<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 1, 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.
(Exact name of registrant as specified in its charter)
Delaware 41-1111318
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Beal Street, Hingham, Massachusetts 02043
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(Address of principal executive offices) (Zip Code)
(781) 749-7600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class September 7, 1998
----- -----------------
Common Stock, $0.01 par value 32,012,680
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INDEX TO FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Statements of Operations
for the Thirteen and Twenty-Six Weeks Ended
August 1, 1998 and August 2, 1997...................... 3
Condensed Consolidated Balance Sheets as of
August 1, 1998, January 31, 1998 and
August 2, 1997......................................... 4
Condensed Consolidated Statements of Cash Flows
for the Twenty-Six Weeks Ended August 1, 1998
and August 2, 1997..................................... 5
Notes to Condensed Consolidated Financial Statements....... 6-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9-13
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders........... 14
Item 6: Exhibits and Reports on Form 8-K.............................. 14
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE TALBOTS, INC. AND SUBSIDIARIES
-----------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 1998 AND AUGUST 2, 1997
(Amounts in thousands except per share data)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------ ------------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $267,687 $244,852 $539,162 $485,594
COSTS AND EXPENSES
Cost of sales, buying and occupancy 192,392 196,296 355,678 340,460
Selling, general and administrative 71,632 65,552 153,733 134,119
-------- -------- -------- --------
OPERATING INCOME (LOSS) 3,663 (16,996) 29,751 11,015
INTEREST EXPENSE - net 1,574 1,639 4,026 2,840
-------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES 2,089 (18,635) 25,725 8,175
INCOME TAX EXPENSE (BENEFIT) 804 (7,174) 9,904 3,148
-------- -------- -------- --------
NET INCOME (LOSS) $ 1,285 $(11,461) $ 15,821 $ 5,027
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE - BASIC $ 0.04 $ (0.35) $ 0.49 $ 0.15
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE - ASSUMING
DILUTION $ 0.04 $ (0.35) $ 0.49 $ 0.15
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING - BASIC 32,062 32,407 32,038 32,654
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING - ASSUMING DILUTION 32,120 32,407 32,038 32,723
======== ======== ======== ========
CASH DIVIDENDS PER SHARE $ 0.11 $ 0.11 $ 0.22 $ 0.20
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
AUGUST 1, 1998, JANUARY 31, 1998 AND AUGUST 2, 1997
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 1, JANUARY 31, AUGUST 2,
1998 1998 1997
-------- ---------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26,562 $ 10,680 $ 2,230
Customer accounts receivable - net 90,346 97,092 91,235
Merchandise inventories 145,141 195,078 193,348
Deferred catalog costs 8,428 11,860 7,739
Due from affiliates 10,681 8,568 2,927
Deferred income taxes 8,579 6,862 3,534
Prepaid and other current assets 23,899 30,262 40,702
-------- -------- --------
TOTAL CURRENT ASSETS 313,636 360,402 341,715
PROPERTY AND EQUIPMENT - NET 178,275 182,610 170,480
GOODWILL - NET 40,217 40,888 41,560
INTANGIBLES - NET 294 589 1,189
TRADEMARKS - NET 84,229 85,421 86,613
DEFERRED INCOME TAXES 5,640 6,523 8,107
-------- -------- --------
TOTAL ASSETS $622,291 $676,433 $649,664
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ -- $100,000 $ 74,000
Accounts payable 39,526 58,010 51,817
Accrued liabilities 57,888 57,291 47,935
Income taxes payable 849 -- --
-------- -------- --------
TOTAL CURRENT LIABILITIES 98,263 215,301 173,752
LONG-TERM DEBT 100,000 50,000 50,000
DEFERRED RENT UNDER LEASE COMMITMENTS 15,812 14,666 14,120
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 40,000,000 authorized;
35,252,098 shares, 34,955,179 shares and
34,930,925 shares issued, respectively, and
32,086,680 shares, 31,805,415 shares and 32,218,108
shares outstanding, respectively 353 350 349
Additional paid-in capital 291,983 287,407 286,944
Retained earnings 208,453 199,657 205,929
Cumulative foreign currency translation adjustment (1,001) (1,998) (522)
Restricted stock award (3,151) (529) (845)
Treasury stock, at cost; 3,165,418 shares, 3,149,764 shares
and 2,712,817 shares, respectively (88,421) (88,421) (80,063)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 408,216 396,466 411,792
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $622,291 $676,433 $649,664
======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 1, 1998 AND AUGUST 2, 1997
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
--------------------------
AUGUST 1, AUGUST 2,
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,821 $ 5,027
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 19,962 21,274
Deferred rent 1,168 1,163
Amortization of restricted stock awards 641 319
Loss on disposal of property and equipment 797 495
Deferred income taxes (833) (967)
Changes in current assets and liabilities:
Customer accounts receivable 6,723 6,026
Merchandise inventories 49,799 (32,194)
Deferred catalog costs 3,432 1,827
Due from affiliates (2,113) 2,051
Prepaid and other current assets 8,001 (16,881)
Accounts payable (18,475) (2,834)
Accrued liabilities 646 (752)
Income taxes payable 849 --
--------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 86,418 (15,446)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (14,526) (19,024)
Proceeds from disposal of property and equipment 97 1
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (14,429) (19,023)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings under notes payable to banks (100,000) 50,000
Borrowings of long-term debt 50,000 --
Proceeds from options exercised 1,192 59
Proceeds from issuance of restricted stock 3 --
Cash dividends (7,023) (6,531)
Purchase of treasury stock -- (19,184)
--------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (55,828) 24,344
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (279) 7
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,882 (10,118)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,680 12,348
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,562 $ 2,230
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
5
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THE TALBOTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. OPINION OF MANAGEMENT
With respect to the unaudited condensed consolidated financial
statements set forth herein, it is the opinion of management of The
Talbots, Inc. and its subsidiaries (the "Company") that all
adjustments, which consist only of normal recurring adjustments
necessary to present a fair statement of the results for such interim
periods, have been included. These condensed consolidated financial
statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended January 31, 1998,
included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. All significant intercompany
accounts and transactions have been eliminated.
The January 31, 1998 condensed consolidated balance sheet
amounts have been derived from the Company's audited consolidated
balance sheet accounts.
2. 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 February 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which became effective for the Company during
the quarter ended May 2, 1998. The Company's comprehensive income
(loss) for the thirteen and twenty-six weeks ended August 1, 1998 are
$1,831 and $16,818, respectively and ($10,674) and $5,659, respectively
for the thirteen and twenty-six weeks ended August 2, 1997, which is
comprised of the impact of the cumulative foreign currency translation
adjustment.
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.
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2. NEW ACCOUNTING PRONOUNCEMENTS (continued)
In March 1998, the American Institute of Certified Public
Accountants (the"AICPA") issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use," which is effective for the Company for the period
ending January 30, 1999. The impact of SOP 98-1 on the Company has not
yet been determined.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the
Costs of Start-Up Activities," which is effective for the Company for
the period ending January 30, 1999. The application of SOP 98-5 had no
material impact on the Company's consolidated financial statements.
3. SEASONAL VARIATIONS IN BUSINESS
Due to seasonal variations in the retail industry, the results
of operations for any interim period are not necessarily indicative of
the results expected for the full fiscal year.
4. FEDERAL AND STATE INCOME TAXES
The Company has provided for income taxes based on the
estimated annual effective rate method.
5. RECONCILIATION OF BASIC TO DILUTED NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
For the 13 Weeks For the 13 Weeks
Ended August 1, 1998 Ended August 2, 1997
---------------------------------------- ----------------------------------------
Income Shares Per-Share Loss Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC NET INCOME (LOSS)
PER SHARE:
Income (loss) available
to common stockholders $1,285 32,062 $0.04 $(11,461) 32,407 $(0.35)
===== ======
EFFECT OF DILUTIVE SECURITIES
Dilutive stock options -- 58 -- -- -- --
------ ------ ----- -------- ------ ------
DILUTED NET INCOME (LOSS)
PER SHARE:
Income (loss) available to
common stockholders plus
assumed conversions $1,285 32,120 $0.04 $(11,461) 32,407 $(0.35)
====== ====== ===== ======== ====== ======
</TABLE>
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5. RECONCILIATION OF BASIC TO DILUTED NET INCOME (LOSS) PER SHARE
(continued)
<TABLE>
<CAPTION>
For the 26 Weeks For the 26 Weeks
Ended August 1, 1998 Ended August 2, 1997
---------------------------------------- ----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE:
Income available to common
stockholders $15,821 32,038 $0.49 $5,027 32,654 $0.15
===== =====
EFFECT OF DILUTIVE SECURITIES
Dilutive stock options -- -- -- -- 69 --
------- ------ ----- ------ ------ -----
DILUTED NET INCOME PER
SHARE:
Income available to common
stockholders plus assumed
conversions $15,821 32,038 $0.49 $5,027 32,723 $0.15
======= ====== ===== ====== ====== =====
</TABLE>
8
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (unaudited)
The following discussion and analysis should be read in conjunction
with the condensed consolidated financial statements of the Company and the
notes thereto appearing elsewhere in this document.
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 condensed
consolidated statements of operations for the fiscal periods shown below:
<TABLE>
<CAPTION>
Thirteen Twenty-Six
Weeks Ended Weeks Ended
------------------------------ -----------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0 % 100.0% 100.0%
Cost of sales, buying and
occupancy expenses 71.9% 80.2 % 66.0% 70.1%
Selling, general and
administrative expenses 26.8% 26.8 % 28.5% 27.6%
Operating income (loss) 1.4% (6.9)% 5.5% 2.3%
Interest expense, net 0.6% 0.7 % 0.7% 0.6%
Income (loss) before income taxes 0.8% (7.6)% 4.8% 1.7%
Income tax expense (benefit) 0.3% (2.9)% 1.8% 0.6%
Net income (loss) 0.5% (4.7)% 2.9% 1.0%
</TABLE>
THE THIRTEEN WEEKS ENDED AUGUST 1, 1998 COMPARED TO THE THIRTEEN WEEKS ENDED
AUGUST 2, 1997 (SECOND QUARTER)
Net sales in the second quarter of 1998 increased by $22.8 million to
$267.7 million, or 9.3% over the second quarter of 1997. Operating income was
$3.7 million in the second quarter of 1998 compared to an operating loss of
$17.0 million in the second quarter of 1997.
Retail store sales in the second quarter of 1998 increased by $19.8
million to $235.4 million, or 9.2%, over the second quarter of 1997. The
percentage of the Company's net sales derived from its
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retail stores was 87.9% in the second quarter of 1998 versus 88.0% in the second
quarter of 1997. The increase in retail store sales was attributable to the two
net new stores opened in the second quarter of 1998, the 13 new stores opened in
the first quarter of 1998 and the 36 non-comparable stores that opened in the
last 26 weeks of 1997. Also contributing to the increase in retail store sales
was a comparable store sales increase of 3.8% over 1997. The increase in
comparable store sales was mainly due to continued customer acceptance of its
spring assortment, which it believes more fully incorporates merchandise with
classic styling, fit and colors. 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 Misses store which would qualify as a comparable 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.
Catalog sales in the second quarter of 1998 increased by $3.0 million,
to $32.3 million, an increase of 10.2% from the second quarter of 1997. The
percentage of the Company's net sales derived from its catalogs increased to
12.1% in the second quarter of 1998 from 12.0% in the second quarter of 1997.
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 changes in retail sales or catalog
sales to specific changes in prices, changes in volume or changes in product
mix.
Cost of sales, buying and occupancy expenses decreased as a percentage
of net sales to 71.9% in the second quarter of 1998 from 80.2% in the second
quarter of 1997 mainly due to higher merchandise gross margin. The higher
merchandise gross margin is the result of fewer markdowns, due to stronger
full-price selling and a planned reduction in inventory levels for the 1998
period compared to 1997.
Selling, general and administrative expenses as a percentage of net
sales was unchanged in the second quarter of 1998 at 26.8%, compared to the
second quarter of 1997 due to tight control over these expenses.
Interest expense, net, was $1.6 million in the second quarter of 1998
and 1997. Higher average interest rates were offset by lower average total debt
levels during the quarter. The average total debt level, including short-term
and long-term bank borrowings, was $117.0 million in the second quarter of 1998
compared to $119.2 million in the second quarter of 1997. The average interest
rate, including interest on short-term and long-term bank borrowings, was 6.6%
in the second quarter of 1998 compared to 6.2% in the second quarter of 1997.
The effective tax rate for the Company was 38.5% in both the second
quarter of 1998 and 1997.
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THE 26 WEEKS ENDED AUGUST 1, 1998 COMPARED TO THE 26 WEEKS ENDED AUGUST 2, 1997
Net sales in the first 26 weeks of 1998 increased by $53.6 million to
$539.2 million, or 11.0%, over the first 26 weeks of 1997. Operating income was
$29.8 million in the first 26 weeks of 1998 compared to $11.0 million in the
first 26 weeks of 1997, an increase of 170.9%.
Retail store sales in the first 26 weeks of 1998 increased by $46.4
million, to $461.2 million, or 11.2%, over the first 26 weeks of 1997. The
percentage of the Company's net sales derived from its retail stores was 85.5%
in the first 26 weeks of 1998 versus 85.4% in the first 26 weeks of 1997. The
increase in retail store sales was attributable to the 15 net new stores opened
in the first 26 weeks of 1998 and the 36 non-comparable stores that opened in
the last 26 weeks of 1997, and an increase of $19.5 million in comparable store
sales, or 5.7%, over the comparable 26 week period in the previous year. The
increase in comparable store sales was mainly due to continued customer
acceptance of its spring assortment, which the Company believes more fully
incorporates merchandise with classic styling, fit and colors.
Catalog sales in the first 26 weeks of 1998 increased by $7.2 million,
to $78.0 million, or 10.2% compared to the first 26 weeks of 1997. The increase
in catalog sales was mainly attributable to stronger demand for its spring
assortment, which the Company believes more fully incorporates merchandise with
classic styling, fit and colors.
Cost of sales, buying and occupancy expenses decreased as a percentage
of net sales to 66.0% in the first 26 weeks of 1998 from 70.1% in the first 26
weeks of 1997. The decrease in cost of sales, buying and occupancy as a
percentage of sales is due primarily to higher merchandise gross margin. The
higher merchandise gross margin was the result of fewer markdowns, which
resulted from stronger full-price selling and a planned reduction in inventory
levels for the 1998 period compared to 1997.
Selling, general and administrative expenses increased as a percentage
of net sales to 28.5% in the first 26 weeks of 1998 from 27.6% in the first 26
weeks of 1997 due to incremental store payroll and operating expenses incurred
to increase customer service, and higher marketing expenses related to the
Company's "Brand Essence" advertising campaign and direct marketing efforts
aimed at stimulating core customer demand.
Interest expense, net, increased by $1.2 million, to $4.0 million for
the first 26 weeks of 1998 from the first 26 weeks of 1997 due to higher average
debt levels and higher interest rates. The average total debt level, including
short-term and long-term bank borrowings, was $140.0 million in the first 26
weeks of 1998 compared to $109.9 million in the first 26 weeks of 1997. The
average interest rate, including interest on short-term and long-term bank
borrowings, was 6.5% in the first 26 weeks of 1998 compared to 6.2% in the first
26 weeks of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flows from
operating activities
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<PAGE> 12
and a line-of-credit facility from five banks, with maximum available short-term
borrowings of $125.0 million. At August 2, 1997, the Company had $74.0 million
of outstanding borrowings under this line-of-credit facility and at August 1,
1998 there were no outstanding borrowings under this facility. Additionally, the
Company has a revolving credit facility with maximum available borrowings of
$100.0 million. At August 1, 1998 and August 2, 1997, the Company's borrowings
under the revolving credit facility were $100.0 million and $50.0 million,
respectively. The Company's working capital needs are typically at their lowest
in the spring and peak during the fall selling season.
In the first 26 weeks of 1998, cash flow generated from operations was
$86.4 million compared to $15.4 million used during the first 26 weeks of 1997.
Contributing to the increase in cash flow from operations were decreases in
inventories, which resulted from more rigorous management of inventory levels
and better than anticipated sales, a decrease in prepaid and other current
assets, which resulted mainly from lower prepaid income taxes, and higher net
income, partially offset by a decrease in accounts payable and higher amounts
due from affiliates. During the quarter, the Company did not repurchase any
shares of its common stock under its stock repurchase program.
Capital expenditures for the first 26 weeks of 1998 were $14.5 million
compared to $19.0 million in the first 26 weeks of 1997. The Company used
approximately $10.2 million and $16.6 million in the first 26 weeks of 1998 and
1997, respectively, for opening new stores and expanding and renovating existing
stores. This change in capital expenditures was largely caused by more stores
being opened in 1997 than 1998. For the remainder of the fiscal year, the
Company currently anticipates an additional approximately $30.5 million of
capital expenditures primarily for the opening of new stores and expanding and
renovating existing stores, for enhancing the Company's computer information
systems and for initiating expansions of its Hingham and Lakeville facilities.*
The actual amount of such capital expenditures will depend mainly on the number
and type of stores being opened, expanded and renovated, and the schedule of
such activity during the remainder of fiscal 1998.
The Company's primary ongoing cash requirements through the end of
fiscal 1999 are expected to be the financing of working capital buildups during
peak selling seasons, the funding of new stores and the expansion and renovation
of existing stores, the execution of the Company's Year 2000 plan, the funding
of purchases under the third stock repurchase plan that was authorized by the
Board of Directors in May 1997, and the payment of any dividends that may be
declared from time to time. The Company anticipates that cash from operating
activities and from its borrowing facilities will be sufficient to meet these
current requirements.*
The payment of dividends and the amount of any dividends will be
determined by the Board of Directors and will depend on many factors, including
earnings, operations, financial condition, capital requirements and general
business outlook. On August 20, 1998, the Company announced that the Board of
Directors approved a quarterly dividend of $0.11 per share payable on September
14, 1998 to shareholders of record as of August 31, 1998.
12
<PAGE> 13
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 ("Y2K")
issue could have a material adverse impact on the Company's business, operations
and financial condition in the future.*
The Company has been assessing the Y2K issue as it impacts its internal
IT systems (computer hardware and software systems) and its non-IT systems
(equipment and micro controllers) and has been developing its plan to timely
address the Y2K issue. An initial phase of the plan has been internal software
coding changes, with approximately 75 percent of such coding changes completed
as of August 1, 1998. Other significant aspects of the Y2K plan include
completing the assessment of all internal IT hardware and software systems and
making any required changes in or replacement of such equipment or systems;
completing the assessment of all major non-IT equipment and systems and
addressing any required changes in or replacement of such equipment or systems;
and performing and completing all testing, verification and user training. The
Company currently believes that the assessment and implementation phases of its
Y2K compliance plan with respect to its internal hardware and software systems
will not have a material adverse effect on the Company's financial condition or
results of operations.* However, no assurance can be given that the ultimate
costs to address the Y2K issue or the impact of any failure to timely achieve
substantial Y2K compliance will not have a material adverse effect on the
Company's financial condition or results.*
The Company will utilize both internal and external resources to
execute its Y2K plan. Based on current information, the Company estimates that
expenditures related to the execution of its Y2K plan will range from
approximately $13.0 million to $14.0 million.* Of this, approximately $3.0
million will be charged to expense when incurred; the remainder will be
capitalized in accordance with normal policy.* The Company's estimates of total
assessment and remediation expenses and expenditures are based on its presently
available information and may be updated as additional information becomes
available.
The Company has also communicated with its significant suppliers and
vendors to determine the extent to which the Company is vulnerable to the
failure of those third parties to remedy any Y2K issues. The Company can give no
assurance that failure to address Y2K issues by such third parties on whom the
Company's systems or business processes rely would not have a material adverse
effect on the Company's operations or financial condition.*
- --------------------------------------------------------------------------------
* 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", "plan", "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, store 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 other 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.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1998, the Company held its Annual Meeting of Shareholders
(the "Annual Meeting"). At the Annual Meeting, the following persons were
elected to serve as directors of the Company: Takuya Okada, Arnold B.
Zetcher, Eiji Akiyama, Masaharu Isogai, Elizabeth T. Kennan, Motoya Okada,
Mark Shulman and Mark H. Willes. There are no other directors of the
Company.
At the Annual Meeting, no fewer than 29,523,353 votes were cast in
favor of, and no more than 83,235 were withheld with respect to, the
proposal to elect the above-listed persons as directors of the Company. See
Schedule of Votes attached hereto and made a part hereof for a separate
tabulation with respect to each nominee for office.
At the Annual Meeting, on a proposal to ratify the amendment to the
1993 Executive Stock Based Incentive Plan to increase the number of
authorized shares, 24,380,909 votes were cast in favor of such proposal,
3,702,707 votes were cast against, 91,723 votes abstained and there were
1,431,249 "broker non-votes".
At the Annual Meeting, on a proposal to ratify the appointment of
Deloitte & Touche LLP to serve as independent auditors of the Company for
the 1998 fiscal year, 29,492,409 votes were cast in favor of such proposal,
29,325 votes were cast against and 84,854 votes abstained.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11.1 The computation of weighted average number of shares
outstanding used in determining primary and fully
diluted earnings per share is incorporated by
reference to footnote 5 "Reconciliation of Basic to
Diluted Net Income (Loss) Per Share" on pages 7 and 8
of this Form 10-Q.
27 Financial Data Schedule (for electronic filing only)
(b) REPORTS ON FORM 8-K
None
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TALBOTS, INC.
Dated: September 14, 1998 By: /s/ Edward L. Larsen
----------------------------------
Edward L. Larsen
Duly authorized Officer and Senior
Vice President of Finance, Chief
Financial Officer, and Treasurer
15
<PAGE> 16
ATTACHMENT TO REPORT ON FORM 10-Q
SCHEDULE OF VOTES
<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Each Director From Each Director
-------------- -------------------
<S> <C> <C>
Takuya Okada 29,540,388 66,200
Arnold B. Zetcher 29,541,691 64,897
Eiji Akiyama 29,542,184 64,405
Mark Shulman 29,539,994 66,594
Masaharu Isogai 29,544,399 62,189
Elizabeth T. Kennan 29,523,353 83,235
Motoya Okada 29,523,539 83,049
Mark H. Willes 29,545,609 60,979
</TABLE>
16
<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 1, 1998 AND THE BALANCE SHEETS AS OF AUGUST 1, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000912263
<NAME> THE TALBOTS, INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<EXCHANGE-RATE> 1
<CASH> 26,562
<SECURITIES> 0
<RECEIVABLES> 90,346
<ALLOWANCES> 0
<INVENTORY> 145,141
<CURRENT-ASSETS> 313,636
<PP&E> 178,275
<DEPRECIATION> 0
<TOTAL-ASSETS> 622,291
<CURRENT-LIABILITIES> 98,263
<BONDS> 0
0
0
<COMMON> 353
<OTHER-SE> 407,863
<TOTAL-LIABILITY-AND-EQUITY> 622,291
<SALES> 539,162
<TOTAL-REVENUES> 539,162
<CGS> 355,678
<TOTAL-COSTS> 509,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,026
<INCOME-PRETAX> 25,725
<INCOME-TAX> 9,904
<INCOME-CONTINUING> 15,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,821
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
