UNITED STATES
| (Mark One) | ||
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 2002 | ||
| OR | ||
| o | 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.
| Delaware | 41-1111318 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| One Talbots Drive, Hingham, Massachusetts | 02043 | |
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| (Address of principal executive offices) | (Zip Code) |
| (781) 749-7600 | ||
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes | X | No |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes | No | X |
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 | December 6, 2002 | |||
Common Stock, $0.01 par value |
57,503,802 | |||
INDEX TO FORM 10-Q
| Page | ||||||
PART I. FINANCIAL INFORMATION |
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Item 1: Financial Statements |
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Consolidated Statements of Earnings for the
Thirteen and Thirty-Nine Weeks Ended November
2, 2002 and November 3, 2001 |
3 | |||||
Consolidated Balance Sheets as of November 2, 2002,
February 2, 2002 and November 3, 2001 |
4 | |||||
Consolidated Statements of Cash Flows for the
Thirty-Nine Weeks Ended November 2, 2002 and
November 3, 2001 |
5 | |||||
Notes to Consolidated
Financial Statements |
6-10 | |||||
Item 2: Management’s Discussion and Analysis
of Financial Condition and Results of Operations |
11-16 | |||||
Item 3: Quantitative and Qualitative Disclosures About Market Risk |
16-17 | |||||
Item 4: Controls and Procedures |
17 | |||||
PART II. OTHER INFORMATION |
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Item 5: Other Information |
18 | |||||
Item 6: Exhibits and Reports on Form 8-K |
18 | |||||
Signatures |
19 | |||||
Certifications |
20-21 | |||||
2
PART I . FINANCIAL INFORMATION
Item 1 . Financial Statements
THE TALBOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
(Amounts in thousands except per share data)
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||
| November 2, | November 3, | November 2, | November 3, | ||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
NET SALES |
$ | 401,789 | $ | 393,966 | $ | 1,163,524 | $ | 1,179,333 | |||||||||
COSTS AND EXPENSES: |
|||||||||||||||||
Cost of sales, buying and occupancy |
224,896 | 219,740 | 681,596 | 690,967 | |||||||||||||
Selling, general and administrative |
116,333 | 113,262 | 331,966 | 330,756 | |||||||||||||
OPERATING INCOME |
60,560 | 60,964 | 149,962 | 157,610 | |||||||||||||
INTEREST: |
|||||||||||||||||
Interest expense |
783 | 1,648 | 2,424 | 4,802 | |||||||||||||
Interest income |
75 | 127 | 341 | 829 | |||||||||||||
INTEREST EXPENSE—NET |
708 | 1,521 | 2,083 | 3,973 | |||||||||||||
INCOME BEFORE TAXES |
59,852 | 59,443 | 147,879 | 153,637 | |||||||||||||
INCOME TAXES |
22,445 | 22,885 | 55,455 | 59,150 | |||||||||||||
NET INCOME |
$ | 37,407 | $ | 36,558 | $ | 92,424 | $ | 94,487 | |||||||||
NET INCOME PER SHARE: |
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Basic |
$ | 0.64 | $ | 0.60 | $ | 1.56 | $ | 1.53 | |||||||||
Assuming Dilution |
$ | 0.63 | $ | 0.58 | $ | 1.52 | $ | 1.48 | |||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (in thousands): |
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Basic |
58,100 | 61,100 | 59,175 | 61,955 | |||||||||||||
Assuming dilution |
59,433 | 62,755 | 60,705 | 63,988 | |||||||||||||
CASH DIVIDENDS PER SHARE |
$ | 0.18 | $ | 0.08 | $ | 0.35 | $ | 0.23 | |||||||||
See notes to consolidated financial statements.
3
THE TALBOTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NOVEMBER 2, 2002, FEBRUARY 2, 2002 AND NOVEMBER 3, 2001
(Dollar amounts in thousands except share data)
| November 2, | February 2, | November 3, | ||||||||||||
| 2002 | 2002 | 2001 | ||||||||||||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 23,714 | $ | 18,306 | $ | 8,269 | ||||||||
Customer accounts receivable — net |
190,402 | 172,183 | 181,474 | |||||||||||
Merchandise inventories |
216,394 | 183,803 | 236,125 | |||||||||||
Deferred catalog costs |
7,229 | 8,341 | 9,356 | |||||||||||
Due from affiliates |
7,541 | 9,618 | 8,476 | |||||||||||
Deferred income taxes |
16,356 | 11,429 | 15,464 | |||||||||||
Prepaid and other current assets |
30,361 | 29,089 | 26,512 | |||||||||||
TOTAL CURRENT ASSETS |
491,997 | 432,769 | 485,676 | |||||||||||
PROPERTY AND EQUIPMENT — NET |
308,415 | 277,576 | 275,562 | |||||||||||
GOODWILL — NET |
35,513 | 35,513 | 35,849 | |||||||||||
TRADEMARKS — NET |
75,884 | 75,884 | 76,480 | |||||||||||
DEFERRED INCOME TAXES |
— | 388 | 2,735 | |||||||||||
OTHER ASSETS |
8,726 | 8,934 | 8,106 | |||||||||||
TOTAL ASSETS |
$ | 920,535 | $ | 831,064 | $ | 884,408 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Notes payable to banks |
$ | 50,000 | $ | — | $ | 75,000 | ||||||||
Accounts payable |
54,207 | 49,645 | 38,522 | |||||||||||
Income taxes payable |
27,307 | 1,019 | 15,218 | |||||||||||
Accrued liabilities |
95,319 | 79,628 | 81,198 | |||||||||||
TOTAL CURRENT LIABILITIES |
226,833 | 130,292 | 209,938 | |||||||||||
LONG-TERM DEBT |
100,000 | 100,000 | 100,000 | |||||||||||
DEFERRED RENT UNDER LEASE COMMITMENTS |
20,652 | 19,542 | 20,052 | |||||||||||
DEFERRED INCOME TAXES |
5,972 | — | — | |||||||||||
OTHER LIABILITIES |
19,574 | 13,354 | 17,311 | |||||||||||
STOCKHOLDERS’ EQUITY: |
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Common stock, $0.01 par value; 200,000,000 authorized;
75,268,013 shares, 74,935,856 shares and 74,766,371 shares
issued, respectively, and 57,507,177 shares, 60,382,406 shares
and 60,216,376 shares outstanding, respectively |
753 | 749 | 748 | |||||||||||
Additional paid-in capital |
386,992 | 378,955 | 375,450 | |||||||||||
Retained earnings |
544,406 | 472,594 | 444,897 | |||||||||||
Accumulated other comprehensive loss |
(4,818 | ) | (5,508 | ) | (5,038 | ) | ||||||||
Restricted stock awards |
(225 | ) | (697 | ) | (854 | ) | ||||||||
Treasury stock, at cost; 17,760,836 shares, 14,553,450 shares
and 14,549,995 shares, respectively |
(379,604 | ) | (278,217 | ) | (278,096 | ) | ||||||||
TOTAL STOCKHOLDERS’ EQUITY |
547,504 | 567,876 | 537,107 | |||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 920,535 | $ | 831,064 | $ | 884,408 | ||||||||
See notes to consolidated financial statements.
4
THE TALBOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
(Dollar amounts in thousands)
| Thirty-Nine Weeks Ended | |||||||||||
| November 2, | November 3, | ||||||||||
| 2002 | 2001 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 92,424 | $ | 94,487 | |||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
42,647 | 38,529 | |||||||||
Deferred rent |
1,104 | 293 | |||||||||
Non-cash compensation activity |
487 | 547 | |||||||||
Loss on disposal of property and equipment |
2,621 | 3,307 | |||||||||
Tax benefit from options exercised |
2,473 | 4,264 | |||||||||
Deferred income taxes |
1,479 | (2,192 | ) | ||||||||
Changes in other assets and liabilities |
6,428 | 2,115 | |||||||||
Changes in current assets and liabilities: |
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Customer accounts receivable |
(18,178 | ) | (45,987 | ) | |||||||
Merchandise inventories |
(32,305 | ) | (2,471 | ) | |||||||
Deferred catalog costs |
1,112 | (120 | ) | ||||||||
Due from affiliates |
2,077 | 402 | |||||||||
Prepaid and other current assets |
(2,199 | ) | (2,247 | ) | |||||||
Accounts payable |
5,277 | (44,471 | ) | ||||||||
Income taxes payable |
26,284 | 19,460 | |||||||||
Accrued liabilities |
15,568 | (10,737 | ) | ||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
147,299 | 55,179 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property and equipment, net of disposals |
(75,752 | ) | (79,941 | ) | |||||||
NET CASH USED IN INVESTING ACTIVITIES |
(75,752 | ) | (79,941 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Borrowings under notes payable to banks |
50,000 | 75,000 | |||||||||
Proceeds from options exercised |
5,552 | 4,871 | |||||||||
Cash dividends |
(20,612 | ) | (14,390 | ) | |||||||
Purchase of treasury stock |
(101,387 | ) | (102,063 | ) | |||||||
NET CASH USED IN FINANCING ACTIVITIES |
(66,447 | ) | (36,582 | ) | |||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
308 | (373 | ) | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
5,408 | (61,717 | ) | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
18,306 | 69,986 | |||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 23,714 | $ | 8,269 | |||||||
See notes to consolidated financial statements.
5
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 February 2, 2002, 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. | |
| 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. |
6
| 4. | COMPREHENSIVE INCOME |
| The following is the Company’s comprehensive income for the periods ended November 2, 2002 and November 3, 2001: |
| Thirteen | Thirty-Nine | |||||||||||||||
| Weeks Ended | Weeks Ended | |||||||||||||||
| November 2, 2002 | November 3, 2001 | November 2, 2002 | November 3, 2001 | |||||||||||||
Net income |
$ | 37,407 | $ | 36,558 | $ | 92,424 | $ | 94,487 | ||||||||
Other comprehensive income: |
||||||||||||||||
Cumulative foreign
currency translation
adjustment |
(4 | ) | (506 | ) | 690 | (1,380 | ) | |||||||||
Comprehensive income |
$ | 37,403 | $ | 36,052 | $ | 93,114 | $ | 93,107 | ||||||||
| 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 November 2, 2002 and November 3, 2001, options to purchase 2.6 million and 1.3 million shares of common stock, respectively, 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 thirty-nine week periods ended November 2, 2002 and November 3, 2001, 2.5 million and 1.2 million shares, respectively, were not included in the computation of diluted net income per share. |
| Thirteen | Thirty-Nine | |||||||||||||||
| Weeks Ended | Weeks Ended | |||||||||||||||
| November 2, 2002 | November 3, 2001 | November 2, 2002 | November 3, 2001 | |||||||||||||
Shares for computation of
basic net income per share |
58,100 | 61,100 | 59,175 | 61,955 | ||||||||||||
Effect of stock compensation
plans |
1,333 | 1,655 | 1,530 | 2,033 | ||||||||||||
Shares for computation of
diluted net income per share |
59,433 | |||||||||||||||