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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 29, 2000
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)
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Delaware 41-1111318
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
175 Beal Street, Hingham, Massachusetts 02043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (781)749-7600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock New York Stock Exchange
$0.01 Par Value
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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. [X]
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 7,
2000 WAS APPROXIMATELY $699 MILLION.
NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF APRIL 7,
2000: 30,710,182
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED JANUARY 29, 2000 ARE INCORPORATED BY REFERENCE INTO PART I AND PART II,
AND PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 2000 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 ten years, the Company has implemented an aggressive
store expansion program, with the number of stores increasing from 137 at the
end of 1989 to 673 at the end of 1999. During 1999, Talbots issued 29 separate
catalogs with a combined circulation of approximately 56.7 million. In November
1999, the Company began offering its merchandise on the Internet at talbots.com.
Sales through the website are reported with catalog sales. Total Company net
sales were approximately $1,290.9 million in 1999, of which retail store sales
were approximately $1,099.9 million and catalog sales were approximately $191.0
million.
Talbots complies with the National Retail Federation's fiscal calendar.
Where a reference is made to a particular year or years, it is a reference to
Talbots 52-week or 53-week fiscal year. For example, "1999" refers to the
52-week fiscal year ended January 29, 2000, "1998" refers to the 52-week fiscal
year ended January 30, 1999 and "1997" refers to the fiscal year ended January
31, 1998. 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 offers a distinctive collection of classic sportswear, casual
wear, dresses, coats, sweaters, accessories and shoes, consisting almost
exclusively of Talbots own private label merchandise in misses, petites and
woman sizes. Talbots Kids & Babies offers 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, catalogs and Internet site 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 and
children's classic apparel, accessories and shoes. In 1999, approximately 99% 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, catalogs and Internet site as an
integrated business and provides the same personalized service to its customers
regardless of whether merchandise is purchased through its stores, catalogs or
on the Internet. The Company believes that the synergy between these
distribution channels 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") acquired Talbots (the "Acquisition"). JUSCO USA is a wholly owned
subsidiary of JUSCO Co., Ltd. ("JUSCO"), a Japanese retail conglomerate. 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 remains the Company's majority
shareholder, and at January 29, 2000 owned approximately 61.4% 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 29, 2000,
the number of stores increased to 673, located in 45 states, the District of
Columbia, Canada and the United Kingdom. This number included 405 Talbots Misses
stores (including 19 Misses stores in Canada and six Misses stores in the United
Kingdom), 155 Talbots Petites stores (including one Petites store in Canada), 35
Talbots Accessories & Shoes stores, 54 Talbots Kids stores (49 of which include
a Talbots Babies assortment), five Talbots Woman stores and 19 Talbots Outlet
stores.
Talbots catalog business also has undergone changes. The circulation of
catalogs has been reduced by 27.4% from 78.1 million catalogs in 1989 to 56.7
million catalogs in 1999. This circulation reduction has been an integral part
of a strategy to better focus the distribution of catalogs to proven customers.
In November 1999, Talbots went live with its Internet site,
talbots.com. This new channel of distribution is a natural extension of the
Company's existing store and catalog channels. The same broad assortment of
Talbots existing store and catalog classic merchandise is available on-line with
one-stop shopping for Misses, Petites, Woman, Accessories and Shoes and Kids
apparel. The Company's existing catalog fulfillment and customer service
infrastructure manages orders taken over the Internet and complements this new
channel of distribution.
Information concerning the Company's retail store business and the Company's
catalog and Internet business and certain geographic information is incorporated
by reference to note 9 of the Company's consolidated financial statements on
pages 17 through 19 of Talbots Annual Report to Shareholders for the fiscal year
ended January 29, 2000.
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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, 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, catalog and Internet operations, (5) continue to provide superior
customer service and (6) offer a broad mix of store locations.
MARKET NICHE IN CLASSIC APPAREL. Talbots offers a distinctive
collection of sportswear, casual wear, dresses, coats, sweaters, accessories and
shoes, consisting almost exclusively 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 99% in 1999. 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. 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 major sale events a year
in its stores, consisting of two end-of-season clearance sales and two
mid-season 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, CATALOG AND E-COMMERCE OPERATIONS. The Company's
strategy is to operate its stores, catalogs and e-commerce site as an integrated
business and to provide the same personalized service to its customers
regardless of whether merchandise is purchased through its stores, catalogs or
on-line. The Company believes that the synergy between these distribution
channels offers an important convenience to its customers, provides a
competitive advantage to the Company and is an important element in identifying
new store sites.
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Talbots catalogs and Internet site 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 and Internet site to
communicate its classic image, to provide customers with fashion guidance in
coordinating outfits and to generate store traffic. Merchandise can be easily
returned or exchanged at any Talbots store or returned to the Company by mail.
The Company believes that its catalog operation provides 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.
In mid-November 1999, the Company launched an on-line shopping site at
www.talbots.com. In conjunction with the Company's well-established catalog
operation, there is a strong infrastructure in place to support the on-line
efforts, including the existing distribution and fulfillment capabilities. As
with catalog merchandise, items can be easily returned or exchanged at any
Talbots store or returned to the Company by mail. The Company believes that this
channel of business is a natural complement to the store and catalog operations,
and is a significant growth opportunity.
CUSTOMER SERVICE. The Company believes that it provides store, catalog
and Internet 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 and customer service 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 29, 2000, the Company had 42% of its stores in
malls, 35% in specialty centers, 12% in village locations, 8% as freestanding
stores and 3% in urban locations.
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MERCHANDISING
The Company's merchandising strategy focuses on achieving a "classic
look," which emphasizes timeless styles. Talbots offers a distinctive collection
of classic sportswear, casual wear, dresses, coats, sweaters, accessories and
shoes, consisting primarily of private label merchandise made exclusively for
Talbots. Talbots stores, catalogs and e-commerce site 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.
The New York-based Talbots product development office oversees the
conceptualization of Talbots merchandise. 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
development team 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 development team, the pre-production samples of each
item to ensure that specifications and quality standards are met.
SOURCING. In 1999, Talbots purchased approximately 52% of its
merchandise directly from offshore vendors, and the remaining 48% through
domestic-based vendors. During the year, the Company's Hong Kong office
accounted for approximately 56% of Talbots total direct offshore sourcing, with
the remaining 44% being handled through various agents.
Approximately 29% 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.
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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 serves
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, Italy, Portugal, Spain and the United Kingdom
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 the Company's specifications by
independent foreign factories located primarily in Hong Kong, other Asian
countries such as Macao, Thailand, Singapore, Korea and Indonesia, and Europe.
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 1999, certain divisions of
The Apparel Group, Ltd., a subsidiary of TAG Holdings, Inc., 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;
however, fabric projections are placed in order to better address fulfillment
and replenishment objectives. The Company 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 instability.
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 137 at the end of 1989 to 673
at the end of 1999. During that time, store net sales increased from
approximately $306.2 million in 1989 to approximately $1,099.9 million in 1999.
During fiscal 1999 the number of Talbots stores increased by 35 stores from 638
to 673.
In addition to expanding its core Misses business, the Company has
introduced complementary new business concepts, Talbots Petites, Talbots Kids &
Babies, Talbots Accessories
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& Shoes, Talbots Woman and Talbots Collection.
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 29, 2000, 155 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
1999, 54 Talbots Kids stores were open, 49 of which included a Babies
assortment. Also in 1999, four separate Talbots Kids catalogs were circulated
nationally. 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.
In 1991, the Company introduced Talbots Intimates, an assortment of
classic sleepwear and loungewear and daywear. The Company currently operates
Intimates collections in 50 Misses stores and in 1999 offered Intimates
merchandise in eight of its larger base catalogs.
During 1994, Talbots introduced Talbots Accessories & Shoes in two
catalogs devoted to the category. The Company opened five Talbots Accessories &
Shoes stores in September 1995 and at the end of 1999 it operated 35 stores. A
limited collection of the merchandise continues to be offered in each Misses
catalog, in selected stores and, in 1999, in two catalogs.
In September 1998, the Company introduced Talbots Woman and Talbots
Collection. Talbots Woman was developed for customers wearing sizes 12W to 24W
who seek the same classic styling, high quality and fit as the Company's misses
and petites customers. It was introduced as a department in seven existing
Misses stores, as one separate store adjacent to other Talbots concept stores,
and in two nationally circulated catalogs. At January 29, 2000 the Company
operates five Woman stores and produced five separate catalogs devoted
exclusively to Talbots Woman fashions.
Talbots Collection is a test concept that was developed for those
customers seeking a well-defined selection of tailored sportswear featuring fine
fabrics, interesting details and distinctive novelty prints. It is a separate
department in 80 existing Talbots Misses stores.
The Company currently anticipates opening approximately 52 new stores
(including Misses, Petites, Accessories & Shoes, Kids and Woman stores) in
2000.* The Company's ability to continue to expand its store base will be
dependent upon a number of factors, including its overall sales performance,
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 Company also considers opening
such stores in established Talbots markets where a Misses store is not located,
thereby broadening the growth potential for each concept.
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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 and Woman stores generally measure 2,500 gross square feet, and
Talbots Kids & Babies stores measure approximately 3,200 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, London 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, Woman and/or Accessories & Shoes--in
order to create a one-stop shopping environment. At January 29, 2000, the
Company operated 58 "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 29, 2000, the Company operated 19 Talbots
Outlet stores.
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, Petites and Woman 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.
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TALBOTS CATALOG AND E-COMMERCE
Since 1948, the Company has used its catalog to offer customers
convenience in ordering Talbots merchandise. In 1999, the Company distributed 29
separate catalogs with a combined circulation of approximately 56.7 million,
including catalogs sent to stores for display and general distribution. During
1999, catalog sales represented approximately 14.8% 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; Talbots Woman 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. In conjunction with the Company's store strategy to incorporate
intimate apparel into its Misses and Petites assortment, the Company has added
more intimate apparel pages to its base catalogs, and in 1997 discontinued the
distribution of separate intimate apparel catalogs.
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. This includes the frequency and dollar amount of
purchases as well as the date of last 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 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.
Talbots new e-commerce website is a natural extension of the Company's
catalog operation. Sales orders from the website are merged into the existing
catalog fulfillment system, allowing efficient shipping of merchandise.
Customers can check the availability of merchandise at the time
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of purchase and the website will provide examples of alternative merchandise if
items are unavailable. Additionally, the "on-line chat" feature allows customers
to communicate with customer service representatives through the website. As
with catalog returns, customer's on-line purchases can be returned by mail or at
any Talbots retail store.
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, catalog and e-commerce
synergy, coupled with its central distribution system, allows it to move
merchandise between the distribution channels to better take advantage of sales
trends.
In 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. Further
expansion of the Lakeville facility is currently under way; a 125,000 square
foot addition began in the spring of 2000.
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.
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
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
10
<PAGE> 12
store sales are slightly stronger in the second quarter. Within the fall season,
catalog sales and retail store sales are the strongest 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
misses, petites and woman sizes, distinguish it from other specialty retailers.
EMPLOYEES
At January 29, 2000, Talbots had approximately 9,300 employees, of whom
approximately 2,500 were full-time salaried employees, approximately 1,300 were
full-time hourly employees and approximately 5,500 were part-time hourly
employees. The Company believes that its relationship with its employees is
good.
11
<PAGE> 13
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the
executive officers of the Company as of April 1, 2000:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Arnold B. Zetcher 59 President and Chief Executive Officer
H. James Metscher 43 Executive Vice President, Chief Merchandising Officer
Harold Bosworth 51 Senior Vice President, General Manager, Talbots Kids
Paul V. Kastner 48 Senior Vice President, International and Strategic
Planning
Edward L. Larsen 55 Senior Vice President, Finance, Chief Financial
Officer and Treasurer
Michele M. Mandell 52 Senior Vice President, Stores
Richard T. O'Connell, Jr. 49 Senior Vice President, Legal and Real Estate, and
Secretary
Mary R. Pasciucco 46 Senior Vice President, Catalog Development and
Advertising
Bruce Lee Prescott 44 Senior Vice President, Direct Marketing
Charles R. Richardson 41 Senior Vice President, Information Services
Bruce C. Soderholm 57 Senior Vice President, Operations
Stuart M. Stolper 60 Senior Vice President, Human Resources
</TABLE>
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, and prior to that, Chairman and Chief
Executive Officer of Kohl's Food Stores, another BATUS division. 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. Metscher joined the Company in November 1998 as Executive Vice
President, Chief Merchandising Officer and in March 1999 was appointed to the
Company's Board of Directors. From 1996 to 1998, Mr. Metscher was President and
Chief Executive Officer of The Custom Foot, a specialty footwear company. From
1993 to 1996, Mr. Metscher was employed by Liz Claiborne, Inc., first as
President of its First Issue Division and later as President of the Liz
Claiborne Retail Division. Mr. Metscher had also been employed by the Company
from 1984 to 1993, holding positions of increasing responsibility including Vice
President, Merchandising and finally Vice President, Product Development.
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
12
<PAGE> 14
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. 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.
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. Prescott became Senior Vice President, Direct Marketing in August
1998. He 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.
Mr. Richardson joined Talbots in October 1998 as Senior Vice President,
Information Services. From 1997 to 1998, Mr. Richardson was Senior Vice
President and Chief Information Officer for Best Buy Company, Inc. From 1996 to
1997, Mr. Richardson was a Product Manager for Computer Associates
International, Inc. From 1992 to 1996, he was Senior Vice President, Information
Services for Ann Taylor, and spent ten years with The Limited, Inc. in various
positions at Abercrombie and Fitch, Limited Stores and Lane Bryant.
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> 15
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.
FORWARD LOOKING STATEMENTS
*The 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 risks and
uncertainties including levels of sales, effectiveness of the Company's brand
awareness and marketing programs, effectiveness and profitability of new
concepts, effectiveness of its new e-commerce site and the overall effect of
e-commerce on Talbots business, store traffic, acceptance of Talbots fashions,
appropriate balance of merchandise offerings, 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 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.
14
<PAGE> 16
ITEM 2. PROPERTIES.
The table below presents certain information relating to the Company's
properties at January 29, 2000:
<TABLE>
<CAPTION>
Location Gross Square Feet Primary Function Interest
-------- ----------------- ---------------- --------
<S> <C> <C> <C>
Hingham, Massachusetts 312,161 Company headquarters Own (46 acres)
Lakeville, Massachusetts 786,718 Distribution center Own (110 acres)
Knoxville, Tennessee 26,069 Telemarketing Lease
Tampa, Florida 38,437 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 673 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, in fiscal 1999, the
Company completed a 75,000 square foot expansion of its Hingham, Massachusetts
offices and construction on 125,000 square foot additional space at its
Lakeville, Massachusetts distribution facility is expected to be completed in
fiscal 2000. Additionally, the Company is currently in process of expanding it
Tampa, Florida Systems Center and its Knoxville, Tennessee Telemarketing
Facility. Talbots long-term expansion program, if successful, may require
additional office and distribution space to service its operations in the
future.
At January 29, 2000, Talbots operated 673 stores; all but eight 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 29, 2000, the current terms of
Talbots store leases (assuming solely for this purpose that the Company
exercises all lease renewal options) were as follows:
15
<PAGE> 17
<TABLE>
<CAPTION>
Years Lease Number of
Terms Expire Store Leases(a)
------------ ---------------
<S> <C> <C>
2000-2001................................................91
2002-2004...............................................129
2005-2007...............................................194
2008 and later..........................................192
</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 1999.
16
<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 fiscal 1999 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 23 and "Market
for Registrant's Common Stock and Related Shareholder Matters" on page 24 of
Talbots Annual Report to Shareholders for the fiscal year ended January 29, 2000
and is incorporated herein by reference.
At April 1, 2000, JUSCO USA held approximately 61.3% of Talbots common
stock.
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 1 of Talbots Annual Report to
Shareholders for the fiscal year ended January 29, 2000 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 2 to 6 of Talbots Annual Report to Shareholders for the
fiscal year ended January 29, 2000 and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information called for by this Item 7A is set forth under the
caption "Quantitative and Qualitative Disclosures about Market Risk" in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 5 of Talbots Annual Report to Shareholders for the fiscal
year ended January 29, 2000 and is incorporated herein by reference.
17
<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 called for by this Item 8 are set forth on
pages 7 to 22 of Talbots Annual Report to Shareholders for the fiscal year ended
January 29, 2000 and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
18
<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 3 and 4 of Talbots Proxy Statement for Talbots 2000 Annual
Meeting of Shareholders, the information concerning Talbots executive officers
set forth in Part I, Item 1 above under the caption "Executive Officers of the
Company,"and the information under the caption "Section 16 (a) Beneficial
Ownership Reporting Compliance" on page 15 of Talbots Proxy Statement for
Talbots 2000 Annual Meeting of Shareholders, are incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Executive Compensation" on
pages 6 to 11 of Talbots Proxy Statement for Talbots 2000 Annual Meeting of
Shareholders, the information concerning director compensation under the caption
"Director Compensation; Attendance; Committees" on pages 4 and 5 of Talbots
Proxy Statement for Talbots 2000 Annual Meeting of Shareholders, and the
information under the caption "Compensation Committee Interlocks and Insider
Participation" on page 12 of Talbots Proxy Statement for Talbots 2000 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 14 and 15 of Talbots Proxy Statement for Talbots 2000
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 12 to 14 of
Talbots Proxy Statement for Talbots 2000 Annual Meeting of Shareholders is
incorporated herein by reference.
19
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS: The following Independent Auditors' Report
and Consolidated Financial Statements of Talbots are
incorporated herein by reference to pages 7 to 22 of Talbots
Annual Report to Shareholders for the fiscal year ended January
29, 2000:
Consolidated Statements of Earnings for the Fifty-two
Weeks Ended January 29, 2000, the Fifty-two Weeks Ended
January 30, 1999 and the Fifty-two Weeks Ended January
31, 1998
Consolidated Balance Sheets at January 29, 2000 and
January 30, 1999
Consolidated Statements of Cash Flows for the Fifty-two
Weeks Ended January 29, 2000, the Fifty-two Weeks Ended
January 30, 1999 and the Fifty-two Weeks Ended January
31, 1998
Consolidated Statements of Stockholders' Equity for the
Fifty-two Weeks Ended January 29, 2000, the Fifty-two
Weeks Ended January 30, 1999 and the Fifty-two Weeks
Ended January 31, 1998
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) FINANCIAL STATEMENT SCHEDULES: The document and schedule listed
below are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
Page in Form 10-K
<S> <C>
Independent Auditors' Report on
Financial Statement Schedule F-1
Schedule II -- Valuation and Qualifying
Accounts and Reserves F-2
</TABLE>
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.
(a)(3) The following Exhibits are filed as part of, or incorporated by
reference into, this Annual Report:
20
<PAGE> 22
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, as
amended.(2), (6), (7), (9), (10), (16)
10.3 Revolving Credit Agreement, dated as of January 25, 1994,
between Talbots and The Bank of Tokyo-Mitsubishi Trust
Company, as amended.(2), (6), (7), (9), (10), (14), (16)
10.4 Revolving Credit Agreement, dated as of January 25, 1994,
between Talbots and The Norinchukin Bank, as amended.(2),
(6), (7), (9), (10)
10.5 Revolving Credit Agreement, dated as of January 25, 1994,
between Talbots and The Sakura Bank, Limited, as amended.
(2), (6), (7), (9), (10), (11), (16)
10.6 Revolving Credit Agreement between Talbots and The Dai-Ichi
Kangyo Bank, Limited, dated as of April 14, 1998, as
amended.(9), (14)
10.7 Credit Agreement between Talbots and The Bank of
Tokyo-Mitsubishi, Ltd., dated as of April 17, 1998, as
amended.(9), (10), (14)
10.8 Letter of Credit Agreement, dated as of August 10, 1993,
between Talbots and The First National Bank of Boston.(1)
10.9 Letter Agreement, dated as of June 1, 1998, concerning
credit facilities, between Talbots and BankBoston, N.A.(10)
10.10 Letter Agreement, dated August 11, 1998, concerning credit
facilities, between HSBC Corporate Banking, Marine Midland
Bank and Talbots.(10)
10.11 Trademark Purchase and License Agreement, dated as of
November 26, 1993, between JUSCO (Europe) B.V. and The
Classics Chicago, Inc.(2)
21
<PAGE> 23
10.12 Services Agreement, dated as of November 18, 1993, between
Talbots Japan Co., Ltd. and Talbots.(2)
10.13 Stock Purchase Agreement, dated as of November 26, 1993,
between Talbots and JUSCO.(2)
10.14 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)
10.15 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)
10.16 The Talbots, Inc. Pension Plan for Salaried Employees, as
amended and restated January 1, 1989, including amendments
through January 1, 1994.(4)
10.17 The Talbots, Inc. Retirement Savings Voluntary Plan, as
amended and restated, effective as of November 1, 1993.(4)
10.18 Services Agreement, dated as of October 29, 1989, between
Talbots and JUSCO USA.(1)
10.19 Share Purchase Agreement, dated as of February 21, 1995,
between Talbots and JUSCO USA.(3)
10.20 Second Extension of Share Repurchase Program, dated as of
May 23, 1997, between Talbots and JUSCO USA.(5)
10.21 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)
10.22 Third Extension of Share Repurchase Program dated as of
June 1, 1999 between Talbots and JUSCO USA.(13)
10.23 Money Market Line Commercial Promissory Note dated August
20, 1999 from Talbots to BankBoston, N.A.(14)
10.24 Fourth Extension of Share Repurchase Program dated January
20, 2000 between Talbots and JUSCO USA.(16)
22
<PAGE> 24
Management Contracts and Compensatory Plans and Arrangements.
10.25 The Talbots, Inc. Supplemental Retirement Plan, as
amended.(1), (2)
10.26 The Talbots, Inc. Supplemental Savings Plan, as amended.
(1), (2)
10.27 The Talbots, Inc. Deferred Compensation Plan, as amended.
(1), (2)
10.28 The Talbots, Inc. Amended and Restated 1993 Executive Stock
Based Incentive Plan.(10)
10.29 Employment Agreement, dated as of October 22, 1993, between
Arnold B. Zetcher and Talbots, as amended by Amendment No.
1 dated May 11, 1994.(1), (4)
10.30 Change in Control Agreements, between Talbots and each of
Edward Larsen, Michele Mandell, Richard T. O'Connell, Bruce
Soderholm, Stuart Stolper, Paul Kastner, Sandy Katz, Lucy
Main Tweet, Judith O'Keefe and Bruce Prescott.(2), (4)
10.31 The Talbots 1995 Directors Stock Option Plan.(15)
10.33 Employment Agreement, dated as of November 23, 1998,
between the Company and H. James Metscher.(10)
10.34 Consulting and Advisory Services Contract between JUSCO USA
and Talbots dated as of November 1, 1999.(12)
(11) Statement re Computation of Per Share Earnings.
11.1 Incorporated by reference to footnote 12 "Net Income Per
Share" on page 21 of Talbots Annual Report to Shareholders
for the fiscal year ended January 29, 2000.
(13) Annual Report to Security Holders.
13.1 Excerpts from the 1999 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.
23
<PAGE> 25
(27) Financial Data Schedules.
27.1 Financial Data Schedule for the year ended January 29,
2000, 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 Current Report on
Form 8-K dated April 25, 1994.
(3) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated February 21, 1995.
(4) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated April 27, 1995.
(5) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated June 19, 1997.
(6) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated November 21, 1995.
(7) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated May 1, 1997.
(8) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated October 27, 1997.
(9) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated November 30, 1997.
(10) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated April 29, 1999.
(11) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated May 26, 1999.
(12) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated July 1, 1999.
(13) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated September 22, 1999.
24
<PAGE> 26
(14) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated November 24, 1999.
(15) Incorporated by reference to the exhibits filed with the Schedule 14A
Definitive Proxy Statement dated April 22, 1996.
(16) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated April 25, 2000.
(b) Report on Form 8-K:
The Company filed a Current Report on Form 8-K on
November 24, 1999 pursuant to which various agreements and documents
were filed by the Company, as identified therein.
The Company filed a Current Report on Form 8-K on April
25, 2000 pursuant to which various agreements and documents were
filed by the Company, as identified therein.
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 1999 Annual Report to Shareholders is not to be
deemed filed as part of this Annual Report.
25
<PAGE> 27
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: April 28, 2000
THE TALBOTS, INC.
(Registrant)
By /s/ Edward L. 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 April 28, 2000:
/s/ Arnold B. Zetcher /s/ Isao Tsuruta
- ---------------------------------- ------------------------------------
Arnold B. Zetcher Isao Tsuruta
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/ H. James Metscher /s/ Mark H. Willes
- ---------------------------------- ------------------------------------
H. James Metscher Mark H. Willes
Officer and Director Director
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Talbots, Inc.:
We have audited the consolidated financial statements of The Talbots, Inc. and
its subsidiaries as of January 29, 2000 and January 30, 1999, and for each of
the three years in the period ended January 29, 2000, and have issued our report
thereon dated March 15, 2000; such financial statements and report are included
in your 1999 Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of The
Talbots, Inc. and its subsidiaries, listed in Item 14 (a)(2). 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
Boston, Massachusetts
March 15, 2000
F-1
<PAGE> 29
SCHEDULE II
The Talbots, Inc. and Subsidiaries
Valuation and Qualifying Accounts and Reserves
Three Years Ended January 29, 2000
(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> <C> <C> <C>
Year Ended January 29, 2000
Allowance for doubtful accounts
(deducted from accounts receivable) $1,600 2,715 - 2,615 $1,700
Year Ended January 30, 1999
Allowance for doubtful accounts
(deducted from accounts receivable) $1,400 3,152 - 2,952 $1,600
Year Ended January 31, 1998
Allowance for doubtful accounts
(deducted from accounts receivable) $1,200 3,254 - 3,054 $1,400
</TABLE>
(A) Write-off of uncollectible accounts net of recoveries.
F-2
<PAGE> 30
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------
THE TALBOTS, INC.
---------------
EXHIBITS
---------------
==============================================================================
<PAGE> 31
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, as
amended.(2), (6), (7), (9), (10), (16)
10.3 Revolving Credit Agreement, dated as of January 25, 1994,
between Talbots and The Bank of Tokyo-Mitsubishi Trust
Company, as amended.(2), (6), (7), (9), (10), (14), (16)
10.4 Revolving Credit Agreement, dated as of January 25, 1994,
between Talbots and The Norinchukin Bank, as amended.(2),
(6), (7), (9), (10)
10.5 Revolving Credit Agreement, dated as of January 25, 1994,
between Talbots and The Sakura Bank, Limited, as
amended.(2), (6), (7), (9), (10), (11), (16)
10.6 Revolving Credit Agreement between Talbots and The
Dai-Ichi Kangyo Bank, Limited, dated as of April 14,
1998, as amended.(9), (14)
10.7 Credit Agreement between Talbots and The Bank of
Tokyo-Mitsubishi, Ltd., dated as of April 17, 1998, as
amended.(9), (10), (14)
10.8 Letter of Credit Agreement, dated as of August 10, 1993,
between Talbots and The First National Bank of Boston.
(1)
10.9 Letter Agreement, dated as of June 1, 1998, concerning
credit facilities, between Talbots and BankBoston, N.A.
(10)
10.10 Letter Agreement, dated August 11, 1998, concerning
credit facilities, between HSBC Corporate Banking, Marine
Midland Bank and Talbots.(10)
<PAGE> 32
10.11 Trademark Purchase and License Agreement, dated as of
November 26, 1993, between JUSCO (Europe) B.V. and The
Classics Chicago, Inc.(2)
10.12 Services Agreement, dated as of November 18, 1993,
between Talbots Japan Co., Ltd. and Talbots.(2)
10.13 Stock Purchase Agreement, dated as of November 26, 1993,
between Talbots and JUSCO.(2)
10.14 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)
10.15 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)
10.16 The Talbots, Inc. Pension Plan for Salaried Employees, as
amended and restated January 1, 1989, including
amendments through January 1, 1994.(4)
10.17 The Talbots, Inc. Retirement Savings Voluntary Plan, as
amended and restated, effective as of November 1, 1993.
(4)
10.18 Services Agreement, dated as of October 29, 1989, between
Talbots and JUSCO USA.(1)
10.19 Share Purchase Agreement, dated as of February 21, 1995,
between Talbots and JUSCO USA.(3)
10.20 Second Extension of Share Repurchase Program, dated as of
May 23, 1997, between Talbots and JUSCO USA.(5)
10.21 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)
10.22 Third Extension of Share Repurchase Program dated as of
June 1, 1999 between Talbots and JUSCO USA.(13)
10.23 Money Market Line Commercial Promissory Note dated August
20, 1999 from Talbots to BankBoston, NA.(14)
10.24 Fourth Extension of Share Repurchase Program dated
January 20, 2000 between Talbots and JUSCO USA.(16)
<PAGE> 33
Management Contracts and Compensatory Plans and Arrangements.
10.25 The Talbots, Inc. Supplemental Retirement Plan, as
amended.(1), (2)
10.26 The Talbots, Inc. Supplemental Savings Plan, as
amended.(1), (2)
10.27 The Talbots, Inc. Deferred Compensation Plan, as
amended.(1), (2)
10.28 The Talbots, Inc. Amended and Restated 1993 Executive
Stock Based Incentive Plan.(10)
10.29 Employment Agreement, dated as of October 22, 1993,
between Arnold B. Zetcher and Talbots, as amended by
Amendment No. 1 dated May 11, 1994.(1), (4)
10.30 Change in Control Agreements, between Talbots and each of
Edward Larsen, Michele Mandell, Richard T. O'Connell,
Bruce Soderholm, Stuart Stolper, Paul Kastner, Sandy
Katz, Lucy Main Tweet, Judith O'Keefe and Bruce
Prescott.(2), (4)
10.31 The Talbots, Inc. 1995 Directors Stock Option Plan.(15)
10.32 Employment Agreement, dated as of November 23, 1998,
between the Company and H. James Metscher.(10)
10.33 Consulting and Advisory Services Contract between JUSCO
USA and Talbots dated as of November 1, 1999.(12)
(11) Statement re Computation of Per Share Earnings.
11.1 Incorporated by reference to footnote 12 "Net Income Per
Share" on page 21 of Talbots Annual Report to
Shareholders for the fiscal year ended January 29, 2000.
(13) Annual Report to Security Holders.
13.1 Excerpts from the 1999 Annual Report of Talbots
incorporated by reference.
<PAGE> 34
(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 Financial Data Schedule for the year ended January 29,
2000, 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 Current Report on
Form 8-K dated April 25, 1994.
(3) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated February 21, 1995.
(4) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated April 27, 1995.
(5) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated May June 19, 1997.
(6) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated November 21, 1995.
(7) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated May 1, 1997.
(8) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated October 27, 1997.
(9) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated November 30, 1997.
(10) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated April 29, 1999.
<PAGE> 35
(11) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated May 26, 1999.
(12) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated July 1, 1999.
(13) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated September 22, 1999.
(14) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated November 24, 1999.
(15) Incorporated by reference to the exhibits filed with the Schedule 14A
Definitive Proxy Statement dated April 22, 1996.
(16) Incorporated by reference to the exhibits filed with Current Report on
Form 8-K dated April 25, 2000.
<PAGE> 1
EXHIBIT 13.1
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 29, January 30, January 31, February 1, February 3,
2000 1999 1998 1997 1996
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS INFORMATION:
Net sales $1,290,923 $1,142,246 $1,053,806 $1,018,801 $981,042
Net income 58,460 36,668 5,838 63,621 62,600
Net income per share
Basic $1.88 $1.15 $0.18 $1.92 $1.82
Assuming dilution $1.85 $1.15 $0.18 $1.91 $1.82
Weighted average number of
shares of common stock
outstanding (in thousands)
Basic 31,068 31,878 32,386 33,185 34,395
Assuming dilution 31,684 31,933 32,436 33,283 34,471
Cash dividends per share $0.46 $0.44 $0.42 $0.34 $0.26
BALANCE SHEET INFORMATION:
Working capital $225,855 $201,521 $145,101 $184,442 $161,361
Total assets 693,904 661,219 680,154 625,043 575,647
Total long-term debt 100,000 100,000 50,000 50,000 50,000
Stockholders' equity 431,332 402,073 396,466 431,459 398,039
</TABLE>
REPORT OF MANAGEMENT RESPONSIBILITY
---------------------------------------------------------------------------
The management of The Talbots, Inc. is responsible for the fairness and accuracy
of our financial reporting.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles, using management's best estimates and
informed judgments where necessary and appropriate. Management is responsible
for the integrity of the information and the representations contained in our
Annual Report.
We have established a system of internal accounting controls that provides
reasonable assurance that, in all material respects, assets are adequately
safeguarded and accounted for in accordance with management's authorization, and
transactions are properly and accurately recorded. Our internal controls provide
for appropriate separation of duties and responsibilities, and there are
documented policies regarding the use of Company assets and proper financial
reporting. These policies demand high ethical conduct from all employees. We
also maintain an internal audit program that independently evaluates and reports
on the adequacy and effectiveness of our internal controls.
The Audit Committee of the Board of Directors, consisting of outside independent
Directors, meets periodically to assess that our management, internal auditors
and independent auditors are properly fulfilling their duties regarding internal
control and financial reporting. Our independent auditors, internal auditors and
financial managers have full and free access to the Audit Committee at any time.
Deloitte & Touche LLP, independent certified public accountants, are retained to
perform an audit of our consolidated financial statements.
/s/ Arnold B. Zetcher /s/ Edward L. Larsen
Arnold B. Zetcher Edward L. Larsen
President and Chief Executive Officer Senior Vice President, Finance,
Chief Financial Officer and
Treasurer
<PAGE> 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 accompanying the
consolidated financial statements. The 1999 fiscal year ended on January 29,
2000. The 1998 fiscal year ended on January 30, 1999. The 1997 fiscal year ended
on January 31, 1998. Each fiscal year had 52 weeks.
RESULTS OF OPERATIONS
The following table sets forth 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 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy expenses 63.4% 65.6% 70.3%
Selling, general and administrative expenses 28.7% 28.6% 28.1%
Operating income 7.9% 5.9% 1.6%
Interest expense, net 0.5% 0.6% 0.7%
Income before taxes 7.4% 5.2% 0.9%
Income taxes 2.8% 2.0% 0.3%
Net income 4.5% 3.2% 0.6%
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales increased by $148.7 million, to $1,290.9 million, or 13.0% over 1998.
Operating income was $101.6 million in 1999 compared to $66.9 million in 1998.
Retail store sales in 1999 increased by $126.9 million, to $1,099.9 million, or
13.0% over 1998. The percentage of the Company's net sales derived from its
retail stores in 1999 remained consistent with 1998 at 85.2%. The increase in
retail store sales was attributable to the 35 net new stores opened in 1999, the
first full year of operation of the 35 non-comparable stores that opened in
1998, and a $74.9 million, or 8.7% increase 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, Woman or 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 the increase in comparable store
sales can be attributed to improvements in its merchandise offerings which more
accurately reflect the styling, fit and colors that appeal to its customer.
Catalog sales in 1999 increased by $21.8 million, to $191.0 million, or 12.9%
over 1998. The percentage of the Company's total sales derived from its catalog
in 1999 remained consistent with 1998 at 14.8%. Catalog productivity, as
measured by both sales per catalog and sales per page distributed, improved over
1998. Sales per catalog distributed increased 4.7%, from $3.22 in 1998 to $3.37
in 1999, on circulation of approximately 56.7 million catalogs in 1999 versus
52.6 million catalogs in 1998. Sales per page distributed improved 17.6%, from
$3.58 per hundred in 1998 to $4.21 per hundred in 1999.
In November 1999, the Company launched its e-commerce website; sales from this
channel of distribution are reported in catalog sales.
The Company believes that the increase in catalog sales was primarily due to
continued improvements in its merchandise offerings, which had a stronger appeal
to its customers and more closely met their expectations. The Company attributes
the improvement in catalog productivity to its strategy of reducing catalog
pages, eliminating certain unproductive mailings and more focused customer
targeting.
Cost of sales, buying and occupancy expenses decreased as a percentage of net
sales to 63.4% in 1999 from 65.6% in 1998 due to improved merchandise margins
which resulted from stronger full price selling and reduced markdowns resulting
from more effective inventory management. Additionally, strong full price
selling created increased leverage on occupancy costs.
Selling, general and administrative expenses increased slightly as a percentage
of net sales to 28.7% in 1999 from 28.6% in 1998. The increase in selling,
general and administrative expenses as a percentage of net sales was mainly
<PAGE> 3
due to higher marketing expenses related to the Company's advertising campaign
and higher information services expenses, including its Year 2000 remediation
efforts. This was substantially offset by leverage improvements on catalog
production expenses, including a planned reduction in page count, matched with
increased overall circulation designed to maximize sales productivity per page,
as a percentage of sales.
Interest expense, net, decreased by $0.8 million, to $6.5 million in 1999, due
to lower average debt levels and average borrowing rates. The average total
debt, including short-term and long-term bank borrowings, was $117.9 million in
1999 compared to $125.9 million in 1998. The decrease in borrowings was mainly
due to improved operating cash flows resulting from an increase in net income
and improvements in inventory management. The average interest rate, including
interest on short-term and long-term bank borrowings, was 6.28% in 1999 compared
to 6.58% in 1998.
The effective tax rate for the Company remained at 38.5% in 1999.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales increased by $88.4 million to $1,142.2 million, or 8.4% over 1997.
Operating income was $66.9 million in 1998 compared to $17.1 million in 1997.
Retail store sales in 1998 increased by $78.4 million to $973.0 million, or 8.8%
over 1997. The percentage of the Company's net sales derived from its retail
stores increased to 85.2% in 1998 from 84.9% in 1997. 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. The increase in retail store sales was
attributable to the 35 net new stores opened in 1998, the first full year of
operation of the 68 non-comparable stores that opened in 1997, and a $26.5
million, or 3.6% increase in comparable store sales from the previous year.
Comparable stores are those which were open for at least one full fiscal year.
The Company believes the increase in comparable store sales can be attributed to
improvements in its merchandise offerings which more accurately reflect the
styling, fit and colors which appeal to its core customer.
Catalog sales in 1998 increased by $10.0 million to $169.2 million, or 6.3% over
1997. The percentage of the Company's total sales derived from its catalog
decreased to 14.8% in 1998 from 15.1% in 1997 due to retail sales increasing at
a higher rate than catalog sales. Catalog productivity, as measured by both
sales per catalog and sales per page distributed, also improved over 1997. Sales
per catalog distributed increased 5.2%, to $3.22 in 1998 from $3.06 in 1997 on
circulation of approximately 52.6 million catalogs in 1998 versus 52.0 million
catalogs in 1997.
The Company believes that the increase in catalog sales was primarily due to
improvements in its merchandise offerings, which had a stronger appeal to its
core customers and more closely met their expectations. These improvements are
also believed to have contributed to a three percentage point decline in the
Company's catalog return rate. The Company attributes the improvement in catalog
productivity to its strategy of reducing catalog pages and eliminating certain
unproductive mailings.
Cost of sales, buying and occupancy expenses decreased as a percentage of net
sales to 65.6% from 70.3% in 1997 due to improved merchandise margins which
resulted from stronger full price selling and significantly reduced markdowns
resulting from dramatically reduced merchandise inventories over the previous
year.
Selling, general and administrative expenses increased as a percentage of net
sales to 28.6% in 1998 from 28.1% in 1997. 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 enhance customer service and to
provide additional product training for store associates. Also contributing to
the increase was higher spending on information systems, chiefly toward Year
2000 initiatives.
Interest expense, net, decreased by $0.3 million, to $7.3 million in 1998, due
to lower average debt levels partially offset by an increase in average
borrowing rates. The average total debt, including short-term and long-term bank
borrowings, was $125.9 million in 1998 compared to $134.4 million in 1997. The
decrease in borrowings was mainly due to improved operating cash flows resulting
from an increase in net income and the significant tightening of inventories.
The average interest rate, including interest on short-term and long-term bank
borrowings, was 6.58% in 1998 compared to 6.22% in 1997.
The effective tax rate for the Company remained at 38.5% in 1998, the same as
1997.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------------------------------------
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
slightly stronger in the second quarter. Within the fall season, catalog sales
and retail store sales are the strongest 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 1, July 31, October 30, January 29,
1999 1999 1999 2000
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy expenses 57.6% 70.9% 58.5% 66.0%
Selling, general and administrative expenses 31.0% 26.6% 30.7% 26.9%
Operating income 11.4% 2.5% 10.8% 7.0%
</TABLE>
<TABLE>
<CAPTION>
Fiscal Quarter Ended
- -------------------------------------------------------------------------------------------------------------------
May 2, August 1, October 31, January 30,
1998 1998 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy expenses 60.1% 71.9% 60.1% 69.3%
Selling, general and administrative expenses 30.2% 26.8% 31.6% 26.2%
Operating income 9.6% 1.4% 8.3% 4.4%
</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 peak 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. Another factor is the store
expansion program, which results in having 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 29, 2000 and January 30,
1999, the Company had no amounts outstanding under the line of credit facility.
Additionally, the Company has a revolving credit facility with four banks (the
"Facility"). In April 1998, the Company entered into new agreements with these
banks to increase the Facility from $50.0 million to $100.0 million. At January
29, 2000 and January 30, 1999 the Company's outstanding borrowings under the
Facility were $100.0 million. Notes under the Facility currently extend to
various periods between April 2001 and January 2002, 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.
Cash provided by operating activities totaled $91.8 million in 1999. The
decrease in cash provided by operating activities from the prior year is mainly
due to higher merchandise inventories at year-end, lower balances of accounts
payable and increased balances of Talbots customer accounts receivable. These
uses of cash were partially offset by the increase in net income.
Cash provided by operating activities totaled $136.4 million in 1998. The
increase in cash provided by operating activities from the prior year is mainly
due to higher net income and the tight control of inventories during the year.
<PAGE> 5
Cash used in investing activities for 1999 was $55.2 million. Of this amount,
approximately $30.2 million was used for leasehold improvements, furniture,
fixtures and other related expenditures for opening new stores and expanding,
renovating and relocating existing stores. Additionally, approximately $13.6
million was used for the expansion of the Company's Hingham and Lakeville
corporate facilities. Cash used in investing activities for 1998 was $45.1
million. Of this amount, approximately $31.7 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 fiscal 2000 are currently expected to be approximately
$72 million. The Company currently plans to open at least 52 new stores during
fiscal 2000. Approximately $40.0 million is expected to be used for opening new
stores and expanding, renovating and relocating existing stores. Approximately
$11.0 million is expected to be used to enhance the Company's computer
information systems, and $17.0 million is expected to be used for the continued
expansion and renovations of the Company's Hingham and Lakeville corporate
facilities. The remaining amount will be used 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 2000.*
Cash used in financing activities totaled $34.9 million in 1999. During fiscal
1999 the Company paid cash dividends of $0.46 per share and repurchased 969,080
shares of Company common stock under its repurchase program at an average price
per share of $37.47. The payment of cash dividends and the purchase of treasury
stock in 1999 were funded through operating cash flows.
Cash used in financing activities totaled $81.8 million in 1998. During fiscal
1998 the Company paid cash dividends of $0.44 per share and repurchased 912,878
shares of Company common stock at an average price per share of $21.96. The
payment of cash dividends and the purchase of treasury stock in 1998 were funded
through operating cash flows.
In 1999 and 1998 cash from operating activities and funds available to the
Company under its 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 $30.0 million in 1999
and $120.0 million in 1998. The Company's primary ongoing cash requirements will
be to fund new stores and the expansions, renovations and relocations of
existing stores, expansion of the Company's Hingham and Lakeville corporate
facilities, 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 and next fiscal years, the Company believes its cash flows from
operating activities and funds available to it under credit facilities, 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.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments and in its
financial position represents the potential loss arising from adverse changes in
interest rates. The Company does not enter into financial instruments for
trading purposes.
At January 29, 2000, the Company has $100.0 million of variable rate borrowings
outstanding under its revolving credit agreements, which approximate fair market
value. A hypothetical 10% adverse change in interest rates for this variable
rate debt would have an approximate $0.3 million negative impact on the
Company's earnings and cash flows.
The Company has market risk exposure from foreign currency fluctuations to the
extent that intercompany balances are settled. The Company does not believe its
foreign currency market risk in this regard is material.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
On January 31, 1999, the Company adopted the American Institute of Certified
Public Accountants' ("AICPA's") Statement of Position ("SOP") 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 provide 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 consolidated financial statements.
On January 31, 1999, the Company adopted the AICPA's SOP 98-5, "Reporting on the
Costs of Start-Up Activities," which requires start-up activities be expensed as
incurred. The application of SOP 98-5 did not have a material impact on the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 significantly modifies
accounting and reporting standards for derivatives and hedging activities. In
June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," deferred
the implementation of SFAS No. 133 for the Company until the quarter ending
April 27, 2001. The impact of SFAS No. 133 and SFAS No. 137 on the Company, if
any, has not yet been determined.
In November 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 100, "Restructuring and Impairment Charges". SAB
No. 100 provides guidance regarding the accounting for and disclosure of certain
expenses commonly reported in connection with exit activities and business
combinations. SAB No. 100 did not have a material impact on the Company's
consolidated financial statements.
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not have a
material impact on the Company's consolidated financial statements.
YEAR 2000
To date, the Company has not experienced any significant problems with its
hardware and software systems or facilities and distribution equipment related
to the Year 2000 date change. The Company is not presently aware of any
significant exposure arising from potential third party failures. However, there
can be no assurance that the systems of other companies on which the Company's
systems or operations rely have been successfully converted or that any failure
of such parties to achieve Year 2000 compliance could not have an adverse effect
on the Company's results of operations.
To date, the total cost to address the Year 2000 date change was approximately
$10.1 million; of this, approximately $5.1 million was charged to expense. All
costs incurred were budgeted expenditures and were funded as incurred or
capitalized in accordance with normal policy. The Company has not deferred any
material information technology projects as a result of the Year 2000 program.
FORWARD-LOOKING INFORMATION
*The Annual Report 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 risks and
uncertainties including levels of sales, effectiveness of the Company's brand
awareness and marketing programs, effectiveness and profitability of new
concepts, effectiveness of its new e-commerce site and the overall effect of
e-commerce on Talbots business, store traffic, acceptance of Talbots fashions,
appropriate balance of merchandise offerings, 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 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
CONSOLIDATED STATEMENTS OF EARNINGS
---------------------------------------------------------------------------
(Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended
- --------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,290,923 $1,142,246 $1,053,806
COSTS AND EXPENSES:
Cost of sales, buying and occupancy 818,951 749,112 741,133
Selling, general and administrative 370,404 326,203 295,620
- -------------------------------------------------------------------------------------------------------
OPERATING INCOME 101,568 66,931 17,053
INTEREST EXPENSE - NET 6,511 7,308 7,560
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 95,057 59,623 9,493
INCOME TAXES 36,597 22,955 3,655
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 58,460 $ 36,668 $ 5,838
- -------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE -
Basic $ 1.88 $ 1.15 $ 0.18
- -------------------------------------------------------------------------------------------------------
Assuming dilution $ 1.85 $ 1.15 $ 0.18
- -------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING - (in thousands)
Basic 31,068 31,878 32,386
- -------------------------------------------------------------------------------------------------------
Assuming dilution 31,684 31,933 32,436
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE> 8
Consolidated Balance Sheets
---------------------------------------------------------------------------
(Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,001 $ 20,195
Customer accounts receivable - net 116,737 107,617
Merchandise inventories 183,614 173,041
Deferred catalog costs 8,360 8,400
Due from affiliates 8,445 6,653
Deferred income taxes 9,516 7,139
Prepaid and other current assets 21,113 21,025
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 369,786 344,070
PROPERTY AND EQUIPMENT- NET 203,206 189,510
GOODWILL - NET 38,201 39,544
TRADEMARKS- NET 80,652 83,036
DEFERRED INCOME TAXES 2,059 5,059
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 693,904 $ 661,219
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ -- $ --
Accounts payable 56,604 68,067
Accrued liabilities 87,327 74,482
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 143,931 142,549
LONG-TERM DEBT 100,000 100,000
DEFERRED RENT UNDER LEASE COMMITMENTS 18,641 16,597
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 40,000,000 authorized;
36,007,973 shares and 35,321,545 shares issued, respectively, and
30,942,251 shares and 31,258,903 shares outstanding, respectively 360 353
Additional paid-in capital 314,738 294,089
Retained earnings 266,390 222,318
Accumulated other comprehensive income (loss) (2,037) (2,431)
Restricted stock awards (2,140) (3,157)
Treasury stock, at cost (145,979) (109,099)
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 431,332 402,073
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 693,904 $ 661,219
</TABLE>
See notes to consolidated financial statements
<PAGE> 9
Consolidated Statements of Cash Flows
---------------------------------------------------------------------------
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58,460 $ 36,668 $ 5,838
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 43,377 40,035 40,392
Deferred rent 2,027 1,950 1,735
Net non-cash compensation activity 931 914 780
Loss on disposal of property and equipment 1,883 2,314 1,913
Deferred income taxes 627 1,187 (2,713)
Changes in current assets and liabilities:
Customer accounts receivable (9,097) (3,558) (1,509)
Merchandise inventories (10,421) 18,608 (32,986)
Deferred catalog costs 40 3,460 (2,294)
Due from affiliates (1,792) 1,915 (3,590)
Prepaid and other current assets 4,382 9,338 (7,346)
Accounts payable (11,481) 8,617 3,478
Accrued liabilities 12,825 14,972 9,053
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 91,761 136,420 12,751
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (55,409) (45,224) (49,684)
Proceeds from disposal of property and equipment 238 159 144
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (55,171) (45,065) (49,540)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings under notes payable to banks -- (100,000) 76,000
Borrowings of long-term debt -- 50,000 --
Cash dividends paid (14,388) (14,007) (13,614)
Proceeds from options exercised and restricted stock issued 15,806 2,271 332
Purchase of treasury stock (36,316) (20,050) (27,542)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (34,898) (81,786) 35,176
- -------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 114 (54) (55)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,806 9,515 (1,668)
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE YEAR 20,195 10,680 12,348
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 22,001 $ 20,195 $ 10,680
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE> 10
Consolidated Statements of Stockholders' Equity
---------------------------------------------------------------------------
(Dollar amounts in thousands except share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Restricted
--------------------- Paid-in Retained Comprehensive Stock
Shares Amount Capital Earnings Income (Loss) Awards
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1997 34,928,092 $ 349 $ 286,874 $ 207,433 $ (1,154) $ (1,164)
Cash dividends paid -- -- -- (13,614) -- --
Common stock issued
as restricted stock award 12,000 -- 299 -- -- (299)
Amortization of restricted
stock award -- -- -- -- -- 780
Stock options exercised,
including tax benefit 15,087 1 388 -- -- --
Purchase of 1,137,929 shares
of common stock -- -- -- -- -- --
Other equity transactions -- -- (154) -- -- 154
Comprehensive income:
Net income -- -- -- 5,838 -- --
Translation adjustment -- -- -- -- (844) --
Comprehensive income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 31, 1998 34,955,179 350 287,407 199,657 (1,998) (529)
Cash dividends paid -- -- -- (14,007) -- --
Common stock issued
as restricted stock award 256,500 2 4,015 -- -- (4,015)
Amortization of restricted
stock awards -- -- -- -- -- 1,137
Stock options exercised,
including tax benefit 109,866 1 2,560 -- -- --
Purchase of 912,878 shares
of common stock -- -- -- -- -- --
Other equity transactions -- -- 107 -- -- 250
Comprehensive income:
Net income -- -- -- 36,668 -- --
Translation adjustment -- -- -- -- (433) --
Comprehensive income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 30, 1999 35,321,545 353 294,089 222,318 (2,431) (3,157)
Cash dividends paid -- -- -- (14,388) -- --
Amortization of restricted
stock awards -- -- -- -- -- 700
Stock options exercised,
including tax benefit 686,428 7 20,171 -- -- --
Purchase of 969,080 shares
of common stock -- -- -- -- -- --
Other equity transactions -- -- 478 -- -- 317
Comprehensive income:
Net income -- -- -- 58,460 -- --
Translation adjustment -- -- -- -- 394 --
Comprehensive income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 29, 2000 36,007,973 $ 360 $ 314,738 $ 266,390 $ (2,037) $ (2,140)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Total
Treasury Comprehensive Stockholders'
Stock Income Equity
- -------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT FEBRUARY 1, 1997 $ (60,879) $ 431,459
Cash dividends paid -- (13,614)
Common stock issued
as restricted stock award -- --
Amortization of restricted
stock award -- 780
Stock options exercised,
including tax benefit -- 389
Purchase of 1,137,929 shares
of common stock (27,542) (27,542)
Other equity transactions -- --
Comprehensive income:
Net income -- $ 5,838 5,838
Translation adjustment -- (844) (844)
----------
Comprehensive income -- 4,994 --
- -------------------------------------------------------------------------------------
BALANCE AT JANUARY 31, 1998 (88,421) 396,466
Cash dividends paid -- (14,007)
Common stock issued
as restricted stock award -- 2
Amortization of restricted
stock awards -- 1,137
Stock options exercised,
including tax benefit -- 2,561
Purchase of 912,878 shares
of common stock (20,050) (20,050)
Other equity transactions (628) (271)
Comprehensive income:
Net income -- 36,668 36,668
Translation adjustment -- (433) (433)
----------
Comprehensive income -- 36,235 --
- -------------------------------------------------------------------------------------
BALANCE AT JANUARY 30, 1999 (109,099) 402,073
Cash dividends paid -- (14,388)
Amortization of restricted
stock awards -- 700
Stock options exercised,
including tax benefit -- 20,178
Purchase of 969,080 shares
of common stock (36,316) (36,316)
Other equity transactions (564) 231
Comprehensive income:
Net income -- 58,460 58,460
Translation adjustment -- 394 394
----------
Comprehensive income -- 58,854 --
- -------------------------------------------------------------------------------------
BALANCE AT JANUARY 29, 2000 $ (145,979) $ 431,332
=====================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 11
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 and internet website. 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, remains the Company's
majority shareholder, owning approximately 61.4% of the Company's outstanding
common stock at January 29, 2000. 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 years ended January 29, 2000, January 30, 1999 and January 31, 1998 were 52
week reporting periods. The Company conforms to 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
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 $1,700 and $1,600 as of January 29, 2000 and January 30, 1999,
respectively.
Advertising - Advertising costs, which include media, production and catalogs
totaled $73,858, $62,517 and $65,283 in the years ended January 29, 2000,
January 30, 1999 and January 31, 1998, respectively. Media and production costs
are expensed in the period in which the advertising first takes place, while
catalog costs are amortized over the estimated productive selling life of the
catalog, generally three 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 is 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>
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. The recoverability of
this intangible asset is assessed by determining whether the goodwill balance
can be recovered over its remaining useful life through undiscounted future
operating cash flow from operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows using a
dis-
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
---------------------------------------------------------------------------
(Dollar amounts in thousands except per share data)
count rate reflecting the Company's average cost of funds. At January 29,
2000 and January 30, 1999 accumulated amortization of goodwill was $15,559 and
$14,215, 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 with 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 29, 2000 and January 30, 1999 accumulated
amortization on the trademarks was $14,718 and $12,334, respectively.
Fair Value of Financial Instruments - The Company's financial instruments
consist primarily of current assets (except inventories), current liabilities
and long-term debt. The carrying value of current assets and current liabilities
approximates their fair market values; long-term debt, which has variable
interest rate terms, is therefore at current market interest rates, and its
carrying value approximates its 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 29, 2000, January 30, 1999 and January 31, 1998, the amounts
included in the Statement of Earnings were $16,232, $15,333, and $14,701,
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 comprehensive income. Foreign currency transaction gains or losses, whether
realized or unrealized, are recorded directly to the Statement of Earnings.
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, including contingently
returnable shares, (as determined by the treasury stock method which includes
the tax benefit on assumed stock option exercises).
Comprehensive Income - The Company's comprehensive net income is comprised of
the impact of changes in the cumulative foreign currency translation adjustment.
Comprehensive income is included in the consolidated statements of stockholders'
equity.
Supplemental Cash Flow Information - Interest paid on a cash basis for the years
ended January 29, 2000, January 30, 1999 and January 31, 1998 was $7,363,
$7,538, and $8,207, respectively. Income tax payments during the years ended
January 29, 2000, January 30, 1999 and January 31, 1998 were $33,418, $19,457,
and $14,517, respectively.
New Accounting Pronouncements - On January 31, 1999, the Company adopted the
American Institute of Certified Public Accountants' ("AICPA's") Statement of
Position ("SOP") 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 provide 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
consolidated financial statements.
<PAGE> 13
On January 31, 1999, the Company adopted the AICPA's SOP 98-5, "Reporting on the
Costs of Start-Up Activities," which requires start-up activities be expensed as
incurred. The application of SOP 98-5 did not have a material impact on the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 significantly modifies
accounting and reporting standards for derivatives and hedging activities. In
June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," deferred
the implementation of SFAS No. 133 for the Company until the quarter ending
April 27, 2001. The impact of SFAS No. 133 and SFAS No. 137 on the Company, if
any, has not yet been determined.
In November 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 100, "Restructuring and Impairment Charges". SAB
No. 100 provides guidance regarding the accounting for and disclosure of certain
expenses commonly reported in connection with exit activities and business
combinations. SAB No. 100 did not have a material impact on the Company's
consolidated financial statements.
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not have a
material impact on the Company's consolidated financial statements.
Reclassifications - Certain reclassifications have been made to the January 31,
1998, and January 30, 1999 consolidated financial statements to conform with the
January 29, 2000 presentation.
3. EQUITY TRANSACTIONS
During the years ended January 29, 2000, January 30, 1999 and January 31, 1998,
the Company declared and paid dividends totaling $0.46 per share, $0.44 per
share, and $0.42 per share, respectively.
On February 21, 1995, the Company adopted a stock repurchase plan authorizing
the purchase of shares of its common stock. Subsequently, the Board of Directors
has voted four extensions to the original plan. In January 2000 the fourth
extension was authorized, allowing the Company to purchase up to an additional
$20,000 of outstanding stock over a two-year period. At January 29, 2000,
288,900 shares had been purchased under the fourth authorization. At January 29,
2000 and January 30, 1999, the Company held 5,065,722 and 4,062,642 shares,
respectively, as treasury shares. Treasury shares also include shares forfeited
under the Company's restricted stock plan.
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"). In February 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. The
Amendment was approved by a majority of the Company's shareholders at the
Company's Annual Meeting in May 1998.
Under the provisions of the Plan, the Company has issued to certain key
management personnel shares of restricted stock. The purchase price of the
restricted stock is $.01 per share. The difference between the market price of
the shares on the date of grant and management's cost of $.01 per share is
recorded as deferred compensation and is amortized over a five-year service
period. At January 29, 2000, 216,800 shares of restricted stock were
outstanding.
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
---------------------------------------------------------------------------
(Dollar amounts in thousands except per share data)
A summary of the changes in restricted shares outstanding for the years ended
January 29, 2000, January 30, 1999 and January 31, 1998 is presented below.
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------
January 29, 2000 January 30, 1999 January 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
market market market
price of price of price of
shares on shares on shares on
Number of date of Number of date of Number of date of
shares grant shares grant shares grant
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 250,800 $15.92 56,533 $20.08 108,973 $19.50
Granted - - 256,500 15.66 12,000 24.94
Vested - - (45,342) 19.50 (56,532) 19.50
Forfeited (34,000) 16.59 (16,891) 16.25 (7,908) 19.50
- -------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 216,800 $15.81 250,800 $15.92 56,533 $20.08
===================================================================================================================
</TABLE>
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.
A summary of activity in the Company's option plans during the years ended
January 29, 2000, January 30, 1999 and January 31, 1998 is presented below.
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------
January 29, 2000 January 30, 1999 January 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
option option option
Number of price per Number of price per Number of price per
shares share shares share shares share
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,601,512 $25.17 2,406,693 $27.24 2,019,525 $27.85
Granted 559,500 25.65 549,000 16.29 516,425 24.99
Exercised (686,428) 23.03 (109,866) 20.67 (15,087) 19.72
Forfeited (95,593) 25.02 (244,315) 27.64 (114,170) 29.44
- -------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,378,991 $25.91 2,601,512 $25.17 2,406,693 $27.24
===================================================================================================================
Exercisable at end of year 1,397,568 $28.15 1,636,939 $27.69 1,470,231 $27.48
===================================================================================================================
</TABLE>
The following table summarizes information regarding stock options outstanding
at January 29, 2000.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------
Number of Weighted Weighted Number of Weighted
Range of options average average options average
exercise prices outstanding remaining life exercise price exercisable exercise price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13.84 - $18.45 348,173 8.0 years $14.87 93,492 $14.81
$18.46 - $23.06 127,961 4.9 years $19.73 105,626 $19.60
$23.07 - $27.68 857,019 8.5 years $24.92 218,447 $25.04
$27.69 - $32.29 667,338 6.4 years $29.09 612,503 $28.97
$32.30 - $36.90 368,000 4.3 years $34.47 367,500 $34.48
$46.13 10,500 9.7 years $46.13 -- $46.13
</TABLE>
<PAGE> 15
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 1999, 1998, and 1997, 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
reported as follows:
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $54,911 $33,058 $1,427
Net income per share - basic $ 1.77 $ 1.04 $ 0.04
Net income per share - assuming dilution $ 1.74 $ 1.04 $ 0.04
</TABLE>
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 1999, 1998 and 1997 were $13.11, $7.33, and $11.58 per
option, respectively. Key assumptions used to apply this pricing model are as
follows:
<TABLE>
<CAPTION>
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average risk free interest rate 5.3% 5.5% 6.0%
Weighted average expected life of option grants 6.5 years 8 years 8 years
Weighted average expected volatility of underlying stock 56.3% 47.4% 42.7%
Weighted average expected dividend payment rate,
as a percentage of the stock price on the date of grant 1.9% 2.8% 2.0%
</TABLE>
The option pricing model used was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are not
tradable 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 29, 2000 and
January 30, 1999 the Company was owed $8,433 and $6,641, 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 29, January 30,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 11,584 $ 12,081
Buildings 41,065 39,667
Fixtures and equipment 219,117 196,443
Software 10,547 5,040
Leasehold improvements 114,348 107,886
Leasehold interests 5,919 6,445
Construction in progress 23,419 15,092
- -------------------------------------------------------------------------------------------------------------------
Property and equipment - gross 425,999 382,654
Less accumulated depreciation and amortization (222,793) (193,144)
- -------------------------------------------------------------------------------------------------------------------
Property and equipment - net $ 203,206 $ 189,510
===================================================================================================================
</TABLE>
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
---------------------------------------------------------------------------
(Dollar amounts in thousands except per share data)
7. DEBT
Revolving Credit - The revolving credit agreements with four banks have maximum
available borrowings of $100,000, have two year terms 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. At January 29,
2000 the Company had $100,000 outstanding under its revolving credit agreements.
None of the outstanding balance is currently payable.
A summary of the amounts outstanding, the current interest terms and the loan
maturities under the revolving credit agreements at January 29, 2000 follows.
<TABLE>
<CAPTION>
Outstanding Interest rate Maturity
----------------------------------------------
<S> <C> <C>
$ 18,000 6.825% April 2001
14,000 6.790% April 2001
14,000 6.910% April 2001
12,000 7.005% April 2001
18,000 6.885% January 2002
10,000 7.134% January 2002
8,000 7.115% January 2002
6,000 6.940% January 2002
---------
$ 100,000
=========
</TABLE>
Notes Payable to Banks - The Company also has available an unsecured
line-of-credit facility of $125,000 with five banks. At January 29, 2000 and
January 30, 1999 no amounts were outstanding on this facility. The weighted
average interest rate for the years ended January 29, 2000 and January 30, 1999
was 5.79% and 6.41%, 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 29, 2000 and January 30, 1999, the Company held $74,303
and $50,482, respectively, in purchase commitments.
Interest Expense - Interest expense for the years ended January 29, 2000,
January 30, 1999 and January 31, 1998, was $7,403, $8,281, and $8,366,
respectively.
8. INCOME TAXES
The provision for income taxes for the years ended January 29, 2000, January 30,
1999 and January 31, 1998, consists of the following:
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $32,871 $20,088 $ 7,290
State 3,103 1,680 (923)
- -------------------------------------------------------------------------------------------------------------------
Total currently payable 35,974 21,768 6,367
- -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 229 1,374 (1,288)
State 394 (187) (1,424)
- -------------------------------------------------------------------------------------------------------------------
Total deferred 623 1,187 (2,712)
- -------------------------------------------------------------------------------------------------------------------
Total income tax expense $36,597 $22,955 $ 3,655
===================================================================================================================
</TABLE>
<PAGE> 17
The effect of temporary differences which gives rise to deferred income tax
balances at January 29, 2000 and January 30, 1999, respectively, are as follows:
<TABLE>
<CAPTION>
January 29, 2000 January 30, 1999
- -------------------------------------------------------------------------------------------------------------------
Assets Liabilities Total Assets Liabilities Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES:
Current:
Merchandise inventories $ 3,335 - $ 3,335 $ 2,587 - $ 2,587
Deferred catalog costs - ($1,259) (1,259) - ($1,059) (1,059)
Accrued vacation pay 2,409 - 2,409 2,191 - 2,191
Deferred compensation 3,596 - 3,596 2,826 - 2,826
Other 2,101 (666) 1,435 1,964 (1,370) 594
- -------------------------------------------------------------------------------------------------------------------
Total current 11,441 (1,925) 9,516 9,568 (2,429) 7,139
- -------------------------------------------------------------------------------------------------------------------
Noncurrent:
Depreciation & amortization - (6,691) (6,691) - (4,386) (4,386)
Lease commitments 6,012 - 6,012 5,490 - 5,490
Other 1,579 - 1,579 3,585 (789) 2,796
- -------------------------------------------------------------------------------------------------------------------
Total noncurrent 7,591 (6,691) 900 9,075 (5,175) 3,900
- -------------------------------------------------------------------------------------------------------------------
FOREIGN:
Noncurrent:
Subsidiary tax loss carryforwards 4,077 - 4,077 4,042 - 4,042
Less: valuation allowance (2,918) - (2,918) (2,883) - (2,883)
- -------------------------------------------------------------------------------------------------------------------
Total noncurrent 1,159 - 1,159 1,159 - 1,159
- -------------------------------------------------------------------------------------------------------------------
Total deferred income taxes $20,191 ($8,616) $11,575 $19,802 ($7,604) $12,198
===================================================================================================================
</TABLE>
At January 29, 2000, a consolidated foreign subsidiary of the Company had a net
operating loss carryforward that began 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 29,
2000, the valuation allowance was increased by $35. For the year ended January
30, 1999, the valuation allowance was reduced by $336.
At January 29, 2000, the Company had remaining state net operating loss and
charitable contribution carryforwards of approximately $332, tax effected, that
expire in years 2002 through 2012.
For the years ended January 29, 2000, January 30, 1999 and January 31, 1998,
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 29, 2000 January 30, 1999 January 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Tax Rate Tax Rate Tax Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense $33,270 35.0% $20,868 35.0% $3,323 35.0%
Adjustments resulting from:
State income taxes, net of
federal tax benefit 2,273 2.4 970 1.6 (1,525) (16.1)
Goodwill amortization 470 0.5 470 0.8 470 5.0
Other 584 0.6 647 1.1 1,387 14.6
- -------------------------------------------------------------------------------------------------------------------
Actual tax expense $36,597 38.5% $22,955 38.5% $3,655 38.5%
===================================================================================================================
</TABLE>
9. SEGMENT INFORMATION
The Company has segmented its operations in a manner that reflects how its chief
operating decision-maker reviews the results of the operating segments that make
up the consolidated entity.
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,
amortization and taxes. Assets are not allocated between segments; therefore, no
measure of segment assets is available.
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
---------------------------------------------------------------------------
(Dollar amounts in thousands except per share data)
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 its 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 through its approximately 29 distinct catalog mailings per
year and, beginning in November 1999, through its e-commerce site at
www.talbots.com.
The following is segment information as of and for the years ended January 29,
2000, January 30, 1999 and January 31, 1998:
<TABLE>
<CAPTION>
January 29, 2000
- -------------------------------------------------------------------------------------------------------------------
Stores Catalog Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales from external customers $ 1,099,929 $190,994 $ 1,290,923
Direct profit 173,350 28,838 202,188
</TABLE>
<TABLE>
<CAPTION>
January 30, 1999
- -------------------------------------------------------------------------------------------------------------------
Stores Catalog Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales from external customers $ 972,974 $169,272 $1,142,246
Direct profit 134,258 18,644 152,902
</TABLE>
<TABLE>
<CAPTION>
January 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Stores Catalog Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales from external customers $ 894,620 $159,186 $1,053,806
Direct profit 83,236 4,151 87,387
</TABLE>
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies, except as follows:
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, therefore no measure of segment net income
or loss is available. Assets are not allocated between segments, therefore no
measure of segment assets is available.
The following reconciles direct profit to consolidated operating income as of
and for the years ended January 29, 2000, January 30, 1999 and January 31, 1998:
<TABLE>
<CAPTION>
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total direct profit or loss for reportable segments $202,188 $ 152,902 $87,387
Less: indirect expenses 100,620 85,971 70,334
- -------------------------------------------------------------------------------------------------------------------
Consolidated operating income $101,568 $ 66,931 $17,053
===================================================================================================================
</TABLE>
As a retailer that sells to the general public, the Company has no single
customer who accounts for greater than 10% of the Company's consolidated net
sales.
The following is geographical information as of and for the years ended January
29, 2000, January 30, 1999 and January 31, 1998:
<TABLE>
<CAPTION>
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
SALES
<S> <C> <C> <C>
United States $1,247,776 $1,101,135 $1,016,439
Foreign 43,147 41,111 37,367
- -------------------------------------------------------------------------------------------------------------------
Total consolidated revenues $1,290,923 $1,142,246 $1,053,806
===================================================================================================================
LONG-LIVED ASSETS
United States $ 314,149 $ 302,607 $ 300,068
Foreign 7,910 9,483 9,440
- -------------------------------------------------------------------------------------------------------------------
Total long-lived assets $ 322,059 $ 312,090 $ 309,508
===================================================================================================================
</TABLE>
<PAGE> 19
The classification "Foreign" is comprised of the Company's Canada and United
Kingdom retail store operations and the classification "United States" is
comprised of the Company's United States retail store operations and the
Company's catalog operations.
10. 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.
The following sets forth the funded status and prepaid pension cost for the
Company's pension plan:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation at beginning of year $(32,726) $(24,197)
Service cost (3,236) (2,489)
Interest cost (2,514) (2,034)
Actuarial gain/(loss) 2,926 (4,940)
Benefits paid 579 934
- -------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year $(34,971) $(32,726)
===================================================================================================================
Change in assets:
Fair value at the beginning of year $27,792 $21,772
Actual return on plan assets 3,158 3,954
Employer contributions 3,000 3,000
Benefits paid (579) (934)
- -------------------------------------------------------------------------------------------------------------------
Fair value at end of year $33,371 $27,792
===================================================================================================================
Funded status:
Projected benefit obligation $(34,971) $(32,726)
Fair value of plan assets 33,371 27,792
- -------------------------------------------------------------------------------------------------------------------
Funded status (1,600) (4,934)
Unrecognized prior service cost 1,016 1,179
Unrecognized net loss 407 4,160
- -------------------------------------------------------------------------------------------------------------------
(Accrued) prepaid pension asset $ (177) $ 405
===================================================================================================================
</TABLE>
Net pension cost for the fiscal years ended January 29, 2000, January 30, 1999
and January 31, 1998 included the following components:
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $3,236 $ 2,489 $ 2,150
Interest cost on projected benefit obligation 2,514 2,034 1,703
Expected return on plan assets (2,575) (2,041) (1,562)
Net amortization and deferral 407 176 162
- -------------------------------------------------------------------------------------------------------------------
Net pension expense $ 3,582 $ 2,658 $ 2,453
===================================================================================================================
</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.
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
---------------------------------------------------------------------------
(Dollar amounts in thousands except per share data)
The following sets forth the funded status and accrued benefit cost for the
Company's SERP plan.
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation at beginning of year $(3,123) $(2,537)
Service cost (233) (176)
Interest cost (243) (195)
Actuarial gain/(loss) 66 (215)
Benefits paid - -
- -------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year $(3,533) $(3,123)
===================================================================================================================
Funded status:
Projected benefit obligation $(3,533) $(3,123)
Fair value of plan assets - -
- -------------------------------------------------------------------------------------------------------------------
Funded status (3,533) (3,123)
Unrecognized prior service cost 182 228
Unrecognized net loss 444 561
- -------------------------------------------------------------------------------------------------------------------
Accrued pension liability $(2,907) $(2,334)
===================================================================================================================
</TABLE>
Net SERP cost for the fiscal years ended January 29, 2000, January 30, 1999 and
January 31, 1998 included the following components:
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $232 $176 $195
Interest cost on projected benefit obligation 243 195 171
Net amortization and deferral 97 56 46
- -------------------------------------------------------------------------------------------------------------------
Net SERP expense $572 $427 $412
===================================================================================================================
</TABLE>
As of January 29, 2000, January 30, 1999 and January 31, 1998, the discount rate
used in determining both the net pension and SERP expense was 6.75%, 7.25%, and
7.75%, respectively. For the years ended January 29, 2000, January 30, 1999 and
January 31,1998, the discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.50%, 6.75%, and 7.25%,
respectively. The rate of increase in future compensation levels was 4.50% for
the year ended January 29, 2000 and 4.00% for the years ended January 30, 1999
and January 31, 1998. The expected rate of return on pension plan assets was
9.0% in all three years. Plan assets for the pension plan consist principally of
fixed income and equity securities.
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 that 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 29, 2000, January 30, 1999 and January 31, 1998 were
$2,569, $2,431, and $2,321, respectively.
The Company provides certain medical benefits for most retired employees. The
following sets forth the funded status and accrued benefit cost for the plan.
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation at beginning of year $(2,392) $(1,653)
Service cost (285) (224)
Interest cost (184) (156)
Actuarial gain/(loss) 98 (398)
Benefits paid 29 39
- -------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year $(2,734) $(2,392)
===================================================================================================================
Funded status:
Projected benefit obligation $(2,734) $(2,392)
Fair value of plan assets - -
- -------------------------------------------------------------------------------------------------------------------
Funded status (2,734) (2,392)
Unrecognized net loss 79 177
- -------------------------------------------------------------------------------------------------------------------
Accrued postretirement liability $(2,655) $(2,215)
===================================================================================================================
</TABLE>
<PAGE> 21
The net cost of the plan for the fiscal years ended January 29, 2000, January
30, 1999 and January 31, 1998 included the following components:
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $285 $224 $162
Interest cost on projected benefit obligation 184 156 117
Net amortization and deferral - - (11)
- -------------------------------------------------------------------------------------------------------------------
Net expense $469 $380 $268
===================================================================================================================
</TABLE>
A one percentage point increase in the assumed cost escalation rate would
increase the accumulated postretirement benefit obligation at January 29, 2000
by $233 and the total of the service cost and interest cost components of net
periodic postretirement cost for 1999 by $47. Similarly, decreasing the assumed
health care cost trend rate by one percentage point for all future years would
decrease the accumulated postretirement benefit obligation at January 29, 2000
by $207, and the total of the service cost and interest cost components of net
periodic postretirement cost by $41. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 7.50% at
January 29, 2000, 6.75% at January 30, 1999, and 7.25% at January 31, 1998.
Additionally, assumed cost escalation rates that start at 6.48% and grade down
gradually to 4.75% were used for the year ended January 29, 2000. Assumed cost
escalation rates that start at 7% and grade down gradually to 4.75% were used
for the year ended January 30, 1999 and assumed cost escalation rates that start
at 9.4% and grade down gradually to 5.5% were used for the year ended January
31, 1998.
The Company provides postemployment benefits to certain employees on short-term
disability. The Company's obligation at January 29, 2000 and January 30, 1999
was $186 and $176, respectively.
11. COMMITMENTS
The Company conducts the major part of its operations in leased premises with
lease terms expiring at various dates through 2020. Most store leases provide
for base rentals plus contingent rentals which are a function of sales volume
and provide that the Company pay real estate taxes, maintenance and other
operating expenses applicable to the leased premises. Additionally, most store
leases provide renewal options and contain rent escalation clauses. These
escalation clauses are factored into a calculation of the future rental stream.
This stream is recorded on a straight-line basis over the life of the original
lease. The "deferred rent under lease commitments" caption represents rent
expensed in excess of cash paid. Management expects that in the normal course of
business expiring leases will be renewed or replaced by other leases.
The aggregate minimum future annual rental commitments under noncancelable
operating leases at January 29, 2000 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000...........................$ 71,595
2001........................... 71,570
2002........................... 69,561
2003........................... 65,935
2004........................... 61,425
Thereafter..................... 199,003
</TABLE>
Rent expense for the years ended January 29, 2000, January 30, 1999 and January
31, 1998, was $72,719, $67,316, and $60,469, respectively, and includes $2,227,
$1,734,and $1,426, respectively, of contingent rental expense.
12. NET INCOME PER SHARE
The weighted average shares used in computing basic and diluted net income per
share are presented in the table below. Options to purchase 10,500, 1,707,689,
and 1,403,996 shares of common stock at prices ranging from $24.94 to $46.125
per share were outstanding during the years ended January 29, 2000, January 30,
1999 and January 31, 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>
Year Ended (in thousands)
- ----------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares for computation of basic net income per share 31,068 31,878 32,386
Effect of stock compensation plans 616 55 50
- ----------------------------------------------------------------------------------------------------------
Shares for computation of diluted net income per share 31,684 31,933 32,436
==========================================================================================================
</TABLE>
<PAGE> 22
Report of the Audit Committee
---------------------------------------------------------------------------
The Audit Committee of the Board of Directors is comprised entirely of
independent outside directors. Its primary function is to oversee the Company's
system of internal controls, financial reporting practices and audits to ensure
their quality, integrity and objectivity are sufficient to protect shareholder
assets.
The Audit Committee met twice in fiscal 1999, during which it reviewed the
overall audit scope, plans and results of the internal audit department and the
independent auditors, officer expenses and emerging accounting issues. The
Committee also met separately without management present with both the internal
auditor and the independent auditors to discuss the year's audits. In addition,
the Committee reviewed the Company's annual financial statements before
issuance. Audit Committee results were reported to the entire Board of
Directors.
Based on its review, the Audit Committee has satisfied itself that the internal
control system is adequate and that the shareholders of The Talbots, Inc. and
its subsidiaries are adequately protected by the appropriate accounting and
auditing procedures.
/s/ Elizabeth T. Kennan
Elizabeth T. Kennan
Chairperson, Audit Committee
Independent Auditors' 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 29, 2000 and January 30, 1999, 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 29, 2000.
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 auditing standards generally accepted
in the United States of America. 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 Talbots, Inc. and its
subsidiaries as of January 29, 2000 and January 30, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 29, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
March 15, 2000
Boston, Massachusetts
<PAGE> 23
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 1999 and fiscal 1998. 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 1999 quarter ended
- -------------------------------------------------------------------------------------------------------------------
May 1, July 31, October 30, January 29,
1999 1999 1999 2000
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $293,006 $304,993 $317,347 $375,577
Gross profit 124,125 88,646 131,612 127,589
Net income 19,378 3,760 20,024 15,298
Net income per share
basic $ 0.62 $ 0.12 $ 0.64 $ 0.49
assuming dilution $ 0.62 $ 0.12 $ 0.63 $ 0.48
Weighted average common shares
outstanding (in thousands)
basic 31,238 31,179 31,358 31,167
assuming dilution 31,341 31,557 31,797 31,962
Cash dividends per share $ 0.11 $ 0.11 $ 0.12 $ 0.12
Market price data
High $ 32.125 $ 39.500 $ 48.125 $ 52.750
Low $ 23.625 $ 31.438 $ 30.000 $ 32.875
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998 quarter ended
- -------------------------------------------------------------------------------------------------------------------
May 2, August 1, October 31, January 30,
1998 1998 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $271,475 $267,687 $267,715 $335,369
Gross profit 108,189 75,295 106,838 102,812
Net income 14,536 1,285 12,730 8,117
Net income per share
basic $ 0.45 $ 0.04 $ 0.40 $ 0.26
assuming dilution $ 0.45 $ 0.04 $ 0.40 $ 0.26
Weighted average common shares
outstanding (in thousands)
basic 32,014 32,062 31,986 31,450
assuming dilution 32,014 32,120 31,986 31,566
Cash dividends per share $ 0.11 $ 0.11 $ 0.11 $ 0.11
Market price data
High $ 20.938 $ 30.250 $ 26.625 $ 31.375
Low $ 14.000 $ 19.375 $ 13.938 $ 22.438
</TABLE>
<PAGE> 24
Shareholder Information
---------------------------------------------------------------------------
CORPORATE OFFICES
The Talbots, Inc.
175 Beal Street
Hingham, MA 02043-1586
TALBOTS WEBSITE
www.talbots.com
TALBOTS CATALOG
To receive a free copy of our most recent Talbots catalog, call 1-800-TALBOTS
(1-800-825-2687)
ANNUAL MEETING
The Annual Meeting of Shareholders is scheduled for 9:30 a.m. on Thursday, May
25, 2000, at:
FleetBoston Financial
100 Federal Street, Boston, MA.
Each shareholder is cordially invited to attend.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 2000 is available to each shareholder free of charge upon written
request to the Investor Relations Department at our corporate offices.
SHAREHOLDER REPORTS/INVESTOR INQUIRIES
Shareholder inquiries, including requests for quarterly and annual reports, may
be made in writing to:
Investor Relations Department
The Talbots, Inc.
175 Beal Street
Hingham, MA 02043-1586
or by calling 781-741-4500
STOCK EXCHANGE LISTING
New York Stock Exchange
(Trading Symbol: TLB)
REGISTRAR AND TRANSFER AGENT
EquiServe
Shareholder Services
P.O. Box 8040
Boston, MA 02266-8040
Telephone: 781-575-3120
Internet Address:
http://www.EquiServe.com
MARKET FOR REGISTRANT'S COMMON STOCK
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 April
4, 2000 was 442.
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, No. 333-05643 and No. 333-56215 of The Talbots, Inc. and
its subsidiaries on Form S-8 of our reports dated March 15, 2000, 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 29, 2000.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
April 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule as of and for the fifty-two weeks ended January 29,
2000.
</LEGEND>
<CIK> 0000912263
<NAME> THE TALBOTS, INC. AND SUBSIDIARIES
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<EXCHANGE-RATE> 1
<CASH> 22,001
<SECURITIES> 0
<RECEIVABLES> 116,737
<ALLOWANCES> 0
<INVENTORY> 183,614
<CURRENT-ASSETS> 369,786
<PP&E> 203,206
<DEPRECIATION> 222,793
<TOTAL-ASSETS> 693,904
<CURRENT-LIABILITIES> 143,931
<BONDS> 0
0
0
<COMMON> 360
<OTHER-SE> 430,972
<TOTAL-LIABILITY-AND-EQUITY> 693,904
<SALES> 1,290,923
<TOTAL-REVENUES> 1,290,923
<CGS> 818,951
<TOTAL-COSTS> 1,189,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,511
<INCOME-PRETAX> 95,057
<INCOME-TAX> 36,597
<INCOME-CONTINUING> 58,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,460
<EPS-BASIC> 1.88
<EPS-DILUTED> 1.85
</TABLE>
