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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
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EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED MAY 3, 2003
Commission file number 1-10738
ANNTAYLOR STORES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3499319
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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 .
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No .
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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 May 30, 2003
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Common Stock, $.0068 par value 44,290,384
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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 Ended May 3, 2003 and
May 4, 2002........................................ 3
Condensed Consolidated Balance Sheets at
May 3, 2003 and February 1, 2003................... 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended May 3, 2003 and
May 4, 2002........................................ 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................10
Item 4. Controls and Procedures..............................16
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders..17
Item 6. Exhibits and Reports on Form 8-K.....................18
SIGNATURES........................................................19
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CERTIFICATIONS ...................................................20
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EXHIBIT INDEX.....................................................24
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
ANNTAYLOR STORES CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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FOR THE QUARTERS ENDED MAY 3, 2003 AND MAY 4, 2002
(UNAUDITED)
QUARTERS ENDED
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MAY 3, 2003 MAY 4, 2002
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` (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net sales ........................................ $352,017 $345,392
Cost of sales .................................... 163,002 158,829
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Gross margin ..................................... 189,015 186,563
Selling, general and administrative expenses ..... 158,618 151,081
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Operating income ................................. 30,397 35,482
Interest income .................................. 688 516
Interest expense ................................. 1,694 1,699
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Income before income taxes ....................... 29,391 34,299
Income tax provision ............................. 11,463 13,377
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Net income .................................... $ 17,928 $ 20,922
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Basic earnings per share of common stock ......... $ 0.41 $ 0.48
======= =======
Diluted earnings per share of common stock ....... $ 0.39 $ 0.45
======= =======
See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR STORES CORPORATION
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CONDENSED CONSOLIDATED BALANCE SHEETS
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MAY 3, 2003 AND FEBRUARY 1, 2003
(UNAUDITED)
MAY 3, FEBRUARY 1,
2003 2003
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ASSETS (IN THOUSANDS)
Current assets
Cash and cash equivalents ...................... $ 188,274 $ 212,821
Accounts receivable, net ....................... 20,436 10,367
Merchandise inventories ........................ 196,401 185,484
Prepaid expenses and other current assets ...... 53,975 46,599
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Total current assets ....................... 459,086 455,271
Property and equipment, net ...................... 242,948 247,115
Goodwill, net .................................... 286,579 286,579
Deferred financing costs, net .................... 3,949 4,170
Other assets ..................................... 16,996 17,691
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Total assets ............................... $ 1,009,558 $ 1,010,826
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ............................... $ 62,003 $ 57,058
Accrued expenses ............................... 79,170 94,137
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Total current liabilities .................. 141,173 151,195
Long-term debt, net .............................. 122,515 121,652
Deferred lease costs and other liabilities ....... 26,075 23,561
Stockholders' equity
Common stock, $.0068 par value;
120,000,000 shares authorized;
48,953,485 and 48,932,860
shares issued, respectively ................ 332 332
Additional paid-in capital ..................... 500,420 500,061
Retained earnings .............................. 313,401 296,113
Deferred compensation on restricted stock ...... (5,584) (3,968)
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808,569 792,538
Treasury stock, at cost
4,660,851 and 4,050,972
shares, respectively .................. (88,774) (78,120)
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Total stockholders' equity ................. 719,795 714,418
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Total liabilities and stockholders' equity . $ 1,009,558 $ 1,010,826
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See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR STORES CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE QUARTERS ENDED MAY 3, 2003 AND MAY 4, 2002
(UNAUDITED)
QUARTERS ENDED
MAY 3, 2003 MAY 4, 2002
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(IN THOUSANDS)
Operating activities:
Net income ....................................... $ 17,928 $ 20,922
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Amortization of deferred compensation .......... 780 1,391
Deferred income taxes .......................... 231 ---
Depreciation and amortization .................. 12,649 11,730
Gain on sale of proprietary credit
card accounts receivable ..................... --- (2,095)
Loss on disposal of property and equipment ..... 552 306
Non-cash interest .............................. 1,084 1,056
Tax benefit from exercise of stock options ..... 53 2,794
Changes in assets and liabilities:
Receivables .................................. (10,069) (5,277)
Merchandise inventories ...................... (10,917) 7,842
Prepaid expenses and other current assets .... (6,808) 396
Accounts payable and accrued expenses ........ (10,022) (1,237)
Other non-current assets and liabilities, net 2,411 1,703
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Net cash provided (used) by operating activities . (2,128) 39,531
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Investing activities:
Purchases of property and equipment .............. (9,035) (11,045)
Net proceeds from sale of proprietary
credit card accounts receivable ................ --- 57,800
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Net cash provided (used) by investing activities . (9,035) 46,755
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Financing activities:
Payments on mortgage ............................. --- (1,250)
Payment of financing costs ....................... --- (14)
Common stock activity related to stock
based compensation programs, net ............... (603) 9,449
Repurchase of common stock ....................... (12,781) ---
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Net cash provided (used) by financing activities . (13,384) 8,185
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Net increase (decrease) in cash .................... (24,547) 94,471
Cash and cash equivalents, beginning of period ..... 212,821 30,037
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Cash and cash equivalents, end of period ........... $ 188,274 $ 124,508
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest......... $ 301 $ 354
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Cash paid during the period for income taxes..... $ 1,022 $ 2,581
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See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR STORES CORPORATION
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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 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 2003 interim period shown in this
report are not necessarily indicative of results to be expected for the
fiscal year.
The February 1, 2003 condensed consolidated balance sheet amounts have
been derived from the previously audited consolidated balance sheet of
AnnTaylor Stores Corporation ("the Company").
Detailed footnote information is not included for the quarters ended May
3, 2003 and May 4, 2002. The financial information set forth herein should
be read in conjunction with the Notes to the Company's Consolidated Financial
Statements contained in the AnnTaylor Stores Corporation 2002 Annual Report
to Stockholders.
2. EARNINGS PER SHARE
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Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share assumes the issuance of additional shares of
common stock by the Company upon exercise of all outstanding stock options,
conversion of all outstanding convertible securities and vesting of unvested
restricted stock, if the effect is dilutive.
In April 2002, the Company's Board of Directors approved a 3-for-2 split
of the Company's Common Stock, in the form of a stock dividend. One
additional share of Common Stock for every two shares owned was distributed
on May 20, 2002 to stockholders of record at the close of business on May 2,
2002. All share and per share amounts for the period ended May 4, 2002 have
been restated to reflect the effect of the stock split:
[Tables next page]
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ANNTAYLOR STORES CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(UNAUDITED)
2. EARNINGS PER SHARE (CONTINUED)
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QUARTERS ENDED
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MAY 3, 2003 MAY 4, 2002
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
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BASIC EARNINGS PER SHARE
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Income available to common
stockholders $17,928 44,043 $0.41 $20,922 43,978 $0.48
EFFECT OF DILUTIVE SECURITIES
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Stock options and restricted stock --- 266 --- 721
Convertible Debentures 724 3,606 706 3,606
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DILUTED EARNINGS PER SHARE
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Income available to common
stockholders $18,652 47,915 $0.39 $21,628 48,305 $0.45
======= ====== ===== ======= ====== =====
Options to purchase 2,768,893 and 875,625 shares of common stock during the
quarters ended May 3, 2003 and May 4, 2002, respectively, were excluded from the
above computations of weighted average shares for diluted earnings per share,
due to the antidilutive effect of the options' exercise prices as compared to
the average market price of the shares of common stock during those periods.
3. STOCK-BASED AWARDS
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The Company accounts for stock-based awards and employees' purchase rights
under the Associate Discount Stock Purchase Plan using the intrinsic
value-based method of accounting in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation cost is recognized for
stock option awards granted at fair market value and employees' purchase
rights under the Associate Discount Stock Purchase Plan. The Company has
considered the optional fair value accounting allowed under Statement of
Financial Accounting Standard ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of Financial
Accounting Standards Board ("FASB") Statement No. 123", and has elected to
continue using the intrinsic value method. Had compensation costs of option
awards and employees' purchase rights been determined under a fair value
alternative method as stated in SFAS No. 148 the Company would have been
required to prepare a fair value model for such options and employees'
purchase rights, and record such amount in the consolidated financial
statements as compensation expense. Restricted stock awards result in the
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ANNTAYLOR STORES CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(UNAUDITED)
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3. STOCK-BASED AWARDS (CONTINUED)
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recognition of deferred compensation. Deferred compensation is shown as a
reduction of stockholders' equity and is amortized to operating expense over the
vesting period of the stock award. Pro forma stock based employee compensation
costs, net income and earnings per share, as they would have been recognized if
the fair value method had been applied to all awards, are presented in the table
below.
QUARTERS ENDED
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MAY 3, MAY 4,
2003 2002
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(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net income:
As reported........................................... $17,928 $20,922
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects... (974) (898)
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Pro forma............................................. $16,954 $20,024
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Basic earnings per share:
As reported........................................... $ 0.41 $ 0.48
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Pro forma............................................. $ 0.38 $ 0.46
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Diluted earnings per share:
As reported........................................... $ 0.39 $ 0.45
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Pro forma ............................................ $ 0.37 $ 0.43
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4. LONG-TERM DEBT
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Long-term debt outstanding at May 3, 2003 was $122,515,000, which
represents the net carrying value of the Company's convertible debentures on
that date.
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ANNTAYLOR STORES CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(UNAUDITED)
5. RECENT ACCOUNTING PRONOUNCEMENTS
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On May 15, 2003 the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity". SFAS No. 150 requires that an
issuer classify financial instruments that are within its scope as a
liability. Many of those instruments were classified as equity under
previous guidance. Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. Management is currently evaluating the provisions of
SFAS No. 150, and does not believe that it will have an impact on the
Company's consolidated financial statements.
On April 30, 2003 the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No 149 is effective for contracts entered
into or modified after June 30, 2003. Management is currently evaluating
the provisions of SFAS No. 149, and does not believe that it will have a
significant impact on the Company's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities - an Interpretation of Accounting
Research Bulletin No. 51". FIN No. 46 requires unconsolidated variable
interest entities to be consolidated by their primary beneficiaries if the
entities do not effectively disperse the risks and rewards of ownership among
their owners and other parties involved. The provisions of FIN No. 46 are
applicable immediately to all variable interest entities created after
January 31, 2003 and variable interest entities in which a company obtains an
interest after that date. For variable interest entities created before
January 31, 2003, the provisions of this interpretation are effective July 1,
2003. Management has determined FIN No. 46 will have no impact 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
QUARTERS ENDED
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MAY 3, 2003 MAY 4, 2002
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Number of Stores:
Open at beginning of period............... 584 538
Opened during period...................... 18 13
Expanded or remodeled during period*...... 1 ---
Closed during period...................... --- ---
Open at end of period..................... 602 551
Type of Stores Open at End of Period:
Ann Taylor stores......................... 351 343
Ann Taylor Loft stores.................... 224 188
Ann Taylor Factory stores................. 27 20
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* Expanded stores are excluded from comparable store sales for the first
year following expansion.
QUARTER ENDED MAY 3, 2003 COMPARED TO QUARTER ENDED MAY 4, 2002
The Company's net sales in the first quarter of fiscal 2003 increased to
$352,017,000 from $345,392,000 in the first quarter of fiscal 2002, an increase
of $6,625,000, or 1.9 percent. By division, net sales for the first quarter of
fiscal 2003, were $201,326,000 for Ann Taylor and $119,923,000 for Ann Taylor
Loft. The overall sales increase was primarily the result of an increase in the
number of stores open as compared to last year. Comparable store sales for the
first quarter of fiscal 2003 decreased 6.5 percent, compared to an increase of
0.1 percent in the first quarter of fiscal 2002. Comparable store sales by
division were down 8.1 percent for Ann Taylor and down 2.8 percent for Ann
Taylor Loft. Management believes that the decrease in comparable store sales
was, in part, the result of client dissatisfaction with certain of the Company's
product offerings and merchandise assortment available in Ann Taylor stores.
Gross margin as a percentage of net sales decreased slightly to 53.7
percent in the first quarter of fiscal 2003, compared to 54.0 percent in the
first quarter of fiscal 2002.
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Selling, general and administrative expenses were $158,618,000, or 45.1
percent of net sales, in the first quarter of fiscal 2003, compared to
$151,081,000, or 43.7 percent of net sales, in the first quarter of fiscal
2002. The increase in selling, general and administrative expenses as a
percentage of sales was primarily the result of an overall deleveraging of
expenses due to negative comparable store sales, and higher tenancy and new
store operations expenses. These increases were partially offset by a
decrease in the provision for management performance bonus. Additionally,
2002 was favorably impacted by the $2,095,000 gain on the sale of the Ann
Taylor proprietary credit card.
As a result of the foregoing factors, the Company had operating income
of $30,397,000, or 8.6 percent of net sales, in the first quarter of fiscal
2003, compared to $35,482,000, or 10.3 percent of net sales, in the first
quarter of fiscal 2002.
Interest income was $688,000 in the first quarter of fiscal 2003,
compared to $516,000 in the first quarter of fiscal 2002. The increase is
attributable to higher cash on hand, partially offset by lower interest rates.
Interest expense was $1,694,000 in the first quarter of fiscal 2003,
compared to $1,699,000 in the first quarter of fiscal 2002.
The income tax provision was $11,463,000, or 39 percent of income before
income taxes, in the first quarter of fiscal 2003, compared to $13,377,000,
or 39 percent of income before income taxes, in the first quarter of fiscal
2002.
As a result of the foregoing factors, the Company had net income of
$17,928,000, or 5.1 percent of net sales, for the first quarter of fiscal
2003, compared to $20,922,000, or 6.1 percent of net sales, for the first
quarter of fiscal 2002.
AnnTaylor Stores Corporation conducts no business other than the
management of Ann Taylor.
FINANCIAL CONDITION
For the first quarter of fiscal 2003, net cash used by operating
activities totaled $2,128,000, primarily as a result of an increase in
working capital. Cash used by investing activities during the first quarter
of fiscal 2003 amounted to $9,035,000, for the purchase of property and
equipment. Cash used by financing activities during the first quarter of
fiscal 2003 amounted to $13,384,000 due primarily the Company's repurchase of
common stock.
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Merchandise inventories were $196,401,000 at May 3, 2003, compared to
inventories of $185,484,000 at February 1, 2003. Merchandise inventories at
May 3, 2003 and February 1, 2003 included approximately $31,589,000 and
$41,771,000, respectively, of inventory associated with the Company's
sourcing division, which is primarily finished goods in transit from
factories. On a per square foot basis, inventories at the end of the first
quarter of fiscal 2003, including inventories attributable to the Company's
sourcing division, were up approximately 3 percent compared to inventories
at the end of fiscal 2002.
Total fiscal 2003 capital expenditures, which are primarily attributable
to the Company's store expansion, renovation and refurbishment programs, and
the investment in information systems, are expected to be approximately
$85,000,000. For the three months ended May 3, 2003, capital expenditures
totaled $9,035,000, net of landlord construction allowances. During the
first three months of fiscal 2003, the Company opened one new Ann Taylor
store and 17 new Ann Taylor Loft stores. For the remainder of fiscal 2003,
the Company expects to open 10 additional Ann Taylor stores, 49 additional
Ann Taylor Loft stores and one Ann Taylor Factory store.
In order to finance its operations and capital requirements, the Company
expects to use internally generated funds, trade credit and funds available
to it under its credit facility. The Company believes that cash flow from
operations and funds available under the credit facility are sufficient to
enable it to meet its on-going cash needs for its business, as presently
conducted, for the foreseeable future.
In April 2002, the Company's Board of Directors approved a 3-for-2 stock
split of the Company's Common Stock in the form of a stock dividend. One
additional share of Common Stock for every two shares owned was distributed
on May 20, 2002 to stockholders of record at the close of business on May 2,
2002. All share and per share amounts for the period ended May 4, 2002 have
been restated to reflect the effect of the stock split.
In August 2002, the Company's Board of Directors authorized a $50
million securities repurchase program. The repurchase program is subject to
compliance with the Company's revolving credit agreement. Pursuant to this
program, purchases of shares of the Company's Common Stock and/or its
Convertible Debentures due 2019 may be made from time to time, subject to
market conditions and at prevailing market prices, through open market
purchases or in privately negotiated transactions. Repurchased shares of
Common Stock will become treasury shares available for general corporate and
other purposes. Repurchased Convertible Debentures will be cancelled. The
Company repurchased 680,000 shares of its common stock during the first
quarter of 2003 in connection with this securities repurchase program, at a
total cost of approximately $12,800,000.
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RECENT ACCOUNTING PRONOUNCEMENTS
On May 15, 2003 the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
This Statement requires that an issuer classify financial instruments that
are within its scope as a liability. Many of those instruments were
classified as equity under previous guidance. Most of the guidance in SFAS
No. 150 is effective for all financial instruments entered into or modified
after May 31, 2003, and otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. Management is currently
evaluating the provisions of this statement, and does not believe that it
will have an impact on the Company's consolidated financial statements.
On April 30, 2003 the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS 149 amends and
clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under Statement 133. This Statement is effective for contracts
entered into or modified after June 30, 2003. Management is currently
evaluating the provisions of this statement, and does not believe that it
will have a significant impact on the Company's consolidated financial
statements.
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities - an Interpretation of Accounting
Research Bulletin No. 51". FIN No. 46 requires unconsolidated variable
interest entities to be consolidated by their primary beneficiaries if the
entities do not effectively disperse the risks and rewards of ownership among
their owners and other parties involved. The provisions of FIN No. 46 are
applicable immediately to all variable interest entities created after
January 31, 2003 and variable interest entities in which a company obtains an
interest after that date. For variable interest entities created before
January 31, 2003, the provisions of this interpretation are effective July 1,
2003. Management has determined FIN No. 46 will have no impact on the
Company's consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
Management has determined that the Company's most critical accounting
policies are those related to merchandise inventory valuation, intangible
asset impairment, income taxes and pension accounting.
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Inventory is valued at the lower of average cost or market, at the
individual item level. Market is determined based on the estimated net
realizable value, which is generally the merchandise selling price.
Inventory levels are monitored to identify slow-moving merchandise and broken
assortments (items no longer in stock in a sufficient range of sizes) and
markdowns are used to clear such merchandise. Inventory value is reduced
immediately when the selling price is marked below cost. Physical inventory
counts are performed annually each January, and estimates are made for
shortage during the period between the last physical inventory count and the
balance sheet date.
The Company follows SFAS No. 142, "Goodwill and Other Intangible
Assets". This accounting standard requires that goodwill and indefinite life
intangible assets are no longer amortized but are subject to annual
impairment tests. Other intangible assets with finite lives will continue to
be amortized over their useful lives. The Company performs impairment
testing annually using net discounted future cash flows to determine whether
an impairment charge related to the carrying value of the Company's recorded
goodwill is necessary. The most recent impairment tests did not result in an
impairment charge. In the case of long-lived tangible assets, if the
undiscounted future cash flows related to the long-lived assets are less than
the assets' carrying value, a similar impairment charge would be considered.
Management's estimate of future cash flows is based on historical experience,
knowledge, and market data. These estimates can be affected by factors such
as those outlined in the Statement Regarding Forward-Looking Disclosures.
The Company follows SFAS No. 109 "Accounting for Income Taxes," which
requires the use of the liability method. Deferred tax assets and
liabilities are recognized based on the differences between the financial
statement carrying value of existing assets and liabilities and their
respective tax bases. Inherent in the measurement of these deferred balances
are certain judgments and interpretations of existing tax law and other
published guidance as applied to the Company's operations. No valuation
allowance has been provided for deferred tax assets, since management
anticipates that the full amount of these assets should be realized in the
future. The Company's effective tax rate considers management's judgment of
expected tax liabilities in the various taxing jurisdictions within which it
is subject to tax. The Company has also been involved in both foreign and
domestic tax audits. At any given time, many tax years are subject to audit
by various taxing authorities.
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All full-time employees of the Company who have been employed by the
Company for at least one year are covered under a noncontributory defined
benefit pension plan. The Company's funding obligations and liability under
the terms of the plan are determined using certain actuarial assumptions,
including a discount rate and an expected long-term rate of return on plan
assets. The assumptions used are based on current market conditions and
historical analysis, and can be affected by a variety of factors. Management
believes that it has taken reasonable steps to ensure that the plan is
adequately funded and the Company is adequately accrued for costs related to
the pension plan.
Management believes these critical accounting policies represent the
more significant judgments and estimates used in the preparation of the
Company's consolidated financial statements.
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 client 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
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; the
potential impact of health concerns relating to severe acute respiratory
syndrome, particularly on manufacturing operations of the Company's vendors
in Asia and elsewhere; 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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16
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial
Officer, the Company has conducted an evaluation of the effectiveness of the
design and operation of its disclosure controls and procedures (as such term
is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) as of a date within 90 days of the
filing of this quarterly report (the "Evaluation Date"). There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based on such evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are
effective in alerting them on a timely basis to material information relating
to the Company (including its consolidated subsidiaries) required to be
included in the Company's reports filed or submitted under the Exchange Act.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect such controls subsequent to the
Evaluation Date, including any corrective actions with regard to significant
deficiencies and material weaknesses.
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PART II. OTHER INFORMATION
--------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AnnTaylor Stores Corporation's 2003 Annual Meeting of Stockholders was
held on May 1, 2003. The following matters were voted upon and approved by
the Company's stockholders at the meeting:
1. Messrs. Gerald S. Armstrong and Wesley E. Cantrell, and Ms. Hanne M.
Merriman, were re-elected as Class III Directors of the Company for terms
expiring in 2006, or until their respective successors are elected and
qualified. 38,241,680, 39,720,356 and 38,239,321 shares were voted in favor
of, no shares were voted against, and 2,943,517, 1,464,841, and 2,945,876
shares abstained from voting on, the re-election of Messrs. Armstrong and
Cantrell, and Ms. Merriman, respectively.
2. The material terms of the performance goals under the Company's Long Term
Cash Incentive Compensation Plan, as amended, were re-approved. 39,923,212
shares were voted in favor of, 1,241,264 shares were voted against and
20,721 shares abstained from voting on, this proposal.
3. The Company's 2003 Equity Incentive Plan, adopted by the Board of
Directors, was approved. 33,334,806 shares were voted in favor of,
7,831,165 shares were voted against and 19,226 shares abstained from voting
on, this proposal.
4. The engagement of Deloitte & Touche LLP as the Company's independent
auditors for the 2003 fiscal year was ratified. 35,785,987 shares were
voted in favor of, 5,386,739 shares were voted against and 12,471 shares
abstained from voting on, this proposal.
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18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------- --------------------------------------------------------
10.1 First Amendment to the AnnTaylor Stores Corporation 2002
Stock Option and Restricted Stock and Unit Award Plan,
effective as of March 11, 2003.
10.2 Employment Agreement, dated as of March 28, 2003, between
the Company and Jerome Jessup.
10.3 AnnTaylor Stores Corporation 2003 Equity Incentive Plan.
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.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the quarter
covered by this report:
DATE OF REPORT ITEM(S) REPORTED
-------------- ----------------
2/6/2003 Item 5 and Item 7
3/11/2003 Item 5 and Item 7
4/10/2003 Item 7 and Item 9
The report on Form 8-K dated March 11, 2003 included the Company's Condensed
Consolidated Statements of Operations for the quarters and fiscal years ended
February 1, 2003 and February 2, 2002 and Condensed Consolidated Balance
Sheets at February 1, 2003 and February 2, 2002.
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19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANNTAYLOR STORES CORPORATION
Date: June 13, 2003 By: /s/J. Patrick Spainhour
---------------- ---------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: June 13, 2003 By: /s/James M. Smith
---------------- ---------------------------
James M. Smith
Senior Vice President,
Chief Financial Officer and
Treasurer
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20
CERTIFICATION
-------------
I, J. Patrick Spainhour, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AnnTaylor Stores
Corporation;
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;
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;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
20
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21
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: June 13, 2003 /s/J. Patrick Spainhour
----------------------- ---------------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
21
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22
CERTIFICATION
-------------
I, James M. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AnnTaylor Stores
Corporation;
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;
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;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
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23
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: June 13, 2003 /s/James M. Smith
------------------------- ------------------------------
James M. Smith
Senior Vice President,
Chief Financial Officer and
Treasurer
23
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24
Exhibit Index
- --------------
Exhibit
Number Description
10.1 First Amendment to the AnnTaylor Stores Corporation 2002 Stock
Option and Restricted Stock and Unit Award Plan, effective as of
March 11, 2003.
10.2 Employment Agreement, dated as of March 28, 2003, between the
Company and Jerome Jessup.
10.3 AnnTaylor Stores Corporation 2003 Equity Incentive Plan.
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.
24