UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended October 30, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 1-12552
THE TALBOTS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(
State or other jurisdiction of
incorporation or organization
)
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41-1111318
(
I.R.S. Employer
Identification No.
)
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One Talbots Drive, Hingham, Massachusetts 02043
(
Address of principal executive offices
)
Registrants telephone number, including area code
781-749-7600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
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
o
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):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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 December 1, 2010:
70,467,344 shares.
THE TALBOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Amounts in thousands except per share data
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Thirteen Weeks Ended
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Thirty-Nine Weeks Ended
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October 30,
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October 31,
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October 30,
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October 31,
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2010
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2009
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2010
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2009
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Net sales
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$
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299,099
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$
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308,891
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$
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920,502
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$
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919,707
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Costs and expenses
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Cost of sales, buying and occupancy
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171,395
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185,591
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548,017
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616,986
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Selling, general and administrative
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106,294
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99,216
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307,508
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304,919
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Merger-related costs
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787
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27,650
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Restructuring charges
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245
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389
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5,316
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9,660
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Impairment of store assets
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545
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1,320
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551
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1,351
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Operating income (loss)
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19,833
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22,375
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31,460
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(13,209
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)
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Interest
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Interest expense
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2,371
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7,236
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17,176
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21,836
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Interest income
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22
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34
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64
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253
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Interest expense, net
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2,349
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7,202
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17,112
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21,583
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Income (loss) before taxes
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17,484
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15,173
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14,348
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(34,792
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)
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Income tax expense (benefit)
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510
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(291
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)
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3,949
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(10,957
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)
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Income (loss) from continuing operations
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16,974
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15,464
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10,399
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(23,835
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)
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Income (loss) from discontinued operations, net of taxes
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74
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(911
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)
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3,222
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(9,666
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)
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Net income (loss)
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$
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17,048
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$
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14,553
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$
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13,621
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$
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(33,501
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)
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Basic earnings (loss) per share:
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Continuing operations
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$
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0.24
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$
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0.29
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$
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0.16
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$
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(0.44
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)
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Discontinued operations
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(0.02
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)
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0.04
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(0.18
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)
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Net earnings (loss)
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$
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0.24
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$
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0.27
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$
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0.20
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$
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(0.62
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)
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Diluted earnings (loss) per share:
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Continuing operations
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$
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0.24
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$
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0.28
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$
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0.15
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$
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(0.44
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)
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Discontinued operations
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(0.02
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)
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0.04
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(0.18
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)
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Net earnings (loss)
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$
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0.24
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$
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0.26
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$
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0.19
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$
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(0.62
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)
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Weighted average shares outstanding:
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Basic
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68,424
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53,856
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64,878
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53,768
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Diluted
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69,442
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55,081
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66,008
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53,768
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See notes to condensed consolidated financial statements.
2
THE TALBOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Amounts in thousands
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October 30,
|
|
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January 30,
|
|
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October 31,
|
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2010
|
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|
2010
|
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2009
|
|
ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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2,384
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$
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112,775
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$
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72,005
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Customer accounts receivable, net
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171,059
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163,587
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182,725
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Merchandise inventories
|
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184,699
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142,696
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165,892
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Deferred catalog costs
|
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5,386
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6,685
|
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7,751
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Prepaid and other current assets
|
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|
52,085
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48,139
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49,579
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Due from related party
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|
959
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1,789
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Income tax refundable
|
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|
|
|
|
|
2,006
|
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|
|
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|
|
|
|
|
|
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Total current assets
|
|
|
415,613
|
|
|
|
476,847
|
|
|
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479,741
|
|
|
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|
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Property and equipment, net
|
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192,115
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220,404
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233,653
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Goodwill
|
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|
35,513
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35,513
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|
35,513
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Trademarks
|
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|
75,884
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75,884
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|
75,884
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Other assets
|
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|
19,523
|
|
|
|
17,170
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|
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|
14,912
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|
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Total Assets
|
|
$
|
738,648
|
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|
$
|
825,818
|
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|
$
|
839,703
|
|
|
|
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|
|
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
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Current Liabilities:
|
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|
|
|
|
|
|
|
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Accounts payable
|
|
$
|
96,525
|
|
|
$
|
104,118
|
|
|
$
|
103,407
|
|
Accrued liabilities
|
|
|
151,281
|
|
|
|
148,177
|
|
|
|
150,674
|
|
Revolving credit facility
|
|
|
68,751
|
|
|
|
|
|
|
|
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Current portion of related party debt
|
|
|
|
|
|
|
486,494
|
|
|
|
8,506
|
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Notes payable to banks
|
|
|
|
|
|
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|
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|
|
141,100
|
|
Current portion of long-term debt
|
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|
|
|
|
|
|
|
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|
80,000
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|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
316,557
|
|
|
|
738,789
|
|
|
|
483,687
|
|
|
|
|
|
|
|
|
|
|
|
|
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Related party debt less current portion
|
|
|
|
|
|
|
|
|
|
|
241,494
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Long-term debt less current portion
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
Deferred rent under lease commitments
|
|
|
99,278
|
|
|
|
111,137
|
|
|
|
124,126
|
|
Deferred income taxes
|
|
|
28,456
|
|
|
|
28,456
|
|
|
|
28,456
|
|
Other liabilities
|
|
|
109,285
|
|
|
|
133,072
|
|
|
|
132,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit):
|
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|
|
|
|
|
|
|
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|
|
Common stock, $0.01 par value; 200,000,000 authorized; 97,181,614
shares, 81,473,215 shares, and 81,473,215 shares issued, respectively,
and 70,461,156 shares, 55,000,142 shares, and 55,068,373 shares
outstanding, respectively
|
|
|
972
|
|
|
|
815
|
|
|
|
815
|
|
Additional paid-in capital
|
|
|
858,178
|
|
|
|
499,457
|
|
|
|
497,311
|
|
Retained deficit
|
|
|
(35,069
|
)
|
|
|
(48,690
|
)
|
|
|
(52,779
|
)
|
Accumulated other comprehensive loss
|
|
|
(51,130
|
)
|
|
|
(51,179
|
)
|
|
|
(50,028
|
)
|
Treasury stock, at cost; 26,720,458 shares, 26,473,073 shares, and
26,404,842 shares, respectively
|
|
|
(587,879
|
)
|
|
|
(586,039
|
)
|
|
|
(585,880
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
185,072
|
|
|
|
(185,636
|
)
|
|
|
(190,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity (Deficit)
|
|
$
|
738,648
|
|
|
$
|
825,818
|
|
|
$
|
839,703
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
3
THE TALBOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
13,621
|
|
|
$
|
(33,501
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
|
3,222
|
|
|
|
(9,666
|
)
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
10,399
|
|
|
|
(23,835
|
)
|
Adjustments to reconcile income (loss) from continuing operations
to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
46,897
|
|
|
|
57,087
|
|
Stock-based compensation
|
|
|
11,485
|
|
|
|
4,277
|
|
Amortization of debt issuance costs
|
|
|
2,551
|
|
|
|
2,320
|
|
Impairment of store assets
|
|
|
551
|
|
|
|
1,351
|
|
Loss on disposal of property and equipment
|
|
|
229
|
|
|
|
76
|
|
Deferred rent
|
|
|
(8,093
|
)
|
|
|
(7,978
|
)
|
Deferred income taxes
|
|
|
|
|
|
|
(10,226
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Customer accounts receivable
|
|
|
(7,428
|
)
|
|
|
(13,176
|
)
|
Merchandise inventories
|
|
|
(41,870
|
)
|
|
|
41,137
|
|
Deferred catalog costs
|
|
|
1,299
|
|
|
|
(2,956
|
)
|
Prepaid and other current assets
|
|
|
(5,402
|
)
|
|
|
(12,887
|
)
|
Due from related party
|
|
|
959
|
|
|
|
(1,413
|
)
|
Income tax refundable
|
|
|
2,006
|
|
|
|
26,646
|
|
Accounts payable
|
|
|
(7,621
|
)
|
|
|
(17,719
|
)
|
Accrued liabilities
|
|
|
10,634
|
|
|
|
(16,179
|
)
|
Other assets
|
|
|
(530
|
)
|
|
|
(676
|
)
|
Other liabilities
|
|
|
(24,148
|
)
|
|
|
(5,041
|
)
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(8,082
|
)
|
|
|
20,808
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(18,739
|
)
|
|
|
(17,106
|
)
|
Proceeds from disposal of property and equipment
|
|
|
15
|
|
|
|
61
|
|
Cash acquired in merger with BPW Acquisition Corp
|
|
|
332,999
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
314,275
|
|
|
|
(17,045
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facility
|
|
|
1,185,238
|
|
|
|
|
|
Payments on revolving credit facility
|
|
|
(1,116,487
|
)
|
|
|
|
|
Proceeds from related party borrowings
|
|
|
|
|
|
|
230,000
|
|
Payments on related party borrowings
|
|
|
(486,494
|
)
|
|
|
|
|
Proceeds from working capital notes payable
|
|
|
|
|
|
|
8,000
|
|
Payments on working capital notes payable
|
|
|
|
|
|
|
(15,400
|
)
|
Payments on long-term borrowings
|
|
|
|
|
|
|
(208,351
|
)
|
Payment of debt issuance costs
|
|
|
(6,080
|
)
|
|
|
(1,833
|
)
|
Payment of equity issuance costs
|
|
|
(3,594
|
)
|
|
|
|
|
Proceeds from warrants exercised
|
|
|
19,042
|
|
|
|
|
|
Proceeds from options exercised
|
|
|
652
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(1,840
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(409,563
|
)
|
|
|
12,019
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
369
|
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
(7,390
|
)
|
|
|
(26,103
|
)
|
Investing activities
|
|
|
|
|
|
|
63,827
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
(7,390
|
)
|
|
|
37,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(110,391
|
)
|
|
|
54,072
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
112,775
|
|
|
|
16,551
|
|
INCREASE IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
1,382
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
2,384
|
|
|
$
|
72,005
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
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 year
ended January 30, 2010.
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 Other 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 30, 2010.
Recent Accounting Pronouncements
In October 2009, the FASB issued ASU 2009-13,
Multiple Deliverable Revenue Arrangements
. ASU
2009-13 amends ASC 605-10,
Revenue Recognition
, and addresses accounting for multiple-deliverable
arrangements to enable vendors to account for products or services (deliverables) separately rather
than as a combined unit, and provides guidance on how to measure and allocate arrangement
consideration to one or more units of accounting. ASU 2009-13 is effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted, but certain requirements must be met. The Company does not expect the
adoption of ASU 2009-13 will have any impact on its condensed
consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06,
Fair Value Measurements and Disclosures
. ASU
2010-06 amends ASC 820-10,
Fair Value Measurements and Disclosure
, and requires new disclosures
surrounding certain fair value measurements. ASU 2010-06 is effective for the first interim or
annual reporting period beginning on or after December 15, 2009, except for certain disclosures
about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3
fair value measurements, which are effective for the first interim and annual reporting periods
beginning on or after December 15, 2010. During fiscal 2010, the Company adopted the disclosure
requirements effective for the first interim or annual reporting period beginning on or after
December 15, 2009. The Company intends to adopt the remaining disclosure requirements when they
become effective in the first quarter of fiscal 2011. The Company does not expect the additional
disclosure requirements of ASU 2010-06 will have any impact on its
condensed consolidated financial
statements.
In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2010-20,
Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses
, which requires additional disclosures about the credit quality of
financing receivables, including credit card receivables, and the allowance for doubtful accounts.
The provisions of this ASU are effective beginning with the Companys annual report for the year
ending January 29, 2011. The Company is still evaluating the impact of this ASU on its
condensed consolidated financial statements, however, it is disclosure-only in nature.
5
Supplemental Cash Flow Information
Interest
paid for the thirty-nine weeks ended October 30, 2010 and
October 30, 2009 was $17.7
million and $15.9 million, respectively. Income taxes paid for the thirty-nine weeks ended October
30, 2010 and October 30, 2009 was $5.1 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
Talbots common stock held by AEON (U.S.A.), Inc. (AEON (U.S.A.)), the Companys then majority
shareholder; the issuance of warrants to purchase one million shares of Talbots common stock and
the repayment of all of the Companys outstanding AEON Co., Ltd. (AEON) and AEON (U.S.A.) debt;
and (iii) the execution of a new senior secured revolving credit facility.
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. Accordingly, the Company concluded that BPW was a business and acquisition accounting
applied. The acquisition method of accounting requires the determination of the accounting
acquirer.
The Company considered the following principal facts and circumstances to determine the accounting
acquirer: (i) the purpose of the merger was to assist the Company with the refinancing of its
business and Talbots initiated the transaction; (ii) the Company is the larger of the two combining
entities and is the remaining operating company; (iii) Talbots continuing Board of Directors
retained a majority of the seats on the combined companys Board of Directors; (iv) BPW has no
appointment rights after the initial consent to appoint three additional Board members; (v) the
Companys existing senior management team has continued as senior management of the combined
company; and (vi) the terms of the exchange provided BPW shareholders with a premium over the
market price of BPW shares of common stock prior to the announcement of the merger. Based on these
facts and other considerations, the Company determined that Talbots was the accounting acquirer.
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.
Pursuant to an agreement entered into during the merger process on December 8, 2009 (the Sponsors
Agreement) between Talbots and the sponsors of BPW, Perella Weinberg Partners Acquisition LP and
BPW BNYH Holdings LLC (together, the Sponsors), the Sponsors agreed not to transfer the shares of
Talbots common stock held by them for 180 days after the completion of the merger, subject to
certain exceptions and unless otherwise agreed to be waived by Talbots in whole or in part.
Additionally, in connection with the merger, the Company repurchased and retired the 29.9 million
shares 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).
6
The following summarizes the changes to stockholders (deficit) equity including the impact of the
BPW Transactions at October 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Stockholders
|
|
(In thousands except share data)
|
|
Shares
|
|
|
$ Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Stock
|
|
|
(Deficit) Equity
|
|
Balance at January 30, 2010
|
|
|
81,473,215
|
|
|
$
|
815
|
|
|
$
|
499,457
|
|
|
$
|
(48,690
|
)
|
|
$
|
(51,179
|
)
|
|
$
|
(586,039
|
)
|
|
$
|
(185,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger and related BPW Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and
warrants in merger with BPW
|
|
|
41,469,003
|
|
|
|
415
|
|
|
|
332,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332,999
|
|
Issuance of warrants to repurchase
and retire common stock held by
AEON (U.S.A.)
|
|
|
(29,921,829
|
)
|
|
|
(299
|
)
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity issuance costs
|
|
|
|
|
|
|
|
|
|
|
(3,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,594
|
)
|
Extinguishment of related party debt
|
|
|
|
|
|
|
|
|
|
|
(1,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total merger-related
|
|
|
11,547,174
|
|
|
|
116
|
|
|
|
327,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of Non-Tendered Warrants
|
|
|
2,538,946
|
|
|
|
25
|
|
|
|
19,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,042
|
|
Exercise of stock options
|
|
|
197,329
|
|
|
|
2
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
652
|
|
Stock-based compensation
|
|
|
1,424,950
|
|
|
|
14
|
|
|
|
11,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,485
|
|
Purchase of 247,385 shares of vested
and nonvested common stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,840
|
)
|
|
|
(1,840
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,621
|
|
|
|
|
|
|
|
|
|
|
|
13,621
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
446
|
|
|
|
|
|
|
|
446
|
|
Change in pension and postretirement
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(397
|
)
|
|
|
|
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 30, 2010
|
|
|
97,181,614
|
|
|
$
|
972
|
|
|
$
|
858,178
|
|
|
$
|
(35,069
|
)
|
|
$
|
(51,130
|
)
|
|
$
|
(587,879
|
)
|
|
$
|
185,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Talbots Warrants are immediately exercisable at $14.85 per warrant for one share of
Talbots common stock, have a stated term of five years from the date of issuance, April 9, 2010,
and beginning after April 9, 2011, are subject to accelerated expiration under certain conditions
including, at the Companys discretion, if the trading value of Talbots common stock exceeds $19.98
per share for 20 of 30 consecutive trading days in a period ending not more than 15 days prior to
notice of such acceleration. The warrants may be exercised on a cashless basis. These warrants
began trading on NYSE Amex in April 2010. Approximately 17.2 million Talbots Warrants were
outstanding at October 30, 2010.
The Non-Tendered Warrants have an exercise price of $7.50 per warrant for 0.9853 share of Talbots
common stock. Approximately 2.5 million Non-Tendered Warrants were exercised for total cash
proceeds of $19.0 million immediately following the transaction. The 0.9 million Non-Tendered
Warrants that remained outstanding at October 30, 2010 are not exercisable for one year from the
April 7, 2010 effective date of the merger, do not have anti-dilution rights, were de-listed from
NYSE Amex concurrent with the merger and expire February 26, 2015.
The AEON Warrants are immediately exercisable at $13.21 per share for one share of Talbots common
stock, have a stated term of five years from the date of issuance, April 7, 2010, and beginning
after April 7, 2011, are subject to accelerated expiration under certain conditions including, at
the Companys discretion, if the trading value of Talbots common stock
exceeds $23.12 per share for 20 of 30 consecutive trading days in a period ending not more than 15
days prior to notice of such
7
acceleration. The warrants may be exercised on a cashless basis. One
million AEON Warrants were outstanding at October 30, 2010.
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
new 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 11,
Debt
, for further information including key terms of this credit
agreement.
As a result of the BPW Transactions, the Company became subject to annual limitations on the use of
its existing net operating losses (NOL) and created an uncertain tax position that reduced a
substantial portion of the Companys NOL. Accordingly, the Company recorded an increase in
unrecognized tax benefits of approximately $20.0 million that will reduce net deferred tax assets
before consideration of any valuation allowance.
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 merger,
including an incentive award given to certain executives and members of management, contingent upon
the successful closing of the BPW merger. The incentive portion of merger-related costs was awarded
in restricted stock units and cash for efforts related to the closing of the BPW merger. The cash
bonus awarded was paid in the first quarter of 2010 in connection with the consummation of the BPW
merger. The restricted stock units awarded will cliff vest 12 months from the completion of the BPW
merger. Other costs primarily include printing and mailing expenses related to proxy solicitation
and incremental insurance expenses related to the transaction. The Company estimates total
merger-related costs of approximately $37.1 million, of which $8.2 million and $27.7 million were
expensed in fiscal 2009 and the thirty-nine weeks ended October 30, 2010, respectively.
Approximately $1.2 million of merger-related costs are estimated to be incurred in future periods
related to the incentive award. In addition, the Company expects to continue to incur
merger-related legal expenses as a result of the legal proceedings discussed in Note 13,
Legal
Proceedings
. In the thirteen weeks ended October 30, 2010, the Company updated its estimate of
legal expenses incurred related to these proceedings under its indemnification obligations with the
other parties to this matter, resulting in a credit to merger-related accounting and legal expenses
in the third quarter of 2010. Approximately $7.7 million of costs incurred in connection with the
new 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.
Details of the merger-related costs recorded in the thirteen and thirty-nine weeks ended October
30, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Thirteen
|
|
|
Thirty-Nine
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
October 30, 2010
|
|
|
October 30, 2010
|
|
|
|
(In thousands)
|
|
Investment banking
|
|
$
|
|
|
|
$
|
14,255
|
|
Accounting and legal
|
|
|
(431
|
)
|
|
|
6,219
|
|
Financing incentive compensation
|
|
|
1,210
|
|
|
|
5,638
|
|
Other costs
|
|
|
8
|
|
|
|
1,538
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
787
|
|
|
$
|
27,650
|
|
|
|
|
|
|
|
|
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 new senior secured revolving credit
8
agreement, had been completed on
February 1, 2009, the beginning of Talbots fiscal year ended January 30, 2010. The $1.2 million of
estimated future merger-related costs are not reflected in the pro forma information in accordance
with the rules for preparation of pro forma statement of operations data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
October 30, 2010
|
|
|
October 31, 2009
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
Net sales
|
|
$
|
299,099
|
|
|
$
|
299,099
|
|
|
$
|
308,891
|
|
|
$
|
308,891
|
|
Operating income
|
|
|
19,833
|
|
|
|
19,833
|
|
|
|
22,375
|
|
|
|
22,146
|
|
Income from continuing operations
|
|
|
16,974
|
|
|
|
16,974
|
|
|
|
15,464
|
|
|
|
19,651
|
|
Earnings from continuing operations
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.29
|
|
|
$
|
0.30
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.28
|
|
|
$
|
0.29
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
68,424
|
|
|
|
68,424
|
|
|
|
53,856
|
|
|
|
65,403
|
|
Diluted
|
|
|
69,442
|
|
|
|
69,442
|
|
|
|
55,081
|
|
|
|
66,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30, 2010
|
|
|
October 31, 2009
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
Net sales
|
|
$
|
920,502
|
|
|
$
|
920,502
|
|
|
$
|
919,707
|
|
|
$
|
919,707
|
|
Operating income (loss)
|
|
|
31,460
|
|
|
|
24,588
|
|
|
|
(13,209
|
)
|
|
|
(13,812
|
)
|
Income (loss) from continuing operations
|
|
|
10,399
|
|
|
|
8,787
|
|
|
|
(23,835
|
)
|
|
|
(10,254
|
)
|
Earnings (loss) from continuing
operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
(0.44
|
)
|
|
$
|
(0.16
|
)
|
Diluted
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
$
|
(0.44
|
)
|
|
$
|
(0.16
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
64,878
|
|
|
|
67,670
|
|
|
|
53,768
|
|
|
|
65,315
|
|
Diluted
|
|
|
66,008
|
|
|
|
68,800
|
|
|
|
53,768
|
|
|
|
65,315
|
|
Based on the nature of the BPW entity, there was no revenue or earnings associated with BPW
included in the consolidated statements of operations for the thirteen or thirty-nine weeks ended
October 30, 2010.
9
4. Restructuring
In late 2007, management developed a strategic business plan focused on the following areas: brand
positioning, productivity, store growth and productivity, non-core concepts, distribution channels,
the J. Jill business and other operating matters. In response to declines in the U.S. and global
economy in late 2008 and 2009, management directed its focus to those areas which would reduce
costs and streamline the organization, while continuing to redefine the brand and make product
improvements. The actions taken during 2009 and 2010 included reducing headcount and employee
benefit costs, shuttering or disposing of non-core businesses, and reducing office and retail space
when determined to no longer coincide with the vision of the brand or the needs of the business,
among other steps.
In the thirty-nine weeks ended October 30, 2010, the Company recorded $5.3 million of restructuring
expense 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. In the thirty-nine weeks ended
October 31, 2009, the Company recorded $9.7 million of restructuring expense primarily due to costs
associated with the closing of the Companys Hong Kong and India sourcing offices as well as
reductions in the Companys corporate sourcing headcount in the third quarter of 2009, estimated
lease termination costs for the portion of the Companys Tampa, Florida data center that ceased to
be used in July 2009, and severance expense due to corporate headcount reductions in the first
quarter of 2009.
The following is a summary of the activity and liability balances related to restructuring for the
thirty-nine weeks ended October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate - Wide
|
|
|
|
|
|
|
Strategic Initiatives
|
|
|
|
|
|
|
|
|
|
|
Lease -
|
|
|
|
|
|
|
Severance
|
|
|
Related
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at January 30, 2010
|
|
$
|
3,089
|
|
|
$
|
784
|
|
|
$
|
3,873
|
|
Charges
|
|
|
1,164
|
|
|
|
4,152
|
|
|
|
5,316
|
|
Cash payments
|
|
|
(3,605
|
)
|
|
|
(846
|
)
|
|
|
(4,451
|
)
|
Non-cash items
|
|
|
26
|
|
|
|
(44
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at October 30, 2010
|
|
$
|
674
|
|
|
$
|
4,046
|
|
|
$
|
4,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate - Wide
|
|
|
|
|
|
|
Strategic Initiatives
|
|
|
|
|
|
|
|
|
|
|
Lease -
|
|
|
|
|
|
|
Severance
|
|
|
Related
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at January 31, 2009
|
|
$
|
10,882
|
|
|
$
|
|
|
|
$
|
10,882
|
|
Charges
|
|
|
7,551
|
|
|
|
2,109
|
|
|
|
9,660
|
|
Cash payments
|
|
|
(15,811
|
)
|
|
|
(543
|
)
|
|
|
(16,354
|
)
|
Non-cash items
|
|
|
839
|
|
|
|
(641
|
)
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2009
|
|
$
|
3,461
|
|
|
$
|
925
|
|
|
$
|
4,386
|
|
|
|
|
|
|
|
|
|
|
|
The non-cash items primarily consist of the write-off of certain leasehold improvements, lease
adjustments and changes to stock-based compensation expense related to terminated employees. Of the
$4.7 million in restructuring liabilities at October 30, 2010, $2.0 million, expected to be paid
within the next twelve months, is included in accrued liabilities and the remaining $2.7 million,
expected to be paid thereafter through 2014, is included in deferred rent under lease commitments.
10
5. Stock-Based Compensation
Total stock-based compensation expense related to stock options, nonvested stock awards and
restricted stock units (RSUs) was $3.7 million and $2.1 million for the thirteen weeks ended
October 30, 2010 and October 31, 2009, respectively, and $11.5 million and $4.3 million for the
thirty-nine weeks ended October 30, 2010 and October 31, 2009, respectively.
The compensation expense was classified in the consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cost of sales, buying and occupancy
|
|
$
|
283
|
|
|
$
|
154
|
|
|
$
|
667
|
|
|
$
|
572
|
|
Selling, general and administrative
|
|
|
2,263
|
|
|
|
1,994
|
|
|
|
7,546
|
|
|
|
4,544
|
|
Merger-related costs
|
|
|
1,210
|
|
|
|
|
|
|
|
3,298
|
|
|
|
|
|
Restructuring charges
|
|
|
(26
|
)
|
|
|
(27
|
)
|
|
|
(26
|
)
|
|
|
(839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,730
|
|
|
$
|
2,121
|
|
|
$
|
11,485
|
|
|
$
|
4,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
The weighted-average fair value of options granted during the thirty-nine weeks ended October 30,
2010 and October 31, 2009, estimated as of the grant date using the Black-Scholes option pricing
model, was $10.40 and $1.73 per option, respectively. Key assumptions used to apply this pricing
model were as follows:
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
Risk-free interest rate
|
|
|
3.1
|
%
|
|
|
2.0
|
%
|
Expected life of options
|
|
6.8 years
|
|
|
4.8 years
|
|
Expected volatility of underlying stock
|
|
|
79.7
|
%
|
|
|
83.8
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The following is a summary of stock option activity for the thirty-nine weeks ended October 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
per Share
|
|
|
(In Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Outstanding at January 30, 2010
|
|
|
10,402,019
|
|
|
$
|
24.06
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
92,385
|
|
|
|
14.26
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(197,329
|
)
|
|
|
3.30
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(3,010,517
|
)
|
|
|
22.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 30, 2010
|
|
|
7,286,558
|
|
|
$
|
25.00
|
|
|
|
3.4
|
|
|
$
|
9,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at October 30, 2010
|
|
|
6,003,547
|
|
|
$
|
29.32
|
|
|
|
2.3
|
|
|
$
|
2,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 30, 2010, there was $1.8 million of unrecognized compensation cost related to stock
options that are expected to vest.
11
Nonvested Stock Awards and RSUs
The following is a summary of nonvested stock awards and RSU activity for the thirty-nine weeks
ended October 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Number of
|
|
|
Date Fair Value
|
|
|
|
Shares
|
|
|
per Share
|
|
Nonvested at January 30, 2010
|
|
|
1,330,890
|
|
|
$
|
12.62
|
|
Granted
|
|
|
1,766,651
|
|
|
|
11.67
|
|
Vested
|
|
|
(519,548
|
)
|
|
|
16.38
|
|
Forfeited
|
|
|
(101,129
|
)
|
|
|
10.82
|
|
|
|
|
|
|
|
|
Nonvested at October 30, 2010
|
|
|
2,476,864
|
|
|
$
|
11.23
|
|
|
|
|
|
|
|
|
As of October 30, 2010, there was $12.3 million of unrecognized compensation cost related to
nonvested stock awards and RSUs that are expected to vest, excluding merger-related awards
discussed in Note 3,
Merger with BPW Acquisition Corp. and Related Transactions
.
6. Income Taxes
The Companys effective income tax rate, including discrete items, was 27.5% and 31.5% for the
thirty-nine weeks ended October 30, 2010 and October 31, 2009, 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 in the applicable quarterly
periods for settlements of tax audits or assessments, the resolution or identification of tax
position uncertainties and non-deductible costs associated with the merger.
Income taxes for the thirteen weeks ended October 30, 2010 and
October 31, 2009 are primarily functions of the Companys
applicable effective rates and the results of operations in the
respective periods.
Income tax expense for
the thirty-nine weeks ended October 30, 2010 was impacted primarily by changes in estimates related
to previously existing uncertain tax positions based on new information recorded in the second
quarter of 2010. Income taxes for the thirty-nine weeks ended October 31, 2009 were primarily
impacted by the intraperiod tax allocation arising from other comprehensive income recognized from
the remeasurement of the Companys Pension Plan and Supplemental Executive Retirement Plan
obligations due to the Companys decision to freeze future benefits under the plans effective as of
May 1, 2009, which resulted in an allocated tax benefit of $10.6 million to continuing operations
and an off-setting tax expense included in other comprehensive income.
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.
The BPW Transactions, completed on April 7, 2010, subject the utilization of the Companys net
operating loss carryover to a limitation under U.S. tax laws. In addition, as a result of the
closing of the BPW Transactions in April 2010, the Companys gross unrecognized tax benefit
increased by $20.0 million. This increase results in a reduction to 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) for net proceeds of $64.3 million 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, including the proceeds from the sale, have been separately
presented in the statements of cash flows.
12
The results of discontinued operations for the thirteen and thirty-nine weeks ended October 30,
2010 and October 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
178,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(122
|
)
|
|
|
(612
|
)
|
|
|
(238
|
)
|
|
|
(3,639
|
)
|
Gain (loss) on disposal
|
|
|
196
|
|
|
|
(299
|
)
|
|
|
3,460
|
|
|
|
(6,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
74
|
|
|
$
|
(911
|
)
|
|
$
|
3,222
|
|
|
$
|
(9,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss from operations includes on-going liability adjustments related to the Talbots Kids
and Mens businesses and, for the thirty-nine weeks ended October 31, 2009, the operating results of
the J. Jill business prior to disposal. The gain on disposal for the thirteen weeks ended October
30, 2010 includes approximately $0.4 million of favorable adjustments to estimated sales tax
liabilities, partially offset by $0.2 million of accretion of existing lease liabilities. The gain
on disposal for the thirty-nine weeks ended October 30, 2010 includes these net adjustments as well
as approximately $2.4 million of favorable adjustments to estimated lease liabilities, due to the
settlement of a portion of the former J. Jill office space in Quincy, Massachusetts and four J.
Jill store leases not assumed by the Purchaser in the J. Jill sale, and approximately $0.9 million
of favorable adjustments to other assets. The loss on disposal recorded in the thirteen and
thirty-nine weeks ended October 31, 2009 primarily reflects the loss on disposal recorded at the
closing of the J. Jill sale in 2009.
The results for the periods presented reflect no income tax expense (benefit) as the Company
recorded 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.
Pursuant to the purchase and sale agreement in the sale of J. Jill, the Purchaser agreed to assume
certain assets and liabilities relating to the J. Jill business, including purchasing 205 of the
280 J. Jill stores held at the time of purchase. The 75 J. Jill stores that were not sold were
closed. As of October 30, 2010, the Company had settled the lease liabilities of 73 of the 75
stores not acquired by the Purchaser. Lease termination costs were initially estimated and recorded
at the time the stores were closed, or existing space vacated, and are adjusted subsequently, as
necessary, when new information suggests that actual costs may vary from initial estimates. Income
and loss recorded in the periods subsequent to disposal are due to working capital adjustments and
modifications to the estimated lease liabilities relating to the stores that were not sold and the
Quincy, Massachusetts office space that is not being subleased or used. Total cash expenditures to
settle the lease liabilities for the remaining two unsold stores will depend on the outcome of
negotiations with third parties. As a result, actual costs to terminate these leases may vary from
current estimates and managements assumptions and projections may change.
At January 30, 2010, the Company had remaining recorded lease-related liabilities from discontinued
operations of $16.7 million. During the thirty-nine weeks ended October 30, 2010, the Company made
cash payments of approximately $7.5 million, recorded other income due to favorable settlements of
estimated lease liabilities of $2.4 million and recorded additional expense related to liability
adjustments of $0.3 million, resulting in a total estimated remaining recorded liability of $7.1
million as of October 30, 2010. Of these liabilities, approximately $3.6 million is expected to be
paid out within the next 12 months and is included within accrued liabilities as of October 30,
2010.
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
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.
13
Diluted earnings per share is computed after giving consideration to the dilutive effect
of warrants, stock options and restricted stock units that are outstanding during the period,
except where such non-participating securities would be antidilutive.
Basic and diluted earnings (loss) per share from continuing operations were computed as follows (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
16,974
|
|
|
$
|
15,464
|
|
|
$
|
10,399
|
|
|
$
|
(23,835
|
)
|
Less: income associated with participating securities
|
|
|
489
|
|
|
|
110
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) associated with common stockholders
|
|
$
|
16,485
|
|
|
$
|
15,354
|
|
|
$
|
10,088
|
|
|
$
|
(23,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
68,424
|
|
|
|
53,856
|
|
|
|
64,878
|
|
|
|
53,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share continuing operations
|
|
$
|
0.24
|
|
|
$
|
0.29
|
|
|
$
|
0.16
|
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
16,974
|
|
|
$
|
15,464
|
|
|
$
|
10,399
|
|
|
$
|
(23,835
|
)
|
Less: income associated with participating securities
|
|
|
482
|
|
|
|
110
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) associated with common stockholders
|
|
$
|
16,492
|
|
|
$
|
15,354
|
|
|
$
|
10,093
|
|
|
$
|
(23,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
68,424
|
|
|
|
53,856
|
|
|
|
64,878
|
|
|
|
53,768
|
|
Effect of dilutive securities
|
|
|
1,018
|
|
|
|
1,225
|
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
69,442
|
|
|
|
55,081
|
|
|
|
66,008
|
|
|
|
53,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share continuing
operations
|
|
$
|
0.24
|
|
|
$
|
0.28
|
|
|
$
|
0.15
|
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and thirty-nine week
periods ended October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Nonvested stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,308,665
|
|
Nonvested director RSUs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
Stock options
|
|
|
5,681,523
|
|
|
|
8,852,069
|
|
|
|
5,681,523
|
|
|
|
10,525,635
|
|
Warrants
|
|
|
18,242,750
|
|
|
|
|
|
|
|
18,242,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,924,273
|
|
|
|
8,852,069
|
|
|
|
23,924,273
|
|
|
|
11,964,300
|
|
|
|
|
|
|
14
9. Comprehensive Income (Loss)
The following illustrates the Companys total comprehensive income (loss) for the thirteen and
thirty-nine weeks ended October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,048
|
|
|
$
|
14,553
|
|
|
$
|
13,621
|
|
|
$
|
(33,501
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
85
|
|
|
|
(371
|
)
|
|
|
446
|
|
|
|
1,102
|
|
Change in pension and
postretirement plan liabilities
|
|
|
(132
|
)
|
|
|
(175
|
)
|
|
|
(397
|
)
|
|
|
15,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
17,001
|
|
|
$
|
14,007
|
|
|
$
|
13,670
|
|
|
$
|
(16,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The translation adjustments and the changes in pension and postretirement plan liabilities for the
thirteen and thirty-nine weeks ended October 30, 2010 reflect no income tax expense (benefit) 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.
The translation adjustments for the thirteen and thirty-nine weeks ended October 31, 2009 reflect
an income tax benefit of $0.6 million due to the intraperiod tax allocation to the translation
adjustments to-date. The change in pension and postretirement plan liabilities for the thirty-nine
weeks ended October 31, 2009 include recorded tax expense of $10.8 million related to the
curtailment of the Companys pension and postretirement plans in the first quarter of 2009, while
there was no tax expense (benefit) allocated to the change in pension and postretirement plan
liabilities for the thirteen weeks ended October 31, 2009.
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 October 30, 2010 consist primarily of cash and cash
equivalents, 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 debt. The Company
believes the carrying value of cash and cash equivalents, 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 debt approximates fair value at October 30, 2010 as the interest rates are market-based
variable rates and were re-set with the third-party lenders during the quarter.
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 October 30, 2010, the Company performed impairment
analyses on the assets of certain stores, primarily triggered by the Companys expectation to close
certain store locations over the next three years. In the thirteen weeks ended October 31, 2009,
the Company performed impairment analyses on the assets of certain stores, primarily triggered by
reviews of the stores operating results. The
15
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 week periods ended October 30,
2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Observable
|
|
|
|
|
|
|
Impairment of
|
|
|
|
Net Carrying
|
|
|
Prices in Active
|
|
|
Inputs Other
|
|
|
Significant
|
|
|
Store Assets,
|
|
|
|
Value at
|
|
|
Markets for
|
|
|
than Quoted
|
|
|
Unobservable
|
|
|
Thirteen Weeks
|
|
|
|
October 30,
|
|
|
Identical Assets
|
|
|
Market Prices
|
|
|
Inputs
|
|
|
Ended October 30,
|
|
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2010
|
|
Long-lived assets held and used
|
|
$
|
1,371
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,371
|
|
|
$
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,371
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,371
|
|
|
$
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Observable
|
|
|
|
|
|
|
Impairment of
|
|
|
|
Net Carrying
|
|
|
Prices in Active
|
|
|
Inputs Other
|
|
|
Significant
|
|
|
Store Assets,
|
|
|
|
Value at
|
|
|
Markets for
|
|
|
than Quoted
|
|
|
Unobservable
|
|
|
Thirteen Weeks
|
|
|
|
October 31,
|
|
|
Identical Assets
|
|
|
Market Prices
|
|
|
Inputs
|
|
|
Ended October 31,
|
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
Long-lived assets held and used
|
|
$
|
2,617
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,617
|
|
|
$
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,617
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,617
|
|
|
$
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, its knowledge
and expectations. These estimates can be affected by factors that can be difficult to predict, such
as future operating results, customer activity and future economic conditions.
Additional insignificant store impairments were recorded in the prior
quarters and reported in the thirty-nine weeks ended October 30, 2010
and October 31, 2009.
11. Debt
A summary of outstanding debt at October 30, 2010 and January 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
October 30,
|
|
|
January 30,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Revolving credit facility
|
|
$
|
68,751
|
|
|
$
|
|
|
Related party debt
|
|
|
|
|
|
|
486,494
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,751
|
|
|
$
|
486,494
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
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), 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
16
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 outstanding letters of credit, if any, monthly in arrears in
accordance with the formulas set forth in the First Amendment. As of October 30, 2010, the
Companys effective interest rate under the Credit Facility was 3.9%, and the Company had
additional borrowing availability of up to $124.5 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
charge 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 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.
17
The Credit Facility is the Companys only outstanding debt agreement at October 30, 2010. Of the
$125.0 million borrowed under the Credit Facility at its inception, approximately $68.8 million was
outstanding at October 30, 2010. Borrowings under this Credit Facility have been 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 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.
At October 30, 2010, the Company had $1.2 million in outstanding letters of credit and letter of
credit availability of up to $23.8 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. The Company had no letters of credit outstanding at January 30,
2010 under the Companys prior credit facilities.
Related Party Debt
The Companys related party debt as of January 30, 2010 was comprised of the following:
|
|
|
$245.0 million outstanding on a $250.0 million secured revolving loan facility with AEON;
|
|
|
|
|
$191.5 million outstanding on a $200.0 million term loan facility with AEON; and
|
|
|
|
|
$50.0 million outstanding on a $50.0 million term loan with AEON (U.S.A.).
|
In connection with the consummation and closing of the merger with BPW and the execution of the
Credit Facility, the Company repaid all outstanding related party indebtedness on April 7, 2010.
Since the debt extinguishment was between related parties, the Company recorded no gain or loss on
the extinguishment and the difference between the reacquisition price and the net carrying value of
the debt, consisting of $1.7 million of unamortized deferred financing costs, was recorded as a
capital transaction by a charge to additional paid-in capital.
12. 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. As a result of the decision, the assets and
liabilities under the plans were remeasured as of February 28, 2009. The remeasurement resulted in
a decrease to other liabilities of $25.4 million and $2.0 million for the Pension Plan and SERP,
respectively, and an increase to other comprehensive income of $15.2 million and $1.2 million, net
of tax, for the Pension Plan and SERP, respectively.
The components of net pension expense for the Pension Plan for the thirteen and thirty-nine weeks
ended October 30, 2010 and October 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Interest expense on projected benefit obligation
|
|
$
|
2,371
|
|
|
$
|
2,282
|
|
|
$
|
7,049
|
|
|
$
|
6,694
|
|
Expected return on plan assets
|
|
|
(2,394
|
)
|
|
|
(1,840
|
)
|
|
|
(7,194
|
)
|
|
|
(5,668
|
)
|
Curtailment loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
Prior service cost net amortization
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
Net amortization and deferral
|
|
|
139
|
|
|
|
252
|
|
|
|
383
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension expense
|
|
$
|
116
|
|
|
$
|
695
|
|
|
$
|
238
|
|
|
$
|
1,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The components of net SERP expense for the thirteen and thirty-nine weeks ended October 30, 2010
and October 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Interest expense on projected benefit obligation
|
|
$
|
288
|
|
|
$
|
292
|
|
|
$
|
842
|
|
|
$
|
874
|
|
Curtailment gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(451
|
)
|
Net amortization and deferral
|
|
|
20
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net SERP expense
|
|
$
|
308
|
|
|
$
|
292
|
|
|
$
|
889
|
|
|
$
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net postretirement medical expense (credit) for the thirteen and thirty-nine
weeks ended October 30, 2010 and October 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Interest expense on accumulated postretirement benefit obligation
|
|
$
|
17
|
|
|
$
|
11
|
|
|
$
|
52
|
|
|
$
|
15
|
|
Curtailment gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(442
|
)
|
Prior service cost amortization
|
|
|
(380
|
)
|
|
|
(383
|
)
|
|
|
(1,140
|
)
|
|
|
(1,133
|
)
|
Net amortization and deferral
|
|
|
130
|
|
|
|
137
|
|
|
|
391
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net postretirement medical credit
|
|
$
|
(233
|
)
|
|
$
|
(235
|
)
|
|
$
|
(697
|
)
|
|
$
|
(1,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company was required to make contributions to the Pension Plan of $1.6 million and $0.1 million
during the thirteen weeks ended October 30, 2010 and October 31, 2009, respectively, and $3.6
million and $3.8 million during the thirty-nine weeks ended October 30, 2010 and October 31, 2009,
respectively. The Company expects to make required contributions of $1.0 million to the Pension
Plan during the remainder of 2010. The Company did not make any voluntary contributions to the
Pension Plan during the thirteen or thirty-nine weeks ended October 30, 2010 and October 31, 2009.
13. Legal Proceedings
On January 12, 2010, a Talbots common shareholder filed a putative class and derivative action
captioned
Campbell v. The Talbots, Inc., et al
., C.A. No. 5199-VCS, in the Court of Chancery of the
State of Delaware (the Chancery Court) against Talbots; Talbots board of directors; AEON
(U.S.A.), Inc.; BPW Acquisition Corp. (BPW); Perella Weinberg Partners LP, a financial advisor to
the audit committee of the Board of Directors of the Company and an affiliate of Perella Weinberg
Partners Acquisition LP, one of the sponsors of BPW; and the Vice Chairman, Chief Executive
Officer, and Senior Vice President of BPW. Among other things, the complaint asserts claims for
breaches of fiduciary duties, aiding and abetting breaches of fiduciary duties, and violations of
certain sections of the Delaware General Corporation Law (DGCL) and Talbots by-laws in
connection with the negotiation and approval of the merger agreement between Talbots and BPW. The
complaint sought injunctive, declaratory and monetary relief, including an order to enjoin the
consummation of the merger and related transactions.
On March 6, 2010, a Stipulation (the Stipulation) entered into by the Company; the Companys
board of directors; AEON (U.S.A.), Inc.; BPW; Perella Weinberg Partners LP; the Vice Chairman,
Chief Executive Officer and Senior Vice President of BPW and John C. Campbell (Plaintiff) was
filed in the Chancery Court with respect to this action. Pursuant to the Stipulation, the Plaintiff
withdrew its motion for a preliminary injunction to enjoin consummation of the merger and related
transactions between the Company and BPW. In exchange, the Company agreed to implement and maintain
certain corporate governance measures, subject to the terms and conditions specified in the
Stipulation. The Stipulation did not constitute dismissal, settlement or withdrawal of Plaintiffs
claims in the litigation.
19
In the third quarter of 2010, the Company, certain current and former members of the Companys
board of directors; AEON (U.S.A.), Inc.; BPW; Perella Weinberg Partners LP; three principals of BPW
(collectively, the Defendants) and the Plaintiff entered into a stipulation of settlement with
respect to this matter. On October 19, 2010, the Chancery Court preliminarily approved the class
and the distribution of a notice of settlement and scheduled a hearing for December 20, 2010 to consider, among other things, whether to approve the settlement as
fair, reasonable and in the best interests of the Company and its stockholders and whether to enter
final judgment thereon. If the settlement is given final approval by the Chancery Court, among
other things, the lawsuit will be dismissed with prejudice, the Defendants (other than the Company
and AEON (U.S.A.), Inc.) will deliver to the Company the sum of $3,750,000 and Perella Weinberg
Partners LP will cause to be delivered 175,000 shares of the Company common stock to the Company.
Plaintiffs counsel has informed the Company that Plaintiff and Plaintiffs counsel intend to
petition the Court for an award of attorneys fees (including costs) up to an amount of $3.5
million plus $350,000 in expenses (the Fee Application), which the Company has agreed to pay or
cause to be paid if and to the extent awarded by the Court. The Defendants have reserved all of
their rights to object to the Fee Application and intend to object to the Fee Application in the
amount as proposed by Plaintiff. There can be no assurance that the Chancery Court will approve the settlement.
If the settlement is not approved, the recovery to Talbots provided
in the settlement
would not be payable to Talbots and the agreement by Talbots to pay the amount of
Plaintiff's attorneys fees in the amount which may be awarded by the Court would no
longer be applicable. Therefore, as of today, the Company is not legally obligated to
pay the attorneys fees sought by Plaintiff, as we cannot
predict whether the settlement
will be approved by the Court and it is not probable in our view that the Company has
a liability for loss in this matter at this time.
14. 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 and thirty-nine weeks ended October
30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
October 30, 2010
|
|
October 31, 2009
|
|
|
|
|
|
|
Direct
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
|
|
Stores
|
|
Marketing
|
|
Total
|
|
Stores
|
|
Marketing
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
242,136
|
|
|
$
|
56,963
|
|
|
$
|
299,099
|
|
|
$
|
255,429
|
|
|
$
|
53,462
|
|
|
$
|
308,891
|
|
Direct profit
|
|
|
34,700
|
|
|
|
16,853
|
|
|
$
|
51,553
|
|
|
|
31,629
|
|
|
|
16,984
|
|
|
$
|
48,613
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
October 30, 2010
|
|
October 31, 2009
|
|
|
|
|
|
|
Direct
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
|
|
Stores
|
|
Marketing
|
|
Total
|
|
Stores
|
|
Marketing
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
750,579
|
|
|
$
|
169,923
|
|
|
$
|
920,502
|
|
|
$
|
766,665
|
|
|
$
|
153,042
|
|
|
$
|
919,707
|
|
Direct profit
|
|
|
117,173
|
|
|
|
47,445
|
|
|
$
|
164,618
|
|
|
|
57,824
|
|
|
|
28,063
|
|
|
$
|
85,887
|
|
20
The following reconciles direct profit to income (loss) from continuing operations for the thirteen
and thirty-nine weeks ended October 30, 2010 and October 31, 2009. Indirect expenses include
unallocated corporate overhead and related expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Direct profit for reportable segments
|
|
$
|
51,553
|
|
|
$
|
48,613
|
|
|
$
|
164,618
|
|
|
$
|
85,887
|
|
Less: Indirect expenses
|
|
|
30,688
|
|
|
|
25,849
|
|
|
|
100,192
|
|
|
|
89,436
|
|
Merger-related costs
|
|
|
787
|
|
|
|
|
|
|
|
27,650
|
|
|
|
|
|
Restructuring charges
|
|
|
245
|
|
|
|
389
|
|
|
|
5,316
|
|
|
|
9,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
19,833
|
|
|
|
22,375
|
|
|
|
31,460
|
|
|
|
(13,209
|
)
|
Interest expense, net
|
|
|
2,349
|
|
|
|
7,202
|
|
|
|
17,112
|
|
|
|
21,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
17,484
|
|
|
|
15,173
|
|
|
|
14,348
|
|
|
|
(34,792
|
)
|
Income tax expense (benefit)
|
|
|
510
|
|
|
|
(291
|
)
|
|
|
3,949
|
|
|
|
(10,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
16,974
|
|
|
$
|
15,464
|
|
|
$
|
10,399
|
|
|
$
|
(23,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets, with the exception of goodwill and trademarks, are not allocated between segments.
Therefore, no measure of segment assets is available.
21
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, and our catalog business. As of October 30,
2010, we operated 564 stores in the United States and 20 stores in Canada. We conform to the
National Retail Federations fiscal calendar. The thirteen weeks ended October 30, 2010 and October
31, 2009 are referred to as the third quarter of 2010 and 2009, 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 30, 2010.
Recent Developments
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 Talbots common stock
held by AEON (U.S.A.), Inc. (AEON (U.S.A.)), our then majority shareholder, totaling 29.9 million
shares; the issuance of warrants to purchase one million shares of Talbots common stock 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.
As of April 7, 2010, as a result of these transactions, we reduced our outstanding debt by
approximately $361.5 million and increased stockholders equity by approximately $327.7 million.
Since the close of these transactions, we have sought to translate our operating results into a
further improved financial position, reducing debt by an additional $56.2 million through October
30, 2010 and ending the quarter with a positive equity balance and positive net working capital.
Management Overview
In the third quarter, we continued to focus on our strategic initiatives, including:
|
|
|
The launch of our store re-image initiative to fourteen stores in three key markets, which is
designed to upgrade the store experience in our retail environment, an important component
in our brands reinvigoration and in attracting new customers
|
|
|
|
|
The launch of our segmentation strategy whereby we sort our stores based on customer
lifestyle, behavior and climate which seeks to improve store productivity by tailoring our
merchandise assortment and store experience to specific segments
|
|
|
|
|
Continuation of our enhanced marketing initiative including a national advertising
campaign aimed at increasing brand awareness and customer retention, reactivation and
acquisition
|
We continue to evaluate our real estate portfolio to rationalize our store locations aimed at
reducing square footage given approximately 300 lease events coming due over the next three years.
Going forward, we remain committed to our long-range plan and strategic initiatives. Our
initiatives focus on top-line sales and profitability improvement, and include ongoing strategic
reinvestments in our marketing initiatives and capital expenditures related to our store re-image
initiative and information technology designed to support our strategic initiatives.
22
Results of Continuing Operations
Results of the thirteen and thirty-nine weeks ended October 30, 2010 include:
|
|
|
Achieved year-to-date operating income of $31.5 million, while recording $27.7 million
in merger-related costs and reinstating and enhancing operational performance-based and
certain other employee compensation programs with additional year-to-date expense of $20.2
million in cost of sales, buying and occupancy and selling, general and administrative
expenses, compared to an operating loss of $13.2 million in the comparable period of the
prior year;
|
|
|
|
|
Recorded net sales declines of 3.2% in the thirteen weeks ended October 30, 2010,
compared to the third quarter of 2009, and essentially flat net sales results year-to-date
on reduced levels of store customer traffic; yet
|
|
|
|
|
Improved third quarter gross profit margins to 42.7% from 39.9% in the third quarter of
2009; and improved year-to-date gross profit margins to 40.5% from 32.9% in the comparable
period of the prior year; and
|
|
|
|
|
Reduced total outstanding debt by $417.7 million, or 85.9%, as of the end of the third
quarter of 2010.
|
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
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales, buying and occupancy
|
|
|
57.3
|
%
|
|
|
60.1
|
%
|
|
|
59.5
|
%
|
|
|
67.1
|
%
|
Selling, general and administrative
|
|
|
35.5
|
%
|
|
|
32.1
|
%
|
|
|
33.4
|
%
|
|
|
33.2
|
%
|
Merger-related costs
|
|
|
0.3
|
%
|
|
|
0.0
|
%
|
|
|
3.0
|
%
|
|
|
0.0
|
%
|
Restructuring charges
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.6
|
%
|
|
|
1.1
|
%
|
Impairment of store assets
|
|
|
0.2
|
%
|
|
|
0.4
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
Operating income (loss)
|
|
|
6.6
|
%
|
|
|
7.3
|
%
|
|
|
3.4
|
%
|
|
|
(1.6
|
)%
|
Interest expense, net
|
|
|
0.8
|
%
|
|
|
2.3
|
%
|
|
|
1.9
|
%
|
|
|
2.3
|
%
|
Income (loss) before taxes
|
|
|
5.8
|
%
|
|
|
5.0
|
%
|
|
|
1.5
|
%
|
|
|
(3.9
|
)%
|
Income tax expense (benefit)
|
|
|
0.1
|
%
|
|
|
(0.1
|
)%
|
|
|
0.4
|
%
|
|
|
(1.2
|
)%
|
Income (loss) from continuing operations
|
|
|
5.7
|
%
|
|
|
5.1
|
%
|
|
|
1.1
|
%
|
|
|
(2.7
|
)%
|
Net Sales
The following is a comparison of net sales for the thirteen and thirty-nine weeks ended October 30,
2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
(Decrease)
|
|
|
October 30,
|
|
|
October 31,
|
|
|
(Decrease)
|
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
Net store sales
|
|
$
|
242.1
|
|
|
$
|
255.4
|
|
|
$
|
(13.3
|
)
|
|
$
|
750.6
|
|
|
$
|
766.7
|
|
|
$
|
(16.1
|
)
|
Net direct marketing sales
|
|
|
57.0
|
|
|
|
53.5
|
|
|
|
3.5
|
|
|
|
169.9
|
|
|
|
153.0
|
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
299.1
|
|
|
$
|
308.9
|
|
|
$
|
(9.8
|
)
|
|
$
|
920.5
|
|
|
$
|
919.7
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Sales
Reflected in net store sales for the third quarter of 2010 is a $16.7 million, or 7.1%, decrease in
comparable store sales compared to the third quarter of 2009. This decrease is primarily
correlated to reduced customer traffic during the period, which resulted in a decline in our
number of transactions. Further, we divided our September product into two store deliveries in
which the flow of assortments did not optimally match our catalog assortment. Although we
believe that bifurcation is an appropriate strategy during this period, the timing and mix of the
merchandise flow was not optimal, which, in part, contributed to a comparative decrease in the
conversion rate for the first time this year.
23
Sales metrics for comparable stores for the third quarter of 2010 were as follows: customer traffic
decreased 9.3% year-over-year, and the rate of converting traffic decreased 1.9%, contributing to
an 11.0% decrease in the number of transactions per store. Units per transaction were up 8.0%
which, combined with a 3.8% decrease in average unit retail, contributed to a 3.9% increase in
dollars per transaction over the comparable fiscal 2009 period.
Net store sales for the thirty-nine weeks ended October 30, 2010 reflect a $14.3 million, or 2.1%,
decrease in comparable store sales compared to the thirty-nine weeks ended October 31, 2009,
primarily impacted by a decline in customer traffic.
Sales metrics for comparable stores for the thirty-nine weeks ended October 30, 2010 were as
follows: customer traffic decreased 8.8% year-over-year, yet the rate of converting traffic to
transactions increased 2.0%, contributing to a 7.0% decrease in the number of transactions per
store. Additionally, units per transaction were up 5.1% which, combined with a 0.2% increase in
average unit retail, contributed to a 5.3% increase in dollars per transaction over the comparable
fiscal 2009 period.
Comparable stores are those that 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. As of October 30, 2010, we operated a total
of 584 stores with gross and selling square footage of approximately 4.2 million square feet and
3.2 million square feet, respectively, a decrease in gross and selling square footage of
approximately 1.2% from October 31, 2009 when we operated a total of 589 stores.
Direct Marketing Sales
Direct marketing sales in the third quarter of 2010 increased 6.5% compared to the third quarter of
2009 while the percentage of our net sales derived from direct marketing increased to 19.1% from
17.3% in the third quarter of 2009. This increase can be primarily attributed to increased Internet
sales which were $38.0 million in the third quarter of 2010 compared to $31.5 million in the third
quarter of 2009. In the third quarter of 2010, we launched limited-time promotional web events as
part of our enhanced, targeted marketing campaign, which increased Internet traffic and the number
of Internet orders. Further increases in Internet sales are due to changing trends in consumer
purchasing behavior, with declines in catalog sales partially off-setting the increase in Internet
sales.
Year-to-date
direct marketing sales have increased 11.0% compared to the same period of the prior
year with the percentage of our net sales derived from direct marketing increasing to 18.5% from
16.6% in the same period of the prior year. These increases can be primarily attributed to a $9.9
million comparative increase in red-line phone sales, which are sales resulting from direct lines
in our stores to our telemarketing center, as well as increased Internet sales. Year-to-date,
Internet sales were $117.4 million compared to $101.1 million in the same period of the prior year.
This increase is primarily due to changing trends in consumer purchasing behavior, with declines in
catalog sales partially off-setting the increase in Internet sales.
Cost of Sales, Buying and Occupancy
The following is a comparison of cost of sales, buying and occupancy expenses for the thirteen and
thirty-nine weeks ended October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
Cost of sales, buying
and occupancy
|
|
$
|
171.4
|
|
|
$
|
185.6
|
|
|
$
|
(14.2
|
)
|
|
$
|
548.0
|
|
|
$
|
617.0
|
|
|
$
|
(69.0
|
)
|
Percentage of net sales
|
|
|
57.3
|
%
|
|
|
60.1
|
%
|
|
|
(2.8
|
)%
|
|
|
59.5
|
%
|
|
|
67.1
|
%
|
|
|
(7.6
|
)%
|
In the third quarter of 2010, net sales declines of $9.8 million were offset by cost of sales,
buying and occupancy declines of $14.2 million, resulting in a 280 basis point improvement in gross
profit margin to 42.7% from 39.9% in the third quarter of 2009. The improvement in gross profit
margin was primarily driven by gains in merchandise margin, which was up 160 basis
24
points as a result of changes to our sourcing practices and correlated to improvements in our
initial mark-up rate (IMU) compared to the third quarter of 2009. Occupancy expenses as a
percent of net sales also improved 130 basis points, primarily due to comparatively lower
depreciation expense. Buying expenses as a percent of net sales increased 10 basis points.
Year-to-date in 2010, while net sales were flat, cost of sales, buying and occupancy expenses
decreased $69.0 million compared to the same period of the prior year. Improvements in cost of
sales, buying and occupancy primarily drove a 760 basis point improvement in gross profit margin to
40.5% from 32.9% year-over-year. The improvement in gross profit margin was primarily driven by
gains in merchandise margin, which was up 620 basis points as a result of changes to our sourcing
practices and correlated to improvements in our initial mark-up rate (IMU) year-over-year, strong
full-price selling in the first half of the year, and disciplined inventory management. Occupancy
expenses as a percent of net sales also improved 130 basis points, primarily due to comparatively
lower depreciation expense. Buying expenses as a percent of net sales improved 10 basis points.
We expect
our merchandise margin improvements will be impacted by our enhanced
promotional strategy during the holiday season, as we adjust our
promotional cadence to be more competitive in a highly promotional
environment.
Selling, General and Administrative
The following is a comparison of selling, general and administrative expenses for the thirteen and
thirty-nine weeks ended October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
Selling, general and
administrative
|
|
$
|
106.3
|
|
|
$
|
99.2
|
|
|
$
|
7.1
|
|
|
$
|
307.5
|
|
|
$
|
304.9
|
|
|
$
|
2.6
|
|
Percentage of net sales
|
|
|
35.5
|
%
|
|
|
32.1
|
%
|
|
|
3.4
|
%
|
|
|
33.4
|
%
|
|
|
33.2
|
%
|
|
|
0.2
|
%
|
Following the success of our annual expense reduction program, initiated in early 2009, we were
able to reinstate and enhance operational performance-based and certain other employee compensation
programs in 2010 that were suspended in the prior year under the expense reduction initiative,
recording related incremental compensation expense of $3.0 million and $16.9 million in the
thirteen and thirty-nine weeks ended October 30, 2010 as compared to the same periods of the prior
year. Further, in 2010, we were able to increase our investment in marketing, including expanded
national and regional advertising, e-commerce advertising and increased in-store visual, recording
related incremental marketing expense of $8.1 million and $10.9 million in the thirteen and
thirty-nine weeks ended October 30, 2010, respectively.
Merger-Related Costs
In the thirteen and thirty-nine weeks ended October 30, 2010, we incurred $0.8 million and $27.7
million of merger-related costs, respectively, in connection with our acquisition of BPW. These
costs primarily consist of investment banking, 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. Approximately $1.2 million of additional merger-related costs are expected to be
incurred in future periods related to the incentive award. In addition, we expect to continue to
incur merger-related legal expenses as a result of the legal proceedings discussed in Part II Item
1.
Legal Proceedings
.
Restructuring Charges
The following is a comparison of restructuring charges for the thirteen and thirty-nine weeks ended
October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
Restructuring charges
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
|
$
|
(0.2
|
)
|
|
$
|
5.3
|
|
|
$
|
9.7
|
|
|
$
|
(4.4
|
)
|
Percentage of net sales
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
|
|
0.6
|
%
|
|
|
1.1
|
%
|
|
|
(0.5
|
)
|
25
The restructuring charges incurred year-to-date in 2010 primarily relate to the consolidation of
our Madison Avenue flagship location wherein we reduced active leased floor space and wrote down
certain assets and leasehold improvements no longer used in the redesigned lay-out. Restructuring
charges incurred in the thirteen weeks ended October 31, 2009 primarily relate to the closing of
our Hong Kong and India sourcing offices and the reduction of corporate sourcing headcount.
Restructuring charges incurred in the thirty-nine weeks ended October 31, 2009 include these
sourcing reductions as well as estimated lease termination costs associated with the portion of our
Tampa, Florida data center which we ceased to use in July 2009 and severance costs recorded in the
first quarter of 2009 due to corporate headcount reductions.
Impairment of Store Assets
We closely 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, its knowledge and expectations. These estimates can be 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
October 30, 2010 and October 31, 2009, we recorded impairments of store assets of $0.5 million and $1.3 million,
respectively. In the third quarter of 2010, store impairment analyses were primarily triggered by our anticipated
closures of store locations over the next three years. In the third quarter of 2009, store impairment analyses were
primarily triggered by management reviews of the stores operating results. Additional insignificant store impairments
were recorded in the prior quarters and reported in the thirty-nine weeks ended October 30, 2010 and October 31, 2009.
Goodwill and Other Intangible Assets
Our policy is to 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 2010 and fiscal 2009 as of January 31, 2010 and
February 1, 2009, respectively, using a combination of an income approach and market value
approach. These tests contemplate our 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.
Interest Expense, net
The following is a comparison of net interest expense for the thirteen and thirty-nine weeks ended
October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
Interest expense, net
|
|
$
|
2.3
|
|
|
$
|
7.2
|
|
|
$
|
(4.9
|
)
|
|
$
|
17.1
|
|
|
$
|
21.6
|
|
|
$
|
(4.5
|
)
|
Net interest expense for the thirteen weeks ended October 30, 2010 decreased from the same period
in 2009 primarily due to reductions in the weighted average debt outstanding in the respective
periods, from $491.2 million in the third quarter of 2009 to $70.8 million in the third quarter of
2010, and reductions in the applicable effective interest rates, from 4.5% in the third quarter of
2009 to 4.4% in the third quarter of 2010. Net interest expense for the thirty-nine weeks ended
October 30, 2010 decreased from the same period in 2009 primarily due to reductions in debt-related
interest expense, partially offset by increased tax-related interest expense. We expect
debt-related interest expense to decrease on a year-over-year comparative basis for the remainder
of the year as a result of a lower average debt outstanding.
26
Income Tax Expense (Benefit)
The following is a comparison of income tax expense (benefit) for the thirteen and thirty-nine
weeks ended October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
Income tax expense (benefit)
|
|
$
|
0.5
|
|
|
$
|
(0.3
|
)
|
|
$
|
0.8
|
|
|
$
|
3.9
|
|
|
$
|
(11.0
|
)
|
|
$
|
14.9
|
|
For the thirty-nine weeks ended October 30, 2010 and October 31, 2009, our effective income tax
rate, including discrete items, was 27.5% and 31.5%, 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 in the applicable quarterly periods for
settlements of tax audits or assessments, the resolution or identification of tax position
uncertainties and non-deductible costs associated with the merger. Income taxes for the thirteen
weeks ended October 30, 2010 and October 31, 2009 are primarily functions of the Companys
applicable effective rates and the results of operations in the respective periods. Income tax
expense for the thirty-nine weeks ended October 30, 2010 is comprised primarily of discrete items,
specifically changes in estimates related to previously existing uncertain tax positions based on
new information recorded in the second quarter of 2010. Income taxes for the thirty-nine weeks
ended October 31, 2009 were primarily impacted by the intraperiod tax allocation arising from other
comprehensive income recognized from the remeasurement of our Pension Plan and Supplemental
Executive Retirement Plan obligations due to our decision to freeze future benefits under the plans
effective as of May 1, 2009, which resulted in an allocated tax benefit of $10.6 million to
continuing operations and an off-setting tax expense included in other comprehensive income.
We continue to provide a full valuation allowance against our net deferred tax assets, excluding
deferred tax liabilities for non-amortizing intangibles.
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, including the proceeds from the sale, have been
separately presented in the statements of cash flows.
On July 2, 2009, we completed the sale of the J. Jill business for net proceeds of $64.3 million,
pursuant to which Jill Acquisition LLC (the Purchaser) agreed to acquire and assume from us
certain assets and liabilities relating to the J. Jill business, including purchasing 205 of the
280 J. Jill stores held at the time of purchase. The 75 J. Jill stores that were not sold were
closed. Gains and losses recorded in the periods subsequent to the closing are due to working
capital adjustments and modifications to the estimated lease liabilities relating to the stores
that were not sold and the Quincy, Massachusetts office space that is not being subleased or used.
As of October 30, 2010, we had settled the lease liabilities of 73 of the 75 stores not acquired by
the Purchaser. Lease termination costs were initially estimated and recorded at the time the stores
were closed, or existing space vacated, and are adjusted subsequently, as necessary, when new
information suggests that actual costs may vary from initial estimates. Total cash expenditures to
settle the lease liabilities for the remaining two unsold stores cannot yet be finally determined
and will depend on the outcome of negotiations with third parties. As a result, actual costs to
terminate these leases may vary from current estimates and managements assumptions and projections
may change.
The $3.2 million income from discontinued operations recorded in the thirty-nine weeks ended
October 30, 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 leased J.
Jill retail locations, which were finalized in the first quarter of 2010, and a portion of the
vacant leased Quincy office space, which was settled in the second quarter of 2010. The loss from
discontinued operations recorded in the thirteen and thirty-nine weeks ended October 31, 2009
reflects the income (losses) incurred by the J. Jill
business prior to ceasing operations in July 2009, a loss on the disposal of the J. Jill business
recorded upon completion of the sale and adjustments to estimated lease liabilities relating to the
discontinued businesses.
27
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 existing credit facilities.
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 issuance of Talbots common stock and
warrants to BPW stockholders; (ii) the repurchase and retirement of all 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 and the repayment of all of our outstanding
AEON Co., Ltd. (AEON) and AEON (U.S.A.) debt; and (iii) the execution of new senior secured
revolving credit facility.
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. Pursuant to
an agreement entered into during the merger process on December 8, 2009 (the Sponsors Agreement)
between Talbots and the sponsors of BPW, Perella Weinberg Partners Acquisition LP and BPW BNYH
Holdings LLC (together, the Sponsors), the Sponsors agreed not to transfer the shares of Talbots
common stock held by them for 180 days after the completion of the merger, subject to certain
exceptions and unless otherwise agreed to be waived by Talbots in whole or in part. Additionally,
in connection with the merger, we repurchased and retired the 29.9 million shares 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).
The Talbots Warrants are immediately exercisable at $14.85 per warrant for one share of Talbots
common stock, have a stated term of five years from the date of issuance, April 9, 2010, and
beginning after April 9, 2011, are subject to accelerated expiration under certain conditions
including, at our discretion, if the trading value of Talbots common stock exceeds $19.98 per share
for 20 of 30 consecutive trading days in a period ending not more than 15 days prior to notice of
such acceleration. The warrants may be exercised on a cashless basis. These warrants began trading
on NYSE Amex in April 2010. Approximately 17.2 million Talbots Warrants were outstanding at
October 30, 2010.
The Non-Tendered Warrants have an exercise price of $7.50 per warrant for 0.9853 share of Talbots
common stock. Approximately 2.5 million Non-Tendered Warrants were exercised for total cash
proceeds of $19.0 million immediately following the transaction. The 0.9 million Non-Tendered
Warrants that remained outstanding at October 30, 2010 are not exercisable for one year from the
April 7, 2010 effective date of the merger, do not have anti-dilution rights, were de-listed from
NYSE Amex concurrent with the merger and expire February 26, 2015.
The AEON Warrants are immediately exercisable at $13.21 per share for one share of Talbots common
stock, have a stated term of five years from the date of issuance, April 7, 2010, and beginning
after April 7, 2011, are subject to accelerated expiration under certain conditions including, at
our discretion, if the trading value of Talbots common stock exceeds $23.12 per share for 20 of 30
consecutive trading days in a period ending not more than 15 days prior to notice of such
acceleration. The warrants may be exercised on a cashless basis. One million AEON Warrants were
outstanding at October 30, 2010.
Further in connection with the consummation and closing of the BPW merger, we executed a new 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 carried interest, at our 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
28
availability thresholds, with the base rate established at a prime rate pursuant to the terms of
the agreement. On August 31, 2010, we 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. We pay a fee 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 First Amendment. As of October
30, 2010, our effective interest rate was 3.9% and we had additional borrowing availability of up
to $124.5 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, 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
charge 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 agreement does not contain any financial covenant tests.
Concurrent with the execution of the First Amendment, we 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 our request 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 is our only outstanding debt agreement at October 30, 2010. Of the $125.0
million borrowed under the Credit Facility at its inception, approximately $68.8 million was
outstanding at October 30, 2010. Further at October 30, 2010, we had $1.2 million in outstanding
letters of credit and letter of credit availability of up to $23.8 million under the Master
29
Agreement, included as part of our total additional borrowing availability under the Credit
Facility, subject to borrowing capacity restrictions described therein.
Fiscal 2010 Outlook
We expect that our primary uses of cash in the next twelve months will be concentrated in (i)
funding operations and working capital needs; (ii) investing in capital expenditures with
approximately $20.0 million in capital expenditures expected for the remainder of fiscal 2010,
primarily related to the store re-image initiative and investments in our operations, finance and
information technology systems; and (iii) seeking to continue to deleverage our consolidated
balance sheet by repaying our outstanding obligation under the Credit Facility.
Our cash and cash equivalents were $2.4 million as of October 30, 2010. Based on our assumptions,
our forecast and operating cash flow plan for the remainder of 2010 and expectations for 2011, our
borrowing availability under the Credit Facility and improvements to the Companys capital
composition, 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.
Cash Flows
The following is a summary of cash flows from continuing operations for the thirty-nine weeks ended
October 30, 2010 and October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(8.1
|
)
|
|
$
|
20.8
|
|
Net cash provided by (used in) investing activities
|
|
|
314.3
|
|
|
|
(17.0
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(409.6
|
)
|
|
|
12.0
|
|
Cash (used in) provided by operating activities
Cash used in operating activities was $8.1 million during the thirty-nine weeks ended October 30,
2010 compared to net cash provided by operating activities of $20.8 million during the thirty-nine
weeks ended October 31, 2009. Cash used in operating activities in the thirty-nine weeks ended
October 30, 2010 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
decrease period-over-period in cash from operating activities is primarily due to the inclusion and
payment of $20.4 million in merger-related costs in fiscal 2010 as well as changes in certain
working capital items, principally increases in the balance of
merchandise inventories which reflect a planned increase in the
timing of inventory receipts.
Cash provided by (used in) investing activities
Cash provided by investing activities was $314.3 million during the thirty-nine weeks ended October
30, 2010 compared to cash used in investing activities of $17.0 million during the thirty-nine
weeks ended October 31, 2009, an increase of $331.3 million. The cash flows provided by investing
activities in 2010 primarily reflect the $333.0 million of cash and cash equivalents acquired in
the merger with BPW on April 7, 2010. See
Recent Developments
for further information regarding
this transaction.
Cash flows used in investing activities relate solely to purchases of property and equipment in
both periods presented. Cash used for purchases of property and equipment during the thirty-nine
weeks ended October 30, 2010 was $18.7 million compared to $17.1 million during the thirty-nine
weeks ended October 31, 2009. This increased level of capital expenditures in
30
2010 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 nine new locations
opening in the thirty-nine weeks ended October 30, 2010.
In the third quarter of 2010, we completed store renovations of fourteen retail locations in three
key markets under our store re-image initiative which were begun in the second quarter of 2010. We
also continued work on the complete rebuild of an additional location in a key market which we
started in the second quarter. Rebuild of this location is expected to be completed by the end of
fiscal 2010. We extended the roll-out of our store re-image initiative in the third quarter,
beginning storefront refreshes of nine additional locations in October 2010. These refreshes are
expected to be completed by the end of the fiscal year. We expect that these phases of the store
re-image initiative will include $10.3 million of related
capital expenditures and $1.6 million of
related expenses, including $0.7 million of accelerated depreciation of existing property and
equipment disposed of under these phases, with primarily all of the expenses classified as cost of
sales, buying and occupancy in the consolidated statements of operations.
These renovations mark the introduction of a multi-faceted store re-image initiative, a program
designed to translate our updated brand image of Tradition Transformed into a renovated
storefront and store lay-out. Implementation of this initiative is primarily comprised of two
programs first, a store renovation with new lay-out, fixtures, and exterior updates and signage
and second, a storefront refresh with new signage and exterior updates. We believe the store
re-image initiative is a key component in our plan to improve customer traffic and drive store
productivity and could be a significant portion of our future capital investment. Based on the
results of the renovations undertaken to-date, we will evaluate the scope and execution of the next
phase of the initiative.
We expect to spend approximately $20.0 million in gross capital expenditures during the remainder
of fiscal 2010, primarily related to the store re-image initiative and systems improvements.
Cash (used in) provided by financing activities
Cash used in financing activities was $409.6 million during the thirty-nine weeks ended October 30,
2010 compared to cash provided by financing activities of $12.0 million during the thirty-nine
weeks ended October 31, 2009. This change is primarily correlated to an outstanding debt reduction
in the thirty-nine weeks ended October 30, 2010 compared to an outstanding debt increase in the
thirty-nine weeks ended October 31, 2009 with outstanding debt totaling $68.8 million at October
30, 2010, $486.5 million at January 30, 2010, and $491.1 million at October 31, 2009. The net use
of cash in financing activities in the thirty-nine weeks ended October 30, 2010 primarily reflects
the repayment of $486.5 million in related party debt and payment of debt and equity issuance costs
in connection with the merger with BPW, partially offset by net borrowings on our new revolving
credit facility of $68.8 million and proceeds from the exercise of Non-Tendered Warrants of $19.0
million. The net proceeds of cash from financing activities in the thirty-nine weeks ended October
31, 2009 primarily reflect a net borrowing on credit facilities of $14.2 million, partially offset
by payments of debt issuance costs and the repurchase of shares surrendered by employee stock-award
holders to satisfy employees tax withholding obligations.
Cash flows from discontinued operations
Net cash used in discontinued operations was $7.4 million for the thirty-nine weeks ended October
30, 2010 compared to net cash provided by discontinued operations of $37.8 million for the
thirty-nine weeks ended October 31, 2009. In the thirty-nine weeks ended October 30, 2010, cash
used in discontinued operations was primarily related to the remaining recorded lease liabilities
of the J. Jill, Talbots Kids and Mens businesses. Cash provided by discontinued operations in the
comparable period of the prior year includes net cash proceeds from the sale of the J. Jill
business of $64.3 million.
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, sales return reserve, customer loyalty program, retirement plans, long-lived assets,
goodwill and other intangible assets, income taxes and stock-based compensation. We continue to
monitor our accounting policies to ensure proper application of current rules and regulations.
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 30, 2010.
31
Recent Accounting Pronouncements
In October 2009, the FASB issued ASU 2009-13,
Multiple Deliverable Revenue Arrangements
. ASU
2009-13 amends ASC 605-10,
Revenue Recognition
, and addresses accounting for multiple-deliverable
arrangements to enable vendors to account for products or services (deliverables) separately rather
than as a combined unit, and provides guidance on how to measure and allocate arrangement
consideration to one or more units of accounting. ASU 2009-13 is effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted, but certain requirements must be met. We do not expect the
adoption of ASU 2009-13 will have any impact on our condensed
consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06,
Fair Value Measurements and Disclosures
. ASU
2010-06 amends ASC 820-10,
Fair Value Measurements and Disclosure
, and requires new disclosures
surrounding certain fair value measurements. ASU 2010-06 is effective for the first interim or
annual reporting period beginning on or after December 15, 2009, except for certain disclosures
about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3
fair value measurements, which are effective for the first interim and annual reporting periods
beginning on or after December 15, 2010. During fiscal 2010, we adopted the disclosure
requirements effective for the first interim or annual reporting period beginning on or after
December 15, 2009. We intend to adopt the remaining disclosure requirements when they
become effective in the first quarter of fiscal 2011. We do not expect the additional
disclosure requirements of ASU 2010-06 will have any impact on our
condensed consolidated financial
statements.
In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2010-20,
Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses
, which requires additional disclosures about the credit quality of
financing receivables, including credit card receivables, and the allowance for doubtful accounts.
The provisions of this ASU are effective beginning with our annual report for the year
ending January 29, 2011. We are still evaluating the impact of
this ASU on our condensed consolidated financial statements, however, it is disclosure-only in nature.
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. Revenue 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
In the first quarter of 2010, we settled lease liabilities of four of the J. Jill retail locations
which were not assumed in the purchase of the J. Jill business or previously settled by us in
fiscal 2009. In the second quarter of 2010, we settled a portion of the lease liability of the
Quincy, Massachusetts office space which was not assumed in the purchase of the J. Jill business or
previously settled by us in fiscal 2009. Except for changes in our outstanding financing
arrangements, including the repayment of our outstanding related party debt and borrowing under the
Credit Facility in April 2010, discussed in the
Liquidity and Capital Resources
section above,
there were no other material changes to our contractual obligations during the thirty-nine weeks
ended October 30, 2010. 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 2009 Annual Report on Form 10-K.
32
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, including assumptions and projections concerning our liquidity,
internal plan, regular-price and markdown selling, operating cash flows, 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:
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|
|
the continuing material impact of the volatility in the U.S. economic environment and
global economic uncertainty on our business, continuing operations, liquidity, financing
plans and financial results, including substantial negative impact on consumer
discretionary spending and consumer confidence, substantial loss of household wealth and
savings, the disruption and significant tightening in the U.S. credit and lending markets
and potential long-term unemployment levels;
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|
the risks associated with our efforts to successfully implement and achieve the benefits
of our current strategic initiatives including store segmentation, store re-imaging, store
rationalization, and any other future initiatives that we may undertake;
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|
the risk associated with our efforts in transforming our information technology systems
to meet our changing business systems and operations;
|
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|
|
|
the ability to accurately estimate and forecast future regular-price and markdown
selling, operating cash flows and other future financial results and financial position;
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|
the satisfaction of all borrowing conditions under our credit facility including
accuracy of all representations and warranties, no events of default, absence of material
adverse effect or change and all other borrowing conditions;
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|
any lack of sufficiency of available cash flows and other internal cash resources to
satisfy all future operating needs and other cash requirements;
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|
the ability to access on satisfactory terms, or at all, adequate financing and sources
of liquidity necessary to fund our continuing operations and strategic initiatives and to
obtain further increases in our credit facilities as may be needed from time to time;
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|
the impact of the current regulatory environment and financial systems reforms on our
business, including new consumer credit rules;
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|
the risks associated with our on-going efforts to adequately manage rising raw material
and freight costs;
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|
the ability to successfully increase our store customer traffic and the success and
customer acceptance of our merchandise offerings;
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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;
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|
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;
|
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|
the risks and uncertainties in connection with any need to source merchandise from
alternate vendors;
|
33
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|
any impact to or disruption in our supply of merchandise including from any current or
any future increased political or other unrest or future labor shortages in various Asian
countries which are our primary sources of merchandise supply or any other disruption in
our ability to adequately obtain alternate merchandise supply as may be necessary;
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the ability to successfully execute, fund and achieve the expected benefits of supply
chain initiatives, anticipated lower inventory levels, and related cost reductions;
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any significant interruption or disruption in the operation of our distribution facility
or the domestic and international transportation infrastructure;
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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;
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any future store closings and the success of and necessary funding for closing
underperforming stores;
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the ability to reduce spending as needed;
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the ability to achieve our 2010 financial plan for operating results, working capital
and cash flows;
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any negative publicity concerning the specialty retail business in general or our
business in particular;
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the risk of impairment of goodwill and other intangible and long-lived assets; and
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the risks and uncertainties associated with the outcome of litigation, claims, tax
audits, and tax and other proceedings and the risk that actual liabilities, assessments and
financial impact will exceed any estimated, accrued or expected amounts or outcomes.
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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 Report or included in our other periodic reports filed with 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 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 Report which modify or impact any of the forward-looking
statements contained in this Report will be deemed to modify or supersede such statements in this
Report.
In addition to the information set forth in this Report, you should carefully consider the risk
factors and risks and uncertainties included in our 2009 Annual Report on Form 10-K 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 October 30, 2010, we had outstanding variable rate borrowings of $68.8 million under our Credit
Facility. The impact of a hypothetical 10% adverse change in interest rates for this variable rate
debt would not materially affect our results of operations for the
quarter ended October 30, 2010. 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 20 stores in Canada as of October 30, 2010.
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.
34
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) 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 October 30, 2010.
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 January 12, 2010, a Talbots common shareholder filed a putative class
and derivative action captioned Campbell v. The Talbots, Inc., et al., C.A. No. 5199-VCS, in the
Court of Chancery of the State of Delaware (the Chancery Court) against Talbots; Talbots board
of directors; AEON (U.S.A.), Inc.; BPW Acquisition Corp. (BPW); Perella Weinberg Partners LP, a
financial advisor to the audit committee of the Board of Directors of the Company and an affiliate
of Perella Weinberg Partners Acquisition LP, one of the sponsors of BPW; and the Vice Chairman,
Chief Executive Officer, and Senior Vice President of BPW. Among other things, the complaint
asserts claims for breaches of fiduciary duties, aiding and abetting breaches of fiduciary duties,
and violations of certain sections of the Delaware General Corporation Law (DGCL) and Talbots
by-laws in connection with the negotiation and approval of the merger agreement between Talbots and
BPW.
In the third quarter of 2010, the Company, certain current and former members of the Companys
board of directors; AEON (U.S.A.), Inc.; BPW; Perella Weinberg Partners LP; three principals of BPW
(collectively, the Defendants); and the Plaintiff entered into a stipulation of settlement with
respect to this matter. On October 19, 2010, the Chancery Court preliminarily approved the class
and the distribution of a notice of settlement and scheduled a hearing for December 20, 2010 to
consider,
among other things, whether to approve the settlement as fair, reasonable and in the best interests
of the Company and its stockholders and whether to enter final judgment thereon. If the settlement
is given final approval by the Chancery Court, among other things, the lawsuit will be dismissed
with prejudice; the Defendants (other than the Company and AEON (U.S.A.), Inc.) will deliver to the
Company the sum of $3,750,000 and Perella Weinberg Partners LP will cause to be delivered 175,000
shares of the Company common stock to the Company. Plaintiffs counsel has informed the Company
that Plaintiff and Plaintiffs counsel intend to petition the Court for an award of attorneys fees
(including costs) up to an amount of $3.5 million plus $350,000 in expenses (the Fee
Application), which the Company has agreed to pay or cause to be paid if and to the extent awarded
by the Court. The Defendants have reserved all of their rights to object to the Fee Application
and intend to object to the Fee Application in the amount as proposed by Plaintiff. There can be no
assurance that the Chancery Court will approve the settlement. If the
settlement is not approved, the recovery to Talbots provided in the settlement would not be
payable to Talbots and the agreement by Talbots to pay the amount of Plaintiffs attorneys fees in
the amount which may be awarded by the Court would no longer be applicable. Therefore, as of
today, the Company is not legally obligated to pay the attorneys fees sought by Plaintiff, as we
cannot predict whether the settlement will be approved by the Court and it is not probable in our
view that the Company has a liability for loss in this matter at this time.
35
Talbots is periodically named as a defendant in various lawsuits, claims and pending actions and is
exposed to tax risks. While Talbots believes the recorded amounts for pending claims, tax matters
and other proceedings or contingencies are adequate, there are inherent limitations in projecting
the outcome or final resolution of these matters and in the estimation process whereby future
actual amounts may exceed projected amounts, which could have a material adverse effect on Talbots
financial condition and 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 2009 Annual
Report on Form 10-K, any of which could materially affect our business, operations, financial
position or future results. The risks described in our 2009 Annual Report on Form 10-K are not
intended to be exhaustive, are not the only risks facing the Company and 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 30, 2010.
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
October 30, 2010 is set forth below:
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Approximate Dollar Value
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Total Number of
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of Shares that may yet be
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Shares
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Average Price
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Purchased under the Equity
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Period
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Purchased (1)
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Paid per Share
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Award Programs (2)
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August 1, 2010 through August 28, 2010
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28,580
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$
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0.32
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$
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20,083
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August 29, 2010 through October 2, 2010
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2,000
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0.01
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20,199
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October 2, 2010 through October 30, 2010
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4,930
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6.37
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20,095
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Total
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35,510
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$
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1.14
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$
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20,095
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(1)
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We repurchased 31,750 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.
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Our equity program permits 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 3,760 shares of common stock from certain employees to cover tax withholding
obligations from the vesting of stock, at a weighted average acquisition price of $10.67 per
share.
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(2)
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As of October 30, 2010, there were 2,009,542 shares of nonvested stock that were subject
to buyback at $0.01 per share, or $20,095.42 in the aggregate, that we have the option to
repurchase if employment is terminated prior to vesting.
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Item 6. Exhibits
10.1
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First Amendment to Credit Agreement, dated August 31, 2010, by and among, the Company,
TCFC, TGLP, each as borrower, the subsidiaries of the Company from time to time party thereto,
as guarantors, and General Electric Capital Corporation, as Agent, for the financial
institutions from time to time party thereto, and as a lender. (1)
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10.2
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Master Agreement for Documentary Letters of Credit, dated August 31, 2010, by General
Electric Capital Corporation, the Company, TCFC, TGLP, Talbots Classics, Inc., Talbots Import,
LLC, Birch Pond Realty
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36
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Corporation, Talbots International Retailing Limited, Inc., Talbots
(U.K.) Retailing Limited, and Talbots (Canada), Inc. (1)
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10.3
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Master Agreement for Standby Letters of Credit, dated August 31, 2010, by General
Electric Capital Corporation, the Company, TCFC, TGLP, Talbots Classics, Inc., Talbots Import,
LLC, Birch Pond Realty Corporation, Talbots International Retailing Limited, Inc., Talbots
(U.K.) Retailing Limited, and Talbots (Canada), Inc. (1)
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31.1
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Certification of Trudy F. Sullivan, President and Chief Executive Officer of the Company,
pursuant to Securities Exchange Act Rule 13a-14(a). (2)
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31.2
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Certification of Michael Scarpa, Chief Operating Officer, Chief Financial Officer and
Treasurer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a). (2)
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32.1
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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. (2)
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(1)
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Incorporated by reference to the Current Report on Form 8-K filed on August 31, 2010.
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(2)
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Filed with this Form 10-Q.
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37
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: December 7, 2010
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THE TALBOTS, INC.
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By:
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/s/ Michael Scarpa
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Michael Scarpa
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Chief Operating Officer,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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38
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