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 November 2, 1996 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 02194 - ----------------------------------- --------- (Address of principal executive offices) (Zip Code) (617) 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 November 2, 1996 ----- ---------------------------------- Common 15,751,983 shares
DESIGNS, INC. CONSOLIDATED BALANCE SHEETS November 2, 1996, October 28, 1995 and February 3, 1996 (In thousands, except share data) (Unaudited) November 2, October 28, February 3, 1996 1995 1996 -------- -------- --------- ASSETS Current assets: Cash and cash equivalents $ 19,954 $ 18,367 $ 13,941 Short-term investments --- --- 5,978 Accounts receivable 838 970 473 Inventories 70,766 63,801 58,008 Deferred income taxes 922 1,579 922 Pre-opening costs, net 202 1,236 884 Prepaid expenses 5,142 1,092 3,968 ------ ----- ----- Total current assets 97,824 87,045 84,174 Property and equipment, net of accumulated depreciation and amortization 39,652 34,473 36,083 Other assets: Long-term investments 5,847 11,514 6,050 Deferred income taxes 2,720 1,542 2,698 Intangible assets 3,128 2,709 2,901 Other assets 586 757 743 ------ ------ ----- Total assets $ 149,757 $ 138,040 $ 132,649 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 17,476 $ 11,811 $ 8,185 Accrued expenses and other current liabilities 10,354 9,224 8,346 Accrued rent 2,737 3,058 2,586 Income taxes payable 1,789 2,484 ---- Current portion of long-term note 1,000 500 500 ----- ----- ---- Total current liabilities 33,356 27,077 19,617 Long-term note payable ---- 500 500 Minority interest (Note 2) 6,510 6,526 6,447 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, 15,752,000, 15,746,000 and 15,818,000 shares issued at November 2, 1996, October 28, 1995 and February 3, 1996 respectively 159 158 158 Additional paid-in capital 53,307 52,656 52,767 Retained earnings 57,201 51,123 53,160 Less treasury stock, 120,500 shares at cost (776) ---- ---- ------ ------ ------ Total stockholders' equity 109,891 103,937 106,085 ------- ------- ------- Total liabilities and stockholders' equity $ 149,757 $ 138,040 $ 132,649 ======= ======= ======= 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 ------------------ November 2, October 28, 1996 1995 -------- ------- Sales $ 84,958 $ 89,217 Cost of goods sold including occupancy 57,312 59,903 ------- ------ Gross profit 27,646 29,314 Expenses: Selling, general and administrative 17,025 18,453 Restructuring (income) - - Depreciation and amortization 2,704 2,347 ------ ------ Total expenses 19,729 20,800 ------ ------ Operating income 7,917 8,514 Interest expense 46 67 Interest income 325 393 ------ ------ Income before minority interest and income taxes 8,196 8,840 Less minority interest 248 289 ----- ----- Income before income taxes 7,948 8,551 Provision for income taxes 3,284 3,517 ----- ----- Net income $ 4,664 $ 5,034 ===== ===== Net income per common and common equivalent share $ 0.30 $ 0.32 Weighted average common and common equivalent shares outstanding 15,810 15,765 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) Nine Months Ended ----------------- November 2, October 28, 1996 1995 -------- ------- Sales $ 210,818 $ 213,546 Cost of goods sold including occupancy 146,450 148,159 ------- ------- Gross profit 64,368 65,387 Expenses: Selling, general and administrative 50,262 48,569 Restructuring (income) - (2,200) Depreciation and amortization 7,854 6,294 ------ ------ Total expenses 58,116 52,663 ------ ------ Operating income 6,252 12,724 Interest expense 134 154 Interest income 905 1,116 ----- ----- Income before minority interest and income taxes 7,023 13,686 Less minority interest 104 395 ----- ------ Income before income taxes 6,919 13,291 Provision for income taxes 2,846 5,469 ----- ------ Net income $ 4,073 $ 7,822 ===== ===== Net income per common and common equivalent share $ 0.26 $ 0.50 Weighted average common and common equivalent shares outstanding 15,814 15,760 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 ------------------- November 2, October 28, 1996 1995 -------- ------- Sales $ 298,346 $ 293,350 Cost of goods sold including occupancy 210,281 201,457 ------- ------- Gross profit 88,065 91,893 Expenses: Selling, general and administrative 68,682 62,675 Restructuring (income) - (5,400) Depreciation and amortization 10,312 8,109 ------ ------ Total expenses 78,994 65,384 ------ ------ Operating income 9,071 26,509 Interest expense 176 173 Interest income 1,380 1,535 ----- ----- Income before minority interest and income taxes 10,275 27,871 Less minority interest 134 395 ------ ------ Income before income taxes 10,141 27,476 Provision for income taxes 4,119 11,135 ------ ------ Net income 6,022 16,341 ====== ====== Net income per common and common equivalent share $ 0.38 $ 1.04 Weighted average common and common equivalent shares outstanding 15,803 15,755 The accompanying notes are an integral part of the consolidated financial statements.
DESIGNS, INC. STATEMENTS OF CASH FLOWS (In thousands-Unaudited) Nine Months Ended ----------------- November 2, October 28, 1996 1995 -------- -------- Cash flows from operating activities: Net income $ 4,073 $ 7,822 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 7,854 6,294 Deferred income taxes --- --- Minority interest 104 395 Loss on sale of investments 17 71 Loss from disposal of property and equipment 390 1,065 Changes in operating assets and liabilities: Accounts receivable (365) 3,253 Inventories (12,758) (8,131) Prepaid expenses (1,173) (121) Income taxes payable 1,789 2,484 Accounts payable 9,291 (1,399) Accrued expenses and other current liabilities 2,464 3,280 Accrued rent 151 (4,632) ------ ------ Net cash provided by operating activities 11,837 10,381 ------ ------ Cash flows from investing activities: Additions to property and equipment (11,163) (13,786) Incurrence of pre-opening cost (265) (1,508) Proceeds from disposal of property and equipment 61 170 Sale and maturity of investments 6,126 4,852 Reduction (increase) in other assets 171 (157) ------ ------ Net cash used for investing activities (5,070) (10,429) ------ ------- Cash flows from financing activities: Payment for aquisition of a business --- (5,428) Proceeds from minority shareholder --- 1,560 Distribution to minority shareholder --- (178) Purchase of treasury stock (776) --- Issuance of common stock under option program (1) 22 37 ------ ------- Net cash used in financing activities (754) (4,009) ------ ------- Net increase (decrease) in cash and cash equivalents 6,013 (4,057) Cash and cash equivalents: Beginning of the year 13,941 22,424 ------ ------ End of the quarter $ 19,954 $ 18,367 ====== ====== Supplementary Cash Flow Disclosure Cash paid, net: Interest $ 84 $ 70 Taxes 940 3,139 (1) Including tax benefit 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) necessary for a fair presentation of the interim consolidated 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 fiscal year ended February 3, 1996. 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 fiscal year. 2. Minority Interest On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the Company, entered into a partnership agreement with LDJV Inc. (the "Partnership Agreement") establishing a joint venture to sell Levi's(R) brand products and jeans-related products in Original Levi's(R) Stores(TM) and Levi's(R) Outlet stores. LDJV Inc. is a wholly-owned subsidiary of Levi's Only Stores, Inc., which is a wholly-owned subsidiary of Levi Strauss & Co. The partnership established pursuant to 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, nine and twelve months ended November 2, 1996. Minority interest at November 2, 1996 represents LDJV Inc.'s 30% interest in the OLS Partnership. In accordance with the Partnership Agreement, the OLS Partnership distributed $110,000 and $592,000 to its partners for the nine months ended November 2, 1996 and October 28, 1995, respectively. This cash distribution represented funds sufficient to pay taxes associated with the earnings of the OLS Partnership for the nine month periods ended. During the third quarter of fiscal 1995, the partners made additional capital contributions of cash totaling $5.2 million to the Partnership. There have been no capital contributions made during fiscal year 1996. 3. Restructuring In fiscal 1993, the Company recorded a non-recurring pre-tax charge of $15.0 million which covered the costs associated with the closing of 15 of its poorest performing Designs stores. The costs to close these 15 stores totaled $9.6 million, comprised of $6.1 million of cash and $3.5 million of noncash costs. Total costs of $9.6 million to close the 15 stores were less than the original pre-tax estimate, primarily due to favorable negotiations with landlords. A portion of the remaining reserve of $5.4 million was recognized in the fourth quarter of fiscal 1994 and the remaining portion was recognized in the first quarter of fiscal 1995 as non-recurring pre-tax income. 4. 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 non-negotiable promissory note in the principal amount of $1 million payable in two equal annual installments through May 1997 (the "Purchase Note"). 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 to offset against the payment of principal and interest due and payable under the Purchase Note. Accordingly, the Company did not make the $500,000 payment of principal on the Purchase Note that was due on May 2, 1996. The Company has paid all interest due through November 2, 1996 in accordance with the terms of the Purchase Note. 5. Credit Facility On July 24, 1996, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with BayBank, N.A. and State Street Bank and Trust Company under which the banks established a credit facility for the Company. This credit facility, which terminates on June 30, 1999, consists of: (i) a revolving line of credit permitting the Company to borrow up to $15 million, and (ii) a commercial and trade letters of credit facility under which letters of credit, in aggregate amounts up to $45 million, may be issued for the Company's inventory purchases. Under the revolving line of credit portion of the facility, the Company has the ability to issue standby letters of credit up to a total of $750,000. Loans made under this portion of the facility bear interest, subject to adjustment, at BayBank, N.A.'s prime rate or LIBOR-based fixed rate. The Company may increase the letters of credit portion of the facility in increments of $15 million up to a total of $45 million. The terms of the Credit Agreement require the Company to maintain specific net worth, inventory turnover and cash flow ratios. At November 2, 1996, the Company had outstanding letters of credit totaling approximately $7.1 million. 6. Joint Venture Credit Agreement During the third quarter of fiscal 1996 the Company entered into a 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 the amounts of up to $3.5 million and $1.5 million, respectively. This credit facility bears interest at BayBank, N.A.'s prime rate and terminates on September 30, 1997, unless terminated earlier pursuant to other provisions of the OLS Credit Agreement. This Agreement provides that there will be no unpaid credit advances outstanding on the last day of the fiscal year. There were no credit advances outstanding under this facility as of November 2, 1996. 7. Stock Repurchase During the third quarter of fiscal 1995, the Company announced that its Board of Directors authorized the repurchase of up to 2 million shares of the Company's common stock. During the fiscal year 1996, the Company has repurchased and, as of November 2, 1996, held in treasury 120,500 shares at a cost of $776,000. During fiscal year 1994, the Company repurchased and retired 260,000 shares at a cost of $2,050,000. These shares were accounted for as a reduction in common stock and additional paid in capital.
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Sales for the third quarter of fiscal 1996 decreased 5 percent to $84.9 million from $89.2 million in the third quarter of fiscal 1995. Sales for the nine month and rolling twelve month periods ended November 2, 1996 decreased 1 percent and increased 2 percent as compared with the same periods in the prior year. Comparable store sales decreased 4 percent for the third quarter of fiscal 1996 and 6 percent for the year to date period. Comparable stores are retail locations that are open at least 13 months. Of the 150 stores that the Company operated as of November 2, 1996, 138 were comparable stores. Gross margin rate, including the costs of occupancy, for the third quarter of fiscal 1996 equaled 32.5 percent of sales, compared with 32.9 percent of sales for the third quarter in the prior year. The decrease was primarily attributable to the deleveraging of occupancy expense on a lower sales base, partially offset by an improved merchandise margin. For the nine months, gross margin rate remained relatively unchanged at 30.5 percent of sales and 30.6 percent of sales for the periods ending November 2, 1996 and October 28, 1995, respectively. For the rolling twelve month periods, gross margin decreased to 29.5 percent of sales as compared to 31.3 percent of sales in the prior period primarily due to increased occupancy costs as a percentage of sales. Selling, general and administrative expenses for the third quarter equaled 20.0 percent of sales, compared with 20.7 percent in the prior year. Continued management of expenses such as store payroll, advertising and store supplies contributed to this improvement in selling, general and administrative expenses as a percentage of sales, which partially offset costs associated with the development of the Boston Traders(R) brand product line. Selling, general and administrative expenses for the nine month and rolling twelve month periods equaled 23.8 percent and 23.0 percent of sales, respectively, compared to 22.7 percent and 21.4 percent of sales for comparable periods in the prior year. The increase is attributable to the acquisition and development of the Boston Traders(R) brand. In fiscal 1993, the Company recorded a non-recurring pre-tax charge of $15.0 million which covered the costs associated with the closing of 15 of its poorest performing Designs stores. Total costs of $9.6 million, comprised of $6.1 million of cash and $3.5 million of noncash costs, to close the 15 stores were less than the original pre-tax estimate, primarily due to favorable negotiations with landlords. A portion of the remaining reserve of $5.4 million was recognized in the first quarter of fiscal 1995 and the remaining portion was recognized in the fourth quarter of fiscal 1994 as non-recurring pre-tax income. Depreciation and amortization expense of $2.7 million, $7.8 million and $10.3 million for the three, nine and twelve month periods increased by 15.2 percent, 24.8 percent and 27.2 percent, respectively, as compared to the same periods in the prior year. Depreciation and amortization expense reflected the capital expenditures associated with new store openings, the Company's new corporate offices, the upgrade of information and technology systems hardware and merchandising management software. Interest expense was $46,000 and $67,000 in the third quarters of fiscal 1996 and fiscal 1995, respectively. This reduction was attributable to the decrease in the average borrowing balance. For the nine month year to date period interest expense decreased to $134,000 from $154,000 in the prior period. On a rolling 12 month basis, interest expense increased to $176,000 as compared to $173,000 in the prior period. The increase is attributable to interest payments made in connection with the non-negotiable promissory note issued in conjunction with the acquisition of certain assets of Boston Trading, Ltd., Inc. in May 1995. There were no borrowings under the Company's revolving credit facility during the first nine months of fiscal 1996. Interest income for the third quarter was $325,000 compared to $393,000 in the third quarter of fiscal year 1995. The decrease in interest income is attributable to lower investment balances compared to the prior year. For the nine month and rolling twelve month periods interest income of $905,000 and $1.4 million decreased compared with $1.2 and $1.5 million, respectively, for the same periods last year. This decrease was due to lower average investment balances as compared to the prior year. Net income for the third quarter of fiscal year 1996 was $4.7 million or $0.30 per share, compared with net income of $5.0 million, or $0.32 per share, for the third quarter in the prior fiscal year. For the nine month period ended November 2, 1996, the Company reported net income of $4.1 million, or $0.26 per share compared with $7.8 million, or $0.50 per share, for the corresponding period in the prior year. The results for the nine months ended October 28, 1995 included the recognition of $2.2 million, or $0.08 per share, of nonrecurring pretax income related to the fiscal 1993 restructuring program as more fully described above. Net income, on a rolling 12 month basis, was $6.0 million, or $0.38 per share, as compared with $16 million, or $1.04 per share in the prior comparable period. Net income for the rolling twelve month period ended October 28, 1995 included the impact of restructuring income of $5.4 million or $0.20 per share. 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. LIQUIDITY AND CAPITAL RESOURCES The following discussion of the Company's liquidity, capital resources and capital expansion plans 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. Actual results and strategic directions may differ from those estimates and assumptions. The Company encourages readers of this information to refer to the Company's Current Report on Form 8-K, previously filed with the United States Securities and Exchange Commission on April 30, 1996, which identifies certain risks and uncertainties that may impact the future earnings and direction of the Company. The Company's primary cash needs are for operating expenses, including cash outlays associated with the development of the Boston Traders(R) branded product line, seasonal inventory purchases and capital expenses for information technology, new and remodeled stores and acquisitions. WORKING CAPITAL AND CASH FLOWS To date, the Company has financed its working capital requirements and expansion program with cash flow from operations, borrowings and proceeds from common stock offerings. Cash provided by operations for the first nine months of fiscal 1996 was $11.4 million as compared to cash provided for operations of $10.4 million for the comparable nine month period in the prior fiscal year. The Company's working capital at November 2, 1996 was approximately $64.5 million compared to approximately $60.0 million on October 28, 1995. This increase primarily was attributable to the maturity of certain long-term investments. At November 2, 1996 total inventories were $70.8 million, an increase of $7.0 million from the prior year. This increase is primarily due to increased availability of merchandise for the Company's Levi's(R) Outlet by Designs stores and new OLS Partnership Levi's(R) Outlet stores, offset partially by a reduction in inventory due to closed stores as well as continued efforts by the Company to manage inventory levels. The Company's trade payables to Levi Strauss & Co., its principal vendor, generally are due 30 days after the date of invoice. Variations in the amount of trade payables outstanding at the end of different periods relate to the timing of purchases. In the second quarter of fiscal 1995, the Company began sourcing its own merchandise with various off-shore and domestic vendors. To date, the Company makes payments to these vendors through the issuance of letters of credit, which require payment upon shipment of merchandise. The Company anticipates that the use of this payment method will be proportionate to its Boston Traders(R) product purchases. On July 24, 1996, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with BayBank, N.A. and State Street Bank and Trust Company under which the banks established a credit facility for the Company. This credit facility, which terminates on June 30, 1999, consists of: (i) a revolving line of credit permitting the Company to borrow up to $15 million, and (ii) a commercial and trade letters of credit facility under which letters of credit, in aggregate amounts up to $45 million, may be issued for the Company's inventory purchases. Under the revolving line of credit portion of the facility, the Company has the ability to issue standby letters of credit up to a total of $750,000. Loans made under this portion of the facility bear interest, subject to adjustment, at BayBank, N.A.'s prime rate or LIBOR-based fixed rate. The Company may increase the letters of credit portion of the facility in increments of $15 million up to a total of $45 million. The terms of the Credit Agreement require the Company to maintain specific net worth, inventory turnover and cash flow ratios. At November 2, 1996, the Company had outstanding letters of credit totaling approximately $7.1 million. During the third quarter of fiscal 1996 the Company entered into a Credit Agreement (the "OLS Credit Agreement") with the OLS Partnership (as defined below) 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 (as defined below) in the amounts of up to $3.5 million and $1.5 million, respectively. This credit facility bears interest at BayBank, N.A.'s prime rate and terminates on September 30, 1997 unless terminated earlier pursuant to other provisions of the OLS Credit Agreement. This Agreement provides that there will be no unpaid credit advances outstanding on the last day of the fiscal year. There were no credit advances outstanding under this facility as of November 2, 1996. During the third quarter of fiscal 1995, the Company announced that its Board of Directors authorized the repurchase of up to 2 million shares of the Company's common stock. During fiscal year 1996, the Company has repurchased and, as of November 2, 1996, held in treasury 120,500 shares at a cost of $776,000. During fiscal year 1994, the Company repurchased and retired 260,000 shares at a total cost of $2,050,000. These shares were accounted for as a reduction in common stock and additional paid in capital. 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 products 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 the other partner's interest or sell its own interest, in the joint venture after five years. The OLS Partnership may open up to thirty-five to fifty Original Levi's(R) Stores(TM) and Levi's(R) Outlet stores throughout eleven Northeast states and the District of Columbia through the end of fiscal 1999. At the end of the third quarter of fiscal 1996 the Partnership owned and operated eleven Original Levi's(R) Stores(TM) and ten Levi's(R) Outlet stores. It is the intention of the partners in the joint venture that the OLS Partnership's working capital and funds for its future expansion will come from its operations, capital contributions, loans from the partners and borrowings from third parties. During the third quarter of fiscal 1995, the partners made cash capital contributions totaling $5.2 million to the OLS Partnership. In June 1994, Levi Strauss & Co. advised the Company that it did not see any additional growth in the Levi's(R) Outlet by Designs store format, other than new outlet stores that might be opened by the OLS Partnership. As such, the Company does not currently plan to open any Levi's(R) Outlet by Designs stores during the remainder of fiscal 1996. In addition, the OLS Partnership has opened and is expected to open its own Levi's(R) Outlet stores, which may impact the availability of goods to the Company's Levi's(R) Outlet by Designs stores. CAPITAL EXPENDITURES In the second quarter of fiscal 1995, the Company acquired certain assets of Boston Trading Ltd., Inc. This acquisition was completed so that the Company would own the Boston Traders(R) brand name, certain Boston Traders(R) outlet store assets, various trademark licenses and inventory. The Company currently plans to use the Boston Traders(R) brand to transition from being a single vendor retailer to a vertically integrated retailer featuring the Boston Traders(R) brand and select Levi Strauss & Co. brands. Barring unforeseen circumstances, the Company plans to open five new Boston Trading Co.(SM) stores in the first quarter of 1997, which will predominantly feature Boston Traders(R) brand product. During the first nine months of fiscal 1996, the Company remodeled seven Levi's(R) Outlet by Designs stores and one Boston Traders(R) outlet store. Total cash outlays of $11.1 million and $13.8 million during the first nine months of the fiscal year 1996 and 1995 respectively, represent the costs of new and remodeled stores, relocation of the Company's corporate offices, as well as other corporate capital spending during the periods. The Company continually evaluates discretionary investments in new projects that may complement its existing business. Further, as leases expire, the Company continues to evaluate the performance of its existing stores. As a result of this process, certain store locations could be closed or relocated within a shopping center in the future. The Company expects that cash flow from operations, short-term borrowings and available cash will enable it to finance its current working capital, remodeling and expansion requirements during the remainder of fiscal 1996.
Part II. Other Information ITEM 1. Legal proceedings The Company is a party to 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 6. Exhibits and Reports on Form 8-K A. Reports on Form 8-K: The Company reported under item 5 on Form 8-K, dated August 7, 1996, that on July 24, 1996 the Company entered into an Amended and Restated Credit Agreement among the Company, BayBank, N.A. and State Street Bank and Trust Company. The Company reported under item 5 on Form 8-K, dated October 11, 1996, that the timing and price of additional repurchases of shares of common stock, under the Company's stock repurchase program adopted in October 1994, will be determined in the discretion of management of the Company based upon market conditions and the price of such shares. B. Exhibits: 3.1 Restated Certificate of Incorporation of the Company, as amended (included as Exhibit 3.1 to Amendment No. 3 to 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). * 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 A to the Company's definitive proxy statement dated May 10, 1994, and incorporated herein by reference). * 10.4 Senior Executive Incentive Plan effective for the fiscal year ending 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 Amended and Restated Credit Agreement among the Company, BayBank, N.A., and State Street Bank and Trust Company dated as of July 24, 1996 (included as Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 7, 1996, and incorporated herein by reference). * 10.7 Consulting Agreement between the Company and Stanley I. Berger dated December 21, 1994 (included as Exhibit 10.7 to the Company's Annual Report on Form 10-K dated April 28, 1995, and incorporated herein by reference). * 10.8 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). * 10.9 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). * 10.10 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). * 10.11 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). * 10.12 Sublicense Agreement between the LOS Partner and the 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). * 10.13 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). * 10.14 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). * 10.15 Credit Agreement among the Company, LOS and the OLS Partnership dated as of October 1, 1996. 10.16 Asset Purchase Agreement between LOS and the Company relating to the 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). * 10.17 Asset Purchase Agreement between LOS and the Company relating to the store located in Cambridge, Massachusetts dated January 28, 1995 (included as Exhibit 10.10 to the Company's Current Report on Form 8-K dated April 24, 1995, and incorporated herein by reference). * 10.18 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). * 10.19 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). * 10.20 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). * 10.21 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). * 10.22 Employment Agreement dated as of October 16, 1995 between the Company and Mark S. Lisnow (included as Exhibit 10.3 to the Company's Current Report on Form 8-K dated December 6, 1995, and incorporated herein by reference). * 10.23 Employee Separation Agreement dated as August 7, 1996 between the Company and William D. Richins (included as Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q dated September 17, 1996, and incorporated herein by reference). * 11. Schedule of Earnings Per Share 27. Financial Data Schedule 99. Report of the Company dated April 30, 1996 concerning certain cautionary statements of the Company to be taken into account in conjunction with the 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 Current Report on Form 8-K dated April 30, 1996, 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. By: /s/ Carolyn R. Faulkner ----------------------- Carolyn R. Faulkner, Chief Financial Officer Dated: December 17, 1996