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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED January 31, 1998
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 1-12552
THE TALBOTS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 41-1111318
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
175 Beal Street, Hingham, Massachusetts 02043
- ---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (781)749-7600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock New York Stock Exchange
$0.01 Par Value
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS TO BE
FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE
PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO THE 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 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 APPROXIMATE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES (FOR THIS PURPOSE, DEEMED TO REFER TO ALL PERSONS AND ENTITIES
OTHER THAN EXECUTIVE OFFICERS, DIRECTORS AND 10% OR MORE SHAREHOLDERS) BASED ON
THE CLOSING SALE PRICE ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE ON APRIL 2,
1998 WAS APPROXIMATELY $221.8 MILLION.
NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF APRIL 2,
1998: 31,805,415
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED JANUARY 31, 1998 ARE INCORPORATED BY REFERENCE INTO PART II, AND PORTIONS
OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS
ARE INCORPORATED BY REFERENCE INTO PART III.
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PART I
ITEM 1. BUSINESS.
GENERAL
The Talbots, Inc., a Delaware corporation (together with its wholly
owned subsidiaries, "Talbots" or the "Company"), is a leading national specialty
retailer and cataloger of women's and children's classic apparel, accessories
and shoes. Over the past nine years, the Company has implemented an aggressive
store expansion program, with the number of stores increasing from 137 at the
end of 1988 to 603 at the end of 1997. During 1997, Talbots issued 25 separate
catalogs with a combined circulation of approximately 52.0 million. Total net
sales were approximately $1,053.8 million in 1997, of which retail store sales
were approximately $894.6 million and catalog sales were approximately $159.2
million.
Talbots complies with the National Retail Federation's fiscal calendar.
Where a reference is made in this Part I to a particular year or years, it is a
reference to Talbots 52-week or 53-week fiscal year. For example, "1997" refers
to the 52-week fiscal year ended January 31, 1998, "1996" refers to the 52-week
fiscal year ended February 1, 1997. The last 53-week fiscal year was 1995,
ending February 3, 1996; the next 53-week fiscal year will be fiscal 2000,
ending February 3, 2001.
Talbots stores and catalogs offer a distinctive collection of classic
sportswear, casual wear, dresses, coats, sweaters, accessories and shoes,
consisting primarily of Talbots own private label merchandise in misses and
petites sizes. Talbots Kids & Babies stores and catalogs offer an assortment of
high quality classic clothing and accessories for infants, toddlers, boys and
girls. Talbots merchandising strategy focuses on achieving a "classic look",
which emphasizes timeless styles. Talbots stores and catalogs offer a variety of
key basic and fashion items and a complementary assortment of accessories and
shoes which enable customers to assemble complete wardrobes. The consistency in
color, fabric and fit of Talbots merchandise allows a customer to create
wardrobes across seasons and years. The Company believes that a majority of its
customers are college-educated and employed, primarily in professional and
managerial occupations, and are attracted to Talbots by its focused
merchandising strategy, personalized customer service and continual flow of high
quality, reasonably priced classic merchandise.
Talbots has established a market niche as a brand in women's classic
apparel, accessories and shoes. In 1997, approximately 98% of the Company's
merchandise consisted of styles that were sold exclusively under the Talbots
label. Most of this merchandise is manufactured to the specifications of the
Company's technical designers and product developers, enabling Talbots to offer
consistently high quality merchandise that the Company believes differentiates
Talbots from its competitors.
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The Company operates its stores and catalogs as an integrated business
and provides the same personalized service to its customers regardless of
whether merchandise is purchased through its stores or catalogs. The Company
believes that the synergy between Talbots stores and catalogs offers an
important convenience to its customers and a competitive advantage to the
Company in identifying new store sites and testing new business concepts.
The first Talbots store was opened in 1947 in Hingham, Massachusetts by
Rudolph and Nancy Talbot. The first Talbots catalog was issued the following
year with a circulation of approximately 3,000. Additional stores were opened
beginning in 1955, and there was a total of five Talbots stores by 1973, at
which time the Company was acquired by General Mills, Inc. Talbots continued to
expand and grew to 126 stores by June 1988. In June 1988, JUSCO (U.S.A.), Inc.
("JUSCO USA"), a Delaware corporation, acquired Talbots (the "Acquisition").
JUSCO USA is a wholly owned subsidiary of JUSCO Co., Ltd. ("JUSCO"), a Japanese
corporation. On November 18, 1993, the Company effected an initial public
offering of its common stock (the "Offering"), issuing approximately 12.6
million shares of common stock. Subsequent to the Offering, JUSCO USA continues
to own approximately 63.4% of the outstanding common stock of the Company.
The Company grew significantly after the Acquisition by adding stores
and developing new complementary business concepts that capitalize on the
strength of the Talbots name and its loyal customer base. By January 31, 1998,
the number of stores increased to 603, in 44 states, the District of Columbia,
Canada and the United Kingdom. This number included 374 Talbots Misses stores
(including 19 Misses stores in Canada and five Misses stores in the United
Kingdom), 125 Talbots Petites stores (including one Petites store in Canada), 32
Talbots Accessories & Shoes stores, 60 Talbots Kids stores (40 of which include
a Talbots Babies assortment) and 12 Talbots Outlet stores. Of the Company's
$894.6 million in total retail store sales for fiscal 1997, Talbots Misses
stores accounted for $650.6 million; Talbots Petites, $125.0 million; Talbots
Accessories & Shoes, $16.6 million; and Talbots Kids and Babies, $51.2 million.
The remaining $51.2 million was generated from Talbots Outlet stores.
Talbots catalog business also has undergone changes. The circulation of
catalogs has been reduced by 33% from 78.1 million catalogs in 1989 to 52.0
million catalogs in 1997. This circulation reduction has been an integral part
of a strategy to better focus the distribution of catalogs to proven customers.
STRATEGY
The key elements of the Company's strategy are to: (1) maintain its
strong competitive position in the classics niche by providing consistently
classic women's and children's apparel and accessories and shoes, (2) continue
to operate as a predominantly private label retailer, (3) maintain its posture
as a limited promotion retailer, (4) continue to capitalize on its complementary
store and catalog operations, (5) continue to provide superior customer service
and (6) maintain a broad mix of store locations.
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MARKET NICHE IN CLASSIC APPAREL. Talbots stores and catalogs offer a
distinctive collection of sportswear, casual wear, dresses, coats, sweaters,
accessories and shoes, consisting primarily of the Company's own private label
merchandise in misses and petites sizes. Talbots offers a variety of key basic
and fashion items and a complementary assortment of accessories and shoes to
enable customers to assemble complete outfits. An important aspect of the
Company's marketing strategy is wardrobing the customer from "head-to-toe." The
Company believes that consistently emphasizing timeless styles helps to create a
loyal customer base and reduces the risk that its apparel, shoes and accessories
will be affected by sudden changes in fashion trends.
TALBOTS PRIVATE LABEL. The clothing assortment under the Talbots
private label was approximately 98% in 1997. Sales of private label merchandise
generally provide the Company with a higher gross margin than it believes would
be obtained on other merchandise and establishes Talbots identity as a brand of
women's classic apparel.
The Company believes that the quality and value of its classic
merchandise are key competitive factors. Most of Talbots merchandise is
manufactured to the specifications of the Company's technical designers and
product developers, enabling Talbots to offer consistently high quality
merchandise that the Company believes differentiates Talbots from its
competitors. The Company continually monitors the production of its domestic and
overseas manufacturers to ensure that all apparel is of consistent fit and high
quality.
LIMITED PROMOTION RETAILER. The Company positions itself as a limited
promotion retailer. Talbots typically holds only four sale events a year in its
women's apparel stores, consisting of two end-of-season clearance sales and two
mid-season sales. Talbots Kids & Babies stores currently hold six sale events,
consisting of four in-season sales and two end-of-season clearance sales. All
mid-season and end-of-season store sale events are held in conjunction with
catalog sales events. No other major promotional sale events are typically held.
The Company believes that its strategy of limiting its promotional events has
reinforced the integrity of its regular prices.
COMPLEMENTARY STORE AND CATALOG OPERATIONS. The Company's strategy is
to operate its stores and catalogs as an integrated business and to provide the
same personalized service to its customers regardless of whether merchandise is
purchased through its stores or catalogs. The Company believes that the synergy
between Talbots stores and catalogs offers an important convenience to its
customers, provides a competitive advantage to the Company and is an important
element in identifying new store sites.
Talbots catalogs provide customers with a broader selection of
merchandise, sizes and colors than its stores. In each of its United States
stores, Talbots offers a "Red Line" phone which connects the store customer
directly to a catalog telemarketing sales associate. This service can be used by
store customers to order a particular size or color of an item that is a
catalog-only item or that is sold out in the store. A reduced shipping and
handling charge is provided to customers who use the "Red Line" phone service.
In addition to providing customers the convenience of ordering Talbots
merchandise, the Company generally uses its catalogs to communicate its classic
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image, to provide customers with fashion guidance in coordinating outfits and to
generate store traffic. Catalog merchandise can be easily returned or exchanged
at any Talbots store or returned to the Company by mail.
The Company believes that its catalog operations provide Talbots with a
competitive advantage. The customer database compiled through Talbots catalog
operations provides important demographic information and serves as an integral
part of the Company's expansion strategy by helping to identify markets with the
potential to support a new store. Although the addition of stores in areas where
the catalog has been successful has resulted in slightly lower catalog sales in
such areas, such lower catalog sales have been more than offset by the
significantly higher sales generated in these areas by the opening of new
stores.
CUSTOMER SERVICE. The Company believes that it provides store and
catalog customers an extraordinarily high level of customer service. The Company
is committed to constantly improving customer service by enhancing its training
programs to ensure that sales associates are knowledgeable about all Talbots
merchandise, that they are up to date with fashion trends and that they are able
to make appropriate wardrobing suggestions to customers.
BROAD MIX OF STORE LOCATIONS. The Company believes that providing a
broad mix of store locations helps insulate it from changes in customer shopping
patterns and allows it to offer locations that are convenient and consistent
with its image. As of January 31, 1998, the Company had 42% of its stores in
malls, 34% in specialty centers, 13% in village locations, 7% as freestanding
stores and 4% in urban locations.
MERCHANDISING
The Company's merchandising strategy focuses on achieving a "classic
look," which emphasizes timeless styles. Talbots stores and catalogs offer a
distinctive collection of classic sportswear, casual wear, dresses, coats,
sweaters, accessories and shoes, consisting primarily of private label
merchandise made exclusively for Talbots in misses and petites sizes. Talbots
stores and catalogs offer a variety of key basic and fashion items and a
complementary assortment of accessories and shoes which enable customers to
assemble complete outfits. Sales associates are trained to assist customers in
merchandise selection and wardrobe coordination, helping them achieve the
Talbots look from "head-to-toe". The consistency in color, fabric and fit of
Talbots merchandise also allows a customer to create wardrobes across seasons
and years.
PRIVATE LABEL MERCHANDISE DESIGN AND PURCHASING. Talbots private label
merchandise is designed through the coordinated efforts of the Company's
merchandising and manufacturing team, which consists of the New York-based
Talbots product development office, the technical testing and design staff, the
buying staff, the production planning staff and a Hong Kong-based product
sourcing office. Styles for Talbots private label merchandise are developed
based upon prior years' sales history and current fashion trends for each of the
Company's two main seasons, spring and fall.
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The New York-based Talbots merchandise development office oversees the
conceptualization of Talbots product. This initial product determination
concerns styling, color, and fabrication recommendations. The development
process begins approximately nine months before the expected in-house delivery
date of the merchandise.
The Company's Hingham-based buying staff is responsible for the
quantification of specific merchandise and departmental needs and plans. These
plans are used to place specific item orders on styles developed in conjunction
with the product development office and with the various merchandise vendors.
In conjunction with the merchandise developed by the product managers
and the buying organization, the Company's Hingham-based technical testing and
design staff works to determine the technical specifications of all
private-label merchandise. In addition to preparing the initial specifications,
this group also reviews the first fit sample and, together with the product
manager, the pre-production samples of each item to ensure that specifications
and quality standards are met.
SOURCING. In 1997, Talbots purchased approximately 50% of its
merchandise directly from off-shore vendors, and the remaining 50% through
domestic-based vendors. During the year, the Company's Hong Kong office
accounted for approximately 67% of Talbots total direct off-shore sourcing, with
the remaining 33% being handled through various agents.
Approximately 34% of Talbots merchandise is currently sourced through
Hong Kong. Sovereignty over Hong Kong was transferred effective July 1, 1997
from the United Kingdom to the People's Republic of China. The agreement
provides that the social and economic systems in Hong Kong will remain a matter
of the people of Hong Kong's choice for 50 years after June 30, 1997. The
Company has not experienced any material difficulties as a result of this
transfer of power.
In order to diversify the Company's Far East sourcing operations,
additional overseas sourcing offices have been established in Jakarta, Indonesia
and Bangkok, Thailand. Under the terms of an agreement between the Company and
Eralda Industries ("Eralda"), a long time supplier of the Company, Eralda will
serve as the Company's exclusive agent and has established these offices to
serve the Company in this capacity.
In addition to the Company's office in Hong Kong, which deals with
local manufacturers, and the sourcing arrangement with Eralda, Talbots utilizes
agents in Japan, Korea, Singapore, Israel, Italy, Portugal and Turkey plus
domestic resources to source its merchandise. The Company analyzes its overall
distribution of manufacturing to assure that no one company or country is
responsible for a disproportionate amount of Talbots merchandise. Directly
sourced merchandise is currently manufactured to its specifications by
independent foreign factories located primarily in Hong Kong, other Asian
countries such as Macao, China, Thailand, Korea and Indonesia, and Europe.
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The Company's domestic vendors include those who either manufacture
their own merchandise or supply merchandise manufactured by others, as well as
vendors that are both manufacturers and suppliers. In 1997, certain divisions of
The Kellwood Company accounted for an aggregate of approximately 6% of the total
merchandise purchased by Talbots. Most of Talbots Hong Kong and other foreign
vendors manufacture their own merchandise. The Company believes that, consistent
with the retail apparel industry as a whole, many of its domestic vendors import
a portion of their merchandise from abroad.
The Company typically transacts business on an order-by-order basis and
does not maintain any long-term or exclusive commitments or arrangements to
purchase from any vendor. The Company believes that it has good relationships
with its vendors and that, as the number of Talbots stores increases, there will
be adequate sources to produce a sufficient supply of quality goods in a timely
manner and on satisfactory economic terms. The Company does business with most
of its vendors in United States currency and has not experienced any material
difficulties as a result of any foreign political, economic or social
instabilities.
EXPANSION
An important aspect of the Company's business strategy has been an
expansion program designed to reach new and existing customers through the
opening of new stores. The Company has grown significantly over the past ten
years, with the number of stores increasing from 109 at the end of 1987 to 603
at the end of 1997. During that time, store net sales increased from
approximately $205.0 million in 1987 to approximately $894.6 million in 1997.
From the end of 1996 to the end of 1997, the number of Talbots stores increased
from 535 to 603.
In addition to expanding its core Misses business, the Company has
introduced complementary new business concepts, Talbots Petites, Talbots Kids &
Babies and Talbots Accessories & Shoes.
In 1984, Talbots began offering merchandise in petites sizes in its
catalogs, and in 1985, the Company opened its first Talbots Petites store.
During 1989, Talbots stores began to carry a selection of Talbots Petites
merchandise, and the Company opened three additional Talbots Petites stores in
1990 as the beginning of its strategy to expand Talbots Petites business. At
January 31, 1998, 125 Talbots Petites stores were open, and virtually every item
of women's apparel in the catalog was offered in both misses and petites sizes.
In 1989, the Company presented Talbots Kids merchandise in a separate
catalog dedicated to apparel for boys and girls. The first Talbots Kids store
opened in 1990. During 1995, Talbots expanded the Talbots Kids merchandise by
offering an assortment for infants and toddlers, Talbots Babies. By the end of
1997, 60 Talbots Kids stores were open, 40 of which included a Babies
assortment. The Company will continue to position Talbots Kids & Babies as a
brand that offers a complete assortment of high quality classic children's
clothing and accessories.
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In 1991, the Company introduced Talbots Intimates, an assortment of
classic sleepware, loungewear and daywear. The Company currently operates
Intimates collections in 48 Misses stores.
During 1994, Talbots introduced Talbots Accessories and Shoes in two
catalogs devoted to the category. A limited collection of the merchandise
continues to be offered in each Misses catalog and in selected stores. The
Company opened five Talbots Accessories and Shoes stores in September 1995 and
at the end of 1997 it operated 32 stores.
The Company currently anticipates opening approximately 35 new stores
(including Misses, Petites, Accessories & Shoes and Outlet stores) in 1998.* The
Company's ability to continue to expand will be dependent upon general economic
and business conditions affecting consumer confidence and spending, the
availability of desirable locations and the ability to negotiate acceptable
lease terms for new locations. The ability of the Company to open additional
stores (and the mix of such openings) will be dependent upon similar factors as
well as the performance of Talbots existing stores at such locations and the
availability of suitable space. The Company will also consider opening such
stores in established Talbots markets where a Misses store is not located,
thereby broadening the growth potential for each concept.
STORES
Misses stores generally range in size from 3,500 to 6,500 gross square
feet, with a typical store averaging approximately 5,000 gross square feet.
Talbots Petites stores generally measure 2,500 gross square feet, and Talbots
Kids & Babies stores measure approximately 3,100 gross square feet. Talbots
Accessories & Shoes stores generally measure 1,900 gross square feet. Flagship
stores are Misses stores which are utilized to generate greater awareness of
Talbots merchandise in major metropolitan locations, including Boston, New York
City, Washington D.C., Chicago, San Francisco and Toronto, and generally are
larger than the average Misses store. Approximately 75% of the floor area of all
Talbots stores is devoted to selling space (including fitting rooms), with the
balance allocated to stockroom and other non-selling space.
In certain markets, the Company has created Talbots "superstores" by
placing two or more other Talbots concepts in close proximity to a Misses store.
Together, these stores feature at least three of Talbots business
concepts--Misses, Petites, Kids & Babies and/or Accessories & Shoes--in order to
create a one-stop shopping environment. At January 31, 1998, the Company
operated 59 "superstores."
The Company utilizes Talbots Outlet stores, which are separate from its
retail stores, to provide for the controlled and effective clearance of store
and catalog merchandise remaining from each sale event. The Company uses Talbots
Outlet stores only for the sale of past season and "as is" merchandise. The
Company does not purchase merchandise specifically for Talbots Outlet stores.
Merchandise in Talbots Outlet stores is sold at significant markdowns from
original retail prices. At January 31, 1998, the Company operated 12 Talbots
Outlet stores.
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Talbots stores are distinguished by a signature red door created for
each of the business concepts. Each interior is designed to have a gracious and
comfortable residential feel. This interior design theme is consistently used in
all Talbots Misses and Talbots Petites stores to promote familiarity, ease of
shopping and cost savings in the design and construction of new stores. Talbots
Kids & Babies, and Talbots Accessories & Shoes also have their respective
signature red doors and interior design themes. Talbots Kids & Babies stores are
designed to create a light atmosphere and Talbots Accessories & Shoes are
designed to reflect the atmosphere of a traditional carriage house. Management
provides guidelines for merchandise display to the stores throughout the year.
TALBOTS CATALOG
Since 1948, the Company has used its catalog to offer customers
convenience in ordering Talbots merchandise. In 1997, the Company distributed 25
separate catalogs with a combined circulation of approximately 52.0 million,
including catalogs sent to stores for display and general distribution. During
1997, catalog sales represented approximately 15.1% of total Company sales.
Catalog circulation has included: base catalogs offering the broadest assortment
of Talbots merchandise; specialty catalogs such as the Classics That Work series
featuring career clothing; Talbots Kids & Babies catalogs; Talbots Accessories &
Shoes catalogs; and sale catalogs. In addition to providing customers
convenience in ordering Talbots merchandise, the Company generally uses its
catalogs to communicate its classic image, to provide customers with fashion
guidance in coordinating outfits and to generate store traffic. During 1997, the
Company discontinued its international catalogs. In conjunction with the
Company's store strategy to incorporate intimate apparel into its Misses and
Petites assortment, the Company added more intimate apparel pages to its base
catalogs, and discontinued the distribution of separate catalogs dedicated to
intimate apparel.
The Company utilizes computer applications which employ mathematical
models to improve the efficiency of its catalog mailings through refinement of
its customer list. A principal factor in improving customer response has been
the Company's development of its own list of active customers. The Company
routinely updates and refines this list prior to individual catalog mailings by
monitoring customer interest as reflected in criteria such as the frequency and
dollar amount of purchases as well as the last date of purchase.
The Company attempts to make catalog shopping as convenient as
possible. It maintains a toll-free number, accessible 24 hours a day, seven days
a week (except Christmas Day), to accept requests for catalogs and to take
customer orders. It maintains telemarketing centers in Knoxville, Tennessee and
Hingham, Massachusetts which, linked by computer and telephone, are designed to
provide uninterrupted service to customers. Telephone calls are answered by
knowledgeable sales associates located at the telemarketing centers who utilize
on-line computer terminals to enter customer orders and to retrieve information
about merchandise and its availability. These sales associates also suggest and
help to select merchandise and can provide detailed information regarding size,
color, fit and other merchandise features. In both the
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Hingham and Knoxville telemarketing centers, sales associates are able to refer
to current catalog items in a sample store, thereby allowing them to view
merchandise as they assist customers.
The Company employs advanced technology to process orders. Sales
associates enter orders on-line into a computerized inventory control system
which systematically updates Talbots customer list and permits the Company to
measure the response to individual merchandise and catalog mailings. Sales and
inventory information is available to the Company's Hingham-based buying staff
the next day. The Company has achieved efficiencies in order entry and
fulfillment which permit the shipment of most orders the following day.
INVENTORY CONTROL AND MERCHANDISE DISTRIBUTION
The Company uses a centralized distribution system, under which all
merchandise is received, processed and distributed through its catalog and store
distribution center in Lakeville, Massachusetts. Merchandise received at the
distribution center is promptly inspected, assigned to individual stores, packed
for delivery and shipped to the stores. Talbots ships merchandise to its stores
virtually every business day, with each store generally receiving merchandise
twice a week. The Company believes that its strong store and catalog synergy
coupled with its central distribution system allows it to move merchandise
between the stores and catalog to better take advantage of sales trends.
In June, 1995, the Company completed a $7.0 million expansion of its
distribution center in Lakeville, Massachusetts, by adding an additional 124,260
square feet to support its expansion plans. Additional mezzanine level space was
added in 1996 and 1997 to further support the Company's growth. Plans are
currently under way to expand its Hingham corporate offices and its Lakeville
distribution center. The Company currently anticipates that the Lakeville
expansion, which is not expected to be completed before 1999, will total
approximately 100,000 square feet.
MANAGEMENT INFORMATION SYSTEMS
Talbots management information systems and electronic data processing
systems are located at the Company's Systems Center in Tampa, Florida. These
systems consist of a full range of retail, financial and merchandising systems,
including credit, inventory distribution and control, sales reporting, accounts
payable, merchandise reporting and distribution.
All Talbots stores have point-of-sale terminals that transmit
information daily on sales by item, color and size. Talbots stores are equipped
with bar code scanning programs for the recording of store inventories, price
changes, receipts and transfers. The Company evaluates this information,
together with weekly reports on merchandise statistics, prior to making
merchandising decisions regarding reorders of fast-selling items and the
allocation of merchandise.
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Also, sales associates can locate merchandise no longer available in
their store at any Talbots location with a single phone call, 24 hours a day,
seven days a week (except Christmas day).
SEASONALITY
Historically, catalog sales had been higher during the first and third
quarters due to the timing of catalog circulation and the placement of customer
orders early in the season. However, as shopping patterns have changed and
customers are buying closer to time of need, the difference in catalog sales
between the third and fourth quarters has diminished. Retail store sales
typically peak in the fourth quarter due to the holiday season and the impact of
new stores opened during the year. From a total Company perspective, the highest
sales are in the fourth quarter.
COMPETITION
The women's retail apparel industry is highly competitive. The Company
believes that the principal bases upon which it competes are quality, value and
service in offering classic apparel to build "head-to-toe" wardrobes through
both stores and catalogs.
Talbots competes with certain departments of national specialty
department stores such as Lord & Taylor, Saks Fifth Avenue and Nordstrom as well
as strong regional department store chains such as Macy's, Marshall Field and
Dillard's. The Company believes that it competes with these department stores by
offering a focused merchandise selection, personalized service and convenience.
Talbots also competes with other specialty retailers such as The Limited, Ann
Taylor, Eddie Bauer and The Gap, and with catalog companies such as L.L. Bean,
Lands' End and Spiegel. The Company believes that its focused merchandise
selection in classic apparel, consistent private label merchandise, superior
customer service, store site selection resulting from the synergy between its
stores and catalog operations, and the availability of its merchandise in
extended misses sizes and petites sizes, distinguish it from other specialty
retailers.
EMPLOYEES
At January 31, 1998, Talbots had approximately 8,300 employees, of whom
approximately 2,100 were full-time salaried employees, approximately 1,200 were
full-time hourly employees and approximately 5,000 were part-time hourly
employees. The Company believes that its relationship with its employees is
good.
SUBSEQUENT EVENT
In April 1998, the Company obtained additional long-term financing to
increase from $50 million to $100 million its revolving credit agreements.
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EXECUTIVE AND OTHER OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the
executive and other officers of the Company as of April 15, 1998:
Name Age Position
- ---- --- --------
Arnold B. Zetcher 57 President and Chief Executive Officer
Mark Shulman 49 Executive Vice President, Chief Operating
Officer and Chief Merchandising Officer
J. Bruce Ash 49 Senior Vice President, Management Information
Systems
Harold Bosworth 49 Senior Vice President, General Manager,
Talbots Kids
Paul V. Kastner 46 Senior Vice President, International and
Strategic Planning
Edward L. Larsen 53 Senior Vice President, Finance, Chief
Financial Officer and Treasurer
Michele M. Mandell 50 Senior Vice President, Stores
Richard T. O'Connell, Jr. 47 Senior Vice President, Legal and Real Estate,
and Secretary
Mary R. Pasciucco 44 Senior Vice President, Catalog Development
and Advertising
Bruce C. Soderholm 55 Senior Vice President, Operations
Stuart M. Stolper 58 Senior Vice President, Human Resources
Sandy F. Katz 50 Vice President, Audit and Control
Judy O'Keefe 54 Vice President, Merchandise Administration
Bruce Lee Prescott 42 Vice President, Customer Service and
Telemarketing
Deborah Martin 48 Vice President, Product Development
Lucy Main Tweet 45 Vice President, Manufacturing
John L. Florio 42 Director of Legal Services and Assistant
Secretary
Mr. Zetcher joined Talbots as President in 1987. He has been President
and Chief Executive Officer and a member of the Board of Directors since 1988.
Mr. Zetcher was Chairman and Chief Executive Officer of John Breuner Company, a
home furnishings division of BATUS in San Francisco, California, and prior to
that, Chairman and Chief Executive Officer of Kohl's Food Stores, another BATUS
division, in Wisconsin and Illinois. Mr. Zetcher also served as Chairman and
Chief Executive Officer of Bonwit Teller in New York, a high quality specialty
apparel chain, and served in various capacities during his ten years with
Federated Department Stores.
Mr. Shulman joined the Company in October 1997 as Executive Vice
President, Chief Operating Officer and Chief Merchandising Officer and was
elected a Director of the Company. Mr. Shulman formerly was President and Chief
Executive Officer of Younkers Department Stores, a division of Proffitt's, Inc.,
was Executive Vice President of Stage Stores, Inc. from 1994 to 1997 and was
President of the Leslie Fay Dress Division from 1993 to 1994. Mr. Shulman also
12
<PAGE> 13
previously served as President and Chief Executive Officer of Henri Bendel, Inc.
and as President and Chief Executive Officer of Ann Taylor Stores.
Mr. Ash has been Senior Vice President, MIS since 1988. He joined
Talbots in 1988 as Vice President, MIS. Prior to that time, he was Vice
President, MIS at Filene's Department Stores in Boston.
Mr. Kastner joined Talbots in 1988 as Director, Business Planning and
Analysis and became Vice President, New Business Ventures and Strategic
Planning, Assistant Treasurer and Assistant Secretary in 1989. In 1994, Mr.
Kastner was promoted to the position of Senior Vice President, International and
Strategic Planning. Prior to joining Talbots, he was Director of Research and
Merchandise Information with John Breuner Company in California.
Mr. Bosworth joined the Company in June 1997 as Senior Vice President
and General Manager for Talbots Kids. From 1988 to 1997, Mr. Bosworth served as
Senior Vice President, Retail, of Ermengildo Zegna; and Senior Vice President
and General Merchandise Manager at the I. Magnin/Bullick's Wilshire division of
R.H. Macy, where he was responsible for numerous merchandising areas, including
children's. He also served in various capacities from 1972 to 1988 at J.W.
Robinson's, a division of Associated Dry Goods; The Broadway, a division of
Carter Hawley Hale; and Jordan Marsh, a division of Allied Stores.
Mr. Larsen became Senior Vice President, Finance, Chief Financial
Officer and Treasurer of Talbots in 1991. From 1989 to 1991, Mr. Larsen was Vice
President and Chief Financial Officer of Lillian Vernon Corporation. From 1977
to 1988, he held various positions with General Mills, Inc., including from 1985
to 1988 the position of Vice President and Group Controller of the Specialty
Retailing Group at General Mills, Inc.
Ms. Mandell has been Senior Vice President, Stores since 1992. She
joined Talbots in 1983 as Store Manager, became District Manager in 1984 and
served as Regional Director from 1985 until 1992. From 1971 to 1983 she held
management and buying positions for Price's of Oakland in Pittsburgh,
Pennsylvania and A.E. Troutman Co. in Indiana, Pennsylvania.
Mr. O'Connell joined Talbots in 1988 as Vice President, Legal and Real
Estate and Secretary, and became Senior Vice President, Legal and Real Estate
and Secretary in 1989. Prior to joining Talbots, he served as Vice President,
Group Counsel of the Specialty Retailing Group at General Mills, Inc.
Ms. Pasciucco has been Senior Vice President, Catalog Development and
Advertising since 1989. From 1985 until 1989, she served as Vice President,
Catalog Development, and from 1982 until 1985, she served as Director, Catalog
Development.
Mr. Soderholm has been Senior Vice President, Operations since 1989. He
joined Talbots in 1976 as Director of Operations and served as Vice President,
Operations from 1980 to 1989.
13
<PAGE> 14
Mr. Stolper joined Talbots in 1989 as Vice President, Human Resources
and assumed the position of Senior Vice President, Human Resources and Assistant
Secretary later that year. From 1988 to 1989, he served as Vice President,
Administration at JUSCO USA. Prior to that time, he was Vice President, Human
Resources of the Specialty Retailing Group at General Mills, Inc.
Mr. Katz joined Talbots in 1989 as Vice President, Audit and Control.
From 1988 to 1989, Mr. Katz was President of SFK & Associates, a consulting
firm, and from 1984 to 1988, he was Director, Loss Prevention of the Specialty
Retailing Group at General Mills, Inc.
Ms. O'Keefe joined Talbots in 1989 as Director, Merchandise
Administration. In 1994, she was promoted to the position of Vice President,
Merchandise Administration. Prior to joining Talbots, Ms. O'Keefe held various
merchandising positions at Dayton Hudson Department Store where she was employed
for nearly 20 years.
Mr. Prescott joined Talbots in 1987 as Manager, Direct Marketing
Fulfillment. In 1988, he was promoted to the position of Director of Marketing
Fulfillment and in 1991 became Director, Customer Service and Telemarketing. In
1994, he was promoted to the position of Vice President, Customer Service and
Telemarketing. From 1976 to 1987, he was employed by Johnny Appleseed's serving
as manager of catalog operations and supervising retail distribution and
customer service.
Ms. Main Tweet joined Talbots in 1993 as Vice President, Manufacturing.
From 1991 to 1993, Ms. Main Tweet was Vice President, Sourcing for Crystal
Brands Women's Wear Group. From 1990 to 1991, Ms. Main Tweet was Director,
Production for J. Crew, Inc., and from 1988 to 1990 she was Vice President,
Production for Bernard Chaus, Inc.
Ms. Martin joined Talbots in April 1998 as Vice President, Product
Development. From 1992 to 1997 Ms. Martin was Senior Vice President,
Ready-To-Wear Product Development, for Macy's Product Development Office. She
has also held various positions at specialty retailers Henri Bendel, Bergdorf
Goodman, and Barney's from 1971 to 1992.
Mr. Florio joined Talbots in 1990 as Director of Legal Services and
Assistant Secretary. From 1985 to 1990, he was Counsel for Corporate Property
Investors, a New York-based nationwide commercial real estate investment and
development firm.
- --------------------------------------------------------------------------------
*This Annual Report on Form 10-K contains forward-looking information within the
meaning of The Private Securities Litigation Reform Act of 1995. The statements
may be identified by an "asterisk" ("*") or such forward-looking terminology as
"expect", "look", "believe", "anticipate", "may", "will" or similar statements
or variations of such terms. Such forward-looking statements involve certain
risks and uncertainties including levels of sales, effectiveness of the
Company's brand awareness and marketing programs, store traffic, acceptance of
Talbots fashion and expansion plans, appropriate balance of merchandise
offerings and responsiveness of the Company's core customers, and timing and
levels of markdowns, and, in each case, actual results may differ materially
from such forward-looking information.
14
<PAGE> 15
Certain other factors that may cause actual results to differ from such
forward-looking statements are set forth in this Annual Report on Form 10-K or
are included in the Company's Current Report on Form 8-K dated October 30, 1996
filed with the Securities and Exchange Commission (a copy of which may also be
obtained from the Company at 781-741-4500) as well as other periodic reports
filed by the Company with the Securities and Exchange Commission and you are
urged to consider such factors. The Company assumes no obligation for updating
any such forward-looking statements.
15
<PAGE> 16
ITEM 2. PROPERTIES.
The table below presents certain information relating to the Company's
properties at January 31, 1998:
<TABLE>
<CAPTION>
Location Gross Square Feet Primary Function Interest
-------- ----------------- ---------------- --------
<S> <C> <C> <C>
Hingham, Massachusetts 214,000 Company headquarters Own (42 acres)
Lakeville, Massachusetts 764,745 Distribution center Own (85 acres)
Knoxville, Tennessee 23,595 Telemarketing Lease
Tampa, Florida 29,250 Systems center Lease
New York, New York 20,500 Product development office Lease
Hong Kong 10,455 Merchandising and sourcing Lease
Ontario, Canada 1,119 Canadian regional office Lease
London, U.K. 1,093 U.K. management office Lease
Stores throughout the U.S.,
Canada and U.K. Retail stores Own and lease(a)
</TABLE>
- ----------
(a) Talbots owns the property for eight of its 603 stores.
Except for retail store space, the Company believes that its operating
facilities and sales offices are adequate and suitable for its current needs. To
address expected future office and distribution space needs, the Company plans
to initiate expansions of its Hingham, Massachusetts offices and its Lakeville,
Massachusetts distribution facility in fiscal 1998. Talbots long-term expansion
program, if successful, may require additional office and distribution space to
service such facilities in the future.
At January 31, 1998, Talbots operated 603 stores, all but eight of
which were leased. The leases typically provide for an initial term of between
ten and fifteen years, with renewal options permitting the Company to extend the
term for between five and ten years thereafter. The Company generally has been
successful in renewing its store leases as they expire. Under most leases, the
Company pays a fixed annual base rent plus a contingent rent ("percentage rent")
based on the store's annual sales in excess of specified levels. The percentage
rent payment is typically 4% to 5% of annual sales in excess of the applicable
threshold. In a majority of leases negotiated since 1987, Talbots has a right to
terminate earlier than the specified expiration date if certain sales levels are
not achieved; such right is usually exercisable after five years of operation.
Most leases also require Talbots to pay real estate taxes, insurance and
utilities and, in shopping center locations, to make contributions toward the
shopping center's common area operating costs and marketing programs. The
Company has many lease arrangements that provide for an increase in annual fixed
rental payments during the lease term. At January 31, 1998, the current terms of
16
<PAGE> 17
Talbots store leases (assuming solely for this purpose that the Company
exercises all lease renewal options) were as follows:
<TABLE>
<CAPTION>
Years Lease Number of
Terms Expire Store Leases(a)
------------ ---------------
<S> <C>
1998-1999............................................. 10
2000-2002............................................. 20
2003-2005............................................. 55
2006 and later........................................ 388
</TABLE>
- ----------
(a) Certain leases have more than one store included within the leased premises.
ITEM 3. LEGAL PROCEEDINGS.
Talbots is a party to certain legal actions arising in the normal
course of its business. Although the amount of any liability that could arise
with respect to these actions cannot be accurately predicted, in the opinion of
the Company any such liability will not have a material adverse effect on the
financial position, results of operations or liquidity of Talbots.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information concerning the market in which the Company's common stock
was traded in 1997 and the approximate number of record holders of common stock
and certain other information called for by this Item 5 are set forth under the
captions "Selected Quarterly Financial Data" on page 34 and "Market for
Registrant's Common Stock and Related Shareholder Matters" on page 36 of Talbots
Annual Report to Shareholders for the fiscal year ended January 31, 1998 and is
incorporated herein by reference.
At April 2, 1998, approximately 63.4% of Talbots common stock was held
by JUSCO USA.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this Item 6 is set forth under the
caption "Five Year Financial Summary" on page 12 of Talbots Annual Report to
Shareholders for the fiscal year ended January 31, 1998 and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information called for by this Item 7 is set forth under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 13 to 17 of Talbots Annual Report to Shareholders for
the fiscal year ended January 31, 1998 and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors, the consolidated financial
statements of Talbots, the notes to consolidated financial statements, and the
supplementary financial information are set forth on pages 18 to 34 of Talbots
Annual Report to Shareholders for the fiscal year ended January 31, 1998 and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning Talbots directors under the caption "Election of
Directors" on pages 2 to 4 of Talbots Proxy Statement for Talbots 1998 Annual
Meeting of Shareholders, and the information concerning Talbots executive and
other officers set forth in Part I, Item 1 above under the caption "Executive
and other Officers of the Company," are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Executive Compensation" on
pages 5 to 10 of Talbots Proxy Statement for Talbots 1998 Annual Meeting of
Shareholders, the information concerning director compensation under the caption
"Director Compensation; Attendance; Committees" on page 4 of Talbots Proxy
Statement for Talbots 1998 Annual Meeting of Shareholders, and the information
under the caption "Compensation Committee Interlocks and Insider Participation"
on pages 13 to 14 of Talbots Proxy Statement for Talbots 1998 Annual Meeting of
Shareholders, are each incorporated herein by reference. The information
included under "Executive Compensation--Report on Compensation of Executive
Officers" and "Executive Compensation--Performance Graph" is not incorporated in
this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Beneficial Ownership of
Common Stock" on pages 15 to 16 of Talbots Proxy Statement for Talbots 1998
Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Executive
Compensation--Certain Transactions with Related Parties" on pages 14 to 15 of
Talbots Proxy Statement for Talbots 1998 Annual Meeting of Shareholders is
incorporated herein by reference.
20
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS: The following Independent Auditor's Report and
Consolidated Financial Statements of Talbots are incorporated herein by
reference to pages 18 to 33 of Talbots Annual Report to Shareholders
for the fiscal year ended January 31, 1998:
Consolidated Statements of Earnings for the Fifty-Two Weeks
Ended January 31, 1998, the Fifty-Two Weeks Ended February 1,
1997 and the Fifty-Three Weeks Ended February 3, 1996
Consolidated Balance Sheets at January 31, 1998 and February
1, 1997
Consolidated Statements of Cash Flows for the Fifty-Two Weeks
Ended January 31, 1998, the Fifty-Two Weeks Ended February 1,
1997 and the Fifty-Three Weeks Ended February 3, 1996
Consolidated Statements of Stockholders' Equity for the
Fifty-Two Weeks Ended January 31, 1998, the Fifty-Two Weeks
Ended February 1, 1997 and the Fifty-Three Weeks Ended
February 3, 1996
Notes to Consolidated Financial Statements
Independent Auditor's Report
(a)(2) FINANCIAL STATEMENT SCHEDULES: The document and schedule listed below
are filed as part of this Form 10-K:
Page in Form 10-K
Independent Auditor's Report on
Financial Statement Schedule F-1
Schedule II -- Valuation and Qualifying
Accounts and Reserves F-2
All other financial statement schedules have been omitted
because the required information is either presented in the
consolidated financial statements or the notes thereto or is
not applicable, required or material.
21
<PAGE> 22
(a)(3) The following Exhibits are filed as part of, or incorporated by
reference into, this Annual Report:
EXHIBIT
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Certificate of Incorporation, as amended, of Talbots.(1)
3.2 By-laws of Talbots.(1)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1 Form of Common Stock Certificate of Talbots.(1)
(10) MATERIAL CONTRACTS.
10.1 Stockholders Agreement, dated as of November 18, 1993, between
Talbots and JUSCO USA.(2)
10.2 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Dai-Ichi Kangyo Bank, Limited.(2)
10.3 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Bank of Tokyo Trust Company.(2)
10.4 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Norinchukin Bank.(2)
10.5 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Daiwa Bank, Limited.(2)
10.6 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Sakura Bank, Limited.(2)
10.7 Letter Agreement, dated as of January 31, 1994, concerning
various credit facilities, between Talbots and The First
National Bank of Boston.(2)
10.8 Letter Agreement, dated as of September 26, 1994, concerning
various credit facilities, between Talbots and The First
National Bank of Boston.(4)
10.9 Letter of Credit Agreement, dated as of August 10, 1993,
between Talbots and The First National Bank of Boston.(1)
22
<PAGE> 23
10.10 Request for Extension dated December 20, 1996, relating to the
Revolving Credit Agreement, from Talbots to The Dai-Ichi
Kangyo Bank, Limited, together with a Confirmation of
Extension letter dated January 28, 1997 from The Dai-Ichi
Kangyo Bank, Limited to Talbots.(7)
10.11 Request for Extension dated December 28, 1994, relating to the
Revolving Credit Agreement, from Talbots to The Daiwa Bank,
Limited, together with an acceptance letter dated January 27,
1995 from The Daiwa Bank, Limited to Talbots.(4)
10.12 Request for Extension dated December 20, 1996, relating to the
Revolving Credit Agreement, from Talbots to The Norinchukin
Bank, together with an Acceptance of Extension letter dated
January 17, 1997 from The Norinchukin Bank to Talbots.(7)
10.13 Request for Extension dated December 20, 1996, relating to the
Revolving Credit Agreement, from Talbots to The Sakura Bank,
Limited, together with an acceptance letter dated January 24,
1997 from The Sakura Bank, Limited to Talbots.(7)
10.14 Request for Extension dated December 20, 1996, relating to the
Revolving Credit Agreement, from Talbots to The Bank of
Tokyo-Mitsubishi Trust Company, together with an Acceptance of
Extension letter dated January 27, 1997 from The Bank of Tokyo
Trust Company to Talbots.(7)
10.15 Trademark Purchase and License Agreement, dated as of November
26, 1993, between JUSCO (Europe) B.V. and The Classics
Chicago, Inc.(2)
10.16 Management Service Agreement, effective as of February 1,
1990, by and between Talbots Japan Co., Ltd. and Talbots.(1)
10.17 Services Agreement, dated as of November 18, 1993, between
Talbots Japan Co., Ltd. and Talbots.(2)
10.18 Stock Purchase Agreement, dated as of November 26, 1993,
between Talbots and JUSCO.(2)
10.19 License Agreement, dated as of November 26, 1993, between The
Classics Chicago, Inc., Talbots, Talbots International
Retailing Limited, Inc., Talbots (Canada), Inc. and Talbots
(U.K.) Retailing Limited.(2)
23
<PAGE> 24
10.20 Tax Allocation Agreement, dated as of November 18, 1993,
between JUSCO USA, Talbots, Talbots International Retailing
Limited, Inc., Talbots (U.K.) Retailing Limited and The
Classics Chicago, Inc.(2)
10.21 The Talbots, Inc. Pension Plan for Salaried Employees, as
amended and restated January 1, 1989, including amendments
through January 1, 1994.(4)
10.22 The Talbots, Inc. Retirement Savings Voluntary Plan, as
amended and restated, effective as of November 1, 1993.(4)
10.23 Agreement, dated as of November 26, 1993, between JUSCO
(Europe) B.V. and Talbots concerning the termination of the
License Agreement, effective as of June 26, 1988, between
JUSCO Europe and Talbots.(2)
10.24 Services Agreement, dated as of October 29, 1989, between
Talbots and JUSCO USA.(1)
10.25 Share Purchase Agreement dated as of February 21, 1995 between
Talbots and JUSCO USA.(3)
10.26 Second Extension of Share Repurchase Program, dated as of May
23, 1997, between Talbots and JUSCO USA.(5)
10.27 First Amendment to the Revolving Credit Agreement dated as of
January 25, 1994 between Talbots and The Dai-Ichi Kangyo Bank,
Ltd. dated November 21, 1995.(6)
10.28 First Amendment to the Revolving Credit Agreement dated as of
January 25, 1994 between Talbots and The Norinchukin Bank
dated November 21, 1995.(6)
10.29 First Amendment to the Revolving Credit Agreement dated as of
January 25, 1994 between Talbots and The Sakura Bank, Ltd.
dated November 21, 1995.(6)
10.30 First Amendment to the Revolving Credit Agreement dated as of
January 25, 1994 between Talbots and The Bank of Tokyo Trust
Co. dated November 21, 1995.(6)
10.31 Termination Agreement dated as of November 27, 1995 between
Talbots and The Daiwa Bank, Ltd., New York Branch.(6)
10.32 HongkongBank Letter of Credit Service Agreement, dated as of
April 19, 1996 together with a Continuing Commercial Letter of
Credit and Security Agreement dated May 15, 1996 and a Hexagon
Customer Agreement, dated
24
<PAGE> 25
May 15, 1996, between Talbots and The Hongkong and Shanghai
Banking Corporation Limited.(7)
10.33 Amendment to License Agreement, dated January 29, 1997, among
The Classics Chicago, Inc., Talbots, Talbots International
Retailing Limited, Inc., Talbots (Canada), Inc., and Talbots
(U.K.) Retailing, Ltd.(7)
10.34 Third Amendment to the Revolving Credit Agreement between
Talbots and The Sakura Bank, Limited, New York Branch, dated
as of January 28, 1998.(9)
10.35 Revolving Credit Agreement between Talbots and The Dai-Ichi
Kangyo Bank, Limited, dated as of April 14, 1998.(9)
10.36 Credit Agreement between Talbots and The Bank of
Tokyo-Mitsubishi, Ltd., New York Branch, dated as of April 17,
1998.(9)
10.37 Fourth Amendment to the Revolving Credit Facility between
Talbots and The Sakura Bank, Limited, New York Branch, dated
as of April 17, 1998.(9)
10.38 Third Amendment Agreement between Talbots and The Norinchukin
Bank, New York Branch, dated as of April 17, 1998.(9)
10.39 Third Amendment to the Revolving Credit Agreement between
Talbots and The Dai-Ichi Kangyo Bank, Limited, dated as of
April 17, 1998.(9)
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS AND ARRANGEMENTS.
10.40 Contract between Masaharu Isogai and Talbots, dated as of
November 18, 1993.(2)
10.41 Talbots Phantom Stock Plan, effective as of January 29,
1989.(1)
10.42 Amendment No. 1 to the Talbots Phantom Stock Plan, dated as of
November 18, 1993.(2)
10.43 The Talbots, Inc. Supplemental Retirement Plan, effective as
of June 27, 1988.(1)
10.44 The Talbots, Inc. Supplemental Savings Plan (amended and
restated as of January 1, 1993).(1)
10.45 The Talbots, Inc. Deferred Compensation Plan (amended and
restated as of January 1, 1993).(1)
25
<PAGE> 26
10.46 The Talbots, Inc. Supplemental Benefits Trust Agreement, dated
as of November 18, 1993, between Talbots and State Street Bank
and Trust Company.(2)
10.47 The Talbots, Inc. 1993 Executive Stock Based Incentive
Plan.(2)
10.48 Employment Agreement, dated as of October 22, 1993, between
Arnold B. Zetcher and Talbots1 as amended by Amendment No. 1
dated May 11, 1994.(4)
10.49 Amendment No. 1 to The Talbots, Inc. Supplemental Retirement
Plan, dated as of November 18, 1993.(2)
10.50 Amendment No. 1 to The Talbots, Inc. Supplemental Savings
Plan, dated as of November 18, 1993.(2)
10.51 Amendment No. 1 to The Talbots, Inc. Deferred Compensation
Plan, dated as of November 18, 1993.(2)
10.52 Employment Agreement, dated as of October 22, 1993, between
Clark Hinkley and The Talbots, Inc.(2) as amended by Amendment
No. 1 dated May 11, 19944 and as supplemented by Agreement and
Release dated as of November 30, 1997.(9)
10.53 Change in Control Agreements, dated as of November 11, 1993,
between Talbots and each of J. Bruce Ash, Edward Larsen,
Michele Mandell, Richard T. O'Connell, Bruce Soderholm, Stuart
Stolper, Paul Kastner, Sandy Katz and Lucy Main Tweet.(2)
10.54 Change in Control Agreements, dated August 22, 1994, between
Talbots and each of Judith O'Keefe and Bruce Prescott.(4)
10.55 Employment Agreement, dated as of October 27, 1997, between
the Company and Mark Shulman.(8)
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 Incorporated by reference to footnote 11 "Reconciliation of
Basic to Diluted Net Income Per Share" on page 31 of Talbots
Annual Report to Shareholders for the fiscal year ended
January 31, 1998.
(13) ANNUAL REPORT TO SECURITY HOLDERS
13.1 Excerpts from the 1997 Annual Report of Talbots incorporated
by reference.
26
<PAGE> 27
(21) SUBSIDIARIES.
21.1 List of subsidiaries of Talbots.(1)
(23) CONSENTS OF EXPERTS AND COUNSEL.
23.1 Independent Auditors' Consent of Deloitte & Touche LLP.
(27) FINANCIAL DATA SCHEDULES.
27.1 Amended and Restated Financial Data Schedule for the quarter
ended May 4, 1996, submitted to the Securities and Exchange
Commission in electronic format.
27.2 Amended and Restated Financial Data Schedule for the
twenty-six weeks ended August 3, 1996, submitted to the
Securities and Exchange Commission in electronic format.
27.3 Amended and Restated Financial Data Schedule for the
thirty-nine weeks ended November 2, 1996, submitted to the
Securities and Exchange Commission in electronic format.
27.4 Amended and Restated Financial Data Schedule for the year
ended February 1, 1997, submitted to the Securities and
Exchange Commission in electronic format.
27.5 Restated Financial Data Schedule for the quarter ended May 3,
1997, submitted to the Securities and Exchange Commission in
electronic format.
27.6 Amended and Restated Financial Data Schedule for the
twenty-six weeks ended August 2, 1997, submitted to the
Securities and Exchange Commission in electronic format.
27.7 Amended and Restated Financial Data Schedule for the
thirty-nine weeks ended November 1, 1997, submitted to the
Securities and Exchange Commission in electronic format.
27.8 Financial Data Schedule for the year ended January 31, 1998,
submitted to the Securities and Exchange Commission in
electronic format.
- ----------
(1) Incorporated by reference to the exhibits filed with Talbots
Registration Statement on Form S-1 (No. 33-69082), which Registration Statement
became effective November 18, 1993.
27
<PAGE> 28
(2) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated April 25, 1994.
(3) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated February 21, 1995.
(4) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated April 27, 1995.
(5) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated May 23, 1997.
(6) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated November 21, 1995.
(7) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated April 30, 1997.
(8) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated October 27, 1997.
(9) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated November 30, 1997.
(b) REPORT ON FORM 8-K: Reports on Form 8-K filed during the fourth quarter
of fiscal 1997:
(I) Current Report on Form 8-K dated October 27, 1997 and
filed December 15, 1997 concerning an employment
agreement between Talbots and Mark Shulman.
With the exception of the information incorporated by reference to the Annual
Report to Shareholders in Items 5, 6, 7 and 8 of Part II and Item 14 of Part IV
of this Annual Report, Talbots 1997 Annual Report to Shareholders is not to be
deemed filed as part of this Annual Report.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: May 1, 1998
THE TALBOTS, INC.
(Registrant)
By /s/ Edward Larsen
------------------------------------------
Edward L. Larsen
Senior Vice President, Finance, Chief
Financial Officer and Treasurer (Principal
Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of May 1, 1998:
/s/ Arnold B. Zetcher /s/ Masaharu Isogai
- ---------------------------------- -------------------------
Arnold B. Zetcher Masaharu Isogai
President and Chief Executive Director
Officer and Director
/s/ Elizabeth T. Kennan
- ---------------------------------- -------------------------
Takuya Okada Elizabeth T. Kennan
Chairman of the Board of Director
Directors
- ---------------------------------- -------------------------
Eiji Akiyama Motoya Okada
Director Director
/s/ Mark Shulman /s/ Mark H. Willes
- ---------------------------------- -------------------------
Mark Shulman Mark H. Willes
Officer and Director Director
<PAGE> 30
EXHIBIT INDEX
EXHIBIT
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Certificate of Incorporation, as amended, of Talbots.(1)
3.2 By-laws of Talbots.(1)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1 Form of Common Stock Certificate of Talbots.(1)
(10) MATERIAL CONTRACTS.
10.1 Stockholders Agreement, dated as of November 18, 1993, between
Talbots and JUSCO USA.(2)
10.2 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Dai-Ichi Kangyo Bank, Limited.(2)
10.3 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Bank of Tokyo Trust Company.(2)
10.4 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Norinchukin Bank.(2)
10.5 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Daiwa Bank, Limited.(2)
10.6 Revolving Credit Agreement, dated as of January 25, 1994
between Talbots and The Sakura Bank, Limited.(2)
10.7 Letter Agreement, dated as of January 31, 1994, concerning
various credit facilities, between Talbots and The First
National Bank of Boston.(2)
10.8 Letter Agreement, dated as of September 26, 1994, concerning
various credit facilities, between Talbots and The First
National Bank of Boston.(4)
10.9 Letter of Credit Agreement, dated as of August 10, 1993,
between Talbots and The First National Bank of Boston.(1)
10.10 Request for Extension dated December 20, 1996, relating to the
Revolving Credit Agreement, from Talbots to The Dai-Ichi
Kangyo Bank, Limited,
<PAGE> 31
together with a Confirmation of Extension letter dated January
28, 1997 from The Dai-Ichi Kangyo Bank, Limited to Talbots.(7)
10.11 Request for Extension dated December 28, 1994, relating to the
Revolving Credit Agreement, from Talbots to The Daiwa Bank,
Limited, together with an acceptance letter dated January 27,
1995 from The Daiwa Bank, Limited to Talbots.(4)
10.12 Request for Extension dated December 20, 1996, relating to the
Revolving Credit Agreement, from Talbots to The Norinchukin
Bank, together with an Acceptance of Extension letter dated
January 17, 1997 from The Norinchukin Bank to Talbots.(7)
10.13 Request for Extension dated December 20, 1996, relating to the
Revolving Credit Agreement, from Talbots to The Sakura Bank,
Limited, together with an acceptance letter dated January 24,
1997 from The Sakura Bank, Limited to Talbots.(7)
10.14 Request for Extension dated December 20, 1996, relating to the
Revolving Credit Agreement, from Talbots to The Bank of
Tokyo-Mitsubishi Trust Company, together with an Acceptance of
Extension letter dated January 27, 1997 from The Bank of Tokyo
Trust Company to Talbots.(7)
10.15 Trademark Purchase and License Agreement, dated as of November
26, 1993, between JUSCO (Europe) B.V. and The Classics
Chicago, Inc.(2)
10.16 Management Service Agreement, effective as of February 1,
1990, by and between Talbots Japan Co., Ltd. and Talbots.(1)
10.17 Services Agreement, dated as of November 18, 1993, between
Talbots Japan Co., Ltd. and Talbots.(2)
10.18 Stock Purchase Agreement, dated as of November 26, 1993,
between Talbots and JUSCO.(2)
10.19 License Agreement, dated as of November 26, 1993, between The
Classics Chicago, Inc., Talbots, Talbots International
Retailing Limited, Inc., Talbots (Canada), Inc. and Talbots
(U.K.) Retailing Limited.(2)
10.20 Tax Allocation Agreement, dated as of November 18, 1993,
between JUSCO USA, Talbots, Talbots International Retailing
Limited, Inc., Talbots (U.K.) Retailing Limited and The
Classics Chicago, Inc.(2)
10.21 The Talbots, Inc. Pension Plan for Salaried Employees, as
amended and restated January 1, 1989, including amendments
through January 1, 1994.(4)
<PAGE> 32
10.22 The Talbots, Inc. Retirement Savings Voluntary Plan, as
amended and restated, effective as of November 1, 1993.(4)
10.23 Agreement, dated as of November 26, 1993, between JUSCO
(Europe) B.V. and Talbots concerning the termination of the
License Agreement, effective as of June 26, 1988, between
JUSCO Europe and Talbots.(2)
10.24 Services Agreement, dated as of October 29, 1989, between
Talbots and JUSCO USA.(1)
10.25 Share Purchase Agreement dated as of February 21, 1995 between
Talbots and JUSCO USA.(3)
10.26 Second Extension of Share Repurchase Program, dated as of May
23, 1997, between Talbots and JUSCO USA.(5)
10.27 First Amendment to the Revolving Credit Agreement dated as of
January 25, 1994 between Talbots and The Dai-Ichi Kangyo Bank,
Ltd. dated November 21, 1995.(6)
10.28 First Amendment to the Revolving Credit Agreement dated as of
January 25, 1994 between Talbots and The Norinchukin Bank
dated November 21, 1995.)(6)
10.29 First Amendment to the Revolving Credit Agreement dated as of
January 25, 1994 between Talbots and The Sakura Bank, Ltd.
dated November 21, 1995.(6)
10.30 First Amendment to the Revolving Credit Agreement dated as of
January 25, 1994 between Talbots and The Bank of Tokyo Trust
Co. dated November 21, 1995.(6)
10.31 Termination Agreement dated as of November 27, 1995 between
Talbots and The Daiwa Bank, Ltd., New York Branch.(6)
10.32 HongkongBank Letter of Credit Service Agreement, dated as of
April 19, 1996 together with a Continuing Commercial Letter of
Credit and Security Agreement dated May 15, 1996 and a Hexagon
Customer Agreement, dated May 15, 1996, between Talbots and
The Hongkong and Shanghai Banking Corporation Limited.(7)
10.33 Amendment to License Agreement, dated January 29, 1997, among
The Classics Chicago, Inc., Talbots, Talbots International
Retailing Limited, Inc., Talbots (Canada), Inc., and Talbots
(U.K.) Retailing, Ltd.(7)
<PAGE> 33
10.34 Third Amendment to the Revolving Credit Agreement between
Talbots and The Sakura Bank, Limited, New York Branch, dated
as of January 28, 1998.(9)
10.35 Revolving Credit Agreement between Talbots and The Dai-Ichi
Kangyo Bank, Limited, dated as of April 14, 1998.(9)
10.36 Credit Agreement between Talbots and The Bank of
Tokyo-Mitsubishi, Ltd., New York Branch, dated as of April 17,
1998.(9)
10.37 Fourth Amendment to the Revolving Credit Facility between
Talbots and The Sakura Bank, Limited, New York Branch, dated
as of April 17, 1998.(9)
10.38 Third Amendment Agreement between Talbots and The Norinchukin
Bank, New York Branch, dated as of April 17, 1998.(9)
10.39 Third Amendment to the Revolving Credit Agreement between
Talbots and The Dai-Ichi Kangyo Bank, Limited, dated as of
April 17, 1998.(9)
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS AND ARRANGEMENTS.
10.40 Contract between Masaharu Isogai and Talbots, dated as of
November 18, 1993.(2)
10.41 Talbots Phantom Stock Plan, effective as of January 29,
1989.(1)
10.42 Amendment No. 1 to the Talbots Phantom Stock Plan, dated as of
November 18, 1993.(2)
10.43 The Talbots, Inc. Supplemental Retirement Plan, effective as
of June 27, 1988.(1)
10.44 The Talbots, Inc. Supplemental Savings Plan (amended and
restated as of January 1, 1993).(1)
10.45 The Talbots, Inc. Deferred Compensation Plan (amended and
restated as of January 1, 1993).(1)
10.46 The Talbots, Inc. Supplemental Benefits Trust Agreement, dated
as of November 18, 1993, between Talbots and State Street Bank
and Trust Company.(2)
10.47 The Talbots, Inc. 1993 Executive Stock Based Incentive
Plan.(2)
10.48 Employment Agreement, dated as of October 22, 1993, between
Arnold B. Zetcher and Talbots(1) as amended by Amendment No. 1
dated May 11, 1994.(4)
<PAGE> 34
10.49 Amendment No. 1 to The Talbots, Inc. Supplemental Retirement
Plan, dated as of November 18, 1993.(2)
10.50 Amendment No. 1 to The Talbots, Inc. Supplemental Savings
Plan, dated as of November 18, 1993.(2)
10.51 Amendment No. 1 to The Talbots, Inc. Deferred Compensation
Plan, dated as of November 18, 1993.(2)
10.52 Employment Agreement, dated as of October 22, 1993, between
Clark Hinkley and The Talbots, Inc.2 as amended by Amendment
No. 1 dated May 11, 19944 and as supplemented by Agreement and
Release dated as of November 30, 1997.(9)
10.53 Change in Control Agreements, dated as of November 11, 1993,
between Talbots and each of J. Bruce Ash, Edward Larsen,
Michele Mandell, Richard T. O'Connell, Bruce Soderholm, Stuart
Stolper, Paul Kastner, Sandy Katz and Lucy Main Tweet.(2)
10.54 Change in Control Agreements, dated August 22, 1994, between
Talbots and each of Judith O'Keefe and Bruce Prescott.(4)
10.55 Employment Agreement, dated as of October 27, 1997, between
the Company and Mark Shulman.(8)
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 Incorporated by reference to footnote 11 "Reconciliation of
Basic to Diluted Net Income Per Share" on page 31 of Talbots
Annual Report to Shareholders for the fiscal year ended
January 31, 1998.
(13) ANNUAL REPORT TO SECURITY HOLDERS
13.1 Excerpts from the 1997 Annual Report of Talbots incorporated
by reference.
(21) SUBSIDIARIES.
21.1 List of subsidiaries of Talbots.(1)
(23) CONSENTS OF EXPERTS AND COUNSEL.
23.1 Independent Auditors' Consent of Deloitte & Touche LLP.
<PAGE> 35
(27) FINANCIAL DATA SCHEDULES.
27.1 Amended and Restated Financial Data Schedule for the quarter
ended May 4, 1996, submitted to the Securities and Exchange
Commission in electronic format.
27.2 Amended and Restated Financial Data Schedule for the
twenty-six weeks ended August 3, 1996, submitted to the
Securities and Exchange Commission in electronic format.
27.3 Amended and Restated Financial Data Schedule for the
thirty-nine weeks ended November 2, 1996, submitted to the
Securities and Exchange Commission in electronic format.
27.4 Amended and Restated Financial Data Schedule for the year
ended February 1, 1997, submitted to the Securities and
Exchange Commission in electronic format.
27.5 Restated Financial Data Schedule for the quarter ended May 3,
1997, submitted to the Securities and Exchange Commission in
electronic format.
27.6 Amended and Restated Financial Data Schedule for the
twenty-six weeks ended August 2, 1997, submitted to the
Securities and Exchange Commission in electronic format.
27.7 Amended and Restated Financial Data Schedule for the
thirty-nine weeks ended November 1, 1997, submitted to the
Securities and Exchange Commission in electronic format.
27.8 Financial Data Schedule for the year ended January 31, 1998,
submitted to the Securities and Exchange Commission in
electronic format.
- --------------------
(1) Incorporated by reference to the exhibits filed with Talbots
Registration Statement on Form S-1 (No. 33-69082), which Registration Statement
became effective November 18, 1993.
(2) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated April 25, 1994.
(3) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated February 21, 1995.
(4) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated April 27, 1995.
<PAGE> 36
(5) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated May 23, 1997.
(6) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated November 21, 1995.
(7) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated April 30, 1997.
(8) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated October 27, 1997.
(9) Incorporated by reference to the exhibits filed with Talbots Current
Report on Form 8-K dated November 30, 1997.
<PAGE> 37
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
The Talbots, Inc.:
We have audited the consolidated financial statements of The Talbots, Inc. as of
January 31, 1998 and February 1, 1997, and for each of the three years in the
period ended January 31, 1998, and have issued our report thereon dated March
11, 1998; such financial statements and report are included in your 1997 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of The Talbots, Inc., listed in Item
14. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
March 11, 1998
Boston, Massachusetts
F-1
<PAGE> 38
SCHEDULE II
The Talbots, Inc. and Subsidiaries
Valuation and Qualifying Accounts and Reserves
Three Years Ended January 31, 1998
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
-------------------------
Balance at Charged to Charged to
Beginning of Costs and Other Deductions Balance at
Description Period Expenses Accounts (A) End of Period
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDED JANUARY 31, 1998
Allowance for doubtful accounts
(deducted from accounts
receivable) $1,200 3,254 -- 3,054 $1,400
YEAR ENDED FEBRUARY 1, 1997
Allowance for doubtful accounts
(deducted from accounts
receivable) $1,135 1,798 -- 1,733 $1,200
YEAR ENDED FEBRUARY 3, 1996
Allowance for doubtful accounts
(deducted from accounts
receivable) $1,050 1,651 -- 1,566 $1,135
</TABLE>
(A) Write-off of uncollectible accounts net of recoveries.
F-2
<PAGE> 1
TALBOTS 1997 ANNUAL REPORT
FIVE YEAR FINANCIAL SUMMARY
Dollar amounts in thousands except per share data
The following selected financial data have been derived from the Company's
consolidated financial statements. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------------
January 31, February 1, February 3, January 28, January 29,
1998 1997 1996 1995 1994
Statement of Earnings Information: (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,053,806 $1,018,801 $981,042 $879,585 $736,738
.................................................................................................................................
Net income 5,838 63,621 62,600 54,457 35,153
.................................................................................................................................
Net income per share - basic $0.18 $1.92 $1.82 $1.56 $1.42
.................................................................................................................................
Net income per share - assuming dilution $0.18 $1.91 $1.82 $1.56 $1.42
.................................................................................................................................
Weighted average number of shares of common
stock outstanding (in thousands) - basic 32,386 33,185 34,395 34,908 24,782
.................................................................................................................................
Weighted average number of shares of common
stock outstanding (in thousands) - assuming dilution 32,436 33,283 34,471 34,949 24,798
.................................................................................................................................
Cash dividends per share $0.42 $0.34 $0.26 $0.18 --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Information:
- ---------------------------------------------------------------------------------------------------------------------------------
Working capital $145,101 $184,442 $161,361 $137,864 $89,462
.................................................................................................................................
Total assets 676,433 621,789 572,111 532,514 485,920
.................................................................................................................................
Total long-term debt, including current portion 50,000 50,000 50,000 35,000 35,000
.................................................................................................................................
Stockholders' equity 396,466 431,459 398,039 385,594 336,719
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
TALBOTS 1997 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company and the notes accompanying
the consolidated financial statements. The 1997 fiscal year had 52 weeks and
ended January 31, 1998. The 1996 fiscal year had 52 weeks and ended February 1,
1997. The 1995 fiscal year had 53 weeks and ended February 3, 1996. When
comparing fiscal 1996 to fiscal 1995, the comparable 52 week period for fiscal
1995 excludes the first week of the 53 week year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of earnings for the fiscal periods shown below:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy expenses 70.3% 63.7% 62.7%
Selling, general and administrative expenses 28.1% 25.6% 26.2%
Operating income 1.6% 10.7% 11.1%
Interest expense, net 0.7% 0.5% 0.4%
Income before taxes 0.9% 10.2% 10.6%
Income taxes 0.3% 3.9% 4.3%
Net income 0.6% 6.2% 6.4%
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased by $35.0 million, to $1,053.8 million, or 3.4% over
1996. Operating income was $17.1 million in 1997 compared to $108.8 million in
1996.
Retail store sales in 1997 increased by $55.6 million, to $894.6 million,
or 6.6% over 1996. The percentage of the Company's net sales derived from its
retail stores increased to 84.9% in 1997 from 82.4% in 1996. The increase in
retail store sales as a percentage of the Company's total net sales was due to
the growth in retail store sales and a decrease in catalog sales. The increase
in retail store sales was attributable to the 68 net new stores opened in 1997
and the first full year of operation of the 75 non-comparable stores that opened
in 1996, and was partially offset by a $12.1 million decline, or 1.8%, in
comparable store sales from the previous year. Comparable stores are those which
were open for at least one full fiscal year. When a new Talbots Petites store or
a new Talbots Accessories & Shoes store is opened adjacent to or in close
proximity to an existing comparable Misses store, such Misses store is excluded
from the computation of comparable store sales for a period of 13 months so that
the performance of the full Misses assortment may be properly compared. The
Company believes that the decrease in comparable store sales was mainly the
result of weak customer response to changes in its traditional merchandise
styling and fit, which were not appropriate for the Company's core customer. The
Company is addressing these merchandise issues by developing merchandise with
more classic styling, fit and colors.*
Catalog sales in 1997 decreased by $20.6 million, to $159.2 million, or
11.5% less than 1996. The percentage of the Company's total sales derived from
its catalog decreased to 15.1% in 1997 from 17.6% in 1996. Catalog productivity,
as measured by sales per catalog, decreased 15.5% in 1997 to $3.06 from $3.62 in
1996. The decline in catalog sales and productivity was due both to presentation
changes in early spring and fall catalogs as well as weak customer response to
merchandise styling and fit. To address these issues, the Company changed
subsequent catalog formats back to what it believes are more successful
presentations and is developing merchandise with more classic styling, fit and
colors.* Catalog circulation increased to approximately 52.0 million catalogs in
1997, from 49.7 million catalogs in 1996.
Cost of sales, buying and occupancy expenses increased as a percentage of
net sales to 70.3% from 63.7% in 1996 mainly due to lower merchandise margins,
which were negatively impacted by the liquidation of excess inventory
accumulated because of lower than anticipated sales. Also contributing to the
increase were higher store occupancy costs as a percentage of sales.
<PAGE> 3
TALBOTS 1997 ANNUAL REPORT
Selling, general and administrative expenses increased as a percentage of
net sales to 28.1% in 1997 from 25.6% in 1996. The increase in selling, general
and administrative expenses as a percentage of net sales was mainly due to
incremental payroll and store operating costs to provide increased customer
service and to support the fall introduction of the Company's "Brand Essence"
advertising campaign. Also contributing to the increase were higher marketing
expenses related to the advertising campaign and increased costs associated with
the recruitment and hiring as well as other costs related to certain key
executives.
Interest expense, net, increased by $2.3 million, to $7.6 million in 1997,
due to higher average debt levels and an increase in interest rates. The average
total debt, including short-term and long-term bank borrowings, was $134.4
million in 1997 compared to $109.3 million in 1996. The increase in borrowings
was mainly due to lower than anticipated net income, the build-up of inventories
in anticipation of improved sales trends and the funding of the Company's stock
repurchase program. The average interest rate, including interest on short-term
and long-term bank borrowings, was 6.22% in 1997 compared to 6.07% in 1996.
The effective tax rate for the Company remained 38.5% in 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased by $37.8 million, to $1,018.8 million, or 3.9% over
1995. Operating income was $108.8 million in 1996 compared to $108.6 million in
1995.
Retail store sales in 1996 increased by $39.3 million, to $839.0 million,
or 4.9% over 1995. The retail store sales attributable to the extra week in 1995
were $9.6 million. The percentage of the Company's net sales derived from its
retail stores increased to 82.4% in 1996 from 81.5% in 1995. The increase in
retail store sales as a percentage of the Company's total net sales was due to
the growth in retail store sales and a decrease in catalog sales. The increase
in retail store sales was attributable to the 75 new stores opened in 1996 and
the first full year of operation of the 65 non-comparable stores that opened in
1995, and was partially offset by a $19.3 million or a 3.1% decline in
comparable store sales on a 52-week comparison basis, over the previous year.
Catalog sales in 1996 decreased by $1.5 million, to $179.8 million, or 0.8%
less than 1995. The catalog sales attributable to the extra week in 1995 were
$2.9 million. The percentage of the Company's total sales derived from its
catalog decreased to 17.6% in 1996 from 18.5% in 1995. The decline in catalog
sales was largely due to the planned reduction in catalog circulation intended
to offset the increased cost of paper used to print the catalogs. The plan
included a reduction in the number of catalogs mailed to less likely to buy
customers and also an increase in the number of pages in individual catalogs
mailed to the Company's best customers. Catalog circulation decreased to 49.7
million catalogs in 1996, from 53.3 million catalogs in 1995 on a comparable
52-week basis. Catalog productivity, as measured by sales per catalog on a
comparable 52-week basis, increased 8.1% in 1996 to $3.62 from $3.35 in 1995.
Cost of sales, buying and occupancy expenses increased as a percentage of
net sales to 63.7% from 62.7% in 1995 due to higher store occupancy costs as a
percentage of sales, which more than offset an improvement in merchandise
margin.
Selling, general and administrative expenses decreased as a percentage of
net sales to 25.6% in 1996 from 26.2% in 1995. The decrease in selling, general
and administrative expenses as a percentage of net sales was due to continued
tight control over corporate overhead expenses and an increase in finance charge
income, related to higher customer accounts receivable, which resulted from the
reduction in minimum payment terms on the Company's charge card. The increase in
customer accounts receivable did not adversely impact the Company's bad debt
expense ratio.
Interest expense, net, increased by $1.1 million, to $5.3 million in 1996,
due to higher average debt levels which more than offset a decrease in interest
rates. The average total debt, including short-term and long-term bank
borrowings, was $109.3 million in 1996 compared to $80.0 million in 1995. The
increase in borrowings supported the build-up of inventories to support new
stores and the Company's stock repurchase program. The average interest rate,
including interest on short-term and long-term bank borrowings, was 6.07% in
1996 compared to 6.88% in 1995.
The effective tax rate for the Company declined to 38.5% in 1996 from 40.0%
in 1995 following the identification and implementation of several tax
strategies at the federal, state and international level.
<PAGE> 4
TALBOTS 1997 ANNUAL REPORT
SEASONALITY AND QUARTERLY FLUCTUATIONS
The nature of the Company's business is to have two distinct selling
seasons, spring and fall. The first and second quarters make up the spring
season and the third and fourth quarters make up the fall season. Within the
spring season, catalog sales are stronger in the first quarter while retail
store sales are stronger in the second quarter. Within the fall season, catalog
sales and retail store sales are generally the strongest in the fourth quarter.
Historically, catalog sales had been higher during the first and third quarters
due to the timing of catalog circulation and the placement of customer orders
early in the season. However, as shopping patterns have changed and customers
are buying closer to time of need, the difference in catalog sales between the
third and fourth quarters has diminished. Retail store sales typically peak in
the fourth quarter due to the holiday season and the impact of new stores opened
during the year. From a total Company perspective, the highest sales are in the
fourth quarter.
The following table sets forth certain items in the Company's unaudited
quarterly consolidated statements of earnings as a percentage of net sales. The
information as to any one quarter is not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
Fiscal Quarter Ended
- ----------------------------------------------------------------------------------------------------------------
May 3, August 2, November 1, January 31,
1997 1997 1997 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy expenses 59.9% 80.2% 61.5% 77.9%
Selling, general and administrative expenses 28.5% 26.8% 30.5% 26.7%
Operating income (loss) 11.6% (6.9)% 8.0% (4.6)%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
May 4, August 3, November 2, February 1,
1996 1996 1996 1997
- ----------------------------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy expenses 56.5% 69.8% 58.9% 68.5%
Selling, general and administrative expenses 28.4% 25.0% 27.3% 22.7%
Operating income 15.1% 5.2% 13.7% 8.9%
</TABLE>
The Company's merchandising strategy focuses on liquidating seasonal
inventory at the end of each selling season. Generally, the Company achieves
this goal by conducting major sale events at the end of the second and fourth
quarters. These events produce an increase in sales volume; however, since
marking down the value of inventory increases expense, the Company's cost of
sales, buying and occupancy expenses as a percentage of net sales is increased.
Merchandise inventories typically reach their highest level in the third
quarter.
The Company's selling, general and administrative expenses are strongly
affected by the seasonality of sales. The two key elements of this seasonality
are (1) the catalog circulation strategy, which affects catalog sales volume and
produces commensurately high catalog production costs and (2) the major
semiannual sale events in the second quarter and the fourth quarter, which
require additional store payroll and supplies. An additional factor is the
aggressive store expansion program, which results in having substantially more
stores open in the fall than at the beginning of the year and therefore results
in higher store payroll and operations-related expenses.
The combined effect of the patterns of net sales, cost of sales, buying and
occupancy expenses and selling, general and administrative expenses, described
above, has produced higher operating income margins in the first and third
quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flows from
operating activities and a line of credit facility from five banks, with maximum
available short-term borrowings of $125.0 million. At January 31, 1998 and
February 1, 1997, the Company had $100.0 million and $24.0 million outstanding
under the line of credit facility, respectively. Additionally, the Company has a
revolving credit facility with four banks (the "Facility") with maximum
available borrowings of $50.0 million. At January 31, 1998 and February 1, 1997
the Company's outstanding borrowings under the Facility were $50.0 million,
respectively. The Facility currently extends to January 28, 2000, subject to
annual extensions. The Company's working capital needs are typically at their
lowest during the spring season and peak during the fall selling season.
In March 1998, the Company received commitments from its banks to increase
the Facility to $100.0 million (the "New Facility"). The Company expects the New
Facility to be in place by the end of the first quarter of fiscal 1998.*
<PAGE> 5
TALBOTS 1997 ANNUAL REPORT
Cash provided by operating activities totaled $12.8 million in 1997. The
decrease in cash provided by operating activities from the prior year is mainly
due to lower net income, higher levels of inventory, higher prepaid income taxes
caused by an overestimation of taxable income and a smaller increase in accounts
payable, partially offset by the lack of growth in accounts receivable compared
to the prior year. The Company believes accounts receivable have remained level
with fiscal 1996 mainly because the effect of a fiscal 1996 reduction in the
minimum payment terms of the Company's charge card has been fully realized.
Cash provided by operating activities totaled $75.2 million in 1996. Major
changes included an increase in accounts payable due to the timing of
merchandise receipts, a build up of inventories necessary to support a 15.6%
increase in selling square footage from 1995 to 1996, and an increase in
customer accounts receivable following a reduction in the minimum payment terms
on the Company's charge card.
Cash used in investing activities for 1997 was $49.5 million. Of this
amount, approximately $42.8 million was used for leasehold improvements,
furniture, fixtures and other related expenditures for opening new stores and
expanding, renovating and relocating existing stores. Cash used in investing
activities for 1996 was $46.2 million. Of this amount, approximately $43.9
million was used for leasehold improvements, furniture, fixtures and other
related expenditures for opening new stores and expanding, renovating and
relocating existing stores.
Capital expenditures for 1998 are currently expected to be approximately
$40.0 million. The Company currently plans to open approximately 35 new stores
during 1998. Approximately $28.5 million is expected to be used for opening new
stores and expanding, renovating and relocating existing stores. Approximately
$5.2 million is expected to be used to enhance the Company's computer
information systems, and the remaining amount is expected to be used to initiate
expansions of the Company's Hingham and Lakeville facilities and for other
capital needs in the normal course of business. The actual amount of such
capital expenditures will depend on the number and type of stores being opened,
expanded, renovated and relocated, and the schedule for such activity during
1998.*
Cash provided by financing activities totaled $35.2 million in 1997. During
fiscal 1997 the Company paid cash dividends of $0.42 per share and repurchased
1,137,929 shares of Company common stock at an average price per share of
$24.18. The payment of cash dividends and the purchase of treasury stock in 1997
was funded through borrowings under the Company's existing credit facilities.
Cash used in financing activities totaled $31.6 million in 1996. During
fiscal 1996, the Company paid cash dividends of $0.34 per share and repurchased
738,835 shares of Company common stock at an average price per share of $27.88.
In 1997 and 1996 cash from operating activities and funds available to it
under the line of credit facility were sufficient to meet cash required for
capital expenditures, dividends and the purchase of treasury stock. The
Company's usage of the line of credit facility peaked at $120.0 million in 1997
and at $85.0 million in 1996. The Company's primary ongoing cash requirements
will be to fund new stores and the expansions, renovations and relocations of
existing stores, to finance working capital build-ups during peak selling
seasons and to pay cash dividends that may be declared from time to time.* For
the current fiscal year and next fiscal year, the Company believes its cash
flows from operating activities and funds available to it under credit
facilities, including its expected expanded credit facility, will be sufficient
to meet its capital expenditure and working capital requirements, including its
debt service payments.*
INFLATION AND CHANGING PRICES
Because the Company sells a wide range of products, which by their nature
are subject to constantly changing business strategies and competitive
positioning, it is not possible to attribute increases in retail sales or
catalog sales to specific changes in prices, changes in volume or changes in
product mix.
The Company has not experienced any significant impact from inflationary
factors. During 1996 the Company did experience the effects from increases in
the costs of postage and paper, which affected its catalog business. The Company
developed and implemented a strategy to reduce the number of catalogs circulated
in 1996 to help offset the effect of these cost increases. Paper prices
stabilized in 1997 and the Company expects prices to remain stable in 1998.*
EXCHANGE RATES
Most foreign purchase orders are denominated in U.S. dollars. Accordingly,
the Company has not experienced any significant impact from changes in exchange
rates.
<PAGE> 6
TALBOTS 1997 ANNUAL REPORT
NEW ACCOUNTING PRONOUNCEMENTS
For the fiscal period ended January 31, 1998, the Company adopted Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." SFAS No. 128 is intended to simplify the
standards for computing earnings per share and makes the United States standards
for computing earnings per share more comparable to international standards.
SFAS No. 128 requires the presentation of "basic" earnings per share (which
excludes dilution) and "diluted" earnings per share. SFAS No. 128 was applied
retroactively and had no material impact on the Company's net income per share
calculations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the Company for the period ending January 30,
1999. SFAS No. 130 has no impact on net income and requires that certain
components of stockholders' equity from nonowner sources be reclassified and
presented as "other comprehensive income." Currently the Company's consolidated
balance sheets contain one item, cumulative foreign currency translation
adjustment, that is a component of stockholders' equity that would be
reclassified as "other comprehensive income."
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for the Company for
the period ending January 30, 1999. The impact of SFAS No. 131 on the Company
has not yet been determined.
YEAR 2000
Most computer programs have historically been written using two digits
rather than four to define the applicable year. These programs were written
without considering the impact of the upcoming change in the century and may
experience problems handling dates beyond the year 1999. This could cause
computer applications to fail or to create erroneous results unless corrective
measures are taken. Incomplete or untimely resolution of the Year 2000 issue
could have a material adverse impact on the Company's business, operations and
financial condition in the future.*
The Company has completed an assessment of the impact of the Year 2000
issue on its computer hardware and software systems and has developed a plan to
timely address the Year 2000 issue. The Company is executing that plan and
currently believes that it will complete all phases of the plan without any
material adverse consequences to its business, operations, or financial
condition.* The Company will utilize both internal and external resources to
execute its Year 2000 plan. Based on current information, the Company estimates
that expenditures related to the execution of its Year 2000 plan will range from
approximately $11.0 million to $12.0 million.* Of this, approximately $3.0
million will be charged to expense when incurred; the remainder will be
capitalized in accordance with normal policy.* Of the total expected costs
related to the Year 2000 plan, certain costs for hardware and software were
budgeted to be incurred regardless of the Year 2000 issue.*
The Company has communicated with its significant suppliers and other
vendors to determine the extent to which the Company is vulnerable to the
failure of those third parties to remedy their own Year 2000 issues. The Company
can give no assurance that failure to address the Year 2000 issue by a third
party on whom the Company's systems rely would not have a material adverse
effect on the Company.*
*The foregoing contains forward-looking information within the meaning of The
Private Securities Litigation Reform Act of 1995. The statements may be
identified by an "asterisk" ("*") or such forward-looking terminology as
"expect", "look", "believe", "anticipate", "may", "will" or similar statements
or variations of such terms. Such forward-looking statements involve certain
risks and uncertainties including levels of sales, effectiveness of the
Company's brand awareness and marketing programs, store traffic, acceptance of
Talbots fashion and expansion plans, appropriate balance of merchandise
offerings and responsiveness of the Company's core customers, and timing and
levels of markdowns, and, in each case, actual results may differ materially
from such forward-looking information. Certain factors that may cause actual
results to differ from such forward-looking statements are included in the
Company's Current Report on Form 8-K dated October 30, 1996 filed with the
Securities and Exchange Commission (a copy of which may also be obtained from
the Company at 781-741-4500) as well as other periodic reports filed by the
Company with the Securities and Exchange Commission and you are urged to
consider such factors. The Company assumes no obligation for updating any such
forward-looking statements.
<PAGE> 7
TALBOTS 1997 ANNUAL REPORT
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Dollar amounts in thousands except per share data
Year Ended
-----------------------------------------------
JANUARY 31, February 1, February 3,
1998 1997 1996
(52 WEEKS) (52 Weeks) (53 weeks)
-----------------------------------------------
<S> <C> <C> <C>
NET SALES $1,053,806 $1,018,801 $981,042
COSTS AND EXPENSES:
Cost of sales, buying and occupancy 741,133 648,710 615,268
Selling, general and administrative 295,620 261,319 257,210
-----------------------------------------------
OPERATING INCOME 17,053 108,772 108,564
INTEREST EXPENSE - net 7,560 5,324 4,231
-----------------------------------------------
INCOME BEFORE TAXES 9,493 103,448 104,333
INCOME TAXES 3,655 39,827 41,733
-----------------------------------------------
NET INCOME $5,838 $63,621 $62,600
===============================================
NET INCOME PER SHARE - BASIC $0.18 $1.92 $1.82
===============================================
NET INCOME PER SHARE - ASSUMING DILUTION $0.18 $1.91 $1.82
===============================================
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING - BASIC (in thousands) 32,386 33,185 34,395
===============================================
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING - ASSUMING
DILUTION (in thousands) 32,436 33,283 34,471
===============================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
TALBOTS 1997 ANNUAL REPORT
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Dollar amounts in thousands except per share data
JANUARY 31, February 1,
1998 1997
----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,680 $ 12,348
Customer accounts receivable - net 97,092 97,274
Merchandise inventories 195,078 161,230
Deferred catalog costs 11,860 9,566
Due from affiliates 8,568 4,978
Deferred income taxes 6,862 3,319
Prepaid and other current assets 30,262 23,088
----------------------------------
Total current assets 360,402 311,803
PROPERTY AND EQUIPMENT - net 182,610 170,805
GOODWILL - net 40,888 42,233
INTANGIBLES - net 589 1,789
TRADEMARKS - net 85,421 87,805
DEFERRED INCOME TAXES 6,523 7,354
----------------------------------
TOTAL ASSETS $676,433 $621,789
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $100,000 $ 24,000
Accounts payable 58,010 54,658
Accrued liabilities 57,291 48,703
----------------------------------
Total current liabilities 215,301 127,361
LONG-TERM DEBT 50,000 50,000
DEFERRED RENT UNDER LEASE COMMITMENTS 14,666 12,969
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 40,000,000 authorized; 34,955,179 shares and
34,928,092 shares issued, respectively, and 31,805,415 shares and
32,916,257 shares outstanding, respectively 350 349
Additional paid-in capital 287,407 286,874
Retained earnings 199,657 207,433
Cumulative foreign currency translation adjustment (1,998) (1,154)
Restricted stock awards (529) (1,164)
Treasury stock, at cost (88,421) (60,879)
----------------------------------
Total stockholders' equity 396,466 431,459
----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $676,433 $621,789
==================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 9
TALBOTS 1997 ANNUAL REPORT
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollar amounts in thousands
Year Ended
--------------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
(52 Weeks) (52 Weeks) (53 Weeks)
--------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,838 $ 63,621 $ 62,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 40,392 35,095 33,607
Deferred rent 1,735 2,808 1,126
Amortization of restricted stock awards 780 637 637
Loss on disposal of property and equipment 1,913 857 1,296
Deferred income taxes (2,713) (2,835) 532
Changes in current assets and liabilities:
Customer accounts receivable 137 (23,496) (8,458)
Merchandise inventories (34,165) (17,556) (19,878)
Deferred catalog costs (2,294) 3,191 (3,988)
Due from affiliates (3,590) (970) (1,437)
Prepaid and other current assets (7,346) 63 (6,589)
Accounts payable 3,388 10,290 (13,468)
Accrued liabilities 8,676 3,522 929
Income taxes payable -- -- (448)
--------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,751 75,227 46,461
--------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (49,684) (47,539) (40,478)
Proceeds from disposal of property and equipment 144 1,302 14
--------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (49,540) (46,237) (40,464)
--------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable to banks 76,000 -- 24,000
Borrowings of long-term debt -- -- 15,000
Cash dividends (13,614) (11,280) (8,946)
Proceeds from options exercised 332 337 45
Purchase of treasury stock (27,542) (20,613) (40,266)
--------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 35,176 (31,556) (10,167)
--------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (55) 49 42
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,668) (2,517) (4,128)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,348 14,865 18,993
--------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,680 $ 12,348 $ 14,865
========================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 10
TALBOTS 1997 ANNUAL REPORT
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dollar amounts in thousands except share data
Cumulative
Foreign
Common Stock Additional Currency Deferred Total
----------------- Paid-in Retained Translation Pension Restricted Treasury Stockholders'
Shares Amount Capital Earnings Adjustment Cost Stock Awards Stock Equity
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 28, 1995 34,908,494 $349 $286,409 $101,438 $335 ($499) ($2,438) $ -- $385,594
Net income -- -- -- 62,600 -- -- -- -- 62,600
Cash dividends paid -- -- -- (8,946) -- -- -- -- (8,946)
Amortization of restricted
stock award -- -- -- -- -- -- 637 -- 637
Stock options exercised, including
tax benefit 2,332 -- 63 -- -- -- -- -- 63
Purchase of 1,273,000 shares of
common stock -- -- -- -- -- -- -- (40,266) (40,266)
Other equity transactions -- -- -- -- (1,672) 29 -- -- (1,643)
-----------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 3, 1996 34,910,826 349 286,472 155,092 (1,337) (470) (1,801) (40,266) 398,039
Net income -- -- -- 63,621 -- -- -- -- 63,621
Cash dividends paid -- -- -- (11,280) -- -- -- -- (11,280)
Amortization of restricted
stock award -- -- -- -- -- -- 637 -- 637
Stock options exercised, including
tax benefit 17,266 -- 402 -- -- -- -- -- 402
Purchase of 738,835 shares of
common stock -- -- -- -- -- -- -- (20,613) (20,613)
Other equity transactions -- -- -- -- 183 470 -- -- 653
-----------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 1, 1997 34,928,092 349 286,874 207,433 (1,154) -- (1,164) (60,879) 431,459
Net income -- -- -- 5,838 -- -- -- -- 5,838
Cash dividends paid -- -- -- (13,614) -- -- -- -- (13,614)
Common stock issued as restricted
stock award 12,000 -- 299 -- -- -- (299) -- --
Amortization of restricted
stock awards -- -- -- -- -- -- 780 -- 780
Stock options exercised, including
tax benefit 15,087 1 388 -- -- -- -- -- 389
Purchase of 1,137,929 shares of
common stock -- -- -- -- -- -- -- (27,542) (27,542)
Other equity transactions -- -- (154) -- (844) -- 154 -- (844)
-----------------------------------------------------------------------------------------------
BALANCE AT JANUARY 31, 1998 34,955,179 $350 $287,407 $199,657 ($1,998) $ -- ($529) ($88,421) $396,466
===============================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 11
TALBOTS 1997 ANNUAL REPORT
THE TALBOTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands except per share data
1. DESCRIPTION OF BUSINESS
The Talbots, Inc. (together with its subsidiaries, the "Company") is a
specialty retailer with a direct marketing catalog operation. On November
18, 1993, the Company effected an initial public offering of its common
stock (the "Offering"), issuing 12,621,594 shares of common stock. Prior to
the Offering, the Company was a wholly owned subsidiary of JUSCO (U.S.A.),
Inc. ("JUSCO (USA)"), which subsequent to the Offering, has continued to
own approximately 63.4% of the outstanding common stock of the Company. The
Company had been acquired by JUSCO (USA) in 1988 from General Mills, Inc.
The acquisition was accounted for under the purchase method of accounting
for business combinations.
The year ended January 31, 1998 was a 52 week reporting period, the year
ended February 1, 1997 was a 52 week reporting period and the year ended
February 3, 1996 was a 53 week reporting period. To conform with other
industry retailers, during fiscal 1995 the Company adopted the National
Retail Federation's fiscal calendar.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with Generally Accepted Accounting Principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates. Significant estimates included within the consolidated
financial statements include sales return reserve, inventory reserve,
allowance for doubtful accounts, and the lives of intangible assets.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with a purchased maturity of three months or less to be cash
equivalents.
CUSTOMER ACCOUNTS RECEIVABLE - Customer accounts receivable are amounts due
from customers on the Company's credit card, net of an allowance for
doubtful accounts of $1,400 and $1,200 as of January 31, 1998 and February
1, 1997, respectively.
DEFERRED CATALOG COSTS - Catalog costs, including the cost of production
and mailing, are deferred and amortized over the estimated productive
selling life of the catalog, generally three to five months.
MERCHANDISE INVENTORIES - Inventories are stated at the lower of average
cost or market using the retail inventory method on a FIFO (first-in,
first-out) basis.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization are provided over the following estimated
useful lives using the straight-line method:
<TABLE>
<CAPTION>
Description Years
---------------------------------------------------------------------------
<S> <C>
Buildings .............................. 15-50
Fixtures and equipment ................. 2-10
Software ............................... 5
Leasehold improvements ................. 5-15 or term of lease, if shorter
Leasehold interests .................... 4-20
</TABLE>
<PAGE> 12
TALBOTS 1997 ANNUAL REPORT
Leasehold interests were established in June 1988 and represent the present
value of the excess of market rental rates over actual rents payable over
the remaining lives of certain leases.
Expenditures for new properties and improvements to existing facilities are
capitalized, while the cost of maintenance is charged to expense. The cost
of property retired, or otherwise disposed of, and the accumulated
depreciation are eliminated from the related accounts, and the resulting
gain or loss is reflected in earnings.
GOODWILL - The excess of purchase price over net assets acquired is being
amortized over 40 years using the straight-line method. At January 31, 1998
and February 1, 1997 accumulated amortization on goodwill was $12,871 and
$11,527, respectively.
INTANGIBLES - Intangibles consist of the fair market value of existing
customer relationships established in June 1988 and are being amortized
using a surviving curve lifing analysis, which approximates straight-line,
over their lives of approximately nine years. At January 31, 1998 and
February 1, 1997, accumulated amortization on intangibles was $31,413 and
$30,213, respectively.
TRADEMARKS - In November 1993 the Company purchased certain trademarks,
including the Talbots trade name, from JUSCO (Europe) B.V., a related party
(See Note 5). The trademarks, which are registered in the U.S. Patent and
Trademark Office and may be renewed indefinitely, are being amortized over
40 years using the straight-line method. At January 31, 1998 and February
1, 1997 accumulated amortization on the trademarks was $9,950 and $7,565,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments
consist primarily of current assets (except inventories), current
liabilities and long-term debt. Current assets and current liabilities are
stated at fair market value; long-term debt, which is at current market
interest rates, approximates fair market value.
FINANCE CHARGE INCOME - Finance charge income on customer accounts
receivable is treated as a reduction of selling, general and administrative
expense. For the years ended January 31, 1998, February 1, 1997 and
February 3, 1996, the amounts were $14,701, $12,921 and $9,202,
respectively.
STOCK-BASED COMPENSATION - The Company accounts for stock-based
compensation awards to employees using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." (See Note 4)
FOREIGN CURRENCY TRANSLATION - The functional currency of the Company's
foreign operations is the applicable local currency. The translation of the
applicable foreign currency into U.S. dollars is performed for balance
sheet accounts using current exchange rates in effect at the balance sheet
date, and for revenue and expense accounts using the average rates of
exchange prevailing during the year. Adjustments resulting from such
translation are included as a separate component of stockholders' equity.
INCOME TAXES - In accordance with Statement of Financial Accounting
Standard ("SFAS") No. 109, deferred income taxes are provided to recognize
the effect of temporary differences between tax and financial statement
reporting.
BASIC AND DILUTED NET INCOME PER SHARE - Basic net income per share is
computed by dividing net income by the weighted average number of shares of
common stock outstanding. Diluted net income per share is computed by
dividing net income by the weighted average number of shares of common
stock outstanding plus the effect of all dilutive potential common shares
(as determined by the treasury stock method which includes the tax benefit
on assumed stock option exercises).
For the fiscal period ended January 31, 1998, the Company adopted SFAS No.
128, "Earnings per Share." SFAS No. 128 is intended to simplify the
standards for computing earnings per share and makes the United States
standards for computing earnings per share more comparable to international
standards. SFAS No. 128 requires the presentation of "basic " earnings per
share (which excludes dilution) and "diluted" earnings per share. SFAS No.
128 was applied retroactively and had no material impact on the Company's
net income per share calculations.
<PAGE> 13
TALBOTS 1997 ANNUAL REPORT
SUPPLEMENTAL CASH FLOW INFORMATION - Interest paid on a cash basis for the
years ended January 31, 1998, February 1, 1997 and February 3, 1996 was
$8,207, $6,659 and $5,406, respectively. Income tax payments during the
years ended January 31, 1998, February 1, 1997 and February 3, 1996, were
$14,517, $42,609 and $43,388, respectively.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the Company for the period ending January
30, 1999. SFAS No. 130 will have no impact on consolidated net income and
requires that certain components of stockholders' equity from nonowner
sources be reclassified and presented as "other comprehensive income."
Currently the Company's consolidated balance sheets contain one item,
cumulative foreign currency translation adjustment, that is a component of
stockholders' equity that would be reclassified as "other comprehensive
income."
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for the Company
for the period ending January 30, 1999. The impact of SFAS No. 131 on the
Company has not yet been determined.
RECLASSIFICATIONS - Certain reclassifications have been made to the
February 1, 1997 consolidated financial statements to conform with the
January 31, 1998 presentation.
3. EQUITY TRANSACTIONS
During the years ended January 31, 1998, February 1, 1997 and February 3,
1996, the Company declared and paid dividends totaling $0.42 per share,
$0.34 per share, and $0.26 per share, respectively.
On February 21, 1995, the Company adopted a stock repurchase plan
authorizing the purchase of up to one million shares of its common stock
outstanding over a two year period. The plan was completed in October 1995.
In November 1995, the plan was extended, authorizing the Company to
purchase up to an additional $40,000 of outstanding stock from time to time
over a two year period. In May 1997, this extended plan was completed and a
second extension of the Plan was authorized, allowing the Company to
purchase up to an additional $40,000 of outstanding stock from time to time
over a two year period. As of January 31, 1998, $14,188 of outstanding
stock had been purchased under the second extension. At January 31, 1998
and February 1, 1997, the Company held 3,149,764 and 2,011,835 shares,
respectively, as treasury shares.
4. STOCK OPTIONS
Effective June 1, 1995, the Company implemented a stock option plan for
members of its Board of Directors who do not qualify under other Company
option plans. The Company has reserved 130,000 shares of common stock for
issuance under the plan. The stock options vest over a three year period
and expire within ten years from the grant date. The stock options are
granted at a price equal to the fair market value of the Company's common
stock at the date of grant.
On November 18, 1993, the Company reserved 2,650,000 shares of common stock
for issuance pursuant to the Company's 1993 Executive Stock Based Incentive
Plan (the "Plan"). Under the provisions of the Plan, the Company issued to
certain key management personnel 163,450 shares of restricted stock. The
purchase price of the restricted stock was $.01 per share. The difference
between the market price of $19.50 per share and management's cost of $.01
per share for the restricted stock has been recorded as deferred
compensation and is being amortized over a five-year service period.
Additionally, in October 1997, 12,000 shares of restricted stock were
issued to a key executive for the purchase price of $0.01. The difference
between the market price of the restricted stock of $24.93 per share and
the cost of $0.01 per share was expensed immediately for 6,000 of such
shares and the remaining 6,000 shares are being amortized over a fifteen
month service period.
In accordance with the Plan, the Company has issued stock options which
vest over a three year period and expire not later than ten years from the
grant date. These stock options have been granted at fair market value at
the date of grant.
<PAGE> 14
TALBOTS 1997 ANNUAL REPORT
The following table contains information on the stock options.
<TABLE>
<CAPTION>
Weighted
Average Option
Shares Price per Share
--------------------------------------------------------------------------------
<S> <C> <C>
Granted:
Fiscal year 1997 516,425 $24.99
Fiscal year 1996 531,500 28.89
Fiscal year 1995 481,000 29.53
Fiscal year 1994 471,500 34.63
Fiscal year 1993 563,624 19.50
Exercised:
Fiscal year 1997 15,087 19.72
Fiscal year 1996 17,266 19.50
Fiscal year 1995 2,332 19.50
Fiscal year 1994 1,000 19.50
Forfeited:
Fiscal year 1997 114,170 29.44
Fiscal year 1996 6,001 31.95
Fiscal year 1994 1,500 19.50
Outstanding at year end:
Fiscal year 1997 2,406,693 27.24
Fiscal year 1996 2,019,525 27.85
Fiscal year 1995 1,511,292 27.41
Fiscal year 1994 1,032,624 26.41
Fiscal year 1993 563,624 19.50
Exercisable at year end:
Fiscal year 1997 1,470,231 27.48
Fiscal year 1996 1,026,821 25.83
Fiscal year 1995 528,555 24.00
Fiscal year 1994 186,375 19.50
</TABLE>
The following table sets forth information regarding options outstanding at
January 31, 1998.
<TABLE>
<CAPTION>
Weighted
Average Number
Number Exercise Remaining Currently
of Options Price Life Exercisable
----------------------------------------------------------------------
<S> <C> <C> <C>
526,772 $19.50 5.79 years 526,772
459,665 $34.63 6.77 years 459,665
5,000 $31.25 7.06 years 5,000
22,000 $33.00 7.33 years 14,665
437,665 $29.50 7.77 years 306,313
22,000 $32.63 8.33 years 7,332
417,166 $28.50 8.75 years 150,484
475,925 $24.94 9.74 years --
18,500 $28.75 9.37 years --
22,000 $26.25 9.33 years --
</TABLE>
<PAGE> 15
TALBOTS 1997 ANNUAL REPORT
The Company uses the intrinsic value method to measure compensation expense
associated with grants of stock options to employees. Had compensation cost
for the Company's stock option plans been determined based on the fair
value method at the grant date for awards in 1997, 1996 and 1995,
consistent with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and basic and diluted net income
per share would have been $1,427, $0.04 and $0.04 in 1997, $60,435, $1.82
and $1.82 in 1996 and $60,958, $1.77 and $1.77 in 1995, respectively.
The fair value of options on their grant date is measured using the
Black/Scholes option pricing model. The estimated weighted average fair
value of options granted during 1997, 1996 and 1995 were $11.58, $15.05 and
$15.83 per option, respectively. Key assumptions used to apply this pricing
model are as follows:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
1998 1997 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average risk free interest rate 6.0% 6.2% 6.0%
Weighted average expected life of option grants 8 years 8 years 8 years
Weighted average expected volatility of underlying stock 42.7% 46.2% 46.0%
Weighted average expected dividend payment rate,
as a percentage of the stock price on the date of grant 2.0% 1.2% 1.1%
</TABLE>
The option pricing model used was designed to value readily tradeable stock
options with relatively short lives. The options granted to employees are
not tradeable and have contractual lives of ten years. The Company believes
that the assumptions used to value the options and the model applied yield
a reasonable estimate of the fair value of the grants made under the
circumstances.
5. RELATED PARTY AND AFFILIATES
In November 1993 the Company purchased certain trademarks, including the
Talbots trade name, from JUSCO (Europe) B.V., a related party. JUSCO
(Europe) B.V. has retained rights to certain trademarks in specified Asian
territories.
JUSCO Company, Ltd. owns and operates stores in Japan under the name of
Talbots Japan Co., Ltd. ("Talbots Japan"). The Company provides certain
services for Talbots Japan and is reimbursed for expenses incurred. At
January 31, 1998 and February 1, 1997 the Company was owed $8,534 and
$4,954, respectively, for these costs and for merchandise inventory
purchases made on behalf of Talbots Japan.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
Land $ 11,011 $ 11,011
Buildings 38,956 37,488
Fixtures and equipment 181,794 156,802
Software 4,717 4,054
Leasehold improvements 101,117 90,859
Leasehold interests 7,477 8,275
Construction in progress 9,555 7,783
---------------------------------------------------------------------------
Property and equipment - gross 354,627 316,272
Less accumulated depreciation and amortization (172,017) (145,467)
---------------------------------------------------------------------------
Property and equipment - net $182,610 $170,805
========================
</TABLE>
<PAGE> 16
TALBOTS 1997 ANNUAL REPORT
7. DEBT
REVOLVING CREDIT - The revolving credit agreements with four banks have
maximum available borrowings of $50,000, have two year terms, are due
January 28, 2000 and can be extended annually. Interest terms on the
revolving credit agreements are negotiable, at the Company's option, for
periods of one, three or six months. The interest rates are currently set
at an adjusted LIBOR plus 0.5%. Under the agreements, the interest rate
terms were fixed at 6.47% at January 28, 1998 until July 28, 1998. At
January 31, 1998 and February 1, 1997 the Company had $50,000 outstanding
under its revolving credit agreements. None of the outstanding balance is
currently payable (See Note 12).
NOTES PAYABLE TO BANKS - The Company has available an unsecured
line-of-credit facility of $125,000 with five banks. At January 31, 1998
and February 1, 1997, $100,000 and $24,000, respectively, was outstanding
on this facility. The weighted average interest rate for the year ended
January 31, 1998 and February 1, 1997 was 6.13% and 5.85%, respectively.
LETTERS OF CREDIT - The Company has two letter-of-credit banking agreements
totaling $100,000, which it uses primarily for the purchase of merchandise
inventories. At January 31, 1998 and February 1, 1997, the Company held
$38,324 and $36,994, respectively, in commitments.
INTEREST EXPENSE - Interest expense for the years ended January 31, 1998,
February 1, 1997 and February 3, 1996, was $8,366, $6,636 and $5,500,
respectively.
8. INCOME TAXES
The provision for income taxes for the years ended January 31, 1998,
February 1, 1997 and February 3, 1996, consists of the following:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $7,290 $37,089 $33,448
State (923) 5,579 7,768
---------------------------------------------------------------------------
Total currently payable 6,367 42,668 41,216
---------------------------------------------------------------------------
Deferred:
Federal (1,288) (1,508) 354
State (1,424) (174) 163
Foreign -- (1,159) --
---------------------------------------------------------------------------
Total deferred (2,712) (2,841) 517
---------------------------------------------------------------------------
Total income tax expense $3,655 $39,827 $41,733
========================================
</TABLE>
<PAGE> 17
TALBOTS 1997 ANNUAL REPORT
The effect of temporary differences which gives rise to deferred income tax
balances at January 31, 1998 and February 1, 1997, respectively, are as
follows:
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
--------------------------------------------------------------------------------------------------------------------
Assets Liabilities Total Assets Liabilities Total
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES:
Current:
Merchandise inventories $2,684 -- $2,684 $813 -- $813
Deferred catalog costs -- ($1,259) (1,259) -- ($2,021) (2,021)
Accrued vacation pay 1,840 -- 1,840 1,645 -- 1,645
Deferred compensation 3,094 -- 3,094 2,621 -- 2,621
Other 2,177 (1,674) 503 1,968 (1,707) 261
--------------------------------------------------------------------------------------------------------------------
Total current 9,795 (2,933) 6,862 7,047 (3,728) 3,319
--------------------------------------------------------------------------------------------------------------------
Noncurrent:
Depreciation & amortization -- (1,512) (1,512) 1,322 -- 1,322
Lease commitments 4,693 -- 4,693 3,986 -- 3,986
Other 2,972 (789) 2,183 1,977 (1,090) 887
--------------------------------------------------------------------------------------------------------------------
Total noncurrent 7,665 (2,301) 5,364 7,285 (1,090) 6,195
--------------------------------------------------------------------------------------------------------------------
FOREIGN:
Noncurrent:
Subsidiary tax loss carryforwards 4,378 -- 4,378 3,424 -- 3,424
Less: valuation allowance (3,219) -- (3,219) (2,265) -- (2,265)
--------------------------------------------------------------------------------------------------------------------
Total noncurrent 1,159 -- 1,159 1,159 -- 1,159
--------------------------------------------------------------------------------------------------------------------
Total deferred income taxes $18,619 ($5,234) $13,385 $15,491 ($4,818) $10,673
===========================================================================
</TABLE>
At January 31, 1998, a consolidated foreign subsidiary of the Company had a
net operating loss carryforward which begins to expire in fiscal year 1998.
Management records a valuation allowance each year reflecting the
likelihood of the realization of the related deferred tax asset. For the
year ended January 31, 1998, the valuation allowance was increased by $954.
For the year ended February 1, 1997, the valuation allowance was reduced by
$458. The valuation allowance was increased $671 for the year ended
February 3, 1996.
At January 31, 1998, the Company had state net operating loss carryforwards
of $1,327 that expire in years 2000 through 2012.
For the years ended January 31, 1998, February 1, 1997 and February 3,
1996, total income tax expense differs from that computed by multiplying
income before taxes by the United States federal income tax rates as
follows:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
------------------------------------------------------------------------------------------------------------------
Tax Rate Tax Rate Tax Rate
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense $3,323 35.0% $36,207 35.0% $36,517 35.0%
Adjustments resulting from:
State income taxes, net of
federal tax benefit (1,525) (16.1) 3,513 3.4 5,155 4.9
Goodwill amortization 470 5.0 470 0.5 470 0.5
Other 1,387 14.6 (363) (0.4) (409) (0.4)
------------------------------------------------------------------------------------------------------------------
Actual tax expense $3,655 38.5% $39,827 38.5% $41,733 40.0%
===========================================================================
</TABLE>
<PAGE> 18
TALBOTS 1997 ANNUAL REPORT
9. BENEFIT PLANS
The Company sponsors a non-contributory defined benefit pension plan
covering substantially all salaried and hourly employees. The plan provides
retirement benefits for employees who have attained age 21 and completed
one year of service. Effective December 31, 1996, the salaried and hourly
pension plans were merged and the benefit formulas modified. The benefit
formula for salaried and hourly corporate employees is a final average pay
benefit formula and the benefit formula for store employees is a career pay
formula. The prior plan for hourly employees was a flat dollar plan. The
Company's general funding policy is to contribute the greater of amounts
that are deductible for federal income tax purposes or required by law.
Net pension cost for the fiscal years ended January 31, 1998, February 1,
1997 and February 3, 1996 included the following components:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $2,150 $1,763 $1,341
Interest cost on projected benefit obligation 1,703 1,246 975
Return on assets (3,028) (2,229) (720)
Net amortization and deferral 1,628 1,343 278
------------------------------------------------------------------------------------------------------
Net pension expense $2,453 $2,123 $1,874
=================================================
</TABLE>
The Company also has a non-qualified supplemental executive retirement plan
("SERP") for key executives impacted by Internal Revenue Code limits on
benefits and compensation. The plan is currently unfunded. Net SERP cost
for the years ended January 31, 1998, February 1, 1997 and February 3, 1996
included the following components:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $195 $195 $155
Interest cost on projected benefit obligation 171 156 125
Net amortization and deferral 46 78 58
-----------------------------------------------------------------------------------------------------
Net SERP expense $412 $429 $338
=============================================
</TABLE>
For the years ended January 31, 1998, February 1, 1997 and February 3,
1996, the discount rate used in determining the net pension expense was
7.75%, 7.25% and 8.0%, respectively. For the years ended January 31, 1998,
February 1, 1997 and February 3, 1996, the discount rate used in
determining the actuarial present value of the projected benefit obligation
was 7.25%, 7.75% and 7.25%, respectively. The rate of increase in future
compensation levels was 4.0% for the year ended January 31, 1998 and 4.75%
and 5.5% for the years ended February 1, 1997 and February 3, 1996,
respectively. The expected rate of return on assets was 9.0% in all three
years. Plan assets for the funded plans consist principally of fixed income
and equity securities.
<PAGE> 19
TALBOTS 1997 ANNUAL REPORT
The following table sets forth the defined benefit plan's and the SERP's
funded status and amounts included in accrued liabilities in the Company's
consolidated balance sheets:
<TABLE>
<CAPTION>
Pension Plan SERP
----------------------------------------------------------------------------------------------------------------
January 31, February 1, January 31, February 1,
1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligation ($18,481) ($13,349) ($1,902) ($1,635)
===============================================================
Vested benefit obligation ($17,026) ($12,163) ($1,902) ($1,567)
===============================================================
Projected benefit obligation for
service rendered to date ($24,197) ($17,955) ($2,537) ($2,121)
Plan assets at fair value 21,772 15,865 -- --
Unrecognized net loss 1,147 544 356 306
Prior service cost not yet recognized
in net periodic pension cost 1,342 1,505 273 319
----------------------------------------------------------------------------------------------------------------
Funded (unfunded) accrued pension cost $64 ($41) ($1,908) ($1,496)
===============================================================
</TABLE>
The Company has a qualified defined contribution 401(k) plan, which covers
substantially all employees. Employees make contributions to the plan, and
the Company makes a contribution which matches 50% of an employee's
contribution up to a maximum of 6% of the employee's actual compensation.
Company contributions for the years ended January 31, 1998, February 1,
1997 and February 3, 1996 were $2,321, $2,252 and $1,954, respectively.
The Company provides certain medical benefits for most retired employees.
The plan is currently unfunded. Below is a reconciliation of the liability
as of January 31, 1998, February 1, 1997 and February 3, 1996 and the
expense for the years then ending:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
1998 1997 1996
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ($28) ($34) ($44)
Actives eligible to retire (274) (222) (164)
Other actives (1,351) (1,095) (991)
-----------------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation (1,653) (1,351) (1,199)
Unrecognized gain (221) (265) (184)
-----------------------------------------------------------------------------------------------------------
Accrued expense ($1,874) ($1,616) ($1,383)
==================================================
Net periodic postretirement benefit expense:
Service cost $162 $157 $129
Interest cost 117 95 84
Unrecognized net gain (11) (9) (13)
-----------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $268 $243 $200
==================================================
</TABLE>
A one percentage point increase in the assumed cost escalation rate would
increase the accumulated postretirement benefit obligation at January 31,
1998 by $163 and the total of the service cost and interest cost components
of net periodic postretirement cost for 1997 by $37. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% at January 31, 1998, 7.75% at February 1, 1997 and
7.25% at February 3, 1996. Additionally, assumed cost escalation rates that
start at 9.4% and grade down gradually to 5.5% were used for the years
ended January 31, 1998 and February 1, 1997. Assumed cost escalation rates
that start at 11.2% and grade down gradually to 5.5% were used for the year
ended February 3, 1996.
<PAGE> 20
TALBOTS 1997 ANNUAL REPORT
The Company provides postemployment benefits to certain employees on
short-term disability. The Company's obligation at January 31, 1998 and
February 1, 1997 was $166 and $164, respectively.
10. COMMITMENTS
The Company conducts the major part of its operations in leased premises
with lease terms expiring at various dates through 2020. Most store leases
provide for base rentals plus contingent rentals which are a function of
sales volume and provide that the Company pay real estate taxes,
maintenance and other operating expenses applicable to the leased premises.
Additionally, most store leases provide renewal options and contain rent
escalation clauses. These escalation clauses are factored into a
calculation of the future rental stream. This stream is recorded on a
straight-line basis over the life of the original lease. The "deferred rent
under lease commitments" caption represents rent expensed in excess of cash
paid. Management expects that in the normal course of business expiring
leases will be renewed or replaced by other leases.
The aggregate minimum future rental commitments under noncancelable
operating leases at January 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 ......................................... $62,631
1999 ......................................... 62,528
2000 ......................................... 61,543
2001 ......................................... 60,457
2002 ......................................... 57,837
Thereafter ................................... 232,152
</TABLE>
Rent expense for the years ended January 31, 1998, February 1, 1997 and
February 3, 1996, was $60,469, $52,678 and $44,238, respectively, and
includes $1,426, $1,766 and $2,195, respectively, of contingent rental
expense.
11. RECONCILIATION OF BASIC TO DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
For the 52 Weeks Ended For the 52 Weeks Ended For the 53 Weeks Ended
January 31, 1998 February 1, 1997 February 3, 1996
-----------------------------------------------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE:
Income available to
common stockholders $5,838 32,386 $0.18 $63,621 33,185 $1.92 $62,600 34,395 $1.82
EFFECT OF DILUTIVE SECURITIES
Stock options -- 50 -- -- 98 -- -- 76 --
- ------------------------------------------------------------------------------------------------------------------------------------
DILUTED NET INCOME PER SHARE:
Income available to
common stockholders
plus assumed conversions $5,838 32,436 $0.18 $63,621 33,283 $1.91 $62,600 34,471 $1.82
=================================================================================================
</TABLE>
Options to purchase 1,403,996, 520,166 and 497,500 shares of common stock
at prices ranging from $26.25 to $34.63 per share were outstanding during
the years ended January 31, 1998, February 1, 1997 and February 3, 1996,
respectively, but were not included in the computation of diluted net
income per share because the options' exercise prices were greater than the
average market prices of the common shares. The options, which expire
through the year 2007, were still outstanding at the end of their
respective fiscal year.
<PAGE> 21
TALBOTS 1997 ANNUAL REPORT
12. SUBSEQUENT EVENTS
On February 10, 1998, the Company's Board of Directors amended the 1993
Executive Stock Based Incentive Plan (the "Amendment") to increase the
number of shares of common stock authorized thereunder by 3,310,000 shares,
subject to stockholder approval at the 1998 Annual Meeting.
On February 10, 1998, pursuant to the Amendment, the Company's Board of
Directors granted, subject to stockholder approval of the Amendment,
465,000 stock options which vest over a three year period and expire not
later than ten years from the grant date. These stock options were granted
at fair market value at the date of grant.
Additionally, under the provisions of the Amendment, the Company issued to
certain key management personnel 235,800 shares of restricted stock,
subject to stockholder approval at the 1998 Annual Meeting. The purchase
price of the restricted stock was $.01 per share. The difference between
the market price of $14.81 per share and management's cost of $.01 per
share for the restricted stock will be recorded as deferred compensation
and amortized over a five-year service period.
In March 1998, the Company received commitments from its banks to increase
its existing revolving credit agreements from $50 million to $100 million.
The Company expects the agreements to be finalized by approximately the end
of the first quarter of fiscal 1998.
<PAGE> 22
TALBOTS 1997 ANNUAL REPORT
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders of The Talbots, Inc.:
We have audited the accompanying consolidated balance sheets of The Talbots,
Inc. and its subsidiaries as of January 31, 1998, and February 1, 1997, and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows for each of the three years in the period ended January 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 31, 1998,
and February 1, 1997, and the results of their operations and their cash flows
for each of the three years in the period ended January 31, 1998, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
March 11, 1998
Boston, Massachusetts
<PAGE> 23
TALBOTS 1997 ANNUAL REPORT
SELECTED QUARTERLY FINANCIAL DATA
Dollar amounts in thousands except per share data
The following table shows certain unaudited quarterly information for the
Company during fiscal 1997 and fiscal 1996. The unaudited quarterly information
includes all normal recurring adjustments which management considers necessary
for a fair presentation of the information shown. The operating results for any
quarter are not necessarily indicative of results for any future period.
Quarterly per share amounts may not total the full year amount due to changes in
the number of shares outstanding.
<TABLE>
<CAPTION>
Fiscal 1997 quarter ended
---------------------------------------------------------------------------------------------------------------------------------
May 3, August 2, November 1, January 31,
1997 1997 1997 1998
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $240,742 $244,852 $255,968 $312,244
Gross profit 96,578 48,556 98,440 69,099
Net income (loss) 16,488 (11,461) 11,157 (10,346)
Net income (loss) per share - basic $0.50 ($0.35) $0.35 ($0.32)
Net income (loss) per share - assuming dilution $0.50 ($0.35) $0.35 ($0.32)
Weighted average common shares outstanding - basic (in thousands) 32,902 32,407 32,201 32,033
Weighted average common shares outstanding - assuming
dilution (in thousands) 33,009 32,407 32,271 32,033
Cash dividends per share $0.09 $0.11 $0.11 $0.11
Market price data
High $33.875 $34.000 $31.125 $25.000
Low $26.000 $22.500 $23.625 $13.938
<CAPTION>
Fiscal 1996 quarter ended
---------------------------------------------------------------------------------------------------------------------------------
May 4, August 3, November 2, February 1,
1996 1996 1996 1997
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $236,187 $232,109 $247,467 $303,038
Gross profit 102,832 70,093 101,592 95,574
Net income 20,779 6,605 19,764 16,473
Net income per share - basic $0.62 $0.20 $0.60 $0.50
Net income per share - assuming dilution $0.62 $0.20 $0.60 $0.50
Weighted average common shares outstanding - basic (in thousands) 33,487 33,191 33,074 32,987
Weighted average common shares outstanding - assuming
dilution (in thousands) 33,597 33,288 33,177 33,045
Cash dividends per share $0.07 $0.09 $0.09 $0.09
Market price data
High $40.125 $35.125 $35.750 $29.875
Low $26.375 $27.875 $27.500 $26.250
</TABLE>
<PAGE> 24
TALBOTS 1997 ANNUAL REPORT
MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange under the
trading symbol "TLB." The number of holders of record of common stock at March
24, 1998 was 659. The common stock commenced public trading on November 19,
1993, at the time of the Company's initial public offering.
The payment of dividends and the amount thereof is determined by the Board of
Directors and depends, among other factors, upon the Company's earnings,
operations, financial condition, capital requirements and general business
outlook at the time payment is considered. The Company anticipates that
dividends on the common stock will continue to be declared on a quarterly basis.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-72086, No. 33-86040 and No. 333-05643 of The Talbots, Inc. and its
subsidiaries on Forms S-8 of our reports dated March 11, 1998, appearing in and
incorporated by reference in the Annual Report on Form 10-K of The Talbots, Inc.
and its subsidiaries for the year ended January 31, 1998.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
April 30, 1998
Boston, Massachusetts
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS AND CONDENSED CONSOLIDATED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q FOR THE FISCAL
QUARTER ENDED MAY 4, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 20,837
<SECURITIES> 0
<RECEIVABLES> 77,910
<ALLOWANCES> 1,135
<INVENTORY> 154,606
<CURRENT-ASSETS> 288,086
<PP&E> 162,873
<DEPRECIATION> 132,326
<TOTAL-ASSETS> 598,148
<CURRENT-LIABILITIES> 133,416
<BONDS> 0
0
0
<COMMON> 349
<OTHER-SE> 403,733
<TOTAL-LIABILITY-AND-EQUITY> 598,148
<SALES> 236,187
<TOTAL-REVENUES> 236,187
<CGS> 133,355
<TOTAL-COSTS> 200,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,088
<INCOME-PRETAX> 34,632
<INCOME-TAX> 13,853
<INCOME-CONTINUING> 20,779
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,779
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<EXCHANGE-RATE> 1
<CASH> 10,799
<SECURITIES> 0
<RECEIVABLES> 80,553
<ALLOWANCES> 0
<INVENTORY> 149,828
<CURRENT-ASSETS> 295,230
<PP&E> 165,222
<DEPRECIATION> 0
<TOTAL-ASSETS> 607,182
<CURRENT-LIABILITIES> 141,214
<BONDS> 0
0
0
<COMMON> 349
<OTHER-SE> 404,479
<TOTAL-LIABILITY-AND-EQUITY> 607,182
<SALES> 468,296
<TOTAL-REVENUES> 468,296
<CGS> 295,371
<TOTAL-COSTS> 420,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,242
<INCOME-PRETAX> 45,640
<INCOME-TAX> 18,256
<INCOME-CONTINUING> 27,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,384
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-02-1996
<EXCHANGE-RATE> 1
<CASH> 13,435
<SECURITIES> 0
<RECEIVABLES> 90,530
<ALLOWANCES> 0
<INVENTORY> 195,769
<CURRENT-ASSETS> 341,888
<PP&E> 166,604
<DEPRECIATION> 0
<TOTAL-ASSETS> 653,770
<CURRENT-LIABILITIES> 171,917
<BONDS> 0
0
0
<COMMON> 349
<OTHER-SE> 419,868
<TOTAL-LIABILITY-AND-EQUITY> 653,770
<SALES> 715,763
<TOTAL-REVENUES> 715,763
<CGS> 441,246
<TOTAL-COSTS> 633,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,951
<INCOME-PRETAX> 77,931
<INCOME-TAX> 30,783
<INCOME-CONTINUING> 47,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,148
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<EXCHANGE-RATE> 1
<CASH> 12,348
<SECURITIES> 0
<RECEIVABLES> 97,274
<ALLOWANCES> 1,200
<INVENTORY> 161,230
<CURRENT-ASSETS> 311,803
<PP&E> 170,805
<DEPRECIATION> 145,467
<TOTAL-ASSETS> 621,789
<CURRENT-LIABILITIES> 127,361
<BONDS> 0
0
0
<COMMON> 349
<OTHER-SE> 431,110
<TOTAL-LIABILITY-AND-EQUITY> 621,789
<SALES> 1,018,801
<TOTAL-REVENUES> 1,018,801
<CGS> 648,710
<TOTAL-COSTS> 910,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,324
<INCOME-PRETAX> 103,448
<INCOME-TAX> 39,827
<INCOME-CONTINUING> 63,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,621
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.91
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THIRTEEN WEEKS ENDED MAY
3, 1997 AND THE BALANCE SHEETS AS OF MAY 3, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<EXCHANGE-RATE> 1
<CASH> 10,720
<SECURITIES> 0
<RECEIVABLES> 92,943
<ALLOWANCES> 0
<INVENTORY> 184,230
<CURRENT-ASSETS> 328,400
<PP&E> 171,856
<DEPRECIATION> 0
<TOTAL-ASSETS> 639,276
<CURRENT-LIABILITIES> 135,943
<BONDS> 0
0
0
<COMMON> 349
<OTHER-SE> 439,446
<TOTAL-LIABILITY-AND-EQUITY> 639,276
<SALES> 240,742
<TOTAL-REVENUES> 240,742
<CGS> 144,164
<TOTAL-COSTS> 212,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,201
<INCOME-PRETAX> 26,810
<INCOME-TAX> 10,322
<INCOME-CONTINUING> 16,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,488
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED
AUGUST 2, 1997 AND THE BALANCE SHEETS AS OF AUGUST 2, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<EXCHANGE-RATE> 1
<CASH> 2,230
<SECURITIES> 0
<RECEIVABLES> 91,235
<ALLOWANCES> 0
<INVENTORY> 193,348
<CURRENT-ASSETS> 341,715
<PP&E> 170,480
<DEPRECIATION> 0
<TOTAL-ASSETS> 649,664
<CURRENT-LIABILITIES> 173,752
<BONDS> 0
0
0
<COMMON> 349
<OTHER-SE> 411,443
<TOTAL-LIABILITY-AND-EQUITY> 649,664
<SALES> 485,594
<TOTAL-REVENUES> 485,594
<CGS> 340,460
<TOTAL-COSTS> 474,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,840
<INCOME-PRETAX> 8,175
<INCOME-TAX> 3,148
<INCOME-CONTINUING> 5,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,027
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THIRTY-NINE WEEKS ENDED
NOVEMBER 1, 1997 AND THE BALANCE SHEETS AS OF NOVEMBER 1, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<EXCHANGE-RATE> 1
<CASH> 13,331
<SECURITIES> 0
<RECEIVABLES> 93,587
<ALLOWANCES> 0
<INVENTORY> 235,337
<CURRENT-ASSETS> 394,413
<PP&E> 176,063
<DEPRECIATION> 0
<TOTAL-ASSETS> 705,370
<CURRENT-LIABILITIES> 222,585
<BONDS> 0
0
0
<COMMON> 349
<OTHER-SE> 418,074
<TOTAL-LIABILITY-AND-EQUITY> 705,370
<SALES> 741,562
<TOTAL-REVENUES> 741,562
<CGS> 497,988
<TOTAL-COSTS> 710,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,049
<INCOME-PRETAX> 26,316
<INCOME-TAX> 10,132
<INCOME-CONTINUING> 16,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,184
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<CASH> 10,680
<SECURITIES> 0
<RECEIVABLES> 97,092
<ALLOWANCES> 1,400
<INVENTORY> 195,078
<CURRENT-ASSETS> 360,402
<PP&E> 182,610
<DEPRECIATION> 172,017
<TOTAL-ASSETS> 676,433
<CURRENT-LIABILITIES> 215,301
<BONDS> 0
0
0
<COMMON> 350
<OTHER-SE> 396,116
<TOTAL-LIABILITY-AND-EQUITY> 676,433
<SALES> 1,053,806
<TOTAL-REVENUES> 1,053,806
<CGS> 741,133
<TOTAL-COSTS> 1,036,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,560
<INCOME-PRETAX> 9,493
<INCOME-TAX> 3,655
<INCOME-CONTINUING> 5,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,838
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
