
|
(26,754 |
) |
(34 |
) |
(15 |
) |
26,785 |
|
(18 |
) |
||||||
Interest expense |
|
|
|
23,273 |
|
26,732 |
|
352 |
|
(26,785 |
) |
23,572 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest (income) expense, net |
|
|
|
(3,481 |
) |
26,698 |
|
337 |
|
|
|
23,554 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other (income) expense, net |
|
|
|
(23 |
) |
299 |
|
47 |
|
|
|
323 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) before income taxes |
|
|
|
4,926 |
|
(52,273 |
) |
5,617 |
|
|
|
(41,730 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Provision (benefit) for income taxes |
|
|
|
1,736 |
|
(18,423 |
) |
2,332 |
|
|
|
(14,355 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income (loss) |
|
$ |
|
|
$ |
3,190 |
|
$ |
(33,850 |
) |
$ |
3,285 |
|
$ |
|
|
$ |
(27,375 |
) |
24
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
(Successor Entity)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Thirty-nine Week Period Ended September 29, 2007
(In Thousands) (Unaudited)
|
|
Parent |
|
Co-Issuers |
|
Guarantors |
|
Non- |
|
Eliminations |
|
Consolidated |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales |
|
$ |
|
|
$ |
42,232 |
|
$ |
1,629,141 |
|
$ |
160,549 |
|
$ |
|
|
$ |
1,831,922 |
|
Cost of sales, including buying and distribution costs |
|
|
|
25,311 |
|
1,002,190 |
|
82,916 |
|
|
|
1,110,417 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross profit |
|
|
|
16,921 |
|
626,951 |
|
77,633 |
|
|
|
721,505 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling, general and administrative expenses |
|
|
|
15,774 |
|
785,720 |
|
71,548 |
|
|
|
873,042 |
|
||||||
Impairment of property and equipment |
|
|
|
|
|
16,779 |
|
|
|
|
|
16,779 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating profit (loss) |
|
|
|
1,147 |
|
(175,548 |
) |
6,085 |
|
|
|
(168,316 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
|
|
(9 |
) |
(9 |
) |
(320 |
) |
|
|
(338 |
) |
||||||
Interest expense |
|
|
|
10,454 |
|
62,631 |
|
999 |
|
|
|
74,084 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense, net |
|
|
|
10,445 |
|
62,622 |
|
679 |
|
|
|
73,746 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other expense (income), net |
|
|
|
222 |
|
(2,394 |
) |
(1,665 |
) |
|
|
(3,837 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(Loss) income before income taxes |
|
|
|
(9,520 |
) |
(235,776 |
) |
7,071 |
|
|
|
(238,225 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(Benefit) provision for income taxes |
|
|
|
(2,377 |
) |
(58,029 |
) |
2,270 |
|
|
|
(58,136 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net (loss) income |
|
$ |
|
|
$ |
(7,143 |
) |
$ |
(177,747 |
) |
$ |
4,801 |
|
$ |
|
|
$ |
(180,089 |
) |
25
LINENS HOLDING CO. AND SUBSIDIARIES (AND PREDECESSOR)
(Successor Entity)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Period February 14, 2006 - September 30, 2006
(In Thousands) (Unaudited)
|
|
Parent |
|
Co-Issuers |
|
Guarantors |
|
Non- |
|
Eliminations |
|
Consolidated |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales |
|
$ |
|
|
$ |
40,129 |