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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 ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 4, 2002
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 May 31, 2002
----- ------------
Common Stock, $.0068 par value 44,509,699
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2
INDEX TO FORM 10-Q
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PAGE NO.
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PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the Quarters Ended May 4, 2002 and
May 5, 2001....................................... 3
Condensed Consolidated Balance Sheets at
May 4, 2002 and February 2, 2002.................. 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended May 4, 2002 and
May 5, 2001....................................... 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 10
PART II.OTHER INFORMATION
-------------------------
Item 4.Submission of Matters to a Vote of Security Holders 16
Item 6.Exhibits and Reports on Form 8-K.................... 17
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3
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
ANNTAYLOR STORES CORPORATION
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
FOR THE QUARTERS ENDED MAY 4, 2002 AND MAY 5, 2001
(UNAUDITED)
QUARTERS ENDED
-----------------------
MAY 4, 2002 MAY 5, 2001
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
------- -------
Net sales ............................................ $345,392 $307,090
Cost of sales ........................................ 158,829 147,438
------- -------
Gross profit ......................................... 186,563 159,652
Selling, general and administrative expenses ......... 151,081 135,718
Amortization of goodwill ............................. -- 2,760
------- -------
Operating income ..................................... 35,482 21,174
Interest income ...................................... 516 335
Interest expense ..................................... 1,699 1,780
------- -------
Income before income taxes ........................... 34,299 19,729
Income tax provision ................................. 13,377 8,785
------- -------
Net income ........................................ $ 20,922 $ 10,944
======== ========
Basic earnings per share of common stock ............. $ 0.48 $ 0.25
======== ========
Diluted earnings per share of common stock ........... $ 0.45 $ 0.25
======== ========
See accompanying notes to condensed consolidated financial
statements.
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ANNTAYLOR STORES CORPORATION
----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
MAY 4, 2002 AND FEBRUARY 2, 2002
(UNAUDITED)
MAY 4, FEBRUARY 2,
2002 2002
--------- ---------
Assets (IN THOUSANDS)
Current assets
Cash and cash equivalents .......................... $ 124,508 $ 30,037
Accounts receivable, net ........................... 14,868 65,296
Merchandise inventories ............................ 172,275 180,117
Prepaid expenses and other current assets .......... 50,007 50,403
--------- ---------
Total current assets ........................... 361,658 325,853
Property and equipment, net .......................... 249,744 250,735
Goodwill, net ........................................ 286,579 286,579
Deferred financing costs, net ........................ 4,835 5,044
Other assets ......................................... 14,359 14,775
--------- ---------
Total assets ................................... $ 917,175 $ 882,986
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ................................... $ 51,359 $ 59,482
Accrued expenses ................................... 82,770 75,882
Current portion of long-term debt .................. -- 1,250
--------- ---------
Total current liabilities ...................... 134,129 136,614
Long-term debt, net .................................. 119,112 118,280
Deferred lease costs and other liabilities ........... 17,249 15,963
Stockholders' equity
Common stock, $.0068 par value;
120,000,000 shares authorized;
32,441,023 and 32,183,971 shares
issued, respectively .............................. 218 219
Additional paid-in capital ......................... 493,832 484,582
Retained earnings .................................. 237,316 218,709
Deferred compensation on restricted stock .......... (8,608) (9,296)
--------- ---------
722,758 694,214
Treasury stock, at cost
2,648,209 and 2,806,821 shares, respectively (76,073) (82,085)
--------- ---------
Total stockholders' equity ..................... 646,685 612,129
--------- ---------
Total liabilities and stockholders' equity ..... $ 917,175 $ 882,986
========= =========
See accompanying notes to condensed consolidated financial
statements.
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5
ANNTAYLOR STORES CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE QUARTERS ENDED MAY 4, 2002 AND MAY 5, 2001
(UNAUDITED)
QUARTERS ENDED
-------------------------
MAY 4, 2002 MAY 5, 2001
----------- ----------
(IN THOUSANDS)
Operating activities:
Net income ...................................... $ 20,922 $ 10,944
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loss on accounts receivable ..... -- 407
Depreciation and amortization ................. 11,730 9,778
Amortization of goodwill ...................... -- 2,760
Amortization of deferred compensation ......... 1,391 476
Non-cash interest ............................. 1,056 1,077
Loss on disposal of property and equipment .... 306 139
Gain on sale of proprietary credit
card accounts receivable .................... (2,095) --
Tax benefit from exercise of stock options .... 2,794 5
Changes in assets and liabilities:
Receivables ................................. (5,277) (10,287)
Merchandise inventories ..................... 7,842 (928)
Prepaid expenses and other current assets ... 396 1,592
Accounts payable and accrued liabilities .... (1,237) (17,083)
Other non-current assets and liabilities, net 1,703 (501)
------- -------
Net cash provided (used) by operating activities 39,531 (1,621)
------- -------
Investing activities:
Purchases of property and equipment ............. (11,045) (19,780)
Net proceeds from sale of proprietary
credit card accounts receivable ............... 57,800 --
------- -------
Net cash provided (used) by investing activities 46,755 (19,780)
------- -------
Financing activities:
Payments on mortgage ............................ (1,250) (341)
Payment of financing costs ...................... (14) (951)
Issuance of common stock, net ................... 9,449 854
------- -------
Net cash provided (used) by financing activities 8,185 (438)
------- -------
Net increase (decrease) in cash ................... 94,471 (21,839)
Cash and cash equivalents, beginning of period .... 30,037 31,962
------- -------
Cash and cash equivalents, end of period .......... $ 124,508 $ 10,123
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest ........ $ 354 $ 373
======= =======
Cash paid during the period for income taxes .... $ 2,581 $ 58
======= =======
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
----------------------------------------------------
(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 2002 interim period shown
in this report are not necessarily indicative of results to be
expected for the fiscal year.
The February 2, 2002 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor Stores Corporation ("the
Company").
Certain fiscal 2001 amounts have been reclassified to
conform to the fiscal 2002 presentation.
Detailed footnote information is not included for the
quarters ended May 4, 2002 and May 5, 2001. 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 2001 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, which
are issuable by the Company upon the conversion of all
outstanding stock options, restricted stock and convertible
securities, 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. Basic and
diluted earnings per share (both before and after the issuance of
additional shares in connection with the stock split)
calculations follow:
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ANNTAYLOR STORES CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
2. NET INCOME PER SHARE (CONTINUED)
--------------------------------
QUARTERS ENDED
-----------------------------------------------------------------------------------------
MAY 4, 2002 MAY 5, 2001
------------------------------------------- -------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
PER PER
SHARES SHARE AMOUNT SHARES SHARE AMOUNT
---------------- ------------- ---------------- -------------
BEFORE AFTER BEFORE AFTER BEFORE AFTER BEFORE AFTER
INCOME SPLIT SPLIT SPLIT SPLIT INCOME SPLIT SPLIT SPLIT SPLIT
------- ------ ------ ----- ----- ------- ------ ------ ----- -----
BASIC EARNINGS PER SHARE
- ------------------------
Income available to common
stockholders .................. $20,922 29,319 43,978 $0.71 $0.48 $10,944 28,750 43,125 $0.38 $0.25
===== ===== ===== =====
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options and restricted stock --- 480 721 --- 169 254
Convertible Debentures ........... 706 2,404 3,606 676 2,404 3,606
------- ------ ------ ------- ------ ------
DILUTED EARNINGS PER SHARE
- --------------------------
Income available to common
stockholders ................... $21,628 32,203 48,305 $0.67 $0.45 $11,620 31,323 46,985 $0.37 $0.25
======= ====== ====== ===== ===== ======= ====== ====== ===== =====
Options to purchase 583,750 and 1,512,340 shares of common
stock during the quarters ended May 4, 2002 and May 5, 2001,
respectively, were excluded from the above computations of
weighted average shares for pre-stock split diluted earnings per
share. This translates to 875,625 and 2,268,510 shares of common
stock for the same thirteen week periods after the issuance of
additional options in connection with the stock split. The above
adjustments were due to the antidilutive effect of the options'
exercise prices as compared to the average market price of the
common shares during those periods.
3. LONG-TERM DEBT
--------------
Long-term debt outstanding at May 4, 2002 was $119,112,000,
which represents the net carrying value of the Company's
convertible debentures. During the first quarter of fiscal 2002,
the Company paid the remaining outstanding balance on the
mortgage loan securing its Distribution Center in Louisville,
Kentucky.
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ANNTAYLOR STORES CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
4. SALE OF ACCOUNTS RECEIVABLE
---------------------------
On February 4, 2002, the Company sold the net assets
associated with its Ann Taylor credit card accounts to World
Financial Network National Bank (the "Bank"). The associated
pre-tax gain of $2,095,000 is reported in selling, general and
administrative expenses in the Condensed Consolidated Statements
of Income. In connection with the sale, the Company contracted
with Alliance Data Systems Corporation ("ADS"), the Bank's
affiliated servicer, to provide private label credit card
services to proprietary Ann Taylor credit card customers. Under
the terms of the transaction, ADS will manage the Ann Taylor
credit card program, and pay the Company a percentage of all
collected finance charges. The Company has also agreed to
guarantee certain credit card accounts issued to Ann Taylor
associates subsequent to the sale.
5. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
Effective February 3, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 142 requires that ratable
amortization of goodwill be replaced by periodic tests for
impairment within six months of the date of adoption, and then on
a periodic basis thereafter. Based on the impairment testing
performed in February 2002, management determined that there was
no impairment loss related to the net carrying value of the
Company's recorded goodwill. Management intends to reevaluate
this on an annual basis, in accordance with the provisions of
SFAS No. 142.
The following table provides a reconciliation of reported
net income and earnings per share for the quarter ended May 5,
2001 to adjusted net income and earnings per share had SFAS No.
142 been applied as of the beginning of fiscal 2001:
QUARTER ENDED MAY 5, 2001
-----------------------------------------------
BASIC DILUTED
EARNINGS PER SHARE EARNINGS PER SHARE
------------------ ------------------
BEFORE AFTER BEFORE AFTER
INCOME SPLIT SPLIT SPLIT SPLIT
------ ----- ----- ----- -----
Income available to common
stockholders............. $10,944 $0.38 $0.25 $0.37 $0.25
Impact of adopting SFAS
No. 142 in fiscal 2001... 2,760 0.10 0.07 0.09 0.06
------- ----- ----- ----- -----
Adjusted income available
to common stockholders... $13,704 $0.48 $0.32 $0.46 $0.31
======= ===== ===== ===== =====
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ANNTAYLOR STORES CORPORATION
----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
5. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
--------------------------------------------
In July 2001, the Financial Accounting Standards Board (the
"FASB"), issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 provides accounting requirements for
retirement obligations associated with tangible long-lived
assets. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. Management does not believe that the
adoption of SFAS No. 143 will have a significant impact on the
Company's consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145 "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". SFAS No. 145 primarily
affects the reporting requirements and classification of gains
and losses from the extinguishment of debt, rescinds the
transitional accounting requirements for intangible assets of
motor carriers, and requires that certain lease modifications
with economic effects similar to sale-leaseback transactions be
accounted for in the same manner as sale-leaseback transactions.
SFAS No. 145 is effective for financial statements issued after
April 2002, with the exception of the provisions affecting the
accounting for lease transactions, which should be applied for
transactions entered into after May 15, 2002, and the provisions
affecting classification of gains and losses from the
extinguishment of debt, which should be applied in fiscal years
beginning after May 15, 2002. Management has determined that the
adoption of SFAS No. 145 will have no 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
------------------------
MAY 4, 2002 MAY 5, 2001
----------- -----------
Number of Stores:
Open at beginning of period............... 538 478
Opened during period...................... 13 11
Expanded or remodeled during period*...... --- 4
Closed during period...................... --- 1
Open at end of period..................... 551 488
Type of Stores Open at End of Period:
Ann Taylor stores......................... 343 334
Ann Taylor Loft stores.................... 188 141
Ann Taylor Factory Stores................. 20 13
- -------------------
* Expanded stores are excluded from comparable store sales for
the first year following expansion.
QUARTER ENDED MAY 4, 2002 COMPARED TO QUARTER ENDED MAY 5, 2001
The Company's net sales in the first quarter of fiscal 2002
increased to $345,392,000 from $307,090,000 in the first quarter
of fiscal 2001, an increase of $38,302,000, or 12.5 percent.
Comparable store sales for the first quarter of fiscal 2002
increased 0.1 percent, compared to a decrease of 3.5 percent in
the first quarter of fiscal 2001. Comparable sales by division
were down 2.1 percent for Ann Taylor stores and up 5.9 percent
for Ann Taylor Loft stores. The sales increase was primarily the
result of an increase in the number of stores open as compared to
last year.
Gross margin as a percentage of net sales increased to 54.0
percent in the first quarter of fiscal 2002, compared to 52.0
percent in the first quarter of fiscal 2001. The increase is
primarily due to higher margins achieved on full price sales at
both divisions.
Selling, general and administrative expenses were
$151,081,000, or 43.7 percent of net sales, in the first quarter
of fiscal 2002, compared to $135,718,000, or 44.2 percent of net
sales, in the first quarter of fiscal 2001. The decrease in
selling, general and administrative expenses as a percentage of
sales is due to the combined effect of efficiencies gained in
store operations, lower internet spending, and an approximate $1
million net reduction in expenses related to the cost of
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servicing the Company's proprietary credit card. This was due to
the one-time gain associated with the sale of the Ann Taylor
credit card, offset by a reduction in net finance charge
income as a result of the sale. The above decreases were
partially offset by an increase in the provision for management
performance bonus, and an increase in store tenancy due to the
addition of new stores.
As a result of the foregoing, the Company had operating
income of $35,482,000, or 10.3 percent of net sales, in the first
quarter of fiscal 2002, compared to $21,174,000, or 6.9 percent
of net sales, in the first quarter of fiscal 2001. There was no
goodwill amortization recorded in the first quarter of fiscal
2002, in accordance with Statement of Financial Accounting
Standards ("SFAS") 142 "Goodwill and Other Intangible Assets",
which the Company adopted in February 2002. Amortization of
goodwill was $2,760,000 in the first quarter of fiscal 2001.
Fiscal 2001 operating income, without giving effect to goodwill
amortization, was $23,934,000, or 7.8 percent of net sales.
Interest income was $516,000 in the first quarter of fiscal
2002, compared to $335,000 in the first quarter of fiscal 2001.
The increase was primarily attributable to higher cash on hand
offset somewhat by lower interest rates during the first quarter
of fiscal 2002, as compared to the first quarter of fiscal 2001.
Interest expense was $1,699,000 in the first quarter of
fiscal 2002, compared to $1,780,000 in the first quarter of
fiscal 2001.
The income tax provision was $13,377,000, or 39.0 percent of
income before income taxes, in the first quarter of fiscal 2002,
compared to $8,785,000, or 44.5 percent of income before income
taxes, in the first quarter of fiscal 2001. The decrease in the
effective income tax rate was the result of non-deductible
goodwill expense, which as previously discussed, was not recorded
in fiscal 2002.
As a result of the foregoing factors, the Company had net
income of $20,922,000, or 6.1 percent of net sales, for the first
quarter of fiscal 2002, compared to $10,944,000, or 3.6 percent
of net sales, for the first quarter of fiscal 2001. As
previously discussed, first quarter fiscal 2001 net income was
reduced by $2,760,000 in goodwill amortization, which was not
recorded in the first quarter of fiscal 2002. Excluding the
deduction of goodwill, first quarter fiscal 2001 net income would
have been $13,704,000, or 4.5 percent of net sales.
AnnTaylor Stores Corporation conducts no business other than
the management of Ann Taylor.
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FINANCIAL CONDITION
For the first quarter of fiscal 2002, net cash provided by
operating activities totaled $39,531,000, primarily as a result
of earnings, non-cash charges and a decrease in inventory, offset
by an increase in third party accounts receivable. Cash provided
by investing activities during the first quarter of fiscal 2002
amounted to $46,755,000, which represented the proceeds received
in connection with the sale of the Company's proprietary credit
card, offset by funds used to purchase property and equipment.
Cash provided by financing activities during the first quarter of
fiscal 2002 amounted to $8,185,000 primarily as a result of
proceeds received from the exercise of stock options, offset by
payment of the remaining mortgage balance on the Company's
Louisville Distribution Center.
Merchandise inventories were $172,275,000 at May 4, 2002,
compared to inventories of $180,117,000 at February 2, 2002.
Merchandise inventories at May 4, 2002 and February 2, 2002
included approximately $24,410,000 and $37,558,000, 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 2002, excluding inventories attributable to the
Company's sourcing division, were down approximately 14 percent
compared to the same period last year.
Total fiscal 2002 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 $47,000,000. For the
three months ended May 4, 2002, capital expenditures totaled
$11,045,000, net of landlord construction allowances. During the
first three months of fiscal 2002, the Company opened one new Ann
Taylor store and 12 new Ann Taylor Loft stores. For the
remainder of fiscal 2002, the Company expects to open 6
additional Ann Taylor stores and 26 additional Ann Taylor Loft
stores.
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.
On February 4, 2002, the Company sold the net assets
associated with its Ann Taylor credit card accounts to World
Financial Network National Bank (the "Bank"). The associated
pre-tax gain of $2,095,000 is reported in selling, general and
administrative expenses in the Condensed Consolidated Statements
of Income. The Company believes that the sale and outside
management of its proprietary credit card program will have a
beneficial effect on its client relationships, and aid in the
growth of the Ann Taylor credit card.
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13
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. See Note 2 of
the Condensed Consolidated Financial Statements for adjusted
shares and per share data reflecting the issuance of additional
shares in connection with the stock split.
Effective February 3, 2002, the Company adopted SFAS No.
142, "Goodwill and Other Intangible Assets", as further discussed
in Note 5 of the Condensed Consolidated Financial Statements.
SFAS No. 142 requires that goodwill and other intangible assets
be tested for impairment within six months of the date of
adoption, and then on a periodic basis thereafter. Pursuant to
SFAS No. 142, the Company's recorded goodwill will no longer be
amortized. Based on the impairment testing performed in February
2002, management determined that there was no impairment loss
related to the net carrying value of the Company's recorded
goodwill.
In July 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations". SFAS No. 143 provides accounting
requirements for retirement obligations associated with tangible
long-lived assets, and is effective for fiscal years beginning
after June 15, 2002. Management does not believe that the
adoption of SFAS No. 143 will have a significant impact on the
Company's consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145 "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". SFAS No. 145 primarily
affects the reporting requirements and classification of gains
and losses from the extinguishment of debt, rescinds the
transitional accounting requirements for intangible assets of
motor carriers, and requires that certain lease modifications
with economic effects similar to sale-leaseback transactions be
accounted for in the same manner as sale-leaseback transactions.
SFAS No. 145 is effective for financial statements issued after
April 2002, with the exception of the provisions affecting the
accounting for lease transactions, which should be applied for
transactions entered into after May 15, 2002, and the provisions
affecting classification of gains and losses from the
extinguishment of debt, which should be applied in fiscal years
beginning after May 15, 2002. Management has determined that the
adoption of SFAS No. 145 will have no impact on the Company's
consolidated financial statements.
In December 2001, the United States Securities and Exchange
Commission (the "SEC") issued Financial Reporting Release ("FRR")
No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies", which encourages the identification and
disclosure of the most critical accounting policies applied in the
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14
preparation of a company's financial statements. In response to
FRR No. 60, management has determined that the Company's most
critical accounting policies include those related to merchandise
inventory valuation, asset impairment and income taxes.
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 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.
Pursuant to the adoption of SFAS No. 142 in February 2002,
management performed impairment testing which considered the
Company's net discounted future cash flows in determining whether
an impairment charge related to the carrying value of the
Company's recorded goodwill was necessary, and concluded that
there was no such impairment loss. This will be reevaluated
annually, using similar testing. In the case of long-lived
tangible assets, if the discounted 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 judgements 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 judgement of expected tax liabilities
within the various taxing jurisdictions it is subject to tax.
The Company has also in the past been involved in both foreign
and domestic tax audits. At any given time, many tax years are
subject to audit by various taxing authorities.
Management believes these critical accounting policies
represent the more significant judgements and estimates used in
the preparation of the Company's consolidated financial
statements.
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15
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURES
Sections of this Quarterly Report on Form 10-Q, including
the preceding Management's Discussion and Analysis of Financial
Condition and Results of Operations, contain various
forward-looking statements, made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. The forward-looking statements may use the words "expect",
"anticipate", "plan", "intend", "project", "believe" and similar
expressions. These forward-looking statements reflect the
Company's current expectations concerning future events, and
actual results may differ materially from current expectations or
historical results. Any such forward-looking statements are
subject to various risks and uncertainties, including failure by
the Company to predict accurately customer fashion preferences;
decline in the demand for merchandise offered by the Company;
competitive influences; changes in levels of store traffic or
consumer spending habits; effectiveness of the Company's brand
awareness and marketing programs; lack of sufficient customer
acceptance of the Ann Taylor Loft concept in the
upper-moderate-priced women's apparel market; general economic
conditions or a downturn in the retail industry; the inability of
the Company to locate new store sites or negotiate favorable
lease terms for additional stores or for the expansion of
existing stores; lack of sufficient consumer interest in the
Company's Online Store; a significant change in the regulatory
environment applicable to the Company's business; an increase in
the rate of import duties or export quotas with respect to the
Company's merchandise; financial or political instability in any
of the countries in which the Company's goods are manufactured;
acts of war or terrorism in the United States or worldwide; 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
PART II. OTHER INFORMATION
--------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AnnTaylor Stores Corporation's 2002 Annual Meeting of
Stockholders was held on May 2, 2002. The following matters were
voted upon and approved by the Company's stockholders at the
meeting:
1. Messrs. James J. Burke, Jr., Barry Erdos and Ronald W.
Hovsepian were re-elected as Class II Directors of the
Company for terms expiring in 2005, or until their
respective successors are elected and qualified.
26,393,594, 26,394,376 and 26,393,449 shares were voted in
favor of, no shares were voted against, and 148,907,
148,125 and 149,052 shares abstained from voting on, the
re-election of Messrs. Burke, Erdos and Hovsepian,
respectively.
2. The proposed amendment to the Company's Associate Discount
Stock Purchase Plan to increase the total number of shares
of Common Stock available under this plan by an additional
400,000 shares of Common Stock was approved. 26,331,146
shares were voted in favor of, 197,698 shares were voted
against and 13,657 shares abstained from voting on, this
proposal.
3. The material terms of the performance goals in the
Company's Management Performance Compensation Plan, as
amended and restated, were re-approved. 26,129,173 shares
were voted in favor of, 397,952 shares were voted against
and 15,376 shares abstained from voting on, this proposal.
4. The appointment of Deloitte & Touche, LLP as the Company's
independent auditors for the 2002 fiscal year was
ratified. 25,284,056 shares were voted in favor of,
1,248,639 shares were voted against and 9,806 shares
abstained from voting on, this proposal.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the
last quarter covered by this report:
DATE OF REPORT ITEM REPORTED
-------------- -------------
4/11/2002 Item 5
4/18/2002 Item 5
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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 14, 2002 By: /s/ J. Patrick Spainhour
------------- -------------------------
J. Patrick Spainhour
Chairman, Chief Executive
Officer and Director
Date: June 14, 2002 By: /s/ James M. Smith
------------- -------------------------
James M. Smith
Senior Vice President,
Chief Financial Officer
and Treasurer
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