UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 29, 2011
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or
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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
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Commission File Number 1-12552
THE TALBOTS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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41-1111318
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State or other jurisdiction
of
incorporation or organization
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(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
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of exchange on which registered
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Common stock, $.01 par value
Warrants to purchase common stock
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New York Stock Exchange
NYSE Amex
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes
o
No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
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No
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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
(§ 232.405 of this chapter) 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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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). Yes
o
No
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The aggregate market value of the voting common stock held by
non-affiliates as of the last business day of the
registrants second fiscal quarter ended July 31, 2010
was $783.9 million.
As of March 23, 2011, 69,905,977 shares of the
registrants common stock were outstanding.
Documents
Incorporated by Reference
Portions of the registrants Proxy Statement to be filed in
connection with the 2011 Annual Meeting of Shareholders are
incorporated by reference into Part III of this
Form 10-K.
The
Talbots, Inc.
Annual
Report on
Form 10-K
for the Fiscal Year Ended January 29, 2011
1
PART I
General
The Talbots, Inc. is a specialty retailer and direct marketer of
womens apparel, accessories and shoes sold almost
exclusively under the Talbots brand. As used in this report,
unless the context indicates otherwise, all references herein to
the Company, we, us and
our, refer to The Talbots, Inc. and its wholly-owned
subsidiaries.
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 strive to be the leading resource
for timeless classics infused with modern luxury while
delivering exceptional business results, driving shareholder
value and operating as a
best-in-class
retailer. We are dedicated to our core values of being
creatively led, customer-centric and socially conscious while
building a winning organization and demonstrating strong brand
pride.
We are committed to designing and providing our customers with
high quality, timeless fashion pieces that have been sourced
from socially conscious and cost effective manufacturers and
strategically distributed to our store locations based on
customer lifestyle, behavior and local climate. We have two
primary sales channels, stores and direct marketing, through
which we seek to offer a cross-functional means of providing our
customers access to our merchandise. Our stores channel consists
of retail stores, upscale outlets and surplus outlets. Our
direct marketing channel consists of our Internet business, at
www.talbots.com, and our catalog business. As of
January 29, 2011, we operated 551 stores in the United
States and 17 stores in Canada.
Description
of Operations
Stores
Our stores are located in 46 states and Canada. In 2010,
our stores accounted for 81.7% of our consolidated net sales.
As of January 29, 2011, we operated a total of 568 stores
under the Talbots name, including retail stores, upscale outlets
and surplus outlets. Retail stores represent our principal store
concept and offer our most recent, core Talbots brand
merchandise. Upscale outlets, introduced in 2009 to reach an
upscale outlet customer in her preferred shopping venue, offer a
unique assortment of merchandise that is exclusively available
at upscale outlet locations. Surplus outlets primarily sell
end-of-season
excess inventory from our retail stores at value prices. The
effective use of surplus outlets allows us to keep a fresh flow
of product in our core retail stores.
We operate stores in various location types, including specialty
centers, malls, village and urban centers, each representing
42.8%, 28.5%, 26.9% and 1.8% of U.S. retail store location type,
respectively. The unique range of our store portfolio, both in
location type and square footage, allows us to both offer
product across a broad size range and better allocate
merchandise to best serve our customers individual needs.
Our store portfolio as of January 29, 2011 is as follows:
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Total Store
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Total Store
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Number of
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Gross Square
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Selling Square
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Stores
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Footage
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Footage
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(In thousands)
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United States
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Retail
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505
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Upscale outlets
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28
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Surplus outlets
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18
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Subtotal United States
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551
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3,965
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3,053
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Canada
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Retail
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16
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Surplus outlets
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1
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Subtotal Canada
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17
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89
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67
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Total
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568
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4,054
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3,120
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2
The majority of the floor area of our stores is devoted to
selling space (including fitting rooms) with the balance
allocated to stockroom and other non-selling space.
We continuously seek to enhance store productivity by management
of our real estate portfolio, expense management and
identification of operational efficiencies. We view the
management of our real estate portfolio as an ongoing strategic
process, wherein we seek to rationalize our existing store
portfolio, improve the portfolio of the existing square footage,
close, consolidate and downsize stores where appropriate and
selectively add square footage primarily through our growth in
upscale outlets. We evaluate store lease expirations, renewals
and other opportunities with these goals in mind, by assessing,
on a
market-by-market
basis, factors such as overall size and potential sales in each
market, current performance and growth potential of each store,
and available lease expirations, lease renewals and other lease
termination opportunities. We expect to seek to reduce our total
store square footage over the coming years by carefully
evaluating lease and market opportunities.
Our stores segment accounted for $991.4 million,
$1,027.9 million and $1,261.5 million of our net sales
in fiscal years 2010, 2009 and 2008, respectively. Direct profit
for the stores segment was $120.9 million,
$81.2 million and $65.9 million in fiscal years 2010,
2009 and 2008, respectively. Certain of our most significant
assets, including customer accounts receivable, are not
allocated or tracked by segment. Therefore, no measure of
segment assets is available.
Direct
Marketing
Our direct marketing segment includes our catalog, Internet and
red-line phone channels which have been designed to offer
customers convenience in ordering Talbots merchandise. In 2010,
direct marketing accounted for 18.3% of our consolidated net
sales, with the Internet channel comprising 73.0% of our net
direct marketing sales.
Our catalogs are designed to promote our brand image and drive
customers to their preferred shopping channel, including stores,
a call center and the Internet. In 2010, we issued 15 separate
Talbots catalogs across all business concepts with a circulation
of approximately 38.7 million, an increase of 5.7% in
circulation from 2009.
We utilize computer applications which employ mathematical
models to improve the efficiency of our catalog mailings through
refinement of our customer list. A principal factor in improving
customer response has been the development of our own
proprietary list of active customers. We routinely monitor
customer interest and update and refine this list. Our customer
list also provides important demographic information and serves
as an integral part of both our store portfolio management
strategy, by helping to identify markets with the potential to
support a new store or to identify where a store is no longer
warranted, as well as our merchandise allocation strategy, by
helping us to determine what type of merchandise will be most
sought after in which markets.
We strive to make catalog shopping as convenient as possible. We
maintain toll-free numbers, accessible seven days a week (except
Christmas Day), to accept requests for catalogs and to take
customer orders. We maintain a call center in Knoxville,
Tennessee designed to provide service to customers. Telephone
calls are answered by knowledgeable call center sales associates
who enter customer orders and retrieve information about
merchandise and its availability. These sales associates also
suggest and help to select merchandise and can provide detailed
information regarding size, color, fit and other merchandise
features. We have achieved efficiencies in order entry and
fulfillment, which permit the shipment of most orders the next
business day. Our red-line phone channel complements our catalog
channel by providing customers direct access from our stores to
our call center.
Our Internet channel is a natural extension of our existing
store and catalog channels, offering a similar broad assortment
of our merchandise. We also utilize our Internet channel as an
inventory clearance tool via our on-line surplus outlet. In the
fall of 2009, we made major enhancements to our Talbots website
by providing enhanced visuals and greater ease of functionality
to better meet customer needs and to better communicate our
tradition transformed brand image. We have continued
and will continue to refine our websites functionality and
visual content going forward.
Sales orders from our website are merged into the existing
catalog fulfillment system, allowing efficient shipping of
merchandise. Customers can check the availability of merchandise
at the time of purchase and the website will provide examples of
alternative merchandise if items are unavailable. Additionally,
the websites online chat feature allows
customers to communicate with customer service representatives.
Customers shopping online at
3
www.talbots.com can also enjoy the benefit of our find in
a store feature which allows a customer to select
merchandise online and then reserve it at a store of her choice.
As with the catalog, customer online purchases can be returned
by mail or at our retail stores.
Our direct marketing segment accounted for $221.7 million,
$207.7 million and $233.6 million of our net sales in
fiscal years 2010, 2009 and 2008, respectively. Direct profit
for the direct marketing segment was $54.2 million,
$40.6 million and $24.7 million in fiscal years 2010,
2009 and 2008, respectively. Certain of our most significant
assets, including customer accounts receivable, are not
allocated or tracked by segment. Therefore, no measure of
segment assets is available.
In total, our net sales for fiscal years 2010, 2009 and 2008
were earned in the United States, $1.2 billion,
$1.2 billion and $1.4 billion, respectively, and
Canada, $36.2 million, $34.7 million and
$45.8 million, respectively. Similarly, our long-lived
assets at January 29, 2011, January 30, 2010 and
January 31, 2009 were located in the United States,
$184.8 million, $218.2 million and
$275.0 million, respectively, and Canada,
$1.8 million, $2.2 million and $2.4 million,
respectively.
Merchandising,
Sourcing and Inventory Control &
Distribution
Merchandising
Our evolved merchandising strategy focuses on honoring the
classics, while infusing relevant and updated merchandise across
all product classifications for our brand. We continue to work
to infuse our tradition transformed brand vision
into our product assortment and merchandise branding in a way
that will connect with our target customer while continuing to
appeal to our traditional core customer.
Our merchandise assortment is designed almost exclusively by our
in-house creative team and then edited based on our assessed
inventory needs and our brand vision for the upcoming season. By
conceptualizing and designing in-house, we have been able to
realize higher average initial gross profit margins for our
clothing and accessories, while at the same time providing value
to our customers. Styles for our merchandise are developed based
upon analysis of historical, current and anticipated future
fashion trends that will appeal to our target customers. Our
merchandising strategy focuses on establishing superior customer
satisfaction and a matchless customer experience through a
commitment to quality, style and price.
We offer selections of our merchandise assortment across a broad
size range under the following business concepts: Misses,
Petites, and Woman and Woman Petites, our plus size concepts. We
believe our ability to service every woman, every
size sets us apart.
Our apparel selection is complemented by our accessories
offerings, which primarily includes fashion jewelry, scarves,
handbags and footwear. Our merchandising team works to deliver
apparel and accessory offerings that communicate a cohesive look
which enables customers to assemble complete outfits. Sales
associates are trained to assist customers in merchandise
selection and wardrobe coordination, helping them achieve the
Talbots look from
head-to-toe.
Sourcing
We procure our merchandise globally from a balanced and
diversified manufacturing network, not relying solely on any one
region. Our merchandise is produced by independent manufacturers
to our specifications and standards which, for fiscal year 2010
purchases, were located in Asia (84.6%), the Mediterranean
(7.8%) and the Americas (7.6%). We seek to manufacture our
merchandise with vendors that share our same values and
demonstrate a commitment to fair labor standards and the welfare
of their workforce and community.
In August 2009, we entered into a buying agency agreement with
an affiliate of Li & Fung Limited
(Li & Fung) which, effective September
2009, is acting as our exclusive global apparel sourcing agent
for substantially all Talbots apparel. The exclusive agency does
not cover certain other products (including swimwear, intimate
apparel, sleepwear, footwear, fashion accessories, jewelry and
handbags) for which Li & Fung may act as our
non-exclusive buying agent at our discretion. As a result of
this agreement, we downsized our internal sourcing organization
as well as closed our sourcing offices in Hong Kong and India in
2009.
4
We frequently analyze our overall distribution of manufacturing
to ensure that no particular vendor or country is responsible
for what we believe would be a disproportionate amount of our
merchandise. With the appointment of Li & Fung as our
exclusive buying agent for substantially all of our apparel
product, we have been able to more readily gain access to
additional sourcing countries and regions under its substantial
global sourcing network. In 2010, we sourced our merchandise
from 153 factories, representing 108 vendors in 23 countries,
including purchasing 10.3% of our product from countries with
trade preference agreements with the United States. Our top ten
vendors, determined based on first-cost dollars, represented
49.1% of our total purchases in fiscal 2010. We expect to
continue to manage the geographic dispersion of our sourcing
within the Li & Fung network in the coming year,
adding further diversity to the regions in which our
manufacturers operate while seeking to select vendors that
operate in countries that have trade preference agreements with
the United States.
The following is our sourcing activity, based on first-cost
dollars, by top-five countries for 2010:
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Percent of
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Country
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Sourcing
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China
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41.5
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Indonesia
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16.9
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Vietnam
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14.0
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India
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5.0
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Thailand
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5.0
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Other
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17.6
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In 2010, we upgraded our social responsibility standards to
align with leading specialty apparel retailers, and we enhanced
our social compliance program to better address global supply
chain issues, including child labor, excessive working hours,
freedom of association and safe working conditions. We have
partnered with Li & Fung to test compliance with these
standards at the factories from which we source our product and,
further, employed a third party independent monitoring agency to
correlate and verify compliance findings. Additionally, in 2010,
we launched a community reinvestment program, in partnership
with a global non-governmental organization and Li &
Fung, to deliver a factory-based womens education program
in certain developing countries from which we source our
product. As we learn more about the benefits and impacts of this
educational program, we expect to expand to other factories from
which we source.
While we make efforts to develop strategic partnerships with our
top vendors, we do not maintain any long-term or exclusive
commitments or arrangements to purchase merchandise from any
vendor. No single supplier is critical to our sourcing needs,
and we believe that we have sufficient alternative suppliers
from which we could source our product in the event that we need
to secure additional or replacement production capacity.
Further, we take measures to monitor our vendors for compliance
with the Fair Labor Standards Act, security procedures and rules
mandated by the U.S. Customs and Border Patrol.
Inventory
Control & Distribution
Inventory distribution for our stores and merchandise
fulfillment for our direct marketing business is managed through
a central distribution facility in Lakeville, Massachusetts.
Merchandise is allocated to our stores based on a localization
strategy which contemplates customer lifestyle, behavior and
local climate. We deliver new and what we believe will be
compelling merchandise assortments with fresh floor sets to our
stores on at least a monthly basis.
While merchandise offerings may vary between stores and sales
channels, we seek to provide our customers with cross-functional
access to available merchandise by providing red-line phones in
stores, which are direct lines in our stores to our call center;
offering a find in a store feature on our website;
and seeking to reach our customers across multiple channels
through coordinated direct marketing campaigns and in-store
events, promotions and visual presentation.
We monitor inventory levels on an on-going basis and use
markdowns to clear merchandise as needed. While most inventory
is cleared in-store or through our own surplus outlets, certain
residual inventory may be liquidated through unaffiliated third
parties.
5
Customer
Credit
We extend credit to our Talbots customers through the use of our
proprietary Talbots credit card. The Talbots credit card is
managed through Talbots Classics National Bank, a national
banking association organized under the laws of the United
States with a main office and principal place of business in
Rhode Island, and Talbots Classics Finance Company, both
wholly-owned subsidiaries. While our primary objective in
offering the Talbots credit card is to enhance customer loyalty
and drive merchandise sales, the Company also benefits from
finance charge income earned and decreased third party bank card
fees.
U.S. Talbots credit card holders are automatically enrolled
in our customer loyalty program, referred to as our classic
awards program, which rewards U.S. Talbots customers with a
twenty-five dollar appreciation award for every five hundred
points earned. Prior to January 2009, one point was earned for
every dollar of merchandise purchased on a Talbots credit card.
Commencing in January 2009, we launched an expanded program with
three tiers: red, platinum, and black. The red tier is open to
all customers, regardless of whether they hold a Talbots credit
card, and accrues 0.5 points for every net dollar of merchandise
purchased with a non-Talbots credit card payment. The platinum
tier is the same as the prior program with one point being
earned for every net dollar of merchandise purchased on a
Talbots credit card. The black tier is for Talbots credit card
holders who spend more than $1,000, net per calendar year on
their Talbots credit card, and accrues 1.25 points for every net
dollar of merchandise purchased on their Talbots credit card.
Points not converted into appreciation awards expire at the end
of the calendar year at the red and platinum tiers; points do
not expire at the black tier. Appreciation awards can be
redeemed against future purchases and expire one year from the
date of issuance.
Management
Information Systems
Our systems consist of a full range of retail, catalog,
e-commerce,
financial and merchandising systems, including credit, inventory
distribution and control, sales reporting, accounts payable,
procurement, payroll, product design, budgeting and forecasting,
financial reporting, merchandise reporting and distribution. We
seek to protect company-sensitive information on our servers
from unauthorized access using industry standard network
security systems in addition to anti-virus and firewall
protection. Our
e-commerce
website makes use of encryption technology to help protect
sensitive customer information. Our management information
systems and electronic data processing systems are located at
our systems center in Tampa, Florida, and at our corporate
facilities in Hingham, Massachusetts. We also have a collections
system at Talbots Classics Finance Company located in Lincoln,
Rhode Island.
All of our stores have
point-of-sale
terminals that transmit information daily on sales by item,
color and size. Our stores are equipped with bar code scanning
programs for the recording of store sales, returns, inventories,
price changes, receipts and transfers. We evaluate this
information, together with weekly reports on trend analyses and
merchandise statistics, prior to making merchandising decisions
regarding allocation of merchandise and promotional activity.
During fiscal 2010, we began the reinvestment phase of our
three-year IT systems strategic plan which focuses on making
systems enhancements designed to aid management in understanding
and meeting customer needs, driving growth across the business
and promoting operational excellence. Most significantly, during
fiscal 2010, we commenced the process of upgrading our Oracle
financial system and implementing our Oracle and JDA merchandise
financial planning, assortment planning and allocation systems.
These systems will provide cross-functional support and analysis
tools to better serve our business as well as a foundation for
developing a leaner systems operation which will allow us to
eliminate redundant systems and reduce customizations. We expect
these phases of our systems upgrade to be completed by the close
of fiscal 2011 and expect to continue to reinvest in our
information systems in the coming year as we continue to execute
on this plan.
Marketing
Our marketing initiatives focus on building and communicating
our brand and increasing customer acquisition and retention. Our
primary marketing programs consist of catalog circulation,
customer mailings,
e-commerce
advertising, in-store visual presentation, digital and social
media outreach, national and regional print advertising as well
as other marketing campaigns such as direct promotional customer
incentives and events.
6
In 2010, we reinvested in national print advertising, which had
been eliminated from our marketing program in 2008 and 2009 as
part of cost-cutting measures; increased our presence in
e-commerce
advertising; and launched our store refresh and renovation
initiative, which represents a significant reinvestment in our
in-store visual presentation. These programs are part of a
coordinated campaign designed to communicate our updated
tradition transformed brand image and connect with
prospective customers.
Seasonality
Our business has two distinct selling seasons, spring and fall.
The spring selling season is generally reflected in the results
of the first and second quarters of the fiscal year, and the
fall selling season is generally reflected in the results of the
third and fourth quarters of the fiscal year. Direct marketing
sales typically peak during the first half of each selling
season, in the first and third quarters of the fiscal year,
while store sales are generally consistent across quarters and
selling seasons. Our total net sales have not shown significant
seasonal variation which we believe is attributable to several
factors including, but not limited to, our promotional
strategies and our merchandising and marketing strategies.
Our operating results may fluctuate quarter to quarter as a
result of market acceptance of our products, product mix,
pricing and presentation of the products offered and sold, the
cost of goods sold, the incurrence of other operating costs, the
timing of holidays, weather and factors beyond our control, such
as general economic conditions and actions of competitors.
Competition
The womens specialty retail apparel industry is highly
competitive. We compete with many other specialty retailers,
department stores and catalog and Internet businesses that offer
similar categories of merchandise. We believe that the breadth
of our product offering, which provides for complete wardrobe
coordination and the ability to achieve the Talbots look from
head-to-toe,
as well as the availability of our merchandise in multiple
concepts and through multiple channels, including several store
concepts, catalog and Internet, distinguishes us from other
womens apparel retailers.
Employees
As of January 29, 2011, we had approximately
9,096 employees of whom approximately 2,141 were full-time
salaried employees, approximately 1,343 were full-time hourly
employees, and approximately 5,612 were part-time hourly
employees. None of our employees are represented by a labor
union. We believe that our relationship with our employees is
good.
Executive
Officers of the Company
The following table sets forth certain information regarding our
executive officers as of March 23, 2011:
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Name
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Age
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Position
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Trudy F. Sullivan
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61
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President and Chief Executive Officer, a Director
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Michael Scarpa
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55
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Chief Operating Officer, Chief Financial Officer and Treasurer
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Michael Smaldone
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46
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Chief Creative Officer
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Benedetta I. Casamento
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44
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Executive Vice President, Finance
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Richard T. OConnell, Jr.
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60
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Executive Vice President, Real Estate, Legal, Store Planning
& Design and Construction and Secretary
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Gregory I. Poole
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49
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Executive Vice President, Chief Supply Chain Officer
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Lori Wagner
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46
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Executive Vice President, Chief Marketing Officer
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Ms. Sullivan joined The Talbots, Inc. as President and
Chief Executive Officer and as a Director in August 2007. Prior
to joining the Company, Ms. Sullivan served as President of
Liz Claiborne, Inc. from January 2006 until July 2007.
Ms. Sullivan joined Liz Claiborne, Inc. in 2001 as Group
President of the companys Casual, Collections, and
7
Elisabeth businesses. She was named Executive Vice President in
March 2002 with added responsibilities for all non-apparel
business, all
direct-to-consumer
business (retail and outlet) and the International Alliances
business at Liz Claiborne, Inc. She served in this position
until she was named President of Liz Claiborne, Inc. in 2006.
Prior to joining Liz Claiborne, Inc., Ms. Sullivan served
as President of J. Crew Group, Inc. from 1997 until 2001.
Additionally, in September 2010, Ms. Sullivan joined the
Board of The Yankee Candle Company, Inc.
Mr. Scarpa joined The Talbots, Inc. as Chief Operating
Officer in December 2008 and was also named Chief Financial
Officer and Treasurer in January 2009. Prior to joining the
Company, Mr. Scarpa served as Chief Operating Officer of
Liz Claiborne, Inc. from January 2007 until November 2008.
Mr. Scarpa joined Liz Claiborne in 1983 and served in many
senior leadership roles, including Senior Vice President, Chief
Financial Officer from July 2002 until May 2005, and Senior Vice
President, Finance and Distribution and Chief Financial Officer
from May 2005 until January 2007.
Mr. Smaldone joined The Talbots, Inc. as Chief Creative
Officer in December 2007. Prior to joining the Company,
Mr. Smaldone served as Senior Vice President of Design for
Ann Taylor Stores Corporation from September 2003 until December
2007. Mr. Smaldone also held senior leadership roles in
design at Anne Klein, where he served as Chief Design Officer
from July 2001 to September 2003, and Elie Tahari, from May 2000
to May 2001.
Ms. Casamento joined The Talbots, Inc. as Executive Vice
President, Finance in April 2009. Prior to joining the Company,
she spent nine years at Liz Claiborne, Inc., most recently as
President of Liz Claiborne, Claiborne and Monet brands from July
2007 until October 2008. Prior to that position,
Ms. Casamento served in various other leadership roles
within Liz Claiborne, including President of Ellen Tracy and
Dana Buchman brands from January 2007 until July 2007, Vice
President, Group Operating Director, Better & Moderate
Apparel from January 2004 until January 2007, Vice President,
Financial Planning and Analysis from November 2000 until January
2004, and Vice President, Group Financial Director,
Retail & International Group. Ms. Casamento
started her career at Saks Fifth Avenue where she held roles of
increasing responsibility in accounting and finance, including
Controller of OFF 5th, Saks Fifth Avenue Outlet and the Folio
catalog division.
Mr. OConnell was appointed Executive Vice President,
Real Estate, Legal, Store Planning & Construction, and
Secretary in June 2008. From November 2006 until this
appointment, he served as Executive Vice President, Legal and
Real Estate, and Secretary. Mr. OConnell joined The
Talbots, Inc. in 1988 as Vice President, Legal and Real Estate,
and Secretary, and became Senior Vice President, Legal and Real
Estate, and Secretary in 1989. Prior to joining the Company, he
served as Vice President, Group Counsel of the Specialty
Retailing Group at General Mills, Inc.
Mr. Poole joined The Talbots, Inc. as Executive Vice
President, Chief Supply Chain Officer in June 2008. From June
2007 until joining the Company, he was Senior Vice President,
Chief Procurement Officer for Ann Taylor Stores Corporation.
Mr. Poole held various leadership positions at The Gap,
Inc. from 1993 through 2006, including Senior Vice President of
Sourcing and Vendor Development from August 2004 to February
2006, Senior Vice President of Corporate Administration,
Architecture & Construction from August 2001 to August
2004, and Senior Vice President of Corporate Architecture and
Construction from July 2000 to August 2001. Mr. Poole has
also held leadership positions in supply chain management at
Esprit de Corp. and The North Face, Inc.
Ms. Wagner joined The Talbots, Inc. as Executive Vice
President, Chief Marketing Officer in March 2008. From 2006
until joining the Company, Ms. Wagner held the position of
Senior Vice President, Chief Marketing Officer at Cole Haan, a
division of Nike. Prior to joining Cole Haan, she served as
Senior Vice President of Marketing for Kenneth Cole Productions
from 2001 to 2006 and, previously, as Senior Vice President of
Brand Marketing and Creative for J. Crew from 1991 until joining
Kenneth Cole.
Available
Information
Our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and all amendments to these reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, are available free of charge on our website located at
www.thetalbotsinc.com as soon as reasonably practicable after
they are filed with or furnished to the Securities and Exchange
Commission (the SEC). These reports are also
available at the Securities and Exchange Commissions
Internet website at www.sec.gov.
8
A copy of our Corporate Governance Guidelines, Code of Business
Conduct and Ethics, and the charters of the Audit Committee, the
Compensation Committee and the Corporate Governance and
Nominating Committee are posted on our website,
www.thetalbotsinc.com, under Investor Relations, and
are available in print to any person who requests copies by
contacting Talbots Investor Relations by calling
(781) 741-4500,
by writing to Investor Relations Department, The Talbots, Inc.,
One Talbots Drive, Hingham, Massachusetts 02043, or by
e-mail
at
investor.relations@talbots.com. Information contained on the
website is not incorporated by reference or otherwise considered
part of this document.
Careful consideration should be given to the following risk
factors, in addition to the other information included in this
Form 10-K
and in other documents that we file with the SEC, in evaluating
the Company and our business. If any of the risks and
uncertainties described below actually occurs, our business,
financial condition and results of operations could be
materially and adversely affected. The risks described below are
not intended to be exhaustive and are not the only risks facing
the Company. New risk factors can emerge from time to time and
it is not possible to predict the impact that any factor or
combination of factors may have on our business, financial
condition and results of operations.
The
success of our business depends on our ability to develop
merchandise offerings that resonate with our existing customers
and help to attract new customers as well as our ability to
continue to develop, evolve, promote and protect the value of
our brand.
Our future success depends on our ability to consistently
anticipate, gauge and respond to our customers demands and
tastes in the design, pricing, style and production of our
merchandise. Our merchandise offerings also require long lead
times, making it difficult to respond quickly to changes in
customer preferences. Our failure to anticipate, identify or
react appropriately and in a timely manner to changes in
customer preferences and economic conditions could lead to lower
sales, missed opportunities, excessive inventories and more
frequent markdowns, each of which could have a material adverse
impact on our business and our sales levels. At the same time,
as part of our tradition transformed brand vision,
we are striving to have our product offerings and our brand
image and marketing approach increase and expand our customer
base while continuing to appeal to our traditional core
customer. There is no assurance that we will be successful in
increasing our number of customers and customer base or that our
product offerings will resonate with our traditional core and
expanded customer base. Merchandise misjudgments could also
negatively impact our margins, markdown exposure and operating
profitability, as well as our image with our customers, and
could likely result in diminished brand loyalty.
Our future success also depends upon our ability to effectively
define, evolve, promote and protect the value of our brand. The
Talbots brand name and tradition transformed niche
is integral to the success of our business. Maintaining,
promoting and positioning our brand will depend largely on the
success of the brands design, merchandising and marketing
efforts and the ability to provide a consistent, high quality
customer experience. We need to continue to translate market
trends into appropriate product offerings while minimizing
excess inventory positions and correctly balance the level of
our merchandise commitments with actual customer orders.
We
face substantial competitive pressures from other
retailers.
The specialty apparel retail industry in which we operate is
highly competitive. We compete with many other specialty
retailers, department stores and catalog and Internet
businesses. The competition among apparel retailers for the
reduced discretionary consumer spending we have seen over the
past two years has been intense, particularly beginning at the
end of 2008 with the significant deterioration in the
U.S. and global economies. Many of our competitors are
companies with substantially greater financial, marketing and
other resources. There is no assurance that we can compete
successfully with them in the future.
We have experienced, and anticipate that we will continue to
experience, significant pricing pressure and significantly
increased promotional activity from our competitors. Customers
are very selective in their purchasing and may be less connected
to any particular brand. Such competition and promotional
activity could reduce our
9
sales, increase our level of excess inventory, result in
increased markdowns and reduced margins and adversely affect our
results of operations.
In addition to competing for sales, we compete for favorable
store locations. Increased competition could reduce our ability
to find suitable sites for new stores or negotiate acceptable
lease terms.
Increased
store productivity will be largely dependent upon our success in
continuing to rationalize our existing store portfolio as well
as in increasing customer traffic in our stores.
Our ability to increase the productivity of our stores will be
largely dependent upon our ability to continue to rationalize
our existing store portfolio as well as our ability to generate
increased customer traffic in our stores.
In March 2011, we announced the acceleration of our store
rationalization plan, with an expectation to close approximately
90 to 100 stores and consolidate or downsize approximately 15 to
20 stores over the next two years, with a majority of these
actions expected to be completed in fiscal 2011. These actions
are expected to reduce gross square footage by approximately
0.5 million square feet. We expect that this reduction in
store locations and square footage will help to increase
productivity by eliminating overlap in certain markets and
allowing management to focus its resources, such as store
merchandise inventories and capital expenditures, on a more
refined store base. If we are unable to successfully execute on
this program to the extent or within the time that we expect or
if the improvements in productivity are not at the level that we
expect, our margins, liquidity and results of operations could
be adversely affected.
Customer traffic depends upon our ability to successfully
promote our brand with our existing customers and potential new
customers through our strategic initiatives, providing
merchandise that satisfies customer demand in terms of price,
quality, fit and in-stock position, predicting fashion trends
for our customers and providing an appealing shopping
environment and experience. Our comparable store customer
traffic decreased 8.0% in fiscal 2010 compared to the prior
year. There can be no assurance that our efforts to increase
customer traffic in our stores will be successful or at the
levels we would expect, which would negatively impact our sales
and store productivity and may leave us with excess inventory.
We may need to respond to declines in customer traffic by
increasing markdowns or initiating or continuing additional
promotions to attract customers to our stores, which would
adversely impact our margins and operating results.
There
are significant risks associated with our strategic
initiatives.
We are in the early stages of executing a number of major
strategic initiatives as part of our transformation strategy
designed to drive long-term shareholder value and improve our
store productivity, sales and results of operations. These
strategic initiatives include:
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an enhanced, coordinated marketing campaign;
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a store re-image initiative, a program which is designed to
translate our updated brand image into a renovated storefront
and store lay-out;
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an information technology enhancement and upgrade;
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a segmentation strategy, a system 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; and
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a plan to rationalize and reduce our store real estate portfolio
and square footage.
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There can be no assurance that we will be able to successfully
implement each of these strategic initiatives or that our
transformation strategy will result in improved results of
operations. In addition, depending upon our customers
reaction and acceptance of these initiatives and, as we obtain
more information, we may also need to adjust any one or more of
these initiatives. These changes could be substantial and could
result in significant costs. If we do not successfully execute
on these strategic initiatives or if our transformation strategy
does not achieve its intended results, we may experience a
material adverse impact on our business and financial results.
10
Our
2011 operating plan and strategic plan are based on a number of
material assumptions that may not occur.
Our fiscal 2011 operating plan and strategic plan are based on a
number of significant assumptions which we developed based on
our historical information, current and expected economic
conditions, expectations of our ability to adequately manage
rising raw material and freight costs, and expectations and
perceptions of our near-term and longer-term sales, margins,
other financial results and cost savings as well as many other
assumptions. The current economic environment makes it difficult
to project or forecast the results expected to be achieved from
all of our strategic initiatives. There can be no assurance that
our assumptions or expectations will prove to be accurate and it
is possible that actual events, actions taken and results
actually achieved will be materially different, and could take
longer or be more costly than what we have assumed or
forecasted, which could have a material adverse impact on our
results of operations, liquidity and financial position.
Our
ability to attract and retain a talented and experienced
management team is critical to the continued execution of our
turnaround strategy.
Our ability to continue to execute our turnaround strategy and
generate long-term sustainable growth and profitability depends,
to a significant extent, on our ability to attract, motivate and
retain key members of our executive and senior management team.
In recent years, we have added a significant number of key
senior executives in the areas of brand leadership, creative,
merchandising, marketing, finance and sourcing. We are also in
the process of filling certain open senior management positions
including our Chief Stores Officer and Executive Vice President
of Merchandising. There can be no assurance that we will be able
at all times to attract and retain individuals with the talent,
skill and experience necessary for our senior leadership
positions. Our operations and the execution of our strategic
plan could be adversely affected if we cannot attract and retain
a skilled management team.
Unfavorable
economic conditions or the slowing, stalling or reversal of an
economic recovery could materially and adversely impact our
financial condition and results of operations.
As a retailer that is dependent upon consumer discretionary
spending, our results of operations are particularly sensitive
to changes in macro-economic conditions. Over the past several
years, the U.S. economy weakened significantly as a result
of the global economic crisis and may remain depressed for the
foreseeable future. Continued weak or uncertain economic
conditions may materially and adversely impact consumer
confidence and consumer spending and, as a result, our ability
to forecast our continuing operations and to achieve our
expected operating results would be adversely affected. Further,
our ability to meet debt service requirements, invest in capital
expenditures and fulfill the obligations arising in the
operation of our business may be impacted. Any further decline
in economic conditions may negatively impact our business,
continuing operations, financial results, liquidity and
financial position. A sustained economic downturn would also
likely cause a number of the risks that we currently face to
increase in likelihood and scope.
If we
are unable to manage our inventory effectively, we may incur
lower margins or losses.
Our success depends upon our ability to manage proper inventory
levels and respond quickly to shifts in consumer demand
patterns. If we overestimate customer demand for our
merchandise, we will likely need to record inventory markdowns
and move the excess inventory to our surplus outlets to be sold
at discount or closeout prices which would negatively impact
operating results and could impair our brand image. If we
underestimate customer demand for our merchandise, we may
experience inventory shortages which may result in missed sales
opportunities, negative impact on customer loyalty and loss of
revenues. The inability to fill customer orders efficiently
could lower customer satisfaction and could cause customers to
go to an alternate source for the desired products. This lowered
level of customer satisfaction and improper inventory levels
could adversely affect our operations.
The
sufficiency and availability of our sources of liquidity may be
affected by a variety of factors.
The sufficiency and availability of our sources of liquidity may
be affected by a variety of factors, including, without
limitation: (i) the level of our operating cash flows,
which are impacted by consumer acceptance of our
11
merchandise, general economic conditions and the level of
consumer discretionary spending; and (ii) our ability to
maintain required levels of borrowing availability and to comply
with applicable covenants included in our senior secured
revolving credit facility.
As a specialty retailer dependent upon consumer discretionary
spending, we have been adversely affected by the global economic
crisis, which has impacted our sales, margins, cash flows,
liquidity, results of operations and financial condition. Our
ability to operate profitably and to generate positive cash
flows is dependent upon many factors, including improvement in
economic conditions and consumer spending and our ability to
successfully execute our long-term financial plan and strategic
initiatives. There can be no assurance that our cash flows from
operations will be sufficient at all times to support our
Company without additional financing or credit availability.
On April 7, 2010, we completed our merger with BPW
Acquisition Corp., a special purpose acquisition company
(BPW), which resulted in net cash proceeds of
$333.0 million, before our acquisition costs. We
simultaneously executed a senior secured revolving credit
facility with a third party lender (the Credit
Facility), which provides borrowing capacity up to
$200.0 million, subject to satisfaction of all borrowing
conditions. Our Credit Facility contains a borrowing base that
is determined primarily by the level of our eligible accounts
receivable and inventory. If we do not have a sufficient
borrowing base at any given time, borrowing availability under
our Credit Facility may not be sufficient to support our
liquidity needs. Insufficient borrowing availability under our
Credit Facility would likely have a material adverse effect on
our business, financial condition, liquidity and results of
operations.
Moreover, under the Credit Facility, we are subject to various
covenants and requirements. Should we be unable to comply with
any of the covenants and requirements in the Credit Facility, we
would be unable to borrow under such Credit Facility, and any
amounts outstanding would become immediately due and payable
unless we were able to secure a waiver or an amendment under the
Credit Agreement. Should we be unable to borrow under the Credit
Facility we may not have the cash resources for our operations
and if outstanding borrowings under the facility become
immediately due and payable we may not have the cash resources
to repay any such accelerated obligations, and in each case, our
liquidity would be significantly impaired, which would have a
material adverse effect on our business, financial condition and
results of operations.
There
are risks associated with our reliance on an exclusive global
merchandise buying agent.
In August 2009, we reorganized our global sourcing activities
and entered into a long-term buying agency agreement with an
affiliate of Li & Fung Limited (Li &
Fung) pursuant to which Li & Fung was appointed
as exclusive global apparel sourcing agent for substantially all
of our apparel effective September 2009. There can be no
assurance that the anticipated benefits from this arrangement
will be realized or realized within the time periods expected.
Moreover, we cannot provide assurance that upon cessation of
this relationship, for any reason, we would be able to
successfully transition to an internal or other external
sourcing function.
Our
overseas merchandise purchasing strategy makes us vulnerable to
certain risks, and any disruption in our supply of merchandise
would materially impact us.
All of our merchandise is manufactured to our specifications by
third party suppliers and intermediary vendors, most of which
are located outside the United States. Our arrangements with
foreign suppliers and with our foreign buying agents are
subject, generally, to the risks of doing business abroad,
including:
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political, social and economic instability in any of the
countries related to our sourcing activities;
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imposition of new legislation relating to import quotas that may
limit the quantity of goods that may be imported into the
U.S. from countries in a region where we do business;
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imposition of duties, taxes, tariffs and other charges on
imports;
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natural disasters and public health concerns;
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potential delays or disruption in international shipping and
related pricing impacts;
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the receipt of any merchandise that does not meet our quality
standards; and
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local business practices and political issues, including issues
relating to compliance with domestic or international labor
standards.
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We do not own or operate any manufacturing facilities and rely
solely on third party manufacturers. We cannot be certain that
we will not experience operational difficulties with our
manufacturers, such as reductions in the availability of
production capacity, errors in complying with merchandise
specifications, insufficient quality control and failures to
meet production deadlines or increases in manufacturing costs. A
manufacturers failure to ship merchandise to us on a
timely basis or to meet the required product safety and quality
standards could cause supply shortages, failure to meet customer
expectations and damage to our brand, which could adversely
impact our sales and operating results. Further, any significant
negative impacts to our suppliers could have an adverse impact
on our business, financial position, liquidity and results of
operations. Moreover, there is a risk that our suppliers and
vendors could respond to any decrease in or any concern with our
liquidity or financial results by requiring or conditioning
their sale of merchandise to us on more stringent payment terms,
such as requiring standby letters of credit, earlier or advance
payment of invoices or payment upon delivery, or other
assurances or credit support. There can be no assurance that one
or more of our suppliers may not slow or cease shipments or
require or condition their sale or shipment of merchandise on
more stringent payment terms. If these events were to occur and
we did not or were not able to adequately respond, it could
materially disrupt our supply of merchandise.
We cannot predict whether the foreign countries in which our
apparel and accessories are currently manufactured, or any of
the foreign countries in which our apparel and accessories may
be manufactured in the future, will be subject to import
restrictions by the U.S. government, including the
likelihood, type or effect of any trade retaliation. Trade
restrictions, including increased tariffs or more restrictive
quotas, applicable to apparel items could affect the importation
of apparel and, in that event, could increase the cost or reduce
the supply of apparel available to us and adversely affect our
operations.
Our
third party manufacturers may fail to comply with our social
compliance program requirements.
We require our third party manufacturers to comply with our
social compliance program standards that cover many areas
including child labor, excessive working hours, freedom of
association and safe working conditions. We monitor their
compliance with these standards using our third party global
apparel sourcing agent in conjunction with third party
monitoring firms. Although we have an active program to provide
training for our independent manufacturers and monitor their
compliance with these standards, we do not control the
manufacturers or their practices. Any failure of our independent
manufacturers to comply with our standards or local laws in the
country of manufacture could disrupt the shipment of merchandise
to us, force us to locate alternative manufacturing sources,
reduce demand for our merchandise or damage our reputation.
Fluctuations
in the price, availability and quality of raw materials could
have an adverse impact on our business and financial
results.
Fluctuations in the price, availability and quality of the
fabrics or other raw materials used by us in our manufactured
apparel and in the price of materials used to manufacture our
footwear and accessories could have a material adverse effect on
our cost of sales or our ability to meet our customers
demands. The prices for such fabrics depend largely on the
market prices for the raw materials used to produce them,
particularly cotton, leather and synthetics. The price and
availability of such raw materials may fluctuate significantly.
Commodity prices for cotton, other fabrics and other raw
materials which comprise our products have recently increased
significantly. If commodity prices continue to rise and if we
are not able to recover these cost increases through price
increases to our customers, who may be resistant, then such
increases will have an adverse effect on our margins and our
results of operations.
While we have endeavored to manage the impact of changing
commodity prices through commercial terms with our vendors, our
ability to mitigate the impact of price changes is impacted by
many factors, many of which are outside of our control, and our
cost mitigation strategies may not be successful or sufficiently
responsive to such commodity price increases, either in the
short-term or the long-term.
13
The
loss of or infringement upon our trademarks and other
proprietary rights could have a material adverse effect on our
business.
We believe that our Talbots trademarks are important
to our success and competitive position. Even though we register
and take necessary steps to protect our trademark and other
intellectual property rights, there is no assurance that our
actions will protect us from the prior registration of others or
prevent others from infringing on our trademarks and proprietary
rights or seeking to block sales of our products as
infringements of their trademarks and proprietary rights. Any
litigation regarding our trademarks and other proprietary rights
could be time-consuming and costly. Further, the laws of foreign
countries may not protect proprietary rights to the same extent
as do the laws of the United States. Because we have not
registered our trademarks in all foreign countries in which we
currently manufacture merchandise or may manufacture merchandise
in the future, our sourcing of merchandise could be limited.
If our
intangible or long-lived assets become impaired, we may need to
record significant non-cash impairment charges.
We review the carrying value of our intangible assets for
potential impairment using a combination of an income approach
and a market value approach. If an impairment charge is
identified, the carrying value is compared to the estimated fair
value and an impairment charge is recorded as appropriate.
Impairment losses are significantly impacted by estimates of
future operating cash flows and estimates of fair value. Our
estimates of future operating cash flows are based upon our
experience, knowledge and expectations; however, these estimates
can be affected by such factors as our future operating results,
future store profitability and future economic conditions, all
of which can be difficult to predict. The carrying value of our
assets may also be impacted by such factors as declines in stock
price and in market capitalization. Significant declines in our
performance, for any reason, could impact the fair value of our
goodwill and other intangible assets and could result in future
material impairment charges, which would adversely impact our
results of operations.
Additionally, we 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, and require management to apply
judgment. We have announced our intention to rationalize our
store portfolio under a program aimed at increasing the
productivity of our store square footage. In addition to any
other potential or actual future store closings or any negative
trends in store performance, any decision to close, consolidate
or downsize a store in connection with this program may result
in additional future impairments of store assets.
The
costs to close underperforming stores may be significant and may
negatively impact our cash flows and our results of
operations.
We regularly assess our portfolio of stores for profitability,
and we close certain underperforming stores when appropriate
under the circumstances. Our strategic plans include closing
underperforming stores in order to reduce operating losses and
to achieve improved long-term profitability of our store base.
Substantially all of our stores are leased, with original lease
terms continuing for up to ten years or more, and we have
significant annual rent and other amounts due under each lease.
While in closing underperforming stores we endeavor to negotiate
with landlords the amount of remaining lease obligations, there
is no assurance we will reach acceptable negotiated lease
settlements. As a result, costs to close underperforming stores
may be significant and may negatively impact our cash flows and
our results of operations. The estimated costs and charges
associated with store closings are also based on
managements assumptions and projections and actual amounts
may vary materially from our forecasts and expectations.
Additionally, while our goal in closing certain stores is to
increase the productivity of our store portfolio, reductions in
selling square footage could directly impact our net sales.
14
We may
not be able to successfully execute or manage our plan to grow
our upscale outlet portfolio.
Our plan for our store portfolio includes opening additional
upscale outlets, a store concept we introduced in 2009. Our
ability to successfully expand our upscale outlet concept
depends, to a significant degree, on our ability to identify
suitable store locations and to negotiate acceptable lease
terms. We face substantial competition from other retailers for
such sites. In fiscal 2011, we expect to open approximately 20
new upscale outlets. There can be no assurance that our upscale
outlets will open timely, operate successfully or result in
greater profitability for the Company.
In
connection with the sale in 2009 of the J. Jill business we
remain contingently responsible for certain material risks and
obligations.
In July 2009, we completed the sale of the J. Jill business.
There can be no assurance that the anticipated benefits from the
sale of the J. Jill business will be realized in the time or
amounts anticipated. There also can be no assurance that the
estimated or anticipated costs, charges and liabilities to
settle and complete the transition and exit from the J. Jill
business, including both retained obligations and contingent
risk for assigned obligations, will not materially differ from
or be materially greater than anticipated. In connection with
the sale of the J. Jill business to J. Jill Acquisition LLC
(Purchaser), the Purchaser agreed to acquire and
assume from us certain assets and liabilities relating to the J.
Jill business. Under the terms of the Purchase Agreement, the
Purchaser is obligated for liabilities that arise after the
closing under assumed contracts, which include leases for 205 J.
Jill stores assigned to the Purchaser, of which 203 assigned
leases remained outstanding at January 29, 2011, and a
sublease through December 2014 of approximately
65,749 square feet of space at the Companys leased
office facility in Quincy, Massachusetts. Certain of our
subsidiaries remain contingently liable for obligations and
liabilities transferred to the Purchaser, including those
related to leases and other obligations transferred to and
assumed by the Purchaser, as to which obligations and
liabilities we now rely on the Purchasers creditworthiness
as counterparty. If any material defaults were to occur which
the Purchaser does not satisfy or fully indemnify us against and
we are required to respond, it would likely have a material
negative impact on our financial condition and results of
operations. We have accrued a liability for the estimated
exposure related to these guarantees, which is subject to future
adjustment and any actual exposure could vary materially from
estimated amounts.
We are
subject to credit risk and to potential increased defaults and
delinquencies on our customer credit card account
portfolio.
We extend credit to our customers for merchandise purchases
through our proprietary credit card. While we monitor our credit
card account portfolio and we believe that our credit card
account portfolio continues to be sound, the deteriorated
economic environment and current high levels of unemployment may
lead to higher customer delinquencies and defaults. There can be
no assurance that our credit risk monitoring or our monitoring
of our credit card account portfolio will guard against or
enable us to adequately and timely respond to any increased risk
of or actual increased customer delinquencies or defaults, which
could materially and negatively impact the value of our credit
card portfolio, our results of operations and liquidity,
including our borrowing base under our Credit Facility.
Recently
enacted financial system reforms could have a negative impact on
our profitability.
Recent economic conditions, particularly in the financial
market, have resulted in increased legislative and regulatory
actions. 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 and payment allocation as well as
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. Finance charge income from our credit operations could be
adversely affected as we adjust our practices to current and
future regulations related to the Credit CARD Act.
15
There
are risks associated with Internet sales.
We sell merchandise over the Internet through our website,
www.talbots.com. Our Internet operations are subject to numerous
risks, including: rapid technological change and the
implementation of new systems and platforms; diversion of sales
from our stores; liability for online content; violations of
state or federal laws, including those relating to online
privacy; credit card fraud; the failure of the computer systems
that operate our website and their related support systems,
including computer viruses; and telecommunications failures and
electronic break-ins and similar disruptions. Any failure of our
systems, policies or procedures to protect against such risks
could materially damage our brand and reputation as well as
result in significant damage claims, any of which could have a
material adverse impact on our business and results of
operations.
We
must protect against security breaches or other disclosures of
private data of our customers as well as of our employees and
other third parties.
As part of our normal operations, we receive and maintain
personal information about our customers, our employees and
other third parties. The confidentiality of all of our internal
private data must at all times be protected against security
breaches or other disclosure. We have systems and processes in
place that are designed to protect information and protect
against security and data breaches as well as fraudulent
transactions and other activities. Despite our safeguards and
security processes and protections, we cannot be assured that
all of our systems and processes are free from vulnerability to
security breaches by third parties or inadvertent data
disclosure by us. Any failure to protect the confidential data
of our customer or of our employees or other third parties could
materially damage our brand and reputation as well as result in
significant damage claims, any of which could have a material
adverse impact on our business and results of operations.
Our
Credit Facility contains provisions which may restrict our
operations and proposed financing and strategic
transactions.
Under the terms of our Credit Facility, we cannot create, assume
or suffer to exist any lien securing indebtedness incurred after
the closing date of the Facility subject to certain limited
exceptions set forth in the Credit Facility. The Credit Facility
contains negative covenants prohibiting the Company and its
subsidiaries, with certain exceptions, from, among other things,
incurring indebtedness and contingent obligations, making
investments, intercompany loans and capital contributions, and
disposing of property or assets. The Credit Facility also
contains customary representations, warranties and covenants
relating to the Company and its subsidiaries. The agreement
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.
Any of the above requirements or other restrictions and
limitations under the Credit Facility could reduce our
flexibility by limiting, without lender consent, our ability to
borrow additional funds or enter into dispositions or
collateralization transactions involving any of our assets or
other significant transactions. Further, if we default under our
Credit Facility, any amounts outstanding could become
immediately due and payable prior to the maturity date, in which
case, absent replacement financing, we may not have sufficient
liquidity to satisfy this debt.
Failure
to meet market expectations of our financial performance will
likely affect the market price and volatility of our
stock.
Our annual and quarterly operating results have fluctuated and
may continue to fluctuate in the future. Among the factors that
may cause our operating results to fluctuate are market
acceptance of our products, customer traffic, product mix,
pricing and presentation of the products offered and sold, the
timing of merchandise receipts, our cost of merchandise,
unanticipated operating costs and other factors, many of which
are beyond our control, including the general economic
conditions as well as the actions of competitors. As a result,
period-to-period
comparisons of historical and future results will not
necessarily be meaningful and should not be relied on as an
indication of future performance. Failure to meet market
expectations going forward, particularly with respect to sales,
margins and earnings, will likely result in a decline
and/or
increased volatility in the market price of our stock.
16
We
depend on a single distribution facility and a principal third
party transportation company.
We handle merchandise distribution for all of our stores and
fulfillment of customer orders through our direct channel from a
single facility in Lakeville, Massachusetts. A principal third
party transportation company delivers our merchandise to our
stores and our customers. Any significant interruption in the
operation of the distribution facility or the domestic
transportation infrastructure due to natural disasters,
accidents, inclement weather, epidemics, system failures, work
stoppages, slowdowns or strikes, or other unforeseen causes
could delay or impair our ability to distribute merchandise to
our stores or our customers, which could result in lower sales,
a loss of loyalty to our brand and excess inventory.
We
depend on information systems to manage our operations and any
failure in or our inability to upgrade or maintain these systems
could materially and adversely affect our
operations.
We depend on information systems to manage our operations. Our
information systems consist of a full range of retail, catalog,
e-commerce,
financial and merchandising systems, including credit, inventory
distribution and control, sales reporting, accounts payable,
procurement, payroll, product design, budgeting and forecasting,
financial reporting, merchandise reporting and distribution. We
regularly make investments to upgrade, enhance or replace such
systems and believe they meet industry standards. Any delays or
difficulties in transitioning to these systems, or in
integrating these systems with our current systems or any
disruptions affecting our information systems could have a
material adverse impact on our operations.
We are
required to comply with certain legal and regulatory
requirements, including in the area of health care
reform.
Our policies, procedures and internal controls are designed to
comply with all applicable laws and regulations, including those
imposed by the U.S. Securities and Exchange Commission and
the New York Stock Exchange, as well as applicable employment
laws. Any changes in regulations, the imposition of additional
regulations, such as the new and emerging consumer credit rules,
or the enactment of any new legislation may increase the
complexity of the regulatory environment in which we operate and
the related cost of compliance. Failure to comply with such laws
and regulations may result in damage to our reputation,
financial condition and the market price of our stock.
We are continuing to review the health care reform law enacted
by Congress in March 2010. As part of our review, we are
evaluating the potential impacts of this new law on our business
and will accommodate various parts of the law as they take
effect. There are no assurances that our cost management efforts
can accommodate all of the costs associated with compliance.
The
outcome of litigation and other claims is unpredictable and any
rulings not in our favor could have a material adverse effect on
our business and results of operations.
We are and may become subject to litigation, claims and
administrative proceedings for which we cannot or may not be
able to predict or determine the ultimate outcome or quantify
the potential financial impact. Because of the inherent
difficulty of predicting the outcome of any legal claims and
administrative proceedings, we cannot provide assurance as to
the outcome of any pending or future matters, or if ultimately
determined adversely to us, the loss, expense or other amounts
attributable to any such matter. The resolution of such matter
or matters, if unfavorable, could have a material adverse effect
on our business, liquidity and results of operations. Refer to
Item 3.
Legal Proceedings
, for a more detailed
discussion of certain current litigation and other proceedings.
External
economic factors could materially impact our Pension
Plan.
Our future funding obligations with respect to our defined
benefit Pension Plan, which was frozen in 2009, will depend upon
the future performance of assets set aside for this Pension
Plan, interest rates used to determine funding levels, actuarial
data and experience and any changes in government laws and
regulations. Our Pension Plan primarily holds investments in
equity and debt securities. If the market values of these
securities decline, our pension expense would increase and, as a
result, could materially adversely affect our business.
Decreases in interest rates or asset returns could also increase
our obligations under the Pension Plan. Although no additional
benefits have been earned under the Pension Plan since it was
frozen, depending on the Pension Plans funded status,
there will likely be ongoing contribution obligations which
could be material.
17
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
The following presents certain information relating to our
properties at January 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Location
|
|
Square Feet
|
|
|
Primary Function
|
|
Interest
|
|
Hingham, Massachusetts
|
|
|
313,000
|
|
|
Talbots headquarters
|
|
Own (44 acres)
|
Lakeville, Massachusetts
|
|
|
933,000
|
|
|
Distribution and fulfillment center
|
|
Own (115 acres)
|
Tampa, Florida
|
|
|
28,304
|
|
|
Systems center
|
|
Lease
|
Knoxville, Tennessee
|
|
|
37,656
|
|
|
Call center
|
|
Lease
|
New York, New York
|
|
|
55,697
|
|
|
Creative studio
|
|
Lease
|
Lincoln, Rhode Island
|
|
|
9,645
|
|
|
Credit and banking facilities
|
|
Lease
|
Ontario, Canada
|
|
|
1,350
|
|
|
Canadian regional office
|
|
Lease
|
568 Talbots stores throughout the U.S. and Canada
|
|
|
4,054,231
|
|
|
Retail stores
|
|
Own and lease (a)
|
Quincy, Massachusetts
|
|
|
93,248
|
|
|
Former subsidiary headquarters
|
|
Lease
|
|
|
|
(a)
|
|
We own the property for five of our 568 Talbots stores.
|
These leases typically provide for an initial term between 10
and 15 years, with renewal options permitting us to extend
the term between five and ten years thereafter. Under most store
leases, provisions include a fixed annual base rent plus a
contingent rent (percentage rent) based on the
stores annual sales in excess of specified levels. In a
majority of these leases, we have the right to terminate earlier
than the specified expiration date if certain sales levels are
not achieved; such right is usually exercisable after five years
of operation. Most of these leases also require us to pay real
estate taxes, insurance and utilities and, in shopping center
locations, to make contributions toward the shopping
centers common area operating costs and marketing
programs. Most of these lease arrangements also provide for an
increase in annual fixed rental payments during the lease term.
We generally have been successful in renewing the store leases
that we would like to extend as they expire. We believe that our
facilities are adequate and suitable for our current needs.
As of January 29, 2011, the terms of our store leases
(assuming solely for the purpose of this disclosure that we will
exercise all lease renewal options) were as follows:
|
|
|
|
|
Years Lease
|
|
Number of
|
|
Terms Expire
|
|
Store Leases (a)(b)
|
|
|
2011-2012
|
|
|
129
|
|
2013-2015
|
|
|
82
|
|
2016-2018
|
|
|
133
|
|
2019- and later
|
|
|
291
|
|
|
|
|
(a)
|
|
Includes six Talbots executed leases related to future stores
not yet opened at January 29, 2011
|
|
(b)
|
|
Includes certain stores that have multiple leases
|
|
|
Item 3.
|
Legal
Proceedings
|
On February 3, 2011, a purported Talbots shareholder filed
a putative class action captioned
Washtenaw County
Employees Retirement System v. The Talbots, Inc. et
al.
, Case
No. 1:11-cv-10186-NMG,
in the United States District Court for the District of
Massachusetts against Talbots and certain of its officers. The
complaint, purportedly brought on behalf of all purchasers of
Talbots common stock from December 8, 2009 through and
including January 11, 2011, asserts claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and
Rule 10b-5
promulgated thereunder and seeks, among other things, damages
and costs and expenses.
18
Specifically, the complaint alleges that Talbots, under the
authority and control of the individual defendants, made certain
false and misleading statements and allegedly omitted certain
material information. The complaint alleges that these actions
artificially inflated the market price of Talbots common stock
during the class period, thus purportedly harming investors. We
cannot predict the outcome of such proceedings or an estimate of
damages, if any. We believe that these claims are without merit
and intend to defend against them vigorously.
On February 24, 2011, a putative Talbots shareholder filed
a derivative action in Massachusetts Superior Court, captioned
Greco v. Sullivan, et al.
, Case
No. 11-0728
BLS, against certain of Talbots officers and directors.
The complaint, which purports to be brought on behalf of
Talbots, asserts claims for breach of fiduciary duties, insider
trading, abuse of control, waste of corporate assets and unjust
enrichment, and seeks, among other things, damages, equitable
relief, and costs and expenses. The complaint alleges that the
defendants either caused or neglected to prevent, due to
mismanagement or failure to provide effective oversight, the
issuance of false and misleading statements and omissions
regarding the Companys financial condition. The complaint
alleges that the defendants actions injured the Company
insofar as they (a) caused Talbots to waste corporate
assets through incentive-based bonuses for senior management,
(b) subjected the Company to significant potential civil
liability and legal costs and (c) damaged the Company
through a loss of market capitalization as well as goodwill and
other intangible benefits. We believe that these claims are
without merit and intend to defend against them vigorously.
On January 12, 2010, a Talbots common shareholder had 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 asserted 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 (collectively, the
Defendants) and John C. Campbell (the
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 Talbots 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.
On December 20, 2010, the Chancery Court issued an Order
and Final Judgment (the Order) granting final
approval of a stipulation of settlement entered into by the
Defendants and the Plaintiff. Pursuant to the terms of the
Order, the lawsuit was dismissed with prejudice. On
January 28, 2011 the Defendants (other than the Company and
AEON (U.S.A.), Inc.) delivered $3.75 million to Talbots,
and Perella Weinberg Partners LP delivered 175,000 shares
of Talbots common stock to Talbots. The Plaintiffs counsel
was awarded a total of $2.1 million in fees and expenses
which were paid by us in February 2011. We recorded the net gain
on this settlement, of $2.7 million, to merger-related
costs in the consolidated statement of operations in fiscal 2010.
We are periodically named as a defendant in various lawsuits,
claims and pending actions and are exposed to tax risks. If a
potential loss arising from these lawsuits, claims and pending
actions is probable and reasonably estimable, we record the
estimated liability based on circumstances and assumptions
existing at the time. While we believe any recorded liabilities
are adequate, there are inherent limitations in projecting the
outcome of these matters and in the estimation process whereby
future actual liabilities may exceed projected liabilities,
which could have a material adverse effect on our financial
condition and results of operations.
We are subject to tax in various domestic and international
jurisdictions and, as a matter of course, are regularly audited
by federal, state and foreign tax authorities. During the third
quarter of 2009, the Massachusetts Appellate
19
Tax Board (the ATB) rendered an adverse decision on
certain tax matters of Talbots, which was recently affirmed by
the Massachusetts Appeals Court. We are considering an
application to the Supreme Judicial Court of Massachusetts for
further appellate review of the case. In order to pursue the
original appeal, we were required to make payments to the
Massachusetts Department of Revenue on the assessment rendered
on those tax matters, of which approximately $3.5 million
remains to be paid. An additional assessment, relating to a
subsequent period, has also been appealed by the Company to the
ATB covering similar issues. Refer to
Contractual
Obligations, Commercial Commitments and Contingent
Liabilities
for additional information on this matter. These
assessments have been adequately reserved and did not have a
material impact on our results of operations.
It can be difficult to predict or determine the final outcome of
any legal or administrative proceedings or to quantify the
amount or range of any potential financial impact. Because of
the inherent difficulty of predicting the outcome of any legal
claims and administrative proceeding or other matters, we cannot
provide assurance as to the outcome of these or other pending or
future matters, or if ultimately determined adversely to us, the
loss, expense or other amounts attributable to any such matter.
The resolution of such matter or matters, if unfavorable, could
have a material adverse effect on our operating results.
20
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock is listed and traded on the New York Stock
Exchange under the trading symbol TLB. The following
table sets forth the high and low sale prices per share of our
common stock on the New York Stock Exchange for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
Market Price
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year 2010:
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
11.84
|
|
|
$
|
5.91
|
|
Third quarter
|
|
$
|
13.43
|
|
|
$
|
9.30
|
|
Second quarter
|
|
$
|
17.79
|
|
|
$
|
9.59
|
|
First quarter
|
|
$
|
17.33
|
|
|
$
|
10.14
|
|
Fiscal Year 2009:
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
11.26
|
|
|
$
|
6.61
|
|
Third quarter
|
|
$
|
11.80
|
|
|
$
|
5.10
|
|
Second quarter
|
|
$
|
6.96
|
|
|
$
|
2.05
|
|
First quarter
|
|
$
|
4.57
|
|
|
$
|
2.01
|
|
As of March 18, 2011, the number of holders of record of
our common stock was 16,477.
Any determination to pay dividends and the amount thereof is at
the discretion of our Board of Directors, subject to the
restrictions imposed by our Credit Facility, which prohibits the
payment of dividends except for those issued in the form of
stock or stock equivalents. In February 2009, our Board of
Directors approved the indefinite suspension of our cash
dividends; therefore, no dividends were paid in fiscal 2010 or
fiscal 2009.
A summary of our repurchase activity under certain equity
programs for the thirteen weeks ended January 29, 2011 is
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Value of Shares
|
|
|
|
|
|
|
|
|
|
that May Yet Be
|
|
|
|
|
|
|
Average
|
|
|
Purchased Under the
|
|
|
|
Total Number of
|
|
|
Price Paid
|
|
|
Equity Award
|
|
Period
|
|
Shares Reacquired(1)
|
|
|
per Share
|
|
|
Programs(3)
|
|
|
October 31, 2010 through November 27, 2010
|
|
|
612
|
|
|
$
|
10.03
|
|
|
$
|
20,132
|
|
November 28, 2010 through January 1, 2011
|
|
|
86,272
|
|
|
|
2.14
|
|
|
|
19,081
|
|
January 2, 2011 through January 29, 2011
|
|
|
178,600
|
|
|
|
0.01
|
(2)
|
|
|
19,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
265,484
|
|
|
$
|
2.11
|
|
|
$
|
19,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We repurchased 73,000 shares in connection with stock
forfeited by employees prior to vesting under our equity
compensation plan at an acquisition price of $0.01 per share.
|
|
|
|
Our equity program generally requires employees to tender shares
in order to satisfy the employees tax withholding
obligations from the vesting of their restricted stock. During
the period, we repurchased 17,484 shares of common stock
from certain employees to cover tax withholding obligations from
the vesting of stock at a weighted average acquisition price of
$10.86 per share.
|
|
|
|
(2)
|
|
The average price paid per share reported here does not reflect
the value of the 175,000 shares reacquired from Perella
Weinberg Partners LP as a component of the settlement of
Campbell v. The Talbots, Inc., et al.
Refer to
Item 3,
Legal Proceedings
, for additional
information regarding this transaction.
|
|
|
|
(3)
|
|
As of January 29, 2011, there were 1,914,492 shares of
nonvested stock that were subject to repurchase at $0.01 per
share, or $19,145 in the aggregate, that we have the option to
repurchase if the holders employment is terminated prior
to vesting.
|
We did not have any shares available to be repurchased under any
announced or approved repurchase programs or authorizations as
of January 29, 2011.
21
Stock
Performance Graph
The following graph compares the percentage changes in the
cumulative total shareholders return on our common stock
on a year end basis, using the last day of trading prior to our
fiscal year end, with the cumulative total return on the
Standard & Poors 500 Stock Index (S&P
500 Index) and the Dow Jones U.S. General Retailers
Index for the same period. Returns are indexed to a value of
$100 and assume that all dividends were reinvested.
Comparison
of Cumulative Five-Year Total Return of The Talbots, Inc.,
S&P 500 Index, and Dow Jones General Retailers
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
Indexed Returns
|
|
|
Period
|
|
for The Years Ended
|
Company/Index
|
|
1/27/06
|
|
2/02/07
|
|
2/01/08
|
|
1/30/09
|
|
1/29/10
|
|
1/28/11
|
The Talbots, Inc.
|
|
$
|
100.00
|
|
|
$
|
86.74
|
|
|
$
|
34.85
|
|
|
$
|
8.20
|
|
|
$
|
45.50
|
|
|
$
|
24.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Index
|
|
$
|
100.00
|
|
|
$
|
115.03
|
|
|
$
|
112.92
|
|
|
$
|
68.46
|
|
|
$
|
91.15
|
|
|
$
|
110.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dow Jones U.S. General Retailers Index
|
|
$
|
100.00
|
|
|
$
|
109.86
|
|
|
$
|
101.00
|
|
|
$
|
69.69
|
|
|
$
|
102.00
|
|
|
$
|
123.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Performance Graph in this Item 5 is not deemed to be
soliciting material or to be filed with
the SEC or subject to Regulation 14A or 14C under the
Securities Exchange Act of 1934 or to the liabilities of
Section 18 of the Securities Exchange Act of 1934 and will
not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act
of 1934, except to the extent we specifically incorporate it by
reference into such a filing.
22
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data has been derived from our
consolidated financial statements. The information set forth
below should be read in conjunction with
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
and with our consolidated financial statements
and notes thereto included elsewhere in this document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
|
(52 weeks)
|
|
|
(53 weeks)
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,213,060
|
|
|
$
|
1,235,632
|
|
|
$
|
1,495,170
|
|
|
$
|
1,708,115
|
|
|
$
|
1,772,306
|
|
Operating income (loss)
|
|
|
31,436
|
|
|
|
(8,690
|
)
|
|
|
(98,389
|
)
|
|
|
35,204
|
|
|
|
114,596
|
|
Income (loss) from continuing operations
|
|
|
7,570(a
|
)(b)(c)
|
|
|
(25,308
|
)(b)(c)
|
|
|
(139,521
|
)(c)(d)
|
|
|
43
|
(c)
|
|
|
56,876
|
|
Net income (loss)
|
|
$
|
10,815
|
|
|
$
|
(29,412
|
)
|
|
$
|
(555,659
|
)(d)(e)
|
|
$
|
(188,841
|
)(e)
|
|
$
|
31,576
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
0.11
|
|
|
$
|
(0.47
|
)
|
|
$
|
(2.63
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
1.06
|
|
Net earnings (loss)
|
|
|
0.16
|
|
|
$
|
(0.55
|
)
|
|
$
|
(10.41
|
)
|
|
$
|
(3.58
|
)
|
|
$
|
0.59
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
0.11
|
|
|
$
|
(0.47
|
)
|
|
$
|
(2.63
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
1.05
|
|
Net earnings (loss)
|
|
|
0.16
|
|
|
$
|
(0.55
|
)
|
|
$
|
(10.41
|
)
|
|
$
|
(3.58
|
)
|
|
$
|
0.58
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
65,790
|
|
|
|
53,797
|
|
|
|
53,436
|
|
|
|
53,006
|
|
|
|
52,651
|
|
Diluted
|
|
|
66,844
|
|
|
|
53,797
|
|
|
|
53,436
|
|
|
|
53,006
|
|
|
|
53,092
|
|
Cash dividends per share(f)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.51
|
|
Balance Sheets Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (deficiency)
|
|
$
|
95,917
|
|
|
$
|
(261,942
|
)
|
|
$
|
(13,680
|
)
|
|
$
|
208,803
|
|
|
$
|
262,609
|
|
Total assets
|
|
|
668,516
|
|
|
|
825,818
|
|
|
|
971,293
|
|
|
|
1,502,979
|
|
|
|
1,748,688
|
|
Total long-term debt, including current portion(g)
|
|
|
25,516
|
|
|
|
486,494
|
|
|
|
328,377
|
|
|
|
389,027
|
|
|
|
469,643
|
|
Stockholders equity (deficit)
|
|
$
|
183,586
|
|
|
$
|
(185,636
|
)
|
|
$
|
(178,097
|
)
|
|
$
|
454,779
|
|
|
$
|
643,311
|
|
|
|
|
(a)
|
|
Gift card breakage income of $6.9 million, including a
cumulative change in estimate of $6.3 million, was recorded
in fiscal year 2010.
|
|
(b)
|
|
During fiscal years 2010 and 2009, we recorded merger-related
costs of $25.9 million and $8.2 million, respectively,
in connection with our merger with BPW Acquisition Corp. and
related transactions.
|
|
(c)
|
|
During fiscal years 2010, 2009, 2008 and 2007, we recorded
restructuring charges of $5.6 million, $10.3 million,
$17.8 million and $3.7 million, respectively, relating
to our restructuring activities. These actions include 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.
|
23
|
|
|
(d)
|
|
During fiscal year 2008, we recorded a $211.7 million
valuation allowance on substantially all of our net deferred tax
assets, excluding deferred tax liabilities for
non-amortizing
intangibles, comprised of $61.0 million related to
continuing operations, $21.3 million related to other
comprehensive loss and $129.4 million related to
discontinued operations.
|
|
(e)
|
|
During fiscal years 2008 and 2007, we recorded impairment
charges relating to the J. Jill brand of $318.4 million and
$149.6 million, respectively, which are included in income
(loss) from discontinued operations.
|
|
(f)
|
|
In February 2009, our Board of Directors approved the indefinite
suspension of our quarterly dividends.
|
|
(g)
|
|
Total long-term debt excludes notes payable to banks of
$148.5 million at January 31, 2009 and
$45.0 million at February 3, 2007.
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Our managements discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements included in this Annual Report
on
Form 10-K,
which have been prepared by us in accordance with accounting
principles generally accepted in the United States of America.
This discussion and analysis should be read in conjunction with
these consolidated financial statements and the notes thereto
included elsewhere in this Annual Report.
We conform to the National Retail Federations fiscal
calendar. Where reference is made to a particular year or years,
it is a reference to our 52-week or 53-week fiscal year.
References in this Annual Report to 2010,
2009 and 2008 refer to the 52-week
fiscal years ended January 29, 2011, January 30, 2010
and January 31, 2009, respectively.
Management
Overview
In 2010, we executed a comprehensive financing solution and
commenced the implementation of several broad strategic
initiatives. These activities are components of our
comprehensive strategy to build our updated brand and strengthen
our organization with a focus on top-line sales, profitability
and productivity improvements over the long-term.
On April 7, 2010, we completed a series of transactions
(collectively, the BPW Transactions) which, in the
aggregate, substantially reduced our indebtedness and
significantly deleveraged our balance sheet, consisting of three
related transactions: (i) an Agreement and Plan of Merger
between Talbots and BPW Acquisition Corp. (BPW)
pursuant to which a wholly-owned subsidiary of the Company
merged with and into BPW in exchange for the Companys
issuance of Talbots common stock and warrants to BPW
stockholders; (ii) the repurchase and retirement of all
shares of Talbots common stock held by AEON (U.S.A.), Inc.
(AEON (U.S.A.)), our then majority shareholder,
totaling 29.9 million shares; the issuance of warrants to
purchase one million shares of Talbots common stock to AEON
(U.S.A.) and the repayment of all of 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 $327.3 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 $99.5 million through January 29, 2011 and
ending the year with a positive equity balance and positive net
working capital.
With the liquidity provided by the BPW Transactions, management
has been able to expand the scope of its strategic initiatives
to include programs designed to provide planned reinvestment in
key aspects of the business, including an enhanced marketing
campaign, the launch of a store re-image initiative and an
information technology enhancement and upgrade, while continuing
to focus on programs designed and intended to improve upon our
leaner operating structure, including the launch of our
segmentation strategy and a plan to rationalize and reduce our
store real estate portfolio and square footage.
24
|
|
|
|
|
In fiscal 2010, we launched an enhanced, coordinated marketing
campaign, including a return to national and regional
advertising,
e-commerce
advertising and increased in-store visual, aimed at increasing
brand awareness and customer retention, reactivation and
acquisition, by providing current and prospective future
customers with images designed to communicate our updated brand
image of tradition transformed. We expect to
continue this campaign in the coming year and will continue to
evaluate the results achieved, making any adjustments to the
strategy as we deem appropriate.
|
|
|
|
Further in 2010, we began the roll-out of our store re-image
initiative, a program which is designed to translate our updated
brand image into a renovated storefront and store lay-out and is
aimed at increasing customer traffic. The phases undertaken in
fiscal 2010 included renovations of fourteen retail stores,
storefront refreshes of eleven additional stores and a complete
rebuild of a retail location in a key market, which serves as
our design concept store. Based on the results of the
renovations undertaken to-date, we plan to initiate the next
phase of our re-image initiative in fiscal 2011, including
anticipated renovations of up to approximately 70 stores. Going
forward, we will continue to evaluate the results achieved as
well as the scope and execution of any future phases of the
initiative.
|
|
|
|
Fiscal 2010 also marked the start of the reinvestment phase of
our three-year IT systems strategic plan which focuses on making
systems enhancements designed to aid management in understanding
and meeting customer needs, driving growth across the business
and promoting operational excellence. Most significantly, we
commenced the process of upgrading our Oracle financial system
and implementing our Oracle and JDA merchandise financial
planning, assortment planning and allocation systems. These
systems will provide cross-functional support and analysis tools
to better serve our business as well as a foundation for
developing a leaner systems operation which will allow us to
eliminate redundant systems and reduce customizations. We expect
these phases of our systems upgrade to be completed by the close
of fiscal 2011 and expect to continue to reinvest in our
information systems in the coming year as we continue to execute
on this plan.
|
|
|
|
The 2010 fall selling season reflected the first distribution of
product to our stores following 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. We expect to continue to follow our
segmentation strategy for determining merchandise allocation
through 2011, adjusting the mix and assortment of merchandise
across the store categories as well as adjusting the store
category classification of certain locations, based on the
results of this implemented strategy as we go forward.
|
|
|
|
Finally, in fiscal 2010, we announced our intention to closely
evaluate our store real estate portfolio and rationalize our
store locations, under a program aimed at increasing the
productivity of our store square footage. This program was still
in the early stages of evaluation at the close of fiscal 2010;
however in the fourth quarter of 2010, we began to take
advantage of opportunities to reduce leased store space in
accordance with lease expirations of several leases, closing
eighteen stores in the fourth quarter of 2010. Our evaluation of
our store portfolio includes consideration, on a
market-by-market
basis, of factors such as overall size and potential sales in
each market, current performance and growth potential of each
store, and available lease expirations, lease renewals and other
lease termination opportunities.
|
In March 2011, we announced the acceleration of our store
rationalization plan, with an expectation to close approximately
90 to 100 stores and consolidate or downsize approximately 15 to
20 stores over the next two years, with a majority of these
actions expected to be completed in fiscal 2011. These actions
are expected to reduce gross square footage by approximately
0.5 million square feet over the two year period. We
anticipate that a substantial part of these expected closings
and square footage reductions will be implemented at stores
which have lease expirations or other lease termination events
occurring in this two year period. In connection with this plan,
we expect to incur approximately $18.0 million in estimated
lease exit, severance and related costs over the next two years.
The number, identity and timing of these actions are not final,
continue to be subject to further ongoing evaluation and may be
adjusted as we continue to finalize our plan. We will continue
to evaluate our store portfolio and may determine to close
additional stores over the coming years.
25
Going forward, we remain committed to our long-range plan and
strategic initiatives which focus on top-line sales,
profitability and productivity improvements, and include ongoing
strategic reinvestments in our marketing campaign and capital
expenditures related to our store re-image initiative and
information technology.
Results
of Operations
Results of fiscal year 2010 include:
|
|
|
|
|
Achieved operating income of $31.4 million compared to an
operating loss of $8.7 million in the prior year, a 461.7%
improvement
year-over-year,
while recording:
|
|
|
|
|
|
$17.7 million in incremental merger-related costs,
|
|
|
|
$11.1 million of incremental expense related to the
reinstatement and enhancement of operational performance-based
and certain other employee compensation programs and
|
|
|
|
$9.4 million of incremental marketing expense, partially
offset by
|
|
|
|
$6.3 million of gift card breakage income, representing a
one-time cumulative change in estimate adjustment in 2010;
|
|
|
|
|
|
Recorded net sales declines of 1.8% in fiscal 2010, compared to
fiscal 2009;
|
|
|
|
Improved gross profit margins to 37.7% from 33.5% in the prior
year; and
|
|
|
|
Reduced total outstanding debt by $461.0 million, or 94.8%.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales, buying and occupancy
|
|
|
62.3
|
%
|
|
|
66.5
|
%
|
|
|
70.2
|
%
|
Selling, general and administrative
|
|
|
32.4
|
%
|
|
|
32.6
|
%
|
|
|
35.0
|
%
|
Merger-related costs
|
|
|
2.1
|
%
|
|
|
0.7
|
%
|
|
|
|
|
Restructuring charges
|
|
|
0.5
|
%
|
|
|
0.8
|
%
|
|
|
1.2
|
%
|
Impairment of store assets
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
Operating income (loss)
|
|
|
2.6
|
%
|
|
|
(0.7
|
)%
|
|
|
(6.6
|
)%
|
Interest expense, net
|
|
|
1.6
|
%
|
|
|
2.3
|
%
|
|
|
1.4
|
%
|
Income (loss) before taxes
|
|
|
1.0
|
%
|
|
|
(3.0
|
)%
|
|
|
(8.0
|
)%
|
Income tax expense (benefit)
|
|
|
0.4
|
%
|
|
|
(1.0
|
)%
|
|
|
1.3
|
%
|
Income (loss) from continuing operations
|
|
|
0.6
|
%
|
|
|
(2.0
|
)%
|
|
|
(9.3
|
)%
|
Cost of sales, buying and occupancy is comprised primarily of
the cost of merchandise including duties, inbound freight
charges, shipping, handling and distribution costs associated
with our direct operations, salaries and expenses incurred by
our merchandising and sourcing operations and occupancy costs
associated with our stores. Occupancy costs consist primarily of
rent and associated depreciation, maintenance, property taxes
and utilities.
Selling, general and administrative is comprised primarily of
the costs of employee compensation and benefits in the selling
and administrative support functions, catalog operation costs
relating to catalog production and call center, advertising and
marketing costs, the cost of our customer loyalty program, costs
related to management information systems and support and the
costs and income associated with our credit card operations.
Additionally, costs associated with our warehouse operations are
included in selling, general and administrative and include
costs of receiving, inspecting and warehousing merchandise as
well as the costs related to store distribution of merchandise.
Warehouse operations costs for 2010, 2009 and 2008 are
approximately $17.9 million, $20.2 million and
$27.6 million, respectively.
26
Our gross margins may not be comparable to certain other
companies, as there is diversity in practice as to which costs
companies include in selling, general and administrative and
cost of sales, buying and occupancy. Specifically, we include
the majority of the costs associated with our warehousing
operations in selling, general and administrative, while other
companies may include these costs in cost of sales, buying and
occupancy.
2010
Compared to 2009
Net
Sales
The following is a comparison of net sales for fiscal years 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
(Decrease)
|
|
|
|
2011
|
|
|
2010
|
|
|
Increase
|
|
|
|
(In millions)
|
|
|
|
|
|
Net store sales
|
|
$
|
991.4
|
|
|
$
|
1,027.9
|
|
|
$
|
(36.5
|
)
|
Net direct marketing sales
|
|
|
221.7
|
|
|
|
207.7
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,213.1
|
|
|
$
|
1,235.6
|
|
|
$
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
Sales
Reflected in net store sales for fiscal year 2010 is a
$31.8 million, or 3.4%, decrease in comparable store sales
compared to fiscal year 2009. This decrease is significantly
attributable to reduced customer traffic due to, among other
factors, weaker than anticipated customer response to our
merchandise assortment, increased levels of competitive
promotional activity and weather-related issues in the fourth
quarter, which led to a decline in the number of comparable
store transactions. We began fiscal year 2010 building on
momentum from the second half of fiscal year 2009 and saw
positive comparable store sales in the first half of the year.
This momentum did not continue in the second half of the year,
despite our increased promotional activity and efforts in the
fourth quarter in order to be more competitive in what proved to
be a more promotional environment than anticipated.
In the second half of the year, our enhanced marketing campaign
entered a significant phase with the roll-out of our national
advertising campaign. We believe our enhanced marketing strategy
and related initiatives are significant to achieving our
tradition transformed brand vision and believe that
these brand building efforts will take time to gain traction and
translate into increased customer traffic and net sales.
Sales metrics for comparable stores for fiscal year 2010 were as
follows: customer traffic decreased 8.0%
year-over-year,
yet the rate of converting traffic to transactions increased
0.9%, contributing to a 7.2% decrease in the number of
transactions per store. Additionally, units per transaction were
up 3.2% which, combined with a 0.7% increase in average unit
retail, contributed to a 3.9% increase in dollars per
transaction over fiscal year 2009.
Comparable stores are those stores, excluding surplus outlets,
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 January 29,
2011, we operated a total of 568 stores with gross and selling
square footage of approximately 4.1 million square feet and
3.1 million square feet, respectively, a decrease of
approximately 2.8% in gross square footage and 3.0% in selling
square footage from January 30, 2010, when we operated 580
retail stores.
Direct
Marketing Sales
Direct marketing sales in fiscal 2010 increased 6.7% compared to
fiscal year 2009 while the percentage of our net sales derived
from direct marketing increased to 18.3% from 16.8% in fiscal
2009. These increases can be primarily attributed to an
$8.2 million comparative increase in red-line phone sales,
which are sales resulting from direct lines in our stores to our
call center, as well as increased Internet sales. Internet sales
were $161.8 million in fiscal 2010 compared to
$144.5 million in fiscal 2009. This increase is primarily
due to changing trends in consumer purchasing behavior, with
declines in catalog sales partially offsetting the increase in
Internet sales.
27
Cost of
Sales, Buying and Occupancy
The following is a comparison of cost of sales, buying and
occupancy for fiscal years 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Cost of sales, buying and occupancy
|
|
$
|
755.2
|
|
|
$
|
821.3
|
|
|
$
|
(66.1
|
)
|
Percentage of net sales
|
|
|
62.3
|
%
|
|
|
66.5
|
%
|
|
|
(4.2
|
) %
|
In fiscal year 2010, net sales declines of $22.5 million
were offset by cost of sales, buying and occupancy declines of
$66.1 million, resulting in a 420 basis point
improvement in gross profit margin to 37.7% from 33.5% in fiscal
year 2009. This improvement in gross profit margin was primarily
driven by gains in merchandise margin, which was up
310 basis points as a result of changes to our sourcing
practices and correlated to improvements in our initial
mark-up
rate
(IMU) compared to fiscal year 2009. Occupancy
expenses as a percent of net sales also improved 90 basis
points, primarily due to comparatively lower depreciation
expense, while buying expenses as a percent of net sales
improved 20 basis points.
Although we recorded a 420 basis point improvement in gross
profit margin
year-over-year
in fiscal 2010, we do not expect our gross profit margin
improvements to be as strong
year-over-year
in fiscal 2011, largely due to expectations of incrementally
higher merchandise costs, correlated to rising commodity prices,
and continued promotional pressure in the market.
Selling,
General and Administrative
The following is a comparison of selling, general and
administrative for fiscal years 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Selling, general and administrative
|
|
$
|
393.5
|
|
|
$
|
403.2
|
|
|
$
|
(9.7
|
)
|
Percentage of net sales
|
|
|
32.4
|
%
|
|
|
32.6
|
%
|
|
|
(0.2
|
)%
|
In fiscal year 2010, we reinstated and enhanced operational
performance-based and certain other employee compensation
programs that were suspended in the prior year, recording
related incremental compensation expense of $9.9 million in
fiscal 2010. Further, in 2010, we increased our investment in
marketing, including expanded national and regional advertising,
e-commerce
advertising and increased in-store visual, recording incremental
marketing expense of $9.4 million in fiscal 2010. These
planned reinvestments in our business were offset by expense
savings that continue to be realized from actions taken under
our fiscal year 2009 expense reduction program, allowing us to
reduce selling, general and administrative
year-over-year
while making these strategic reinvestments.
Selling, general and administrative in fiscal 2010 also reflect
a change in our estimate of gift card breakage, whereby in
fiscal 2010, we refined our estimate of gift card redemptions
and began to recognize income from the breakage of gift cards
when the likelihood of redemption of the gift card is considered
remote. Gift card breakage income of $6.9 million,
including a cumulative, one-time adjustment of
$6.3 million, was recorded in fiscal year 2010 as an offset
to selling, general and administrative.
Merger-Related
Costs
During fiscal years 2010 and 2009, we incurred
$25.9 million and $8.2 million of merger-related
costs, respectively, in connection with our acquisition of BPW.
These costs primarily consist of investment banking,
professional services fees, an incentive award given to certain
executives and members of senior management as a result of the
closing of this transaction and, in 2010, are partially offset
by a net gain on the settlement of shareholder litigation. Refer
to Part I Item 3.,
Legal Proceedings,
for
further information regarding this settlement.
28
Restructuring
Charges
The following is a comparison of restructuring charges for
fiscal years 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Restructuring charges
|
|
$
|
5.6
|
|
|
$
|
10.3
|
|
|
$
|
(4.7
|
)
|
Percentage of net sales
|
|
|
0.5
|
%
|
|
|
0.8
|
%
|
|
|
(0.3
|
)%
|
The restructuring charges incurred in fiscal 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 fiscal
2009 primarily include severance costs recorded in February 2009
and June 2009 due to corporate headcount reductions, estimated
lease termination costs associated with the portion of our
Tampa, Florida data center which we ceased to use in July 2009
and severance and lease termination costs incurred related to
the closing of our Hong Kong and India sourcing offices and the
reduction of corporate sourcing headcount.
Impairment
of Store Assets
We regularly monitor the performance and productivity of our
store portfolio. When we determine that a store is
underperforming or is to be closed, we reassess the
recoverability of the stores long-lived assets, which in
some cases can result in an impairment charge. When a store is
identified for impairment analysis, we estimate the fair value
of the store assets using an income approach, which is based on
estimates of future operating cash flows at the store level.
These estimates, which include estimates of future net store
sales, direct store expenses and non-cash store adjustments, are
based on the experience of management, including historical
store operating results, 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 both fiscal years 2010 and 2009,
we recorded impairments of store assets of $1.4 million. In
fiscal year 2010, store impairment analyses were triggered both
by management reviews of the stores operating results as
well as our anticipated closures of store locations. In fiscal
year 2009, store impairment analyses were primarily triggered by
management reviews of the stores operating results.
Our analysis of the store locations approved for closure,
consolidation or downsizing under our accelerated store
rationalization plan as well as any additional store closures or
negative trends in store performance may result in additional
impairments of store assets in the coming year.
Interest
Expense, net
The following is a comparison of net interest expense for fiscal
years 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Interest expense, net
|
|
$
|
18.8
|
|
|
$
|
28.1
|
|
|
$
|
(9.3
|
)
|
Net interest expense in fiscal 2010 decreased compared to fiscal
2009 primarily due to reductions in the weighted average debt
outstanding in the respective periods, from $498.7 million
in fiscal 2009 to $152.9 million in fiscal 2010, partially
offset by an increase in the comparable effective interest
rates, from 4.9% in fiscal 2009 to 5.5% in fiscal 2010. While
the
year-over-year
effective interest rate increased in fiscal 2010, it has
sequentially declined over each quarterly period to a low of
3.8% in the fourth quarter of 2010. Reductions in debt-related
interest expense were partially offset by increased tax-related
interest expense
year-over-year.
We expect interest expense to be comparatively lower in the
coming year.
29
Income
Tax Expense (Benefit)
The following is a comparison of income tax expense (benefit)
for fiscal years 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Increase
|
|
|
|
(In millions)
|
|
|
Income tax expense (benefit)
|
|
$
|
5.0
|
|
|
$
|
(11.5
|
)
|
|
$
|
16.5
|
|
In fiscal years 2010 and 2009, our effective income tax rate,
including discrete items, was 40.0% and 31.3%, respectively. The
effective income tax rate is based upon the income or loss for
the year, the composition of the income or loss in different
jurisdictions and discrete adjustments for settlements of tax
audits or assessments, the resolution or identification of tax
position uncertainties and non-deductible costs associated with
the merger. Income tax expense in fiscal 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. The
income tax benefit in fiscal 2009 was primarily impacted by the
intra-period 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 discontinue future benefits being earned under the
plans effective as of May 1, 2009, which resulted in an
allocated tax benefit of $10.5 million to continuing
operations and an offsetting 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.
2009
Compared to 2008
Net
Sales
The following is a comparison of net sales for fiscal years 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Net store sales
|
|
$
|
1,027.9
|
|
|
$
|
1,261.6
|
|
|
$
|
(233.7
|
)
|
Net direct marketing sales
|
|
|
207.7
|
|
|
|
233.6
|
|
|
|
(25.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,235.6
|
|
|
$
|
1,495.2
|
|
|
$
|
(259.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
Sales
Reflected in Talbots store sales is a $218.3 million, or
19.3%, decline in comparable store sales for 2009, due to the
lackluster customer shopping behaviors we experienced throughout
the first half of the year. We believe this was a carryover from
the latter part of 2008 as the difficult economic environment
significantly influenced consumers discretionary spending.
When our customer was shopping, key fashion items at entry level
price points were the main driver of sales. We remained
steadfast in managing on lean inventory while improving our flow
of merchandise, optimizing our markdowns and presenting our
customer with a stronger mix of regular-price to markdown
merchandise.
Sales metrics for 2009 were as follows: customer traffic
declined 14.6% and the rate of converting traffic to
transactions declined 3.2%, resulting in a 17.8% decline in the
number of transactions. Additionally, units per transaction were
down 3.8%, with a 1.6% increase in average unit retail,
resulting in a 2.2% decline in dollars per transaction. We began
to see improvement in our sales metrics beginning in the third
quarter which continued through the end of the year. Although we
experienced a decline in fourth quarter traffic and
transactions, dollars per transaction increased 13% reflecting
an improvement in regular-price selling.
Despite a year over year decline in sales and certain other
related metrics, we had reason to believe that customer
perception of our merchandise continued to improve. Market
research we conducted during the third quarter of 2009 indicated
that our best customers, those who spend the most money shopping
with us, gave our merchandise its
30
highest rating in recent years. Our lower spenders also rated
our merchandise at its highest levels in recent years, although
not as high as our best customers.
Comparable stores are those stores, excluding surplus outlets,
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 January 30,
2010, we operated a total of 580 stores with gross and selling
square footage of approximately 4.1 million square feet and
3.2 million square feet. This represents a decrease of
approximately 1.4% in gross and selling square footage,
respectively, from January 31, 2009, when we operated 587
retail stores with gross and selling square footage of
approximately 4.2 million square feet and 3.2 million
square feet, respectively. The decrease in square footage is due
to the opening of 11 upscale outlets and one retail store offset
by the closing of 19 retail stores.
Direct
Marketing Sales
We experienced an 11.1% decline in direct marketing sales in
2009 compared to 2008 while the percentage of our net sales
derived from direct marketing increased to 16.8% in 2009 from
15.6% in 2008. The increase in direct marketing as a percent of
total sales is partially due to more aggressive selling and
promoting of our direct marketing sales that originate in our
stores via red-line phones, which are direct lines to our call
center. Also contributing to the improvement, beginning in the
fall season, we presented our customer with a stronger mix of
regular-price merchandise, achieved better fulfillment and
experienced lower returns. Direct marketing sales in the third
quarter were essentially flat compared to the prior year and we
experienced an 11.0% increase in the fourth quarter on a
year-over-year
basis. Internet sales in 2009 represented 70.0% of our direct
marketing sales compared to 68.0% in 2008. We believe our
investment in our new Internet platform coupled with changing
trends in consumer purchasing behavior, contributed to the
increase in Internet sales as a percentage of direct marketing.
Cost of
Sales, Buying and Occupancy
The following is a comparison of cost of sales, buying and
occupancy for fiscal years 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Cost of sales, buying and occupancy
|
|
$
|
821.3
|
|
|
$
|
1,049.8
|
|
|
$
|
(228.5
|
)
|
Percentage of net sales
|
|
|
66.5
|
%
|
|
|
70.2
|
%
|
|
|
(3.7
|
)%
|
The decrease in cost of sales, buying and occupancy represents a
370 basis point improvement from the prior year. The
improvement includes a 620 basis point improvement in
merchandise margin as a percent of sales. The improvement in
merchandise margin was driven by changes to our sourcing
practices, improved inventory management and stronger
regular-price selling specifically in the second half of the
year. The improvement in cost of sales is offset by a
200 basis point increase in occupancy costs and a
50 basis point increase in buying costs, both of which rose
as a percent of sales despite reductions in actual costs. These
increases as a percent of sales are attributable to negative
leverage from the decline in sales for the year, as actual costs
for occupancy and buying were reduced from the prior year.
Selling,
General and Administrative
The following is a comparison of selling, general and
administrative for fiscal years 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Selling, general and administrative
|
|
$
|
403.2
|
|
|
$
|
523.1
|
|
|
$
|
(119.9
|
)
|
Percentage of net sales
|
|
|
32.6
|
%
|
|
|
35.0
|
%
|
|
|
(2.4
|
)%
|
In early 2009, we established a goal of reducing annual expense
by $150.0 million by the end of fiscal 2010. Approximately
80% of this reduction was expected to be within selling, general
and administrative. By the end of fiscal 2009, we reduced
selling, general and administrative by $119.9 million,
substantially achieving our two-year
31
goal in one year. Our expense reductions were primarily realized
in payroll and employee benefits and the balance in other
corporate overhead expenses as we reduced our workforce by 32%
during 2009.
Merger-Related
Costs
In 2009, we incurred $8.2 million of merger-related costs
in connection with our acquisition of BPW. These costs primarily
consist of investment banking and professional services fees.
Restructuring
Charges
The following is a comparison of restructuring charges for
fiscal years 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Restructuring charges
|
|
$
|
10.3
|
|
|
$
|
17.8
|
|
|
$
|
(7.5
|
)
|
Percentage of net sales
|
|
|
0.8
|
%
|
|
|
1.2
|
%
|
|
|
(0.4
|
)%
|
The 2009 restructuring charges primarily relate to severance
costs due to the corporate headcount reductions in February 2009
and June 2009 and costs to settle lease liabilities for a
portion of our Tampa, Florida data center that is no longer
being used. Additionally, we reorganized our global sourcing
activities and entered into a buying agency agreement with
Li & Fung effective September 2009. Li &
Fung is now our exclusive global apparel sourcing agent for
substantially all Talbots apparel.
Impairment
of Store Assets
The following is a comparison of impairment of store assets in
fiscal years 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Impairment of store assets
|
|
$
|
1.4
|
|
|
$
|
2.8
|
|
|
$
|
(1.4
|
)
|
Percentage of net sales
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
(0.1
|
)%
|
We regularly monitor our store portfolio to identify stores that
are underperforming and close stores when appropriate. When we
determine that a store is underperforming or is to be closed, we
reassess the expected future cash flows of the store, which in
some cases results in an impairment charge. During the third
quarter of 2009, we identified and recorded an impairment charge
of $1.4 million related to underperforming stores.
Interest
Expense, net
The following is a comparison of net interest expense for fiscal
years 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
|
(In millions)
|
|
|
Net interest expense
|
|
$
|
28.1
|
|
|
$
|
20.3
|
|
|
$
|
7.8
|
|
Average debt outstanding
|
|
|
498.7
|
|
|
|
474.5
|
|
|
|
24.2
|
|
Average interest rate on borrowings
|
|
|
4.9
|
%
|
|
|
3.7
|
%
|
|
|
1.2
|
%
|
The increase in net interest expense was primarily due to higher
average outstanding debt levels combined with a higher average
interest rate on those borrowings. Interest expense in 2009 also
includes $0.5 million of amortization of the
$1.7 million loan fees paid to AEON in 2009 and
$1.1 million of breakage fees resulting from our early
repayment of the bank debt on December 29, 2009.
32
Income
Tax (Benefit) Expense
The following is a comparison of income tax (benefit) expense
for fiscal years 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
Income tax (benefit) expense
|
|
$
|
(11.5
|
)
|
|
$
|
20.8
|
|
|
$
|
(32.3
|
)
|
The income tax benefit in 2009 resulted primarily from the
intra-period tax allocation arising from other comprehensive
income recognized from the remeasurement of our Pension Plan and
SERP obligations due to our decision to discontinue future
benefits being earned under the plans effective as of
May 1, 2009. This resulted in a tax expense of
approximately $10.5 million in other comprehensive income
and an offsetting benefit in continuing operations. The income
tax expense in 2008 is due to the establishment of a valuation
allowance of $61.0 million for substantially all of our net
deferred tax assets. During the fourth quarter of 2008, we
concluded there was insufficient evidence that all of our
deferred tax assets would be realized in the future.
Discontinued
Operations
Our discontinued operations include the Talbots Kids, Mens and
U.K. businesses, all of which ceased operations in 2008, and the
J. Jill business, which was sold on July 2, 2009. The
operating results of these businesses have been classified as
discontinued operations on the consolidated statements of
operations for all periods presented, and the cash flows from
discontinued operations, including proceeds from the sale of J.
Jill, have been separately presented in the consolidated
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 acquiring 205 of the
280 J. Jill stores held at the time of purchase and executing a
sublease with us for a portion of the Quincy, Massachusetts
office space previously used for the J. Jill business. The 75 J.
Jill stores that were not sold were closed. As of
January 29, 2011, we had settled the lease liabilities of
73 of the 75 stores not acquired by the Purchaser as well as a
portion of the vacant Quincy, Massachusetts office space.
At the time of closing or vacating leased spaces associated with
our discontinued operations, we record estimated lease
termination costs. As of January 29, 2011, we had recorded
lease liabilities for the two remaining leases for former J.
Jill stores, the remaining portion of the Quincy office space
and six remaining leases for former Talbots Kids and Mens stores
that have not been assigned or settled. We remain contingently
liable for obligations and liabilities transferred to certain
third parties, including the remaining 203 J. Jill leases of the
205 J. Jill leases originally assigned to the Purchaser as well
as certain assigned leases related to our closed U.K. and Mens
businesses. We record adjustments to our estimated lease
liabilities when new information suggests that actual costs may
vary from initial or previous estimates, resulting in changes to
the income (loss) from discontinued operations. Total cash
expenditures related to any of these lease liabilities will
depend on either the outcome of negotiations with third parties
or performance under the assigned leases by third parties. As a
result, actual costs related to these leases may vary from
current estimates and managements assumptions and
projections may continue to change. Refer to
Contractual
Commitments
for further discussion of discontinued
operations lease liabilities.
The $3.2 million income from discontinued operations
recorded in fiscal 2010 includes adjustments to the estimated
lease liabilities of the J. Jill, Talbots Kids and Mens
businesses, primarily relating to negotiated settlements on four
of the retained and closed J. Jill retail locations and a
portion of the vacant Quincy office space. The $4.1 million
loss from discontinued operations recorded in fiscal 2009
includes a loss on the sale and disposal of the J. Jill
business, adjustments to the estimated lease liabilities of the
J. Jill, Talbots Kids and Mens businesses and losses incurred by
the J. Jill business prior to ceasing operations in July 2009.
The $416.1 million loss from discontinued operations
recorded in fiscal 2008 includes an impairment charge to the
assets of the J. Jill business, the recording of estimated lease
liabilities of the Talbots Kids, Mens and U.K. businesses upon
ceasing operations and the income (losses) incurred by the J.
Jill business as well as the Talbots Kids, Mens and U.K.
businesses prior to ceasing operations.
33
Liquidity
and Capital Resources
Over the past several years, managements strategies have
focused on actions and initiatives designed to streamline our
organization, reduce our cost structure and improve our gross
margin performance and liquidity, culminating in the completion
of the BPW Transactions on April 7, 2010. With the
completion of these transactions, we gained additional capital
to strengthen our balance sheet, significantly reduced our
outstanding indebtedness and corresponding interest expense and
restored positive shareholders equity.
With the liquidity provided by the BPW Transactions, management
has been able to expand the scope of its strategic initiatives
to include programs designed and intended to provide planned
reinvestment in key aspects of the business, including enhanced
marketing campaigns, the launch of a store re-image initiative
and an information technology enhancement and upgrade, while
continuing to focus on programs designed and intended to
continue to improve upon our leaner operating structure and
enhance operating efficiencies, including a plan to rationalize
and reduce our store portfolio. The enhanced marketing campaign
and store re-image initiative represented incremental expense
and capital expenditure spend in fiscal 2010 and will continue
to require the use of the Companys capital resources in
fiscal 2011. Our evaluation of our store portfolio includes
consideration, on a
market-by-market
basis, of factors such as overall size and potential sales in
each market, current performance and growth potential of each
store, and available lease expirations, lease renewals and other
lease termination opportunities. In March 2011, we announced the
acceleration of our store rationalization plan, with an
expectation to close approximately 90 to 100 stores and
consolidate or downsize approximately 15 to 20 stores over the
next two years, with a majority of these actions expected to be
completed in fiscal 2011. These actions are expected to reduce
gross square footage by approximately 0.5 million square
feet over the two year period. We anticipate that a substantial
part of these expected closings and square footage reductions
will be implemented at stores which have lease expirations or
other lease termination events occurring in this two year
period. Any action to close stores under this program,
particularly prior to the end of their lease terms, may require
the Company to provide up-front payment in the form of lease
exit or termination fees. In connection with this plan, we
expect to incur approximately $18.0 million in estimated
lease exit, severance and related costs over the next two years,
some of which will require the use of Company resources. We
continue to monitor our expenditures and expect to make our most
significant reinvestments in planned programs intended to
improve top-line sales, profitability or productivity.
We finance our working capital needs, operating costs, capital
expenditures, strategic initiatives and restructurings and debt
and interest payment requirements through cash generated by
operations and existing credit facilities. At January 29,
2011 we held $10.2 million of cash and cash equivalents,
with cash equivalents defined as highly liquid instruments with
a purchased maturity of three months or less, including payments
due from credit card processors and banks for third party credit
card and debit card transactions which are generally processed
within one to five business days.
Any determination to pay dividends and the amount thereof is at
the discretion of our Board of Directors, subject to the
restrictions imposed by our Credit Facility, which prohibits the
payment of dividends except for those issued in the form of
stock or stock equivalents. In February 2009, our Board of
Directors approved the indefinite suspension of our cash
dividends; therefore, no dividends were paid in fiscal 2010 or
fiscal 2009 or are expected to be paid in the near-term. We
currently intend to retain our future earnings, if any, for use
in the operation of our business.
Merger
with BPW and Related Financing Transactions
On April 7, 2010, we completed a series of transactions
(collectively, the BPW Transactions) which, in the
aggregate, substantially reduced our indebtedness and
significantly deleveraged our balance sheet, consisting of three
related transactions: (i) an Agreement and Plan of Merger
between Talbots and BPW Acquisition Corp. (BPW)
pursuant to which a wholly-owned subsidiary of the Company
merged with and into BPW in exchange for the Companys
issuance of Talbots common stock and warrants to BPW
stockholders; (ii) the repurchase and retirement of all
shares of Talbots common stock held by AEON (U.S.A.), Inc.
(AEON (U.S.A.)), our then majority shareholder; the
issuance of warrants to purchase one million shares of Talbots
common stock to AEON (U.S.A.) and the repayment of all of our
outstanding debt with AEON Co., Ltd. (AEON) and AEON
(U.S.A.) at its principal value plus accrued interest and other
costs for total cash consideration of $488.2 million; and
(iii) the
34
execution of a third party senior secured revolving credit
facility which provides borrowing capacity up to
$200.0 million, subject to availability and satisfaction of
all borrowing conditions.
In connection with the merger, we issued 41.5 million
shares of Talbots common stock and warrants to purchase
17.2 million shares of Talbots common stock (the
Talbots Warrants) for 100% ownership of BPW.
Approximately 3.5 million BPW warrants that did not
participate in the exchange offer (the Non-Tendered
Warrants) remained outstanding at the closing of the
merger. Additionally, in connection with the merger, we
repurchased and retired the 29.9 million shares of Talbots
common stock held by AEON (U.S.A.), our former majority
shareholder, in exchange for warrants to purchase one million
shares of Talbots common stock (the AEON Warrants).
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 the NYSE Amex in April
2010. Approximately 17.2 million Talbots Warrants were
outstanding at January 29, 2011.
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
January 29, 2011 become exercisable one year from
April 7, 2010, the effective date of the merger, do not
have anti-dilution rights, were de-listed from the NYSE Amex
concurrent with the merger and expire on 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 January 29,
2011.
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 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
January 29, 2011, our effective interest rate was 3.9%, and
we had additional borrowing availability of up to
$116.7 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
35
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 credit card program, Talbots and certain of
our subsidiaries have also executed an access and monitoring
agreement that requires us to comply with certain monitoring and
reporting obligations to the agent with respect to such program,
subject to applicable law.
We may not create, assume or suffer to exist any lien securing
indebtedness incurred after the closing date of the Credit
Facility subject to certain limited exceptions set forth in the
agreement. The Credit Facility contains negative covenants
prohibiting us, with certain exceptions, from among other
things, incurring indebtedness and contingent obligations,
making investments, intercompany loans and capital
contributions, declaring or making any dividend payment except
for dividend payments or distributions payable solely in stock
or stock equivalents, and disposing of property or assets. We
have agreed to keep the mortgaged properties in good repair,
reasonable wear and tear excepted. The agreement also provides
for events of default, including failure to repay principal and
interest when due and failure to perform or violation of the
provisions or covenants of the agreement. The Credit Facility
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
January 29, 2011. Of the $125.0 million borrowed under
the Credit Facility at its inception, approximately
$25.5 million was outstanding at January 29, 2011.
Further at January 29, 2011, we had $9.1 million in
outstanding letters of credit and letter of credit availability
of up to $15.9 million under the Master Agreement, included
as part of our total additional borrowing availability under the
Credit Facility, subject to borrowing capacity restrictions
described therein.
Outlook
Our ability to obtain additional financing as needed depends
upon many factors, including our financial projections and our
prospects and creditworthiness, as well as external economic
conditions and general liquidity in the credit markets.
We expect that our primary uses of cash in the next twelve
months will be concentrated in (i) funding operations,
strategic initiatives and working capital needs;
(ii) investing in capital expenditures with approximately
$60.0 million in capital expenditures expected for fiscal
2011, primarily related to the store re-image initiative
36
and investments in our operations, finance and information
technology systems; and (iii) seeking to continue to
further deleverage our consolidated balance sheet by further
reducing our outstanding obligation under the Credit Facility.
Additionally, we may be required to make significant payments
over the next twelve months to a state tax authority regarding
certain tax matters which have been subject to appeal, pending
final resolution and the outcome of potential negotiations with
this authority.
Our cash and cash equivalents were $10.2 million as of
January 29, 2011. Based on our current assumptions, our
forecast and operating cash flow plan for fiscal year 2011, our
anticipated borrowing availability under the Credit Facility and
the 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 fiscal years 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Net cash provided by operating activities
|
|
$
|
54.1
|
|
|
$
|
81.2
|
|
|
$
|
16.3
|
|
Net cash provided by (used in) investing activities
|
|
$
|
304.2
|
|
|
$
|
(20.9
|
)
|
|
$
|
(42.1
|
)
|
Net cash (used in) provided by financing activities
|
|
$
|
(453.0
|
)
|
|
$
|
4.3
|
|
|
$
|
57.8
|
|
Cash
provided by operating activities
Cash provided by operating activities was $54.1 million in
fiscal 2010 compared to $81.2 million in fiscal 2009 and
$16.3 million in fiscal 2008. Cash provided by operating
activities in fiscal 2010 is the result of earnings excluding
non-cash items of $66.7 million, partially offset by a
$12.6 million increase in cash used in working capital
changes; whereas cash provided by operating activities in fiscal
2009 and fiscal 2008 is the result of lower investment in
working capital of $45.5 million and $15.0 million,
respectively, supplemented by earnings excluding non-cash items
of $35.7 million and $1.3 million, respectively. This
shift in the composition of cash provided by operating
activities, from being primarily the result of working capital
changes to being primarily the result of earnings excluding
non-cash items in fiscal 2010, is primarily owed to the
Companys leaner operating structure in fiscal 2010 and
improvements in the Companys capital composition as a
result of the BPW Transactions. Cash provided by operating
activities in fiscal 2010 and 2009 also includes the payment of
$27.1 million and $3.5 million in merger-related
costs, respectively.
Cash
provided by (used in) investing activities
Cash provided by investing activities was $304.2 million
during fiscal 2010 compared to cash used in investing activities
of $20.9 million in fiscal 2009 and $42.1 million in
fiscal 2008. The cash flows provided by investing activities in
fiscal 2010 primarily reflect the $333.0 million of cash
and cash equivalents acquired in the merger with BPW on
April 7, 2010. Refer to
Merger with BPW and Related
Financing Transactions
for further information regarding
this transaction.
Cash flows used in investing activities relate solely to
purchases of property and equipment in all periods presented.
Cash used for purchases of property and equipment during fiscal
2010 was $28.8 million compared to $21.0 million
during fiscal 2009 and $44.7 million in fiscal 2008. In
fiscal 2009, we planned a reduction in capital expenditures,
generally limiting our capital investments to more essential
replacement property, additions for new stores and a strategic
platform refresh of our
e-commerce
site as part of an overall spend reduction program. In fiscal
2010, we planned an increase in capital expenditures for
strategic reinvestments through our store re-image initiative,
investments in our information technology systems and the
expansion of our upscale outlets, with eleven new locations
opening in fiscal 2010.
37
In fiscal 2010, we completed store renovations of fourteen
retail locations in three key markets under our store re-image
initiative and began storefront refreshes of eleven additional
locations. These refreshes were completed in early fiscal 2011.
Further, in fiscal 2010, we completed the full rebuild of an
additional location in a key market, designed to reflect the
Companys comprehensive vision of its updated brand image,
with the transformed store re-opening at the start of fiscal
2011, and began rebuilds of similar scope on two additional
locations, expected to be completed around the start of the
second quarter of fiscal 2011. These phases of the store
re-image initiative represented incremental capital expenditures
and related expenses, including accelerated depreciation of
existing property and equipment disposed of under these phases
in fiscal 2010, with primarily all of the expenses classified as
cost of sales, buying and occupancy in the consolidated
statements of operations.
These renovations marked the introduction of a multi-faceted
store re-image initiative, a program designed to translate our
updated brand vision of tradition transformed into a
renovated storefront and store lay-out. Implementation of this
initiative was 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 have evaluated the
renovations and refreshes completed to-date and developed a
modified program which combines key components of the store
renovation and storefront refresh programs. We believe this
value engineering will enable us to improve and update an
increased number of stores more quickly, incorporating the
critical elements of a store renovation at a reduced cost. We
plan to initiate the next phase of our re-image initiative,
under this modified program, in fiscal 2011, including
renovations of up to approximately 70 stores. 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. Going
forward, we will continue to evaluate the results achieved as
well as the scope and execution of any future phases of the
initiative.
We expect to spend approximately $60.0 million in gross
capital expenditures during the fiscal 2011, primarily related
to the store re-image initiative and information technology
improvements.
Cash
(used in) provided by financing activities
Cash used in financing activities was $453.0 million in
fiscal 2010 compared to cash provided by financing activities of
$4.3 million in fiscal 2009 and $57.8 million in
fiscal 2008. This change is primarily correlated to an
outstanding debt reduction in fiscal 2010 compared to an
outstanding debt increase in fiscal years 2009 and 2008, with
outstanding debt totaling $25.5 million at January 29,
2011 and $486.5 million at January 30, 2010. The
fiscal 2010 reduction of debt reflects the full repayment of all
related party debt as part of the BPW Transactions, totaling
$486.5 million. Refer to
Merger with BPW and Related
Financing Transactions
for further information regarding
this transaction. In addition to this repayment, cash used in
financing activities in fiscal 2010 includes the payment of
$9.8 million in debt and equity issuance costs related to
the BPW Transactions and the repurchase of shares from employee
stock award holders, partially offset by net borrowings on our
revolving credit facility of $25.5 million, proceeds from
the exercise of Non-Tendered Warrants of $19.0 million and
proceeds from stock options exercised. In addition to net debt
increases, financing activities in fiscal 2009 include the
payment of debt issuance costs and the repurchase of shares from
employee stock award holders. In fiscal 2008, financing
activities include the payment of cash dividends, payment of
debt issuance costs, the repurchase of shares from employee
stock award holders and proceeds from stock options exercised,
in addition to net debt increases.
38
Contractual
Obligations, Commercial Commitments and Contingent
Liabilities
The following summarizes our significant contractual obligations
and commercial commitments as of January 29, 2011:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations and
|
|
|
|
|
Less than
|
|
|
1 to 3
|
|
|
3 to 5
|
|
|
More than
|
|
Commercial Commitments
|
|
Total
|
|
|
1 year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Revolving credit facility, including estimated interest payments
|
|
$
|
28,824
|
|
|
$
|
28,824
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
577,750
|
|
|
|
127,326
|
|
|
|
207,330
|
|
|
|
129,099
|
|
|
|
113,995
|
|
Equipment
|
|
|
1,621
|
|
|
|
798
|
|
|
|
677
|
|
|
|
146
|
|
|
|
|
|
Merchandise purchases
|
|
|
128,496
|
|
|
|
128,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction contracts
|
|
|
836
|
|
|
|
836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contractual commitments
|
|
|
12,357
|
|
|
|
7,071
|
|
|
|
4,738
|
|
|
|
548
|
|
|
|
|
|
Benefit plan obligations
|
|
|
20,852
|
|
|
|
1,756
|
|
|
|
4,685
|
|
|
|
4,503
|
|
|
|
9,908
|
|
Unrecognized tax benefits
|
|
|
6,319
|
|
|
|
5,550
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments
|
|
$
|
777,055
|
|
|
$
|
300,657
|
|
|
$
|
218,199
|
|
|
$
|
134,296
|
|
|
$
|
123,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility, including estimated interest
payments
Represents amounts due under our
revolving credit facility, including estimated interest
payments. Our revolving credit facility matures on
October 7, 2013, however, is considered to be a current
obligation as it requires repayment of outstanding borrowings
with substantially all cash collected by us and contains a
subjective acceleration clause. In consideration of the
classification of this facility as a current obligation, the
above table includes only the principal plus estimated interest
payments for the next twelve months. Interest payments were
estimated using the effective interest rate as of
January 29, 2011. Refer to
Liquidity and Capital
Resources
for further information regarding the Credit
Facility.
|
|
|
|
Operating Leases
Represents future minimum
lease payments under non-cancelable operating leases in effect
as of January 29, 2011, including six executed leases
related to Talbots stores not yet opened at January 29,
2011 and, the remaining lease payments for six former Talbots
Kids and Mens stores, two former J. Jill stores and the
remaining portion of the Quincy office space. The minimum lease
payments above do not include common area maintenance
(CAM) charges, real estate taxes or any rent that
may be due in the future under contingent rent terms, such as
incremental rent due as a function of sales volume. Equipment
operating leases are primarily for store computer and other
corporate equipment and have lease terms that generally range
between three and five years.
|
As described in
Discontinued Operations
, under the terms
of the sale of the J. Jill business, the Purchaser is obligated
for liabilities that arise after the closing under assumed
contracts, which includes leases for 205 J. Jill stores assigned
to the Purchaser as part of the sale, of which 203 assigned
leases remained outstanding at January 29, 2011. Further,
in connection with closing our U.K. stores in 2008, three store
leases were assigned to a local retailer who assumed the primary
lease obligations; and, in connection with the closing of our
Mens stores, one store lease was assigned to a third party who
assumed the primary lease obligations. We remain secondarily
liable in the event that the Purchaser, the local retailer or
other third party does not fulfill its lease obligations. We
have accrued a liability for the estimated exposure related to
these contingent obligations. At January 29, 2011, the
future aggregate lease payments for which we remain contingently
obligated, as transferor or sublessor, total $110.9 million
extending to various dates through fiscal 2020. Any actual
exposure may materially vary from estimated amounts. The table
above excludes these contingent liabilities.
|
|
|
|
|
Merchandise Purchases
Represents commitments
by us to purchase merchandise from our network of vendors. We
generally make merchandise purchase commitments up to six to
nine months in advance of the
|
39
|
|
|
|
|
selling season and do not maintain any long-term or exclusive
commitments or arrangements to purchase from any vendor.
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Construction Contracts
Represents amounts
committed or contractually obligated under contracts to
facilitate the build-out and renovation of our stores.
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Other Contractual Commitments
Represents
amounts committed or contractually obligated under contracts for
products and services required in the normal course of
operation, such as contracts for insurance, maintenance on
equipment, services and advertising. These contracts vary in
length but generally carry
30-day
to
three-year terms.
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Benefit Plan Obligations
Represents estimates
of annual cash payments expected to be made related to the SERP,
the supplemental 401(k) plan, the deferred compensation plan and
the executive postretirement medical plan. We sponsor various
benefit plans for certain employees, including the Pension Plan,
the SERP, two deferred compensation plans and postretirement
medical plans. Our postretirement medical plan for non-executive
retirees is entirely self-funded effective January 2011. We also
expect to make required contributions of $11.6 million to
the Pension Plan in fiscal 2011 which is not reflected in the
table above.
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Unrecognized Tax Benefits
Represents income
tax, interest and penalties expected to be due to various taxing
authorities related to our uncertain tax positions. As we are
unable to reasonably predict the timing of settlement of certain
of our other uncertain tax positions, the above table does not
include $70.8 million of income tax, interest and penalties
relating to unrecognized tax benefits, including
$20.0 million of unrecognized tax benefit recorded as a
result of the BPW Transactions which is expected to be reversed
in the coming year due to a favorable outcome of a Private
Letter Ruling request submitted by the Company on this tax
position and a $14.7 million tax assessment related to
certain state tax matters for which an adverse decision to the
Company on a similar issue was recently affirmed by a state
appeals court. To the extent that we do not prevail in this
matter through any future appeals and the relevant state tax
authority does not allow us to establish a payment plan related
to this matter, we may be required to pay this assessment in the
next twelve months.
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Critical
Accounting Policies
Managements Discussion and Analysis of Financial
Condition and Results of Operations
is based upon
our consolidated financial statements which have been prepared
in accordance with accounting principles generally accepted in
the United States of America. The preparation of these
consolidated financial statements requires us to make estimates,
judgments and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the balance sheets and the reported
amounts of net sales and expenses during the reporting periods.
We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the
circumstances at the time such estimates are made. Actual
results and outcomes may differ materially from our estimates,
judgments and assumptions. Estimates are periodically reviewed
in light of changes in circumstances, facts and experience. The
effects of material revisions in estimates are reflected in the
consolidated financial statements prospectively from the date of
the change in estimate.
We define our critical accounting policies as those
accounting principles generally accepted in the United States of
America that require us to make subjective estimates and
judgments about matters that are uncertain and are likely to
have a material impact on our financial condition and results of
operations as well as the specific manner in which we apply
those principles. The principles that we believe to be our
critical accounting policies are outlined below.
Inventory Markdown
Reserve
Merchandise inventories is a
significant asset on our balance sheet, representing
approximately 23.6% of our total assets at January 29,
2011. We manage our inventory levels by using markdowns to clear
merchandise as needed. Consistent with the retail inventory
method, at the end of each reporting period, reductions in gross
margin and inventory are recorded for estimated future markdowns
necessary to liquidate remaining past-season inventory.
The key factors influencing the reserve calculation are the
overall level of past season inventory at the end of the
reporting period and the expectation of future markdowns on this
same merchandise. The future markdown rate is
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reviewed regularly by comparing actual markdowns taken against
previous estimates. These results are then factored into future
estimates. Historically, the difference between
managements estimates and actual markdowns has not been
significant.
If market conditions were to decline, customer acceptance of
product was not favorable or our sales were otherwise less than
anticipated, we may have excess inventory on hand and may be
required to mark down inventory at a greater rate than
estimated, resulting in an incremental charge to earnings. We
believe that at January 29, 2011 and January 30, 2010,
the markdown reserve was appropriate based on the respective
past season inventory levels, historical markdown trends and
forecasts of future sales of past season inventory. The markdown
reserve rate of past season inventory was 60.0% and 62.0% at
January 29, 2011 and January 30, 2010, respectively. A
100 basis point increase or decrease in this rate would
impact income (loss) before taxes by approximately
$0.2 million in both fiscal years 2010 and 2009.
Gift Card Breakage
Proceeds from
the sale of gift cards are recorded as a liability and are
recognized as net sales when the cards are redeemed for
merchandise. Our gift cards do not have an expiration date.
Prior to the fourth quarter of 2010, all unredeemed gift card
proceeds were reflected as a liability until escheated in
accordance with applicable laws. We only recognized income from
the non-escheated portion of unredeemed gift cards after a
period of time had passed subsequent to the filing of the
corresponding escheatment, approximately equal to the statute of
limitations for state audit of the escheated funds. During the
fourth quarter of 2010, we identified a history of redemption
and breakage patterns associated with our gift cards which
supports a change in our estimate of the term over which we
should recognize income on gift card breakage. Accordingly,
beginning with the fourth quarter of 2010, we recognize income
from the breakage of gift cards when the likelihood of
redemption of the gift card is remote. We determine our gift
card breakage rate based upon historical redemption patterns.
Based on this historical information, the likelihood of a gift
card remaining unredeemed can be reasonably estimated at the
time of gift card issuance. Breakage income is then recognized
over the estimated average redemption period of redeemed gift
cards, for those gift cards for which the likelihood of
redemption is deemed to be remote and for the amount for which
there is no legal obligation for us to remit the value of such
unredeemed gift cards to any relevant jurisdictions. Gift card
breakage income is recorded as other operating income and is
classified as a reduction of selling, general and administrative
in our consolidated statement of operations. Breakage income of
$6.9 million, including a cumulative change in estimate of
$6.3 million, was recognized during fiscal 2010.
Sales Return Reserve
As part of
the normal sales cycle, we receive customer merchandise returns
through both our store and direct marketing channels. To account
for the financial impact of this process, management estimates
future returns on previously sold merchandise. Reductions in
sales and gross margin are recorded for estimated merchandise
returns based on return history, current sales levels, projected
future return levels and any changes in our return policy. Our
estimated sales returns are periodically compared to actual
sales returns. Historically, the difference between the
estimated sales returns and actual sales returns has not been
significant. If customer acceptance of our product is not
favorable or if the product quality were to deteriorate, future
actual returns may increase, resulting in a higher return rate
and increased charges to earnings.
Customer Loyalty Program
We
sponsor a customer loyalty program referred to as our classic
awards program which rewards U.S. Talbots customers with a
twenty-five dollar appreciation award for every five hundred
points earned. Prior to January 2009, one point was earned for
every dollar of merchandise purchased on a Talbots credit card.
Commencing in January 2009, we launched an expanded program with
three tiers: red, platinum, and black. The red tier is open to
all customers, regardless of whether they hold a Talbots credit
card, and accrues 0.5 points for every net dollar of merchandise
purchased with a non-Talbots credit card payment. The platinum
tier is the same as the prior program with one point being
earned for every net dollar of merchandise purchased on a
Talbots credit card. The black tier is for Talbots credit card
holders who spend more than $1,000, net per calendar year on
their Talbots credit card, and accrues 1.25 points for every net
dollar of merchandise purchased on their Talbots credit card.
Appreciation awards may be applied to future merchandise
purchases and expire one year after issuance.
Appreciation award expense is calculated and recognized at the
time of the initial customer purchase and is included in
selling, general and administrative in the consolidated
statement of operations. Our estimate of appreciation award
expense at the time of recording is based on several factors
which are subject to estimate and judgment, including actual and
estimated purchase levels, actual awards issued and historical
redemption rates. Actual awards
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issued and redemptions of awards may vary from the estimates
used in our analysis based on actual customer responsiveness to
the program, which could result in additional expense.
Retirement Plans
We sponsor a
noncontributory defined benefit pension plan (the Pension
Plan) covering substantially all full-time Talbots and
shared service employees in the U.S. hired on or before
December 31, 2007; two unfunded non-qualified supplemental
executive retirement plans (collectively, the SERP)
for certain Talbots current and former key executives impacted
by Internal Revenue Code limits; and we provide certain medical
benefits for most Talbots retirees under postretirement medical
plans. In February 2009, we announced our decision to
discontinue future benefits being earned under the Pension Plan
and SERP effective May 1, 2009, and as a result, a
remeasurement of the plan obligations occurred 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. Additionally, effective January 2011, the
Companys general postretirement medical plan became
completely self-funded. Three current and former executive
officers continue to be covered under the Companys
executive postretirement medical plan which is not self-funded;
however, due to the limited number of participants, the
Companys expense under this plan has not historically been
significant to any individual year.
In calculating our retirement plan obligations and related
expense, we make various assumptions and estimates. The annual
determination of expense, which occurs at the end of our fiscal
year, involves calculating the estimated total benefit
ultimately payable to our plan participants and allocating this
cost to the periods in which services are expected to be
rendered. Significant assumptions related to the calculation of
our obligations include the discount rate used to calculate the
actuarial present value of benefit obligations to be paid in the
future and the expected long-term rate of return on assets held
by the Pension Plan. These assumptions are reviewed annually
based upon currently available information.
The discount rates that we apply are based, in part, upon a
discount rate modeling process which matches the future benefit
payment stream to a discount curve yield for the plan. The
discount rate is used, principally, to calculate the actuarial
present value of our obligation and periodic expense
attributable to our employee benefits plans. The discount rate
applied for the Pension Plan was 6.0% and 6.5% at
January 29, 2011 and January 30, 2010, respectively.
The discount rate applied for the SERP was 5.5% and 6.5% at
January 29, 2011 and January 30, 2010, respectively.
To the extent that the discount rate increases or decreases, our
obligations are decreased or increased accordingly. A
25 basis point change in the discount rates would have
impacted our income (loss) before taxes by approximately
$0.2 million in both fiscal years 2010 and 2009.
The expected long-term rate of return on assets is the weighted
average rate of earnings expected on the funds invested or to be
invested to provide for the pension obligation and is based on
an analysis which considers actual net returns for the Pension
Plan since inception, Ibbotson Associates historical investment
returns data for the three major classes of investments in which
we invest (equity, debt and foreign securities) for the period
since the Pension Plans inception and for the longer
period commencing when the return data was first tracked and
expectations of future market returns from outside sources for
the three major classes of investments in which we invest. This
rate is used primarily in estimating the expected return on plan
assets component of the annual pension expense. To the extent
that the actual rate of return on assets is less than or more
than the assumed rate, that years annual pension expense
is not affected. Rather, this loss or gain adjusts future
pension expense over a period of approximately five years. We
used an expected long-term rate of return on assets of 8.25% and
8.5% at January 29, 2011 and January 30, 2010,
respectively. A 25 basis point change in the expected
long-term rate of return on plan assets would have impacted our
pre-tax income by $0.3 million and $0.2 million in
fiscal years 2010 and 2009, respectively.
Long-lived Assets
We regularly
monitor the performance and productivity of our store portfolio.
When we determine that a store is underperforming or is to be
closed, we reassess the recoverability of the stores
long-lived assets, which in some cases can result in an
impairment charge. When a store is identified for impairment
analysis, we estimate the fair value of the store assets using
an income approach, which is based on estimates of future
operating cash flows at the store level. These estimates, which
include estimates of future net store sales, direct store
expenses, and non-cash store adjustments, are based on the
experience of management, including historical store operating
results, its knowledge and expectations. These estimates can be
affected by factors that can be difficult to
42
predict, such as future operating results, customer activity and
future economic conditions, and require management to apply
judgment.
Goodwill and Other Intangible
Assets
We test our goodwill and
trademarks for impairment on an annual basis, on the first day
of each fiscal year, or more frequently if events or changes in
circumstances indicate that these assets might not be
recoverable. We concluded that we have two reporting units,
stores and direct marketing, and that the balance of goodwill
recorded relates entirely to the stores reporting unit. Our
trademarks are allocated between both reporting units.
We determine the fair value of our goodwill using a combination
of an income approach and market value approach which
collectively contemplate our operating results and financial
position, forecasted operating results, industry trends, market
uncertainty and comparable industry multiples. The income
approach requires significant judgments and estimates to project
future revenues and expenses, changes in gross margins, cash
flows and estimates of future capital expenditures for the
reporting unit over a multi-year period, as well as to determine
the weighted-average cost of capital to be used as a discount
rate. We believe the discount rate that we apply is consistent
with the risks inherent in our business and with the retail
industry. The market approach requires the application of
industry multiples of operating performance which are derived
from comparable publicly traded companies with operating
characteristics similar to our stores reporting unit. Our
evaluation of goodwill inherently involves judgments as to
assumptions used to project these amounts and the impact of
market conditions on those assumptions. Our estimates may differ
from actual results due to, among other matters, economic
conditions, changes to our business model or changes in our
operating performance. Significant differences between these
estimates and actual results could result in future impairment
charges and could materially affect our future financial
results. We performed an impairment test of goodwill as of
January 30, 2011, January 31, 2010 and
February 1, 2009. These tests did not indicate an
impairment of our goodwill.
We performed a sensitivity analysis on our significant
assumptions and determined that a negative change in our
assumptions, namely a 1% increase in the discount rate, a 10%
decrease in the market approach multiple or a 10% decrease in
forecasted earnings, would not have resulted in a change in our
conclusions in 2010 or 2009 as to the recoverability of our
goodwill as the computed fair value of the stores reporting unit
was in excess of its carrying value by a significant margin.
We determine the fair value of our trademarks using an income
approach, specifically the
relief-of-royalty
method. This methodology assumes that, in lieu of ownership, a
third party would be willing to pay a royalty in order to
exploit the related benefits of the asset. This approach is
dependent on a number of factors, including estimates of future
sales, royalty rates of intellectual property, discount rates
and other variables. Significant differences between these
estimates and actual results could result in future impairment
charges and could materially affect our future financial
results. We performed an impairment test of our trademarks as of
January 30, 2011, January 31, 2010 and
February 1, 2009. These tests did not indicate an
impairment of our trademarks.
We performed a sensitivity analysis on our significant
assumptions and determined that a negative change in our
assumptions, namely a 1% increase in the discount rate, a 10%
decrease in the market approach multiple or a 10% decrease in
forecasted earnings, would not have resulted in a change in our
conclusions in 2010 or 2009 as to the recoverability of our
trademarks.
Income Taxes
We record deferred
income taxes to recognize the effect of temporary differences
between tax and financial statement reporting. We calculate the
deferred taxes using enacted tax rates expected to be in place
when the temporary differences are realized and record a
valuation allowance to reduce deferred tax assets if it is
determined that it is more likely than not that all or a portion
of the deferred tax asset will not be realized. We consider many
factors when assessing the likelihood of future realization of
deferred tax assets, including recent earnings results,
expectations of future taxable income, carry forward periods
available and other relevant factors. Changes in the required
valuation allowance are recorded in the period that the
determination is made. In fiscal year 2008, we determined that
it was more likely than not that we would not realize the
benefits from our deferred tax assets and recorded a valuation
allowance for substantially all of our net deferred tax assets,
after considering sources of taxable income from reversing
deferred tax liabilities. We have maintained a full valuation
allowance against our net deferred tax assets, excluding
deferred tax liabilities for
non-amortizing
intangibles, through fiscal years 2009 and 2010.
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There is inherent uncertainty in quantifying our income tax
positions. We assess our income tax positions and record tax
benefits for all years subject to examination based upon
managements evaluation of the facts, circumstances and
information available at the reporting date. For those tax
positions where it is more likely than not that a tax benefit
will be sustained, we record the largest amount of tax benefit
with a greater than 50 percent likelihood of being realized
upon ultimate settlement with a taxing authority having full
knowledge of all relevant information. For those income tax
positions where it is not more likely than not that a tax
benefit will be sustained, no tax benefit is recognized in the
financial statements. We classify our recorded uncertain tax
positions as other liabilities on the consolidated balance
sheets, unless expected to be resolved within one year. We
classify interest on uncertain tax positions in interest
expense, income tax refunds in interest income and estimated
penalties in selling, general and administrative in the
consolidated statements of operations.
We are routinely under audit by various domestic and foreign tax
jurisdictions. There is significant judgment that is required in
determining our provision for income taxes such as the
composition of the taxable income or loss in different
jurisdictions, changes in tax laws or rates, changes in the
expected outcome of audits, the expiration of the statute of
limitations on some tax positions and the effect of any new
information about particular tax positions that may cause us to
change our estimates. Changes in estimates may create volatility
in our effective tax rate in future periods and may materially
affect our results of operations. We believe that our income tax
related accruals are appropriate at January 29, 2011 and
January 30, 2010.
Stock-Based Compensation
We issue
stock-based compensation awards including stock options,
nonvested stock and restricted stock units. Related to such
awards, we measure stock-based compensation at the grant date
based on the fair value of the award, and we recognize such fair
value as expense, on a straight-line basis, over the
corresponding vesting period. We have selected the Black-Scholes
option pricing model to determine the fair value of stock option
awards which requires the input of various assumptions which
require management to apply judgment and make assumptions and
estimates, including the expected life of the stock option award
and the volatility of the underlying common stock. Our
assumptions may differ from those used in prior periods, and
changes to the assumptions may have a significant impact on the
fair value of future stock option awards, which could have a
material impact on our consolidated financial statements.
Nonvested stock and restricted stock units are valued at the
closing market price of our common stock on the date of grant.
In addition, we are required to estimate the expected forfeiture
rate of our stock-based compensation awards and only recognize
expense for those awards expected to vest. If the actual
forfeitures are materially different from our estimate,
stock-based compensation could be different from what we have
recorded in the current period.
Inflation
and Changing Prices
We believe that changes in revenues and net earnings that have
resulted from inflation or deflation have not been material
during the periods presented. There is no assurance, however,
that inflation or deflation will not materially affect us in the
future.
Exchange
Rates
We enter into certain purchase obligations outside the United
States which are predominately settled in U.S. dollars. In
addition, as of January 29, 2011, we operated 17 stores in
Canada which generate sales and incur expenses in local
currency. However, the local currency is generally stable and
these operations represent only a small portion of our total
operations. Accordingly, we have not experienced any significant
impact from changes in exchange rates.
Recent
Accounting Pronouncements
In January 2010, the FASB issued ASU
2010-6,
Fair Value Measurements and Disclosures
. ASU
2010-6
amends
ASC 820-10,
Fair Value Measurements and Disclosures
, 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 or
annual reporting period 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,
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2009. We intend to adopt the remaining disclosure requirements
of ASU
2010-6
when
they become effective in the first quarter of fiscal 2011. The
adoption of this ASU has expanded our disclosures regarding fair
value measurements in the notes to the consolidated financial
statements included elsewhere in this document. We do not expect
the additional disclosure requirements of ASU
2010-06
will
have any impact on our consolidated financial statements.
In July 2010, the FASB issued ASU
2010-20,
Disclosures About the Credit Quality of Financing Receivables
and the Allowance for Credit Losses
. ASU
2010-20
amends
ASC 310-10,
Receivables
, and requires additional disclosures about
the credit quality of financing receivables, including credit
card receivables, and the associated allowance for credit
losses. ASU
2010-20
is
effective for the first interim or annual reporting period
ending on or after December 15, 2010, except for certain
disclosures of information regarding activity that occurs during
the reporting period, which are effective for the first interim
or annual reporting period beginning on or after
December 15, 2010. We have adopted the disclosure
requirements effective for the first interim or annual reporting
period ending on or after December 15, 2010 as of
January 29, 2011. We intend to adopt the remaining
disclosure requirements of ASU
2010-20
when
they become effective in the first quarter of 2011. The adoption
of this ASU has expanded our disclosures regarding customer
accounts receivable and the associated allowance for doubtful
accounts in the notes to the consolidated financial statements
included elsewhere in this document. We are still evaluating the
impact of the additional provisions of this ASU not yet adopted
on our consolidated financial statements; however they are
disclosure-only in nature.
In December 2010, the FASB issued ASU
2010-28,
When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units With Zero or Negative Carrying Amounts
. ASU
2010-28
amends
ASC 350-20,
Goodwill
, by modifying the process of performing Step 1
of a goodwill impairment test for reporting units with zero or
negative carrying values to add an additional layer of
qualitative evaluation. Under this amended guidance, a company
would be required to perform Step 2 of a goodwill impairment
test for a reporting unit with zero or negative carrying value
if adverse qualitative factors indicate that it is more likely
than not that a goodwill impairment exists. ASU
2010-28
is
effective for impairment tests performed during entities
fiscal years that begin after December 15, 2010. The
adoption of this ASU is not expected to materially affect our
goodwill impairment analyses in fiscal 2011, as the fiscal year
2011 annual goodwill impairment test, performed as of
January 30, 2011, reflected a positive carrying value of
our stores reporting unit.
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.
Forward-looking
Information
This Annual Report on
Form 10-K
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
45
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 internal
plan, regular-price and markdown selling, operating cash flows,
liquidity and credit availability for all forward periods. Our
business and our forward-looking statements involve substantial
known and unknown risks and uncertainties, including the
following risks and uncertainties:
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the ability to successfully increase our store customer traffic
and the success and customer acceptance of our merchandise
offerings in our stores, on our website and in our catalogs;
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the continuing material impact of the U.S. economic
environment on our business, continuing operations, liquidity
and financial results, including any negative impact on consumer
discretionary spending, substantial loss of household wealth and
savings, significant tightening of the U.S. credit markets
and continued high 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, enhanced marketing, information technology
reinvestments and any other future initiatives that we may
undertake;
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the risks associated with competitive pricing pressures and the
current increased promotional environment;
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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 attract and retain talented and experienced
executives that are necessary to execute our strategic
initiatives;
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the risks associated with our efforts to maintain our
traditional customer and expand to attract new customers;
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the ability to accurately estimate and forecast future
regular-price and markdown selling 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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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 Facility as may be needed from
time to time;
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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;
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any impact to or disruption in our supply of merchandise
including from any current or any future increased political,
social or other unrest or future labor shortages in various
other countries;
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the ability to successfully execute, fund and achieve the
expected benefits of supply chain initiatives;
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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 impact of the current regulatory environment and financial
systems reforms on our business, including new consumer credit
rules;
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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 risks associated with our upscale outlet expansion;
|
|
|
|
the ability to reduce spending as needed;
|
|
|
|
the ability to achieve our 2011 financial plan and strategic
plan for operating results, working capital and cash flows;
|
|
|
|
any negative publicity concerning the specialty retail business
in general or our business in particular;
|
|
|
|
the risk of impairment of goodwill and other intangible or
long-lived assets;
|
|
|
|
the risk associated with our efforts in transforming our
information technology systems to meet our changing business
systems and operations;
|
|
|
|
any lack of sufficiency of available cash flows and other
internal cash resources to satisfy all future operating needs
and other cash requirements; and
|
|
|
|
the risks and uncertainties associated with the outcome of
current and future litigation, claims, tax audits and tax and
other proceedings and the risk that actual liabilities,
assessments or other financial impact will exceed any estimated,
accrued or expected amounts or outcomes.
|
All of our forward-looking statements are as of the date of this
Annual 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 Annual Report or included in
our other public disclosures or our other periodic reports or
other documents or filings filed with or furnished to the SEC
could materially and adversely affect our continuing operations
and our future financial results, cash flows, prospects and
liquidity. Except as required by law, we do not undertake or
plan to update or revise any such forward-looking statements to
reflect actual results, changes in plans, assumptions, estimates
or projections or other circumstances affecting such
forward-looking statements occurring after the date of this
Annual 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 Annual Report which modify or impact any of the
forward-looking statements contained in this Annual Report will
be deemed to modify or supersede such statements in this Annual
Report.
|
|
Item 7A.
|
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.
As of January 29, 2011, we had outstanding variable-rate
borrowings of $25.5 million under our Credit Facility. The
impact of a hypothetical 10% adverse change in interest rates
for this variable rate debt would have resulted in additional
expense of approximately $0.1 million for the year ended
January 29, 2011. Our Pension Plan assets are generally
invested in readily-liquid investments, primarily equity and
debt securities. Generally, any deterioration in the financial
markets or changes in discount rates may require us to make a
contribution to our Pension Plan.
We enter into certain purchase obligations outside the United
States which are predominately settled in U.S. dollars and,
therefore, we have only minimal exposure to foreign currency
exchange risks. We do not hedge against foreign currency risks
and believe that the foreign currency exchange risk is not
material. In addition, we operated 17 stores in Canada as of
January 29, 2011. We believe that our foreign currency
translation risk is immaterial, as a hypothetical 10%
strengthening or weakening of the U.S. dollar relative to
the applicable foreign currency would not materially affect our
results of operations or cash flow.
47
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this item may be found on pages F-2
through F-47 as listed below, including the quarterly
information required by this item.
INDEX
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
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 Annual Report on
Form 10-K.
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 January 29, 2011.
Managements
Annual Report on Internal Control Over Financial
Reporting
The Companys management, with the participation of its
Chief Executive Officer and Chief Financial Officer, is
responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal
control over financial reporting is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act as a process designed by, or under the
supervision of, a companys principal executive and
principal financial officers, and effected by the companys
Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that: pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and
dispositions of the assets of the company; provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management
48
and directors of the company; and provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of the effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of January 29,
2011. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in
Internal
Control-Integrated Framework
. Based on this assessment,
management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, concluded that
the Company maintained effective internal control over financial
reporting as of January 29, 2011.
The effectiveness of the Companys internal control over
financial reporting as of January 29, 2011 has been audited
by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in its report included on
page 50 of this Annual Report on
Form 10-K.
Changes
in Internal Controls over Financial Reporting
No changes 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 fiscal quarter ended
January 29, 2011 that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
49
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Talbots, Inc.
Hingham, Massachusetts
We have audited the internal control over financial reporting of
The Talbots, Inc. and subsidiaries (the Company) as
of January 29, 2011, based on criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of January 29, 2011, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
January 29, 2011 of the Company and our report dated
March 30, 2011 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte &
Touche LLP
Boston, Massachusetts
March 30, 2011
50
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information set forth under the captions Election of
Directors, Corporate Governance - Board
Committees and Corporate Governance
Audit Committee in our Proxy Statement for the 2011 Annual
Meeting of Shareholders; information set forth in Part I,
Item 1 in this Annual Report under the caption
Executive Officers of the Company and the
information under the caption Section 16(a)
Beneficial Ownership Reporting Compliance in our Proxy
Statement for the 2011 Annual Meeting of Shareholders, are each
incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics (the
Code of Conduct) that applies to our Chief Executive
Officer, senior financial officers and all other employees,
officers and Board members. The Code of Conduct is available on
our website, www.thetalbotsinc.com, under Investor
Relations, and is available in print to any person who
requests a copy by contacting Talbots Investor Relations by
calling
(781) 741-4500,
by writing to Investor Relations Department, The Talbots, Inc.,
One Talbots Drive, Hingham, MA 02043, or by
e-mail
at
investor.relations@talbots.com. Any substantive amendment to the
Code of Conduct and any waiver in favor of a Board member or an
executive officer may only be granted by the Board of Directors
and will be publicly disclosed on our website,
www.thetalbotsinc.com, under Investor Relations.
|
|
Item 11.
|
Executive
Compensation
|
The information set forth under the captions Executive
Compensation, Director Compensation,
Corporate Governance Compensation Risk
Assessment and Corporate Governance-Compensation
Committee Interlocks and Insider Participation in our
Proxy Statement for the 2011 Annual Meeting of Shareholders, are
each incorporated herein by reference. The information included
under Compensation Committee Report is incorporated
herein by reference but shall be deemed furnished
with this report and shall not be deemed filed with
this report.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information set forth under the caption Beneficial
Ownership of Common Stock in our Proxy Statement for the
2011 Annual Meeting of Shareholders is incorporated herein by
reference.
The following table sets forth certain information about our
2003 Executive Stock Based Incentive Plan, as amended, and the
Restated Directors Stock Plan, as amended, as of
January 29, 2011. These plans are our only active equity
compensation plans and were both previously approved by our
shareholders.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Remaining Available for
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Future Issuance Under
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
Equity Compensation Plans
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
9,482,855
|
|
|
$
|
21.72
|
|
|
|
3,992,641
|
(1)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,482,855
|
|
|
$
|
21.72
|
|
|
|
3,992,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
(1)
|
|
Of the 3,992,641 securities remaining available for future
issuance under equity compensation plans at January 29,
2011, 3,703,520 shares were available under the 2003
Executive Stock Based Incentive Plan, as amended, and
289,121 shares were available under the Restated Directors
Stock Plan, as amended.
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information set forth under the caption Transactions
with Related Persons and Corporate
Governance Board Independence and Composition
in our Proxy Statement for the 2011 Annual Meeting of
Shareholders are each incorporated herein by reference.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information set forth under the caption Ratification
of Appointment of Independent Registered Public Accounting
Firm in the Proxy Statement for the 2011 Annual Meeting of
Shareholders is incorporated herein by reference.
52
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
The following exhibits are filed herewith or incorporated by
reference:
(a)(1)
Financial Statements:
The
following Report of Independent Registered Public Accounting
Firm and Consolidated Financial Statements of Talbots are
included in this report:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Years Ended
January 29, 2011, January 30, 2010 and
January 31, 2009
Consolidated Balance Sheets as of January 29, 2011 and
January 30, 2010
Consolidated Statements of Cash Flows for the Years Ended
January 29, 2011, January 30, 2010 and
January 31, 2009
Consolidated Statements of Stockholders Equity (Deficit)
for the Years Ended January 29, 2011, January 30, 2010
and January 31, 2009
Notes to Consolidated Financial Statements
(a)(2)
Financial Statement Schedules:
All financial statement schedules have been omitted because the
required information is either presented in the consolidated
financial statements or the notes thereto or is not applicable
or required.
(a)(3)
Exhibits:
The following exhibits are filed herewith or incorporated by
reference:
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.
|
2.1
|
|
|
|
|
|
Asset Purchase Agreement, dated as of June 7, 2009, by and
among The Talbots, Inc., The Talbots Group, Limited Partnership,
J. Jill, LLC, Birch Pond Realty Corporation, and Jill
Acquisition LLC.(11)
|
2.2
|
|
|
|
|
|
Amendment No. 1 to Asset Purchase Agreement and Parent
Disclosure Schedule, dated as of July 2, 2009, by and among
The Talbots, Inc., The Talbots Group, Limited Partnership, J.
Jill, LLC, Birch Pond Realty Corporation, and Jill Acquisition
LLC.(31)
|
2.3
|
|
|
|
|
|
Amendment No. 2 to Asset Purchase Agreement, dated as of
September 30, 2009, by and among The Talbots, Inc., The
Talbots Group, Limited Partnership, J. Jill, LLC, Birch Pond
Realty Corporation, and Jill Acquisition LLC.(31)
|
2.4
|
|
|
|
|
|
Agreement and Plan of Merger, by and among The Talbots, Inc.,
Tailor Acquisition, Inc. and BPW Acquisition Corp., dated as of
December 8, 2009.(32)
|
2.5
|
|
|
|
|
|
First Amendment to the Agreement and Plan of Merger, dated as of
February 16, 2010, by and among The Talbots, Inc., Tailor
Acquisition, Inc. and BPW Acquisition Corp.(34)
|
2.6
|
|
|
|
|
|
Second Amendment to Agreement and Plan of Merger, dated as of
April 6, 2010, by and among The Talbots, Inc., Tailor
Acquisition, Inc. and BPW Acquisition Corp.(37)
|
(3)
|
|
|
|
|
|
Articles of Incorporation and By-laws.
|
3.1
|
|
|
|
|
|
Certificate of Incorporation, as amended, of Talbots.(1)(6)(8)
|
3.2
|
|
|
|
|
|
Amended and Restated By-laws of The Talbots, Inc., effective as
of April 16, 2010.(42)
|
(4)
|
|
|
|
|
|
Instruments Defining the Rights of Security Holders, including
Indentures.
|
4.1
|
|
|
|
|
|
Form of Common Stock Certificate of Talbots.(1)
|
4.2
|
|
|
|
|
|
Form of Warrant Agreement, by and between The Talbots, Inc.,
Computershare Inc. and Computershare Trust Company, N.A.,
including Form of Warrant to purchase shares of Talbots common
stock (38)
|
4.3
|
|
|
|
|
|
Warrant Agreement, including Form of Warrant, dated as of
February 26, 2008, by and between BPW Acquisition Corp. and
Mellon Investor Services LLC, and the First Amendment thereto,
dated as of April 14, 2010, by and between The Talbots,
Inc. (as successor to BPW Acquisition Corp.) and Mellon Investor
Services LLC. (39)(41)
|
53
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
AEON Warrant Agreement, including Form of Warrant Certificate,
dated as of April 7, 2010, by and between The Talbots,
Inc., Computershare Inc. and Computershare Trust Company,
N.A.(38)
|
(10)
|
|
|
|
|
|
Material Contracts.
|
10.1
|
|
|
|
|
|
Stockholders Agreement, dated as of November 18, 1993,
between Talbots and AEON (U.S.A.), Inc.(2)
|
10.2
|
|
|
|
|
|
Stock Purchase Agreement, dated as of November 26, 1993,
between Talbots and AEON (U.S.A.), Inc.(2)
|
10.3
|
|
|
|
|
|
Trademark Purchase and License Agreement, dated as of
November 26, 1993, between AEON Co. Ltd., (as successor in
interest to JUSCO (Europe) B.V.) and The Classics Chicago,
Inc.(2)
|
10.4
|
|
|
|
|
|
License Agreement, dated as of November 26, 1993, between
The Classics Chicago, Inc., Talbots, Talbots International
Retailing Limited, Inc., Talbots (Canada), Inc. and Talbots
(U.K.) Retailing Limited.(2)
|
10.5
|
|
|
|
|
|
Amendment to License Agreement, dated January 29, 1997,
among The Classics Chicago, Inc., Talbots, Talbots International
Retailing Limited, Inc., Talbots (Canada), Inc., and Talbots
(U.K.) Retailing, Ltd.(4)
|
10.6
|
|
|
|
|
|
Tax Allocation Agreement, dated as of November 18, 1993,
between AEON (U.S.A.), Inc., Talbots, Talbots International
Retailing Limited, Inc., Talbots (U.K.) Retailing Limited and
The Classics Chicago, Inc.(2)
|
10.7
|
|
|
|
|
|
Services Agreement, dated as of November 18, 1993, between
Talbots Japan Co., Ltd. and Talbots.(2)
|
10.8
|
|
|
|
|
|
Consulting and Advisory Services Contract between AEON (U.S.A.),
Inc. and Talbots dated as of November 1, 1999.(5)
|
10.9
|
|
|
|
|
|
First Amendment, dated as of March 12, 2009, to the Term
Loan Agreement between The Talbots, Inc. and AEON (U.S.A.),
Inc., dated as of July 16, 2008.(25)
|
10.10
|
|
|
|
|
|
Second Amendment, dated as of December 28, 2009, to the
Term Loan Agreement between The Talbots, Inc. and AEON (U.S.A.),
Inc., dated as of July 16, 2008.(33)
|
10.11
|
|
|
|
|
|
Term Loan Agreement, dated as of July 16, 2008, between The
Talbots, Inc. (as Borrower) and AEON (U.S.A.), Inc. (as
Lender).(19)
|
10.12
|
|
|
|
|
|
Commitment Letter and Summary of Proposed $200,000,000 Loan
Facility Agreement between The Talbots, Inc. (as Borrower) and
AEON Co., Ltd. (as Lender), dated February 5, 2009.(22)
|
10.13
|
|
|
|
|
|
Term Loan Facility Agreement between The Talbots, Inc. and AEON
Co., Ltd., dated as of February 25, 2009.(23)
|
10.14
|
|
|
|
|
|
First Amendment, dated as of December 28, 2009, to the Term
Loan Facility Agreement between The Talbots, Inc. and AEON
(U.S.A.), Inc., dated as of February 25, 2009.(33)
|
10.15
|
|
|
|
|
|
Support Letters from AEON Co., Ltd., dated April 9,
2009.(26)
|
10.16
|
|
|
|
|
|
Secured Revolving Credit Agreement dated as of April 10,
2009 between Talbots and AEON Co., Ltd.(27)
|
10.17
|
|
|
|
|
|
Amended and Restated Secured Revolving Credit Agreement dated as
of December 28, 2009 between The Talbots, Inc. and AEON
Co., Ltd.(33)
|
10.18
|
|
|
|
|
|
Amended and Restated Security Agreement dated as of
December 28, 2009 entered into by The Talbots, Inc. in
favor of AEON Co., Ltd.(33)
|
10.19
|
|
|
|
|
|
Repurchase, Repayment and Support Agreement, by and among The
Talbots, Inc., BPW Acquisition Corp., AEON (U.S.A.), Inc. and
AEON Co., Ltd., dated as of December 8, 2009.(32)
|
10.20
|
|
|
|
|
|
Commitment Letter, by and between General Electric Capital
Corporation and The Talbots, Inc., dated as of December 7,
2009.(32)
|
10.21
|
|
|
|
|
|
Secured Revolving Credit Agreement, dated April 7, 2010, by
and among The Talbots, Inc., Talbots Classics Finance Company,
Inc., The Talbots Group Limited Partnership, each as a 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.(40)
|
10.22
|
|
|
|
|
|
Guaranty and Security Agreement, dated as of April 7, 2010,
by The Talbots, Inc., The Talbots Group, Limited Partnership,
Talbots Classics Finance Company, Inc., and certain other
parties thereto, in favor of General Electric Capital
Corporation, as administrative agent for the lenders and each
other secured party.(40)
|
10.23
|
|
|
|
|
|
Private Label Credit Card Access and Monitoring Agreement, dated
as of April 7, 2010, by and among The Talbots, Inc., each
other Credit Party as defined in the Credit Agreement, Talbots
Classics National Bank, and General Electric Capital
Corporation.(40)
|
54
|
|
|
|
|
|
|
10.24
|
|
|
|
|
|
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.(43)
|
10.25
|
|
|
|
|
|
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 Corporation, Talbots International
Retailing Limited, Inc., Talbots (U.K.) Retailing Limited, and
Talbots (Canada), Inc.(43)
|
10.26
|
|
|
|
|
|
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.(43)
|
10.27
|
|
|
|
|
|
Sponsors Agreement, by and among Perella Weinberg Partners
Acquisition LP, BPW BNYH Holdings LLC, The Talbots, Inc. and BPW
Acquisition Corp., dated as of December 8, 2009.(32)
|
10.28
|
|
|
|
|
|
Stipulation with respect to the action captioned
Campbell v. The Talbots, Inc., et al., dated March 6,
2010.(36)
|
10.29
|
|
|
|
|
|
Amended and Restated Registration Rights Agreement, dated as of
April 7, 2010, by and among The Talbots, Inc., BPW
Acquisition Corp., Perella Weinberg Partners Acquisition LP,
BNYH BPW Holdings LLC, Roger W. Einiger, J. Richard Fredericks
and Wolfgang Schoellkopf.(40)
|
10.30
|
|
|
|
|
|
The Talbots, Inc. Supplemental Retirement Plan, as amended and
restated effective January 1, 2009.(26)*
|
10.31
|
|
|
|
|
|
The Talbots, Inc. Supplemental Savings Plan, as amended and
restated effective January 1, 2009.(26)*
|
10.32
|
|
|
|
|
|
The Talbots, Inc. Deferred Compensation Plan, as amended and
restated effective January 1, 2009.(26)*
|
10.33
|
|
|
|
|
|
The Talbots, Inc. Amended and Restated 1993 Executive Stock
Based Incentive Plan.(8)*
|
10.34
|
|
|
|
|
|
The Talbots, Inc. 2003 Executive Stock Based Incentive Plan, as
amended through February 28, 2008.(14)*
|
10.35
|
|
|
|
|
|
Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
Plan Nonqualified Stock Option Agreement.(44)*
|
10.36
|
|
|
|
|
|
Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
Plan Restricted Stock Agreement.(44)*
|
10.37
|
|
|
|
|
|
Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
Plan Special Restricted Stock Unit Award Agreement.(24)*
|
10.38
|
|
|
|
|
|
Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
Plan Nonqualified Stock Option Agreement (prior form).(18)*
|
10.39
|
|
|
|
|
|
Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
Plan Restricted Stock Agreement (prior form).(18)*
|
10.40
|
|
|
|
|
|
Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
Plan Restricted Stock Agreement (prior form).(10)*
|
10.41
|
|
|
|
|
|
Form of The Talbots, Inc. 2003 Executive Stock Based Incentive
Plan Nonqualified Stock Option Agreement (prior form).(10)*
|
10.42
|
|
|
|
|
|
The Talbots, Inc. Directors Deferred Compensation Plan restated
as of May 27, 2004.(9)*
|
10.43
|
|
|
|
|
|
The Talbots, Inc. Restated Directors Stock Plan as amended
through March 5, 2005.(7)*
|
10.44
|
|
|
|
|
|
Form of Restricted Stock Unit Award under The Talbots, Inc.
Restated Directors Stock Plan (prior form).(12)*
|
10.45
|
|
|
|
|
|
Form of Option Agreement pursuant to The Talbots, Inc. Restated
Directors Stock Plan (prior form).(13)*
|
10.46
|
|
|
|
|
|
Form of Performance Accelerated Option Agreement pursuant to The
Talbots, Inc. Restated Directors Stock Plan.(21)*
|
10.47
|
|
|
|
|
|
Form of Option Agreement pursuant to The Talbots, Inc. Restated
Directors Stock Plan (prior form).(26)*
|
10.48
|
|
|
|
|
|
Director Compensation Arrangements, adopted April 16,
2010.(38)*
|
10.49
|
|
|
|
|
|
Form of Restricted Stock Unit Award under The Talbots, Inc.
Restated Directors Stock Plan.(38)*
|
10.50
|
|
|
|
|
|
Form of Option Agreement pursuant to The Talbots, Inc. Restated
Directors Stock Plan.(38)*
|
55
|
|
|
|
|
|
|
10.51
|
|
|
|
|
|
Form of Option Agreement pursuant to The Talbots, Inc. Restated
Directors Stock Plan for one-time stock option awards granted to
newly-appointed or elected directors.(38)*
|
10.52
|
|
|
|
|
|
Employment Agreement by and between The Talbots, Inc. and Trudy
F. Sullivan, dated August 6, 2007, and Amendment
No. 1, dated as of June 16, 2009, thereto. (16)(29)*
|
10.53
|
|
|
|
|
|
Stock Option Agreement by and between The Talbots, Inc. and
Trudy F. Sullivan, dated August 7, 2007.(16)*
|
10.54
|
|
|
|
|
|
Offer Letter between The Talbots, Inc. and Michael Scarpa, dated
December 4, 2008.(26)*
|
10.55
|
|
|
|
|
|
Severance Agreement between The Talbots, Inc. and Michael
Scarpa, dated December 4, 2008.(26)*
|
10.56
|
|
|
|
|
|
Change in Control Agreement between The Talbots, Inc. and
Michael Scarpa, dated December 4, 2008.(26)*
|
10.57
|
|
|
|
|
|
Offer Letter between The Talbots, Inc. and Benedetta I.
Casamento, dated March 6, 2009.(26)*
|
10.58
|
|
|
|
|
|
Severance Agreement between The Talbots, Inc. and Benedetta I.
Casamento, dated April 6, 2009.(26)*
|
10.59
|
|
|
|
|
|
Change in Control Agreement between The Talbots, Inc. and
Benedetta I. Casamento, dated April 6, 2009.(26)*
|
10.60
|
|
|
|
|
|
Offer Letter between The Talbots, Inc. and John Fiske, III,
dated as of March 20, 2009, executed on September 20,
2009.(31)*
|
10.61
|
|
|
|
|
|
Severance Agreement between The Talbots, Inc. and John
Fiske, III, dated as of March 20, 2009, executed on
September 20, 2009.(31)*
|
10.62
|
|
|
|
|
|
Change in Control Agreement by and between The Talbots, Inc. and
John Fiske, III, effective April 1, 2007.(15)*
|
10.63
|
|
|
|
|
|
Amendments to Compensation Arrangements of Richard T.
OConnell, Jr., effective April 30, 2009.(28)*
|
10.64
|
|
|
|
|
|
Severance Agreement between The Talbots, Inc. and Richard T.
OConnell, Jr., effective as of April 30, 2009.(30)*
|
10.65
|
|
|
|
|
|
Offer Letter between The Talbots, Inc. and Gregory I. Poole,
dated June 5, 2008.(20)*
|
10.66
|
|
|
|
|
|
Change in Control Agreement between The Talbots, Inc. and
Gregory I. Poole, dated June 5, 2008.(26)*
|
10.67
|
|
|
|
|
|
Severance Agreement between The Talbots, Inc. and Gregory I.
Poole, dated June 5, 2008.(20)*
|
10.68
|
|
|
|
|
|
Offer Letter between The Talbots, Inc. and Michael Smaldone,
dated December 13, 2007.(26)*
|
10.69
|
|
|
|
|
|
Severance Agreement between The Talbots, Inc. and Michael
Smaldone, dated December 17, 2007.(26)*
|
10.70
|
|
|
|
|
|
Change in Control Agreement between The Talbots, Inc. and
Michael Smaldone, dated December 17, 2007.(26)*
|
10.71
|
|
|
|
|
|
Offer Letter between The Talbots, Inc. and Lori Wagner, dated
February 19, 2008.(17)*
|
10.72
|
|
|
|
|
|
Change in Control Agreement between The Talbots, Inc. and Lori
Wagner, dated March 31, 2008.(17)*
|
10.73
|
|
|
|
|
|
Severance Agreement between The Talbots, Inc. and Lori Wagner,
dated March 31, 2008.(17)*
|
10.74
|
|
|
|
|
|
Summary of The Talbots, Inc. Executive Medical Plan dated
June 19, 2007.(31)*
|
10.75
|
|
|
|
|
|
Change in Control Agreements between Talbots and certain
officers of Talbots.(2)(3)*
|
10.76
|
|
|
|
|
|
Summary of financing incentive awards and operating performance
incentive awards approved on February 25, 2010.(35)*
|
10.77
|
|
|
|
|
|
The Talbots, Inc. Management Incentive Plan Performance Criteria
for fiscal 2010.(38)*
|
10.78
|
|
|
|
|
|
Form of 409A Letter Agreement, dated December 31, 2008,
between The Talbots, Inc. and Richard T. OConnell, Jr.,
John Fiske, III, Michael Smaldone, Lori Wagner, Basha Cohen
and Gregory I. Poole.(26)*
|
10.79
|
|
|
|
|
|
Form of 409A Amendment Letter Agreements, dated
November 18, 2010, between The Talbots, Inc. and Trudy
Sullivan, Michael Scarpa, Richard T. OConnell, Michael
Smaldone, Gregory Poole, John Fiske, III, Lori Wagner,
Benedetta Casamento and Bruce Prescott.(44)*
|
|
|
|
*
|
|
Management contract and compensatory plan or arrangement.
|
|
|
|
(11)
|
|
Statement re: Computation of Per Share Earnings.
|
|
11.1
|
|
Incorporated by reference to Note 8, Earnings (Loss)
Per Share, of the Companys consolidated financial
statements for the fiscal year ended January 29, 2011,
included in this Report.
|
56
|
|
|
(21)
|
|
Subsidiaries.
|
|
21.1
|
|
List of Subsidiaries of The Talbots, Inc.(44)
|
|
|
|
(23)
|
|
Consents of Experts and Counsel.
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm,
Deloitte & Touche LLP.(44)
|
|
(31)
|
|
Rule 13a-14(a)/15d-14(a)
Certifications.
|
|
31.1
|
|
Certification of Trudy F. Sullivan, President and Chief
Executive Officer of the Company, pursuant to Securities
Exchange Act
Rule 13a-14(a).(44)
|
|
31.2
|
|
Certification of Michael Scarpa, Chief Operating Officer, Chief
Financial Officer, and Treasurer of the Company, pursuant to
Securities Exchange Act
Rule 13a-14(a).(44)
|
|
(32)
|
|
Section 1350 Certifications.
|
|
32.1
|
|
Certifications pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of The Sarbanes-Oxley Act
of 2002, by Trudy F. Sullivan, President and Chief Executive
Officer of the Company and Michael Scarpa, Chief Operating
Officer, Chief Financial Officer, and Treasurer of the
Company.(44)
|
|
|
|
1
|
|
Incorporated by reference to the exhibits filed with Talbots
Registration Statement on Form
S-1
(No. 33-69082),
which Registration Statement became effective November 18,
1993.
|
|
2
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated April 26, 1994 (SEC file number reference
001-12552).
|
|
3
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated April 27, 1995 (SEC file number reference
001-12552).
|
|
4
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated May 1, 1997 (SEC file number reference
001-12552).
|
|
5
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated July 1, 1999 (SEC file number reference
001-12552).
|
|
6
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated May 24, 2000 (SEC file number reference
001-12552).
|
|
7
|
|
Incorporated by reference to the 2005 Proxy Statement
(Exhibit A) dated April 21, 2005 (SEC file number
reference
001-12552).
|
|
8
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated September 6, 2001 (SEC file number reference
001-12552).
|
|
9
|
|
Incorporated by reference to the exhibits filed with Quarterly
Report on
Form 10-Q
for the period ended July 31, 2004 (SEC file number
reference
001-12552).
|
|
10
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated November 18, 2004 (SEC file number reference
001-12552).
|
|
11
|
|
Incorporated by reference to the exhibit filed with Current
Report on
Form 8-K
filed on June 8, 2009.
|
|
12
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated March 3, 2005 (SEC file number reference
001-12552).
|
|
13
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated May 25, 2005 (SEC file number reference
001-12552).
|
|
14
|
|
Incorporated by reference to the 2008 Proxy Statement
(Appendix A) dated April 25, 2008.
|
|
15
|
|
Incorporated by reference to the exhibits filed with Quarterly
Report on
Form 10-Q
for the period ended May 5, 2007.
|
|
16
|
|
Incorporated by reference to the exhibits filed with Quarterly
Report on
Form 10-Q
for the period ended August 4, 2007.
|
|
17
|
|
Incorporated by reference to the exhibits filed with Annual
Report on
Form 10-K
for the period ended February 2, 2008.
|
57
|
|
|
18
|
|
Incorporated by reference to the Current Report on
Form 8-K
dated February 28, 2008 and the exhibits filed therewith.
|
|
19
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated July 18, 2008.
|
|
20
|
|
Incorporated by reference to the exhibits filed with Quarterly
Report on
Form 10-Q
for the period ended August 2, 2008.
|
|
21
|
|
Incorporated by reference to the exhibits filed with Quarterly
Report on
Form 10-Q
for the period ended November 1, 2008.
|
|
22
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated February 5, 2009.
|
|
23
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated February 25, 2009.
|
|
24
|
|
Incorporated by reference to the exhibits filed with the Annual
Report on
Form 10-K
filed on April 15, 2010.
|
|
25
|
|
Incorporated by reference to the exhibits filed with Current
Report on
Form 8-K
dated March 12, 2009.
|
|
26
|
|
Incorporated by reference to the exhibits filed with the Annual
Report on
Form 10-K
filed on April 16, 2009.
|
|
27
|
|
Incorporated by reference to the exhibit filed with the Current
Report on
Form 8-K
dated April 10, 2009.
|
|
28
|
|
Incorporated by reference to the Current Report on
Form 8-K
filed on May 6, 2009.
|
|
29
|
|
Incorporated by reference to the exhibit filed with the Current
Report on
Form 8-K
filed on June 18, 2009.
|
|
30
|
|
Incorporated by reference to the exhibits filed with the
Quarterly Report on
Form 10-Q
filed on September 10, 2009.
|
|
31
|
|
Incorporated by reference to the exhibits filed with the
Quarterly Report on
Form 10-Q
filed on December 10, 2009.
|
|
32
|
|
Incorporated by reference to the exhibits filed with the Current
Report on
Form 8-K
filed on December 10, 2009.
|
|
33
|
|
Incorporated by reference to the exhibits filed with the Current
Report on
Form 8-K
filed on January 4, 2010.
|
|
34
|
|
Incorporated by reference to the exhibit filed with the Current
Report on
Form 8-K
filed on February 17, 2010.
|
|
35
|
|
Incorporated by reference to the Current Report on
Form 8-K
filed on March 3, 2010.
|
|
36
|
|
Incorporated by reference to the exhibit filed with the Current
Report on
Form 8-K
filed on March 9, 2010.
|
|
37
|
|
Incorporated by reference to the exhibits filed with the Current
Report on
Form 8-K
filed on April 6, 2010.
|
|
38
|
|
Incorporated by reference to exhibits filed with the Quarterly
Report on
Form 10-Q
filed on June 8, 2010.
|
|
39
|
|
Incorporated by reference to Appendix A to the proxy
statement filed by BPW Acquisition Corp. on April 6, 2010.
|
|
40
|
|
Incorporated by reference to the Current Report on
Form 8-K
filed on April 8, 2010.
|
|
41
|
|
Incorporated by reference to the exhibit filed with the Current
Report on
Form 8-K
filed on April 14, 2010.
|
|
42
|
|
Incorporated by reference to the exhibits filed with the Current
Report on
Form 8-K
filed on April 21, 2010.
|
|
43
|
|
Incorporated by reference to the exhibits filed with the Current
Report on
Form 8-K
filed on August 31, 2010.
|
|
44
|
|
Filed with this
Form 10-K.
|
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The Talbots, Inc.
Michael Scarpa
Chief Operating Officer,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Dated: March 30, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated as
of March 30, 2011.
|
|
|
|
|
/s/
Trudy
F. Sullivan
Trudy
F. Sullivan
President and Chief Executive Officer
(Principal Executive Officer)
|
|
/s/
John
W. Gleeson
John
W. Gleeson
Director
|
|
|
|
/s/
Michael
Scarpa
Michael
Scarpa
Chief Operating Officer, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
|
|
/s/
Gary
M. Pfeiffer
Gary
M. Pfeiffer
Director
|
|
|
|
/s/
Susan
M. Swain
Susan
M. Swain
Director
|
|
/s/
Marjorie
L. Bowen
Majorie
L. Bowen
Director
|
|
|
|
|
|
/s/
Andrew
H. Madsen
Andrew
H. Madsen
Director
|
59
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The Talbots, Inc.
Hingham, Massachusetts
We have audited the accompanying consolidated balance sheets of
The Talbots, Inc. and subsidiaries (the Company) as
of January 29, 2011 and January 30, 2010, and the
related consolidated statements of operations,
stockholders equity (deficit), and cash flows for each of
the three years in the period ended January 29, 2011. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of The
Talbots, Inc. and subsidiaries as of January 29, 2011 and
January 30, 2010, and the results of their operations and
their cash flows for each of the three years in the period ended
January 29, 2011, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
January 29, 2011, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 30, 2011 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/
Deloitte &
Touche LLP
Boston, Massachusetts
March 30, 2011
F-2
THE
TALBOTS, INC. AND SUBSIDIARIES
Amounts
in thousands except per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
$
|
1,213,060
|
|
|
$
|
1,235,632
|
|
|
$
|
1,495,170
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, buying and occupancy
|
|
|
755,232
|
|
|
|
821,278
|
|
|
|
1,049,785
|
|
Selling, general and administrative
|
|
|
393,477
|
|
|
|
403,204
|
|
|
|
523,136
|
|
Merger-related costs
|
|
|
25,855
|
|
|
|
8,216
|
|
|
|
|
|
Restructuring charges
|
|
|
5,640
|
|
|
|
10,273
|
|
|
|
17,793
|
|
Impairment of store assets
|
|
|
1,420
|
|
|
|
1,351
|
|
|
|
2,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
31,436
|
|
|
|
(8,690
|
)
|
|
|
(98,389
|
)
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
18,902
|
|
|
|
28,394
|
|
|
|
20,589
|
|
Interest income
|
|
|
75
|
|
|
|
271
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
18,827
|
|
|
|
28,123
|
|
|
|
20,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
12,609
|
|
|
|
(36,813
|
)
|
|
|
(118,679
|
)
|
Income tax expense (benefit)
|
|
|
5,039
|
|
|
|
(11,505
|
)
|
|
|
20,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
7,570
|
|
|
|
(25,308
|
)
|
|
|
(139,521
|
)
|
Income (loss) from discontinued operations
|
|
|
3,245
|
|
|
|
(4,104
|
)
|
|
|
(416,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,815
|
|
|
$
|
(29,412
|
)
|
|
$
|
(555,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.11
|
|
|
$
|
(0.47
|
)
|
|
$
|
(2.63
|
)
|
Discontinued operations
|
|
|
0.05
|
|
|
|
(0.08
|
)
|
|
|
(7.78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
0.16
|
|
|
$
|
(0.55
|
)
|
|
$
|
(10.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.11
|
|
|
$
|
(0.47
|
)
|
|
$
|
(2.63
|
)
|
Discontinued operations
|
|
|
0.05
|
|
|
|
(0.08
|
)
|
|
|
(7.78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
0.16
|
|
|
$
|
(0.55
|
)
|
|
$
|
(10.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
65,790
|
|
|
|
53,797
|
|
|
|
53,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
66,844
|
|
|
|
53,797
|
|
|
|
53,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
THE
TALBOTS, INC. AND SUBSIDIARIES
Amounts
in thousands except share and per share data
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,181
|
|
|
$
|
112,775
|
|
Customer accounts receivable, net
|
|
|
145,472
|
|
|
|
163,587
|
|
Merchandise inventories
|
|
|
158,040
|
|
|
|
142,696
|
|
Deferred catalog costs
|
|
|
4,184
|
|
|
|
6,685
|
|
Prepaid and other current assets
|
|
|
33,235
|
|
|
|
48,139
|
|
Due from related party
|
|
|
|
|
|
|
959
|
|
Income tax refundable
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
351,112
|
|
|
|
476,847
|
|
Property and equipment, net
|
|
|
186,658
|
|
|
|
220,404
|
|
Goodwill
|
|
|
35,513
|
|
|
|
35,513
|
|
Trademarks
|
|
|
75,884
|
|
|
|
75,884
|
|
Other assets
|
|
|
19,349
|
|
|
|
17,170
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
668,516
|
|
|
$
|
825,818
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
91,855
|
|
|
$
|
104,118
|
|
Accrued liabilities
|
|
|
137,824
|
|
|
|
148,177
|
|
Revolving credit facility
|
|
|
25,516
|
|
|
|
|
|
Related party debt
|
|
|
|
|
|
|
486,494
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
255,195
|
|
|
|
738,789
|
|
Deferred rent under lease commitments
|
|
|
93,440
|
|
|
|
111,137
|
|
Deferred income taxes
|
|
|
28,456
|
|
|
|
28,456
|
|
Other liabilities
|
|
|
107,839
|
|
|
|
133,072
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit):
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 200,000,000 authorized;
97,247,847 shares and 81,473,215 shares issued,
respectively; and 70,261,905 shares and
55,000,142 shares outstanding, respectively
|
|
|
972
|
|
|
|
815
|
|
Additional paid-in capital
|
|
|
860,819
|
|
|
|
499,457
|
|
Retained deficit
|
|
|
(37,875
|
)
|
|
|
(48,690
|
)
|
Accumulated other comprehensive loss
|
|
|
(51,216
|
)
|
|
|
(51,179
|
)
|
Treasury stock, at cost: 26,985,942 shares and
26,473,073 shares, respectively
|
|
|
(589,114
|
)
|
|
|
(586,039
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
183,586
|
|
|
|
(185,636
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity (Deficit)
|
|
$
|
668,516
|
|
|
$
|
825,818
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
THE
TALBOTS, INC. AND SUBSIDIARIES
Amounts
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,815
|
|
|
$
|
(29,412
|
)
|
|
$
|
(555,659
|
)
|
Income (loss) from discontinued operations
|
|
|
3,245
|
|
|
|
(4,104
|
)
|
|
|
(416,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
7,570
|
|
|
|
(25,308
|
)
|
|
|
(139,521
|
)
|
Adjustments to reconcile income (loss) from continuing
operations to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
61,501
|
|
|
|
74,309
|
|
|
|
84,526
|
|
Stock-based compensation
|
|
|
14,461
|
|
|
|
6,423
|
|
|
|
8,562
|
|
Amortization of debt issuance costs
|
|
|
3,118
|
|
|
|
2,335
|
|
|
|
399
|
|
Impairment of store assets
|
|
|
1,420
|
|
|
|
1,351
|
|
|
|
2,845
|
|
Deferred rent
|
|
|
(13,480
|
)
|
|
|
(11,559
|
)
|
|
|
(242
|
)
|
Gift card breakage income
|
|
|
(6,940
|
)
|
|
|
|
|
|
|
|
|
Non-cash portion of gain on settlement of shareholder litigation
|
|
|
(1,045
|
)
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
(12,116
|
)
|
|
|
44,769
|
|
Loss (gain) on disposal of property and equipment
|
|
|
110
|
|
|
|
223
|
|
|
|
(28
|
)
|
Tax benefit from options exercised
|
|
|
|
|
|
|
|
|
|
|
76
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer accounts receivable
|
|
|
18,187
|
|
|
|
5,950
|
|
|
|
41,156
|
|
Merchandise inventories
|
|
|
(15,116
|
)
|
|
|
64,311
|
|
|
|
41,325
|
|
Deferred catalog costs
|
|
|
2,501
|
|
|
|
(1,890
|
)
|
|
|
1,453
|
|
Prepaid and other current assets
|
|
|
13,249
|
|
|
|
(9,257
|
)
|
|
|
(2,653
|
)
|
Due from related party
|
|
|
959
|
|
|
|
(583
|
)
|
|
|
2,664
|
|
Income tax refundable
|
|
|
2,006
|
|
|
|
24,640
|
|
|
|
(26,646
|
)
|
Accounts payable
|
|
|
(12,317
|
)
|
|
|
(17,275
|
)
|
|
|
(20,898
|
)
|
Accrued income taxes
|
|
|
|
|
|
|
|
|
|
|
(4,308
|
)
|
Accrued liabilities
|
|
|
4,245
|
|
|
|
(14,016
|
)
|
|
|
(3,665
|
)
|
Other assets
|
|
|
(635
|
)
|
|
|
(1,285
|
)
|
|
|
13,047
|
|
Other liabilities
|
|
|
(25,656
|
)
|
|
|
(5,066
|
)
|
|
|
(26,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
54,138
|
|
|
|
81,187
|
|
|
|
16,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(28,805
|
)
|
|
|
(20,980
|
)
|
|
|
(44,698
|
)
|
Proceeds from disposal of property and equipment
|
|
|
15
|
|
|
|
61
|
|
|
|
2,555
|
|
Cash acquired in merger with BPW Acquisition Corp.
|
|
|
332,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
304,209
|
|
|
|
(20,919
|
)
|
|
|
(42,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facility
|
|
|
1,651,638
|
|
|
|
|
|
|
|
|
|
Payments on revolving credit facility
|
|
|
(1,626,122
|
)
|
|
|
|
|
|
|
|
|
Proceeds from related party borrowings
|
|
|
|
|
|
|
475,000
|
|
|
|
20,000
|
|
Payments on related party borrowings
|
|
|
(486,494
|
)
|
|
|
(8,506
|
)
|
|
|
|
|
Payments on long-term borrowings
|
|
|
|
|
|
|
(308,351
|
)
|
|
|
(80,502
|
)
|
Proceeds from working capital notes payable
|
|
|
|
|
|
|
8,000
|
|
|
|
57,000
|
|
Payments on working capital notes payable
|
|
|
|
|
|
|
(156,500
|
)
|
|
|
(15,000
|
)
|
Proceeds from working capital notes payable, net
|
|
|
|
|
|
|
|
|
|
|
106,500
|
|
Payment of debt issuance costs
|
|
|
(6,163
|
)
|
|
|
(4,760
|
)
|
|
|
(866
|
)
|
Payment of equity issuance costs
|
|
|
(3,594
|
)
|
|
|
|
|
|
|
|
|
Proceeds from warrants exercised
|
|
|
19,042
|
|
|
|
|
|
|
|
|
|
Proceeds from options exercised
|
|
|
752
|
|
|
|
|
|
|
|
888
|
|
Purchase of treasury stock
|
|
|
(2,030
|
)
|
|
|
(556
|
)
|
|
|
(1,505
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
(28,752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(452,971
|
)
|
|
|
4,327
|
|
|
|
57,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
607
|
|
|
|
503
|
|
|
|
(464
|
)
|
CASH FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
(8,577
|
)
|
|
|
(34,110
|
)
|
|
|
(20,119
|
)
|
Investing activities
|
|
|
|
|
|
|
63,827
|
|
|
|
(18,684
|
)
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
23
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,577
|
)
|
|
|
29,740
|
|
|
|
(38,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(102,594
|
)
|
|
|
94,838
|
|
|
|
(7,541
|
)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
112,775
|
|
|
|
16,551
|
|
|
|
24,280
|
|
DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS OF
DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
1,386
|
|
|
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
10,181
|
|
|
$
|
112,775
|
|
|
$
|
16,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
THE
TALBOTS, INC. AND SUBSIDIARIES
Amounts
in thousands except share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Loss
|
|
|
Stock
|
|
|
(Loss) Income
|
|
|
Equity (Deficit)
|
|
|
BALANCE AT FEBRUARY 2, 2008
|
|
|
79,755,443
|
|
|
$
|
797
|
|
|
$
|
485,629
|
|
|
$
|
565,805
|
|
|
$
|
(13,474
|
)
|
|
$
|
(583,978
|
)
|
|
|
|
|
|
$
|
454,779
|
|
Adoption of accounting guidance related to changing the
measurement date of the benefit plans to January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(897
|
)
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
(28,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,752
|
)
|
Common stock issued as stock awards
|
|
|
1,298,415
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
4,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,677
|
|
Compensation expense related to nonvested common stock awards
|
|
|
|
|
|
|
|
|
|
|
4,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,178
|
|
Tax deficiency on vested stock awards
|
|
|
|
|
|
|
|
|
|
|
(2,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,277
|
)
|
Stock options exercised, including tax benefit
|
|
|
71,668
|
|
|
|
1
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
951
|
|
Purchase of 915,489 shares of vested and nonvested common
stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,505
|
)
|
|
|
|
|
|
|
(1,505
|
)
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(555,659
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(555,659
|
)
|
|
|
(555,659
|
)
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,216
|
)
|
|
|
|
|
|
|
(1,216
|
)
|
|
|
(1,216
|
)
|
Change in pension and postretirement liabilities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,389
|
)
|
|
|
|
|
|
|
(52,389
|
)
|
|
|
(52,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(609,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 31, 2009
|
|
|
81,125,526
|
|
|
|
811
|
|
|
|
492,932
|
|
|
|
(19,278
|
)
|
|
|
(67,079
|
)
|
|
|
(585,483
|
)
|
|
|
|
|
|
|
(178,097
|
)
|
Common stock issued as stock awards
|
|
|
347,689
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,574
|
|
Compensation expense related to nonvested common stock awards
|
|
|
|
|
|
|
|
|
|
|
3,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,951
|
|
Purchase of 723,918 shares of vested and nonvested common
stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(556
|
)
|
|
|
|
|
|
|
(556
|
)
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,412
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(29,412
|
)
|
|
|
(29,412
|
)
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
|
|
|
|
|
|
895
|
|
|
|
895
|
|
Change in pension and postretirement liabilities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,005
|
|
|
|
|
|
|
|
15,005
|
|
|
|
15,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(13,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
Tax expense on extinguishment of related party debt
|
|
|
|
|
|
|
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total merger-related
|
|
|
11,547,174
|
|
|
|
116
|
|
|
|
327,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327,264
|
|
Exercise of Non-Tendered Warrants
|
|
|
2,538,946
|
|
|
|
25
|
|
|
|
19,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,042
|
|
Exercise of stock options
|
|
|
240,512
|
|
|
|
2
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
752
|
|
Stock-based compensation
|
|
|
1,448,000
|
|
|
|
14
|
|
|
|
14,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,461
|
|
Purchase of 337,869 shares of vested and nonvested common
stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,030
|
)
|
|
|
|
|
|
|
(2,030
|
)
|
Receipt of 175,000 shares of common stock on settlement of
shareholder litigation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,045
|
)
|
|
|
|
|
|
|
(1,045
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,815
|
|
|
|
|
|
|
|
|
|
|
$
|
10,815
|
|
|
|
10,815
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725
|
|
|
|
|
|
|
|
725
|
|
|
|
725
|
|
Change in pension and postretirement liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(762
|
)
|
|
|
|
|
|
|
(762
|
)
|
|
|
(762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 29, 2011
|
|
|
97,247,847
|
|
|
$
|
972
|
|
|
$
|
860,819
|
|
|
$
|
(37,875
|
)
|
|
$
|
(51,216
|
)
|
|
$
|
(589,114
|
)
|
|
|
|
|
|
$
|
183,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
THE
TALBOTS, INC.
|
|
1.
|
Description
of Business
|
The Talbots, Inc. is a specialty retailer and direct marketer of
womens apparel, accessories and shoes sold almost
exclusively under the Talbots brand through its 568 stores, its
circulation of approximately 38.7 million catalogs in 2010
and online through its website, www.talbots.com. As used in this
report, unless the context indicates otherwise, all references
herein to the Company refer to The Talbots, Inc. and
its wholly-owned subsidiaries.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of Estimates
The preparation of
these consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the balance sheets and the reported amounts of
net sales and expenses during the reporting periods. Actual
results and outcomes may differ materially from
managements estimates, judgments and assumptions.
Estimates are periodically reviewed in light of changes in
circumstances, facts and experience.
Subsequent Events
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 disclosures.
Principles of Consolidation
The
consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Fiscal Year
The Company conforms to
the National Retail Federations fiscal calendar. The years
ended January 29, 2011, January 30, 2010 and
January 31, 2009 were 52-week reporting periods. References
to 2010, 2009 and 2008 are
for the fiscal years ended January 29, 2011,
January 30, 2010 and January 31, 2009, respectively.
Cash and Cash Equivalents
The Company
considers all highly liquid instruments with a purchased
maturity of three months or less to be cash equivalents,
including the majority of payments due from credit card
processors and banks for third party credit card and debit card
transactions which are processed within one to five business
days. Amounts due from credit card processors and banks for
these transactions, classified as cash and cash equivalents,
totaled $4.5 million and $4.2 million at
January 29, 2011 and January 30, 2010, respectively.
Customer Accounts Receivable, net
Customer accounts receivable are amounts due
from customers as a result of customer purchases on the Talbots
proprietary credit card, net of an allowance for doubtful
accounts. The Talbots credit card program is administered
through Talbots Classics National Bank and Talbots Classics
Finance Company, Inc., both wholly-owned subsidiaries of the
Company. Before extending credit to a customer, the Company
analyzes both the customers credit risk score as well as
the customers estimated ability to pay. The Company
evaluates the financial position of its Talbots credit
cardholders on an ongoing basis, based on their recent credit
risk scores. Collateral is not required as a condition of credit.
The allowance for doubtful accounts is maintained for estimated
losses from the inability of Talbots credit cardholders to make
required payments and is based on a calculation that includes a
number of factors such as historical collection rates, a
percentage of outstanding balances, historical charge-offs and
charge-off forecasts. Customer accounts receivable are deemed to
be uncollectible either when they are contractually
180 days past due or when events or circumstances, such as
customer bankruptcy, fraud or death, suggest that collection of
the amounts due under the account is unlikely. Once an account
is deemed to be uncollectible, the Company ceases to accrue
interest on the balance and the balance is written off at the
next cycle billing date. The Company ceases to accrue late fees
on a balance once the balance reaches 120 days past due.
Only in rare circumstances does the Company resume accruing
interest and late fees once an account has reached
classification as uncollectible. In the
F-7
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
event that payments are received on accounts deemed to be
uncollectible, the payment is applied to the uncollectible
balance and a recovery is recorded.
Concentration of credit risk with respect to customer accounts
receivable is limited due to the large number of customers to
whom the Company extends credit.
Customer Loyalty Program
The Company
sponsors a customer loyalty program referred to as the classic
awards program which rewards U.S. Talbots customers with
appreciation awards based on reaching specified
purchase levels. Appreciation awards may be applied to future
merchandise purchases and expire one year after issuance.
Appreciation award expense is recognized at the time of the
initial customer purchase based on purchase levels, actual
awards issued and historical redemption rates and is included in
selling, general and administrative in the consolidated
statements of operations. The related liability is included in
accrued liabilities on the consolidated balance sheets.
Merchandise Inventories
Inventories
are stated at the lower of average cost or market using the
retail inventory method on a FIFO
(first-in,
first-out) basis. Under the retail inventory method, the
valuation of inventories at cost and the resulting gross margins
are adjusted for estimated future markdowns on currently held
past-season merchandise in advance of selling the marked-down
merchandise. Estimated future markdowns are calculated based on
information related to inventory levels, historical markdown
trends and forecasted markdown levels. Certain distribution
costs, warehousing costs and purchasing costs are capitalized in
inventory. Additional reserves, including a provision for
estimated merchandise inventory shrinkage, are regularly
evaluated and recorded based on historical trends and
merchandise inventory levels.
Property and Equipment
Property and
equipment are recorded at cost. Depreciation and amortization
are calculated using the straight-line method over the following
estimated useful lives:
|
|
|
Description
|
|
Years
|
|
Buildings
|
|
10-50
|
Fixtures and equipment
|
|
3-10
|
Software
|
|
3-7
|
Leasehold improvements
|
|
3-10 or term of lease, if shorter
|
Expenditures for new property and equipment and improvements to
existing facilities are capitalized, while the cost of
maintenance is charged to expense. The cost of property retired,
or otherwise disposed of, along with the corresponding
accumulated depreciation is eliminated from the related
accounts, and the resulting gain or loss is reflected in the
results of operations.
Preopening Expenses
Non-capital
expenditures, such as rent, advertising and payroll costs,
incurred prior to the opening of a new store are charged to
expense in the period in which they are incurred.
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. Refer to Note 9,
Fair Value
Measurements
, for additional information regarding the
Companys application of fair value measurements.
F-8
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill and Indefinite-lived
Trademarks
The Company tests its goodwill
and trademarks for impairment at the reporting unit level on an
annual basis, on the first day of each fiscal year, or more
frequently if events or changes in circumstances indicate that
these assets might not be recoverable. The Company concluded
that it has two reporting units, stores and direct marketing,
and that the balance of goodwill recorded relates entirely to
the stores reporting unit. The trademarks are allocated between
both reporting units with a carrying value of $64.5 million
in the stores reporting unit and a carrying value of
$11.4 million in the direct marketing reporting unit.
The Company determines the fair value of its goodwill using a
combination of an income approach and market value approach
which collectively contemplate its operating results and
financial position, forecasted operating results, industry
trends, market uncertainty and comparable industry multiples.
The income approach requires significant judgments and estimates
to project future revenues and expenses, changes in gross
margins, cash flows and estimates of future capital expenditures
for the reporting unit over a multi-year period, as well as to
determine the weighted-average cost of capital to be used as a
discount rate. The Company believes that the discount rate that
it applies is consistent with the risks inherent in its business
and with the retail industry. The market approach requires the
application of industry multiples of operating performance which
are derived from comparable publicly traded companies with
operating characteristics similar to the stores reporting unit.
The Companys evaluation of goodwill inherently involves
judgments as to assumptions used to project these amounts and
the impact of market conditions on those assumptions. The
Companys estimates may differ from actual results due to,
among other matters, economic conditions, changes to the
Companys business model or changes in the Companys
operating performance. Significant differences between these
estimates and actual results could result in future impairment
charges and could materially affect the Companys future
financial results. The Company performed an impairment test of
goodwill as of January 30, 2011, January 31, 2010 and
February 1, 2009. These tests did not indicate an
impairment of the Companys goodwill.
The Company determines the fair value of its trademarks using an
income approach, specifically the
relief-of-royalty
method. This methodology assumes that, in lieu of ownership, a
third party would be willing to pay a royalty in order to
exploit the related benefits of the asset. This approach is
dependent on a number of factors, including estimates of future
sales, royalty rates of intellectual property, discount rates
and other variables. Significant differences between these
estimates and actual results could result in future impairment
charges and could materially affect the Companys future
financial results. The Company performed an impairment test of
its trademarks as of January 30, 2011, January 31,
2010 and February 1, 2009. These tests did not indicate an
impairment of the Companys trademarks.
Long-Lived Assets
The Company
regularly monitors the performance and productivity of its store
portfolio. 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 can
result in an impairment charge. When a store is identified for
impairment analysis, the Company estimates 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. The Company recorded impairments of
store assets of $1.4 million, $1.4 million and
$2.8 million in fiscal years 2010, 2009 and 2008,
respectively.
Grantor Trust
The Company maintains an
irrevocable grantors trust (Rabbi Trust) to
hold assets intended to fund benefit obligations under the
Companys supplemental retirement savings plan and deferred
compensation plan. The assets held in the Rabbi Trust consist of
money market investments and insurance policies, for which the
Company is the owner and designated beneficiary, which are
recorded at the cash surrender value. At January 29, 2011
and January 30, 2010, the value of these assets was
$13.0 million and $12.2 million, respectively, and is
included in other assets in the consolidated balance sheets. The
Companys obligation related to the supplemental retirement
savings plan and deferred compensation plan was
$7.4 million and $9.3 million at January 29, 2011
and
F-9
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 30, 2010, respectively, and is included in other
liabilities in the consolidated balance sheets unless the
benefits are expected to be paid within the next year, in which
case, the obligation is included in accrued liabilities. As of
January 29, 2011 and January 30, 2010,
$0.8 million and $1.3 million, respectively, are
included in accrued liabilities.
Deferred Rent Under Lease Commitments
Rent expense under non-cancelable leases
with scheduled rent increases or free rent periods is accounted
for on a straight-line basis over the initial lease term
beginning on the date of initial possession, which is generally
when the Company enters the space and begins construction
build-out. Any reasonably assured renewals are considered. The
amount of the excess of straight-line rent expense over
scheduled payments is recorded as a deferred liability.
Construction allowances and other such lease incentives are
recorded as deferred credits and are amortized on a
straight-line basis as a reduction of rent expense beginning in
the period in which they are deemed to be earned, which often is
subsequent to the date of initial possession and generally
coincides with the store opening date.
Foreign Currency Adjustments
The
functional currency of the Companys foreign operations is
the local currency. The translation of the foreign currency into
U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date, and
for revenue and expense accounts using average exchange rates in
effect during the reporting period. Adjustments resulting from
translation are included as a separate component of accumulated
other comprehensive loss. Foreign currency transaction gains or
losses are included in selling, general and administrative.
Revenue Recognition
The Company
recognizes revenue at the
point-of-sale
or, in the case of catalog and Internet sales, upon estimated
receipt by the customer. Amounts charged to customers for
shipping and handling are included in net sales. The Company
provides for estimated returns based on return history, current
sales levels and projected future return levels. The Company
does not include sales tax collected from its customers in
revenue.
Cost of Sales, Buying and Occupancy
Cost of sales, buying and occupancy is
comprised primarily of the cost of merchandise including duties,
inbound freight charges, shipping, handling and distribution
costs associated with the Companys direct operations,
salaries and expenses incurred by the Companys
merchandising and sourcing operations, and occupancy costs
associated with the Companys stores. Occupancy costs
consist primarily of rent and associated depreciation,
maintenance, property taxes and utilities.
Selling, General and
Administrative
Selling, general and
administrative is comprised primarily of the costs of employee
compensation and benefits in the selling and administrative
support functions, catalog operation costs relating to catalog
production and call center, advertising and marketing costs, the
cost of the Companys customer loyalty program, costs
related to the Companys management information systems and
support and the costs and income associated with the
Companys credit card operations. Additionally, costs
associated with the Companys warehouse operations are
included in selling, general and administrative and include
costs of receiving, inspecting and warehousing merchandise as
well as the costs related to store distribution of merchandise.
Warehouse operations costs in fiscal years 2010, 2009 and 2008
are approximately $17.9 million, $20.2 million and
$27.6 million, respectively.
Gift Cards and Gift Card Breakage
Proceeds from the sale of gift cards are
recorded as a liability and are recognized as net sales when the
cards are redeemed for merchandise. The Companys gift
cards do not have an expiration date. Prior to the fourth
quarter of 2010, all unredeemed gift card proceeds were
reflected as a liability until escheated in accordance with
applicable laws. The Company only recognized income from the
non-escheated portion of unredeemed gift cards after a period of
time had passed subsequent to the filing of the corresponding
escheatment, approximately equal to the statute of limitations
for state audit of the escheated funds. During the fourth
quarter of 2010, the Company identified a history of redemption
and breakage patterns associated with its gift cards which
supports a change in its estimate of the term over which the
Company should recognize income on gift card breakage.
Accordingly, beginning with the fourth quarter of 2010, the
Company recognizes income from the breakage of gift cards when
the likelihood of redemption of the gift card is remote. The
Company determines its gift
F-10
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
card breakage rate based upon historical redemption patterns.
Based on this historical information, the likelihood of a gift
card remaining unredeemed can be reasonably estimated at the
time of gift card issuance. Breakage income is then recognized
over the estimated average redemption period of redeemed gift
cards, for those gift cards for which the likelihood of
redemption is deemed to be remote and for the amount for which
there is no legal obligation for us to remit the value of such
unredeemed gift cards to any relevant jurisdictions. Gift card
breakage income is recorded as other operating income and is
classified as a reduction of selling, general and administrative
expenses in the consolidated statement of operations. Breakage
income of $6.9 million, including a cumulative change in
estimate of $6.3 million, was recognized during fiscal 2010.
Finance Charge Income
Finance charge
income on customer accounts receivable is recorded as a
reduction of selling, general and administrative expense and
includes interest and late fees.
Advertising
Advertising costs, which
include media, production and catalogs, totaled
$58.9 million, $44.2 million and $60.2 million in
fiscal years 2010, 2009 and 2008, respectively. Media and
production costs are expensed in the period in which the
advertising first takes place, while catalog costs are amortized
over the estimated productive selling life of the catalog, which
is generally two to four months.
Income Taxes
The Company records
deferred income taxes to recognize the effect of temporary
differences between tax and financial statement reporting. The
Company calculates the deferred taxes using enacted tax rates
expected to be in place when the temporary differences are
realized and records a valuation allowance to reduce deferred
tax assets if it is determined that it is more likely than not
that all or a portion of the deferred tax asset will not be
realized. The Company considers many factors when assessing the
likelihood of future realization of deferred tax assets,
including recent earnings results, expectations of future
taxable income, carry forward periods available and other
relevant factors. Changes in the required valuation allowance
are recorded in the period that the determination is made. In
fiscal year 2008, the Company determined that it was more likely
than not that the Company would not realize the benefits from
its deferred tax assets and recorded a valuation allowance for
substantially all of its net deferred tax assets, after
considering sources of taxable income from reversing deferred
tax liabilities. The Company has maintained a full valuation
allowance against its net deferred tax assets, excluding
deferred tax liabilities for
non-amortizing
intangibles through fiscal years 2009 and 2010.
The Company assesses its income tax positions and records tax
benefits for all years subject to examination based upon
managements evaluation of the facts, circumstances and
information available at the reporting date. For those tax
positions where it is more likely than not that a tax benefit
will be sustained, the Company records the largest amount of tax
benefit with a greater than 50 percent likelihood of being
realized upon ultimate settlement with a taxing authority having
full knowledge of all relevant information. For those income tax
positions where it is not more likely than not that a tax
benefit will be sustained, no tax benefit is recognized in the
financial statements. The Company classifies its recorded
uncertain tax positions as other liabilities in the consolidated
balance sheets, unless expected to be resolved within one year.
The Company classifies interest on uncertain tax positions in
interest expense, interest income from income tax refunds in
interest income and estimated penalties in selling, general and
administrative in the consolidated statements of operations.
Stock-Based Compensation
The Company
accounts for stock-based compensation based on the fair value of
the stock-based compensation award at the date of grant. The
Company recognizes stock-based compensation expense, less
estimated forfeitures, on a straight-line basis over the
requisite service period of the awards. Forfeitures are
estimated at the time of grant and revised in subsequent periods
if actual forfeitures differ from those estimates.
Comprehensive Income (Loss)
The
Companys comprehensive income (loss) is comprised of
reported net income (loss) plus the impact of changes in the
cumulative translation adjustment, net of tax when applicable,
and changes in the pension and postretirement plan liabilities,
net of tax when applicable. Accumulated other comprehensive
loss, which is a component of stockholders equity
(deficit), is comprised of cumulative
F-11
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
translation adjustments, net of taxes when applicable, and
cumulative changes in the pension and postretirement plan
liabilities, net of taxes when applicable, as detailed below.
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Cumulative translation adjustment, net of tax benefit of
$0.2 million and $0.2 million, respectively
|
|
$
|
495
|
|
|
$
|
(230
|
)
|
Pension and postretirement plan liabilities, net of tax
(benefit) expense of ($0.2) million and $1.0 million,
respectively
|
|
|
(51,711
|
)
|
|
|
(50,949
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(51,216
|
)
|
|
$
|
(51,179
|
)
|
|
|
|
|
|
|
|
|
|
The balance of accumulated other comprehensive loss that relates
to pension and postretirement plan liabilities includes the
effect of the Companys valuation allowance as described in
Note 6,
Income Taxes.
Earnings (Loss) Per Share
Basic
earnings (loss) per share is computed by dividing income (loss)
available for common stockholders by the weighted average number
of common shares outstanding. During periods of income,
participating securities are allocated a proportional share of
income determined by dividing total weighted average
participating securities by the sum of the total weighted
average common shares and participating securities (the
two-class method). The Companys nonvested
stock and director restricted stock units (RSUs)
participate in any dividends declared by the Company and are
therefore considered participating securities. Participating
securities have the effect of diluting both basic and diluted
earnings per share during periods of income. During periods of
loss, no loss is allocated to participating securities since
they have no contractual obligation to share in the losses of
the Company. Diluted earnings per share is computed after giving
consideration to the dilutive effect of warrants, stock options
and
non-director
restricted stock units that are outstanding during the period,
except where such non-participating securities would be
antidilutive. Refer to Note 8,
Earnings (Loss) Per
Share
, for the Companys calculation of earnings (loss)
per share for the periods presented.
Supplemental Cash Flow Information
Interest paid in 2010, 2009 and 2008 was
$20.5 million, $18.2 million and $17.7 million,
respectively. Income tax paid in 2010, 2009 and 2008 was
$7.3 million, $8.1 million and $13.6 million,
respectively.
Recent
Accounting Pronouncements
In January 2010, the FASB issued ASU
2010-6,
Fair Value Measurements and Disclosures
. ASU
2010-6
amends
ASC 820-10,
Fair Value Measurements and Disclosures
, 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 or
annual reporting period 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 of ASU
2010-6
when
they become effective in the first quarter of fiscal 2011. The
adoption of this ASU has expanded the Companys disclosures
regarding fair value measurements included in Note 9,
Fair Value Measurements
. The Company does not expect the
additional disclosure requirements of ASU
2010-06
will
have any impact on its consolidated financial statements.
In July 2010, the FASB issued ASU
2010-20,
Disclosures About the Credit Quality of Financing Receivables
and the Allowance for Credit Losses
. ASU
2010-20
amends
ASC 310-10,
Receivables
, and requires additional disclosures about
the credit quality of financing receivables, including credit
card receivables, and the associated allowance for credit
losses. ASU
2010-20
is
effective for the first interim or annual reporting period
ending on or after December 15, 2010, except for certain
disclosures of information regarding activity that occurs during
the reporting period, which are effective for the first interim
or annual reporting period beginning on or after
F-12
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 15, 2010. The Company has adopted the disclosure
requirements effective for the first interim or annual reporting
period ending on or after December 15, 2010 as of
January 29, 2011. The Company intends to adopt the
remaining disclosure requirements of ASU
2010-20
when
they become effective in the first quarter of 2011. The adoption
of this ASU has expanded the Companys disclosures
regarding customer accounts receivable and the associated
allowance for doubtful accounts included in Note 2,
Summary of Significant Accounting Policies
, and
Note 10,
Customer Accounts Receivable, net
. The
Company is still evaluating the impact of the additional
provisions of this ASU not yet adopted on its consolidated
financial statements; however they are disclosure-only in nature.
In December 2010, the FASB issued ASU
2010-28,
When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units With Zero or Negative Carrying Amounts
. ASU
2010-28
amends
ASC 350-20,
Goodwill
, by modifying the process of performing Step 1
of a goodwill impairment test for reporting units with zero or
negative carrying values to add an additional layer of
qualitative evaluation. Under this amended guidance, a company
would be required to perform Step 2 of a goodwill impairment
test for a reporting unit with zero or negative carrying value
if adverse qualitative factors indicate that it is more likely
than not that a goodwill impairment exists. ASU
2010-28
is
effective for impairment tests performed during entities
fiscal years that begin after December 15, 2010. The
adoption of this ASU is not expected to materially affect the
Companys goodwill impairment analyses in fiscal 2011, as
the fiscal year 2011 annual goodwill impairment test, performed
as of January 30, 2011, reflected a positive carrying value
of the stores reporting unit.
|
|
3.
|
Merger
with BPW Acquisition Corp. and Related Transactions
|
On April 7, 2010, the Company completed a series of
transactions (collectively, the BPW Transactions)
which, in the aggregate, substantially reduced its indebtedness
and significantly deleveraged its balance sheet, consisting of
three related transactions: (i) an Agreement and Plan of
Merger between Talbots and BPW Acquisition Corp.
(BPW) pursuant to which a wholly-owned subsidiary of
the Company merged with and into BPW in exchange for the
Companys issuance of Talbots common stock and warrants to
BPW stockholders; (ii) the repurchase and retirement of all
shares of Talbots common stock held by AEON (U.S.A.), Inc.
(AEON (U.S.A.)), the Companys then majority
shareholder, totaling 29.9 million shares; the issuance of
warrants to purchase one million shares of Talbots common stock
to AEON (U.S.A.) and the repayment of all of the Companys
outstanding debt with AEON Co., Ltd. (AEON) and AEON
(U.S.A.) at its principal value plus accrued interest and other
costs for total consideration of $488.2 million; and
(iii) the execution of a third party senior secured
revolving credit facility which provides borrowing capacity up
to $200.0 million, subject to availability and satisfaction
of all borrowing conditions.
BPW was a special purpose acquisition company with approximately
$350.0 million in cash held in a trust account for the
benefit of its shareholders to be used in connection with a
business combination. 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
F-13
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 exchange offer (the Non-Tendered
Warrants) remained outstanding at the closing of the
merger. Additionally, in connection with the merger, the Company
repurchased and retired the 29.9 million shares of Talbots
common stock held by AEON (U.S.A.), the former majority
shareholder, in exchange for warrants to purchase one million
shares of Talbots common stock (the AEON Warrants).
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 the NYSE Amex
in April 2010. Approximately 17.2 million Talbots Warrants
were outstanding at January 29, 2011.
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
January 29, 2011 become exercisable one year from
April 7, 2010, the effective date of the merger, do not
have anti-dilution rights, were de-listed from the NYSE Amex
concurrent with the merger and expire on 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 acceleration. The warrants may be exercised on
a cashless basis. One million AEON Warrants were outstanding at
January 29, 2011.
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.
Additionally, approximately $0.4 million of estimated tax
expense was recorded to additional paid-in capital due to an
expected tax consequence of this extinguishment of related party
debt in fiscal 2010.
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. Refer
to Note 13,
Debt
, for further information including
key terms of this credit agreement.
As a result of the BPW Transactions, the Company became subject
to certain annual limitations on the use of its existing net
operating losses. Additionally, related to these transactions,
the Company recorded an increase in its unrecognized tax
benefits of approximately $20.0 million that reduced a
portion of the Companys net deferred tax assets before
consideration of any valuation allowance. The Company submitted
a Private Letter Ruling request related to this tax position
during fiscal 2010 which was granted subsequent to
January 29, 2011. As a result of this
F-14
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
favorable outcome, the Company expects to record a decrease in
its unrecognized tax benefits of approximately
$20.0 million in fiscal 2011 which will increase the
Companys 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. Legal expenses classified as merger-related
costs include both those costs incurred to execute the merger as
well as those costs incurred related to the subsequent
merger-related legal proceedings discussed in Note 16,
Commitments and Contingencies
. In the fourth quarter of
2010, the Company entered into a settlement agreement related to
this proceeding under which the Company received
$3.75 million in cash and the return of 175,000 common
shares from Perella Weinberg Partners LP, valued at
$1.0 million on the date that the shares were legally
transferred back to the Company, and paid $2.1 million in
fees and expenses to the plaintiffs counsel. The net gain
of $2.7 million has also been included in merger-related
costs. Other costs primarily include printing and mailing
expenses related to proxy solicitation and incremental insurance
expenses related to the transaction.
The Company recorded total merger-related costs of approximately
$34.1 million, of which $25.9 million and
$8.2 million were expensed in fiscal 2010 and fiscal 2009,
respectively. 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 in the 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
recorded to additional paid-in capital.
Details of the merger-related costs recorded in the fiscal years
ended January 29, 2011 and January 30, 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29, 2011
|
|
|
January 30, 2010
|
|
|
|
(In thousands)
|
|
|
Investment banking
|
|
$
|
14,255
|
|
|
$
|
4,941
|
|
Accounting and legal
|
|
|
6,071
|
|
|
|
2,598
|
|
Financing incentive compensation
|
|
|
6,686
|
|
|
|
|
|
Net gain on settlement of shareholder litigation
|
|
|
(2,695
|
)
|
|
|
|
|
Other costs
|
|
|
1,538
|
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
Total merger-related costs
|
|
$
|
25,855
|
|
|
$
|
8,216
|
|
|
|
|
|
|
|
|
|
|
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 agreement, had been
completed on February 1, 2009, the beginning of
Talbots fiscal year ended January 30, 2010.
F-15
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29, 2011
|
|
|
January 30, 2010
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
1,213,060
|
|
|
$
|
1,213,060
|
|
|
$
|
1,235,632
|
|
|
$
|
1,235,632
|
|
Operating income (loss)
|
|
|
31,436
|
|
|
|
24,564
|
|
|
|
(8,690
|
)
|
|
|
(10,370
|
)
|
Income (loss) from continuing operations
|
|
|
7,570
|
|
|
|
5,958
|
|
|
|
(25,308
|
)
|
|
|
(8,133
|
)
|
Earnings (loss) per share
- continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.12
|
)
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.08
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.12
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
65,790
|
|
|
|
67,884
|
|
|
|
53,797
|
|
|
|
65,344
|
|
Diluted
|
|
|
66,844
|
|
|
|
68,938
|
|
|
|
53,797
|
|
|
|
65,344
|
|
Based on the nature of the BPW entity, there was no revenue or
earnings associated with BPW included in the consolidated
statements of operations.
In late 2007, management developed a strategic business plan
focused on the following areas: brand positioning, 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 the periods presented include 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.
Restructuring actions during fiscal years 2010, 2009 and 2008
include the following:
|
|
|
|
|
In June 2008, the Company reduced its corporate headcount by 9%,
or 88 positions.
|
|
|
|
In February 2009, the Company reduced its corporate headcount by
an additional 17%, or 370 positions.
|
|
|
|
In June 2009, the Company reduced its corporate headcount by an
additional 20%, including the elimination of open positions.
|
|
|
|
In August 2009, the Company reorganized its global sourcing
activities, closing its Hong Kong and India sourcing offices and
reducing its corporate sourcing headcount.
|
|
|
|
In March 2010, the Company consolidated its Madison Avenue, New
York flagship location in which it reduced active leased floor
space and wrote down certain assets and leasehold improvements
no longer used in the redesigned lay-out.
|
In connection with these initiatives, the Company incurred
restructuring charges of $5.6 million, $10.3 million
and $17.8 million during fiscal years 2010, 2009 and 2008,
respectively.
F-16
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the activity and liability
balances related to restructuring in fiscal years 2010, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate - Wide
|
|
|
|
|
|
|
Strategic Initiatives
|
|
|
|
|
|
|
Severance
|
|
|
Lease-Related
|
|
|
Consulting
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at February 2, 2008
|
|
$
|
678
|
|
|
$
|
|
|
|
$
|
1,532
|
|
|
$
|
2,210
|
|
Charges
|
|
|
13,751
|
|
|
|
|
|
|
|
4,042
|
|
|
|
17,793
|
|
Cash payments
|
|
|
(5,717
|
)
|
|
|
|
|
|
|
(5,574
|
)
|
|
|
(11,291
|
)
|
Non-cash items
|
|
|
2,170
|
|
|
|
|
|
|
|
|
|
|
|
2,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
10,882
|
|
|
|
|
|
|
|
|
|
|
|
10,882
|
|
Charges
|
|
|
7,865
|
|
|
|
2,247
|
|
|
|
161
|
|
|
|
10,273
|
|
Cash payments
|
|
|
(16,497
|
)
|
|
|
(835
|
)
|
|
|
(148
|
)
|
|
|
(17,480
|
)
|
Non-cash items
|
|
|
839
|
|
|
|
(641
|
)
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
|
3,089
|
|
|
|
771
|
|
|
|
13
|
|
|
|
3,873
|
|
Charges
|
|
|
1,427
|
|
|
|
4,213
|
|
|
|
|
|
|
|
5,640
|
|
Cash payments
|
|
|
(4,327
|
)
|
|
|
(1,159
|
)
|
|
|
(13
|
)
|
|
|
(5,499
|
)
|
Non-cash items
|
|
|
26
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2011
|
|
$
|
215
|
|
|
$
|
3,781
|
|
|
$
|
|
|
|
$
|
3,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The non-cash items primarily consist of the write-off of certain
leasehold improvements, adjustments to lease liabilities and
changes to stock-based compensation expense related to employee
terminations. Of the $4.0 million in restructuring
liabilities at January 29, 2011, $1.6 million,
expected to be paid within the next twelve months, is included
in accrued liabilities and the remaining $2.4 million,
expected to be paid thereafter through 2014, is included in
deferred rent under lease commitments.
|
|
5.
|
Stock-Based
Compensation
|
2003
Executive Stock Based Incentive Plan, as amended
The 2003 Executive Stock Based Incentive Plan, as amended (the
2003 Plan) provides for grants of stock options,
nonvested stock awards and restricted stock units
(RSUs) to certain key members of management.
Stock options are granted at an exercise price equal to the fair
market value of the Companys common stock on the date of
grant, generally vest over a three-year period at each
anniversary date and expire no later than ten years from the
grant date. Holders of stock options have no voting rights and
are not entitled to dividends or dividend equivalents.
Holders of nonvested stock awards have voting rights and are
entitled to dividends equivalent to those paid on the
Companys common stock, when and if declared. Upon the
grant of nonvested stock, the recipient or the Company on the
recipients behalf is required to pay the par value of
$0.01 per share. If the employee terminates employment prior to
the vesting date, the nonvested stock awards are generally
forfeited to the Company, at the Companys election,
through the repurchase of the shares at the $0.01 par
value. Most shares of nonvested stock are time vested and
generally vest between two and four years.
In connection with the execution of the BPW Transactions, the
Company awarded a one-time RSU grant to certain key members of
management. These RSUs vest one year from the date of the
execution of the merger, April 7, 2010, have no voting
rights and are not entitled to dividends or dividend equivalents.
F-17
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has reserved 9,500,000 shares of common stock
under the 2003 Plan for issuance. Any authorized but unissued
shares of common stock available for future awards under the
Companys previous 1993 Executive Stock Based Incentive
Plan were added to the 2003 Plan together with any shares under
outstanding awards under the 1993 Plan which are forfeited,
settled in cash, expired, cancelled or otherwise become
available to the Company. At January 29, 2011, there were
3,703,520 shares available for future grant under the 2003
Plan.
Restated
Directors Stock Plan, as amended
The Companys Restated Directors Stock Plan, as amended
(the Directors Plan) provides for grants of stock
options and restricted stock units (RSUs) to
non-management members of the Companys Board of Directors.
During fiscal years 2010, 2009 and 2008, the Company granted
74,985, 21,000 and 84,000 stock options to non-management
directors. The 2010 and 2009 grants vest over a three-year
period and expire no later than ten years from the date of
grant. The 2008 grants vest on the last day of fiscal year 2012,
with possible acceleration for certain levels of Talbots stock
performance, and expire no later than ten years from the date of
grant.
The Company granted 18,410 RSUs in fiscal year 2010 and 28,000
RSUs annually in fiscal years 2009 and 2008 to non-management
directors. These RSUs generally vest over one year, and may be
mandatorily or electively deferred, in which case the RSUs will
be issued as common stock to the holder upon departing from the
Board, but not before vesting. If the RSUs are not deferred, the
RSUs will be issued as common stock upon vesting. Holders of
RSUs are entitled to dividends equivalent to those paid on
common stock, when and if declared and paid, but have no voting
rights.
The number of shares reserved for issuance under the Directors
Plan is 1,060,000. At January 29, 2011, 289,121 shares
were available for future grant.
The Company intends to issue shares upon exercises of stock
options and future issuances of share-based awards from its
unissued reserved shares under its 2003 Plan and Directors Plan.
Stock-Based
Compensation Expense
Total stock-based compensation expense related to stock options,
nonvested stock awards and RSUs is $14.5 million,
$6.4 million and $8.6 million in fiscal years 2010,
2009 and 2008, respectively.
The compensation expense is classified in the consolidated
statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cost of sales, buying and occupancy
|
|
$
|
800
|
|
|
$
|
692
|
|
|
$
|
(129
|
)
|
Selling, general and administrative
|
|
|
9,341
|
|
|
|
6,570
|
|
|
|
10,861
|
|
Merger-related costs
|
|
|
4,346
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
(26
|
)
|
|
|
(839
|
)
|
|
|
(2,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,461
|
|
|
$
|
6,423
|
|
|
$
|
8,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to greater than expected terminations, the Company revised
its forfeiture rates in fiscal years 2009 and 2008 and
recognized reductions in stock-based compensation expense of
$2.1 million and $4.3 million, respectively.
Stock-based compensation expense in fiscal year 2008 includes
$0.9 million of additional expense due to accelerated
vesting of stock awards as a result of terminations, primarily
in connection with restructuring activities.
No income tax benefit is recognized for stock-based compensation
in the periods presented. Further, no benefit from tax
deductions in excess of recognized compensation costs is
reported as cash from financing activities in the periods
presented. Excess tax benefits are only recognized when realized
through a reduction in taxes payable.
F-18
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Options
The Company uses the Black-Scholes option-pricing model to
measure the fair value of stock option awards on the date of
grant. Key assumptions used to apply this pricing model are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Risk-free interest rate
|
|
|
3.1%
|
|
|
|
2.0%
|
|
|
|
2.6%
|
|
Expected life of options
|
|
|
6.8 years
|
|
|
|
4.8 years
|
|
|
|
5.3 years
|
|
Expected volatility of underlying stock
|
|
|
79.7%
|
|
|
|
83.9%
|
|
|
|
50.8%
|
|
Expected dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
7.8%
|
|
The risk-free interest rate represents the implied yield
available on U.S. Treasury zero-coupon bond issues with a
term approximately equal to the expected life of the option. The
expected life of the option is calculated based on the
Companys historical experience for a corresponding
population of option holders. The increase in the average
expected life of options awarded in fiscal year 2010 is
reflective of the fact that the majority of option awards in
fiscal 2010 were granted to members of the Companys Board
of Directors for which options have historically had longer
lives than employee options. The expected volatility is
calculated based on the Companys historical volatility
over a period that matches the expected life of the option. The
expected dividend yield is based on the expected annual payment
of dividends divided by the exercise price of the option award
at the date of the award. The expected dividend yield of 0.0% in
fiscal years 2010 and 2009 is reflective of the Companys
decision in February 2009 to indefinitely suspend its quarterly
dividend. In determining the assumptions to be used, when the
Company has relied on historical data or trends, the Company has
also considered, if applicable, any expected future trends that
could differ from historical results and has modified its
assumptions as applicable.
The following is a summary of stock option activity for fiscal
year 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
|
|
|
(240,512
|
)
|
|
|
3.13
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(3,138,251
|
)
|
|
|
22.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 29, 2011
|
|
|
7,115,641
|
|
|
$
|
25.17
|
|
|
|
3.1
|
|
|
$
|
4,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 29, 2011
|
|
|
5,918,848
|
|
|
$
|
29.29
|
|
|
|
2.1
|
|
|
$
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal years 2010, 2009 and 2008, the Company granted
92,385, 1,784,500 and 628,650 stock options, with a weighted
average fair value per option of $10.40, $1.75 and $2.84,
respectively. The total grant date fair value of options that
vested during fiscal years 2010, 2009 and 2008 is
$2.7 million, $3.4 million and $10.6 million,
respectively. The aggregate intrinsic value of stock options
exercised during fiscal years 2010, 2009 and 2008 is
$1.9 million, $0.0 million and $0.1 million,
respectively.
As of January 29, 2011, there was $1.5 million of
unrecognized compensation cost related to stock options that are
expected to vest. These costs are expected to be recognized over
a weighted average period of 1.6 years.
Nonvested
Stock Awards and RSUs
The fair value of nonvested stock awards and RSUs is based on
the closing market price of the Companys common stock on
the date of grant.
F-19
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of nonvested stock awards and RSU
activity for fiscal year 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Number of
|
|
|
Date Fair Value
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Nonvested at January 30, 2010
|
|
|
1,330,890
|
|
|
$
|
12.62
|
|
Granted
|
|
|
1,789,701
|
|
|
|
11.63
|
|
Vested
|
|
|
(564,648
|
)
|
|
|
15.54
|
|
Forfeited
|
|
|
(188,729
|
)
|
|
|
10.95
|
|
|
|
|
|
|
|
|
|
|
Nonvested at January 29, 2011
|
|
|
2,367,214
|
|
|
$
|
11.34
|
|
|
|
|
|
|
|
|
|
|
During fiscal years 2010, 2009 and 2008, the Company granted
1,789,701, 369,689 and 1,318,415 shares of nonvested stock
and RSUs with a weighted average fair value per share of $11.63,
$3.04 and $9.05, respectively. The intrinsic value of nonvested
stock awards and RSUs that vested during fiscal years 2010, 2009
and 2008 is $5.9 million, $1.8 million and
$4.3 million, respectively.
As of January 29, 2011, there was $11.3 million of
unrecognized compensation cost related to nonvested stock awards
and RSUs that are expected to vest. These costs are expected to
be recognized over a weighted average period of 1.8 years.
The components of income (loss) before taxes for fiscal years
2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Domestic
|
|
$
|
12,625
|
|
|
$
|
(35,089
|
)
|
|
$
|
(118,749
|
)
|
Foreign
|
|
|
(16
|
)
|
|
|
(1,724
|
)
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
$
|
12,609
|
|
|
$
|
(36,813
|
)
|
|
$
|
(118,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) for fiscal years 2010, 2009 and
2008 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Current expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(2,006
|
)
|
|
$
|
(24,104
|
)
|
State
|
|
|
3,856
|
|
|
|
4,665
|
|
|
|
398
|
|
Foreign
|
|
|
26
|
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense (benefit)
|
|
|
3,882
|
|
|
|
351
|
|
|
|
(23,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,012
|
|
|
|
(10,543
|
)
|
|
|
42,651
|
|
State
|
|
|
145
|
|
|
|
(1,313
|
)
|
|
|
1,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred (benefit) expense
|
|
|
1,157
|
|
|
|
(11,856
|
)
|
|
|
44,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
5,039
|
|
|
$
|
(11,505
|
)
|
|
$
|
20,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of income tax expense (benefit) at the federal
statutory income tax rate to the income tax expense (benefit) at
the Companys effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Tax at federal statutory rate
|
|
$
|
4,413
|
|
|
$
|
(12,885
|
)
|
|
$
|
(41,538
|
)
|
Adjustments resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax benefit
|
|
|
1,448
|
|
|
|
3,402
|
|
|
|
(706
|
)
|
Foreign tax
|
|
|
32
|
|
|
|
(1,704
|
)
|
|
|
(361
|
)
|
Valuation allowance
|
|
|
(9,952
|
)
|
|
|
6,447
|
|
|
|
60,975
|
|
Employment related obligations
|
|
|
1,081
|
|
|
|
1,354
|
|
|
|
2,541
|
|
Merger-related costs
|
|
|
6,972
|
|
|
|
2,800
|
|
|
|
|
|
Intraperiod tax allocation from other comprehensive income
|
|
|
1,157
|
|
|
|
(10,500
|
)
|
|
|
|
|
In-kind donations
|
|
|
|
|
|
|
|
|
|
|
(1,138
|
)
|
Other
|
|
|
(112
|
)
|
|
|
(419
|
)
|
|
|
1,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
5,039
|
|
|
$
|
(11,505
|
)
|
|
$
|
20,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2009, the Companys decision to discontinue
future benefits being earned under its non-contributory defined
benefit pension plan and supplemental executive retirement plan
resulted in the recognition of other comprehensive income with a
corresponding tax expense of $10.5 million. This expense
was offset in the intraperiod tax allocation by an allocated tax
benefit recognized in the income tax benefit of continuing
operations in 2009.
F-21
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred
tax assets (liabilities)
Net deferred tax assets (liabilities) recognized in the
Companys consolidated balance sheets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Merchandise inventories
|
|
$
|
4,508
|
|
|
$
|
11,993
|
|
Deferred rent
|
|
|
14,614
|
|
|
|
18,787
|
|
Lease commitments
|
|
|
22,816
|
|
|
|
27,184
|
|
Accrued vacation pay
|
|
|
26
|
|
|
|
65
|
|
Deferred compensation
|
|
|
2,942
|
|
|
|
5,543
|
|
Stock-based compensation
|
|
|
13,138
|
|
|
|
10,863
|
|
Pension and postretirement liabilities
|
|
|
29,238
|
|
|
|
32,416
|
|
Charitable contribution carryforward
|
|
|
5,877
|
|
|
|
6,755
|
|
Net operating loss carryforwards
|
|
|
42,982
|
|
|
|
54,271
|
|
Deferred interest
|
|
|
|
|
|
|
7,172
|
|
Deferred unrecognized tax benefits
|
|
|
21,773
|
|
|
|
24,001
|
|
Restructuring charges
|
|
|
1,405
|
|
|
|
3,242
|
|
Bad debts
|
|
|
1,760
|
|
|
|
1,995
|
|
Accrued expenses
|
|
|
11,904
|
|
|
|
8,611
|
|
Other
|
|
|
6,208
|
|
|
|
1,968
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
179,191
|
|
|
|
214,866
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid costs
|
|
|
(2,187
|
)
|
|
|
(2,728
|
)
|
Depreciation and amortization
|
|
|
(2,938
|
)
|
|
|
(11,890
|
)
|
Identifiable intangibles
|
|
|
(28,456
|
)
|
|
|
(28,456
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(33,581
|
)
|
|
|
(43,074
|
)
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(174,066
|
)
|
|
|
(200,248
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(28,456
|
)
|
|
$
|
(28,456
|
)
|
|
|
|
|
|
|
|
|
|
In 2008, the Company concluded there was insufficient positive
evidence that all of its deferred tax assets would be realized
in the future and, accordingly, the Company recorded a valuation
allowance of $211.7 million, comprised of
$61.0 million related to continuing operations,
$21.3 million related to other comprehensive loss and
$129.4 million related to discontinued operations. The
sources of income considered in analyzing the expected recovery
of the Companys net deferred tax assets, for purposes of
determining the valuation allowance, exclude deferred tax
liabilities related to the Talbots brand trademarks. During
fiscal years 2009 and 2010, the Company continued to evaluate
the expected recoverability of its net deferred tax assets and
determined that there continued to be insufficient positive
evidence to support their recovery, concluding it is
more-likely-than-not that its net deferred tax assets would not
be realized in the future. As of January 29, 2011 and
January 30, 2010, the Company provided valuation allowances
of $174.1 million and $200.2 million, respectively for
its net deferred tax assets.
As of January 29, 2011, the Company has approximately
$100.7 million of gross domestic net operating loss
carryforwards that will reduce future taxable income. The
federal and state tax effected net operating loss was
approximately $34.5 million and $8.4 million,
respectively. The utilization of the Companys NOLs is
subject to
F-22
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
limitation under Section 382 of the Internal Revenue Code
which imposes limitations on the use of a companys net
operating losses following certain, defined levels of ownership
change. It was determined that an ownership change, as defined
in Section 382, occurred in fiscal 2010 as a result of the
BPW Transactions and, consequently, the Companys
utilization of $75.3 million of pre-ownership change gross
net operating loss carryforwards will be limited. The annual
limitation is estimated to be $30.1 million based on the
fair market value of the Company immediately before the
ownership change. The Company had a net unrealized
built-in gain as of the ownership change. Accordingly, any
built-in gains recognized during the five year period beginning
on the date of the ownership change (up to the amount of the
original net unrealized built-in gain) will increase the annual
limitation under Section 382 in the year recognized.
Pursuant to Section 382, subsequent ownership changes could
further limit this amount. Refer to Note 3,
Merger with
BPW Acquisition Corp. and Related Transactions
, for further
information regarding this transaction.
The gross net operating loss carryforwards do not include
approximately $3.0 million of excess tax benefits from the
exercises of employee stock options that are a component of net
operating losses. Total stockholders equity (deficit)
would be increased by approximately $1.2 million if and
when any such excess tax benefits are ultimately realized. The
net operating loss for federal income tax purposes will expire
in 2028 through 2031. The state net operating loss carryforwards
will expire in 2012 through 2031. In addition, the Company has
charitable contribution carryforwards that begin to expire in
2012.
Uncertain
tax positions
The following table summarizes the activity related to the
Companys gross unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Unrecognized tax benefits, beginning of year
|
|
$
|
35,030
|
|
|
$
|
38,520
|
|
|
$
|
37,908
|
|
Gross increases tax positions of prior periods
|
|
|
5,454
|
|
|
|
7,666
|
|
|
|
3,704
|
|
Gross decreases tax positions of prior periods
|
|
|
(7,310
|
)
|
|
|
(1,946
|
)
|
|
|
(2,243
|
)
|
Gross increases tax positions of current periods
|
|
|
20,025
|
|
|
|
293
|
|
|
|
1,597
|
|
Settlements with taxing authorities
|
|
|
(836
|
)
|
|
|
(7,979
|
)
|
|
|
(2,166
|
)
|
Lapse of statute of limitations
|
|
|
(443
|
)
|
|
|
(1,524
|
)
|
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, end of year
|
|
$
|
51,920
|
|
|
$
|
35,030
|
|
|
$
|
38,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had gross unrecognized tax benefits of approximately
$51.9 million, $35.0 million and $38.5 million as
of January 29, 2011, January 30, 2010 and
January 31, 2009, respectively, of which
$25.6 million, $25.7 million and $33.5 million,
respectively, if recognized, would impact the effective income
tax rate. The Company had accrued $23.2 million and
$20.0 million of tax-related interest and $1.8 million
and $2.6 million of tax-related penalties as of
January 29, 2011 and January 30, 2010, respectively.
During fiscal years 2010, 2009 and 2008, the Company recorded
tax-related interest expense of $6.0 million,
$1.9 million and $2.3 million, respectively, and
tax-related penalty (benefit) expense of ($0.8) million,
($1.6) million and $1.0 million, respectively. As a
result of the BPW Transactions, the Company recorded an increase
in its unrecognized tax benefits of approximately
$20.0 million that reduced a portion of the Companys
net deferred tax assets before consideration of any valuation
allowance. The Company submitted a Private Letter Ruling request
related to this tax position during fiscal 2010 which was
granted subsequent to year-end. As a result of this favorable
outcome, the Company expects to record a decrease in its
unrecognized tax benefits of approximately $20.0 million in
fiscal 2011 which will increase the Companys net deferred
tax assets before consideration of any valuation allowance.
The Company is subject to U.S. federal income tax as well
as income tax in multiple state and foreign jurisdictions and is
consequently subject to periodic audits of its various tax
returns by government agencies. The Company has closed all
U.S. federal income tax matters for years through 2005. The
tax years ended February 3, 2007 through
F-23
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 31, 2009 are currently under U.S. federal
examination. Additionally, tax years beginning in 1993 currently
remain open to examination and are subject to examination by
various state and foreign taxing jurisdictions.
|
|
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 on
July 2, 2009. The operating results of these businesses
have been classified as discontinued operations in the
consolidated statements of operations for all periods presented,
and the cash flows from discontinued operations, including
proceeds from the sale of J. Jill, have been separately
presented in the consolidated statements of cash flows.
On July 2, 2009, the Company 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 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 and executing a
sublease with the Company for a portion of the Quincy,
Massachusetts office space previously used for the J. Jill
business. The 75 J. Jill stores that were not sold were closed.
As of January 29, 2011, the Company had settled the lease
liabilities of 73 of the 75 stores not acquired by the Purchaser
as well as a portion of the vacant Quincy, Massachusetts office
space.
At the time of closing or vacating leased spaces associated with
discontinued operations, the Company records estimated lease
termination costs which include the discounted effects of future
minimum lease payments from the date of closure to the end of
the remaining lease term, net of estimated sublease income that
could be reasonably obtained for the properties, or through
lease termination settlements. As of January 29, 2011, the
Company had recorded lease liabilities for the two remaining
leases for former J. Jill stores, the remaining portion of the
Quincy office space and six remaining leases for former Talbots
Kids and Mens stores that have not been assigned or settled. The
Company remains contingently liable for obligations and
liabilities transferred to certain third parties, including the
remaining 203 J. Jill leases of the 205 J. Jill leases
originally assigned to the Purchaser as well as certain assigned
leases related to the closed Talbots Kids, Mens and U.K.
businesses and has recorded a liability of estimated exposure
related to these contingent lease liabilities. The Company
records adjustments to its estimated lease liabilities when new
information suggests that actual costs may vary from initial or
previous estimates, resulting in changes to the income (loss)
from discontinued operations. Total cash expenditures related to
any of these lease liabilities will depend on either the
performance under the assigned leases by third parties or
outcome of negotiations with third parties. As a result, actual
costs related to these leases may vary from current estimates;
and managements assumptions and projections may continue
to change. Refer to Note 16,
Commitments and
Contingencies
, for further discussion of discontinued
operations lease liabilities.
At January 30, 2010, the Company had remaining recorded
lease liabilities from discontinued operations of
$16.7 million. During fiscal 2010, the Company made cash
payments of approximately $8.3 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
$6.3 million as of January 29, 2011. Of these
liabilities, approximately $3.2 million is expected to be
paid out within the next 12 months and is included within
accrued liabilities as of January 29, 2011.
F-24
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of discontinued operations for fiscal years 2010,
2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
178,297
|
|
|
$
|
470,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(210
|
)
|
|
|
(3,818
|
)
|
|
|
(416,138
|
)
|
Gain (loss) on disposal
|
|
|
3,455
|
|
|
|
(286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
3,245
|
|
|
$
|
(4,104
|
)
|
|
$
|
(416,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $3.2 million income from discontinued operations
recorded in fiscal 2010 includes a $0.2 million loss from
operations and a $3.4 million adjustment to the gain (loss)
on disposal of the J. Jill business. The loss from operations
includes on-going liability adjustments primarily related to the
Talbots Kids and Mens businesses. The adjustment to the gain
(loss) on disposal includes approximately $2.4 million of
favorable adjustments to estimated lease liabilities, due to the
settlement of a portion of the vacant Quincy office space and
four J. Jill store leases not assumed by the Purchaser in the
sale of J. Jill; approximately $0.9 million of favorable
adjustments to other assets and $0.4 million of favorable
adjustments to estimated sales tax liabilities, partially offset
by $0.3 million of accretion of existing lease and other
liabilities.
The $4.1 million loss from discontinued operations recorded
in fiscal 2009 includes a $3.8 million loss from
operations, primarily due to adjustments to estimated lease
liabilities relating to the Talbots Kids and Mens businesses and
losses incurred by the J. Jill business prior to ceasing
operations in July 2009, and a $0.3 million loss on the
sale and disposal of the J. Jill business.
The $416.1 million loss from discontinued operations
recorded in fiscal 2008 includes a $318.4 million
impairment charge to the assets of the J. Jill business, the
recording of estimated lease liabilities of the Talbots Kids,
Mens and U.K. businesses upon ceasing operations and the income
(losses) incurred by the J. Jill business as well as the Talbots
Kids, Mens and U.K. businesses prior to ceasing operations. The
$318.4 million impairment charge reflected the difference
between J. Jills carrying value and its estimated fair
value, including an estimate of direct costs to sell of
$1.9 million. Management used a combination of an income
approach and a market approach to determine the fair value of
the J. Jill long-lived asset group, which included the related
goodwill. In determining fair value, the Company made
assumptions and estimates including the use of forward-looking
projections to estimate the future operating results of the J.
Jill business, while also considering current market conditions.
Of the $318.4 million impairment charge recorded in fiscal
2008, the Company allocated $78.0 million of the charge to
goodwill, reflecting a full impairment of the J. Jill goodwill,
$68.9 million to other intangibles, $138.2 million to
property, plant, and equipment, and $33.3 million to
trademarks. The Company estimated the fair value of the J. Jill
trademarks based on an income approach using the
relief-from-royalty method.
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 taxes would be realized in
the future.
|
|
8.
|
Earnings
(Loss) Per Share
|
As described in Note 2,
Summary of Significant
Accounting Policies
, the Company computes basic and diluted
earnings (loss) per share using a methodology which gives affect
to the impact of outstanding participating securities (the
two-class method).
F-25
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basic and diluted earnings (loss) per share from continuing
operations are computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
7,570
|
|
|
$
|
(25,308
|
)
|
|
$
|
(139,521
|
)
|
Less: income associated with participating securities
|
|
|
223
|
|
|
|
|
|
|
|
|
|
Less: dividends paid to participating securities
|
|
|
|
|
|
|
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available for common stockholders
|
|
$
|
7,347
|
|
|
$
|
(25,308
|
)
|
|
$
|
(140,371
|
)
|
Weighted average shares outstanding
|
|
|
65,790
|
|
|
|
53,797
|
|
|
|
53,436
|
|
Basic earnings (loss) per share continuing operations
|
|
$
|
0.11
|
|
|
$
|
(0.47
|
)
|
|
$
|
(2.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
7,570
|
|
|
$
|
(25,308
|
)
|
|
$
|
(139,521
|
)
|
Less: income associated with participating securities
|
|
|
219
|
|
|
|
|
|
|
|
|
|
Less: dividends paid to participating securities
|
|
|
|
|
|
|
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available for common stockholders
|
|
$
|
7,351
|
|
|
$
|
(25,308
|
)
|
|
$
|
(140,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
65,790
|
|
|
|
53,797
|
|
|
|
53,436
|
|
Effect of dilutive securities
|
|
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
66,844
|
|
|
|
53,797
|
|
|
|
53,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share continuing
operations
|
|
$
|
0.11
|
|
|
$
|
(0.47
|
)
|
|
$
|
(2.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following common stock equivalents were excluded from the
calculation of earnings (loss) per share because their inclusion
would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Nonvested stock
|
|
|
|
|
|
|
1,200,890
|
|
|
|
1,895,660
|
|
Nonvested director RSUs
|
|
|
|
|
|
|
28,000
|
|
|
|
28,000
|
|
Stock options
|
|
|
5,863,356
|
|
|
|
10,409,219
|
|
|
|
9,480,355
|
|
Warrants
|
|
|
18,242,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,106,106
|
|
|
|
11,638,109
|
|
|
|
11,404,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Fair
Value Measurements
|
As discussed in Note 2,
Summary of Significant
Accounting Policies
, the Company classifies fair value based
measurements using a three-level hierarchy that prioritizes the
inputs used to measure fair value.
The Companys financial instruments at January 29,
2011 and January 30, 2010 consisted 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
F-26
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 its debt
approximates fair value at January 29, 2011 as the interest
rates are market-based variable rates and were re-set with the
third party lenders during the third quarter of 2010.
The Company monitors the performance and productivity of its
store portfolio and closes stores when appropriate. When it is
determined that a store is underperforming or is to be closed,
the Company reassesses the recoverability of the stores
long-lived assets, which in some cases results in an impairment
charge. In fiscal 2010, the Company performed impairment
analyses on the assets of certain stores, triggered both by
reviews of the stores operating results as well as by the
Companys expectation to close certain store locations. In
fiscal 2009, the Company performed impairment analyses on the
assets of certain stores, primarily triggered by reviews of the
stores operating results. The following table summarizes
the non-financial assets that were measured at fair value on a
non-recurring basis in performing these analyses for the fiscal
years ended January 29, 2011 and January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Observable
|
|
|
|
|
|
|
|
|
|
Net Carrying
|
|
|
Prices in Active
|
|
|
Inputs Other
|
|
|
Significant
|
|
|
Impairment of
|
|
|
|
Value at
|
|
|
Markets for
|
|
|
than Quoted
|
|
|
Unobservable
|
|
|
Store Assets, Fiscal
|
|
|
|
January 29,
|
|
|
Identical Assets
|
|
|
Market Prices
|
|
|
Inputs
|
|
|
Year Ended
|
|
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
January 29, 2011
|
|
|
|
(In thousands)
|
|
|
Long-lived assets held and used
|
|
$
|
1,904
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,904
|
|
|
$
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,904
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,904
|
|
|
$
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Observable
|
|
|
|
|
|
|
|
|
|
Net Carrying
|
|
|
Prices in Active
|
|
|
Inputs Other
|
|
|
Significant
|
|
|
Impairment of
|
|
|
|
Value at
|
|
|
Markets for
|
|
|
than Quoted
|
|
|
Unobservable
|
|
|
Store Assets, Fiscal
|
|
|
|
January 30,
|
|
|
Identical Assets
|
|
|
Market Prices
|
|
|
Inputs
|
|
|
Year Ended
|
|
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
January 30, 2010
|
|
|
|
(In thousands)
|
|
|
Long-lived assets held and used
|
|
$
|
2,493
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,493
|
|
|
$
|
1,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,493
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,493
|
|
|
$
|
1,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer also to Note 15,
Benefit Plans
, for
information regarding the fair value of the Companys
Pension Plan assets.
|
|
10.
|
Customer
Accounts Receivable, net
|
Customer accounts receivable, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Customer accounts receivable
|
|
$
|
149,872
|
|
|
$
|
168,887
|
|
Less: allowance for doubtful accounts
|
|
|
(4,400
|
)
|
|
|
(5,300
|
)
|
|
|
|
|
|
|
|
|
|
Customer accounts receivable, net
|
|
$
|
145,472
|
|
|
$
|
163,587
|
|
|
|
|
|
|
|
|
|
|
F-27
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As described in Note 2,
Summary of Significant
Accounting Policies
, the allowance for doubtful accounts is
based on a calculation that includes a number of factors such as
historical collection rates, a percentage of outstanding
customer account balances, historical charge-offs and charge-off
forecasts. In determining the appropriate allowance balance, the
Company considers, among other factors, both the aging of the
past-due outstanding customer accounts receivable as well as the
credit quality of the outstanding customer accounts receivable.
As of January 29, 2011, approximately 90.4% of the
Companys total customer accounts receivable are considered
to be current; and the remaining 9.6% of balances of customer
accounts receivable that are considered to be past due are
comprised of the following: 84.5% up to 60 days past due,
10.4%
61-120 days
past due, 5.1%
121-180 days
past due. Customer accounts receivable are deemed to be
uncollectible either when they are contractually 180 days
past due or when events or circumstances, such as customer
bankruptcy, fraud or death, suggest that collection of the
amounts due under the account is unlikely. Once an account is
deemed to be uncollectible, the Company ceases to accrue
interest on the balance and the balance is written off at the
next cycle billing date. The Company ceases to accrue late fees
on a balance once the balance reaches 120 days past due.
The Company performs an on-going evaluation of the credit
quality of its outstanding customer accounts receivable, based
on the Talbots credit cardholders respective credit risk
scores. The Company utilizes an industry standard credit risk
score model as its credit quality indicator. Cardholder credit
risk score information in this analysis is updated twice per
fiscal year. At January 29, 2011, the Companys gross
customer accounts receivable were comprised of the following:
$15.2 million at a credit score of less than 600,
$38.8 million at a credit score of 601 699 and
$93.0 million at a credit score of greater than 700. The
remaining $2.9 million of gross reported customer accounts
receivable includes reconciling amounts of the most recent
days net sales not yet posted to customer accounts,
unapplied payments and the balance of Canadian customer accounts
receivable for which the Company does not maintain credit risk
score information.
Changes in the balance of the allowance for doubtful accounts
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
5,300
|
|
|
$
|
4,000
|
|
|
$
|
2,700
|
|
Charges to costs and expenses
|
|
|
3,348
|
|
|
|
8,097
|
|
|
|
5,987
|
|
Charge-offs, net of recoveries
|
|
|
(4,248
|
)
|
|
|
(6,797
|
)
|
|
|
(4,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
4,400
|
|
|
$
|
5,300
|
|
|
$
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company records finance charge income (including interest
and late fees) on the outstanding balances of its customer
accounts receivable. In fiscal years 2010, 2009 and 2008, the
Company recorded finance charge income of $39.3 million,
$42.1 million and $44.9 million, respectively. At
January 29, 2011, the Company had recorded gross customer
accounts receivable of $0.4 million which have been deemed
uncollectible and have ceased to accrue finance charge income,
and $1.2 million of gross customer accounts receivable
which are 90 days or more past due upon which finance
charge income continued to be accrued.
F-28
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Property
and Equipment, net
|
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
10,817
|
|
|
$
|
10,817
|
|
Buildings
|
|
|
69,161
|
|
|
|
69,198
|
|
Fixtures and equipment
|
|
|
367,149
|
|
|
|
375,692
|
|
Software
|
|
|
61,468
|
|
|
|
57,508
|
|
Leasehold improvements
|
|
|
296,885
|
|
|
|
307,123
|
|
Construction-in-progress
|
|
|
15,206
|
|
|
|
5,292
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
820,686
|
|
|
|
825,630
|
|
Less: accumulated depreciation and amortization
|
|
|
(634,028
|
)
|
|
|
(605,226
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
186,658
|
|
|
$
|
220,404
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense during 2010, 2009 and 2008
was $61.5 million, $74.3 million and
$84.5 million, respectively.
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Gift cards and merchandise credits outstanding, sales return
reserve and other customer-related liabilities
|
|
$
|
45,062
|
|
|
$
|
56,032
|
|
Accrued employee compensation including related tax and benefits
|
|
|
23,241
|
|
|
|
21,018
|
|
Accrued taxes, other than income and withholding
|
|
|
7,558
|
|
|
|
10,997
|
|
Accrued interest due to related party
|
|
|
|
|
|
|
6,106
|
|
Current portion of unrecognized tax benefit liability
|
|
|
18,558
|
|
|
|
4,153
|
|
Other accrued liabilities
|
|
|
43,405
|
|
|
|
49,871
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
137,824
|
|
|
$
|
148,177
|
|
|
|
|
|
|
|
|
|
|
Changes in the sales return reserve for fiscal years 2010, 2009
and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
7,250
|
|
|
$
|
4,737
|
|
|
$
|
9,486
|
|
Provision for merchandise returns
|
|
|
218,414
|
|
|
|
300,737
|
|
|
|
348,359
|
|
Merchandise returned
|
|
|
(221,982
|
)
|
|
|
(298,224
|
)
|
|
|
(353,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
3,682
|
|
|
$
|
7,250
|
|
|
$
|
4,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of outstanding debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Revolving credit facility
|
|
$
|
25,516
|
|
|
$
|
|
|
Related party debt
|
|
|
|
|
|
|
486,494
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,516
|
|
|
$
|
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 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
January 29, 2011, the Companys effective interest
rate under the Credit Facility was 3.9%, and the Company had
additional borrowing availability of up to $116.7 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
F-30
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the extent that its outstanding indebtedness under the Credit
Facility exceeds its maximum borrowing availability at any time.
Upon any voluntary or mandatory prepayment of borrowings
outstanding at the LIBOR rate on a day that is not the last day
of the respective interest period, the Company will reimburse
the lenders for any resulting loss or expense that the lenders
may incur. Amounts voluntarily repaid prior to the maturity date
may be re-borrowed.
The Company and certain of its subsidiaries have executed a
guaranty and security agreement pursuant to which all
obligations under the Credit Facility are fully and
unconditionally guaranteed on a joint and several basis.
Additionally, pursuant to the security agreement, all
obligations are secured by (i) a first priority perfected
lien and security interest in substantially all assets of the
Company and any guarantor from time to time and (ii) a
first lien mortgage on the Companys Hingham, Massachusetts
headquarters facility and Lakeville, Massachusetts distribution
facility. In connection with the lenders security interest
in the proprietary Talbots credit card program, Talbots and
certain of its subsidiaries have also executed an access and
monitoring agreement that requires the Company to comply with
certain monitoring and reporting obligations to the agent with
respect to such program, subject to applicable law.
The Company may not create, assume or suffer to exist any lien
securing indebtedness incurred after the closing date of the
Credit Facility subject to certain limited exceptions set forth
in the agreement. The Credit Facility contains negative
covenants prohibiting the Company, with certain exceptions, from
among other things, incurring indebtedness and contingent
obligations, making investments, intercompany loans and capital
contributions, declaring or making any dividend payment except
for dividend payments or distributions payable solely in stock
or stock equivalents, and disposing of property or assets. The
Company has agreed to keep the mortgaged properties in good
repair, reasonable wear and tear excepted. The agreement also
provides for events of default, including failure to repay
principal and interest when due and failure to perform or
violation of the provisions or covenants of the agreement. The
agreement does not contain any financial covenant tests.
Concurrent with the execution of the First Amendment, the
Company and the lenders entered into (a) a Master Agreement
for Documentary Letters of Credit and (b) a Master
Agreement for Standby Letters of Credit (each a Master
Agreement), pursuant to which the lenders will provide
either documentary or standby letters of credit at the request
of the Company to various beneficiaries on the terms set forth
in the applicable Master Agreement, subject to any applicable
limitations set forth in the Credit Facility.
The Credit Facility is the Companys only outstanding debt
agreement at January 29, 2011. Of the $125.0 million
borrowed under the Credit Facility at its inception,
approximately $25.5 million was outstanding at
January 29, 2011. 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 in the
consolidated balance sheet. These costs are being amortized to
interest expense over the three and one-half year life of the
facility.
At January 29, 2011, the Company had $9.1 million in
outstanding letters of credit and letter of credit availability
of up to $15.9 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
$250.0 Million Secured Revolving Loan Facility with
AEON
On December 28, 2009, the Company
executed an Amended and Restated Secured Revolving Loan
Agreement with AEON (the Amended Facility), which
amended and restated the $150.0 million secured revolving
loan facility executed with AEON in April 2009. Under the terms
of the Amended Facility, the principal amount of the earlier
$150.0 million secured credit facility was increased to
$250.0 million. Talbots could use funds borrowed under the
Amended Facility solely to (i) repay its outstanding
F-31
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
third party bank indebtedness plus interest and other costs,
(ii) fund working capital and other general corporate
purposes up to $10.0 million subject to satisfaction of all
borrowing conditions and availability under the Amended
Facility, and (iii) pay related fees and expenses
associated with the Amended Facility. The Amended Facility was
provided pursuant to AEONs April 9, 2009 financial
support commitments, which were satisfied and discharged in full
upon the December 29, 2009 funding under this Amended
Facility for the repayment of all of the Companys
outstanding third party bank indebtedness as described below.
Borrowings under the Amended Facility carried interest at a
variable rate equal to six-month LIBOR plus 6.00%. Interest was
payable monthly in arrears. At January 30, 2010, the
interest rate was 6.23%. The Amended Facility had a scheduled
maturity date of the earlier to occur of (i) April 16,
2010 or (ii) the consummation of the BPW Transactions,
provided that the merger transaction together with any
concurrent financing resulted in sufficient net cash proceeds to
enable the Company to make full repayment of its related party
debt (including under the Amended Facility).
Prior to being amended, the earlier facility was secured by
(i) a first priority security interest in substantially all
of the Companys consumer credit/charge card receivables
and (ii) a first lien mortgage on the Companys
Hingham, Massachusetts headquarters facility and Lakeville,
Massachusetts distribution facility. The Amended Facility was
secured by a lien on substantially all of the Companys
existing and after acquired assets and properties, including the
above-mentioned credit/charge card receivables and mortgaged
properties. As under the earlier facility, obligations under the
Amended Facility were unconditionally guaranteed on a joint and
several basis by certain of the Companys existing and
future direct and indirect subsidiaries.
As of December 28, 2009, the Company had outstanding
short-term indebtedness of approximately $221.0 million
under third party bank credit facilities which were scheduled to
terminate between late December 2009 and April 2010, which had
not been extended or refinanced, as well as $20.0 million
of third party bank indebtedness due in 2012. Entry into this
Amended Facility required the consent or waiver by each of the
third party bank lenders under their outstanding bank
indebtedness; because such bank lender consents or waivers were
not provided, all of the facilities under which this outstanding
bank indebtedness was provided were discharged and terminated.
On December 29, 2009, the Company borrowed
$245.0 million under the Amended Facility which was used to
repay this outstanding third party bank indebtedness, related
interest and other costs and expenses.
Under the Amended Facility, a fee of $1.7 million was due
and paid to AEON upon initial funding.
$200.0 Million Term Loan Facility with
AEON
In February 2009, the Company entered
into a $200.0 million term loan facility agreement with
AEON (AEON Loan). The funds received from the AEON
Loan were used to repay all of the outstanding indebtedness
under the Companys bridge loan agreement in connection
with the acquisition of J. Jill.
The AEON Loan was an interest-only loan until maturity.
Borrowings under the AEON Loan carried interest at a variable
rate equal to six-month LIBOR plus 6.00%. Interest was payable
semi-annually in arrears. At January 30, 2010, the interest
rate was 6.77%. No loan facility fee was payable as part of the
AEON Loan. The AEON Loan contained no financial covenants but
did contain certain restrictive covenants. The AEON Loan
initially matured on August 31, 2009. During the continuing
term of the loan, the Company had the option to extend the
maturity for additional six-month periods, up to the third
anniversary of the loan closing date, which was
February 27, 2012, subject to earlier termination under the
loan terms. The AEON Loan was subject to mandatory prepayment as
follows: (a) 50% of excess cash flow (as defined in the
agreement), (b) 100% of net cash proceeds of a sale of the
J. Jill business and 75% of net cash proceeds on any other asset
sales or dispositions, and (c) 100% of net cash proceeds of
any non-related party debt issuances and 50% of net cash
proceeds of any equity issuances (subject to such exceptions as
to debt or equity issuances as the lender may agree to). On
December 14, 2009, the Company paid the $8.5 million
of net proceeds from the sale of the J. Jill business to AEON in
accordance with the terms of the AEON Loan. As of
January 30, 2010, outstanding borrowings under the AEON
Loan totaled $191.5 million.
F-32
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Term Loan with AEON (U.S.A.)
In July
2008, the Company entered into a $50.0 million unsecured
subordinated working capital term loan credit facility with AEON
(U.S.A.) (the AEON Facility). The AEON Facility was
to mature and AEON (U.S.A.)s commitment to provide
borrowings under the AEON Facility was to expire on
January 28, 2012, unless terminated earlier under the loan
terms. Under the terms of the AEON Facility, the financing was
an unsecured general obligation of the Company. The AEON
Facility was available for use by the Company and its
subsidiaries for general working capital and other appropriate
general corporate purposes. Borrowings under the AEON Facility
carried interest at a rate equal to three-month LIBOR plus 5.0%.
At January 30, 2010, the interest rate was 5.25%. The
Company paid an upfront commitment fee of 1.5% (or
$0.8 million) to AEON (U.S.A.) at the time of execution and
closing of the AEON Facility. The Company was required to pay a
fee of 0.5% per annum on the undrawn portion of the commitment,
payable quarterly in arrears. The AEON Facility originally
included certain covenants relating to the Company and its
subsidiaries. In March 2009, an amendment was executed between
the Company and AEON (U.S.A.) to remove the financial covenants
in their entirety from the facility. As of January 30,
2010, the Company was fully borrowed under the AEON Facility.
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.
Treasury
Stock
At January 29, 2011 and January 30, 2010, the Company
held 26,985,942 shares and 26,473,073 shares,
respectively, as treasury stock. Treasury stock includes the
repurchase of shares under approved stock repurchase programs as
well as the repurchase of shares awarded under the
Companys 1993 Stock Based Incentive Plan (the 1993
Plan), the 2003 Executive Stock Based Incentive Plan, as
amended (the 2003 Plan) and the Restated Directors
Stock Plan, as amended (the Directors Plan) in
certain circumstances.
During fiscal years 2010, 2009 and 2008, the Company repurchased
168,119 shares, 148,193 shares and 158,314 shares
of its common stock, respectively, from employees to cover
minimum statutory tax withholding obligations associated with
the vesting of common stock awarded under the 2003 Plan. The
shares are repurchased and recorded as treasury stock at the
closing market price of the Companys common stock on the
date of purchase. The average purchase price paid per share in
these transactions in fiscal years 2010, 2009 and 2008 was
$12.07, $3.71 and $9.46, respectively.
The Company also repurchased 169,750 nonvested common shares,
575,725 nonvested common shares and 757,175 nonvested common
shares at $0.01 per share in fiscal years 2010, 2009 and 2008,
respectively, which were forfeited by employee holders upon
termination of employment, as permitted under the Companys
equity compensation plans, at a purchase price of $0.01 per
share.
In 2010, the Company also received 175,000 common shares from
Perella Weinberg Partners LP in connection with the settlement
of
Campbell v. The Talbots, Inc., et al.
, which are
being held in treasury stock. Refer to Note 3,
Merger
with BPW Acquisition Corp. and Related Transactions
, for
additional information regarding this transaction.
No shares were repurchased under any announced or approved
repurchase programs in fiscal years 2010, 2009 or 2008. Further,
the Company did not have any shares available to be repurchased
under any announced or approved repurchase programs or
authorizations as of January 29, 2011.
F-33
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Dividends
In February 2009, the Company announced that its Board of
Directors approved the indefinite suspension of the
Companys cash dividends in an effort to improve its
liquidity position. Accordingly, no dividends were declared or
paid in fiscal 2010 or fiscal 2009. The Company declared and
paid a dividend of $0.52 per share in fiscal 2008.
Additional
Equity Transactions
The Company recorded additional equity transactions in fiscal
2010 related to the execution of the BPW Transactions, including
the issuance of common stock and warrants, the repurchase and
retirement of common stock held by AEON (U.S.A.) and the
extinguishment of related party debt. Refer to Note 3,
Merger with BPW Acquisition Corp. and Related
Transactions
, for additional information regarding these
transactions.
Pension
Plan
The Company sponsors a non-contributory defined benefit pension
plan (the Pension Plan) covering substantially all
Talbots brand and shared service salaried and hourly employees
in the U.S. hired on or before December 31, 2007.
Eligible employees were enrolled in the Pension Plan after one
year of service (with at least 1,000 hours worked) and
reaching age 21. Benefits for eligible employees vest over
five years. The benefit formula for salaried and hourly
corporate employees is a final average pay benefit formula and
the benefit formula for store employees is a career pay formula.
In February 2009, the Company announced its decision to
discontinue future benefits being earned under the Pension Plan
effective May 1, 2009, and accordingly, participant benefit
accruals and additional years of credited service ceased as of
May 1, 2009. Hours of service will continue to be taken
into account for purposes of vesting and eligibility for early
retirement benefits under the Pension Plan.
Supplemental
Executive Retirement Plans
The Company has two unfunded, non-qualified supplemental
executive retirement plans (collectively, the SERP)
for certain Talbots key executives impacted by Internal Revenue
Code limits on benefits and certain current and former key
executives who defer compensation into the Companys
deferred compensation plan. In February 2009, the Company
announced its decision to discontinue future benefits being
earned under the SERP effective May 1, 2009. Under the
Chief Executive Officers original employment agreement
entered into upon her 2007 hiring, the CEO had a contractual
right to an equivalent replacement benefit in the event of a
material reduction or termination of the SERP. Due to the
decision to discontinue future benefits being earned under the
SERP, the Company paid $1.2 million to the CEO during 2009
to satisfy its contractual obligation.
Postretirement
Medical Plans
Retirees of the Company are eligible for certain limited
postretirement health care benefits (Postretirement
Medical Plan) if they have met certain service and minimum
age requirements. Under the Postretirement Medical Plan,
participants historically paid an amount which was less than the
actuarial cost to the Company; however the amounts charged to
the participants have been gradually increased over the years
and, as of January 2011, the Postretirement Medical Plan is
completely self-funded.
Three current and former executive officers of the Company
participate in a separate executive postretirement medical plan
(Executive Postretirement Medical Plan). Under the
Executive Postretirement Medical Plan, the participants and
their eligible dependents are not required to pay deductible or
co-pay amounts or contribute toward insurance premiums. Each of
the participants and their spouses will continue to be covered
under this plan upon retirement for life.
F-34
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Postretirement Medical Plan and the Executive Postretirement
Medical Plan are collectively referred to as the
Postretirement Medical Plans. The benefit costs
under these plans are accrued during the years in which the
employees provide service. The plans are not funded.
Plan
Remeasurements
As a result of the decision in February 2009 to discontinue
future benefits being earned under the Pension Plan and the SERP
effective May 1, 2009, the assets and liabilities under
these 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, in 2009 and an increase to other
comprehensive income of $15.2 million and
$1.2 million, net of tax, respectively.
The following table sets forth the changes in the benefit
obligations and assets of the plans as of January 29, 2011
and January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Medical
|
|
|
|
Pension Plan
|
|
|
SERP
|
|
|
Plans
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations at beginning of year
|
|
$
|
155,757
|
|
|
$
|
161,398
|
|
|
$
|
20,063
|
|
|
$
|
19,179
|
|
|
$
|
1,257
|
|
|
$
|
1,235
|
|
Interest cost
|
|
|
9,421
|
|
|
|
9,009
|
|
|
|
1,129
|
|
|
|
1,165
|
|
|
|
63
|
|
|
|
74
|
|
Actuarial loss
|
|
|
6,721
|
|
|
|
14,725
|
|
|
|
2,359
|
|
|
|
3,415
|
|
|
|
203
|
|
|
|
64
|
|
Curtailment / settlement
|
|
|
|
|
|
|
(25,359
|
)
|
|
|
|
|
|
|
(2,035
|
)
|
|
|
(37
|
)
|
|
|
|
|
Benefits paid
|
|
|
(5,207
|
)
|
|
|
(4,016
|
)
|
|
|
(1,642
|
)
|
|
|
(1,661
|
)
|
|
|
(89
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations at end of year
|
|
$
|
166,692
|
|
|
$
|
155,757
|
|
|
$
|
21,909
|
|
|
$
|
20,063
|
|
|
$
|
1,397
|
|
|
$
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at beginning of year
|
|
$
|
97,233
|
|
|
$
|
73,070
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
17,836
|
|
|
|
24,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
4,610
|
|
|
|
4,116
|
|
|
|
1,642
|
|
|
|
1,661
|
|
|
|
89
|
|
|
|
116
|
|
Benefits paid
|
|
|
(5,207
|
)
|
|
|
(4,016
|
)
|
|
|
(1,642
|
)
|
|
|
(1,661
|
)
|
|
|
(89
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at end of year
|
|
$
|
114,472
|
|
|
$
|
97,233
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the funded status of the plans
and the amounts recognized in the Companys consolidated
balance sheets as of January 29, 2011 and January 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plan
|
|
|
SERP
|
|
|
Medical Plans
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Funded status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations in excess of plan assets
|
|
$
|
52,220
|
|
|
$
|
58,524
|
|
|
$
|
21,909
|
|
|
$
|
20,063
|
|
|
$
|
1,397
|
|
|
$
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized in the consolidated balance sheet:
|
|
$
|
52,220
|
|
|
$
|
58,524
|
|
|
$
|
21,909
|
|
|
$
|
20,063
|
|
|
$
|
1,397
|
|
|
$
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized in the consolidated balance sheet
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities (current)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,650
|
|
|
$
|
1,450
|
|
|
$
|
|
|
|
$
|
33
|
|
Other liabilities (non-current)
|
|
|
52,220
|
|
|
|
58,524
|
|
|
|
20,259
|
|
|
|
18,613
|
|
|
|
1,397
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized in the consolidated balance sheets
|
|
$
|
52,220
|
|
|
$
|
58,524
|
|
|
$
|
21,909
|
|
|
$
|
20,063
|
|
|
$
|
1,397
|
|
|
$
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized in accumulated other comprehensive
loss consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
48,186
|
|
|
$
|
50,233
|
|
|
$
|
3,525
|
|
|
$
|
1,234
|
|
|
$
|
|
|
|
$
|
114
|
|
Prior service credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized in accumulated other comprehensive loss
|
|
$
|
48,186
|
|
|
$
|
50,233
|
|
|
$
|
3,525
|
|
|
$
|
1,234
|
|
|
$
|
|
|
|
$
|
(518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for
the Pension Plan and SERP as of January 29, 2011 and
January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
SERP
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Projected benefit obligation
|
|
$
|
166,692
|
|
|
$
|
155,757
|
|
|
$
|
21,909
|
|
|
$
|
20,063
|
|
Accumulated benefit obligation
|
|
$
|
166,692
|
|
|
$
|
155,757
|
|
|
$
|
21,909
|
|
|
$
|
20,063
|
|
Fair value of plan assets
|
|
$
|
114,472
|
|
|
$
|
97,233
|
|
|
$
|
|
|
|
$
|
|
|
F-36
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net pension expense for the Pension Plan for
fiscal years 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Service expense benefits earned during the period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,494
|
|
Interest expense on projected benefit obligation
|
|
|
9,421
|
|
|
|
9,009
|
|
|
|
9,636
|
|
Expected return on plan assets
|
|
|
(9,588
|
)
|
|
|
(7,474
|
)
|
|
|
(10,263
|
)
|
Curtailment loss
|
|
|
|
|
|
|
124
|
|
|
|
17
|
|
Prior service cost net amortization
|
|
|
|
|
|
|
5
|
|
|
|
69
|
|
Net amortization and deferral
|
|
|
521
|
|
|
|
978
|
|
|
|
1,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension expense
|
|
$
|
354
|
|
|
$
|
2,642
|
|
|
$
|
10,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net SERP expense for fiscal years 2010, 2009
and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Service expense benefits earned during the period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
398
|
|
Interest expense on projected benefit obligation
|
|
|
1,129
|
|
|
|
1,165
|
|
|
|
1,270
|
|
Curtailment (gain) loss
|
|
|
|
|
|
|
(451
|
)
|
|
|
15
|
|
Prior service cost net amortization
|
|
|
|
|
|
|
2
|
|
|
|
26
|
|
Net amortization and deferral
|
|
|
68
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net SERP expense
|
|
$
|
1,197
|
|
|
$
|
716
|
|
|
$
|
1,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net postretirement medical expense (credit)
for fiscal years 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Service expense benefits earned during the period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
Interest expense on accumulated postretirement benefit obligation
|
|
|
63
|
|
|
|
74
|
|
|
|
70
|
|
Settlement / curtailment gain
|
|
|
(687
|
)
|
|
|
(442
|
)
|
|
|
|
|
Prior service cost net amortization
|
|
|
(1,393
|
)
|
|
|
(1,519
|
)
|
|
|
(1,696
|
)
|
Net amortization and deferral
|
|
|
571
|
|
|
|
555
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net postretirement medical credit
|
|
$
|
(1,446
|
)
|
|
$
|
(1,332
|
)
|
|
$
|
(992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components recognized in other comprehensive (income) loss
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plan
|
|
|
SERP
|
|
|
Medical Plans
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Net (gain) loss
|
|
$
|
(2,047
|
)
|
|
$
|
(16,890
|
)
|
|
$
|
2,291
|
|
|
$
|
1,111
|
|
|
$
|
(114
|
)
|
|
$
|
(294
|
)
|
Prior service (credit) cost
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
632
|
|
|
|
1,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive (income) loss
|
|
|
(2,047
|
)
|
|
|
(16,968
|
)
|
|
|
2,291
|
|
|
|
1,098
|
|
|
|
518
|
|
|
|
883
|
|
Total expense (credit)
|
|
|
354
|
|
|
|
2,642
|
|
|
|
1,197
|
|
|
|
716
|
|
|
|
(1,446
|
)
|
|
|
(1,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic (benefit) cost and other
comprehensive (income) loss
|
|
$
|
(1,693
|
)
|
|
$
|
(14,326
|
)
|
|
$
|
3,488
|
|
|
$
|
1,814
|
|
|
$
|
(928
|
)
|
|
$
|
(449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company makes various assumptions and estimates to calculate
its retirement plan obligations and related expenses. In
performing these calculations, the total benefit ultimately
payable to plan participants is estimated, and the associated
costs are allocated to the periods in which services are
expected to be rendered. Management reviews the actuarial
assumptions annually based upon available information.
The key assumptions used in calculating the projected benefit
obligations and plan expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Pension Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.00
|
%
|
|
|
6.75
|
%
|
|
|
6.50
|
%
|
Discount rate used to determine projected benefit obligation at
end of year
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
|
|
6.50
|
%
|
Expected long-term rate of return on plan assets
|
|
|
8.25
|
%
|
|
|
8.50
|
%
|
|
|
9.00
|
%
|
Rate of future compensation increases
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00
|
%
|
Rate of future compensation increases used to determine
projected benefit obligation at end of year
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00
|
%
|
SERP:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50
|
%
|
|
|
6.75
|
%
|
|
|
7.00
|
%
|
Discount rate used to determine projected benefit obligation at
end of year
|
|
|
5.25
|
%
|
|
|
5.50
|
%
|
|
|
6.50
|
%
|
Rate of future compensation increases
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00
|
%
|
Rate of future compensation increases used to determine
projected benefit obligation at end of year
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00
|
%
|
Postretirement Medical Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.25
|
%
|
|
|
6.50
|
%
|
|
|
6.25
|
%
|
Discount rate used to determine projected benefit obligation at
end of year
|
|
|
N/A
|
|
|
|
5.50
|
%
|
|
|
6.50
|
%
|
Initial healthcare cost trend rate projected benefit
obligations
|
|
|
N/A
|
|
|
|
7.00
|
%
|
|
|
9.00
|
%
|
Initial healthcare cost trend rate periodic expense
|
|
|
9.00
|
%
|
|
|
8.00
|
%
|
|
|
10.00
|
%
|
Ultimate health care cost trend rate
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
F-38
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The assumed discount rate is based, in part, upon a discount
rate modeling process that applies a methodology which matches
the future benefit payment stream to a discount yield curve for
the plan. The discount rate is principally used to calculate the
actuarial present value of the Companys obligation and
expense for the period. To the extent the discount rate
increases or decreases, the Companys obligation and
expense is decreased or increased accordingly.
The expected long-term rate of return on assets is the weighted
average rate of earnings expected to be received on the funds
invested or to be invested to satisfy the pension obligation.
The expected long-term rate of return on assets is based on an
analysis which considers actual net returns for the Pension Plan
since inception, Ibbotson Associates historical investment
returns data for the major classes of investments in which the
Company invests (debt, equity and foreign securities) for the
period since the Pension Plans inception and for the
longer commencing periods when the return data was first tracked
and expectations of future market returns from outside sources.
To the extent the actual rate of return on assets is less than
or more than the assumed rate, the annual pension expense is not
immediately affected. Rather, the loss or gain adjusts future
pension expense over a period of approximately five years.
The market related value of plan assets is a calculated value
that recognizes the changes in fair value by adjusting the
current market value of plan assets by the difference between
actual investment return versus expected investment return over
the last five years at a rate of twenty percent per year. The
market related value of plan assets is determined consistently
for all classes of assets.
The rate of future compensation increases is the average annual
compensation increase expected over the remaining employment
periods for the participating employees. This rate is
principally used to estimate the pension obligation and annual
pension expense. Due to the decision in February 2009 to
discontinue future benefits being earned under the Pension Plan
and SERP, the average rate of future compensation increases is
no longer applicable.
The long-term strategic investment objectives of the Pension
Plan include preserving the funded status of the plan and
balancing risk and return. The Company does not allow the plan
to invest in the common stock of the Company, AEON or other soft
goods retailers. The Company periodically evaluates its asset
allocation.
The following sets forth certain information regarding the
allocation of Pension Plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
January 29, 2011
|
|
|
January 30, 2010
|
|
|
|
Allocation
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(In thousands)
|
|
|
Equity securites, including foreign securities of $9,801 and
$10,892 at January 29, 2011 and January 30, 2010,
respectively
|
|
|
70
|
%
|
|
$
|
96,012
|
|
|
|
84
|
%
|
|
$
|
68,344
|
|
|
|
70
|
%
|
Debt securities
|
|
|
30
|
%
|
|
|
17,036
|
|
|
|
15
|
%
|
|
|
27,105
|
|
|
|
28
|
%
|
Cash and money market investments
|
|
|
|
|
|
|
1,424
|
|
|
|
1
|
%
|
|
|
1,784
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
114,472
|
|
|
|
100
|
%
|
|
$
|
97,233
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table classifies the financial assets and
liabilities held by the Companys Pension Plan as of
January 29, 2011 that are measured at fair value on a
recurring basis (at least annually) into the most appropriate
level within the fair value hierarchy, based on the inputs used
to determine fair value at the measurement date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
Observable Inputs
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other than Quoted
|
|
|
Significant
|
|
|
|
Fair Value at
|
|
|
Identical Assets
|
|
|
Market Prices
|
|
|
Unobservable Inputs
|
|
|
|
January 29, 2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
1,424
|
|
|
$
|
11
|
|
|
$
|
1,413
|
|
|
$
|
|
|
Domestic equity securities
|
|
|
14,134
|
|
|
|
14,134
|
|
|
|
|
|
|
|
|
|
International equity securities
|
|
|
9,801
|
|
|
|
9,801
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
|
|
513
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
48,517
|
|
|
|
12,704
|
|
|
|
35,813
|
|
|
|
|
|
Common/collective trusts
|
|
|
40,083
|
|
|
|
|
|
|
|
40,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pension Plan assets
|
|
$
|
114,472
|
|
|
$
|
37,163
|
|
|
$
|
77,309
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010, the fair value of the Pension Plan
assets was $97.2 million. The plans investments were
classified as 48% Level 1, 52% Level 2 and 0%
Level 3 based on inputs used to determine their fair value.
There were no fair value measurements classified as Level 3
at January 31, 2009, therefore, there are no changes in
Level 3 measurements in fiscal year 2009 or 2010.
Expected future benefit payments are as follows at
January 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
Plan
|
|
|
SERP
|
|
|
|
(In thousands)
|
|
|
Expected benefit payments:
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
5,051
|
|
|
$
|
1,636
|
|
2012
|
|
|
5,398
|
|
|
|
1,699
|
|
2013
|
|
|
5,831
|
|
|
|
1,695
|
|
2014
|
|
|
6,317
|
|
|
|
1,719
|
|
2015
|
|
|
6,707
|
|
|
|
1,712
|
|
2016 to 2020
|
|
|
42,187
|
|
|
|
8,325
|
|
When required to fund the Pension Plan, the Companys
policy is to contribute amounts that are deductible for federal
income tax purposes. Based upon available information, the
Company will be required to contribute approximately
$11.6 million to the Pension Plan in 2011. During fiscal
years 2010 and 2009, the Company made required contributions of
$4.6 million and $4.1 million, respectively, to the
Pension Plan. No voluntary contributions were made in 2010 or
2009, and the Company does not expect to make a voluntary
contribution in 2011.
In 2011, the Company expects to contribute $1.6 million to
the SERP.
F-40
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amounts that will be amortized from accumulated other
comprehensive loss to net period expense in 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
Plan
|
|
|
SERP
|
|
|
|
(In thousands)
|
|
|
Net actuarial loss
|
|
$
|
837
|
|
|
$
|
104
|
|
The Company has a qualified defined contribution 401(k) plan
which covers substantially all Talbots employees. Eligible
employees may elect to invest, at their discretion, up to 50% of
their total contributions in the Companys common stock. In
fiscal year 2009, the Company discontinued its contributions to
the 401(k) and nonqualified defined contribution plans
indefinitely as part of a cost savings initiative effective
February 2009. The Company resumed contributions to the 401(k),
matching 50% of an employees contribution up to a maximum
of 3% of the participants compensation, effective January
2010. In fiscal year 2008, the Company made matching
contributions of 50% of an employees contribution up to a
maximum of 6% of the participants compensation. Company
contributions to the 401(k) plan totaled $1.4 million,
$0.3 million and $4.2 million in fiscal years 2010,
2009 and 2008, respectively.
|
|
16.
|
Commitments
and Contingencies
|
Commitments
The following table summarizes the Companys contractual
obligations and commercial commitments as of January 29,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Commitments
|
|
Total
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
577,750
|
|
|
$
|
127,326
|
|
|
$
|
112,047
|
|
|
$
|
95,283
|
|
|
$
|
76,022
|
|
|
$
|
53,077
|
|
|
$
|
113,995
|
|
Equipment
|
|
|
1,621
|
|
|
|
798
|
|
|
|
391
|
|
|
|
286
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
Merchandise purchases
|
|
|
128,496
|
|
|
|
128,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction contracts
|
|
|
836
|
|
|
|
836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contractual commitments
|
|
|
12,357
|
|
|
|
7,071
|
|
|
|
2,950
|
|
|
|
1,788
|
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments
|
|
$
|
721,060
|
|
|
$
|
264,527
|
|
|
$
|
115,388
|
|
|
$
|
97,357
|
|
|
$
|
76,716
|
|
|
$
|
53,077
|
|
|
$
|
113,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
The Company leases retail
space for the majority of its stores as well as office space to
accommodate certain corporate service centers with lease terms
expiring at various dates through fiscal 2023. Most store leases
provide for base rent plus contingent rents, which are a
function of sales volume, and also provide that the Company pay
real estate taxes, maintenance and other operating expenses
applicable to the leased premises. Most store leases also
provide renewal options and contain rent escalation clauses. The
Company also leases store computer and other corporate equipment
with lease terms generally ranging between three and five years.
Included in the schedule above are six executed leases related
to Talbots stores not yet opened at January 29, 2011. The
schedule also includes the remaining lease payments for six
former Talbots Kids and Mens stores, two former J. Jill stores
and the remaining portion of the Quincy office space, whose
terms expire at various dates through fiscal 2019.
Rent expense during 2010, 2009 and 2008 was $121.4 million,
$126.0 million and $127.7 million, respectively. These
amounts include $3.0 million, $2.0 million and
$2.1 million, respectively, of percentage rent and
contingent rental expense and $0.4 million,
$0.6 million and $0.2 million, respectively, of
sublease rental income. As of
F-41
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 29, 2011, the Company expects to receive rental
income under existing noncancelable subleases of
$0.4 million each year in 2011 through 2015 and
$0.8 million thereafter.
Merchandise Purchases
The Company generally
makes purchase commitments up to six to nine months in advance
of the selling season. The Company does not maintain any
long-term or exclusive commitments or arrangements to purchase
from any vendor.
Construction Contracts
The Company enters
into contracts to facilitate the build-out and renovation of its
stores.
Other Contractual Commitments
The Company
routinely enters into contracts with vendors for products and
services in the normal course of operation, including contracts
for insurance, maintenance on equipment, services and
advertising. These contracts vary in length but generally carry
30-day
to
three-year terms.
Contingencies
As described in Note 7,
Discontinued Operations
,
under the terms of the sale of the J. Jill business, the
Purchaser is obligated for liabilities that arise after the
closing under assumed contracts, which includes leases for 205
J. Jill stores assigned to the Purchaser as part of the sale, of
which, 203 assigned leases remained outstanding at
January 29, 2011. Further, in connection with closing the
Companys U.K. stores in 2008, three store leases were
assigned to a local retailer who assumed the primary lease
obligations; and, in connection with the closing of the
Companys Mens stores, one store lease was assigned to a
third party who assumed the primary lease obligations. The
Company remains secondarily liable in the event that the
Purchaser, the local retailer or other third party does not
fulfill its lease obligations. The Company has accrued a
liability for the estimated exposure related to these contingent
obligations.
At January 29, 2011, the future aggregate lease payments
for which the Company remains contingently obligated, as
transferor or sublessor, total $110.9 million extending to
various dates through fiscal 2020. The table above excludes
these contingent liabilities.
Legal
Proceedings
On February 3, 2011, a purported Talbots shareholder filed
a putative class action captioned
Washtenaw County
Employees Retirement System v. The Talbots, Inc. et
al.
, Case
No. 1:11-cv-10186-NMG,
in the United States District Court for the District of
Massachusetts against Talbots and certain of its officers. The
complaint, purportedly brought on behalf of all purchasers of
Talbots common stock from December 8, 2009 through and
including January 11, 2011, asserts claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and
Rule 10b-5
promulgated thereunder and seeks, among other things, damages
and costs and expenses. Specifically, the complaint alleges that
Talbots, under the authority and control of the individual
defendants, made certain false and misleading statements and
allegedly omitted certain material information. The complaint
alleges that these actions artificially inflated the market
price of Talbots common stock during the class period, thus
purportedly harming investors. The Company cannot predict the
outcome of such proceedings or an estimate of damages, if any.
The Company believes that these claims are without merit and
intends to defend against them vigorously.
On February 24, 2011 a putative Talbots shareholder filed a
derivative action in Massachusetts Superior Court, captioned
Greco v. Sullivan, et al.
, Case
No. 11-0728
BLS, against certain of Talbots officers and directors.
The complaint, which purports to be brought on behalf of
Talbots, asserts claims for breach of fiduciary duties, insider
trading, abuse of control, waste of corporate assets and unjust
enrichment, and seeks, among other things, damages, equitable
relief and costs and expenses. The complaint alleges that the
defendants either caused, or neglected to prevent, through
mismanagement or failure to provide effective oversight, the
issuance of false and misleading statements and omissions
regarding the Companys financial condition. The complaint
alleges that the defendants actions injured the Company
insofar as they (a) caused Talbots to waste corporate
assets through incentive-based bonuses for senior management,
(b) subjected the Company to significant potential civil
liability and legal costs and
F-42
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(c) damaged the Company through a loss of market
capitalization as well as goodwill and other intangible
benefits. The Company believes that these claims are without
merit and intends to defend against them vigorously.
On January 12, 2010, a Talbots common shareholder had 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 asserted 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 (collectively, the
Defendants) and John C. Campbell (the
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 Talbots 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.
On December 20, 2010, the Chancery Court issued an Order
and Final Judgment (the Order) granting final
approval of a stipulation of settlement entered into by the
Defendants and the Plaintiff. Pursuant to the terms of the
Order, the lawsuit was dismissed with prejudice. On
January 28, 2011 the Defendants (other than the Company and
AEON (U.S.A.), Inc.) delivered $3.75 million to the
Company, and Perella Weinberg Partners LP delivered
175,000 shares of Talbots common stock to the Company. The
Plaintiffs counsel was awarded a total of
$2.1 million in fees and expenses which were paid by the
Company in February 2011. The Company recorded the net gain on
this settlement, of $2.7 million, to merger-related costs
in the consolidated statement of operations in fiscal 2010.
|
|
17.
|
Related
Party Transactions
|
During fiscal years 2009 and 2008 and until the completion of
the BPW Transactions on April 7, 2010, AEON (U.S.A.) Inc.
(AEON (U.S.A.)), a wholly-owned subsidiary of AEON
Co. Ltd. (AEON), was the Companys majority
stockholder, owning more than 50% of the Companys
outstanding common stock.
Upon the completion of the BPW Transactions on April 7,
2010, AEON (U.S.A.) and AEON ceased to be majority shareholders
of the Company and, thereupon, ceased to be considered related
parties of the Company. Refer to Note 3,
Merger with BPW
Acquisition Corp. and Related Transactions,
for further
information regarding these transactions.
AEON owns and operates Talbots stores in Japan through its
wholly-owned subsidiary, Talbots Japan Co., Ltd. (Talbots
Japan.) The Company provides certain services and
purchases merchandise for Talbots Japan for which it is
reimbursed for expenses incurred and the cost of merchandise.
During 2009 and 2008, total charges for services and merchandise
purchases were $4.8 million and $4.4 million,
respectively. At January 30, 2010, the Company was owed
$1.0 million for these service costs and merchandise
inventory purchases made on behalf of Talbots Japan, presented
as due from related party in the consolidated balance sheet.
Interest at a rate equal to the Internal Revenue Service monthly
short-term applicable federal rate accrued on amounts
outstanding more than 30 days
F-43
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
after the original invoice date. During fiscal years 2009 and
2008, the Company charged Talbots Japan interest of
$0.0 million and $0.1 million, respectively.
Until the completion of the BPW Transactions, the Company had an
advisory services agreement with AEON (U.S.A.) under which AEON
provided advice and services to the Company with respect to
strategic planning and other related issues concerning the
Company. Additionally, AEON (U.S.A.) maintained, on behalf of
the Company, a working relationship with Japanese banks and
other financial institutions during this period. AEON (U.S.A.)
received an annual fee of $0.25 million plus any expenses
incurred, which were not material. At January 30, 2010,
there were no amounts owed under this agreement. The Company
also provided tax and accounting services to AEON (U.S.A.)
during fiscal years 2009 and 2008 which were immaterial in
amount.
Additionally, during fiscal years 2009 and 2008 and until the
completion of the BPW Transactions on April 7, 2010, AEON
(U.S.A.) and AEON had provided financing to the Company at times
to enable it to meet its working capital and other general and
corporate needs. Refer to Note 13,
Debt,
for further
information.
|
|
18.
|
Segment
and Geographic Information
|
The Company has two separately managed and reported business
segments which reflect how its chief operating decision-maker
reviews the results of the operations that comprise the
consolidated entity, as follows:
|
|
|
Stores derives revenue from the sale of womens
apparel, accessories and shoes through its Talbots retail
stores, upscale outlets and surplus outlets in the United States
and Canada, and
|
|
|
Direct Marketing derives revenue from the sale of
womens apparel, accessories and shoes through its
Internet, catalog and
red-line
phone operations
|
The Company evaluates the operating performance of its segments
based on a direct profit measure which is calculated as net
sales less cost of goods sold and direct expenses such as
payroll, occupancy and other direct costs.
Indirect expenses are not allocated on a segment basis,
therefore, no measure of segment income or loss is available.
Indirect expenses consist of general and administrative expenses
such as corporate costs and management information systems and
support, finance charge income, merchandising costs, costs of
oversight of the Companys Talbots credit card operations,
certain general warehousing costs, depreciation related to
corporate held assets, corporate-wide restructuring charges and
merger-related costs.
The following is certain segment information for fiscal years
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 29, 2011
|
|
|
|
Stores
|
|
|
Direct Marketing
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
991,353
|
|
|
$
|
221,707
|
|
|
$
|
1,213,060
|
|
Direct profit
|
|
|
120,937
|
|
|
|
54,202
|
|
|
|
175,139
|
|
Depreciation and amortization
|
|
|
50,580
|
|
|
|
2,696
|
|
|
|
53,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 30, 2010
|
|
|
|
Stores
|
|
|
Direct Marketing
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
1,027,887
|
|
|
$
|
207,745
|
|
|
$
|
1,235,632
|
|
Direct profit
|
|
|
81,219
|
|
|
|
40,559
|
|
|
|
121,778
|
|
Depreciation and amortization
|
|
|
61,855
|
|
|
|
3,303
|
|
|
|
65,158
|
|
F-44
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2009
|
|
|
|
Stores
|
|
|
Direct Marketing
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
1,261,536
|
|
|
$
|
233,634
|
|
|
$
|
1,495,170
|
|
Direct profit
|
|
|
65,866
|
|
|
|
24,689
|
|
|
|
90,555
|
|
Depreciation and amortization
|
|
|
70,957
|
|
|
|
983
|
|
|
|
71,940
|
|
The following reconciles direct profit to income (loss) from
continuing operations for fiscal years 2010, 2009 and 2008.
Indirect expenses include unallocated corporate overhead and
related expenses, including depreciation and amortization of
$8.2 million, $9.1 million and $12.6 million in
fiscal years 2010, 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Direct profit
|
|
$
|
175,139
|
|
|
$
|
121,778
|
|
|
$
|
90,555
|
|
Less: Indirect expenses
|
|
|
112,208
|
|
|
|
111,979
|
|
|
|
171,151
|
|
Merger-related costs
|
|
|
25,855
|
|
|
|
8,216
|
|
|
|
|
|
Restructuring charges
|
|
|
5,640
|
|
|
|
10,273
|
|
|
|
17,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
31,436
|
|
|
|
(8,690
|
)
|
|
|
(98,389
|
)
|
Interest expense, net
|
|
|
18,827
|
|
|
|
28,123
|
|
|
|
20,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
12,609
|
|
|
|
(36,813
|
)
|
|
|
(118,679
|
)
|
Income tax expense (benefit)
|
|
|
5,039
|
|
|
|
(11,505
|
)
|
|
|
20,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
7,570
|
|
|
$
|
(25,308
|
)
|
|
$
|
(139,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the Companys most significant assets, including
customer accounts receivable, are not allocated or tracked by
segment. Therefore, no measure of segment assets is available.
The Company has no single customer which accounts for greater
than 10% of the Companys consolidated net sales.
The following is geographical information regarding the
Companys net sales for the years ended January 29,
2011, January 30, 2010 and January 31, 2009 and the
Companys long-lived assets as of January 29, 2011 and
January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,176,846
|
|
|
$
|
1,200,973
|
|
|
$
|
1,449,399
|
|
Canada
|
|
|
36,214
|
|
|
|
34,659
|
|
|
|
45,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,213,060
|
|
|
$
|
1,235,632
|
|
|
$
|
1,495,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
January 29,
|
|
|
January 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
184,818
|
|
|
$
|
218,167
|
|
Canada
|
|
|
1,840
|
|
|
|
2,237
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
186,658
|
|
|
$
|
220,404
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
Unaudited
Quarterly Results
|
Selected, unaudited quarterly financial information for fiscal
years 2010 and 2009 is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 Quarter Ended
|
|
|
|
May 1,
|
|
|
July 31,
|
|
|
October 30,
|
|
|
January 29,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2011(a)
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
320,661
|
|
|
$
|
300,742
|
|
|
$
|
299,099
|
|
|
$
|
292,558
|
|
Gross profit
|
|
|
139,816
|
|
|
|
104,965
|
|
|
|
127,704
|
|
|
|
85,343
|
|
(Loss) income from continuing operations
|
|
|
(7,096
|
)
|
|
|
521
|
|
|
|
16,974
|
|
|
|
(2,829
|
)
|
Income from discontinued operations
|
|
|
2,728
|
|
|
|
420
|
|
|
|
74
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,368
|
)
|
|
$
|
941
|
|
|
$
|
17,048
|
|
|
$
|
(2,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.12
|
)
|
|
$
|
0.01
|
|
|
$
|
0.24
|
|
|
$
|
(0.04
|
)
|
Discontinued operations
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(0.08
|
)
|
|
$
|
0.01
|
|
|
$
|
0.24
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.12
|
)
|
|
$
|
0.01
|
|
|
$
|
0.24
|
|
|
$
|
(0.04
|
)
|
Discontinued operations
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(0.08
|
)
|
|
$
|
0.01
|
|
|
$
|
0.24
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
57,873
|
|
|
|
68,338
|
|
|
|
68,424
|
|
|
|
68,527
|
|
Diluted
|
|
|
57,873
|
|
|
|
69,520
|
|
|
|
69,442
|
|
|
|
68,527
|
|
|
|
|
(a)
|
|
Gift card breakage income of $6.9 million, including a
cumulative change in estimate of $6.3 million, was
recognized in the fourth quarter of 2010.
|
F-46
THE
TALBOTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 Quarter Ended
|
|
|
|
May 2,
|
|
|
August 1,
|
|
|
October 31,
|
|
|
January 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
306,175
|
|
|
$
|
304,641
|
|
|
$
|
308,891
|
|
|
$
|
315,925
|
|
Gross profit
|
|
|
95,019
|
|
|
|
84,402
|
|
|
|
123,300
|
|
|
|
111,633
|
|
(Loss) income from continuing operations
|
|
|
(18,818
|
)
|
|
|
(20,481
|
)
|
|
|
15,464
|
|
|
|
(1,473
|
)
|
(Loss) income from discontinued operations
|
|
|
(4,752
|
)
|
|
|
(4,004
|
)
|
|
|
(911
|
)
|
|
|
5,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(23,570
|
)
|
|
$
|
(24,485
|
)
|
|
$
|
14,553
|
|
|
$
|
4,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.35
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
0.29
|
|
|
$
|
(0.03
|
)
|
Discontinued operations
|
|
|
(0.09
|
)
|
|
|
(0.07
|
)
|
|
|
(0.02
|
)
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(0.44
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
0.27
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.35
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
0.28
|
|
|
$
|
(0.03
|
)
|
Discontinued operations
|
|
|
(0.09
|
)
|
|
|
(0.07
|
)
|
|
|
(0.02
|
)
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(0.44
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
0.26
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
53,621
|
|
|
|
53,827
|
|
|
|
53,856
|
|
|
|
53,884
|
|
Diluted
|
|
|
53,621
|
|
|
|
53,827
|
|
|
|
55,081
|
|
|
|
54,497
|
|
F-47
Talbots (NYSE:TLB)
Historical Stock Chart
From Jun 2024 to Jul 2024
Talbots (NYSE:TLB)
Historical Stock Chart
From Jul 2023 to Jul 2024