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 August 4, 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 August 31, 2001
----- -----------------
Common Stock, $.0068 par value 29,152,987
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INDEX TO FORM 10-Q
Page No.
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
Condensed Consolidated Statements of Income
for the Quarters and Six Months Ended
August 4, 2001 and July 29, 2000............................ 3
Condensed Consolidated Balance Sheets at
August 4, 2001 and February 3, 2001......................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended August 4, 2001 and
July 29, 2000............................................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 9
PART II.OTHER INFORMATION
Item 1.Legal Proceedings............................................15
Item 6.Exhibits and Reports on Form 8-K.............................16
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3
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
ANNTAYLOR STORES CORPORATION
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
FOR THE QUARTERS AND SIX MONTHS ENDED AUGUST 4, 2001 AND JULY 29, 2000
(UNAUDITED)
Quarters Ended Six Months Ended
-------------- ----------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
---- ---- ---- ----
(in thousands, except per share amounts)
Net sales................................... $310,292 $306,252 $617,382 $583,320
Cost of sales .............................. 158,289 162,444 305,727 290,916
------- ------- ------- -------
Gross profit ............................... 152,003 143,808 311,655 292,404
Selling, general and administrative expenses 135,833 116,062 271,551 240,165
Amortization of goodwill ................... 2,760 2,760 5,520 5,520
------- ------- ------- -------
Operating income ........................... 13,410 24,986 34,584 46,719
Interest income ............................ 523 806 858 1,270
Interest expense ........................... 1,719 1,830 3,499 3,626
------- ------- ------- -------
Income before income taxes ................. 12,214 23,962 31,943 44,363
Income tax provision ....................... 5,815 10,536 14,600 19,655
------- ------- ------- -------
Net income ............................. $ 6,399 $ 13,426 $ 17,343 $ 24,708
======= ======= ======= =======
Basic earnings per share ................... $ 0.22 $ 0.47 $ 0.60 $ 0.86
======= ======= ======= =======
Diluted earnings per share ................. $ 0.22 $ 0.45 $ 0.60 $ 0.83
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR STORES CORPORATION
----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
AUGUST 4, 2001 AND FEBRUARY 3, 2001
(unaudited)
August 4, February 3,
2001 2001
-------- ----------
ASSETS (in thousands)
Current assets
Cash and cash equivalents .......................... $ 29,656 $ 31,962
Accounts receivable, net ........................... 59,581 57,989
Merchandise inventories ............................ 173,913 170,631
Prepaid expenses and other current assets .......... 57,576 53,227
--------- ---------
Total current assets ........................... 320,726 313,809
Property and equipment, net .......................... 245,112 220,032
Goodwill, net ........................................ 292,099 297,619
Deferred financing costs, net ........................ 4,827 4,281
Other assets ......................................... 14,718 12,374
--------- ---------
Total assets ................................... $ 877,482 $ 848,115
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................... $ 71,548 $ 65,903
Accrued salaries and bonus ......................... 10,052 12,960
Accrued tenancy .................................... 10,674 9,800
Gift certificates and merchandise credits redeemable 16,115 20,375
Accrued expenses ................................... 37,397 30,604
Current portion of long-term debt .................. 1,454 1,400
--------- ---------
Total current liabilities ...................... 147,240 141,042
Long-term debt, net .................................. 117,081 116,210
Deferred lease costs and other liabilities ........... 16,298 16,834
Commitments and contingencies
Stockholders' equity
Common stock, $.0068 par value; 120,000,000
shares authorized; 32,140,210 and
31,834,088 shares issued, respectively ......... 217 216
Additional paid-in capital ......................... 483,589 475,393
Retained earnings .................................. 207,436 190,093
Deferred compensation on restricted stock .......... (4,429) (1,723)
--------- ---------
686,813 663,979
Treasury stock, 3,011,519 shares, at cost ...... (89,950) (89,950)
--------- ---------
Total stockholders' equity ..................... 596,863 574,029
--------- ---------
Total liabilities and stockholders' equity ..... $ 877,482 $ 848,115
========= =========
See accompanying notes to condensed consolidated financial statements.
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5
ANNTAYLOR STORES CORPORATION
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE SIX MONTHS ENDED AUGUST 4, 2001 AND JULY 29, 2000
(unaudited)
Six Months Ended
----------------
August 4, July 29,
2001 2000
---- ----
(in thousands)
Operating activities:
Net income ...................................... $ 17,343 $ 24,708
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loss on accounts receivable ..... 697 595
Depreciation and amortization ................. 19,974 16,521
Amortization of goodwill ...................... 5,520 5,520
Non-cash interest ............................. 2,082 2,114
Amortization of deferred compensation ......... 1,163 1,159
Loss on disposal of property and equipment .... 922 859
Tax benefit from exercise of stock options .... 666 --
Changes in assets and liabilities:
Receivables ................................. (2,289) (595)
Merchandise inventories ..................... (3,282) (14,665)
Prepaid expenses and other current assets ... (4,349) (4,820)
Accounts payable ............................ 5,645 6,688
Accrued liabilities ......................... 500 873
Other non-current assets and liabilities, net (2,880) (744)
------- -------
Net cash provided by operating activities ....... 41,712 38,213
------- -------
Investing activities:
Purchases of property and equipment ............. (45,976) (39,357)
------- -------
Net cash used by investing activities ........... (45,976) (39,357)
------- -------
Financing activities:
Payments on mortgage ............................ (688) (638)
Payment of financing costs ...................... (1,016) (41)
Issuance of common stock, net ................... 3,662 1,344
------- -------
Net cash provided by financing activities ....... 1,958 665
------- -------
Net decrease in cash .............................. (2,306) (479)
Cash and cash equivalents, beginning of period .... 31,962 35,081
------- -------
Cash and cash equivalents, end of period .......... $ 29,656 $ 34,602
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest ........ $ 1,265 $ 1,216
======== ========
Cash paid during the period for income taxes .... $ 2,646 $ 22,411
======== ========
See accompanying notes to condensed consolidated financial statements.
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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
August 4, 2001 and July 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
potentially dilutive securities. Basic and diluted earnings per share
calculations follow:
[Tables on next page]
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ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
2. NET INCOME PER SHARE (CONTINUED)
Quarters Ended
--------------------------------------------------------
August 4, 2001 July 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 $ 6,399 28,898 $0.22 $13,426 28,750 $0.47
===== =====
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options and restricted stock .... --- 379 --- 271
Convertible Debentures ................ --- --- 658 2,404
------- ------ ------- ------
DILUTED EARNINGS PER SHARE
- --------------------------
Income available to common stockholders $ 6,399 29,277 $0.22 $14,084 31,425 $0.45
======= ====== ===== ======= ====== =====
Six Months Ended
--------------------------------------------------------
August 4, 2001 July 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 $17,343 28,824 $0.60 $24,708 28,735 $0.86
===== =====
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options and restricted stock .... --- 265 --- 172
Convertible Debentures ................ 1,396 2,404 1,314 2,404
------- ------ ------- ------
DILUTED EARNINGS PER SHARE
- --------------------------
Income available to common stockholders $18,739 31,493 $0.60 $26,022 31,311 $0.83
======= ====== ===== ======= ====== =====
Options to purchase 835,420 and 946,840 shares of common stock during the
thirteen and twenty six weeks ended August 4, 2001, respectively, and 956,005
and 976,005 shares during the thirteen and twenty six weeks ended July 29,
2000, respectively, were excluded from the above computations of weighted
average shares for diluted earnings per share because the options' exercise
prices were greater than the average market prices of the common shares.
Additionally, conversion of the Convertible Debentures into common stock is
excluded from the computation of diluted earnings per share for the quarter
ended August 4, 2001 due to the antidilutive effect of the conversion as of
such date.
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ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. LONG-TERM DEBT
The following summarizes long-term debt outstanding at August 4, 2001:
(in thousands)
Mortgage............................. $ 1,963
Convertible Debentures, net.......... 116,572
-------
Total debt ....................... 118,535
Less current portion................. 1,454
--------
Total long-term debt.............. $117,081
========
4. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations", and SFAS 142, "Goodwill and Other Intangible Assets". SFAS 141
requires that the purchase method of accounting be used for all business
combinations completed after June 30, 2001 and clarifies the criteria for
recognition of intangible assets separately from goodwill. Management does not
believe that the adoption of SFAS 141 will have an impact on the Company's
consolidated financial position or consolidated results of operations. SFAS 142
requires that ratable amortization of goodwill be replaced with periodic tests
of the goodwill's impairment and that intangible assets, other than goodwill,
which have determinable useful lives be amortized over that period. SFAS 142 is
effective for fiscal years beginning after December 15, 2001. Management intends
to adopt SFAS 142 in Fiscal 2002, subject to independent valuation which
supports the carrying value of such long-lived assets, and estimates that it
will add approximately $11,000,000 and $0.35 annually to net income and earnings
per share, respectively.
In July 2001, the FASB unanimously voted to issue SFAS 143, "Accounting for
Asset Retirement Obligations" which provides accounting requirements for
retirement obligations associated with tangible long-lived assets. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. Management does not
believe that the adoption of SFAS 143 will have a significant impact on the
Company's consolidated financial position or consolidated results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarters Ended Six Months Ended
--------------------- -------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
---- ---- ---- ----
Number of Stores:
Open at beginning of period. 488 421 478 405
Opened during period........ 14 13 25 30
Expanded during period*..... 1 --- 5 2
Closed during period........ 2 4 3 5
Open at end of period....... 500 430 500 430
Type of Stores Open at End of Period:
Ann Taylor stores........... 335 319
Ann Taylor Loft stores...... 153 98
Ann Taylor Factory Stores... 12 13
- ------------------
* Expanded stores are excluded from comparable store sales for the first year
following expansion.
QUARTER ENDED AUGUST 4, 2001 COMPARED TO THE QUARTER ENDED JULY 29, 2000
The Company's net sales in the second quarter of 2001 increased to
$310,292,000 from $306,252,000 in the second quarter of 2000, an increase of
$4,040,000 or 1.3%. Comparable store sales for the second quarter of Fiscal
2001 decreased 12.9%, compared to an increase of 3.1% in the second quarter
of Fiscal 2000. Comparable store sales by division were down 17.2% for Ann
Taylor stores and up 1.5% for Ann Taylor Loft stores. The Loft comparable
stores sales percentage does not include 20 Ann Taylor Loft outlet stores and
12 Ann Taylor Factory Stores. The sales increase was attributable to the
opening of new stores offset, in part, by a 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 available in Ann Taylor stores
in the second quarter of Fiscal 2001.
Gross profit as a percentage of net sales increased to 49.0% in the second
quarter of 2001 from 47.0% in the second quarter of 2000. The increase in
gross margin was primarily due to higher gross margins achieved on full-price
and non-full price sales in the Ann Taylor and Ann Taylor Loft divisions
throughout the second quarter of Fiscal 2001.
Selling, general and administrative expenses represented 43.8% of net
sales in the second quarter of Fiscal 2001, compared to 37.9% of net sales in
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10
the second quarter of Fiscal 2000. 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
overall comparable store sales and also increases in tenancy and Ann Taylor
Loft store operations expenses as a percentage of net sales, due to expansion.
As a result of the foregoing, the Company had operating income of
$13,410,000, or 4.3% of net sales in the second quarter of 2001 compared to
operating income of $24,986,000, or 8.2% of net sales, in the second quarter
of 2000. Amortization of goodwill was $2,760,000 in both the second quarter
of 2001 and the second quarter of 2000. Operating income, without giving
effect to goodwill amortization in either year, was $16,170,000, or 5.2% of
net sales, in the second quarter of 2001 and $27,746,000, or 9.1% of net
sales, in the second quarter of 2000.
Interest income was $523,000 in the second quarter of 2001 compared to
$806,000 in the second quarter of 2000. The decrease was primarily
attributable to lower cash on hand and lower interest rates during the second
quarter of Fiscal 2001, compared to the second quarter of Fiscal 2000.
Interest expense was $1,719,000 in the second quarter of 2001 compared to
$1,830,000 in the second quarter of 2000. The decrease in interest expense
was primarily attributable to a decrease in letter of credit fees and a
reduction in amortization of deferred financing costs resulting from the
Credit Facility entered into in the first quarter of Fiscal 2001.
The income tax provision was $5,815,000, or 47.6% of income before income
taxes, in the second quarter of 2001, compared to $10,536,000, or 44.0% of
income before income taxes in the second quarter of 2000. The effective
income tax rate for both periods was higher than the statutory rate primarily
as a result of non-deductible goodwill amortization.
As a result of the foregoing factors, the Company had net income of
$6,399,000, or 2.1% of net sales, for the second quarter of 2001, compared to
net income of $13,426,000, or 4.4% of net sales, for the second quarter of
2000.
AnnTaylor Stores Corporation conducts no business other than the
management of Ann Taylor.
SIX MONTHS ENDED AUGUST 4, 2001 COMPARED TO THE SIX MONTHS ENDED JULY 29, 2000
The Company's net sales in the first six months of Fiscal 2001 increased
to $617,382,000 from $583,320,000, an increase of $34,062,000 or 5.8%.
Comparable store sales for the first six months of 2001 decreased 8.4%
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11
compared to an increase of 1.4% during the same period in Fiscal 2000.
Comparable store sales by division were down 11.1% for Ann Taylor stores and
up 2.8% for Ann Taylor Loft 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
available in Ann Taylor stores in the Spring season of 2001.
Gross profit as a percentage of net sales increased to 50.5% in the first
six months of 2001 from 50.1% in the first six months of 2000.
Selling, general and administrative expenses were 44.0% of net sales in the
first six months of 2001, compared to 39.7% of net sales in the first six months
of 2000, excluding a pre-tax nonrecurring charge of approximately $8,500,000, or
1.5% of net 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 overall comparable store sales
and also increases in tenancy and Ann Taylor Loft store operations expenses as a
percentage of net sales, due to expansion.
As a result of the foregoing, the Company had operating income of
$34,584,000, or 5.6% of net sales, in the first six months of 2001, compared
to operating income, after taking into account the nonrecurring charge, of
$46,719,000, or 8.0% of net sales, in the first six months of 2000.
Amortization of goodwill was $5,520,000 in each of the first six months of
Fiscal 2001 and Fiscal 2000. Operating income, without giving effect to
goodwill amortization, was $40,104,000, or 6.5% of net sales, in the 2001
period and $52,239,000, or 9.0% of net sales, in the 2000 period.
Interest income was $858,000 in the first six months of Fiscal 2001
compared to $1,270,000 in the first six months of Fiscal 2000. The decrease
was primarily attributable to lower cash on hand and lower interest rates
during the first six months of Fiscal 2001, compared to the first six months
of Fiscal 2000.
Interest expense was $3,499,000 in the first six months of Fiscal 2001
compared to $3,626,000 in the first six months of Fiscal 2000. The decrease in
interest expense was primarily attributable to a decrease in letter of credit
fees and a reduction in amortization of deferred financing costs resulting from
the Credit Facility entered into in the first quarter of Fiscal 2001.
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12
The income tax provision was $14,600,000, or 45.7% of income before income
taxes, in the 2001 period, compared to $19,655,000, or 44.3% of income before
income taxes, in the 2000 period. The effective income tax rate for both
periods differed from the statutory rate primarily because of non-deductible
goodwill amortization.
As a result of the foregoing factors, the Company had net income of
$17,343,000, or 2.8% of net sales, for the first six months of 2001, compared
to net income of $24,708,000 or 4.2% of net sales, for the first six months
of 2000.
FINANCIAL CONDITION
For the first six months of 2001, net cash provided by operating
activities totaled $41,712,000, primarily as a result of earnings and noncash
charges. Cash used by investing activities during the first six months of
2001 amounted to $45,976,000, for the purchase of property and equipment.
Cash provided by financing activities during the first six months of 2001
amounted to $1,958,000, primarily as a result of the issuance of Company
common stock pursuant to employee benefits plans offset, in part, by the
payment of financing costs and payments on the mortgage on the Company's
distribution center.
Merchandise inventories were $173,913,000 at August 4, 2001, compared to
inventories of $170,631,000 at February 3, 2001. Merchandise inventories at
August 4, 2001 and February 3, 2001 included approximately $32,624,000 and
$33,469,000, respectively, of inventory associated with the Company's
sourcing division, which is primarily finished goods in transit from
factories.
At August 4, 2001, there were no borrowings outstanding under Ann Taylor's
$175,000,000 senior secured revolving credit facility ("the Credit
Facility"). 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 rates against certain eligible assets.
For Fiscal 2001, the Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation and refurbishment
programs, and investment in information systems, are expected to total
approximately $90,000,000, of which $45,976,000 were incurred for the six
months ended August 4, 2001. The Company has reduced its planned capital
expenditures for Fiscal 2001 due to a slowdown in real estate development on
a national level. Therefore, a number of planned store openings have been
postponed to Fiscal 2002. During the first six months of Fiscal 2001, the
Company opened 3 new Ann Taylor stores and 22 new Ann Taylor Loft stores. In
addition, the Company completed the expansion of 5 Ann Taylor stores. For the
full fiscal year 2001, the Company now expects to open approximately 18 Ann
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13
Taylor stores and approximately 60 new Ann Taylor Loft stores. Although the
number of planned Loft store openings was reduced from 70 to 60, the Company
has gained the opportunity to open a greater number of Loft stores in urban
centers. Because urban centers have a higher productivity rate than typical
Loft stores, the Company anticipates reaching initial planned sales volumes
for total new store growth for the year.
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.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations", and SFAS 142, "Goodwill and Other Intangible Assets". SFAS 141
requires that the purchase method of accounting be used for all business
combinations completed after June 30, 2001 and clarifies the criteria for
recognition of intangible assets separately from goodwill. Management does not
believe that the adoption of SFAS 141 will have an impact on the Company's
consolidated financial position or consolidated results of operations. SFAS 142
requires that ratable amortization of goodwill be replaced with periodic tests
of the goodwill's impairment and that intangible assets, other than goodwill,
which have determinable useful lives be amortized over that period. SFAS 142 is
effective for fiscal years beginning after December 15, 2001. Management intends
to adopt SFAS 142 in Fiscal 2002, subject to independent valuation which
supports the carrying value of such long-lived assets, and estimates that it
will add approximately $11,000,000 and $0.35 annually to net income and earnings
per share, respectively.
In July 2001, the FASB unanimously voted to issue SFAS 143, "Accounting for
Asset Retirement Obligations" which provides accounting requirements for
retirement obligations associated with tangible long-lived assets. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. Management does not
believe that the adoption of SFAS 143 will have a significant impact on the
Company's consolidated financial position or consolidated results of operations.
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
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14
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; acts of war or terrorism in the United States or worldwide; 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 consolidated 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.
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15
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
On April 26, 1996, alleged stockholders of the Company filed a purported
class action lawsuit in the United States District Court for the Southern
District of New York (the "District Court"), against the Company, the
Company's wholly owned subsidiary AnnTaylor, Inc. ("Ann Taylor"), certain
former officers and directors of the Company and Ann Taylor, Merrill Lynch &
Co. ("ML&Co.") and certain affiliates of ML&Co. (Novak v. Kasaks, et. al.,
No. 96 CIV 3073 (S.D.N.Y. 1996)). The complaint alleged causes of action
under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934,
as amended, asserting that the defendants made false and misleading
statements about the Company and Ann Taylor during the period commencing
February 3, 1994 through May 4, 1995 (the "Putative Class Period"). The
complaint sought, among other things, (1) certification as a class action on
behalf of all purchasers of common stock during the Putative Class Period,
(2) an award of compensatory damages to the plaintiffs and purported members
of the class, pre-judgment and post-judgment interest, and reasonable
attorneys' fees and (3) equitable and/or injunctive relief.
The District Court granted the defendants' motions to dismiss the
complaint and a subsequently filed amended complaint. On June 21, 2000, the
United States Court of Appeals for the Second Circuit (the "Court of
Appeals") vacated the dismissal of the amended complaint, and remanded the
case to the District Court with instructions to allow plaintiffs to replead
their complaint, and to reconsider whether plaintiffs' allegations are pled
with sufficient particularity to satisfy the pleading standards of the
Private Securities Litigation Reform Act of 1995. On or about November 27,
2000, the United States Supreme Court denied the petition for a writ of
certiorari filed by the Company, Ann Taylor and their former directors and
officers seeking review and reversal of the decision of the Court of Appeals.
While this action was pending before the Court of Appeals, ML&Co., its
affiliates and the two directors who previously served on the Company's Board
of Directors as representatives of certain affiliates of ML&Co. (the
"settling defendants"), reached a settlement with the plaintiffs, which
provided, among other things, for the establishment by the settling
defendants of a settlement fund in the amount of $3,000,000 plus interest.
On or about December 14, 1999, the District Court entered an Order and Final
Judgment approving this partial settlement, dismissing the amended complaint
with prejudice as to the settling defendants, and barring and enjoining any
future claims by, among others, the remaining defendants against the settling
defendants for contribution.
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Following the decision of the Court of Appeals, plaintiffs elected not
to replead their amended complaint. Accordingly, on or about September 29,
2000, the Company, Ann Taylor and their former directors and officers again
moved to dismiss the amended complaint, arguing that it fails to plead fraud
with sufficient particularity under the standard set forth by the Court of
Appeals in its June 21, 2000 decision. On or about July 18, 2001, the
District Court denied the motion. The parties are now conducting discovery.
Due to the fact that the litigation is still in its preliminary stages,
any liability that may arise from this action cannot be predicted at this
time. The Company believes that the amended complaint is without merit and
intends to continue to defend the action vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AnnTaylor Stores Corporation
Date: September 14, 2001 By: /s/J. Patrick Spainhour
------------------ ---------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: September 14, 2001 By: /s/James M. Smith
------------------ ---------------------
James M. Smith
Senior Vice President,
Chief Financial Officer and
Treasurer
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