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UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED AUGUST 3, 2002
Commission file number 1-11980
ANNTAYLOR, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0297083
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
142 WEST 57TH STREET, NEW YORK, NY 10019
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(Address of principal executive offices) (Zip Code)
(212) 541-3300
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(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No____.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Outstanding as of
Class August 30, 2002
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COMMON STOCK, $1.00 PAR VALUE 1
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The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
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INDEX TO FORM 10-Q
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PAGE NO.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the Quarters and Six Months Ended
August 3, 2002 and August 4, 2001........................ 3
Condensed Consolidated Balance Sheets at
August 3, 2002 and February 2, 2002...................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended August 3, 2002 and
August 4, 2001........................................... 5
Notes to Condensed Consolidated Financial Statements....... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings..........................................11
Item 6. Exhibits and Reports on Form 8-K...........................11
CERTIFICATIONS...........................................................13
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03
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
ANNTAYLOR, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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FOR THE QUARTERS AND SIX MONTHS ENDED AUGUST 3, 2002 AND AUGUST 4, 2001
(UNAUDITED)
QUARTERS ENDED SIX MONTHS ENDED
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AUGUST 3, AUGUST 4, AUGUST 3, AUGUST 4,
2002 2001 2002 2001
-------- -------- -------- --------
(IN THOUSANDS)
Net sales .......................... $343,143 $310,292 $688,535 $617,382
Cost of sales ...................... 161,965 158,289 320,794 305,727
-------- -------- -------- --------
Gross margin ....................... 181,178 152,003 367,741 311,655
Selling, general and administrative
expenses ....................... 150,425 135,833 301,506 271,551
Amortization of goodwill ........... -- 2,760 -- 5,520
-------- -------- -------- --------
Operating income ................... 30,753 13,410 66,235 34,584
Interest income .................... 913 523 1,429 858
Interest expense ................... 1,826 1,719 3,525 3,499
-------- -------- -------- --------
Income before income taxes ......... 29,840 12,214 64,139 31,943
Income tax provision ............... 11,638 5,815 25,015 14,600
-------- -------- -------- --------
Net income ..................... $ 18,202 $ 6,399 $ 39,124 $ 17,343
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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AUGUST 3, 2002 AND FEBRUARY 2, 2002
(UNAUDITED)
AUGUST 3, FEBRUARY 2,
2002 2002
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ASSETS (IN THOUSANDS)
Current assets
Cash and cash equivalents .......................... $180,452 $ 30,037
Accounts receivable, net ........................... 11,400 65,296
Merchandise inventories ............................ 169,455 180,117
Prepaid expenses and other current assets .......... 49,908 50,403
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Total current assets ........................... 411,215 325,853
Property and equipment, net .......................... 244,222 250,735
Goodwill, net ........................................ 286,579 286,579
Deferred financing costs, net ........................ 4,614 5,044
Other assets ......................................... 14,969 14,775
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Total assets ................................... $961,599 $882,986
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable ................................... $ 69,582 $ 59,482
Accrued expenses ................................... 83,942 75,882
Current portion of mortgage ........................ -- 1,250
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Total current liabilities ...................... 153,524 136,614
Note Payable to ATSC ................................. 119,951 118,280
Deferred lease costs and other liabilities ........... 18,742 15,963
Stockholder's equity
Common stock, $1.00 par value;
1,000 shares authorized;
1 share issued and outstanding .................. 1 1
Additional paid-in capital ......................... 413,598 392,683
Retained earnings .................................. 255,783 219,445
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Total stockholder's equity ..................... 669,382 612,129
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Total liabilities and stockholder's equity ..... $961,599 $882,986
======== ========
See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE SIX MONTHS ENDED AUGUST 3, 2002 AND AUGUST 4, 2001
(UNAUDITED)
SIX MONTHS ENDED
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AUGUST 3, AUGUST 4,
2002 2001
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(IN THOUSANDS)
Operating activities:
Net income ......................................... $ 39,124 $ 17,343
Adjustments to reconcile net income
to net cash provided by
operating activities:
Amortization of deferred compensation ............ 2,167 1,163
Amortization of goodwill ......................... -- 5,520
Deferred income taxes ............................ 1,340 --
Depreciation and amortization .................... 23,736 19,974
Gain on sale of proprietary credit card
accounts receivable ............................ (2,095) --
Loss on disposal of property and equipment ....... 347 922
Non-cash interest ................................ 2,117 2,082
Provision for loss on accounts receivable ........ -- 697
Changes in assets and liabilities:
Receivables .................................... (1,809) (2,289)
Merchandise inventories ........................ 10,662 (3,282)
Prepaid expenses and other current assets ...... 115 (4,349)
Accounts payable and accrued expenses .......... 18,155 6,145
Other non-current assets and
liabilities, net ............................. 1,629 (2,880)
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Net cash provided by operating activities .......... 95,488 41,046
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Investing activities:
Purchases of property and equipment ................ (17,572) (45,976)
Net proceeds from sale of proprietary
credit card accounts receivable .................... 57,800 --
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Net cash provided (used) by investing activities ... 40,228 (45,976)
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Financing activities:
Payments on mortgage ............................... (1,250) (688)
Payment of financing costs ......................... (14) (1,016)
Parent Company Activity ............................ 15,963 4,328
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Net cash provided by financing activities .......... 14,699 2,624
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Net increase (decrease) in cash ...................... 150,415 (2,306)
Cash and cash equivalents, beginning of period ....... 30,037 31,962
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Cash and cash equivalents, end of period ............. $ 180,452 $ 29,656
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest ........... $ 1,260 $ 1,265
========= =========
Cash paid during the period for income taxes ....... $ 8,234 $ 2,646
========= =========
See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(UNAUDITED)
1. BASIS OF PRESENTATION
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The condensed consolidated financial statements of AnnTaylor, Inc. (the
"Company") are unaudited but, in the opinion of management, contain all
adjustments (which are of a normal recurring nature) necessary to present
fairly the financial position, results of operations and cash flows for the
periods presented. All significant intercompany accounts and transactions
have been eliminated.
The results of operations for the fiscal 2002 interim periods shown in
this report are not necessarily indicative of results to be expected for the
fiscal year.
The February 2, 2002 condensed consolidated balance sheet amounts have
been derived from the previously audited consolidated balance sheet of the
Company.
Certain fiscal 2001 amounts have been reclassified to conform to the
fiscal 2002 presentation.
Detailed footnote information is not included for the quarters ended
August 3, 2002 and August 4, 2001. The financial information set forth
herein should be read in conjunction with the Notes to the Company's
Consolidated Financial Statements contained in its Fiscal 2001 Annual Report
on Form 10-K.
2. LONG-TERM DEBT
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The Company had $119,951,000 in long-term debt outstanding at August 3,
2002 in the form of a Note Payable to AnnTaylor Stores Corporation.
3. RECENT ACCOUNTING PRONOUNCEMENTS
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Effective February 3, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that ratable amortization of goodwill be
replaced by periodic tests for impairment within six months of the date of
adoption, and then on a periodic basis thereafter. Based on the impairment
testing performed in February 2002, Management determined that there was no
impairment loss related to the net carrying value of the Company's recorded
goodwill. Management intends to reevaluate this on an annual basis, in
accordance with the provisions of SFAS No. 142. Excluding the
amortization of goodwill, net income for the second quarter and six months
ended August 4, 2001 would have been $8,961,000 and $22,665,000, respectively.
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ANNTAYLOR, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(UNAUDITED)
3. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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In April 2002, the Financial Accounting Standards Board (the "FASB"),
issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections". SFAS No. 145
primarily affects the reporting requirements and classification of gains and
losses from the extinguishment of debt, rescinds the transitional accounting
requirements for intangible assets of motor carriers, and requires that
certain lease modifications with economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. SFAS No. 145 is effective for financial statements issued
after April 2002, with the exception of the provisions affecting the
accounting for lease transactions, which should be applied for transactions
entered into after May 15, 2002, and the provisions affecting classification
of gains and losses from the extinguishment of debt, which should be applied
in fiscal years beginning after May 15, 2002. Management has determined that
the adoption of SFAS No. 145 will have no immediate impact on the Company's
consolidated financial statements, but will evaluate in future periods the
classification of any debt extinguishment costs in accordance with APB
Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions".
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 is effective for
exit or disposal activities that are initiated after December 31, 2002.
Management is in the process of evaluating the effect that adoption of SFAS
No. 146 will have on the Company's consolidated financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED
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AUGUST 3, AUGUST 4,
2002 2001
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Number of Stores:
Open at beginning of period................ 538 478
Opened during period....................... 17 25
Expanded during period*.................... --- 5
Closed during period....................... --- 3
Open at end of period...................... 555 500
Type of Stores Open at End of Period:
Ann Taylor stores.......................... 344 335
Ann Taylor Loft stores..................... 183 153
Ann Taylor Factory Stores.................. 28 12
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* Expanded stores are excluded from comparable store sales for the first year
following expansion.
SIX MONTHS ENDED AUGUST 3, 2002 COMPARED TO THE SIX MONTHS ENDED AUGUST 4, 2001
The Company's net sales in the first six months of fiscal 2002 increased
to $688,535,000 from $617,382,000 for the same period last year, an increase
of $71,153,000 or 11.5 percent. Comparable store sales for the first six
months of fiscal 2002 decreased 0.1 percent compared to a decrease of 8.4
percent during the same period in fiscal 2001. Comparable store sales by
division were down 1.0 percent for Ann Taylor stores and up 1.7 percent for
Ann Taylor Loft stores. The sales increase was primarily the result of an
increase in the number of stores open as compared to last year.
Gross margin as a percentage of net sales increased to 53.4 percent for
the first six months of fiscal 2002 from 50.5 percent during the same period
last year. The increase in gross margin as a percentage of net sales is
primarily due to higher margin rates achieved on both full price and non-full
price sales at both divisions.
Selling, general and administrative expenses as a percent of net sales
were 43.8 percent in the first six months of fiscal 2002, compared to 44.0
percent in the first six months of fiscal 2001. The decrease in selling,
general and administrative expenses as a percentage of net sales was
primarily the result of efficiencies gained in Ann Taylor store operations
and lower internet costs, partially offset by an increase in the provision
for management performance bonus.
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As a result of the foregoing, the Company had operating income of
$66,235,000, or 9.6 percent of net sales, in the first six months of fiscal
2002, compared to $34,584,000, or 5.6 percent of net sales, in the first six
months of fiscal 2001. There was no goodwill amortization recorded in the
first six months of fiscal 2002, in accordance with SFAS No. 142, which the
Company adopted in February 2002. Amortization of goodwill was $5,520,000
in the first six months of fiscal 2001. Operating income in the first six
months of fiscal 2001, without giving effect to goodwill amortization, was
$40,104,000, or 6.5 percent of net sales.
Interest income was $1,429,000 in the first six months of fiscal 2002,
compared to $858,000 in the first six months of fiscal 2001. The increase
was primarily attributable to higher cash on hand offset somewhat by lower
interest rates during the first six months of fiscal 2002, as compared to the
first six months of fiscal 2001.
Interest expense was $3,525,000 in the first six months of fiscal 2002,
compared to $3,499,000 in the first six months of fiscal 2001.
The income tax provision was $25,015,000, or 39.0 percent of income before
taxes, in the first six months of fiscal 2002, compared to $14,600,000, or
45.7 percent of income before income taxes, for the same period last year.
The decrease in the effective income tax rate was primarily the result of
non-deductible goodwill expense, which, as previously discussed, was not
recorded in fiscal 2002.
As a result of the foregoing factors, the Company had net income of
$39,124,000, or 5.7 percent of net sales, for the first six months of fiscal
2002, compared to net income of $17,343,000, or 2.8 percent of net sales, for
the first six months of fiscal 2001. Excluding the amortization of goodwill,
net income during the first six months of fiscal 2001 would have been
$22,665,000, or 3.7 percent of net sales.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURES
Sections of this Quarterly Report on Form 10-Q, including the preceding
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contain various forward-looking statements, made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The forward-looking statements may use the words "expect", "anticipate", "plan",
"intend", "project", "believe" and similar expressions. These forward-looking
statements reflect the Company's current expectations concerning future events,
and actual results may differ materially from current expectations or historical
results. Any such forward-looking statements are subject to various risks and
uncertainties, including failure by the Company to predict accurately customer
fashion preferences; decline in the demand for merchandise offered by the
Company; competitive influences; changes in levels of store traffic or consumer
spending habits; effectiveness of the Company's brand awareness and marketing
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programs; general economic conditions or a downturn in the retail industry; the
inability of the Company to locate new store sites or negotiate favorable lease
terms for additional stores or for the expansion of existing stores; lack of
sufficient consumer interest in the Company's Online Store; a significant change
in the regulatory environment applicable to the Company's business; an increase
in the rate of import duties or export quotas with respect to the Company's
merchandise; financial or political instability in any of the countries in which
the Company's goods are manufactured; acts of war or terrorism in the United
States or worldwide; work stoppages, slowdowns or strikes; and other factors set
forth in the Company's filings with the SEC. The Company does not assume any
obligation to update or revise any forward-looking statements at any time for
any reason.
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PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
On or about June 19, 2002, the United States District Court for the
Southern District of New York entered an Order and Final Judgment approving
the previously disclosed settlement of the stockholder class action Novak v.
Kasaks, et al., 96 Civ. 3073 (AGS) filed in that Court.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
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10.1 Amendment No. 2 to the Credit Agreement, dated as of
August 29, 2002, by and among AnnTaylor, Inc., the
Guarantors and Bank of America, N.A., as Administrative
Agent for each of the Lenders pursuant to the Credit
Agreement. Incorporated by reference to Exhibit 10.1
on Form 8-K of the Company filed on September 4, 2002.
*99.1 Certification of chief executive officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
*99.2 Certification of chief financial officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed electronically herewith.
(b) Reports on Form 8-K:
None
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANNTAYLOR, INC.
Date: September 17, 2002 By:/s/J. Patrick Spainhour
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J. Patrick Spainhour
Chairman, Chief Executive
Officer and Director
Date: September 17, 2002 By:/s/James M. Smith
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James M. Smith
Senior Vice President,
Chief Financial Officer and
Treasurer
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CERTIFICATIONS
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I, J. Patrick Spainhour, principal executive officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AnnTaylor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 17, 2002 /s/J. Patrick Spainhour
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J. Patrick Spainhour
Chairman and Chief Executive
Officer
I, James M. Smith, principal financial officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AnnTaylor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 17, 2002 /s/James M. Smith
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James M. Smith
Senior Vice President,
Chief Financial Officer and
Treasurer
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Exhibit Index
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Exhibit
Number Description
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10.1 Amendment No. 2 to the Credit Agreement, dated as of August 29,
2002, by and among AnnTaylor, Inc., the Guarantors and Bank of
America, N.A., as Administrative Agent for each of the Lenders
pursuant to the Credit Agreement. Incorporated by reference to
Exhibit 10.1 on Form 8-K of the Company filed on September 4, 2002.
*99.1 Certification of chief executive officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
*99.2 Certification of chief financial officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
* Filed electronically herewith.
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