<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 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)
Delaware 41-1111318
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Beal Street, Hingham, Massachusetts 02043
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(781) 749-7600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class September 6, 2000
----- -----------------
Common Stock, $0.01 par value 31,276,827
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INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Earnings for the Thirteen and Twenty-
Six Weeks Ended July 29, 2000 and July 31, 1999................................3
Consolidated Balance Sheets as of July 29, 2000, January 29, 2000
and July 31, 1999..............................................................4
Consolidated Statements of Cash Flows for the Twenty-Six
Weeks Ended July 29, 2000 and July 31, 1999....................................5
Notes to Consolidated Financial Statements.........................................6-9
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.......10-14
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders............................................15
Item 6: Exhibits and Reports on Form 8-K...............................................................16
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE TALBOTS, INC. AND SUBSIDIARIES
-----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 29, 2000 AND JULY 31, 1999
(Amounts in thousands except per share data)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------- --------------------------
JULY 29, JULY 31, JULY 29, JULY 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $356,597 $304,993 $714,356 $597,999
COSTS AND EXPENSES
COST OF SALES, BUYING AND OCCUPANCY 232,109 216,347 429,429 385,228
SELLING, GENERAL AND ADMINISTRATIVE 99,835 81,016 205,620 171,842
-------- -------- -------- --------
OPERATING INCOME 24,653 7,630 79,307 40,929
INTEREST EXPENSE - NET 884 1,516 2,443 3,306
-------- -------- -------- --------
INCOME BEFORE TAXES 23,769 6,114 76,864 37,623
INCOME TAX EXPENSE 9,151 2,354 29,593 14,485
-------- -------- -------- --------
NET INCOME $ 14,618 $ 3,760 $ 47,271 $ 23,138
======== ======== ======== ========
NET INCOME PER SHARE
BASIC $ 0.48 $ 0.12 $ 1.54 $ 0.74
======== ======== ======== ========
ASSUMING DILUTION $ 0.46 $ 0.12 $ 1.50 $ 0.74
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (IN THOUSANDS)
BASIC 30,737 31,179 30,652 31,208
======== ======== ======== ========
ASSUMING DILUTION 31,799 31,557 31,602 31,414
======== ======== ======== ========
CASH DIVIDENDS PER SHARE $ 0.14 $ 0.11 $ 0.26 $ 0.22
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JULY 29, 2000, JANUARY 29, 2000 AND JULY 31, 1999
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 29, JANUARY 29, JULY 31,
2000 2000 1999
-------- ----------- --------
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 68,238 $ 22,001 $ 18,235
Customer accounts receivable - net 113,008 116,737 105,401
Merchandise inventories 177,452 183,614 171,795
Deferred catalog costs 5,895 8,360 4,863
Due from affiliates 6,924 8,445 8,085
Deferred income taxes 9,686 9,516 6,987
Prepaid and other current assets 30,823 21,113 28,922
--------- --------- ---------
TOTAL CURRENT ASSETS 412,026 369,786 344,288
PROPERTY AND EQUIPMENT - NET 210,229 203,206 192,259
GOODWILL - NET 37,529 38,201 38,873
TRADEMARKS - NET 79,460 80,652 81,844
DEFERRED INCOME TAXES 2,574 2,059 5,519
--------- --------- ---------
TOTAL ASSETS $ 741,818 $ 693,904 $ 662,783
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 59,363 $ 56,604 $ 56,951
Accrued liabilities 87,598 87,327 67,970
--------- --------- ---------
TOTAL CURRENT LIABILITIES 146,961 143,931 124,921
LONG-TERM DEBT 100,000 100,000 100,000
DEFERRED RENT UNDER LEASE COMMITMENTS 19,246 18,641 17,789
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 100,000,000 authorized;
36,577,972 shares, 36,007,973 shares and 35,603,250 shares issued,
respectively, and 31,063,965 shares, 30,942,251 shares and 31,264,729
shares outstanding, respectively 366 360 356
Additional paid-in capital 336,749 314,738 301,400
Retained earnings 305,651 266,390 238,597
Accumulated other comprehensive income (loss) (2,920) (2,037) (1,929)
Restricted stock award (1,710) (2,140) (2,482)
Treasury stock, at cost; 5,514,007 shares, 5,065,722 shares
and 4,338,521 shares, respectively (162,525) (145,979) (115,869)
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 475,611 431,332 420,073
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 741,818 $ 693,904 $ 662,783
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE TWENTY-SIX WEEKS ENDED JULY 29, 2000 AND JULY 31, 1999
(In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
---------------------------
JULY 29, JULY 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
Net income $ 47,271 $ 23,138
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 23,126 21,105
Deferred rent 621 1,196
Net non-cash compensation activity 367 589
Loss on disposal of property and equipment 691 626
Deferred income taxes (725) (306)
Changes in current assets and liabilities:
Customer accounts receivable 3,690 2,215
Merchandise inventories 5,970 1,229
Deferred catalog costs 2,465 3,537
Due from affiliates 1,521 (1,432)
Prepaid and other current assets (3,512) (5,755)
Accounts payable 2,635 (11,114)
Accrued liabilities 472 (6,479)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 84,592 28,549
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Additions to property and equipment (29,390) (22,686)
Proceeds from disposal of property and equipment -- 5
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (29,390) (22,681)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Proceeds from options exercised 15,705 5,274
Cash dividends (8,010) (6,860)
Purchase of treasury stock (16,372) (6,206)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (8,677) (7,792)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (288) (36)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 46,237 (1,960)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 22,001 20,195
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 68,238 $ 18,235
======== ========
</TABLE>
See notes to consolidated financial statements.
5
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THE TALBOTS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. OPINION OF MANAGEMENT
With respect to the unaudited consolidated financial statements set
forth herein, it is the opinion of management of The Talbots, Inc. and its
subsidiaries (the "Company") that all adjustments, which consist only of
normal recurring adjustments necessary to present a fair statement of the
results for such interim periods, have been included. These financial
statements should be read in conjunction with the Company's audited
consolidated financial statements for the fiscal year ended January 29,
2000, included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The January 29, 2000 consolidated balance sheet has been derived from
the Company's audited consolidated balance sheet.
Certain prior year amounts have been reclassified to conform to
current year classifications.
2. SEASONAL VARIATIONS IN BUSINESS
Due to seasonal variations in the retail industry, the results of
operations for any interim period are not necessarily indicative of the
results expected for the full fiscal year.
3. FEDERAL AND STATE INCOME TAXES
The Company has provided for income taxes based on the estimated
annual effective rate method.
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4. COMPREHENSIVE INCOME
The following is the Company's comprehensive income for the periods
ended July 29, 2000 and July 31, 1999:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
Ended Ended
-------------------- --------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 14,618 $ 3,760 $ 47,271 $ 23,138
Other comprehensive income:
Cumulative foreign currency
translation adjustment (208) 521 (883) 502
-------- -------- -------- --------
Comprehensive income $ 14,410 $ 4,281 $ 46,388 $ 23,640
======== ======== ======== ========
</TABLE>
5. NET INCOME PER SHARE
The weighted average shares used in computing basic and diluted net
income per share are presented below. For the thirteen week period ended
July 29, 2000, options to purchase 53,500 shares of common stock were not
included in the computation of diluted net income per share because the
options' exercise prices were greater than the average market price of the
common shares. For the thirteen week period ended July 31, 1999, all
outstanding options to purchase common stock were included in the
computation. For the twenty-six week periods ended July 29, 2000 and July
31, 1999, 54,500 and 462,666 shares, respectively, were not included in the
computation of diluted net income per share.
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
Ended Ended
-------------------- --------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Shares for computation of
basic net income per share 30,737 31,179 30,652 31,208
Effect of stock compensation
plans 1,062 378 950 206
------ ------ ------ ------
Shares for computation of
diluted net income per share 31,799 31,557 31,602 31,414
====== ====== ====== ======
</TABLE>
6. SEGMENT INFORMATION
The Company evaluates the operating performance of its identified
segments based on a direct profit measure. Direct profit is calculated as
net sales less cost of goods sold and direct expenses, such as payroll,
occupancy, and other direct costs. Indirect expenses are not allocated on a
segment basis. Such indirect expenses include corporate overhead
7
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expenses, finance charge income, and amortization. Assets are not allocated
between segments, therefore no measure of segment assets is available.
The Company has two reportable segments, its retail stores (the "Stores
Segment"), which include the Company's United States, Canada, and United Kingdom
retail store operations, and its catalog operations (the "Catalog Segment"). The
Company's reportable segments offer similar products, however, each segment
requires different marketing and management strategies. The Stores Segment
derives 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 from the sale of the same products through its
approximately 29 distinct mailings per year and through its e-commerce site at
www.talbots.com.
The following is the Stores and Catalog Segment information for the thirteen and
twenty-six weeks ended July 29, 2000 and July 31, 1999:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------------------------------------------------------------------------
July 29, 2000 July 31, 1999
------------------------------------------ ------------------------------------------
Stores Catalog Total Stores Catalog Total
------ ------- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales to external
customers $311,457 $ 45,140 $356,597 $264,154 $ 40,839 $304,993
Direct profit 50,414 2,703 53,117 30,697 1,400 32,097
</TABLE>
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
------------------------------------------------------------------------------------------------
July 29, 2000 July 31, 1999
------------------------------------------ ------------------------------------------
Stores Catalog Total Stores Catalog Total
------ ------- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales to external
customers $606,900 $107,456 $714,356 $507,604 $ 90,395 $597,999
Direct profit 116,279 18,457 134,736 77,620 11,650 89,270
</TABLE>
The following reconciles direct profit to consolidated operating income for the
thirteen and twenty-six weeks ended July 29, 2000 and July 31, 1999:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
Ended Ended
-------------------------- --------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total direct profit for reportable
segments $ 53,117 $ 32,097 $134,736 $ 89,270
Less: indirect expenses 28,464 24,467 55,429 48,341
-------- -------- -------- --------
Consolidated operating income $ 24,653 $ 7,630 $ 79,307 $ 40,929
======== ======== ======== ========
</TABLE>
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7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133". This Statement defers the effective date for SFAS
No. 133 for all fiscal quarters of all fiscal years beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". SFAS No. 138 amends the
accounting and reporting standards of SFAS No. 133 for certain derivatives and
hedging activities. These statements are not expected to have a material impact
on the Company's consolidated financial statements.
9
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company and the notes thereto
appearing elsewhere in this document.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of earnings for the fiscal periods shown below:
<TABLE>
<CAPTION>
===========================================================================================================
Thirteen Weeks Ended Twenty-Six Weeks Ended
-----------------------------------------------------------------------------------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
-----------------------------------------------------------------------------------------------------------
Cost of sales, buying and
occupancy expenses 65.1% 70.9% 60.1% 64.4%
-----------------------------------------------------------------------------------------------------------
Selling, general and
administrative expenses 28.0% 26.6% 28.8% 28.7%
-----------------------------------------------------------------------------------------------------------
Operating income 6.9% 2.5% 11.1% 6.8%
-----------------------------------------------------------------------------------------------------------
Interest expense, net 0.2% 0.5% 0.3% 0.6%
-----------------------------------------------------------------------------------------------------------
Income before income taxes 6.7% 2.0% 10.8% 6.3%
-----------------------------------------------------------------------------------------------------------
Income taxes 2.6% 0.8% 4.1% 2.4%
-----------------------------------------------------------------------------------------------------------
Net income 4.1% 1.2% 6.6% 3.9%
===========================================================================================================
</TABLE>
THE THIRTEEN WEEKS ENDED JULY 29, 2000 COMPARED TO THE THIRTEEN WEEKS ENDED JULY
31, 1999 (SECOND QUARTER)
Net sales in the second quarter of 2000 increased by $51.6 million to
$356.6 million, or 16.9% over the second quarter of 1999. Operating income was
$24.7 million in the second quarter of 2000 compared to $7.6 million in the
second quarter of 1999, an increase of 225%.
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Retail store sales in the second quarter of 2000 increased by $47.4 million
to $311.5 million, or 17.9%, over the second quarter of 1999. The percentage of
the Company's net sales derived from its retail stores increased to 87.4% in the
second quarter of 2000 compared to 86.6% in the second quarter of 1999. The
increase in retail store sales was attributable to the six net new stores opened
in the second quarter of 2000, the three net new stores opened in the first
quarter of 2000, the 20 net non-comparable stores that opened in the last two
quarters of 1999 and an increase of $34.0 million in comparable stores sales, or
14.6%, from the same period for the previous year. Comparable stores are those
which were open for at least one full fiscal year. When a new Talbots Petites
store, Talbots Woman store or Talbots Accessories & Shoes store is opened
adjacent to or in close proximity to an existing Misses store which would
qualify as a comparable store, such Misses store is excluded from the
computation of comparable store sales for a period of 13 months so that the
performance of the full Misses assortment may be properly compared.
Catalog sales in the second quarter of 2000 increased by $4.2 million, to
$45.1 million, an increase of 10.3% from the second quarter of 1999. Included in
catalog sales are sales from the Company's e-commerce business which was
launched in November 1999. The percentage of the Company's net sales from its
catalogs decreased to 12.6% in the second quarter of 2000 compared to 13.4% in
the second quarter of 1999 primarily due to store sales increasing at a faster
rate than catalog sales. The increase in catalog sales, in total dollars, was
attributable to strong customer demand and continued strong full price selling
across all major catalogs and through our internet website.
Because the Company sells a wide range of products which by their nature
are subject to constantly changing business strategies and competitive
positioning, it is not possible to attribute changes in retail sales or catalog
sales to specific changes in prices, changes in volume or changes in product
mix.
Cost of sales, buying and occupancy expenses decreased as a percentage of
net sales to 65.1% in the second quarter of 2000 from 70.9% in the second
quarter of 1999 due to margin improvements attributable to strong full price
selling coupled with effective inventory management and leverage improvements in
store occupancy expenses.
Selling, general and administrative expenses as a percentage of net sales
increased in the second quarter of 2000 to 28.0% compared to 26.6% in the second
quarter of 1999. Strong sales during the quarter allowed the Company to invest
in additional marketing initiatives to enhance brand recognition and store
maintenance projects to optimize the shopping experience for our customer.
Interest expense, net, decreased to $900,000 in the second quarter of 2000
from $1.5 million in the second quarter of 1999 due to stronger cash flows
enabling the Company to reduce its borrowing in a higher interest rate
environment. The average total debt level, including short-term and long-term
bank borrowings, was $100.2 million in the second quarter of 2000 compared to
$120.8 million in the second quarter of 1999. The average interest rate,
including interest on short-term and long-term bank borrowings, was 7.2% in the
second quarter of 2000 compared to 6.0% in the second quarter of 1999.
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The effective tax rate for the Company remained at 38.5% in the second
quarter of 2000.
THE TWENTY-SIX WEEKS ENDED JULY 29, 2000 COMPARED TO THE TWENTY-SIX WEEKS ENDED
JULY 31, 1999.
Net sales in the first 26 weeks of 2000 increased by $116.4 million to
$714.4 million, or 19.5%, over the first 26 weeks of 1999. Operating income was
$79.3 million in the first 26 weeks of 2000 compared to $40.9 million in the
first 26 weeks of 1999, an increase of 93.9%.
Retail store sales in the first 26 weeks of 2000 increased by $99.3
million, to $606.9 million, or 19.6%, over the first 26 weeks of 1999. The
percentage of the Company's net sales derived from its retail stores remained
relatively flat at 85.0% in the first 26 weeks of 2000 versus 84.9% in the first
26 weeks of 1999. The increase in retail store sales was attributable to the
nine net new stores opened in the first 26 weeks of 2000, the 20 net non
comparable stores that opened in the last 26 weeks of 1999 and an increase of
$71.5 million in comparable stores sales, or 15.9%, from the same period for the
previous year.
Catalog sales in the first 26 weeks of 2000 increased by $17.1 million, to
$107.5 million, or 18.9% compared to the first 26 weeks of 1999. Included in
catalog sales are sales from the Company's e-commerce business which was
launched in November 1999. The percentage of the Company's net sales from its
catalogs remained relatively flat at 15.0% for the first 26 weeks of 2000
compared to 15.1% for the first 26 weeks of 1999.
Cost of sales, buying and occupancy expenses decreased as a percentage of
net sales to 60.1% in the first 26 weeks of 2000 from 64.4% in the first 26
weeks of 1999. The decrease in cost of sales, buying and occupancy expenses as a
percentage of sales is due primarily to higher merchandise gross margin due to
continued strong selling of full-priced merchandise coupled with effective
inventory management and leverage improvements in store occupancy expenses.
Selling, general and administrative expenses was relatively flat as a
percentage of net sales at 28.8% in the first 26 weeks of 2000 compared to 28.7%
in the first 26 weeks of 1999. Continued strong sales have provided leverage
improvements on fixed operating expenses allowing the Company to make additional
investments in marketing programs and store maintenance projects.
Interest expense, net decreased by $900,000 to $2.4 million for the first
26 weeks of 2000 from the first 26 weeks of 1999 due to lower average debt
levels resulting from strong cash flows and partially offset by higher average
borrowing rates. The average total debt level, including short-term and
long-term bank borrowings, was $106.7 million in the first 26 weeks of 2000
compared to $120.5 million in the first 26 weeks of 1999. The average interest
rate, including interest on short-term and long-term bank borrowings, was 7.1%
in the first 26 weeks of 2000 compared to 6.1% in the first 26 weeks of 1999.
The effective tax rate for the Company remained at 38.5% for the first 26
weeks of 2000.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flows from
operating activities and a line-of-credit facility from five banks, with maximum
available short-term borrowings of $125.0 million. At July 29, 2000 and at July
31, 1999, the Company had no amounts outstanding under this facility.
Additionally, the Company has a revolving credit facility with four banks. At
July 29, 2000 and July 31, 1999, the Company's borrowings under this facility
was $100.0 million. The Company's working capital needs are typically at their
lowest in the spring and peak during the fall selling season.
In the first 26 weeks of 2000, cash and cash equivalents increased $46.2
million compared to a decrease of $2.0 million for the same period in 1999. The
increase in cash and cash equivalents was primarily due to an increase in net
cash provided by operating activities of $56.1 million which included an
increase in net income of $24.2 million. This increase in cash flows from
operations allowed the Company to increase its investment in property and
equipment, increase the quarterly dividend and repurchase common stock under the
Company's stock repurchase program.
During the first 26 weeks of 2000, the Company repurchased $16.4 million,
or 436,585 shares of its common stock, under its stock repurchase program. A
portion of this repurchase activity completed the $20.0 million buyback
authorized by the Company's Board of Directors on January 20, 2000 under which a
total of 597,510 shares were repurchased. On May 25, 2000, the Board of
Directors approved another extension of the stock repurchase program which
allows the Company to purchase an additional $20.0 million in stock from time to
time over a two year period. As of July 29, 2000, the Company has repurchased
$6.5 million or 127,975 shares under this authorization.
Capital expenditures for the first 26 weeks of fiscal 2000 were $29.4
million compared to $22.7 million in fiscal 1999. The Company used approximately
$14.6 million and $12.3 million in the first 26 weeks of fiscal 2000 and 1999,
respectively, for opening new stores and expanding and renovating existing
stores. For the remainder of the fiscal year, the Company currently anticipates
approximately $44.6 million in additional capital expenditures for the opening
of new stores and expanding and renovating existing stores, to enhance the
Company's computer information systems and to continue expansions of the
Company's Hingham, Massachusetts and Lakeville, Massachusetts facilities.* The
actual amount of such capital expenditures will depend on the number and type of
stores and facilities being opened, expanded and renovated, and the schedule of
its capital expenditure activity during the remainder of fiscal 2000.
The Company's primary ongoing cash requirements through the end of fiscal
2000 are expected to be for the financing of working capital buildups during
peak selling seasons, capital expenditures for new stores and the expansion and
renovation of existing stores and facilities, purchase of treasury shares and
the payment of any dividends that may be declared from time to time. The Company
anticipates that cash from operating activities and from its borrowing
facilities will be sufficient to meet these current requirements.*
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The payment of dividends and the amount of any dividends will be determined
by the Board of Directors and will depend on many factors, including earnings,
operations, financial condition, capital requirements and general business
outlook. On August 14, 2000, the Company's Board of Directors approved a
quarterly dividend of $0.14 per share payable on September 18, 2000 to
shareholders of record as of September 5, 2000.
Additionally, during the second quarter 2000, the Company established a
credit card bank, Talbots Classics National Bank, as a wholly owned subsidiary
of The Talbots, Inc., and was issued a national banking charter for this new
subsidiary. This new structure allows the Company to conform all of its domestic
Talbots charge accounts to a consistent rate structure reducing the
administrative burden of managing consumer compliance laws in multiple states.
To facilitate this new structure and position the Company for future financing
opportunities, Talbots also formed a second subsidiary, Talbots Classics Finance
Company, Inc., to administer the credit card portfolio.
--------------------------------------------------------------------------------
The foregoing contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. These 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 (a copy of which may also be obtained from the Company at
781-741-4500) as well as other periodic reports filed by the Company with the
Securities and Exchange Commission and you are urged to consider such factors.
The Company assumes no obligation for updating any such forward-looking
statements.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 25, 2000, the Company held its Annual Meeting of Shareholders
(the "Annual Meeting"). At the Annual Meeting, the following persons were
elected to serve as directors of the Company: Arnold B. Zetcher, Toshiji
Tokiwa, Elizabeth T. Kennan, Yoichi Kimura, H. James Metscher, Motoya
Okada, Isao Tsuruta and Mark H. Willes. There are no other directors of the
Company.
At the Annual Meeting, no fewer than 29,318,692 votes were cast in
favor of, and no more than 277,252 votes were withheld with respect to, the
proposal to elect the above-listed persons as directors of the Company. See
the Schedule of Votes attached hereto and made a part hereof for a separate
tabulation with respect to each nominee for office.
At the Annual Meeting, on a proposal to amend the Company's
Certificate of Incorporation to increase the authorized shares of common
stock from 40 million to 100 million shares, 28,361,848 votes were cast in
favor of such proposal, 1,230,118 votes were cast against and 3,617 votes
abstained.
At the Annual Meeting, on a proposal to approve the Restated Directors
Stock Plan, 24,578,013 votes were cast in favor of such proposal, 5,010,807
votes were cast against and 6,762 votes abstained.
At the Annual Meeting, on a proposal to ratify the appointment of
Deloitte & Touche LLP to serve as independent auditors of the Company for
the 2000 fiscal year, 29,526,998 votes were cast in favor of such proposal,
14,552 votes were cast against and 54,393 votes abstained.
15
<PAGE> 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11.1 The computation of weighted average number of shares
outstanding used in determining primary and fully diluted
earnings per share is incorporated by reference to footnote
5 "Net Income Per Share" on page 7 of this Form 10-Q.
27 Financial Data Schedule (for electronic filing only)
(b) REPORTS ON FORM 8-K
The Company filed Current Reports on Form 8-K on May 18,
2000, June 12, 2000 and June 30, 2000 pursuant to which various
agreements and documents were filed by the Company, as identified
therein.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TALBOTS, INC.
Dated: September 11, 2000 By: /s/ Edward L. Larsen
---------------------------------
Edward L. Larsen
Duly authorized officer and Senior
Vice President of Finance, Chief
Financial Officer, and Treasurer
(Principal Financial and
Accounting Officer)
17
<PAGE> 18
ATTACHMENT TO REPORT ON FORM 10-Q
SCHEDULE OF VOTES
<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Each Director From Each Director
-------------------------------------------
<S> <C> <C>
Arnold B. Zetcher 29,340,340 255,603
Toshiji Tokiwa 29,319,014 276,930
Elizabeth T. Kennan 29,340,458 255,486
Yoichi Kimura 29,318,692 277,252
H. James Metscher 29,339,692 256,252
Motoya Okada 29,339,914 256,030
Isao Tsuruta 29,319,014 276,930
Mark H. Willes 29,340,674 255,270
</TABLE>
