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EXCEL - IDEA: XBRL DOCUMENT - TALBOTS INC | Financial_Report.xls |
EX-31.1 - EX-31.1 - TALBOTS INC | b83240exv31w1.htm |
EX-32.1 - EX-32.1 - TALBOTS INC | b83240exv32w1.htm |
EX-31.2 - EX-31.2 - TALBOTS INC | b83240exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2011
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.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
41-1111318 (I.R.S. Employer Identification No.) |
One Talbots Drive, Hingham, Massachusetts 02043
(Address of principal executive offices)
(Address of principal executive offices)
Registrants telephone number, including area code
781-749-7600
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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
The number of shares outstanding of the registrants common stock as of June 1, 2011: 70,700,160
shares.
1
Table of Contents
THE TALBOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Amounts in thousands except per share data
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
Net sales |
$ | 301,310 | $ | 320,661 | ||||
Costs and expenses |
||||||||
Cost of sales, buying and occupancy |
193,965 | 180,845 | ||||||
Selling, general and administrative |
99,811 | 108,139 | ||||||
Restructuring charges |
2,265 | 4,959 | ||||||
Impairment of store assets |
1,217 | 6 | ||||||
Merger-related costs |
885 | 23,813 | ||||||
Operating income |
3,167 | 2,899 | ||||||
Interest |
||||||||
Interest expense |
2,044 | 8,435 | ||||||
Interest income |
16 | 21 | ||||||
Interest expense, net |
2,028 | 8,414 | ||||||
Income (loss) before taxes |
1,139 | (5,515 | ) | |||||
Income tax expense |
231 | 1,581 | ||||||
Income (loss) from continuing operations |
908 | (7,096 | ) | |||||
(Loss) income from discontinued operations, net of tax |
(169 | ) | 2,728 | |||||
Net income (loss) |
$ | 739 | $ | (4,368 | ) | |||
Basic earnings (loss) per share: |
||||||||
Continuing operations |
$ | 0.01 | $ | (0.12 | ) | |||
Discontinued operations |
| 0.04 | ||||||
Net earnings (loss) |
$ | 0.01 | $ | (0.08 | ) | |||
Diluted earnings (loss) per share: |
||||||||
Continuing operations |
$ | 0.01 | $ | (0.12 | ) | |||
Discontinued operations |
| 0.04 | ||||||
Net earnings (loss) |
$ | 0.01 | $ | (0.08 | ) | |||
Weighted average shares outstanding: |
||||||||
Basic |
68,709 | 57,873 | ||||||
Diluted |
69,276 | 57,873 | ||||||
See notes to condensed consolidated financial statements.
2
Table of Contents
THE TALBOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Amounts in thousands except share and per share data
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Amounts in thousands except share and per share data
April 30, | January 29, | May 1, | ||||||||||
2011 | 2011 | 2010 | ||||||||||
ASSETS |
||||||||||||
Current Assets: |
||||||||||||
Cash and cash equivalents |
$ | 8,569 | $ | 10,181 | $ | 14,675 | ||||||
Customer accounts receivable, net |
164,282 | 145,472 | 184,611 | |||||||||
Merchandise inventories |
177,134 | 158,040 | 156,661 | |||||||||
Deferred catalog costs |
5,563 | 4,184 | 5,164 | |||||||||
Prepaid and other current assets |
48,265 | 33,235 | 48,302 | |||||||||
Total current assets |
403,813 | 351,112 | 409,413 | |||||||||
Property and equipment, net |
181,595 | 186,658 | 205,413 | |||||||||
Goodwill |
35,513 | 35,513 | 35,513 | |||||||||
Trademarks |
75,884 | 75,884 | 75,884 | |||||||||
Other assets |
18,970 | 19,349 | 20,280 | |||||||||
Total Assets |
$ | 715,775 | $ | 668,516 | $ | 746,503 | ||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||
Current Liabilities: |
||||||||||||
Accounts payable |
$ | 97,790 | $ | 91,855 | $ | 77,012 | ||||||
Accrued liabilities |
122,314 | 137,824 | 146,163 | |||||||||
Revolving credit facility |
86,800 | 25,516 | 94,144 | |||||||||
Total current liabilities |
306,904 | 255,195 | 317,319 | |||||||||
Deferred rent under lease commitments |
88,742 | 93,440 | 109,968 | |||||||||
Deferred income taxes |
28,456 | 28,456 | 28,456 | |||||||||
Other liabilities |
105,512 | 107,839 | 131,155 | |||||||||
Commitments and contingencies |
||||||||||||
Stockholders Equity |
||||||||||||
Common stock, $0.01 par value; 200,000,000 authorized; 98,224,083
shares, 97,247,847 shares and 96,808,534 shares issued,
respectively;
and 70,713,766 shares, 70,261,905 shares and 70,157,603 shares
outstanding, respectively |
982 | 972 | 968 | |||||||||
Additional paid-in capital |
864,139 | 860,819 | 850,187 | |||||||||
Retained deficit |
(37,136 | ) | (37,875 | ) | (53,058 | ) | ||||||
Accumulated other comprehensive loss |
(50,536 | ) | (51,216 | ) | (50,755 | ) | ||||||
Treasury
stock, at cost; 27,510,317 shares, 26,985,942 shares and 26,650,931 shares, respectively |
(591,288 | ) | (589,114 | ) | (587,737 | ) | ||||||
Total stockholders equity |
186,161 | 183,586 | 159,605 | |||||||||
Total Liabilities and Stockholders Equity |
$ | 715,775 | $ | 668,516 | $ | 746,503 | ||||||
See notes to condensed consolidated financial statements.
3
Table of Contents
THE TALBOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Amounts in thousands
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Amounts in thousands
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | 739 | $ | (4,368 | ) | |||
(Loss) income from discontinued operations, net of tax |
(169 | ) | 2,728 | |||||
Income (loss) from continuing operations |
908 | (7,096 | ) | |||||
Adjustments to reconcile income (loss) from continuing operations
to net cash used in operating activities: |
||||||||
Depreciation and amortization |
13,893 | 16,143 | ||||||
Stock-based compensation |
2,894 | 4,152 | ||||||
Amortization of debt issuance costs |
549 | 1,563 | ||||||
Impairment of store assets |
1,217 | 6 | ||||||
Loss on disposal of property and equipment |
99 | | ||||||
Deferred rent |
(4,264 | ) | (387 | ) | ||||
Gift card breakage income |
(165 | ) | | |||||
Excess tax benefit from options exercised and stock units vested |
| (189 | ) | |||||
Changes in assets and liabilities: |
||||||||
Customer accounts receivable |
(18,759 | ) | (20,956 | ) | ||||
Merchandise inventories |
(18,921 | ) | (13,764 | ) | ||||
Deferred catalog costs |
(1,379 | ) | 1,521 | |||||
Prepaid and other current assets |
(15,462 | ) | (806 | ) | ||||
Due from related party |
| 959 | ||||||
Income tax refundable |
| 2,006 | ||||||
Accounts payable |
5,417 | (26,532 | ) | |||||
Accrued liabilities |
(14,478 | ) | 161 | |||||
Other assets |
(170 | ) | 830 | |||||
Other liabilities |
(1,982 | ) | (2,050 | ) | ||||
Net cash used in operating activities |
(50,603 | ) | (44,439 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Additions to property and equipment |
(9,697 | ) | (1,417 | ) | ||||
Cash acquired in merger with BPW Acquisition Corp. |
| 332,999 | ||||||
Net cash (used in) provided by investing activities |
(9,697 | ) | 331,582 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Borrowings on revolving credit facility |
507,200 | 260,000 | ||||||
Payments on revolving credit facility |
(445,916 | ) | (165,856 | ) | ||||
Payments on related party borrowings |
| (486,494 | ) | |||||
Payment of debt issuance costs |
| (5,755 | ) | |||||
Payment of equity issuance costs |
| (1,482 | ) | |||||
Proceeds from warrants exercised |
| 19,042 | ||||||
Proceeds from options exercised |
1 | 200 | ||||||
Excess tax benefit from options exercised and stock units vested |
| 189 | ||||||
Purchase of treasury stock |
(2,174 | ) | (1,698 | ) | ||||
Net cash provided by (used in) financing activities |
59,111 | (381,854 | ) | |||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
368 | 246 | ||||||
CASH FLOWS FROM DISCONTINUED OPERATIONS: |
||||||||
Operating activities |
(791 | ) | (3,622 | ) | ||||
Effect of exchange rate changes on cash |
| (13 | ) | |||||
(791 | ) | (3,635 | ) | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(1,612 | ) | (98,100 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
10,181 | 112,775 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 8,569 | $ | 14,675 | ||||
See notes to condensed consolidated financial statements.
4
Table of Contents
THE TALBOTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements of The Talbots, Inc. and its subsidiaries
(Talbots or the Company) included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or
omitted from this report, as is permitted by such rules and regulations. Accordingly, these
condensed consolidated financial statements should be read in conjunction with the financial
statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal
year ended January 29, 2011.
The unaudited condensed consolidated financial statements include the accounts of Talbots and its
wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, the information furnished reflects all adjustments,
all of which are of a normal and recurring nature, necessary for a fair presentation of the results
for the reported interim periods. The Company considers events or transactions that occur after the
balance sheet date but before the financial statements are issued to provide additional evidence
relative to certain estimates or to identify matters that require additional disclosure. The
results of operations for interim periods are not necessarily indicative of results to be expected
for the full year or any other interim period.
2. Summary of Significant Accounting Policies and Supplemental Information
There have been no material changes to the significant accounting policies previously disclosed in
the Companys Annual Report on Form 10-K for the fiscal year ended January 29, 2011.
Recent Accounting Pronouncements
In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses. ASU 2010-20 amends Accounting Standards Codification (ASC) 310-10,
Receivables, and requires additional disclosures about the credit quality of financing receivables,
including credit card receivables, and the associated allowance for credit losses. ASU 2010-20 was
effective for the first interim or annual reporting period ending on or after December 15, 2010,
except for certain disclosures of information regarding activity that occurs during the reporting
period, which are effective for the first interim or annual reporting period beginning on or after
December 15, 2010. The Company adopted the disclosure requirements effective for the first interim
or annual reporting period ending on or after December 15, 2010, as of January 29, 2011 and the
disclosure requirements effective for the first interim or annual reporting period beginning on or
after December 15, 2010, in the first quarter of 2011. The adoption of this ASU has expanded the
Companys disclosures regarding customer accounts receivable and the associated allowance for
doubtful accounts included in Note 11, Customer Accounts Receivable, net.
Supplemental Cash Flow Information
Interest paid for the thirteen weeks ended April 30, 2011 and May 1, 2010 was $2.5 million and
$12.5 million, respectively. Income taxes paid for the thirteen weeks ended April 30, 2011 and May
1, 2010 were $1.7 million and $1.6 million, respectively.
3. Merger with BPW Acquisition Corp. and Related Transactions
On April 7, 2010, the Company completed a series of transactions (collectively, the BPW
Transactions) which, in the aggregate, substantially reduced its indebtedness and significantly
deleveraged its balance sheet, consisting of three related transactions: (i) an Agreement and Plan
of Merger between Talbots and BPW Acquisition Corp. (BPW) pursuant to which a wholly-owned
subsidiary of the Company merged with and into BPW in exchange for the Companys issuance of
Talbots common stock and warrants to BPW stockholders; (ii) the repurchase and retirement of all
shares of Talbots common stock
5
Table of Contents
held by AEON (U.S.A.), Inc. (AEON (U.S.A.)), the Companys then majority shareholder, totaling
29.9 million shares; the issuance of warrants to purchase one million shares of Talbots common
stock to AEON (U.S.A.) and the repayment of all of the Companys outstanding debt with AEON Co.,
Ltd. (AEON) and AEON (U.S.A.) at its principal value plus accrued interest and other costs for
total consideration of $488.2 million; and (iii) the execution of a third party senior secured
revolving credit facility which provides borrowing capacity up to $200.0 million, subject to
availability and satisfaction of all borrowing conditions.
BPW was a special purpose acquisition company with approximately $350.0 million in cash held in a
trust account for the benefit of its shareholders to be used in connection with a business
combination. BPW had no significant commercial operations, and its only significant pre-combination
assets were cash and cash equivalents which were already recognized at fair value. The Company
recorded the shares of common stock and warrants issued in the merger at the fair value of BPWs
net monetary assets received on April 7, 2010. The net monetary assets received in the transaction,
consisting solely of cash and cash equivalents, were $333.0 million, after payment of all prior BPW
obligations. No goodwill or intangible assets were recorded in the transaction.
In connection with the merger, the Company issued 41.5 million shares of Talbots common stock and
warrants to purchase 17.2 million shares of Talbots common stock (the Talbots Warrants) for 100%
ownership of BPW. Approximately 3.5 million BPW warrants that did not participate in the warrant
exchange offer (the Non-Tendered Warrants) remained outstanding at the closing of the merger.
Additionally, in connection with the merger, the Company repurchased and retired the 29.9 million
shares of Talbots common stock held by AEON (U.S.A.), the former majority shareholder, in exchange
for warrants to purchase one million shares of Talbots common stock (the AEON Warrants). As a
result of the BPW Transactions, the Company became subject to certain annual limitations on the use
of its existing net operating losses (NOLs).
With the consummation and closing of the BPW merger, the Company repaid all outstanding AEON and
AEON (U.S.A.) indebtedness on April 7, 2010 at its principal value plus accrued interest and other
costs for total cash consideration of $488.2 million. As the AEON and AEON (U.S.A.) debt
extinguishment transaction was between related parties, the difference between the carrying value
and the repayment price was recorded as an equity transaction. Accordingly, the Company recorded no
gain or loss on the extinguishment and the difference between the repayment price and the net
carrying value, consisting of $1.7 million of unamortized deferred financing costs, was recorded to
additional paid-in capital.
Further in connection with the consummation and closing of the BPW merger, the Company executed a
senior secured revolving credit agreement with third-party lenders which provides borrowing
capacity up to $200.0 million, subject to availability and satisfaction of all borrowing
conditions. See Note 12, Debt, for further information including key terms of this credit
agreement.
Merger-related costs are those expenses incurred in order to effect the merger, including advisory,
legal, accounting, valuation, and other professional or consulting fees as well as certain general
and administrative costs incurred by the Company as a direct result of the closing of the BPW
Transactions, including an incentive award given to certain executives and members of management,
contingent upon the successful closing of the BPW Transactions. The incentive portion of
merger-related costs was awarded in restricted stock units and cash for efforts related to the
closing of the BPW Transactions. The cash bonus awarded was paid in the first quarter of 2010 in
connection with the consummation of the BPW Transactions. The restricted stock units awarded cliff
vested 12 months from the completion of the BPW Transactions. Legal expenses classified as
merger-related costs include both those costs incurred to execute the merger as well as those costs
incurred related to subsequent merger-related legal proceedings. Other costs primarily include
printing and mailing expenses related to proxy solicitation and incremental insurance expenses
related to the transactions. The Company has recorded total merger-related costs of $35.0 million.
Approximately $7.7 million of costs incurred in connection with the execution of the senior secured
revolving credit facility were recorded as deferred financing costs and included in other assets on
the condensed consolidated balance sheet. These costs are being amortized to interest expense over
the three and one-half year life of the facility. Approximately $3.6 million of costs incurred in
connection with the registration and issuance of the common stock and warrants were charged to
additional paid-in capital.
6
Table of Contents
Details of the merger-related costs recorded in the thirteen weeks ended April 30, 2011 and May 1,
2010 are as follows:
Thirteen Weeks Ended | ||||||||
May 1, | ||||||||
April 30, 2011 | 2010 | |||||||
(In thousands) | ||||||||
Investment banking |
$ | | $ | 14,255 | ||||
Accounting and legal |
| 4,981 | ||||||
Financing incentive compensation |
885 | 3,218 | ||||||
Other costs |
| 1,359 | ||||||
Merger-related costs |
$ | 885 | $ | 23,813 | ||||
The following pro forma summary financial information presents the operating results of the
combined company assuming the merger and related events, including the repurchase of common stock
held by AEON (U.S.A.) and repayment of all outstanding indebtedness owed to AEON and AEON (U.S.A.)
and the execution of the senior secured revolving credit agreement, had been completed on January
31, 2010, the beginning of Talbots fiscal year ended January 29, 2011.
Thirteen Weeks Ended | ||||||||
May 1, 2010 | ||||||||
Actual | Pro Forma | |||||||
(In thousands, except per share data) | ||||||||
Net sales |
$ | 320,661 | $ | 320,661 | ||||
Operating income (loss) |
2,899 | (3,973 | ) | |||||
Loss from continuing operations |
(7,096 | ) | (8,708 | ) | ||||
Loss from continuing operations per share: |
||||||||
Basic |
$ | (0.12 | ) | $ | (0.13 | ) | ||
Diluted |
$ | (0.12 | ) | $ | (0.13 | ) | ||
Weighted average shares outstanding: |
||||||||
Basic |
57,873 | 66,248 | ||||||
Diluted |
57,873 | 66,248 |
Based on the nature of the BPW entity, there was no revenue or earnings associated with BPW
included in the consolidated statements of operations.
4. Restructuring
In March 2011, the Company announced the acceleration of its store rationalization plan, a program
designed to increase the productivity of the Companys store square footage by evaluating the
Companys store portfolio on a market-by-market basis
and closing, consolidating or downsizing certain selected locations. This evaluation includes
consideration of factors such as overall size and potential sales in each market, current
performance and growth potential of each store and available lease expirations, lease renewals and
other lease termination opportunities. As a result of this evaluation, the Company identified 90 to
100
locations, including full stores and attached store concepts,
for closure and 15 to 20 locations as consolidation or downsizing opportunities. The
Company has adopted a staged approach to closing, consolidating and downsizing these locations to
best match its existing lease opportunities with approximately 83 locations expected to be closed in
fiscal 2011, 25 locations expected to be closed in fiscal 2012 and two locations expected to be closed in
fiscal 2013 under this plan. The Company expects to record total one-time restructuring charges of
approximately $15.0 million associated with this plan. In the thirteen weeks ended April 30, 2011,
the Company incurred restructuring charges of $2.3 million, primarily comprised of lease exit,
severance and related costs for certain locations to be closed under this plan.
In the thirteen weeks ended May 1, 2010, the Company recorded $5.0 million of restructuring charges
primarily related to the consolidation of the Companys Madison Avenue, New York flagship location
in which the Company reduced active leased floor space and wrote down certain assets and leasehold
improvements no longer used in the redesigned lay-out.
7
Table of Contents
The following is a summary of the activity and liability balances related to restructuring for the
thirteen weeks ended
April 30, 2011 and May 1, 2010:
Corporate - Wide | ||||||||||||
Strategic Initiatives | ||||||||||||
Lease - | ||||||||||||
Severance | Related | Total | ||||||||||
(In thousands) | ||||||||||||
Balance at January 29, 2011 |
$ | 215 | $ | 3,781 | $ | 3,996 | ||||||
Charges |
1,847 | 418 | 2,265 | |||||||||
Cash payments |
(410 | ) | (437 | ) | (847 | ) | ||||||
Balance at April 30, 2011 |
$ | 1,652 | $ | 3,762 | $ | 5,414 | ||||||
Corporate - Wide | ||||||||||||
Strategic Initiatives | ||||||||||||
Lease - | ||||||||||||
Severance | Related | Total | ||||||||||
(In thousands) | ||||||||||||
Balance at January 30, 2010 |
$ | 3,089 | $ | 784 | $ | 3,873 | ||||||
Charges |
934 | 4,025 | 4,959 | |||||||||
Cash payments |
(1,873 | ) | (250 | ) | (2,123 | ) | ||||||
Non-cash items |
| (44 | ) | (44 | ) | |||||||
Balance at May 1, 2010 |
$ | 2,150 | $ | 4,515 | $ | 6,665 | ||||||
The non-cash items primarily consisted of the write-off of certain leasehold improvements and lease
liability adjustments. Of the $5.4 million in restructuring liabilities at April 30, 2011, $3.3
million, expected to be paid within the next twelve months, is included in accrued liabilities and
the remaining $2.1 million, expected to be paid thereafter through 2014, is included in deferred
rent under lease commitments.
5. Stock-Based Compensation
Total stock-based compensation related to stock options, nonvested stock awards and restricted
stock units (RSUs) was $2.9 million and $4.2 million for the thirteen weeks ended April 30, 2011
and May 1, 2010, respectively.
Stock-based compensation expense is classified in the consolidated statements of operations as
follows:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cost of sales, buying and occupancy |
$ | 273 | $ | 139 | ||||
Selling, general and administrative |
1,736 | 3,135 | ||||||
Merger-related costs |
885 | 878 | ||||||
Stock-based compensation |
$ | 2,894 | $ | 4,152 | ||||
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Table of Contents
Stock Options
The weighted-average fair value of options granted during the thirteen weeks ended April 30, 2011
and May 1, 2010, estimated as of the grant date using the Black-Scholes option pricing model, was
$4.32 and $10.40 per option, respectively. Key assumptions used to apply this pricing model were as
follows:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
Risk-free interest rate |
2.8 | % | 3.1 | % | ||||
Expected life of options |
6.9 years | 6.8 years | ||||||
Expected volatility of underlying stock |
81.2 | % | 79.7 | % | ||||
Expected dividend yield |
0.0 | % | 0.0 | % |
The following is a summary of stock option activity for the thirteen weeks ended April 30, 2011:
Weighted | Weighted | |||||||||||||||
Average | Average Remaining | Aggregate | ||||||||||||||
Number of | Exercise Price | Contractual Term | Intrinsic | |||||||||||||
Shares | per Share | (In Years) | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Outstanding at January 29,
2011 |
7,115,641 | $ | 25.17 | |||||||||||||
Granted |
1,292,701 | 5.84 | ||||||||||||||
Exercised |
(400 | ) | 2.36 | |||||||||||||
Forfeited or expired |
(2,105,862 | ) | 35.90 | |||||||||||||
Outstanding at April 30, 2011 |
6,302,080 | $ | 17.89 | 5.2 | $ | 3,554 | ||||||||||
Exercisable at April 30, 2011 |
4,364,947 | $ | 23.27 | 3.4 | $ | 2,237 | ||||||||||
As of April 30, 2011, there was $5.5 million of unrecognized compensation cost related to stock
options that are expected to vest. These costs are expected to be recognized over a weighted
average period of 2.6 years.
Nonvested Stock Awards and RSUs
The following is a summary of nonvested stock awards and RSU activity for the thirteen weeks ended
April 30, 2011:
Weighted | ||||||||
Average Grant | ||||||||
Number of | Date Fair Value | |||||||
Shares | per Share | |||||||
Nonvested at January 29, 2011 |
2,367,214 | $ | 11.34 | |||||
Granted |
620,919 | 5.84 | ||||||
Vested |
(995,238 | ) | 12.22 | |||||
Forfeited |
(170,676 | ) | 5.96 | |||||
Nonvested at April 30, 2011 |
1,822,219 | $ | 9.48 | |||||
As of April 30, 2011, there was $11.5 million of unrecognized compensation cost related to
nonvested stock awards and RSUs that are expected to vest. These costs are expected to be
recognized over a weighted average period of 2.0 years.
6. Income Taxes
The Companys effective income tax rate, including discrete items, was 20.3% and (28.7%) for the
thirteen weeks ended April 30, 2011 and May 1, 2010, respectively. The effective income tax rate is
based upon the estimated income or loss for the year,
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the estimated composition of the income or
loss in different jurisdictions and discrete adjustments for settlements of tax audits or
assessments, the resolution or identification of tax position uncertainties and non-deductible
costs associated with the merger. Income tax expense for the thirteen weeks ended April 30, 2011
and May 1, 2010 is primarily a function of the Companys applicable effective rates and the results
of operations within certain jurisdictions in the respective periods.
The Company continues to provide a full valuation allowance against its net deferred tax assets,
excluding deferred tax liabilities for non-amortizing intangibles, due to insufficient positive
evidence that the deferred tax assets will be realized in the future.
In fiscal 2010, as a result of the BPW Transactions, the Company recorded an increase in its
unrecognized tax benefits of approximately $20.0 million that reduced a portion of the Companys
net deferred tax assets before consideration of any valuation allowance. The Company submitted a
Private Letter Ruling request related to this tax position during fiscal 2010 which was granted in
the first quarter of 2011. As a result of this favorable outcome, the Company recorded a decrease
in its unrecognized tax benefits of approximately $20.0 million which increased the Companys net
deferred tax assets before consideration of any valuation allowance.
7. Discontinued Operations
The Companys discontinued operations include the Talbots Kids, Mens and U.K. businesses, all of
which ceased operations in 2008, and the J. Jill business which was sold to Jill Acquisition LLC
(the Purchaser) on July 2, 2009. The operating results of these businesses have been classified
as discontinued operations for all periods presented, and the cash flows from discontinued
operations have been separately presented in the condensed consolidated statements of cash flows.
The $0.2 million loss from discontinued operations for the thirteen weeks ended April 30, 2011
includes approximately $0.4 million of on-going lease and other liability adjustments related to
the J. Jill, Talbots Kids and Mens businesses, partially off-set by $0.2 million of favorable
adjustments to estimated lease liabilities, due to the settlement of one of the two remaining J.
Jill store leases not assumed by the Purchaser in the sale of J. Jill. The $2.7 million income from
discontinued operations for the thirteen weeks ended May 1, 2010 includes approximately $1.7
million of favorable adjustments to estimated lease
liabilities, primarily due to the settlement of four of the J. Jill store leases not assumed by the
Purchaser in the sale of J. Jill, approximately $0.9 million of favorable adjustments to other
assets and approximately $0.2 million of income tax benefit, representing the incremental effect of
tax benefits realized from adjustments to the disposal obligations of the J. Jill business. The
loss from discontinued operations for the thirteen weeks ended April 30, 2011 reflects no income
tax expense (benefit).
At January 29, 2011, the Company had remaining recorded lease-related liabilities from discontinued
operations of $6.3 million. During the thirteen weeks ended April 30, 2011, the Company made cash
payments of approximately $0.9 million, recorded other income due to favorable settlements of
estimated lease liabilities of $0.2 million and recorded additional expense related to lease
liability adjustments of $0.2 million, resulting in a total estimated remaining recorded liability
of $5.4 million as of April 30, 2011. Of these liabilities, approximately $2.8 million is expected
to be paid out within the next 12 months and is included within accrued liabilities as of April 30,
2011.
8. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income (loss) available for common
stockholders by the weighted average number of common shares outstanding. During periods of income,
participating securities are allocated a proportional share of income determined by dividing total
weighted average participating securities by the sum of the total weighted average common shares
and participating securities (the two-class method). The Companys nonvested stock and director
restricted stock units (RSUs) participate in any dividends declared by the Company and are
therefore considered participating securities. Participating securities have the effect of diluting
both basic and diluted earnings per share during periods of income. During periods of loss, no loss
is allocated to participating securities since they have no contractual obligation to share in the
losses of the Company. Diluted earnings per share is computed after giving consideration to the
dilutive effect of warrants, stock options and management RSUs that are outstanding during the
period, except where such non-participating securities would be anti-dilutive.
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Basic and diluted earnings (loss) per share from continuing operations were computed as follows:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands, except per share data) | ||||||||
Basic earnings (loss) per share: |
||||||||
Income (loss) from continuing operations |
$ | 908 | $ | (7,096 | ) | |||
Less: income associated with participating securities |
21 | | ||||||
Income (loss) available for common stockholders |
$ | 887 | $ | (7,096 | ) | |||
Weighted average shares outstanding |
68,709 | 57,873 | ||||||
Basic earnings (loss) per share continuing operations |
$ | 0.01 | $ | (0.12 | ) | |||
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands, except per share data) | ||||||||
Diluted earnings (loss) per share: |
||||||||
Income (loss) from continuing operations |
$ | 908 | $ | (7,096 | ) | |||
Less: income associated with participating securities |
21 | | ||||||
Income (loss) available for common stockholders |
$ | 887 | $ | (7,096 | ) | |||
Weighted average shares outstanding |
68,709 | 57,873 | ||||||
Effect of dilutive securities |
567 | | ||||||
Diluted weighted average shares outstanding |
69,276 | 57,873 | ||||||
Diluted earnings (loss) per share continuing operations |
$ | 0.01 | $ | (0.12 | ) | |||
The following common stock equivalents were excluded from the calculation of earnings (loss) per
share because their inclusion would have been anti-dilutive for the thirteen weeks ended April 30,
2011 and May 1, 2010:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Nonvested stock |
| 1,989 | ||||||
Nonvested director RSUs |
| 18 | ||||||
Nonvested management RSUs |
| 403 | ||||||
Stock options |
5,121 | 8,377 | ||||||
Warrants |
19,152 | 19,152 | ||||||
24,273 | 29,939 | |||||||
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9. Comprehensive Income (Loss)
The following illustrates the Companys total comprehensive income (loss) for the thirteen weeks
ended April 30, 2011 and May 1, 2010:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Net income (loss) |
$ | 739 | $ | (4,368 | ) | |||
Other comprehensive income (loss): |
||||||||
Translation adjustment |
445 | 592 | ||||||
Change in pension and postretirement liabilities |
235 | (168 | ) | |||||
Comprehensive income (loss) |
$ | 1,419 | $ | (3,944 | ) | |||
The other components of comprehensive income (loss) reflect no income tax expense (benefit) for the
periods presented as the Company continues to maintain a valuation allowance for substantially all
of its deferred taxes due to insufficient positive evidence that the deferred tax assets would be
realized in the future.
10. Fair Value Measurements
The Company classifies fair value based measurements on a three-level hierarchy that prioritizes
the inputs used to measure fair value. This hierarchy requires entities to maximize the use of
observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to
measure fair value are as follows: Level 1, quoted market prices in active markets for identical
assets or liabilities; Level 2, observable inputs other than quoted market prices included in Level
1 such as quoted market prices for markets that are not active or other inputs that are observable
or can be corroborated by observable market data; and Level 3, unobservable inputs that are
supported by little or no market activity and that are significant to the fair value of the assets
or liabilities, including certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
The Companys financial instruments at April 30, 2011 and January 29, 2011 consisted primarily of
cash and cash equivalents, customer accounts receivable, investments in the Companys irrevocable
grantors trust (Rabbi Trust) that holds assets intended to fund benefit obligations under the
Companys Supplemental Retirement Savings Plan and Deferred Compensation Plan, accounts payable and
its revolving credit facility. The Company believes the carrying value of cash and cash
equivalents, customer accounts receivable and accounts payable approximates their fair values due
to their short-term nature. The money market investments in the Rabbi Trust are recorded at fair
value based on quoted market prices in active markets for identical assets (Level 1 measurements)
and are not significant to the total value of the Rabbi Trust. The investments in life insurance
policies held in the Rabbi Trust are recorded at their cash surrender values, which is consistent
with settlement value and is not a fair value measurement. The Company believes that the carrying
value of its revolving credit facility approximated fair value at April 30, 2011 and January 29,
2011, as the interest rates are market-based variable rates and were re-set with the third party
lenders during the third quarter of 2010.
The Company monitors the performance and productivity of its store portfolio and closes stores when
appropriate. When it is determined that a store is underperforming or is to be closed, the Company
reassesses the recoverability of the stores long-lived assets, which in some cases results in an
impairment charge. In the thirteen weeks ended April 30, 2011, the Company performed impairment
analyses on the assets of certain stores, primarily triggered by the Companys accelerated store
rationalization plan.
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The following table summarizes the non-financial assets that were measured at fair value on a
non-recurring basis in performing these analyses for the thirteen weeks ended April 30, 2011:
Fair Value Measurements Using | ||||||||||||||||||||
Quoted | ||||||||||||||||||||
Market Prices | Observable | Impairment of | ||||||||||||||||||
Net Carrying | in Active | Inputs Other | Significant | Store Assets, | ||||||||||||||||
Value at | Markets for | than Quoted | Unobservable | Thirteen Weeks | ||||||||||||||||
April 30, | Identical | Market | Inputs | Ended | ||||||||||||||||
2011 | Assets (Level 1) | Prices (Level 2) | (Level 3) | April 30, 2011 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Long-lived assets
held and used |
$ | 884 | $ | | $ | | $ | 884 | $ | 1,217 | ||||||||||
Total |
$ | 884 | $ | | $ | | $ | 884 | $ | 1,217 | ||||||||||
The Company estimates the fair value of these store assets using an income approach which is based
on estimates of future operating cash flows at the store level. These estimates, which include
estimates of future net store sales, direct store expenses and non-cash store adjustments, are
based on the experience of management, including historical store operating results and
managements knowledge and expectations. These estimates are affected by factors that can be
difficult to predict, such as future operating results, customer activity and future economic
conditions. Insignificant store impairments were recorded in the thirteen weeks ended May 1, 2010.
11. Customer Accounts Receivable, net
Customer accounts receivable, net are as follows:
April 30, | January 29, | |||||||
2011 | 2011 | |||||||
(In thousands) | ||||||||
Customer accounts receivable |
$ | 168,282 | $ | 149,872 | ||||
Less: allowance for doubtful accounts |
(4,000 | ) | (4,400 | ) | ||||
Customer accounts receivable, net |
$ | 164,282 | $ | 145,472 | ||||
The allowance for doubtful accounts is based on a calculation that includes a number of factors
such as historical collection rates, a percentage of outstanding customer account balances,
historical write-offs and write-off forecasts.
In determining the appropriate allowance balance, the Company considers, among other factors, both
the aging of the past-due outstanding customer accounts receivable as well as the credit quality of
the outstanding customer accounts receivable.
As of April 30, 2011 and January 29, 2011, customer accounts receivable were aged as follows:
April 30, | January 29, | |||||||
2011 | 2011 | |||||||
(Percentage of gross customer accounts receivable) | ||||||||
Current |
92.5 | % | 90.4 | % | ||||
Up to 60 days past due |
6.2 | % | 8.1 | % | ||||
61-120 days past due |
0.9 | % | 1.0 | % | ||||
121-180 days past due |
0.4 | % | 0.5 | % |
Customer accounts receivable are deemed to be uncollectible either when they are contractually 180
days past due or when events or circumstances, such as customer bankruptcy, fraud or death, suggest
that collection of the amounts due under the account is unlikely. Once an account is deemed to be
uncollectible, the Company ceases to accrue interest on the balance and the balance is written off
at the next cycle billing date. The Company ceases to accrue late fees on a balance once the
balance reaches 120 days past due. At April 30, 2011 and January 29, 2011, the Company had recorded
gross customer accounts receivable of $0.4 million which have been deemed uncollectible and have
ceased to accrue finance charge income and $1.1
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million and $1.2 million, respectively, of gross
customer accounts receivable which are 90 days or more past due and upon which finance charge income
continued to be accrued.
The Company performs an on-going evaluation of the credit quality of its outstanding customer
accounts receivable, based on the Talbots credit cardholders respective credit risk scores. The
Company utilizes an industry standard credit risk score model as its credit quality indicator. As
of April 30, 2011 and January 29, 2011, customer accounts receivable were allocated by credit
quality indicator (credit risk score) as follows:
April 30, | January 29, | |||||||
2011 | 2011 | |||||||
(In thousands) | ||||||||
Greater than or equal to 700 |
$ | 109,900 | $ | 93,011 | ||||
601 699 |
39,528 | 38,832 | ||||||
Less than or equal to 600 |
15,361 | 15,135 | ||||||
Other |
3,493 | 2,894 | ||||||
Customer accounts receivable |
$ | 168,282 | $ | 149,872 | ||||
The other customer accounts receivable in the table above include reconciling amounts of the most
recent days net sales not yet posted to customer accounts, unapplied payments and the balance of
Canadian customer accounts receivable for which the Company does not maintain credit risk score
information.
Changes in the balance of the allowance for doubtful accounts are as follows:
Allowance for | ||||
Doubtful Accounts | ||||
(In thousands) | ||||
Balance at January 29, 2011 |
$ | 4,400 | ||
Provision |
370 | |||
Write-offs |
(1,063 | ) | ||
Recoveries |
293 | |||
Balance at April 30, 2011 |
$ | 4,000 | ||
12. Debt
On April 7, 2010, in connection with the consummation and closing of the merger with BPW, the
Company executed a senior secured revolving credit facility with third party lenders (the Credit
Facility). The Credit Facility is an asset-based revolving credit facility, including a $25.0
million letter of credit sub-facility, that permits the Company to borrow up to the lesser of (a)
$200.0 million or (b) the borrowing base, calculated as a percentage of the value of eligible
credit card receivables and the net orderly liquidation value of eligible private label credit card
receivables, the net orderly liquidation value of eligible inventory in the United States and the
net orderly liquidation value of eligible in-transit inventory from international vendors (subject
to certain caps and limitations), net of reserves as set forth in the agreement, minus the lesser
of (x) $20.0 million and (y) 10% of the borrowing base. Loans made pursuant to the immediately
preceding sentence carried interest, at the Companys election, at either (a) the three-month LIBOR
plus 4.0% to 4.5% depending on availability thresholds or (b) the base rate plus 3.0% to 3.5%
depending on certain availability thresholds, with the base rate established at a prime rate
pursuant to the terms of the agreement. On August 31, 2010, the Company entered into a First
Amendment to the Credit Agreement with the lenders (the First Amendment), which modified the
following terms under the Credit Facility: (i) reduced the interest rates by one hundred basis
points on loan amounts under the Credit Facility for loans provided by the lenders to either (a)
three-month LIBOR plus 3.0% to 3.5%, or (b) the base rate plus 2.0% to 2.5%, in each case depending
on certain availability thresholds; (ii) adjusted the fee structure on the unused portion of the
commitment and reduced by one-half the rates applicable to documentary letters of credit; and (iii)
extended the time period during which a prepayment premium will be assessed upon the reduction or
termination of the revolving loan commitments from April 7, 2011 to April 7, 2012. Interest on
borrowings is payable monthly in arrears. The Company pays a fee of 50 to 75 basis points on the
unused portion of the commitment and
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outstanding letters of credit, if any, monthly in arrears in
accordance with the formulas set forth in the First Amendment. As of April 30, 2011, the Companys
effective interest rate under the Credit Facility was 3.8%, and the Company had additional
borrowing availability of up to $94.0 million.
Under the Credit Facility, amounts are borrowed and repaid on a daily basis through a control
account arrangement. Cash received from customers is swept on a daily basis into a control account
in the name of the agent for the lenders. The Company is permitted to maintain a certain amount of
cash in disbursement accounts, including such amounts necessary to satisfy current liabilities
incurred in the ordinary course of business. Amounts may be borrowed and re-borrowed from time to
time, subject to the satisfaction or waiver of all borrowing conditions, including without
limitation perfected liens on collateral, accuracy of all representations and warranties, the
absence of a default or an event of default, and other borrowing conditions, all subject to certain
exclusions as set forth in the agreement.
The agreement matures on October 7, 2013, subject to earlier termination as set forth in the
agreement. The entire principal amount of loans under the facility and any outstanding letters of
credit will be due on the maturity date. Loans may be voluntarily prepaid at any time at the
Companys option, in whole or in part, at par plus accrued and unpaid interest and any break
funding loss incurred. The Company is required to make mandatory repayments in the event of receipt
of net proceeds from asset dispositions, receipt of net proceeds from the issuance of securities
and to the extent that its outstanding indebtedness under the Credit Facility exceeds its maximum
borrowing availability at any time. Upon any voluntary or mandatory prepayment of borrowings
outstanding at the LIBOR rate on a day that is not the last day of the respective interest period,
the Company will reimburse the lenders for any resulting loss or expense that the lenders may
incur. Amounts voluntarily repaid prior to the maturity date may be re-borrowed.
The Company and certain of its subsidiaries have executed a guaranty and security agreement
pursuant to which all obligations under the Credit Facility are fully and unconditionally
guaranteed on a joint and several basis. Additionally, pursuant to the security agreement, all
obligations are secured by (i) a first priority perfected lien and security interest in
substantially all assets of the Company and any guarantor from time to time and (ii) a first lien
mortgage on the Companys Hingham, Massachusetts headquarters facility and Lakeville, Massachusetts
distribution facility. In connection with the lenders security interest in the proprietary Talbots
credit card program, Talbots and certain of its subsidiaries have also executed an access and
monitoring agreement that requires the Company to comply with certain monitoring and reporting
obligations to the agent with respect to such program, subject to applicable law.
The Company may not create, assume or suffer to exist any lien securing indebtedness incurred after
the closing date of the Credit Facility subject to certain limited exceptions set forth in the
agreement. The Credit Facility contains negative covenants prohibiting the Company, with certain
exceptions, from among other things, incurring indebtedness and contingent obligations, making
investments, intercompany loans and capital contributions, declaring or making any dividend payment
except for dividend payments or distributions payable solely in stock or stock equivalents, and
disposing of property or assets. The Company has agreed to keep the mortgaged properties in good
repair, reasonable wear and tear excepted. The agreement also provides for events of default,
including failure to repay principal and interest when due and failure to perform or violation of
the provisions or covenants of the agreement, the occurrence of any of which could potentially
result in the acceleration of the maturity of this facility. The agreement does not contain any
financial covenant tests.
Concurrent with the execution of the First Amendment, the Company and the lenders entered into (a)
a Master Agreement for Documentary Letters of Credit and (b) a Master Agreement for Standby Letters
of Credit (each a Master Agreement), pursuant to which the lenders will provide either
documentary or standby letters of credit at the request of the Company to various beneficiaries on
the terms set forth in the applicable Master Agreement, subject to any applicable limitations set
forth in the Credit Facility.
The Credit Facility, under which approximately $86.8 million and $25.5 million was outstanding at
April 30, 2011 and January 29, 2011, respectively, was the Companys only outstanding debt
agreement during these periods. Borrowings under this Credit Facility are classified as a current
liability as the Credit Facility requires repayment of outstanding borrowings with substantially
all cash collected by the Company and contains a subjective acceleration clause. Such provisions do
not affect the final maturity date of the Credit Facility.
The Company incurred approximately $7.7 million of costs in connection with the execution of the
Credit Facility which were recorded as deferred financing costs in other assets in the condensed
consolidated balance sheet. These costs are being
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amortized to interest expense over the three and
one-half year life of the facility. At April 30, 2011, $5.2 million of deferred financing costs
remained in other assets in the condensed consolidated balance sheet.
At April 30, 2011 and January 29, 2011, the Company had $10.2 million and $9.1 million,
respectively, in outstanding letters of credit and, at April 30, 2011, additional letter of credit
availability of up to $14.8 million under the Master Agreement, included as part of its total
additional borrowing availability under the Credit Facility, subject to borrowing capacity
restrictions described therein.
13. Benefit Plans
In February 2009, the Company announced its decision to discontinue future benefits being earned
under its non-contributory defined benefit pension plan (Pension Plan) and Supplemental Executive
Retirement Plan (SERP) effective May 1, 2009. Additionally, as of January 2011, the Companys
postretirement medical plan is completely self-funded. The Company continues to sponsor a separate
executive postretirement medical plan.
The components of net pension expense for the Pension Plan for the thirteen weeks ended April 30,
2011 and May 1, 2010 are as follows:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Interest expense on projected benefit obligation |
$ | 2,463 | $ | 2,307 | ||||
Expected return on plan assets |
(2,443 | ) | (2,406 | ) | ||||
Net amortization and deferral |
209 | 105 | ||||||
Net pension expense |
$ | 229 | $ | 6 | ||||
The components of net SERP expense for the thirteen weeks ended April 30, 2011 and May 1, 2010 are
as follows:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Interest expense on projected benefit obligation |
$ | 277 | $ | 266 | ||||
Net amortization and deferral |
26 | 7 | ||||||
Net SERP expense |
$ | 303 | $ | 273 | ||||
The components of net postretirement medical expense (credit) for the thirteen weeks ended April
30, 2011 and May 1, 2010 are as follows:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Interest expense on accumulated postretirement benefit obligation |
$ | 15 | $ | 18 | ||||
Prior service cost amortization |
| (380 | ) | |||||
Net amortization and deferral |
51 | 131 | ||||||
Net postretirement medical expense (credit) |
$ | 66 | $ | (231 | ) | |||
The Company was required to make contributions to the Pension Plan of $1.9 million and $1.0 million
during the thirteen weeks ended April 30, 2011 and May 1, 2010, respectively. The Company expects
to make required contributions of $9.7 million to the Pension Plan during the remainder of 2011.
The Company did not make any voluntary contributions to the Pension Plan during the thirteen weeks
ended April 30, 2011 and May 1, 2010.
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14. Legal Proceedings
On February 3, 2011, a purported Talbots shareholder filed a putative class action captioned
Washtenaw County Employees Retirement System v. The Talbots, Inc. et al., Case No.
1:11-cv-10186-NMG, in the United States District Court for the District of Massachusetts against
Talbots and certain of its officers. The complaint, purportedly brought on behalf of all purchasers
of Talbots common stock from December 8, 2009 through and including January 11, 2011, asserts
claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder and seeks, among other things, damages and costs and expenses. Specifically,
the complaint alleges that Talbots, under the authority and control of the individual defendants,
made certain false and misleading statements and allegedly omitted certain material information.
The complaint alleges that these actions artificially inflated the market price of Talbots common
stock during the class period, thus purportedly harming investors. The Company believes that these
claims are without merit and intends to defend against them vigorously. At this time, the Company
cannot reasonably predict the outcome of these proceedings or an estimate of damages, if any.
On February 24, 2011 a putative Talbots shareholder filed a derivative action in Massachusetts
Superior Court, captioned Greco v. Sullivan, et al., Case No. 11-0728 BLS, against certain of
Talbots officers and directors. The complaint, which purports to be brought on behalf of Talbots,
asserts claims for breach of fiduciary duties, insider trading, abuse of control, waste of
corporate assets and unjust enrichment, and seeks, among other things, damages, equitable relief
and costs and
expenses. The complaint alleges that the defendants either caused, or neglected to prevent, through
mismanagement or failure to provide effective oversight, the issuance of false and misleading
statements and omissions regarding the Companys financial condition. The complaint alleges that
the defendants actions injured the Company insofar as they (a) caused Talbots to waste corporate
assets through incentive-based bonuses for senior management, (b) subjected the Company to
significant potential civil liability and legal costs and (c) damaged the Company through a loss of
market capitalization as well as goodwill and other intangible benefits. The Company believes that
these claims are without merit and, with the other defendants, intends to defend against them
vigorously. At this time, the Company cannot reasonably predict the outcome of these proceedings.
15. Segment Information
The Company has two separately managed and reported business segments stores and direct
marketing.
The following is certain segment information for the thirteen weeks ended April 30, 2011 and May 1,
2010:
Thirteen Weeks Ended | ||||||||||||||||||||||||
April 30, 2011 | May 1, 2010 | |||||||||||||||||||||||
Direct | Direct | |||||||||||||||||||||||
Stores | Marketing | Total | Stores | Marketing | Total | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Net sales |
$ | 240,755 | $ | 60,555 | $ | 301,310 | $ | 257,573 | $ | 63,088 | $ | 320,661 | ||||||||||||
Direct profit |
16,360 | 16,197 | $ | 32,557 | 51,463 | 19,808 | $ | 71,271 |
Direct profit is calculated as net sales less cost of goods sold and direct expenses such as
payroll, occupancy and other direct costs. The following reconciles direct profit to income (loss)
from continuing operations for the thirteen weeks ended April 30, 2011 and May 1, 2010. Indirect
expenses include unallocated corporate overhead and related expenses.
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Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Direct profit |
$ | 32,557 | $ | 71,271 | ||||
Less: Indirect expenses |
26,240 | 39,600 | ||||||
Restructuring charges |
2,265 | 4,959 | ||||||
Merger-related costs |
885 | 23,813 | ||||||
Operating income |
3,167 | 2,899 | ||||||
Interest expense, net |
2,028 | 8,414 | ||||||
Income (loss) before taxes |
1,139 | (5,515 | ) | |||||
Income tax expense |
231 | 1,581 | ||||||
Income (loss) from continuing operations |
$ | 908 | $ | (7,096 | ) | |||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The Talbots, Inc. (we, us, our, Talbots or the Company) is a specialty retailer and
direct marketer of womens apparel, accessories and shoes sold almost exclusively under the Talbots
brand. The Talbots brand vision is tradition transformed and focuses on honoring the classic
heritage of our brand while emphasizing a relevant and innovative approach to style that is both
modern and timeless. We have two primary sales channels: stores and direct marketing, which
consists of our Internet business, at www.talbots.com, our catalog business and our in-store
red-line phones. As of April 30, 2011, we operated 551 stores in the United States and 17 stores in
Canada. We conform to the National Retail Federations fiscal calendar. The thirteen weeks ended
April 30, 2011 and May 1, 2010 are referred to as the first quarter of 2011 and 2010, respectively.
Unless the context indicates otherwise, all references herein to the Company, we, us and our,
include the Company and its wholly-owned subsidiaries.
Our managements discussion and analysis of our financial condition and results of operations are
based upon our unaudited condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q, which have been prepared by us in accordance with accounting principles
generally accepted in the United States of America, or GAAP, for interim periods and with
Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion
and analysis should be read in conjunction with these unaudited condensed consolidated financial
statements as well as in conjunction with our Annual Report on Form 10-K for the fiscal year ended
January 29, 2011.
Management Overview
This year continues a transition period for the Company, as we proceed with the implementation of
our key strategic initiatives which are focused on delivering top-line sales, profitability and
productivity improvements over the long-term. The first quarter of 2011 marked the following
progress in the execution of these initiatives:
| We approved the acceleration of our store rationalization plan, with an expectation to close approximately 90 to 100 locations, including full stores and attached store concepts, and consolidate or downsize approximately 15 to 20 locations, primarily over fiscal 2011 and 2012, and expect to incur approximately $15.0 million in related restructuring charges over the term of this plan. In the first quarter of 2011, we executed on the first closings and notifications under this plan, with six stores closing in the first quarter of 2011. As a result of the acceleration of this plan, we reassessed the recoverability of the assets of the stores included in this plan, recording an associated impairment of store assets of $1.2 million in the quarter. Additionally, we recorded $2.3 million in restructuring charges during the first quarter of 2011, primarily consisting of lease exit, severance and related costs incurred under this plan. | ||
| We substantially completed the full rebuild of two additional stores under our store re-image initiative and coordinated plans to begin the next phase of this initiative, including renovations of up to approximately 70 stores, scheduled to begin in the second quarter of 2011. Although we are still in the early stages of this initiative and have renovated only a limited number of stores to-date, we are encouraged by the comparable customer traffic and sales statistics at these locations which, overall, outperformed the comparable store base. This initiative accounted for $3.9 million in capital expenditures during the first quarter of 2011. Going forward, we will continue to evaluate the results achieved by our renovated stores as well as the scope and execution of any future phases of our store re-image initiative. | ||
| We continued the process of upgrading our information technology systems under our three-year information technology systems strategic plan, advancing the development of our merchandise financial planning, assortment planning and allocation and accounting and financial systems. This strategic plan accounted for $1.4 million in capital expenditures during the first quarter of 2011. | ||
| Our enhanced, coordinated marketing campaign progressed with the implementation of our spring 2011 national advertising campaign. While marketing expenses were essentially flat year-over-year, we re-allocated certain marketing funds in the period to shift a portion of our marketing investment to our national advertising. Going forward, we expect to continue to invest in our national campaigns, while allocating a portion of our planned marketing spend to targeted customer transfer and retention efforts in key markets impacted by our store rationalization plan. During the first quarter of 2011, we experienced a slight decrease in our customer database. We expect that these brand building efforts will take time to gain traction and translate into increased customer base, customer traffic and net sales, particularly in a competitive, promotional retail environment. |
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| Allocation of product to our stores continued along our segmentation strategy, as we continued to refine the mix and assortment of merchandise across the store categories and adjusted the store category classification of certain store locations, where appropriate, increasing the allocation of premium fashion product across our store base. The refinement of this allocation and these classifications will continue, with the largest increase in the allocation of premium fashion product targeted for the second half of the year, as we evaluate the results of this strategy and as we progress through our store rationalization plan. | ||
| We continued the expansion of our upscale outlets, opening six new locations in the first quarter of 2011 and ending the quarter with 34 upscale outlets compared to 18 upscale outlets at May 1, 2010. We continue to be encouraged by our customers response to these locations and expect to open approximately 11 additional upscale outlets over the remainder of fiscal 2011. This expansion accounted for $2.0 million in capital expenditures during the first quarter of 2011. |
The first quarter of 2011 was difficult for the Company, with net sales down 6.0% and gross profit
margins down 800 basis points year-over-year, yet we achieved profitability, with income from
continuing operations of $0.9 million for the thirteen weeks ended April 30, 2011, due to
reductions in our selling, general and administrative expenses. Going forward, we expect to
continue to face challenges in what we anticipate will be a sustained highly competitive,
promotional environment as we continue to align our inventory levels with expected sales trends. We
remain focused on evolving our merchandise assortment, to achieve a more appropriate balance of classic to fashion forward styles, and our marketing strategies,
to seek to increase traffic and drive top-line sales; executing on our
strategic initiatives and seeking to continue to analyze and manage our variable costs.
The following table sets forth the percentage relationship to net sales of certain items in our
consolidated statements of operations for the periods shown below:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales, buying and occupancy |
64.4 | % | 56.4 | % | ||||
Selling, general and administrative |
33.1 | % | 33.7 | % | ||||
Restructuring charges |
0.7 | % | 1.6 | % | ||||
Impairment of store assets |
0.4 | % | 0.0 | % | ||||
Merger-related costs |
0.3 | % | 7.4 | % | ||||
Operating income |
1.1 | % | 0.9 | % | ||||
Interest expense, net |
0.7 | % | 2.6 | % | ||||
Income (loss) before taxes |
0.4 | % | (1.7 | )% | ||||
Income tax expense |
0.1 | % | 0.5 | % | ||||
Income (loss) from continuing operations |
0.3 | % | (2.2 | )% |
Net Sales
The following is a comparison of net sales for the thirteen weeks ended April 30, 2011 and May 1,
2010:
Thirteen Weeks Ended | ||||||||||||
April 30, | May 1, | |||||||||||
2011 | 2010 | Decrease | ||||||||||
(In millions) | ||||||||||||
Net store sales |
$ | 240.8 | $ | 257.6 | $ | (16.8 | ) | |||||
Net direct marketing sales |
60.5 | 63.1 | (2.6 | ) | ||||||||
Total |
$ | 301.3 | $ | 320.7 | $ | (19.4 | ) | |||||
Reflected in our first quarter of 2011 net sales results is a $21.3 million, or 7.7%, decrease in
consolidated comparable sales compared to the first quarter of 2010.
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We refined our approach to evaluating comparable sales in the first quarter of 2011 to reflect
changing industry trends as well as the impact of our strategic initiatives. We introduced the
metric of consolidated comparable sales, in addition to comparable store sales, and updated the
calculation of comparable store metrics to exclude those stores expected to be closed under our
store rationalization plan.
Comparable stores are those stores, excluding surplus outlets and stores designated for closure,
consolidation or downsizing under our store rationalization plan, which are open for at least 13
full months. When the square footage of a store is increased or decreased by at least 15%, the
store is excluded from the computation of comparable store sales for a period of 13 full months.
Consolidated comparable sales include sales of comparable stores as well as direct marketing sales.
As of April 30, 2011, we operated a total of 568 stores with gross and selling square footage of
approximately 4.0 million square feet and 3.1 million square feet, respectively, a decrease of
approximately 3.2% in gross square footage and 3.0% in selling square footage from May 1, 2010,
when we operated a total of 579 stores.
Store Sales
Reflected in net store sales for the first quarter of 2011 is a $17.2 million, or 8.2%, decrease in
comparable store sales compared to the first quarter of 2010. This decrease is primarily due to
continued weaker than anticipated customer response to our merchandise assortment and continued
heightened levels of competitive promotional activity in the market, with store traffic, conversion
rates and units sold declining when compared to the first quarter of
2010. Second quarter-to-date sales and customer traffic have
continued to trend negative compared to the same period last year.
Sales metrics for comparable stores for the first quarter of 2011 were as follows: customer traffic
decreased 6.2% year-over-year, and the rate of converting traffic decreased 3.5%, contributing to a
9.5% decrease in the number of transactions per store. Units per transaction were down 0.4% which,
combined with a 1.3% increase in average unit retail, contributed to a 0.9% increase in dollars per
transaction over the comparable fiscal 2010 period.
Direct Marketing Sales
Direct marketing sales in the first quarter of 2011 decreased 4.0% compared to the first quarter of
2010, while the percentage of our net sales derived from direct marketing increased to 20.1% from
19.7% in the first quarter of 2010. Our direct marketing sales decrease, in Internet, catalog and
red-line, is primarily due to lower conversion with continued weaker than anticipated customer
response to our merchandise assortment, while the increase in the percentage of net sales derived
from direct marketing is primarily correlated to changing trends in consumer purchasing behavior,
with Internet sales as a percentage of total direct marketing sales increasing from 66.6% in the
first quarter of 2010 to 75.5% in the first quarter of 2011 driven by
increased traffic despite the lower conversion.
Cost of Sales, Buying and Occupancy
The following is a comparison of cost of sales, buying and occupancy for the thirteen weeks ended
April 30, 2011 and May 1, 2010:
Thirteen Weeks Ended | ||||||||||||
April 30, | May 1, | |||||||||||
2011 | 2010 | Increase | ||||||||||
(In millions) | ||||||||||||
Cost of sales, buying and occupancy |
$ | 194.0 | $ | 180.8 | $ | 13.2 | ||||||
Percentage of net sales |
64.4 | % | 56.4 | % | 8.0 | % |
In the first quarter of 2011, net sales declines of $19.4 million combined with cost of sales,
buying and occupancy increases of $13.2 million resulted in a year-over-year 800 basis point
decline in gross profit margin to 35.6% from 43.6% in the first quarter of 2010. This decline in
gross profit margin was driven by deterioration in our merchandise margin, which was down 880 basis
points, due to continued competitive, promotional pressure on our sales as well as our efforts to
align our inventory levels with sales trends through more aggressive markdowns and promotions. The
decline in merchandise margin was partially offset by reductions in buying and occupancy expenses
which improved 60 basis points and 20 basis points as a percentage of net sales, respectively.
Going forward, we expect gross profit margins to continue to be impacted by what we anticipate will
be sustained, competitive promotional pressures as well as our continued efforts to align our
inventory levels with expected sales trends
and rising raw material and labor costs.
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Selling, General and Administrative
The following is a comparison of selling, general and administrative for the thirteen weeks ended
April 30, 2011 and May 1, 2010:
Thirteen Weeks Ended | ||||||||||||
April 30, | May 1, | |||||||||||
2011 | 2010 | Decrease | ||||||||||
(In millions) | ||||||||||||
Selling, general and administrative |
$ | 99.8 | $ | 108.1 | $ | (8.3 | ) | |||||
Percentage of net sales |
33.1 | % | 33.7 | % | (0.6 | )% |
Despite the decline in net sales, we realized a consistent selling, general and administrative
expense as a percentage of net sales rate year-over-year due to reductions in general and
administrative expenses, primarily certain components of performance-based management incentive
compensation.
Restructuring Charges
The following is a comparison of restructuring charges for the thirteen weeks ended April 30, 2011
and May 1, 2010:
Thirteen Weeks Ended | ||||||||||||
April 30, | May 1, | |||||||||||
2011 | 2010 | Decrease | ||||||||||
(In millions) | ||||||||||||
Restructuring charges |
$ | 2.3 | $ | 5.0 | $ | (2.7 | ) | |||||
Percentage of net sales |
0.7 | % | 1.6 | % | (0.9 | )% |
Restructuring charges incurred in the thirteen weeks ended April 30, 2011 primarily include lease
exit, severance and related costs incurred under our store rationalization plan, whereas
restructuring charges incurred in the thirteen weeks ended May 1, 2010 primarily relate to the
consolidation of our Madison Avenue, New York flagship location. With 90 to 100 locations identified for closure
and 15 to 20 locations identified as consolidation or downsizing opportunities, we expect to incur
additional restructuring charges of approximately $12.7 million, comprised of lease exit and
related costs, through fiscal 2013 related to our announced store rationalization plan.
Impairment of Store Assets
We regularly monitor the performance and productivity of our store portfolio. When we determine
that a store is underperforming or is to be closed, we reassess the recoverability of the stores
long-lived assets, which in some cases can result in an impairment charge. When a store is
identified for impairment analysis, we estimate the fair value of the store assets using an income
approach which is based on estimates of future operating cash flows at the store level. These
estimates, which include estimates of future net store sales, direct store expenses and non-cash
store adjustments, are based on the experience of management, including historical store operating
results and managements knowledge and expectations. These estimates are affected by factors that
can be difficult to predict, such as future operating results, customer activity and future
economic
conditions. In the thirteen weeks ended April 30, 2011, we recorded impairments of store assets of
$1.2 million, primarily triggered by our accelerated store rationalization plan. Impairments of
store assets recorded in the thirteen weeks ended May 1, 2010 were insignificant.
Merger-Related Costs
In the thirteen weeks ended April 30, 2011 and May 1, 2010, we incurred $0.9 million and $23.8
million, respectively, of merger-related costs in connection with our acquisition of BPW. These
costs primarily consist of investment banking,
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professional services fees and an incentive award
given to certain executives and members of senior management as a result of the closing of this
transaction.
Goodwill and Other Intangible Assets
We evaluate goodwill and trademarks for impairment on an annual basis at the reporting unit level
on the first day of each fiscal year, and more frequently if events occur or circumstances change
which suggest that the goodwill or trademarks should be evaluated. We performed our annual
impairment tests for fiscal 2011 and fiscal 2010 as of January 30, 2011 and January 31, 2010,
respectively, using a combination of an income approach and market value approach. These tests
contemplate our market value, operating results and financial position, forecasted operating results, industry
trends, market uncertainty and comparable industry multiples. As a result of these analyses, we
determined that no impairment of our goodwill or trademarks existed.
We did not identify any events or circumstances in the remainder of
the first quarter of 2011 which suggested that the goodwill or
trademarks should be re-evaluated. We continue to monitor events and circumstances that may require
goodwill and trademarks to be evaluated including the recent
volatility in our market capitalization subsequent to the end of the
first quarter.
Interest Expense, net
The following is a comparison of net interest expense for the thirteen weeks ended April 30, 2011
and May 1, 2010:
Thirteen Weeks Ended | ||||||||||||
April 30, | May 1, | |||||||||||
2011 | 2010 | Decrease | ||||||||||
(In millions) | ||||||||||||
Interest expense, net |
$ | 2.0 | $ | 8.4 | $ | (6.4 | ) |
Net interest expense for the thirteen weeks ended April 30, 2011 decreased from the same period in
2010 primarily due to reductions in the weighted average debt outstanding in the respective
periods, from $386.7 million in the first quarter of 2010 to $79.3 million in the first quarter of
2011, and reductions in the applicable effective interest rates, from 6.2% in the first quarter of
2010 to 3.6% in the first quarter of 2011.
Income Tax Expense
The following is a comparison of income tax expense for the thirteen weeks ended April 30, 2011 and
May 1, 2010:
Thirteen Weeks Ended | ||||||||||||
April 30, | May 1, | |||||||||||
2011 | 2010 | Decrease | ||||||||||
(In millions) | ||||||||||||
Income tax expense |
$ | 0.2 | $ | 1.6 | $ | (1.4 | ) |
For the thirteen weeks ended April 30, 2011 and May 1, 2010, our effective income tax rate,
including discrete items, was 20.3% and (28.7%), respectively. The effective income tax rate is
based upon the estimated income or loss for the year, the estimated composition of the income or
loss in different jurisdictions and discrete adjustments for settlements of tax audits or
assessments, the resolution or identification of tax position uncertainties and non-deductible
costs associated with the merger. Income tax expense for the thirteen weeks ended April 30, 2011
and May 1, 2010 is primarily a function of our applicable effective rates and the results of
operations within certain jurisdictions in the respective periods.
We continue to provide a full valuation allowance against our net deferred tax assets, excluding
deferred tax liabilities for non-amortizing intangibles, due to insufficient positive evidence that
the deferred tax assets will be realized in the future.
Discontinued Operations
Our discontinued operations include the Talbots Kids, Mens and U.K. businesses, all of which ceased
operations in 2008, and the J. Jill business, which was sold on July 2, 2009. The operating results
of these businesses have been classified as discontinued operations for all periods presented, and
the cash flows from discontinued operations have been separately presented in the statements of
cash flow.
The $0.2 million loss from discontinued operations recorded in the thirteen weeks ended April 30,
2011 primarily reflects adjustments to estimated liabilities of the discontinued businesses,
including a favorable settlement of one of the two remaining
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J. Jill store leases. The $2.7 million
income from discontinued operations recorded in the thirteen weeks ended May 1, 2010 includes
adjustments to the estimated lease liabilities of the J. Jill, Talbots Kids and Mens businesses,
primarily relating to negotiated settlements on four of the retained and closed J. Jill retail
locations which were finalized in the first quarter of 2010, and favorable adjustments to other
assets of the discontinued businesses.
Liquidity and Capital Resources
We primarily finance our working capital needs, operating costs, capital expenditures, strategic
initiatives, restructurings and debt and interest payment requirements through cash generated by
operations and our existing credit facility.
Merger with BPW and Related Financing Transactions
On April 7, 2010, we completed a series of transactions (collectively, the BPW Transactions)
which, in the aggregate, substantially reduced our indebtedness and significantly deleveraged our
balance sheet, consisting of three related transactions: (i) an Agreement and Plan of Merger
between Talbots and BPW Acquisition Corp. (BPW) pursuant to which a wholly-owned subsidiary of
the Company merged with and into BPW in exchange for the Companys issuance of Talbots common stock
and warrants to BPW stockholders; (ii) the repurchase and retirement of all shares of Talbots
common stock held by AEON (U.S.A.), Inc. (AEON (U.S.A.)), our then majority shareholder; the
issuance of warrants to purchase one million shares of Talbots common stock to AEON (U.S.A.) and
the repayment of all of our outstanding debt with AEON Co., Ltd. (AEON) and AEON (U.S.A.) at its
principal value plus accrued interest and other costs for total cash consideration of $488.2
million; and (iii) the execution of a third party senior secured revolving credit facility which
provides borrowing capacity up to $200.0 million, subject to availability and satisfaction of all
borrowing conditions.
In connection with the merger, we issued 41.5 million shares of Talbots common stock and warrants
to purchase 17.2 million shares of Talbots common stock (the Talbots Warrants) for 100% ownership
of BPW. Approximately 3.5 million BPW warrants that did not participate in the warrant exchange
offer (the Non-Tendered Warrants) remained outstanding at the closing of the merger.
Additionally, in connection with the merger, we repurchased and retired the 29.9 million shares of
Talbots common stock held by AEON (U.S.A.), our former majority shareholder, in exchange for
warrants to purchase one million shares of Talbots common stock (the AEON Warrants).
Further in connection with the consummation and closing of the BPW merger, we executed a senior
secured revolving credit agreement with third party lenders (the Credit Facility). The Credit
Facility is an asset-based revolving credit facility (including a $25.0 million letter of credit
sub-facility) that permits us to borrow up to the lesser of (a) $200.0 million and (b) the
borrowing base, calculated as a percentage of the value of eligible credit card receivables and the
net orderly liquidation value of eligible private label credit card receivables, the net orderly
liquidation value of eligible inventory in the United States and the net orderly liquidation value
of eligible in-transit inventory from international vendors (subject to certain caps and
limitations), net of reserves as set forth in the agreement, minus the lesser of (x) $20.0 million
and (y) 10% of the borrowing base. Loans made pursuant to the immediately preceding sentence carry
interest, at our election, at either (a) the three-month LIBOR plus 3.0% to 3.5% depending on
availability thresholds or (b) the base rate plus 2.0% to 2.5% depending on certain availability
thresholds, with the base rate established at a prime rate pursuant to the terms of the agreement.
Interest on borrowings is payable monthly in arrears. We pay a fee of 50 to 75 basis points on the
unused portion of the commitment and outstanding letters of credit, if any, monthly in arrears in
accordance with formulas set forth in the agreement, as amended. As of April 30, 2011, our
effective interest rate was 3.8% and we had additional borrowing availability of up to $94.0
million.
Amounts are borrowed and repaid on a daily basis through a control account arrangement. Cash
received from customers is swept on a daily basis into a control account in the name of the agent
for the lenders. We are permitted to maintain a certain
amount of cash in disbursement accounts, including such amounts necessary to satisfy our current
liabilities incurred in the ordinary course of our business. Amounts may be borrowed and
re-borrowed from time to time, subject to the satisfaction or waiver of all borrowing conditions,
including without limitation perfected liens on collateral, accuracy of all representations and
warranties, the absence of a default or an event of default, and other borrowing conditions, all
subject to certain exclusions as set forth in the agreement.
The agreement matures on October 7, 2013, subject to earlier termination as set forth in the
agreement. The entire principal amount of loans under the facility and any outstanding letters of
credit will be due on the maturity date. Loans may be voluntarily prepaid at any time at our
option, in whole or in part, at par plus accrued and unpaid interest and any break funding loss
incurred. We are required to make mandatory repayments in the event of receipt of net proceeds from
asset dispositions,
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receipt of net proceeds from the issuance of securities and to the extent that
our outstanding indebtedness under the Credit Facility exceeds our maximum borrowing availability
at any time. Upon any voluntary or mandatory prepayment of borrowings outstanding at the LIBOR rate
on a day that is not the last day of the respective interest period, we will reimburse the lenders
for any resulting loss or expense that the lenders may incur. Amounts voluntarily repaid prior to
the maturity date may be re-borrowed.
The Company and certain of our subsidiaries have executed a guaranty and security agreement
pursuant to which all obligations under the Credit Facility are fully and unconditionally
guaranteed on a joint and several basis. Additionally, pursuant to the security agreement, all
obligations are secured by (i) a first priority perfected lien and security interest in
substantially all assets of the Company and any guarantor from time to time and (ii) a first lien
mortgage on our Hingham, Massachusetts headquarters facility and Lakeville, Massachusetts
distribution facility. In connection with the lenders security interest in our proprietary Talbots
credit card program, Talbots and certain of our subsidiaries have also executed an access and
monitoring agreement that requires us to comply with certain monitoring and reporting obligations
to the agent with respect to such program, subject to applicable law.
We may not create, assume or suffer to exist any lien securing indebtedness incurred after the
closing date of the Credit Facility subject to certain limited exceptions set forth in the
agreement. The Credit Facility contains negative covenants prohibiting us, with certain exceptions,
from among other things, incurring indebtedness and contingent obligations, making investments,
intercompany loans and capital contributions, declaring or making any dividend payment except for
dividend payments or distributions payable solely in stock or stock equivalents, and disposing of
property or assets. We have agreed to keep the mortgaged properties in good repair, reasonable wear
and tear excepted. The agreement also provides for events of default, including failure to repay
principal and interest when due and failure to perform or violation of the provisions or covenants
of the agreement, the occurrence of any of which could potentially result in the acceleration of
the maturity of this facility. The agreement does not contain any financial covenant tests.
We and the lenders have entered into a letter of credit sub-facility under our Credit Facility
pursuant to which the lenders will provide either documentary or standby letters of credit at our
request to various beneficiaries on the terms set forth in the applicable agreement, subject to any
applicable limitations set forth in the Credit Facility.
The Credit Facility, under which approximately $86.8 million was outstanding at April 30, 2011, was
our only outstanding debt agreement at April 30, 2011. Further at April 30, 2011, we had $10.2
million in outstanding letters of credit and additional letter of credit availability of up to
$14.8 million under the letter of credit sub-facility which is included as part of our total
additional borrowing availability under the Credit Facility, subject to borrowing capacity
restrictions described therein.
Fiscal 2011 Outlook
We expect that our primary uses of cash in the next twelve months will be concentrated in (i)
funding operations, strategic initiatives, including costs associated with our store
rationalization plan, and working capital needs and (ii) investing in capital expenditures with
approximately $50.3 million in capital expenditures expected for the remainder of fiscal 2011,
primarily related to the store re-image initiative, investments in our operations, finance and
information technology systems and the opening of additional upscale outlets. Additionally, we may
be required to make significant payments over the next twelve months to a state tax authority
regarding certain tax matters which have been subject to appeal, pending final resolution and the
outcome of potential negotiations with this authority.
Our cash and cash equivalents were $8.6 million as of April 30, 2011. Based on our assumptions, our
forecast and operating cash flow plan for the next twelve months, our anticipated borrowing
availability under the Credit Facility for the next twelve
months and the improvement to the Companys capital composition as a result of the BPW
Transactions, we anticipate that the Company will have sufficient liquidity to finance anticipated
working capital and other expected cash needs for at least the next twelve months. Our ability to
meet our cash needs, obtain additional financing as needed and satisfy our operating and other
non-operating costs will depend upon, among other factors, our future operating performance and
creditworthiness as well as external economic conditions and the general liquidity of the credit
markets. We are taking actions to seek to improve our net sales and productivity with certain of
our strategic initiatives. These initiatives are all in their early stages, and the benefits
anticipated from these strategic initiatives may take longer than expected to be realized.
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Cash Flows
The following is a summary of cash flows from continuing operations for the thirteen weeks ended
April 30, 2011 and May 1, 2010:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Net cash used in operating activities |
$ | (50.6 | ) | $ | (44.4 | ) | ||
Net cash (used in) provided by investing activities |
(9.7 | ) | 331.6 | |||||
Net cash provided by (used in) financing activities |
59.1 | (381.9 | ) |
Cash used in operating activities
Cash used in operating activities was $50.6 million during the thirteen weeks ended April 30, 2011
compared to net cash used in operating activities of $44.4 million during the thirteen weeks ended
May 1, 2010. Cash used in operating activities in both periods presented is the result of
comparative increases in cash used in working capital changes, partially offset by earnings
excluding non-cash items in the period-to-date. The comparative increase period-over-period in cash
used in operating activities is primarily due to changes in certain working capital items,
principally, increases in merchandise inventories, due to lower than anticipated sales, and
increases in prepaid and other current assets, due to the timing of our quarter-end date in
relation to monthly prepaid rent, coupled with decreases in accrued liabilities, partially offset
by increases in accounts payable, both also primarily due to timing.
Cash (used in) provided by investing activities
Cash used in investing activities relates solely to purchases of property and equipment in both
periods presented. Cash used for additions to property and equipment during the thirteen weeks
ended April 30, 2011 was $9.7 million compared to $1.4 million during the thirteen weeks ended May
1, 2010. This increased level of capital expenditures in 2011 reflects our progress in the roll-out
of our store re-image initiative, investments in our information technology systems and the
expansion of our upscale outlets, with six new locations opening in the thirteen weeks ended April
30, 2011.
Cash provided by investing activities of $333.0 million during the thirteen weeks ended May 1, 2010
represents cash and cash equivalents acquired in the merger with BPW on April 7, 2010. See Merger
with BPW and Related Financing Transactions for further information regarding this transaction.
Cash provided by (used in) financing activities
Cash provided by financing activities was $59.1 million during the thirteen weeks ended April 30,
2011 compared to cash used in financing activities of $381.9 million during the thirteen weeks
ended May 1, 2010. This change is primarily correlated to an outstanding debt increase in the
thirteen weeks ended April 30, 2011 compared to an outstanding debt reduction in the thirteen weeks
ended May 1, 2010, which reflects the full repayment of $486.5 million in related party debt under
the BPW Transactions. Net borrowings in both periods presented were made under our Credit Facility.
Refer to Merger with BPW and Related Financing Transactions for additional information regarding
this facility.
Other Information
In early 2011, our Board of Directors Compensation Committee expanded the key performance metrics
under our annual management incentive plan for fiscal 2011, which applies to all of our senior
executives, to add a top-line sales performance measure as a component of the 2011 annual
management incentive plan, in addition to operating profitability measures and individual
performance measures, in keeping with the Compensation Committees pay-for-performance approach.
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Critical Accounting Policies
Our critical accounting policies are those policies which require the most significant judgments
and estimates in the preparation of our condensed consolidated financial statements. Management has
determined that our most critical accounting policies are those relating to the inventory markdown
reserve, gift card breakage, sales return reserve, customer loyalty program, retirement plans,
long-lived assets, goodwill and other intangible assets, income taxes and stock-based compensation.
There have been no significant changes to our critical accounting policies discussed in our Annual
Report on Form 10-K for the fiscal year ended January 29, 2011.
Recent Accounting Pronouncements
In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses. ASU 2010-20 amends Accounting Standards Codification (ASC) 310-10,
Receivables, and requires additional disclosures about the credit quality of financing receivables,
including credit card receivables, and the associated allowance for credit losses. ASU 2010-20 was
effective for the first interim or annual reporting period ending on or after December 15, 2010,
except for certain disclosures of information regarding activity that occurs during the reporting
period, which are effective for the first interim or annual reporting period beginning on or after
December 15, 2010. We adopted the disclosure requirements effective for the first interim or annual
reporting period ending on or after December 15, 2010, as of January 29, 2011 and the disclosure
requirements effective for the first interim or annual reporting period beginning on or after
December 15, 2010, in the first quarter of 2011. The adoption of this ASU has expanded our
disclosures regarding customer accounts receivable and the associated allowance for doubtful
accounts in the notes to the condensed consolidated financial statements included elsewhere in this
document.
Recent Regulatory Changes
In May 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Credit
CARD Act) was signed into law which resulted in new restrictions on credit card pricing, finance
charges and fees, customer billing practices, payment allocation and also imposed additional
disclosure requirements. Certain provisions of this legislation became effective in August 2010
and, as a result, we implemented new procedures to our credit card business practices and systems
to ensure compliance with these rules. Income from our credit operations could be adversely
affected as we adjust our practices to current and future regulations related to the Credit CARD
Act.
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Reform Act) was
enacted, which is intended to govern the practices and increase oversight of financial institutions
and other participants in the financial markets. The Reform Act also creates a new federal agency,
the Consumer Financial Protection Bureau, to supervise and enforce consumer lending laws and
expands state authority over consumer lending. We expect numerous rules to be adopted in order to
implement the provisions of the Reform Act. The potential impacts to our business and results of
operations are uncertain at this time.
Contractual Obligations
There were no material changes to our contractual obligations during the thirteen weeks ended April
30, 2011. For a complete discussion of our contractual obligations, please refer to Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K for the fiscal year ended January 29, 2011.
Forward-looking Information
This Quarterly Report on Form 10-Q contains forward-looking information within the meaning of The
Private Securities Litigation Reform Act of 1995. These statements may be identified by such
forward-looking terminology as expect, achieve, plan, look, projected, believe,
anticipate, outlook, will, would, should, potential or similar statements or variations
of such terms. All of the information concerning our future liquidity, future financial performance
and results, future credit facilities and availability, future cash flows and cash needs, strategic
initiatives and other future financial performance or financial position, as well as our
assumptions underlying such information, constitute forward-looking information. Our
forward-looking statements are based on a series of expectations, assumptions, estimates and
projections about the Company, are not guarantees of future results or performance, and involve
substantial risks and uncertainty,
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including assumptions and projections concerning our internal plan, regular-price, promotional and
markdown selling, operating cash flows, liquidity and credit availability for all forward periods.
Our business and our forward-looking statements involve substantial known and unknown risks and
uncertainties, including the following risks and uncertainties:
| the ability to successfully increase our customer traffic and the success and customer acceptance of our merchandise offerings in our stores, on our website and in our catalogs; |
| the risks associated with our efforts to successfully implement, adjust as appropriate and achieve the benefits of our current strategic initiatives including store segmentation, store re-imaging, store rationalization, enhanced marketing, information technology reinvestments and any other future initiatives that we may undertake; |
| the risks associated with our efforts to maintain our traditional customer and expand to attract new customers; |
| the risks associated with competitive pricing pressures and the current increased promotional environment; |
| the risks associated with our on-going efforts to adequately manage the increase in various input costs, including increases in the price of raw materials, higher labor costs in countries of manufacture and significant increases in the price of fuel, which impacts our freight costs; |
| the risks associated with our ability to access on satisfactory terms, or at all, adequate financing and sources of liquidity as and when necessary to fund our continuing operations, working capital needs and strategic initiatives and to obtain further increases in our Credit Facility or obtain other or additional credit facilities as may be needed if cash flows from operations or other capital resources are not sufficient at any time or times; |
| the satisfaction of all borrowing conditions at all times under our Credit Facility including accuracy of all representations and warranties, no defaults or events of default, absence of material adverse effect or change and all other borrowing conditions; |
| the continuing material impact of the U.S. economic environment on our business, continuing operations, liquidity and financial results, including any negative impact on consumer discretionary spending, substantial loss of household wealth and savings and continued high unemployment levels; |
| the ability to attract and retain talented and experienced executives that are necessary to execute our strategic initiatives; |
| the ability to accurately estimate and forecast future regular-price, promotional and markdown selling and other future financial results and financial position; |
| the risks associated with our appointment of an exclusive global merchandise buying agent, including that the anticipated benefits and cost savings from this arrangement may not be realized or may take longer to realize than expected and the risk that upon any cessation of the relationship, for any reason, we would be unable to successfully transition to an internal or other external sourcing function; |
| the ability to continue to purchase merchandise on open account purchase terms at existing or future expected levels and with acceptable payment terms and the risk that suppliers could require earlier or immediate payment or other security due to any payment concerns; |
| the risks and uncertainties in connection with any need to source merchandise from alternate vendors; |
| any impact to or disruption in our supply of merchandise including from any current or any future increased political, social or other unrest or future labor shortages in various other countries; |
| the ability to successfully execute, fund and achieve the expected benefits of our supply chain initiatives; |
| any significant interruption or disruption in the operation of our distribution facility or the domestic and international transportation infrastructure; |
| the risk that estimated or anticipated costs, charges and liabilities to settle and complete the transition and exit from and disposal of the J. Jill business, including both retained obligations and contingent risk for assigned obligations, may materially differ from or be materially greater than anticipated; |
| any future store closings and the success of and necessary funding for closing underperforming stores; |
| the risks associated with our upscale outlet expansion; |
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| the ability to reduce spending as needed; |
| the ability to achieve our financial plan and strategic plan for operating results, working capital and cash flows; |
| any negative publicity concerning the specialty retail business in general or our business in particular; |
| the risk of impairment of goodwill and other intangible or long-lived assets; |
| the risk associated with our efforts in transforming our information technology systems to meet our changing business systems and operations; |
| the risks associated with any further decline in our stock price, including satisfaction of NYSE continued listing criteria which requires the average closing price of our common stock to be greater than $1.00 over 30 consecutive trading days and minimum levels of market capitalization; |
| any lack of sufficiency of available cash flows and other internal cash resources to satisfy all future operating needs and other cash requirements; and |
| the risks and uncertainties associated with the outcome of current and future litigation, claims, tax audits and tax and other proceedings and the risk that actual liabilities, assessments or other financial impact will exceed any estimated, accrued or expected amounts or outcomes. |
All of our forward-looking statements are as of the date of this Quarterly Report only. In each
case, actual results may differ materially from such forward-looking information. We can give no
assurance that such expectations or forward-looking statements will prove to be correct. An
occurrence of or any material adverse change in one or more of the risk factors or risks and
uncertainties referred to in this Quarterly Report or included in our other public disclosures or
our other periodic reports or other documents or filings filed with or furnished to the SEC could
materially and adversely affect our continuing operations and our future financial results, cash
flows, prospects and liquidity. Except as required by law, we do not undertake or plan to update or
revise any such forward-looking statements to reflect actual results, changes in plans,
assumptions, estimates or projections or other circumstances affecting such forward-looking
statements occurring after the date of this Quarterly Report, even if such results, changes or
circumstances make it clear that any forward-looking information will not be realized. Any public
statements or disclosures by us following this Quarterly Report which modify or impact any of the
forward-looking statements contained in this Quarterly Report will be deemed to modify or supersede
such statements in this Quarterly Report.
In addition to the information set forth in this Quarterly Report, you should carefully consider
the risk factors and risks and uncertainties included in our Annual Report on Form 10-K for the
fiscal year ended January 29, 2011 and other periodic reports filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The market risk inherent in our financial instruments and in our financial position represents the
potential loss arising from adverse changes in interest rates. We do not enter into financial
instruments for trading purposes.
At April 30, 2011, we had outstanding variable rate borrowings of $86.8 million under our Credit
Facility. The impact of a hypothetical 10% adverse change in interest rates for this variable rate
debt would have resulted in additional expense of approximately $0.1 million for the quarter ended
April 30, 2011. Our Pension Plan assets are generally invested in readily-liquid investments,
primarily equity and debt securities. Generally, any deterioration in the financial markets or
changes in discount rates may require us to make a contribution to our Pension Plan.
We enter into certain purchase obligations outside the United States which are predominately
settled in U.S. dollars and, therefore, we have only minimal exposure to foreign currency exchange
risks. We do not hedge against foreign currency risks and believe that the foreign currency
exchange risk is not material. In addition, we operated 17 stores in Canada as of April 30, 2011.
We believe that our foreign currency translation risk is immaterial, as a hypothetical 10%
strengthening or weakening of the U.S. dollar relative to the applicable foreign currency would not
materially affect our results of operations or cash flow.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company has established disclosure controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934, as amended (the Exchange Act)
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is recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms and is accumulated and communicated to management, including the principal
executive officer (our Chief Executive Officer) and principal financial officer (our Chief
Financial Officer), to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this Quarterly Report on Form 10-Q. Management recognizes that any disclosure controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible disclosure controls and procedures. Based on such evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of April 30, 2011.
Changes in Internal Control over Financial Reporting
No change in the Companys internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the period covered by this Quarterly Report
on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed, on February 3, 2011, a purported Talbots shareholder filed a putative
class action captioned Washtenaw County Employees Retirement System v. The Talbots, Inc. et al.,
Case No. 1:11-cv-10186-NMG, in the United States District Court for the District of Massachusetts
against Talbots and certain of its officers. The complaint, purportedly brought on behalf of all
purchasers of Talbots common stock from December 8, 2009 through and including January 11, 2011,
asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder and seeks, among other things, damages and costs and expenses. Specifically,
the complaint alleges that Talbots, under the authority and control of the individual defendants,
made certain false and misleading statements and allegedly omitted certain material information.
The complaint alleges that these actions artificially inflated the market price of Talbots common
stock during the class period, thus purportedly harming investors. We believe that these claims are
without merit and intend to defend against them vigorously. At this time, we cannot reasonably
predict the outcome of these proceedings or an estimate of damages, if any.
On February 24, 2011, a putative Talbots shareholder filed a derivative action in Massachusetts
Superior Court, captioned Greco v. Sullivan, et al., Case No. 11-0728 BLS, against certain of
Talbots officers and directors. The complaint, which purports to be brought on behalf of Talbots,
asserts claims for breach of fiduciary duties, insider trading, abuse of control, waste of
corporate assets and unjust enrichment, and seeks, among other things, damages, equitable relief,
and costs and expenses. The complaint alleges that the defendants either caused or neglected to
prevent, due to mismanagement or failure to provide effective oversight, the issuance of false and
misleading statements and omissions regarding the Companys financial condition. The complaint
alleges that the defendants actions injured the Company insofar as they (a) caused Talbots to
waste corporate assets through incentive-based bonuses for senior management, (b) subjected the
Company to significant potential civil liability and legal costs and (c) damaged the Company
through a loss of market capitalization as well as goodwill and other intangible benefits. We
believe that these claims are without merit and, with the other defendants, intend to defend
against them vigorously. At this time, we cannot reasonably predict the outcome of these
proceedings.
We are periodically named as a defendant in various lawsuits, claims and pending actions and are
exposed to tax risks. If a potential loss arising from these lawsuits, claims and pending actions
is probable and reasonably estimable, we record the estimated liability based on circumstances and
assumptions existing at the time. While we believe any recorded liabilities are adequate, there are
inherent limitations in projecting the outcome of these matters and in the estimation process
whereby future actual liabilities may exceed projected liabilities, which could have a material
adverse effect on our financial condition and results of operations.
We are subject to tax in various domestic and international jurisdictions and, as a matter of
course, are regularly audited by federal, state and foreign tax authorities. During the third
quarter of 2009, the Massachusetts Appellate Tax Board (the ATB)
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rendered an adverse decision on certain tax matters of Talbots, which was then affirmed by the
Massachusetts Appeals Court on March 29, 2011. On April 20, 2011, we filed an application to the
Supreme Judicial Court of Massachusetts for further appellate review of the case and are awaiting
response. In order to pursue the original appeal, we were required to make payments to the
Massachusetts Department of Revenue on the assessment rendered on those tax matters. An additional
assessment, relating to a subsequent period, has also been appealed by the Company to the ATB
covering similar issues. These assessments have been adequately reserved and did not have a
material impact on our results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, careful consideration
should be given to the risk factors discussed in Part I, Item 1A, Risk Factors, of our Annual
Report on Form 10-K for the fiscal year ended January 29, 2011, any of which could materially
affect our business, operations, financial position or future results. The risks described in our
Annual Report on Form 10-K for the fiscal year ended January 29, 2011 are important to an
understanding of the statements made in this Quarterly Report, in our other filings with the SEC
and in any other discussion of our business. These risk factors, which contain forward-looking
information, should be read in conjunction with Item 2, Managements Discussion and Analysis of
Financial Condition and Results of Operations and the condensed consolidated financial statements
and related notes included in this Quarterly Report. There have been
no material changes from risk
factors previously disclosed in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K
for the fiscal year ended January 29, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
A summary of our repurchase activity under certain equity programs for the thirteen weeks ended
April 30, 2011 is set forth below:
Approximate Dollar | ||||||||||||
Value of Shares | ||||||||||||
that May Yet Be | ||||||||||||
Total Number of | Reaquired Under the | |||||||||||
Shares Reaquired | Average Price Paid | Equity Award | ||||||||||
Period | (1) | per Share | Programs (2) | |||||||||
January 30, 2011 through February
26, 2011 |
134,115 | $ | 6.05 | $ | 15,376 | |||||||
February 27, 2011 through April 2,
2011 |
240,176 | 1.65 | 11,728 | |||||||||
April 3, 2011 through April 30, 2011 |
150,084 | 6.44 | 17,244 | |||||||||
Total |
524,375 | $ | 4.15 | $ | 17,244 | |||||||
(1) | We repurchased 170,676 shares in connection with stock forfeited by employees prior to vesting under our equity compensation plan at an acquisition price of $0.01 per share. | |
Our equity program generally requires employees to tender shares in order to satisfy the employees tax withholding obligations from the vesting of their restricted stock. During the period, we repurchased 353,699 shares of common stock from certain employees to cover tax withholding obligations from the vesting of stock at a weighted average acquisition price of $6.14 per share. | ||
(2) | As of April 30, 2011, there were 1,724,414 shares of nonvested stock that were subject to buyback at $0.01 per share, or $17,244.14 in the aggregate, that we have the option to repurchase if the holders employment is terminated prior to vesting. |
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Item 6. Exhibits
31.1
|
Certification of Trudy F. Sullivan, President and Chief Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a). (1) | |
31.2
|
Certification of Michael Scarpa, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a). (1) | |
32.1
|
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, by Trudy F. Sullivan, President and Chief Executive Officer of the Company, and Michael Scarpa, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company. (1) | |
101.INS
|
XBRL Instance Document. (2) | |
101.SCH
|
XBRL Schema Document. (2) | |
101.CAL
|
XBRL Calculation Linkbase Document. (2) | |
101.LAB
|
XBRL Labels Linkbase Document. (2) | |
101.PRE
|
XBRL Presentation Linkbase Document. (2) |
(1) | Filed with this Form 10-Q. | |
(2) | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 8, 2011
THE TALBOTS, INC. |
||||
By: | /s/ Michael Scarpa | |||
Michael Scarpa | ||||
Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
||||
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