UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 2, 2003
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.) |
| One Talbots Drive, Hingham, Massachusetts | 02043 | |||
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| (Address of principal executive offices) | (Zip Code) | |||
(781) 749-7600
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 Exchange Act Rule 12b-2)
| 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.
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Class |
Outstanding as of September 5, 2003 |
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| Common Stock, $0.01 par value | 56,676,722 |
INDEX TO FORM 10-Q
| Page | ||||||
PART I. FINANCIAL INFORMATION |
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Item 1: Financial Statements (Unaudited) |
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Consolidated Statements of Earnings for the Thirteen and
Twenty-Six Weeks Ended August 2, 2003 and August 3, 2002 |
3 | |||||
Consolidated Balance Sheets as of August 2, 2003, February 1,
2003 (audited) and August 3, 2002 |
4 | |||||
Consolidated Statements of Cash Flows for the Twenty-Six Weeks
Ended August 2, 2003 and August 3, 2002 |
5 | |||||
Notes to Consolidated Financial Statements |
6-9 | |||||
Item 2: Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
10-15 | |||||
Item 3: Quantitative and Qualitative Disclosures About Market Risk |
16 | |||||
Item 4: Controls and Procedures |
16 | |||||
PART II. OTHER INFORMATION |
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Item 4: Submission of Matters to a Vote of Security Holders |
17 | |||||
Item 6: Exhibits and Reports on Form 8-K |
18 | |||||
Signatures |
19 | |||||
2
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 AUGUST 2, 2003 AND AUGUST 3, 2002 (Amounts in thousands except per share data) |
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||
| August 2, | August 3, | August 2, | August 3, | ||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
NET SALES |
$ | 389,624 | $ | 370,407 | $ | 784,615 | $ | 761,735 | |||||||||
COSTS AND EXPENSES: |
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Cost of sales, buying and occupancy |
253,179 | 235,578 | 483,370 | 456,700 | |||||||||||||
Selling, general and administrative |
106,250 | 102,232 | 223,304 | 215,633 | |||||||||||||
OPERATING INCOME |
30,195 | 32,597 | 77,941 | 89,402 | |||||||||||||
INTEREST: |
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Interest expense |
636 | 720 | 1,383 | 1,641 | |||||||||||||
Interest income |
71 | 178 | 112 | 266 | |||||||||||||
INTEREST EXPENSE - NET |
565 | 542 | 1,271 | 1,375 | |||||||||||||
INCOME BEFORE TAXES |
29,630 | 32,055 | 76,670 | 88,027 | |||||||||||||
INCOME TAXES |
11,111 | 12,021 | 28,751 | 33,010 | |||||||||||||
NET INCOME |
$ | 18,519 | $ | 20,034 | $ | 47,919 | $ | 55,017 | |||||||||
NET INCOME PER SHARE: |
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Basic |
$ | 0.33 | $ | 0.34 | $ | 0.85 | $ | 0.92 | |||||||||
Assuming dilution |
$ | 0.32 | $ | 0.33 | $ | 0.83 | $ | 0.90 | |||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (in thousands): |
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Basic |
56,390 | 59,468 | 56,693 | 59,712 | |||||||||||||
Assuming dilution |
57,746 | 61,047 | 57,916 | 61,328 | |||||||||||||
CASH DIVIDENDS PER SHARE |
$ | 0.10 | $ | 0.09 | $ | 0.19 | $ | 0.17 | |||||||||
| See notes to consolidated financial statements. |
3
| THE TALBOTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AUGUST 2, 2003, FEBRUARY 1, 2003 AND AUGUST 3, 2002 (Dollar amounts in thousands except share data) |
| August 2, | February 1, | August 3, | ||||||||||||
| 2003 | 2003 | 2002 | ||||||||||||
| (unaudited) | (audited) | (unaudited) | ||||||||||||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 50,708 | $ | 25,566 | $ | 51,714 | ||||||||
Customer accounts receivable - net |
169,460 | 181,189 | 160,192 | |||||||||||
Merchandise inventories |
166,865 | 175,289 | 165,413 | |||||||||||
Deferred catalog costs |
4,716 | 5,877 | 5,465 | |||||||||||
Due from affiliates |
9,657 | 8,793 | 7,747 | |||||||||||
Deferred income taxes |
11,750 | 10,255 | 8,217 | |||||||||||
Prepaid and other current assets |
35,495 | 28,929 | 30,983 | |||||||||||
TOTAL CURRENT ASSETS |
448,651 | 435,898 | 429,731 | |||||||||||
PROPERTY AND EQUIPMENT - NET |
324,071 | 315,227 | 298,705 | |||||||||||
GOODWILL - NET |
35,513 | 35,513 | 35,513 | |||||||||||
TRADEMARKS - NET |
75,884 | 75,884 | 75,884 | |||||||||||
DEFERRED INCOME TAXES |
— | — | 3,281 | |||||||||||
OTHER ASSETS |
11,655 | 9,403 | 9,616 | |||||||||||
TOTAL ASSETS |
$ | 895,774 | $ | 871,925 | $ | 852,730 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
$ | 46,103 | $ | 48,365 | $ | 63,136 | ||||||||
Accrued income taxes |
27,596 | 11,590 | 25,171 | |||||||||||
Accrued liabilities |
83,889 | 87,986 | 84,312 | |||||||||||
TOTAL CURRENT LIABILITIES |
157,588 | 147,941 | 172,619 | |||||||||||
LONG-TERM DEBT |
100,000 | 100,000 | 100,000 | |||||||||||
DEFERRED RENT UNDER LEASE COMMITMENTS |
22,161 | 20,688 | 20,436 | |||||||||||
DEFERRED INCOME TAXES |
3,446 | 2,921 | — | |||||||||||
OTHER LIABILITIES |
40,141 | 32,699 | 18,672 | |||||||||||
STOCKHOLDERS’ EQUITY: |
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Common stock, $0.01 par value; 200,000,000 authorized;
75,788,244 shares, 75,270,013 shares and 75,254,095 shares
issued, respectively, and 56,633,870 shares, 57,505,802 shares
and 58,325,887 shares outstanding, respectively |
758 | 753 | 753 | |||||||||||
Additional paid-in capital |
401,250 | 389,402 | 386,768 | |||||||||||
Retained earnings |
609,852 | 572,741 | 517,424 | |||||||||||
Accumulated other comprehensive loss |
(14,709 | ) | (15,437 | ) | (4,814 | ) | ||||||||
Restricted stock awards |
(6,984 | ) | (78 | ) | (382 | ) | ||||||||
Treasury stock, at cost; 19,154,374 shares, 17,764,211 shares
and 16,928,208 shares, respectively |
(417,729 | ) | (379,705 | ) | (358,746 | ) | ||||||||
TOTAL STOCKHOLDERS’ EQUITY |
572,438 | 567,676 | 541,003 | |||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 895,774 | $ | 871,925 | $ | 852,730 | ||||||||
| See notes to consolidated financial statements. |
4
THE TALBOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 AND AUGUST 3, 2002
(Dollar amounts in thousands)
| Twenty-Six Weeks Ended | |||||||||||
| August 2, | August 3, | ||||||||||
| 2003 | 2002 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 47,919 | $ | 55,017 | |||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
31,603 | 28,129 | |||||||||
Deferred rent |
1,452 | 894 | |||||||||
Net non-cash compensation activity |
774 | 330 | |||||||||
Loss on disposal of property and equipment |
1,403 | 1,751 | |||||||||
Tax benefit from options exercised |
1,540 | 2,393 | |||||||||
Deferred income taxes |
(935 | ) | 352 | ||||||||
Changes in other assets |
(2,252 | ) | (682 | ) | |||||||
Changes in other liabilities |
7,442 | 5,318 | |||||||||
Changes in current assets and liabilities: |
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Customer accounts receivable |
11,776 | 12,018 | |||||||||
Merchandise inventories |
8,627 | 18,595 | |||||||||
Deferred catalog costs |
1,161 | 2,876 | |||||||||
Due from affiliates |
(864 | ) | 1,871 | ||||||||
Prepaid and other current assets |
(6,538 | ) | (1,950 | ) | |||||||
Accounts payable |
(2,266 | ) | 13,526 | ||||||||
Income taxes payable |
16,004 | 24,149 | |||||||||
Accrued liabilities |
(4,170 | ) | 4,495 | ||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
112,676 | 169,082 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property and equipment |
(42,300 | ) | (50,672 | ) | |||||||
Proceeds from disposal of property and equipment |
707 | 1 | |||||||||
NET CASH USED IN INVESTING ACTIVITIES |
(41,593 | ) | (50,671 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from options exercised |
2,633 | 5,410 | |||||||||
Cash dividends |
(10,807 | ) | (10,187 | ) | |||||||
Purchase of treasury stock |
(38,024 | ) | (80,529 | ) | |||||||
NET CASH USED IN FINANCING ACTIVITIES |
(46,198 | ) | (85,306 | ) | |||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
257 | 303 | |||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
25,142 | 33,408 | |||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
25,566 | 18,306 | |||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 50,708 | $ | 51,714 | |||||||
See notes to consolidated financial statements.
5
THE TALBOTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Dollar amounts in thousands except share data)
| 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 and the notes thereto for the fiscal year ended February 1, 2003, 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. | FEDERAL AND STATE INCOME TAXES | |
| The Company has provided for income taxes based on the estimated annual effective rate method. | ||
| 3. | COMPREHENSIVE INCOME | |
| The following is the Company’s comprehensive income for the periods ended August 2, 2003 and August 3, 2002: |
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
| August 2, | August 3, | August 2, | August 3, | |||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net income |
$ | 18,519 | $ | 20,034 | $ | 47,919 | $ | 55,017 | ||||||||
Other comprehensive income: |
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Cumulative foreign currency
translation adjustment |
(7 | ) | 474 | 728 | 694 | |||||||||||
Comprehensive income |
$ | 18,512 | $ | 20,508 | $ | 48,647 | $ | 55,711 | ||||||||
6
| 4. | 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. Had the Company used the fair value method to value compensation, as set forth in SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income and net income per share would have been reported as follows: |
| Thirteen | Twenty-Six | ||||||||||||||||
| Weeks Ended | Weeks Ended | ||||||||||||||||
| August 2, | August 3, | August 2, | August 3, | ||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income, as reported |
$ | 18,519 | $ | 20,034 | $ | 47,919 | $ | 55,017 | |||||||||
Add: stock-based
compensation included
in reported net
income, net of related
tax effects |
245 | 98 | 481 | 197 | |||||||||||||
Deduct: Total
stock-based
compensation
expense determined
under fair value based
method, net of
related tax effects |
(4,138 | ) | (4,888 | ) | (8,049 | ) | (9,264 | ) | |||||||||
Proforma net income |
$ | 14,626 | $ | 15,244 | $ | 40,351 | $ | 45,950 | |||||||||