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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 2, 2003
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 .
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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 No |X|.
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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 August 29, 2003
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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 2, 2003
and August 3, 2002........................................ 3
Condensed Consolidated Balance Sheets at
August 2, 2003 and February 1, 2003....................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended August 2, 2003 and
August 3, 2002............................................ 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Results of
Operations................................................ 8
Item 4. Controls and Procedures.....................................11
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K............................12
SIGNATURES .........................................................13
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EXHIBIT INDEX .........................................................14
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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 2, 2003 AND AUGUST 3, 2002
(UNAUDITED)
QUARTERS ENDED SIX MONTHS ENDED
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AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
2003 2002 2003 2002
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(IN THOUSANDS)
Net sales ...................... $390,207 $343,143 $742,224 $688,535
Cost of sales .................. 187,646 161,965 350,648 320,794
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Gross margin ................... 202,561 181,178 391,576 367,741
Selling, general and
administrative expenses ..... 166,660 150,425 325,278 301,506
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Operating income ............... 35,901 30,753 66,298 66,235
Interest income ................ 777 913 1,465 1,429
Interest expense ............... 1,674 1,826 3,368 3,525
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Income before income taxes ..... 35,004 29,840 64,395 64,139
Income tax provision ........... 13,827 11,638 25,290 25,015
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Net income ................. $ 21,177 $ 18,202 $ 39,105 $ 39,124
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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 2, 2003 AND FEBRUARY 1, 2003
(UNAUDITED)
AUGUST 2, FEBRUARY 1,
2003 2003
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ASSETS (IN THOUSANDS)
Current assets
Cash and cash equivalents ........................ $ 259,594 $ 212,821
Accounts receivable, net ......................... 14,830 10,367
Merchandise inventories .......................... 168,683 185,484
Prepaid expenses and other current assets ........ 51,494 46,599
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Total current assets ......................... 494,601 455,271
Property and equipment, net ........................ 253,892 247,115
Goodwill, net ...................................... 286,579 286,579
Deferred financing costs, net ...................... 3,727 4,170
Other assets ....................................... 15,492 17,691
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Total assets ................................. $1,054,291 $1,010,826
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable ................................. $ 68,842 $ 57,058
Accrued expenses ................................. 88,217 94,137
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Total current liabilities .................... 157,059 151,195
Note payable to AnnTaylor Stores Corporation ....... 123,386 121,652
Deferred lease costs and other liabilities ......... 27,066 23,561
Stockholder's equity
Common stock, $1.00 par value;
1,000 shares authorized;
1 share issued and outstanding ................ 1 1
Additional paid-in capital ....................... 412,031 417,568
Retained earnings ................................ 334,748 296,849
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Total stockholder's equity ................... 746,780 714,418
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Total liabilities and stockholder's equity ... $1,054,291 $1,010,826
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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 2, 2003 AND AUGUST 3, 2002
(UNAUDITED)
SIX MONTHS ENDED
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AUGUST 2, AUGUST 3,
2003 2002
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(IN THOUSANDS)
Operating activities:
Net income ......................................... $ 39,105 $ 39,124
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of deferred compensation ............ 1,540 2,167
Deferred income taxes ............................ (471) 1,340
Depreciation and amortization .................... 25,640 23,736
Gain on sale of proprietary credit
card accounts receivable ....................... -- (2,095)
Loss on disposal of property and equipment ....... 725 347
Non-cash interest ................................ 2,177 2,117
Changes in assets and liabilities:
Receivables .................................... (4,463) (1,809)
Merchandise inventories ........................ 16,801 10,662
Prepaid expenses and other current assets ...... (3,791) 115
Accounts payable and accrued expenses .......... 5,864 18,155
Other non-current assets and liabilities, net .. 5,070 1,629
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Net cash provided by operating activities .......... 88,197 95,488
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Investing activities:
Purchases of property and equipment ................ (33,141) (17,572)
Net proceeds from sale of proprietary credit
card accounts receivable ....................... --- 57,800
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Net cash provided (used) by investing activities ... (33,141) 40,228
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Financing activities:
Payments on mortgage ............................... -- (1,250)
Payment of financing costs ......................... -- (14)
Parent company activity ............................ (8,283) 15,963
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Net cash provided (used) by financing activities ... (8,283) 14,699
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Net increase in cash ................................. 46,773 150,415
Cash and cash equivalents, beginning of period ....... 212,821 30,037
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Cash and cash equivalents, end of period ............. $ 259,594 $ 180,452
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest ........... $ 1,133 $ 1,260
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Cash paid during the period for income taxes ....... $ 19,239 $ 8,234
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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 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 2003 interim periods 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, Inc. (the "Company").
Detailed footnote information is not included for the quarters ended
August 2, 2003 and August 3, 2002. 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 2002 Annual Report
on Form 10-K.
2. LONG-TERM DEBT
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The Company had $123,386,000 in long term debt outstanding at August 2,
2003 in the form of a Note Payable to AnnTaylor Stores Corporation.
3. 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. The adoption of SFAS No. 150 has had no impact on the
Company's consolidated financial statements for the periods presented. The
Company will record financial instruments entered into or modified in future
periods in accordance with the provisions of SFAS No. 150.
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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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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 has evaluated the
provisions of SFAS No. 149, and determined that it has had no impact on the
Company's consolidated financial statements for the periods presented. The
Company will evaluate contracts entered into or modified in future periods
and record them in accordance with the provisions of SFAS No. 149.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED
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AUGUST 2, AUGUST 3,
2003 2002
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Number of Stores:
Open at beginning of period ......................... 584 538
Opened during period ................................ 21 17
Expanded or remodeled during period* ................ 4 ---
Closed during period ................................ 2 ---
Open at end of period ............................... 603 555
Type of Stores Open at End of Period:
Ann Taylor stores ................................... 350 344
Ann Taylor Loft stores .............................. 226 183
Ann Taylor Factory Stores ........................... 27 28
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* Expanded stores are excluded from comparable store sales for the first year
following expansion.
SIX MONTHS ENDED AUGUST 2, 2003 COMPARED TO THE SIX MONTHS ENDED AUGUST 3, 2002
The Company's net sales in the first six months of fiscal 2003 increased
to $742,224,000 from $688,535,000 for the same period last year, an increase
of $53,689,000 or 7.8 percent. By division, net sales for the first six
months of fiscal 2003 were $417,364,000 for Ann Taylor and $259,931,000 for
Ann Taylor Loft. Comparable store sales for the first six months of fiscal
2003 decreased 0.5 percent compared to a decrease of 0.1 percent during the
same period in fiscal 2002. Comparable store sales by division were down 1.8
percent for Ann Taylor and up 1.7 percent 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.
Gross margin as a percentage of net sales decreased to 52.8 percent for
the first six months of fiscal 2003 from 53.4 percent during the same period
last year. The decrease in gross margin as a percentage of net sales is
primarily due to lower full price sales and lower margin on non-full price
sales at Ann Taylor.
Selling, general and administrative expenses as a percent of net sales for
the first six months of fiscal 2003 were flat compared to the same period
last year, at 43.8 percent of net sales.
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As a result of the foregoing, the Company had operating income of
$66,298,000, or 8.9 percent of net sales, in the first six months of fiscal
2003, compared to $66,235,000, or 9.6 percent of net sales, in the first six
months of fiscal 2002.
Interest income was $1,465,000 in the first six months of fiscal 2003,
compared to $1,429,000 in the first six months of fiscal 2002.
Interest expense was $3,368,000 in the first six months of fiscal 2003,
compared to $3,525,000 in the first six months of fiscal 2002.
The income tax provision was $25,290,000, or 39.3 percent of income before
taxes, in the first six months of fiscal 2003, compared to $25,015,000, or
39.0 percent of income before taxes, for the same period last year. During
the second quarter of fiscal 2003, the Company increased its effective income
tax rate from 39 percent to 40 percent to reflect higher state taxes.
As a result of the foregoing factors, the Company had net income of
$39,105,000, or 5.3 percent of net sales, for the first six months of fiscal
2003, compared to net income of $39,124,000, or 5.7 percent of net sales, for
the first six months of fiscal 2002.
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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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ITEM 4. CONTROLS AND PROCEDURES
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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-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) as of the end of the period covered
by this 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 was no change in the Company's internal control over financial
reporting during the quarterly period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
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31.1 Certification of chief executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of chief financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of chief executive officer and 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
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5/8/03 Item 7 and Item 12
5/14/03 Item 7 and Item 12
6/5/03 Item 7 and Item 9
7/10/03 Item 7 and Item 9
The report on Form 8-K dated May 14, 2003 included the Condensed
Consolidated Statements of Operations for the quarters ended May 3, 2003
and May 4, 2002 and Condensed Consolidated Balance Sheets at May 3, 2003
and February 1, 2003 of AnnTaylor Stores Corporation.
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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 12, 2003 By: /s/J. Patrick Spainhour
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J. Patrick Spainhour
Chairman, Chief Executive
Officer
Date: September 12, 2003 By: /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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31.1 Certification of chief executive officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of chief financial officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of chief executive officer and chief financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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