- -------------------------------------------------------------------
- -------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 5, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10738
ANNTAYLOR STORES CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3499319
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
142 West 57th Street, New York, NY 10019
- ------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(212) 541-3300
--------------
(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 June 1, 2001
----- ------------
Common Stock, $.0068 par value 29,102,232
- ---------------------------------------------------------------------
- --------------------------------------------------------------------
================================================================================
2
INDEX TO FORM 10-Q
------------------
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1.Financial Statements
Condensed Consolidated Statements of Income
for the Quarters Ended May 5, 2001
and April 29, 2000................................... 3
Condensed Consolidated Balance Sheets at
May 5, 2001 and February 3, 2001..................... 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended May 5, 2001 and
April 29, 2000....................................... 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
-------------------------
Item 4.Submission of Matters to a Vote of Security Holders....12
Item 6.Exhibits and Reports on Form 8-K.......................13
================================================================================
3
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
ANNTAYLOR STORES CORPORATION
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
FOR THE QUARTERS ENDED MAY 5, 2001 AND APRIL 29, 2000
(unaudited)
QUARTERS ENDED
--------------
May 5, 2001 April 29, 2000
----------- --------------
(in thousands, except per share amounts)
Net sales........................................... $307,090 $277,068
Cost of sales....................................... 147,438 128,472
------- -------
Gross profit........................................ 159,652 148,596
Selling, general and administrative expenses........ 135,718 124,103
Amortization of goodwill............................ 2,760 2,760
------- -------
Operating income.................................... 21,174 21,733
Interest income..................................... 335 464
Interest expense.................................... 1,780 1,796
------- -------
Income before income taxes.......................... 19,729 20,401
Income tax provision................................ 8,785 9,119
------- -------
Net income....................................... $ 10,944 $ 11,282
======= =======
Basic earnings per share............................ $ 0.38 $ 0.39
======= =======
Diluted earnings per share......................... $ 0.37 $ 0.38
======= =======
See accompanying notes to condensed consolidated financial statements.
-3-
================================================================================
4
ANNTAYLOR STORES CORPORATION
----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
May 5, 2001 and February 3, 2001
(unaudited)
May 5, February 3,
2001 2001
-------- --------
Assets (in thousands)
Current assets
Cash and cash equivalents .......................... $ 10,123 $ 31,962
Accounts receivable, net ........................... 67,869 57,989
Merchandise inventories ............................ 171,559 170,631
Prepaid expenses and other current assets .......... 51,635 53,227
-------- --------
Total current assets ........................... 301,186 313,809
Property and equipment, net .......................... 229,893 220,032
Goodwill, net ........................................ 294,859 297,619
Deferred financing costs, net ........................ 4,956 4,281
Other assets ......................................... 12,121 12,374
-------- --------
Total assets ................................... $ 843,015 $ 848,115
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ................................... $ 51,135 $ 65,903
Accrued salaries and bonus ......................... 12,427 12,960
Accrued tenancy .................................... 9,864 9,800
Gift certificates and merchandise credits redeemable 16,854 20,375
Accrued expenses ................................... 32,278 30,604
Current portion of long-term debt .................. 1,427 1,400
-------- --------
Total current liabilities ...................... 123,985 141,042
Long-term debt, net .................................. 116,644 116,210
Deferred lease costs and other liabilities ........... 16,078 16,834
Commitments and contingencies
Stockholders' equity
Common stock, $.0068 par value; 120,000,000
shares authorized;
31,970,857 and 31,834,088
shares issued, respectively ....................... 217 216
Additional paid-in capital ......................... 478,981 475,393
Retained earnings .................................. 201,037 190,093
Deferred compensation on restricted stock .......... (3,977) (1,723)
-------- --------
676,258 663,979
Treasury stock, 3,011,519 shares at cost ....... (89,950) (89,950)
-------- --------
Total stockholders' equity ..................... 586,308 574,029
-------- --------
Total liabilities and stockholders' equity ..... $ 843,015 $ 848,115
======== ========
See accompanying notes to condensed consolidated financial statements.
-4-
================================================================================
5
ANNTAYLOR STORES CORPORATION
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
For the Quarters Ended May 5, 2001 and April 29, 2000
(unaudited)
Quarters Ended
-------------------------
May 5, April 29,
2001 2000
------- -------
(in thousands)
Operating activities:
Net income ...................................... $ 10,944 $ 11,282
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loss on accounts receivable ..... 407 121
Depreciation and amortization ................. 9,778 8,219
Amortization of goodwill ...................... 2,760 2,760
Amortization of deferred compensation ......... 476 655
Non-cash interest ............................. 1,077 1,057
Loss on disposal of property and equipment .... 139 93
Tax benefit from exercise of stock options .... 5 --
Changes in assets and liabilities:
Receivables ................................. (10,287) (4,762)
Merchandise inventories ..................... (928) (24,471)
Prepaid expenses and other current assets ... 1,592 244
Accounts payable ............................ (14,768) 8,552
Accrued liabilities ......................... (2,315) 2,537
Other non-current assets and liabilities, net (501) 2,010
------- -------
Net cash provided (used) by operating activities (1,621) 8,297
------- -------
Investing activities:
Purchases of property and equipment ............. (19,780) (16,857)
------- -------
Net cash used by investing activities ........... (19,780) (16,857)
------- -------
Financing activities:
Payments of mortgage ............................ (341) (316)
Payment of financing costs ...................... (951) (19)
Issuance of common stock, net ................... 854 992
------- -------
Net cash provided (used) by financing activities (438) 657
------- -------
Net decrease in cash .............................. (21,839) (7,903)
Cash and cash equivalents, beginning of period .... 31,962 35,081
------- -------
Cash and cash equivalents, end of period .......... $ 10,123 $ 27,178
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest ........ $ 373 $ 333
======= =======
Cash paid during the period for income taxes .... $ 58 $ 867
======= =======
See accompanying notes to condensed consolidated financial statements.
-5-
================================================================================
6
ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
1. Basis of Presentation
- -- ---------------------
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 2001 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The February 3, 2001 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor Stores Corporation ("the
Company").
Certain Fiscal 2000 amounts have been reclassified to conform
to the Fiscal 2001 presentation.
Detailed footnote information is not included for the quarters
ended May 5, 2001 and April 29, 2000. 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 2000 Annual Report to Stockholders.
2. Net Income per Share
- -- --------------------
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 that are issuable
by the Company upon the conversion of all outstanding stock
options, restricted stock and convertible securities. Basic and
diluted earnings per share calculations follow:
Quarters Ended
-------------------------------------------------------
May 5, 2001 April 29, 2000
------------------------ -------------------------
(in thousands, except per share amounts)
Per Per
Share Share
Income Shares Amount Income Shares Amount
------- ------ ----- ------ ------ ------
Basic Earnings per Share
- ------------------------
Income available to common stockholders $10,944 28,750 $0.38 $11,282 28,721 $ 0.39
==== =====
Effect of Dilutive Securities
- ------------------------------
Stock options and restricted stock .... -- 169 -- 82
Convertible Debentures ................ 676 2,404 656 2,404
------- ------ ------- ------
Diluted Earnings per Share
- --------------------------
Income available to common stockholders $11,620 31,323 $0.37 $11,938 31,207 $ 0.38
======= ====== ==== ======= ======= =====
-7-
================================================================================
8
ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
3. Long-Term Debt
- -- --------------
On April 30, 2001, the Company's wholly owned subsidiary
AnnTaylor, Inc. ("Ann Taylor") entered into an Amended and
Restated $175,000,000 senior secured revolving credit facility
(the "Credit Facility") with Bank of America N.A. and a syndicate
of lenders. This facility amended Ann Taylor's then-existing
$125,000,000 bank credit agreement that was scheduled to expire
in June 2001. The Credit Facility, which matures on April 29,
2004, will be used by Ann Taylor for the issuance of commercial
and standby letters of credit and to provide revolving loans for
other general corporate purposes.
Loans outstanding under the Credit Facility at any time may
not exceed $75,000,000. Maximum availability for loans and
letters of credit under the Credit Facility is governed by a
monthly borrowing base, determined by the application of
specified advance rates against certain eligible assets. The
outstanding loan balance is required to be reduced to zero for a
thirty-day period each fiscal year.
Amounts outstanding under the Credit Facility bear interest at
a rate equal to, at Ann Taylor's option, the Bank of America Base
Rate, or Eurodollar Rate, plus a margin ranging from 0.25% to
1.00% and from 1.25% to 2.00%, respectively. In addition, Ann
Taylor is required to pay the lenders a quarterly commitment fee
on the unused revolving loan commitment amount at a rate ranging
from 0.30% to 0.50% per annum. Fees for outstanding commercial
and standby letters of credit range from 0.50% to 0.875% and from
1.25% to 2.00%, respectively. The Credit Facility contains
financial and other covenants, including limitations on
indebtedness, liens and investments, restrictions on dividends or
other distributions to stockholders and maintenance of certain
financial ratios including specified levels of tangible net
worth.
The lenders have been granted a pledge of the common stock of
Ann Taylor and certain of its subsidiaries, and a security
interest in substantially all other tangible and intangible
assets, including accounts receivable, trademarks, inventory,
store furniture and fixtures, of Ann Taylor and its subsidiaries,
as collateral for Ann Taylor's obligations under the Credit
Facility.
The following summarizes long-term debt outstanding at May 5,
2001:
(in thousands)
Mortgage............................. $ 2,310
Convertible Debentures, net.......... 115,761
-------
Total debt ......................... 118,071
Less current portion................. 1,427
-------
Total long-term debt.............. $116,644
=======
-8-
================================================================================
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarters Ended
----------------------------
May 5, 2001 April 29, 2000
----------- --------------
Number of Stores:
Open at beginning of period............... 478 405
Opened during period...................... 11 17
Expanded or remodeled during period*...... 4 2
Closed during period...................... 1 1
Open at end of period..................... 488 421
Type of Stores Open at End of Period:
Ann Taylor stores......................... 334 320
Ann Taylor Loft stores.................... 141 88
Ann Taylor Factory Stores................. 13 13
- ----------------
* Expanded stores are excluded from comparable store sales for
the first year following expansion.
QUARTER ENDED MAY 5, 2001 COMPARED TO QUARTER ENDED APRIL 29, 2000
The Company's net sales in the first quarter of 2001 increased
to $307,090,000 from $277,068,000 in the first quarter of 2000,
an increase of $30,022,000 or 10.8%. Comparable store sales for
the first quarter of 2001 decreased 3.5%, compared to a decrease
of 0.5% in the first quarter of 2000. Comparable sales by
division were down 4.8% for Ann Taylor stores and up 4.9% for Ann
Taylor Loft stores. The Loft comparable sales percentage does
not include 21 Ann Taylor Loft outlet stores and 12 Ann Taylor
Factory Stores. The sales increase was primarily attributable to
the opening of new stores offset, in part, by the net decrease in
comparable store sales. Management believes that the net decrease
in comparable store sales was the result of customer
dissatisfaction with certain of the Company's product offerings
and merchandise assortment in the first quarter of Fiscal 2001.
Gross profit as a percentage of net sales decreased to 52.0%
in the first quarter of 2001 from 53.6% in the first quarter of
2000. This decrease in gross margin reflects a higher markdown
rate on goods sold below full price and the sale of a greater
amount of goods below full price as a percentage of sales,
compared to the prior year, offset, in part, by higher gross
margins achieved on merchandise that was sold at full price.
Selling, general and administrative expenses represented 44.2%
of net sales in the first quarter of 2001, compared to 41.7% of
net sales in the first quarter of 2000, excluding a pre-tax
nonrecurring charge of approximately $8,500,000, or 3.1% of net
-9-
================================================================================
10
sales, in connection with an extensive review conducted with the
Company's financial and legal advisors of various strategic
approaches to enhance shareholder value. The increase in
selling, general, and administrative expenses as a percentage of
net sales, was primarily attributable to decreased leverage on
fixed expenses resulting from lower comparable store sales and
also from increases in tenancy expenses, and increases in Ann
Taylor Loft store operations.
As a result of the foregoing, the Company had operating income
of $21,174,000, or 6.9% of net sales, in the first quarter of
2001, compared to operating income of $21,733,000, or 7.8% of net
sales, in the first quarter of 2000, after taking into account
the nonrecurring charge. Amortization of goodwill was $2,760,000
in both the first quarter of 2001 and the first quarter of 2000.
Operating income, without giving effect to goodwill amortization
in either year, was $23,934,000, or 7.8% of net sales, in the
first quarter of 2001 and $24,493,000, or 8.8% of net sales, in
the first quarter of 2000.
Interest income was $335,000 in the first quarter of 2001
compared to $464,000 in the first quarter of 2000. The decrease
was primarily attributable to lower cash on hand and lower
interest rates during the first quarter of Fiscal 2001, compared
to the first quarter of Fiscal 2000.
Interest expense was $1,780,000 in the first quarter of 2001
compared to $1,796,000 in the first quarter of 2000.
The income tax provision was $8,785,000, or 44.5% of income
before income taxes, in the first quarter of 2000 compared to
$9,119,000, or 44.7% of income before income taxes, in the first
quarter of 2000. The effective income tax rates for both periods
were higher than the statutory rates, primarily as a result of
non-deductible goodwill expense.
As a result of the foregoing factors, the Company had net
income of $10,944,000, or 3.6% of net sales, for the first
quarter of 2001, compared to net income of $11,282,000, or 4.1%
of net sales, for the first quarter of 2000.
AnnTaylor Stores Corporation conducts no business other than
the management of Ann Taylor.
FINANCIAL CONDITION
For the first quarter of 2001, net cash used by operating
activities totaled $1,621,000, primarily as a result of an
increase in accounts receivable and a decrease in accounts
payable, offset, in part, by earnings and noncash charges. Cash
used by investing activities during the first quarter of 2001
amounted to $19,780,000, for the purchase of property and
equipment. Cash used by financing activities during the first
quarter of 2001 amounted to $438,000 primarily for the payment of
-10-
================================================================================
11
financing costs, offset, in part, by the issuance of Company
common stock under the Company's Associate Discount Stock
Purchase Plan.
Merchandise inventories were $171,559,000 at May 5, 2001,
compared to inventories of $170,631,000 at February 3, 2001.
Merchandise inventories at May 5, 2001 and February 3, 2001
included approximately $21,282,000 and $33,469,000, respectively,
of inventory associated with the Company's sourcing division,
which is primarily finished goods in transit from factories.
On April 30, 2001, the Company's wholly owned subsidiary
AnnTaylor, Inc. ("Ann Taylor") entered into an Amended and
Restated $175,000,000 senior secured revolving credit facility
(the "Credit Facility") with Bank of America N.A. and a syndicate
of lenders. This facility amended Ann Taylor's then-existing
$125,000,000 bank credit agreement that was scheduled to expire
in June 2001. The Credit Facility will be used by Ann Taylor for
the issuance of commercial and standby letters of credit and to
provide revolving loans for other general corporate purposes.
The terms of the Credit Facility are described in Note 3 to the
Condensed Consolidated Financial Statements. At May 5, 2001,
there were no borrowings outstanding under the Credit Facility.
The Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation, and
refurbishment programs and investment in certain information
systems, totaled $19,780,000, net of landlord construction
allowances, for the three months ended May 5, 2001. During the
first three months of Fiscal 2001, the Company opened two new Ann
Taylor stores and nine Ann Taylor Loft stores, and completed the
expansion of four Ann Taylor stores. In addition, the Company
closed one Ann Taylor Loft store that was located in a factory
outlet center.
Dividends and distributions from Ann Taylor to the Company are
restricted by the terms of the Credit Facility.
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 the 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.
-11-
================================================================================
12
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, within the meaning of the Private
Securities Litigation Reform Act of 1995, with respect to the
financial condition, results of operations and business of the
Company. Examples of forward-looking statements are statements
that use the words "expect", "anticipate", "plan", "intend",
"project", "believe" and similar expressions. These
forward-looking statements involve certain risks and
uncertainties, and no assurance can be given that any of such
matters will be realized. Actual results may differ materially
from those contemplated by such forward-looking statements as a
result of, among other things, failure by the Company to predict
accurately customer fashion preferences; a 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; lack of sufficient customer acceptance of the Ann
Taylor Loft concept in the upper-moderate-priced women's apparel
market; general economic conditions that are less favorable than
expected 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;
or an adverse outcome of the litigation referred to in Note 5 to
the Consolidated Financial Statements of the Company as of
February 3, 2001, that materially and adversely affects the
Company's financial condition. The Company assumes no obligation
to update or revise any such forward-looking statements, which
speak only as of their date, even if experience or future events
or changes make it clear that any projected financial or
operating results implied by such forward-looking statements will
not be realized.
-12-
================================================================================
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AnnTaylor Stores Corporation's 2001 Annual Meeting of
Stockholders was held on May 3, 2001. The following matters were
voted upon and approved by the Company's stockholders at the
meeting:
1. Mr. Robert C. Grayson, Ms. Rochelle B. Lazarus and Mr. J.
Patrick Spainhour were re-elected as Class I Directors of the
Company for terms expiring in 2004. 23,527,022, 21,371,481 and
23,516,971 shares were voted in favor of, zero shares were
voted against, and 3,063,601, 5,219,142 and 3,073,652 shares
abstained from voting on, the reelection of Mr. Grayson, Ms.
Lazarus and Mr. Spainhour, respectively. Mr. James J. Burke,
Jr. and Mr. Ronald W. Hovsepian continued as Class II
Directors with terms expiring in 2002 and Mr. Gerald S.
Armstrong, Mr. Wesley E. Cantrell, and Ms. Hanne M. Merriman
continued as Class III Directors with terms expiring in 2003.
2. The appointment of Deloitte & Touche LLP as the Company's
independent auditors for the 2001 fiscal year was ratified.
26,279,318 shares were voted in favor of, 267,865 shares were
voted against, and 43,440 shares abstained from voting on,
this proposal.
-13-
================================================================================
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.17.1 Amendment to the Employment Agreement, dated June 1, 2001,
between the Company and Barry Erdos.
10.18 Amended and Restated Credit Agreement,dated as of April 30, 2001
among Ann Taylor, Bank of America, N.A.("Bank of America"), JP
Morgan and First Union National Bank, as Syndication Agents,
the financial institutions from time to time party thereto,
Bank of America Securities LLC, as Arranger, and Bank of
America, as Administrative Agent.
10.19 Employment Agreement, dated as of April 24, 2001, between
the Company and Kim Roy.
10.20 Employment Agreement, dated as of May 3, 2001, between
the Company and Katherine Lawther Krill.
(b) Reports on Form 8-K:
None
-14-
================================================================================
15
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 18, 2001 By: /s/ J. Patrick Spainhour
---------------- -------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: June 18, 2001 By: /s/ James M. Smith
---------------- -------------------------
James M. Smith
Senior Vice President,
Chief Financial Officer
and Treasurer
-15-