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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 MAY 1, 1999
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
- ---------------------------------------- ----------
(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 June 9, 1999
----------------------------- -----------------
Common Stock, $0.01 par value 31,167,415
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INDEX TO FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Earnings for the
Thirteen Weeks Ended May 1, 1999 and May 2, 1998............3
Consolidated Balance Sheets as of May 1, 1999,
January 30, 1999 and May 2, 1998............................4
Consolidated Statements of Cash Flows for the
Thirteen Weeks Ended May 1, 1999 and May 2, 1998............5
Notes to Consolidated Financial Statements.................6-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations........................9-14
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K................................15
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE TALBOTS, INC. AND SUBSIDIARIES
-----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED MAY 1, 1999 AND MAY 2, 1998
(Amounts in thousands except per share data)
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
MAY 1, MAY 2,
1999 1998
-------- --------
<S> <C> <C>
NET SALES $293,006 $271,475
COSTS AND EXPENSES
Cost of sales, buying and occupancy 168,881 163,286
Selling, general and administrative 90,826 82,101
-------- --------
OPERATING INCOME 33,299 26,088
INTEREST EXPENSE - net 1,790 2,452
-------- --------
INCOME BEFORE TAXES 31,509 23,636
INCOME TAXES 12,131 9,100
-------- --------
NET INCOME $ 19,378 $ 14,536
======== ========
NET INCOME PER SHARE - BASIC $ 0.62 $ 0.45
======== ========
NET INCOME PER SHARE - ASSUMING DILUTION $ 0.62 $ 0.45
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING - BASIC 31,238 32,014
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING - ASSUMING DILUTION 31,341 32,014
======== ========
CASH DIVIDENDS PER SHARE $ 0.11 $ 0.11
======== ========
</TABLE>
See notes to consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MAY 1, 1999, JANUARY 30, 1999 AND MAY 2, 1998
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAY 1, JANUARY 30, MAY 2,
1999 1999 1998
--------- ----------- --------
<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
- ---------------
Cash and cash equivalents $ 19,014 $ 20,195 $ 22,591
Customer accounts receivable - net 103,387 100,825 95,463
Merchandise inventories 192,362 175,678 189,187
Deferred catalog costs 4,348 8,400 6,193
Due from affiliates 9,901 6,653 11,670
Deferred income taxes 7,418 7,139 8,776
Prepaid and other current assets 22,272 21,025 21,845
--------- --------- --------
TOTAL CURRENT ASSETS 358,702 339,915 355,725
PROPERTY AND EQUIPMENT - NET 190,676 189,510 179,732
GOODWILL - NET 39,209 39,544 40,553
INTANGIBLES - NET -- -- 442
TRADEMARKS - NET 82,440 83,036 84,825
DEFERRED INCOME TAXES 4,380 5,059 3,308
--------- --------- --------
TOTAL ASSETS $ 675,407 $ 657,064 $664,585
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
- --------------------
Notes payable to banks $ 30,000 $ -- $ 40,000
Accounts payable 37,942 66,356 36,210
Accrued liabilities 66,006 72,038 58,662
Income taxes payable 9,864 -- 6,221
--------- --------- --------
TOTAL CURRENT LIABILITIES 143,812 138,394 141,093
LONG-TERM DEBT 100,000 100,000 100,000
DEFERRED RENT UNDER LEASE COMMITMENTS 17,179 16,597 15,240
STOCKHOLDERS' EQUITY:
- ---------------------
Common stock, $0.01 par value; 40,000,000 authorized;
35,425,399 shares, 35,321,545 shares and 35,190,979 shares issued,
respectively, and 31,086,878 shares, 31,258,903 shares and 32,039,978
shares outstanding, respectively 354 353 352
Additional paid-in capital 296,777 294,089 290,932
Retained earnings 238,258 222,318 210,694
Accumulated other comprehensive income (loss) (2,450) (2,431) (1,547)
Restricted stock awards (2,654) (3,157) (3,758)
Treasury stock, at cost; 4,338,521 shares, 4,062,642 shares
and 3,151,001 shares, respectively (115,869) (109,099) (88,421)
--------- --------- --------
TOTAL STOCKHOLDERS' EQUITY 414,416 402,073 408,252
--------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 675,407 $ 657,064 $664,585
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED MAY 1, 1999 AND MAY 2, 1998
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
MAY 1, MAY 2,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 19,378 $ 14,536
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,568 10,260
Deferred rent 571 572
Net non-cash compensation activity 418 344
Loss on disposal of property and equipment 177 263
Deferred income taxes 400 1,301
Changes in current assets and liabilities:
Customer accounts receivable (2,544) 1,643
Merchandise inventories (16,541) 5,989
Deferred catalog costs 4,052 5,667
Due from affiliates (3,248) (3,102)
Prepaid and other current assets (1,037) 8,744
Accounts payable (28,424) (21,812)
Accrued liabilities (6,021) 1,331
Income taxes payable 9,864 6,221
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (12,387) 31,957
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Additions to property and equipment (10,973) (6,565)
Proceeds from disposal of property and equipment 3 1
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (10,970) (6,564)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Borrowings (payments) under notes payable to banks 30,000 (60,000)
Borrowings of long-term debt -- 50,000
Proceeds from options exercised 1,718 --
Proceeds from issuance of restricted stock -- 2
Cash dividend (3,438) (3,499)
Purchase of treasury stock (6,206) --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 22,074 (13,497)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 102 15
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,181) 11,911
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,195 10,680
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,014 $ 22,591
======== ========
</TABLE>
See notes to consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. OPINION OF MANAGEMENT
With respect to the unaudited 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 financial statements should be read
in conjunction with the Company's audited consolidated financial
statements for the year ended January 30, 1999, 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 30, 1999 consolidated balance sheet amounts have
been derived from the Company's audited consolidated balance sheet
accounts.
2. 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.
3. FEDERAL AND STATE INCOME TAXES
The Company has provided for income taxes based on the
estimated annual effective rate method.
4. COMPREHENSIVE INCOME
In February 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The Company's comprehensive income for the
periods ended May 1, 1999 and May 2, 1998 was $19,359 and $14,987,
respectively, which comprised of net income and the impact of the
cumulative foreign currency translation adjustment.
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5. NET INCOME PER SHARE
The weighted average shares used in computing basic and
diluted net income per share are presented below. Options to purchase
1,237,164 and 2,768,168 shares of common stock were outstanding during
the 13 week periods ending May 1, 1999 and May 2, 1998, 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.
<TABLE>
<CAPTION>
For the 13 weeks ended
----------------------------
May 1, 1999 May 2, 1998
----------------------------
<S> <C> <C>
Shares for computation of basic net income per share 31,238 32,014
Effect of assumed options exercises 103 -
----------------------------
Shares for computation of diluted net income per share 31,341 31,014
----------------------------
</TABLE>
6. SEGMENT INFORMATION
The Company evaluates the operating performance of its
identified segments based on a direct profit measure. Direct profit is
calculated as net sales less cost of goods sold and direct expenses,
such as payroll, occupancy and other direct costs. Indirect expenses
are not allocated on a segment basis. Such indirect expenses include
corporate overhead expenses, finance charge income, and amortization.
Assets are not allocated between segments, therefore no measure of
segment assets is available.
The Company has two reportable segments, its retail stores
(the "Stores Segment"), which include the Company's United States,
Canada and United Kingdom retail store operations, and its catalog
operations (the "Catalog Segment"). The Company's reportable segments
offer similar products, however, each segment requires different
marketing and management strategies. The Stores Segment derives it
revenues from the sale of women's and children's classic apparel,
accessories and shoes through its retail stores, while the Catalog
Segment derives its revenues from the sale of the same products through
its approximately 28 distinct mailings per year.
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The following is segment information as of and for the thirteen weeks
ending May 1, 1999 and May 2, 1998:
May 1, 1999
--------------------------------
Stores Catalog Total
--------------------------------
Sales to external customers $243,450 $49,556 $293,006
Direct Profit 47,818 9,382 57,200
May 2, 1998
--------------------------------
Stores Catalog Total
--------------------------------
Sales to external customers $225,820 $45,655 $271,475
Direct Profit 40,107 6,312 46,419
The following reconciles direct profit to consolidated operating income as of
and for the 13 weeks ending May 1, 1999 and May 2, 1998:
May 1, 1999 May 2, 1998
----------- -----------
Total direct profit for reportable
segments $57,200 $46,419
Less: indirect expenses 23,901 20,331
------- -------
Consolidated operating income $33,299 $26,088
======= =======
7. NEW ACCOUNTING PRONOUNCEMENTS
On January 31, 1999 the Company adopted Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" which establishes accounting
standards for costs incurred in the development or implementation of
computer software. These new standards require the capitalization of
certain software implementation costs and provides guidance on those
costs which should be expensed as incurred. The adoption of SOP 98-1
did not have a material effect on the Company's financial statements.
On January 31, 1999, the Company adopted SOP 98-5, "Reporting
on the Costs of Start-up Activities," which requires that start-up
activities be expensed as incurred. The adoption of SOP 98-5 did not
have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
is effective for the Company's quarter ending April 28, 2000. SFAS No.
133 significantly modifies accounting and reporting standards for
derivatives and hedging activities. The impact of SFAS No. 133 on the
Company, if any, has not yet been determined.
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ITEM 2 - 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 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
consolidated statements of earnings for the fiscal periods shown below:
- -------------------------------------------------------------------------------
Thirteen Weeks Ended
- -------------------------------------------------------------------------------
May 2, 1998 May 2, 1998
(unaudited) (unaudited)
- -------------------------------------------------------------------------------
Net sales 100.0% 100.0%
- -------------------------------------------------------------------------------
Cost of sales, buying and occupancy expenses 57.6% 60.1%
- -------------------------------------------------------------------------------
Selling, general and administrative expenses 31.0% 30.2%
- -------------------------------------------------------------------------------
Operating income 11.4% 9.6%
- -------------------------------------------------------------------------------
Interest expense, net 0.6% 0.9%
- -------------------------------------------------------------------------------
Income before income taxes 10.8% 8.7%
- -------------------------------------------------------------------------------
Income taxes 4.1% 3.4%
- -------------------------------------------------------------------------------
Net income 6.6% 5.4%
- -------------------------------------------------------------------------------
THE THIRTEEN WEEKS ENDED MAY 1, 1999 COMPARED TO THE THIRTEEN WEEKS ENDED MAY 2,
1998 (FIRST QUARTER)
Net sales in the first quarter of 1999 increased by $21.5 million to
$293.0 million, or 7.9% over the first quarter of 1998. Operating income was
$33.3 million in the first quarter of 1999 compared to $26.1 million in the
first quarter of 1998, an increase of 27.6%.
Retail store sales in the first quarter of 1999 increased by $17.6
million to $243.5 million, or 7.8%, over the first quarter of 1998. The
percentage of the Company's net sales derived from its retail stores was
relatively consistent at 83.1% in the first quarter of 1999 compared to 83.2% in
the first quarter of 1998. The increase in retail store sales was attributable
to the 12 new stores opened in the first quarter of 1999, the 22 non-comparable
stores that opened in the last three quarters of 1998 and an increase of $5.6
million in comparable stores sales, or 2.7%, from
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the same period for the previous year. Comparable stores are those which were
open for at least one full fiscal year. When a new Talbots Petites store,
Talbots Woman store or 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 first quarter of 1999 increased by $3.9 million,
to $49.6 million, an increase of 8.5% from the first quarter of 1998. The
percentage of the Company's net sales derived from its catalogs remained
relatively consistent at 16.9% in the first quarter of 1999 compared to 16.8% in
the first quarter of 1998. The increase in catalog sales in total dollars was
mainly attributable to stronger demand for the Company's spring assortment,
particularly from the it's major spring book. Additionally, management believes
that the recent mailing of the Summer Essentials catalog, as well as two new
Talbots Woman books, have been well received and had a significant impact on the
strong quarterly catalog sales.
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 57.6% in the first quarter of 1999 from 60.1% in the first
quarter of 1998 due primarily to reduced markdowns resulting from continued
strong selling of full-priced merchandise and improved inventory control, which
brought inventory levels more in line with customer demand.
Selling, general and administrative expenses as a percentage of net
sales increased in the first quarter of 1999 to 31.0% compared to 30.2% in the
first quarter of 1998, mainly due to higher marketing expenses related to the
Company's television advertising campaign that began last fall.
Interest expense, net, decreased to $1.8 million in the first quarter
of 1999 from $2.5 million in the first quarter of 1998 due to lower average debt
levels and lower average interest rates. The average total debt level, including
short-term and long-term bank borrowings, was $120.3 million in the first
quarter of 1999 compared to $162.9 million in the first quarter of 1998. The
average interest rate, including interest on short-term and long-term bank
borrowings, was 6.2% in the first quarter of 1999 compared to 6.5% in the first
quarter of 1998.
The effective tax rate for the Company remained 38.5% in the first
quarter of 1999.
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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 May 1, 1999 and May 2,
1998, the Company had $30.0 and $40.0 million of outstanding borrowings under
this line-of-credit facility, respectively. Additionally, the Company has a
revolving credit facility with four banks. At May 1, 1999 and May 2, 1998, the
Company's borrowings under this revolving credit facility were $100.0 million.
The Company's working capital needs are typically at their lowest in the spring
and peak during the fall selling season.
In the first quarter of 1999, cash and cash equivalents decreased $1.2
million compared to an increase of $11.9 million in the first quarter of 1998.
Contributing to the decrease in cash and cash equivalents were increases in
inventories to support new store openings and expansions, increases in accounts
receivable attributed to higher sales, purchases of treasury stock pursuant to
the Company's extended stock repurchase plan and a decrease in accounts payable.
This was partially offset by an increase in net income and the associated
increases in accrued taxes and an increase in short-term borrowings.
During the quarter ending May 1, 1999, the Company repurchased $6.2
million, or 241,879 shares of its common stock under its stock repurchase
program. This completed the $40.0 million buyback authorized by the Board of
Directors in May 1997 under which a total of 1.7 million shares were
repurchased. On May 27, 1999, the Company's Board of Directors approved a fourth
stock repurchase program, which authorizes the Company to spend up to an
additional $20.0 million to purchase shares of its common stock from time to
time over a two year period, including repurchases from JUSCO (U.S.A.), Inc.,
its 62.6% majority owner, on a pro rata basis consistent with the earlier
repurchase programs.
Capital expenditures for the first quarter of fiscal 1999 were $11.0
million compared to $6.6 million in the first quarter of fiscal 1998. The
Company used approximately $6.8 million and $5.2 million in the first quarter of
fiscal 1999 and 1998, respectively, for opening new stores and expanding and
renovating existing stores. For the remainder of the fiscal year, the Company
currently anticipates approximately $44.0 million in additional capital
expenditures for the opening of new stores and expanding and renovating existing
stores, to enhance the Company's computer information systems and to continue
expansions of the Company's Hingham, Massachusetts and Lakeville, Massachusetts
facilities.* The actual amount of such capital expenditures will depend on the
number and type of stores and facilities being opened, expanded and renovated,
and the schedule of its capital expenditure activity during the remainder of
fiscal 1999.
The Company's primary ongoing cash requirements through the end of
fiscal 1999 are expected to be for the financing of working capital buildups
during peak selling seasons, capital expenditures for new stores and the
expansion and renovation of existing stores and facilities, for the execution of
the Company's Year 2000 implementation plan and for the payment of any dividends
that may be declared from time to time. The Company anticipates that cash from
operating activities and
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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 May 26, 1999, the Company's Board of Directors approved a
quarterly dividend of $0.11 per share payable on June 21, 1999 to shareholders
of record as of June 7, 1999.
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 conducted a comprehensive review of (1) its information
systems software and hardware; (2) its facilities and distribution equipment;
and (3) its third party relationships to identify material systems that could be
affected by the Y2K issue and has developed an implementation plan intended to
address this issue.
The Company has adopted a five-phase Y2K program consisting of:
Phase I: Identification and ranking of the components of the Company's
systems, equipment and material suppliers and vendors that may
be vulnerable to Y2K problems
Phase II: Assessment of items identified in Phase I
Phase III: Remediation or replacement of non-compliant internal systems
and components and determination of solutions for
non-compliant suppliers and vendors
Phase IV: Testing of systems and components following remediation
Phase V: Developing contingency plans to address the most reasonably
likely worst case Y2K scenarios
The identification, assessment and remediation phases of the Y2K
program have been substantially completed and these phases included both the
Company's material information technology systems and hardware ("IT Systems")
and the Company's significant non-information technology equipment known to have
microchips or other embedded technology ("non-IT Equipment"). The Company
currently expects to complete the testing phase, including installation and
testing of Year 2000 versions, by approximately fall 1999. Subsequent to
preliminary testing, the Company expects to continue periodic testing for new
installations, versions or changes. Compliance has been performed using both
internal and external resources.
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In addition to Y2K implementation for the Company's internal systems
and equipment, the Company is communicating with material suppliers and vendors
to determine their state of readiness with respect to Y2K. Assessment of
material third party Y2K readiness is currently expected to be substantially
completed by mid-1999. Failure of significant suppliers, vendors or other third
parties to timely address and remedy Y2K problems or to develop and effect
appropriate contingency plans could have a material adverse effect on the
Company's business and operations. The Company believes that the geographically
dispersed nature of its business and its diverse supplier and vendor base should
minimize such potential adverse effects.*
The Company presently believes that with modifications to existing
software and conversion to new software for certain applications, the Y2K
problem will not cause a significant disruption of its operations. However, the
Y2K problem is unique and the Company's Y2K compliance program is based on
various assumptions and expectations which cannot be assured. Potential risks
include loss of electric power or certain communication links, other disruptions
to its business such as delayed deliveries from suppliers, as well as
disruptions to distribution channels, including ports, transportation services
and the Company's own Distribution Center. The Company is in process of
developing contingency plans for critical systems and processes, which will be
based on the Company's continuing assessment of potential risks. The Company
anticipates that these contingency plans will be completed by approximately fall
1999.
Based on current information, the total estimated cost to address Y2K
is approximately $14.0 million; of this, approximately $6.0 million will be
charged to expense as incurred.* Approximately $6.6 million has been incurred to
date, of which $3.3 million was charged to expense as incurred. All costs
incurred to date were budgeted expenditures and were funded as incurred or
capitalized in accordance with normal policy and are not currently expected to
have a material adverse impact on the Company's financial position or results of
operations. The Company has not deferred any material information technology
projects as a result of the Year 2000 program. The Company's cost estimates do
not include internal personnel costs (primarily salaries and benefits) which the
Company does not separately track, costs associated with any contingency plans
or costs for addressing and resolving issues as a result of the failure of third
parties to become Y2K compliant.
- --------------------------------------------------------------------------------
*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 fashions, expansion plans and schedule, appropriate balance of
merchandise offerings and responsiveness of the Company's core customers, timing
and levels of markdowns, and any potential disruptions to the Company's
operations caused by failure of any of the Company's IT systems, non-IT
equipment or third party suppliers or vendors to by Y2K ready, 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
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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.
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PART II - OTHER INFORMATION
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 "Net Income Per Share" on
page 7 of this Form 10-Q.
27 Financial Data Schedule (for electronic filing only)
(b) REPORTS ON FORM 8-K
The Company filed Current Reports on Form 8-K on April 29,
1999 and May 26, 1999, respectively, pursuant to which various
agreements and documents were filed by the Company, as
identified therein.
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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: June 14, 1999 By: /s/ Edward L. Larsen
-----------------------------------
Edward L. Larsen
Duly authorized officer and Senior
Vice President of Finance, Chief
Financial Officer, and Treasurer
(Principal Financial and Accounting
Officer)
16
<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
1, 1999 AND THE BALANCE SHEETS AS OF MAY 1, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-02-1998
<EXCHANGE-RATE> 1
<CASH> 19,014
<SECURITIES> 0
<RECEIVABLES> 103,387
<ALLOWANCES> 0
<INVENTORY> 192,362
<CURRENT-ASSETS> 358,702
<PP&E> 190,676
<DEPRECIATION> 0
<TOTAL-ASSETS> 675,407
<CURRENT-LIABILITIES> 143,812
<BONDS> 0
0
0
<COMMON> 354
<OTHER-SE> 414,062
<TOTAL-LIABILITY-AND-EQUITY> 675,407
<SALES> 293,006
<TOTAL-REVENUES> 293,006
<CGS> 168,881
<TOTAL-COSTS> 259,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,790
<INCOME-PRETAX> 31,509
<INCOME-TAX> 12,131
<INCOME-CONTINUING> 19,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,378
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.62
</TABLE>
