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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1996 (FISCAL 1995) 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
incorporation of principal executive offices) Identification No.)
66 B STREET, NEEDHAM, MA 02194
(Address of principal executive offices) (Zip Code)
(617) 444-7222
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
-----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
- -
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the last sales price of such stock on
April 19, 1996 was $100 million.
The registrant has 15,861,282 shares of Common Stock, $0.01 par value
outstanding as of April 19, 1996.
continued
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DOCUMENTS INCORPORATED BY REFERENCE
FORM 10-K REQUIREMENT INCORPORATED DOCUMENT
- --------------------- ---------------------
PART II
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Item 5 Market for Registrant's Page 38 of the Annual Report to Common
Equity and Related Shareholders for the year ended
Shareholder Matters February 3, 1996.
Item 6 Selected Financial Data Page 16 of the Annual Report to
Shareholders for the year ended
February 3, 1996.
Item 7 Management's Discussion and Pages 17 through 21 of the Annual
Analysis of Financial Report to Shareholders for the year
Condition and Results of ended February 3, 1996.
Operations
Item 8 Financial Statements and Pages 22 through 34 of the Annual
Supplementary Data Report to Shareholders for the year
ended February 3, 1996.
PART III
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Item 10 Directors and Executive All information under the caption
Officers "Nominees for Director and Executive
Officers" in the Company's definitive
Proxy Statement which is expected to be
filed within 120 days of the end of the
fiscal year ended February 3, 1996.
Item 11 Executive Compensation All information under the caption
"Executive Compensation" in the
Company's definitive Proxy Statement
which is expected to be filed within
120 days of the end of the fiscal
year ended February 3, 1996.
Item 12 Security Ownership of All information under the caption
Certain Beneficial Owners "Security Ownership of Certain
Beneficial Owners and Management"
in the Company's definitive Proxy
Statement which is expected to be
filed within 120 days of the end of the
fiscal year ended February 3, 1996.
Item 13 Certain Relationships and All information under the caption
Related Transactions "Certain Relationships and Related
Transactions" in the Company's
definitive Proxy Statement which is
expected to be filed within 120 days of
the end of the fiscal year ended
February 3, 1996.
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DESIGNS, INC.
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INDEX TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED FEBRUARY 3, 1996
PART I Page
Item 1. Business...................................................... 4
Item 2. Properties.................................................... 13
Item 3. Legal Proceedings............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders........... 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters........................................... 15
Item 6. Selected Financial Data....................................... 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 15
Item 8. Financial Statements and Supplementary Data................... 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 15
The information called for by Items 5, 6, 7 and 8, to the extent
not included in this document, is incorporated herein by
reference to the Company's Annual Report to Shareholders for the
year ended February 3, 1996.
PART III
Item 10. Directors and Executive Officers of the Registrant............ 16
Item 11. Executive Compensation........................................ 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................ 16
Item 13. Certain Relationships and Related Transactions............... 16
The information called for by Items 10, 11, 12 and 13, to the
extent not included in this document, is incorporated herein by
reference to the Company's definitive proxy statement which is
expected to be filed on or about May 6, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................ 17
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PART I.
ITEM 1. Business
Summary
Designs, Inc. (the "Company") is a specialty retailer in the United States
of quality branded apparel and accessories. The Company markets a broad
selection of Levi Strauss & Co. products in the Eastern United States through
mall-based first quality stores under the names Designs and Designs exclusively
Levi's[Registered Trademark] stores and outlet stores under the name
Levi's[Registered Trademark] Outlet by Designs. A subsidiary of the Company also
owns a 70% interest in a partnership that operates, as part of a joint venture
with a subsidiary of Levi's Only Stores, Inc. ("LOS"), a subsidiary of Levi
Strauss & Co., stores under the name The Original Levi's[Registered Trademark]
Store and outlet stores under the name of Levi's[Registered Trademark] Outlet
featuring men's and women's Levi Strauss & Co. products.
The Company makes extensive use of Levi Strauss & Co. brand names,
trademarks and trade names in its advertising, signs and store displays, and
uses the broad recognition of the Levi Strauss & Co. brand name to generate
sales.
Designs stores, Original Levi's[Registered Trademark] Stores and
Levi's[Registered Trademark] Outlet stores are merchandised to capitalize on the
strength of the Levi's[Registered Trademark] and Dockers[Registered Trademark]
brand names, and in-store displays reflect the image, attractiveness and
quality of Levi Strauss & Co. merchandise. Management believes that the
Levi's[Registered Trademark] and Dockers[Registered Trademark] names are two of
the most recognized apparel brand names in the United States and that the
Levi's[Registered Trademark] brand name is among the most recognized brand
names in the world.
In May 1995, the Company acquired the Boston Traders[Registered Trademark]
brand, 33 Boston Traders[Registered Trademark] outlet stores and certain other
assets from Boston Trading Ltd., Inc. ("Boston Trading"). The Company currently
plans to use the Boston Traders[Registered Trademark] brand as the vehicle with
which it will transition from being a single vendor retailer to a vertically
integrated retailer featuring the Boston Traders[Registered Trademark] brand
and select Levi Strauss and Co. brands.
The Company has established a product development and sourcing group
which will work towards developing Boston Traders[Registered Trademark] brand
product lines to complement the Levi Strauss & Co. brands. The Company expects
that the new line designed by this team will be in all Designs stores in
September 1996. This group is also focusing on enhancing the Boston
Traders[Registered Trademark] brand product offering, packaging, labeling,
logos and other brand enhancements for presentation in Spring 1997. The
Company's store design and construction team is working closely with the brand
team to test complementary fixtures, visual presentation formats and,
ultimately, a unique store environment designed to optimize customer acceptance
of, and to bring a new focus to, the Boston Traders[Registered Trademark]
brand and product lines.
Store Formats
Designs stores are located in enclosed regional shopping malls and offer a
broad selection of first quality Levi Strauss & Co. merchandise.
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During fiscal 1994, the Company expanded its brand offering with the
Timberland[Registered Trademark] brand in its Designs stores, as part of a
strategy to offer a broader merchandise selection to customers and increase the
proportion of non-Levi's[Registered Trademark] products offered in its stores.
During fiscal 1995, the Designs stores first offered a small selection of the
Boston Traders[Registered Trademark] brand merchandise which was purchased as
part of the acquisition; however, the Company does not expect the presentation
of the Boston Traders[Registered Trademark] brand product lines to be
significant until September 1996. The Boston Traders[Registered Trademark]
outlet stores, which are located in outlet parks throughout the United States,
will mostly feature end-of-season and close-out Boston Traders[Registered
Trademark] brand product lines from the Designs stores.
Levi's[Registered Trademark] Outlet by Designs stores are located in
manufacturers outlet parks and destination shopping centers. These outlet stores
sell manufacturing overruns, discontinued lines and irregulars purchased by the
Company directly from Levi Strauss & Co. and its licensees, as well as
end-of-season Levi's[Registered Trademark] and Dockers[Registered Trademark]
brand merchandise transferred from Designs stores. Levi's[Registered Trademark]
Outlet by Designs stores have capitalized on the rapid expansion of outlet
shopping areas specializing in "value" retailing. To date, each
Levi's[Registered Trademark] Outlet store is the only outlet in its shopping
area selling exclusively Levi Strauss & Co. products.
The Company owns and operates Original Levi's[Registered Trademark] Stores
and Levi's[Registered Trademark] Outlets under a joint venture between
subsidiaries of Levi Strauss & Co. and the Company. See "Expansion." The
Original Levi's[Registered Trademark] Store format is located in upscale malls
and urban locations that feature hardwood floors, custom wood fixtures and a
"video wall" displaying Levi Strauss & Co. advertisements and popular music
videos. This format focuses on men's and women's Levi's[Registered Trademark]
brand products consisting of core traditional styles such as five pocket and
501[Registered Trademark] jeans, denim jackets, contemporary
silverTab[Trademark], and exclusive merchandise from Levi's[Registered
Trademark] Europe and Levi's[Registered Trademark] Personal Pair[Trademark]
individually fitted jeans for women. The joint venture also operates
Levi's[Registered Trademark] Outlets stores that sell only Levi's[Registered
Trademark] brand products, including close-out products from the Original
Levi's[Registered Trademark] Stores.
Management believes that the Company competes effectively with other
apparel retailers by offering superior selection, quality merchandise,
knowledgeable in-store service and competitive price points. The Company
stresses product training with its sales staff and, with the assistance of Levi
Strauss & Co. personnel and materials, provides its sales personnel with
substantial product knowledge training across the Boston Traders[Registered
Trademark], Levi's[Registered Trademark] and Dockers[Registered Trademark]
product lines.
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Expansion Strategy
Since its inception in 1976, the Company has grown through the addition of
new stores and the modification of its retail formats. The following table
provides a summary of the number of stores in operation at year end for the past
three fiscal years. With the exception of the Boston Traders[Registered
Trademark] outlet stores, Levi Strauss & Co. must approve all new store
locations.
February 3, January 28, January 29,
1996 1995 1994
---------- ---------- ----------
Designs 49 51(2) 64
Levi's[Registered Trademark]Outlet by Designs 58 61 48
Joint Venture:
The Original Levi's[Registered Trademark]Stores 11 8(3) 6
Levi's[Registered Trademark]Outlets 4 -- --
Boston Traders[Registered Trademark]outlet stores 35(1) -- --
Dockers[Registered Trademark]Shops -- --(3) 2
--- --- ---
Total 157 120 120
=== === ===
(1) In May 1995, the Company acquired certain assets of Boston Trading Ltd.,
Inc. including 33 Boston Traders[Registered Trademark] outlet stores
(2) During fiscal year 1994, the Company closed fifteen Designs stores as part
of a restructuring program.
(3) The Company sold the two "Dockers[Registered Trademark] Shops" and an
"Original Levi's[Registered Trademark] Store" to Levi's Only Stores, Inc.
on January 28, 1995.
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the
Company and a subsidiary of LOS entered into a partnership agreement (the
"Partnership Agreement") to sell Levi's[Registered Trademark] brand products and
jeans-related products. The joint venture that was established by the
Partnership Agreement is known as The Designs/OLS Partnership (the
"Partnership"). The term of the Partnership is ten years; however, the
Partnership Agreement contains certain exit rights that enable either partner to
buy or sell their interest in the joint venture beginning January 2000. The
Company previously announced that the Partnership may open up to 35 to 50
Original Levi's[Registered Trademark] Stores and Levi's[Registered Trademark]
Outlets throughout 11 Northeast states and the District of Columbia through the
end of fiscal 1999. The Levi's[Registered Trademark] Outlet stores in the joint
venture will sell only Levi's[Registered Trademark] brand products and service
the close-out products of the Original Levi's[Registered Trademark] Stores.
In connection with the formation of the joint venture, Designs JV Corp.
contributed, for a 70% interest in the joint venture, eight of the Company's
then-existing Original Levi's[Registered Trademark] Stores valued at $11.1
million and three leases for unopened stores. At the same time, LDJV Inc., the
joint venture subsidiary of LOS contributed approximately $4.7 million in cash
to the joint venture in exchange for a 30% interest.
In June 1994, Levi Strauss & Co. advised the Company that it did not see
any additional growth in the Levi's[Registered Trademark] Outlet by Designs
format, other than additional outlet stores that might be part of the Original
Levi's[Registered Trademark] Stores joint venture, as discussed above. Levi
Strauss & Co. has informed the Company of their intention to open
Levi's[Registered Trademark] Outlets and Dockers[Registered Trademark] Outlets
through their LOS subsidiary. LOS has informed the Company that it does not
presently intend to open these outlets in centers serviced by one of the
Company's existing Levi's[Registered Trademark] Outlet stores. The Company
expects that wholly-owned Levi's[Registered Trademark] Outlet by Designs and
jointly-owned Levi's[Registered Trademark] Outlet locations, will continue to
be the only authorized retail outlet locations in their respective
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outlet centers to sell Levi's[Registered Trademark] brand products. As such, the
Company does not expect to open additional Levi's[Registered Trademark] Outlet
by Designs stores in the future, with the exception of Levi's[Registered
Trademark] Outlets that are opened by the joint venture as discussed above.
In fiscal 1993, the Company developed a new multi-brand look for its
Designs stores featuring updated fixtures and merchandise presentation. The
Company has remodeled 17 Designs stores through the end of fiscal 1995. During
fiscal year 1994, the Company introduced Timberland[Registered Trademark] brand
apparel and a line of private label merchandise under the name "EFD-Exclusively
for Designs". During fiscal 1995, the Company completed the purchase of the
Boston Traders[Registered Trademark] brand as the next step in developing an
exclusive brand to complement the Company's existing Levi Strauss & Co. brand
product lines. The Boston Traders[Registered Trademark] brand, established in
1967, first became known for its wholesale and retail sales of sweaters and tops
for both men and women. The new Boston Traders[Registered Trademark] brand
product lines are planned to provide the Company with access to a broader
assortment of tops that integrate the Boston Traders[Registered Trademark] brand
into all Designs stores. This addition is expected to impact sales and margins
in the Designs stores although there are no assurances that the introduction and
integration of the Boston Traders[Registered Trademark] brand will be successful
or that positive sales and margin results will be generated with the brand.
Present plans are that future growth of the Company will be derived from
the expansion of new stores that will predominantly feature the Boston
Traders[Registered Trademark] brand and stores opened under the joint venture.
Restructuring
In fiscal year 1993, the Company recorded a non-recurring pre-tax
charge of $15.0 million to cover the costs associated with the closing of 15 of
its Designs stores. The costs to close these 15 stores totaled $9.6 million,
comprised of $6.1 million cash and $3.5 million of non-cash costs. Total costs
of $9.6 million to close the 15 stores were less than the original pre-tax
$15.0 million estimate, primarily due to favorable negotiations with landlords.
The remaining portion of the reserve was recognized in fiscal 1995 and fiscal
1994 as non recurring pre-tax income on the amounts of $2.2 million and
$3.2 million respectively.
Customer Base
The Company believes that its customer base mostly reflects that of the
Levi's[Registered Trademark] and Dockers[Registered Trademark] brand customer.
A segment of the Company's current customer base consists of foreign travelers
shopping for Levi Strauss & Co. products. The Company's product selection is
designed to appeal to the casual apparel needs of customers in all age groups
and income brackets.
Merchandising and Distribution
Through fiscal year 1995, the majority of the assortment focus was on a
core selection of traditional Levi's[Registered Trademark] and
Dockers[Registered Trademark] brand products. The Designs stores also feature a
wide range of Levi's[Registered Trademark] and Dockers[Registered Trademark]
accessories from authorized licensees. During fiscal 1995, the Company began to
introduce complementary Boston Traders[Registered Trademark] brand product that
was purchased as part of the Boston Trading acquisition. Expectations are that
the addition of non-Levi Strauss & Co. brands will enable the Designs stores to
capitalize on new
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products either not offered by Levi Strauss & Co. or on which Levi Strauss & Co.
sells limited styles. These include classifications such as outerwear, sweaters
and knitwear. The Company expects that approximately 50% or more of the product
assortment in Designs stores will come from non-Levi Strauss & Co. sources by
the third quarter of fiscal year 1996. These changes are intended to enhance the
Designs store image as a destination for quality casual apparel.
In its Levi's[Registered Trademark] Outlet by Designs stores, the Company
offers a selection of Levi Strauss & Co. merchandise including manufacturing
overruns, discontinued lines and irregulars purchased by the Company directly
from Levi Strauss & Co. and end-of-season merchandise transferred from the
Designs stores. The Levi's[Registered Trademark] Outlets opened as part of the
joint venture sell only Levi's[Registered Trademark] brand products and service
the close-out products of the Original Levi's[Registered Trademark] Stores. The
Boston Traders[Registered Trademark] outlet stores feature the end-of-season and
close-out Boston Traders[Registered Trademark] brand product lines from the
Designs stores.
Merchandising in "The Original Levi's[Registered Trademark] Store" focuses
on men's and women's tops and bottoms under the Levi's[Registered Trademark]
brand name, including traditional 501[Registered Trademark], 505[Registered
Trademark] and 550[Trademark] five pocket jeans; contemporary
silverTab[Trademark] jeans; 560[Trademark] Loose fitting jeans and Personal
Pair[Trademark] individually fitted jeans for women; jeans jackets; a full
line of women's jeans; T-shirts; denim shirts; shorts and sweats; and
coordinating accessories. Many styles are unique to the Original
Levi's[Registered Trademark] Store, and are not available at any other retail
store in the United States.
All merchandising decisions, including pricing, markdowns, advertising and
promotional campaigns, inventory purchases and merchandise allocations, are made
centrally at the Company's headquarters with input from store, district, and
regional managers.
Prior to the acquisition of Boston Trading, each store had been stocked by
direct to store vendor shipments. With the acquisition of Boston Trading, the
Company needed to expand its current operations to accommodate other
types of sourcing and distribution. The Company accomplished this by
establishing a product development and sourcing team which will develop a new,
updated Boston Traders[Registered Trademark] product line, including
distinctive packaging and labeling for the brand. In addition, the Company
assembled a logistics team and contracted with a third-party warehouse to
provide storage and distribution capacity to move the Boston Traders[Registered
Trademark] brand merchandise and to ensure on-time cost-effective delivery of
the merchandise to the stores. In fiscal 1996, the Company will continue to
develop its sourcing capabilities, management information systems and training
programs to support this anticipated expansion.
During the fiscal year ended February 3, 1996, sales by format, by product
category were as follows:
---Joint Venture--
Levi's Original Boston
[Registered Trademark] Levi's Levi's Traders
Outlet [Registered Trademark] [Registered Trademark] [Registered Trademark] Total
Category Designs by Designs Stores Outlet outlets Company
- -------- ------- ---------------------- ---------------------- ---------------------- ---------------------- -------
Men's 53% 53% 49% 51% 17% 51%
Women's 20% 17% 28% 25% 12% 19%
Shirts 18% 15% 16% 17% 66% 18%
Youth 4% 8% 2% 4% -- 6%
Accessories 5% 7% 5% 3% 5% 6%
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Trademarks
The Company is the owner of the "Boston Traders" trademark and 18 other
trademarks which were acquired as part of the acquisition of Boston Trading.
"501," "505," "Dockers" and "Levi's" are registered trademarks, and "550,"
"560," "silverTab" and "Personal Pair" are trademarks of Levi Strauss & Co.
Seasonality
Historically, the Company has experienced seasonal fluctuations in
revenues and income, with increases occurring during the Company's third and
fourth quarters as a result of Back-to-School and Holiday seasons.
Store Operations
Designs stores average approximately 6,600 square feet in size and are
located in enclosed regional shopping malls usually anchored by department
stores. Levi's[Registered Trademark] Outlet by Designs and Levi's[Registered
Trademark] Outlets stores under the joint venture are located in destination
manufacturers' outlet parks and range in size from approximately 8,000 to
19,700 square feet offering the consumer irregulars and end-of-season Levi
Strauss & Co. brand merchandise in a "no frills" outlet format. To date, each
Outlet store is the only outlet in its shopping area selling exclusively Levi
Strauss & Co. brand products. Similarly located, the Boston Traders[Registered
Trademark] outlet stores range in size from 2,000 to 6,500 square feet. The
Original Levi's[Registered Trademark] Stores, having both mall-based and
downtown locations, range in size from 4,000 to 15,300 square feet.
Each of the Company's stores utilize centrally developed interior design
and merchandise layout plans specifically designed to promote customer
identification of the store as a specialty store selling quality branded apparel
and accessories including Levi Strauss & Co. and Boston Traders[Registered
Trademark] brand products. The merchandise layout is further adapted by store
management and the Company's visual merchandising department. Each Designs store
prominently displays Levi's[Registered Trademark], Dockers[Registered Trademark]
and Boston Traders[Registered Trademark] and distinctive branded promotional
displays; the Levi's[Registered Trademark] Outlet stores prominently display
Levi Strauss & Co. brand logos and distinctive promotional displays; "The
Original Levi's[Registered Trademark] Store" concept also features a video wall
presentation developed to promote an upscale image of the men's and women's
Levi's[Registered Trademark] brand products sold in those stores. The Company
uses Levi Strauss & Co. logos and trademarks on store signs with the permission
of Levi Strauss & Co.
Customer Service
The Company stresses product training with its sales staff and, with the
assistance of Levi Strauss & Co. for the Levi Strauss & Co. brands and the
assistance of the Company's training and product development group, provides the
store operation group with substantial product knowledge training across the
Levi Strauss & Co. and Boston Traders[Registered Trademark] brand product lines.
This training
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includes promoting sales of coordinating apparel and accessories. Management
believes that the Company's sales staff serves to reinforce the consumer's
perception of the Company's stores as branded specialty stores and to
differentiate the Company's stores from those of its competitors.
Each Designs store employs approximately 10 to 15 associates, and each
Levi's[Registered Trademark] Outlet and Original Levi's[Registered Trademark]
Store employs approximately 15 to 45 associates. The personnel required to
operate a store includes a store manager, store manager candidate, assistant
manager, assistant manager candidate, shift manager and a group of full-time
and part-time sales associates. The store manager is responsible for all
operational matters for that store, including hiring and training associates.
All new store managers participate in the Designs University[Trademark]
training program at the Company's home office training center. Designs
University[Trademark] is a five semester training program completed in the
stores with the final semester and graduation taking place in the home office.
Management believes that the Company's policy of promoting from within has led
to a lower than average rate of employee turnover. None of the employees are
represented by a union. The development of management and sales associate
training programs is performed internally by the Company's Store Training
Department.
In order to provide management guidance to the individual store managers,
the Company currently employs 21 district managers, who have an average length
of service with the Company of approximately nine years, a regional manager and
three regional vice presidents, all of whom have been with the Company for more
than fifteen years. Each district manager is responsible for hiring store
managers at the stores assigned to that manager's territory and for the overall
profitability of those stores. District managers report directly to the
regional vice presidents/manager, who report directly to the Company's
President and Chief Executive Officer. In addition, in fiscal 1995 a general
manager was hired to manage the stores in the joint venture. The general
manager of the joint venture reports directly to the management committee of
the Partnership. The joint venture also has one regional manager who is
responsible for all the stores operating under the Partnership.
Information Systems
The Company believes that management information systems are an important
factor in the continued growth of the Company. The Company continues to devote
significant resources to the development of information systems which enable it
to maintain inventory, pricing and other financial controls. During the first
quarter of fiscal 1996, the Company installed a new merchandising software
package. This software is designed to enhance analytical capabilities of the
Company's merchandise and financial functions and provide an integrated
approach to managing the business. During the second quarter of fiscal 1996,
the Company will replace its point-of-sale devices with in store processors for
all store operations, inventory and administrative functions. This store-based
equipment is linked to the Company's central processing system.
The Company makes use of software systems for enhanced merchandise
replenishment. The merchandise replenishment system is an automated allocation
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and planning tool designed to operate in the fashion apparel industry. This
system is used to allocate in an environment of ever-changing styles. The
system also allows the Company's allocation staff to efficiently utilize
available sales and inventory data to react to the individual needs of each
store on a timely basis.
The Company has installed a computer-aided design system in its New York
City product development office to automate certain merchandise design,
graphics and production functions.
Advertising
The Company benefits from the high visibility and recognition of the
Levi's[Registered Trademark] and Dockers[Registered Trademark] brand names, as
well as the natural flow of traffic that results from locating stores in areas
of high retail activity including large regional malls, destination outlet
centers and high traffic inner city shopping districts. Historically, the
Company has received co-operative advertising allowances from Levi Strauss & Co.
that typically fund approximately one third of all advertising expenditures. As
the Company decreases the percentage of Levi's[Registered Trademark] and
Dockers[Registered Trademark] brand merchandise offered in its Designs stores,
the cooperative advertising allowances associated with the Company's advertising
will decrease proportionately.
Competition
The United States casual apparel market is highly competitive with many
national and regional department stores, specialty apparel retailers and
discount stores offering a broad range of apparel products similar to those sold
by the Company. The Company's competitors in the casual apparel market consist
of national and regional department stores in the Company's market areas, such
as J.C. Penney Company, Sears, Roebuck & Company, Dillard Department Stores
Inc., May Company, Kohls and Filene's. In addition, the Company competes with
several specialty apparel retailers, including The GAP, Inc., The Limited, Inc.
and County Seat Stores, Inc.
Employees
As of February 3, 1996, the Company employed approximately 2,570 persons,
of whom 2,386 were full- and part-time sales personnel and 184 were employed at
the Company's headquarters. Additionally, the Company hires temporary employees
during the peak Back-to-School and Holiday seasons.
All qualified full-time employees are entitled to life, medical, disability
and dental insurance and can participate in the Company's 401(k) retirement
savings plan. Store, district and regional vice presidents and managers are
eligible to receive incentive compensation subject to the achievement of
specific performance objectives which include store and company profitability.
Through the end of fiscal 1995 they were also entitled to use an automobile
provided by the Company or to receive an automobile allowance. Sales personnel
are compensated on an hourly basis and receive no commissions, but are eligible
to earn, from time to time, incentive prizes as part of individual store's sales
contests. Certain store, district and regional
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managers, as well as certain other employees, have been granted stock options.
Risks and Uncertainties
The Company filed a Current Report on Form 8-K, dated April 30, 1996, which
identifies certain risks and uncertainties that may impact the future earnings
and direction of the Company.
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ITEM 2. Properties
As of February 3, 1996, the Company operated 49 Designs stores, 58
Levi's[Registered Trademark] Outlet by Designs stores, 35 Boston
Traders[Registered Trademark] outlet stores, 11 "Original Levi's[Registered
Trademark] Stores" and four Levi's[Registered Trademark] Outlets. All stores,
with the exception of the joint venture, are leased by the Company directly from
shopping mall, outlet park and downtown property owners. The 11 Original
Levi's[Registered Trademark] Stores and four Levi's[Registered Trademark]
Outlets are leased by the Partnership directly. Designs stores and Original
Levi's[Registered Trademark] Stores leases are generally ten years in length
with no renewal option. Outlet store leases are usually for a series of shorter
periods and sometimes contain certain renewal options extending their terms to
between 10 and 15 years. Most of the leases provide for annual rent based on a
percentage of store sales, subject to guaranteed minimum amounts.
In April 1996, the Company moved its headquarters to Needham,
Massachusetts. The lease, which began in November 1995, is for ten years. The
lease provides for the Company to pay all related occupancy costs associated
with the land and the headquarters building. Prior to April 1995, the Company's
headquarters were in Chestnut Hill, Massachusetts. The property was leased under
an agreement with an affiliate of Stanley I. Berger, the Chairman of the Board
of the Company and the estate of Calvin Margolis, a former director of the
Company. The lease expired in April 1996.
The Company utilizes third-party warehousing facilities to receive and
distribute the Boston Traders[Registered Trademark] brand product. The Company
presently intends to continue using a third party warehouse and has no plans
to operate its own warehousing facility in fiscal 1996.
Sites for store expansion are selected on the basis of several factors
intended to maximize the exposure of each store to those persons the Company
believes are likely customers. These factors include the demographics profile of
the area in which the site is located, the types of stores and other retailers
in the area, the location of the store within the mall and the attractiveness of
the store layout. The Company believes that its selection of locations attracts
customers from the general shopping traffic and generates its own customers
from the surrounding areas.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Capital Expenditures."
13
14
ITEM 3. Legal Proceedings
The Company is a party to litigation and claims arising in the course of
its business. Management does not expect the results of these actions to have a
material adverse effect on the Company's business or financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of fiscal 1995 to a vote
of security holders, through the solicitation of proxies or otherwise.
14
15
PART II.
ITEM 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The information required by this item is furnished by incorporation by
reference to Page 38 of the Annual Report to Shareholders for the year ended
February 3, 1996.
ITEM 6. Selected Financial Data
The information required by this item is furnished by incorporation by
reference to Page 16 of the Annual Report to Shareholders for the year ended
February 3, 1996.
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required by this item is furnished by incorporation by
reference to Pages 17 through 21 of the Annual Report to Shareholders for the
year ended February 3, 1996.
ITEM 8. Financial Statements and Supplementary Data
The information required by this item is furnished by incorporation by
reference to Pages 22 through 34 of the Annual Report to Shareholders for the
year ended February 3, 1996.
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
15
16
PART III.
ITEM 10. Directors and Executive Officers of the Registrant
Information with respect to directors and executive officers of the Company
is incorporated herein by reference to the Company's definitive proxy statement
expected to be filed within 120 days of the end of the fiscal year ended
February 3, 1996.
ITEM 11. Executive Compensation
Information with respect to executive compensation is incorporated herein
by reference to the Company's definitive proxy statement expected to be filed
within 120 days of the end of the fiscal year ended February 3, 1996.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
Information with respect to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Company's definitive
proxy statement expected to be filed within 120 days of the end of the fiscal
year ended February 3, 1996.
ITEM 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related transactions
is incorporated by reference to the Company's definitive proxy statement to be
filed within 120 days of the fiscal year ended February 3, 1996.
16
17
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(A) 1. & 2. CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedules listed in the index below are
filed as part of this annual report.
Reference (Page)
----------------
Annual Report
Form 10-K to Shareholders
--------- ---------------
1. CONSOLIDATED FINANCIAL STATEMENTS
Covered by Report of Independent Accountants:
Consolidated Balance Sheets at February 3, --- 22
1996 and January 28, 1995
Consolidated Statements of Income for the
years ended February 3, 1996, January 28,
1995 and January 29, 1994 --- 23
Statement of Changes in Stockholders' Equity --- 24
Statements of Cash Flows --- 25
Notes to Consolidated Financial Statements,
except note N --- 26-33
Report of Independent Accountants --- 36
Not Covered by Report of Independent Accountants:
Note N - Selected Quarterly Data --- 34
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted because the required information is not
applicable or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the financial
statements or notes thereto.
3. EXHIBITS
3.1 Restated Certificate of Incorporation of the Company, as amended. *
Incorporated herein by reference to the Company's Registration Statement
on Form S-1, (No. 33-13402).
3.2 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.
3.3 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).
17
18
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 by 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 by reference).
10.4 Executive Incentive Plan effective through the end of fiscal year *
ended January 28, 1995 (included as Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the year ended January 29. 1994, 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 for the year ended January 30, 1993, and
incorporated herein by reference).
10.6 Credit Agreement among the Company, BayBank Boston, N.A. and State *
Street Bank and Trust Company dated as of November 17, 1994 (included
as Exhibit 1 to the Company's Current Report on Form 8-K dated
November 22, 1994, and incorporated herein by reference).
10.7 Amendment dated June 2, 1995 to the Credit Agreement among the *
Company, BayBank Boston, N.A., and State Street Bank and Trust
Company dated as of November 17, 1994 (included as 10.18 to the
Company's Quarterly Report on Form 10-Q dated September 12,
1995, and incorporated herein by reference).
10.8 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).
10.9 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).
10.10 Partnership Agreement of The Designs/OLS Partnership (the *
"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).
10.11 Glossary executed by the Designs Partner, the Company, the LOS *
Partner, LOS, LS&CO, LSAI and the 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).
10.12 Sublicense Agreement between LOS and the LOS Partner with exhibits A *
and B (included as Exhibit 10.4 to the Company's Current Report on
Form 8-K dated April 24, 1995, and incorporated herein by reference).
10.13 Sublicense Agreement between the LOS Partner and the Partnership with *
exhibits B and C (included as Exhibit 10.5 to the Company's Current
Report on Form 8-K dated April 24, 1995, and incorporated herein by
reference).
18
19
10.14 License Agreement between the Company and the Partnership *
(included as Exhibit 10.6 to the Company's Current Report on Form 8-K
dated April 24, 1995, and incorporated herein by reference).
10.15 Administrative Services Agreement between the Company and the *
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).
10.16 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
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 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 Report on
Form 8-K dated December 6, 1995, and incorporated herein by reference).
19
20
10.24 Employment Agreement dated as of October 16, 1995 between the Company *
and William D. Richins (included as Exhibit 10.4 to the Company's
Report on Form 8-K dated December 6, 1995, and incorporated herein by
reference).
11 Statement re: computation of per share earnings
13 Annual Report to Shareholders for the year ended February 3, 1996
(with the exception of the information incorporated by reference
included in Items 5, 6, 7 and 8, the Annual Report to Shareholders
for the year ended February 3, 1996 is not deemed filed as part of
this report).
21 Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand, L.L.P. dated May 1, 1996.
27 Financial Data Schedules
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.
* Previously filed with the Commission.
(B) REPORTS ON FORM 8-K:
(i) The Company reported under item 5 on Form 8-K dated December 6, 1995,
that as of October 16, 1995 the Board of Directors of the Company
authorized the Company to enter into employment agreements with certain
executive officers of the Company.
(ii) The Company reported under item 5 on Form 8-K dated April 30, 1996,
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.
20
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DESIGNS, INC.
May 1, 1996
By: /S/ Joel H. Reichman
-------------------------------
Joel H. Reichman
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company in the capacities indicated, on May 1, 1996.
Signatures
/S/ Joel H. Reichman President and Chief Executive Officer
- ---------------------- and Director (Principal Executive Officer)
Joel H. Reichman
/S/ William D. Richins Chief Financial Officer
- ----------------------
William D. Richins
/S/ Stanley I. Berger Chairman of the Board and Director
- ----------------------
Stanley I. Berger
Director
- ----------------------
James G. Groninger
/S/ Melvin Shapiro Director
- ----------------------
Melvin Shapiro
/S/ Bernard M. Manuel Director
- ----------------------
Bernard M. Manuel
Director
- ---------------------
Peter L. Thigpen