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LIQUIDITY AND CAPITAL
RESOURCES
The
Company’s primary sources of working capital are cash flows from
operating activities and a line of credit facility from five banks, with
maximum available short-term borrowings of $125.0 million. At February
3, 2001 and January 29, 2000, the Company had no amounts outstanding
under this facility. Additionally, the Company has a revolving credit
facility with four banks totaling $100.0 million (the
"Facility"). At February 3, 2001 and January 29, 2000, the
Company’s outstanding borrowings under the Facility were $100.0
million. Notes under the Facility currently extend to various periods
between April 2002 and January 2003, subject to annual extensions. The
Company’s working capital needs are typically at their lowest during
the spring season and peak during the fall selling season.
Cash
provided by operating activities totaled $139.2 million in 2000. The
increase in cash provided by operating activities from the prior year is
primarily due to a $56.7 million increase in net income. Other increases
in operating cash resulted from higher year-end balances in accounts
payable which were offset by increased year-end balances of merchandise
inventory. This is the result of earlier receipts of 2001 spring
merchandise in fiscal 2000 as compared to fiscal 1999.
Cash
provided by operating activities totaled $91.8 million in 1999. The
decrease in cash provided by operating activities from 1998 was mainly
due to higher merchandise inventories at year-end, lower balances of
accounts payable and increased balances of Talbots customer accounts
receivable. These uses of cash were partially offset by the increase in
net income.
Cash used
in investing activities was $77.8 million in 2000 and consisted entirely
of net additions of property, plant and equipment. Approximately $45.1
million was used for leasehold improvements, furniture, fixtures and
other related expenditures for opening new stores and expanding,
renovating and relocating existing stores. Additionally, $21.0 million
was used for the expansion and renovation of the Company’s Hingham and
Lakeville corporate facilities.
Cash used
in investing activities for 1999 was $55.2 million. Of this amount,
approximately $30.2 million was used for leasehold improvements,
furniture, fixtures and other related expenditures for opening new
stores and expanding, renovating and relocating existing stores.
Additionally, approximately $13.6 million was used for the expansion of
the Company’s Hingham and Lakeville corporate facilities.
Capital
expenditures for fiscal 2001 are currently expected to be approximately
$85.0 million. The Company currently plans to open at least 78 new
stores during fiscal 2001. Approximately $59.0 million is expected to be
used for opening new stores and expanding, renovating and relocating
existing stores. Approximately $12.0 million is expected to be used to
enhance the Company’s computer information systems, and $11.0 million
is expected to be used for the continued expansion and renovation of the
Company’s Hingham and Lakeville corporate facilities. The remaining
expenditures will be for other capital needs in the normal course of
business. The actual amount of such capital expenditures will depend on
the number and type of stores being opened, expanded, renovated and
relocated, and the schedule for such activity during 2001.*
Cash used
in financing activities totaled $13.0 million in 2000. During fiscal
2000, the Company paid cash dividends of $0.27 per share. Additionally,
the Company repurchased 1,135,234 shares of the Company’s common stock
under repurchase programs at an average price per share of $26.32. This
completed a $20.0 million repurchase program that was approved in
January 2000 and another $20.0 million repurchase program that was
approved in May 2000. On March 6, 2001, the Board of Directors approved
another extension of the stock repurchase program which allows the
Company to purchase an additional $100.0 million in Company stock, from
time to time, over the next two years.
Cash used
in financing activities totaled $34.9 million in 1999. During fiscal
1999, the Company paid cash dividends of $0.23 per share and repurchased
1,938,160 shares of Company common stock under its repurchase program at
an average price per share of $18.74.
On
October 10, 2000, the Company’s Board of Directors authorized a
two-for-one stock split of its common stock. The stock split was
effected by issuing one additional share of common stock for each
outstanding share of common stock and each treasury share of common
stock. The stock split was effective as of the close of business on
November 7, 2000 to shareholders of record on October 25, 2000. All
historic share information contained herein has been adjusted to reflect
the impact of the stock split.
In 2000
and 1999, cash from operating activities was sufficient to meet cash
required for investing and financing activities. The Company’s usage
of the line of credit facility peaked at $30.0 million in 1999. In
fiscal 2000, the Company’s usage of the line of credit peaked at $25.0
million in the first quarter and was not drawn upon during the remainder
of the year. The Company’s primary ongoing cash requirements will be
to fund new stores and the expansions, renovations and relocations of
existing stores; expansions of the Company’s Hingham and Lakeville
corporate facilities; to finance working capital build-ups during peak
selling seasons and to pay cash dividends that may be declared from time
to time.*
For the
current and next fiscal years, the Company believes its expected cash
flows from operating activities and, if necessary, from funds available
under its credit facilities will be sufficient to meet expected cash
required for capital expenditures, dividends and the purchase of
treasury stock.*
INFLATION AND CHANGING PRICES
Because the
Company sells a wide range of products, which by their nature, are subject
to constantly changing business strategies and competitive positioning, it
is not possible to attribute increases in retail sales or catalog sales to
specific changes in prices, changes in volume or changes in product mix.
The Company
has not experienced any significant impact from inflationary factors.
EXCHANGE RATES
Most
foreign purchase orders are denominated in U.S. dollars. Accordingly, the
Company has not experienced any significant impact from changes in
exchange rates.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The market
risk inherent in the Company’s financial instruments and in its
financial position represents the potential loss arising from adverse
changes in interest rates. The Company does not enter into financial
instruments for trading purposes.
At February
3, 2001, the Company has $100.0 million of variable rate borrowings
outstanding under its revolving credit agreements, which approximate fair
market value. A hypothetical 10% adverse change in interest rates for this
variable rate debt would have an approximate $0.3 million negative impact
on the Company’s earnings and cash flows.
The
Company has market risk exposure from foreign currency fluctuations to
the extent that intercompany balances are settled in the form of foreign
currency. The Company does not believe its foreign currency market risk,
in this regard, is material.
NEW ACCOUNTING PRONOUNCEMENTS
In June
1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 significantly modifies accounting and reporting standards for
derivatives and hedging activities. SFAS No. 137 and 138 delayed and
modified the original pronouncement. These statements do not have a
material impact on the Company’s consolidated financial statements.
Effective
October 29, 2000, the Company adopted the Emerging Issues Task Force
("EITF") Issue No. 00-10, "Accounting for Shipping and
Handling Fees and Costs." The EITF stated that a seller of goods
should classify amounts billed to the customer for shipping and handling
as revenue and the costs incurred by the seller for performing such
services as an element of expense. To comply with the consensus, shipping
and handling fees and costs, which were previously reported net in
selling, general and administrative expenses, were reclassified to net
sales and cost of sales, buying and occupancy expense. All prior periods
were revised to comply with the consensus. Such revisions had no impact on
previously reported operating earnings, net earnings, stockholders’
equity or cash flows.
FORWARD-LOOKING INFORMATION
*This
Annual Report to Shareholders’ contains forward-looking statements
within the meaning of The Private Securities Litigation Reform Act of
1995. The statements were made a number of times and may be identified by
an "asterisk" ("*") or such forward-looking
terminology as "expect," "look," "believe,"
"may," "will," "intend," "plan,"
"target," "goal" and similar statements or variations
of such terms. Such forward-looking statements are based on the Company’s
current expectations, assumptions, estimates and projections about the
Company and involve certain significant risks and uncertainties including
levels of sales, effectiveness of the Company’s brand awareness and
marketing programs, effectiveness and profitability of new concepts,
effectiveness of its new e-commerce site, store traffic, acceptance of
Talbots seasonal fashions, appropriate balance of merchandise offerings,
and timing and levels of markdowns. These and other important factors that
may cause actual results to differ materially from such forward-looking
statements are included in the Company's Current Report on Form 8-K dated
October 30, 1996 filed with the Securities and Exchange Commission (a copy
of which may also be obtained from the Company at 781-741-4500) as well as
other periodic reports filed by the Company with the Securities and
Exchange Commission. You are urged to consider all such factors. In light
of the uncertainty inherent in such forward-looking statements, you should
not consider their inclusion to be a representation that such
forward-looking matters will be achieved. The Company assumes no
obligation for updating any such forward-looking statements to reflect
actual results, changes in assumptions or changes in other factors
affecting such forward-looking statements.
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