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UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
FORM 10-Q
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(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 29, 2000
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
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(Exact name of registrant as specified in its charter)
Delaware 13-3499319
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
142 West 57th Street, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
(212) 541-3300
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(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No .
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 26, 2000
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Common Stock, $.0068 par value 28,736,853
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<PAGE>
INDEX TO FORM 10-Q
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Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters Ended April 29, 2000
and May 1, 1999..................................... 3
Condensed Consolidated Balance Sheets at
April 29, 2000 and January 29, 2000................ 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended April 29, 2000 and
May 1, 1999........................................ 5
Notes to Condensed Consolidated Financial Statements.. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .. 13
Item 6. Exhibits and Reports on Form 8-K...................... 14
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters Ended April 29, 2000 and May 1, 1999
(unaudited)
Quarters Ended
-----------------------------
April 29, 2000 May 1, 1999
-------------- -----------
(in thousands, except
per share amounts)
Net sales..............................................$ 277,068 $ 249,400
Cost of sales.......................................... 128,472 118,063
------- --------
Gross profit........................................... 148,596 131,337
Selling, general and administrative expenses........... 124,097 97,823
Amortization of goodwill............................... 2,760 2,760
------- --------
Operating income....................................... 21,739 30,754
Interest income........................................ 464 721
Interest expense....................................... 1,796 5,042
Other expense, net..................................... 6 1
------- --------
Income before income taxes............................. 20,401 26,432
Income tax provision................................... 9,119 11,677
------- --------
Net income..........................................$ 11,282 $ 14,755
======= ========
Basic earnings per share...............................$ 0.39 $ 0.56
======= ========
Diluted earnings per share.............................$ 0.38 $ 0.51
======= ========
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
April 29, 2000 and January 29, 2000
April 29, January 29,
2000 2000
------- -------
(unaudited)
ASSETS (in thousands)
Current assets
Cash and cash equivalents........................$ 27,178 $ 35,081
Accounts receivable, net......................... 71,733 67,092
Merchandise inventories.......................... 164,497 140,026
Prepaid expenses and other current assets........ 29,146 29,390
------- -------
Total current assets......................... 292,554 271,589
Property and equipment, net........................ 182,186 173,639
Goodwill, net...................................... 305,899 308,659
Deferred financing costs, net...................... 5,092 5,358
Other assets....................................... 5,431 5,872
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Total assets.................................$ 791,162 $765,117
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................$ 64,727 $56,175
Accrued salaries and bonus....................... 11,811 23,297
Accrued tenancy.................................. 8,329 7,800
Gift certificates and merchandise credits
redeemable..................................... 12,949 15,618
Accrued expenses................................. 32,194 16,031
Current portion of long-term debt................ 1,326 1,300
------- -------
Total current liabilities.................... 131,336 120,221
Long-term debt, net................................ 114,915 114,485
Deferred lease costs and other liabilities......... 16,361 14,789
Commitments and contingencies
Stockholders' equity
Common stock, $.0068 par value; 120,000,000
shares authorized; 31,770,565 and 31,598,423
shares issued, respectively.................... 216 215
Additional paid-in capital....................... 473,612 470,307
Retained earnings................................ 149,012 137,730
Deferred compensation on restricted stock........ (3,902) (2,246)
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618,938 606,006
Treasury stock, 3,028,712 and 3,028,448
shares, respectively, at cost............. (90,388) (90,384)
-------- -------
Total stockholders' equity................... 528,550 515,622
------- -------
Total liabilities and stockholders' equity...$ 791,162 $765,117
======= =======
See accompanying notes to consolidated financial statements.
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<PAGE> 5
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended April 29, 2000 and May 1, 1999
(unaudited)
Quarters Ended
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April 29, May 1,
2000 1999
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(in thousands)
Operating activities:
Net income................................................$ 11,282 $ 14,755
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loss on accounts receivable.............. 121 291
Depreciation and amortization.......................... 8,219 7,569
Amortization of goodwill............................... 2,760 2,760
Amortization of deferred compensation.................. 655 161
Non-cash interest...................................... 1,057 336
Loss on disposal of property and equipment............. 93 653
(Increase) decrease in:
Receivables.......................................... (4,762) (2,700)
Merchandise inventories.............................. (24,471) 395
Prepaid expenses and other current assets............ 244 (1,328)
Increase (decrease) in:
Accounts payable..................................... 8,552 (17,399)
Accrued liabilities.................................. 2,537 (830)
Other non-current assets and liabilities, net........ 2,010 185
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Net cash provided by operating activities................. 8,297 4,848
Investing activities:
Purchases of property and equipment....................... (16,857) (13,137)
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Net cash used by investing activities..................... (16,857) (13,137)
Financing activities:
Issuance of common stock pursuant to Associate
Discount Stock Plan.................................. 996 ---
Payments on mortgage...................................... (316) (294)
Payment of financing costs................................ (19) ---
Proceeds from exercise of stock options .................. --- 7,025
Activity related to common stock issued as
employee incentives.................................. (4) ---
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Net cash provided by financing activities................. 657 6,731
-------- --------
Net decrease in cash........................................ (7,903) (1,558)
Cash and cash equivalents, beginning of period.............. 35,081 67,031
-------- --------
Cash and cash equivalents, end of period....................$ 27,178 $ 65,473
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest..................$ 333 $ 2,503
======== ========
Cash paid during the period for income taxes..............$ 867 $ 744
======== ========
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 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 2000 interim period shown in this report
are not necessarily indicative of results to be expected for the fiscal year.
The January 29, 2000 condensed consolidated balance sheet amounts have been
derived from the previously audited consolidated balance sheet of AnnTaylor
Stores Corporation ("the Company").
Certain Fiscal 1999 amounts have been reclassified to conform to the Fiscal
2000 presentation.
Detailed footnote information is not included for the quarters ended April
29, 2000 and May 1, 1999. 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 1999 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
warrants, stock options, and convertible securities. Basic and diluted earnings
per share calculations follow:
Quarters Ended
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April 29, 2000 May 1, 1999
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(in thousands, except per share amounts)
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
BASIC EARNINGS PER SHARE
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Income available to common
stockholders $11,282 28,721 $0.39 $14,755 26,187 $0.56
==== ====
EFFECT OF DILUTIVE SECURITIES
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Warrants --- --- --- 3
Stock options --- 82 --- 333
Preferred securities --- --- 1,297 5,122
Convertible Debentures 656 2,404 --- ---
------ ------ ------ ------ ------
DILUTED EARNINGS PER SHARE
--------------------------
Income available to common
stockholders $11,938 31,207 $0.38 $16,052 31,645 $0.51
------ ------ ==== ------ ------ ====
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<PAGE> 7
ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. LONG-TERM DEBT
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The following summarizes long-term debt outstanding at April 29, 2000:
(in thousands)
Mortgage................................... $ 3,634
Convertible Debentures, net................ 112,607
--------
Total debt ............................. 116,241
Less current portion....................... 1,326
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Total long-term debt.................... $ 114,915
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4. ENTERPRISE-WIDE OPERATING INFORMATION
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The Company is a specialty retailer of women's apparel, shoes, and
accessories. Given the economic characteristics of the store formats, the
similar nature of the products sold, the type of customer and method of
distribution, the operations of the Company are aggregated into one reportable
segment. The Company believes that the customer base for its stores consists
primarily of relatively affluent, fashion-conscious women from the ages of 25 to
55, and that the majority of its customers are working women with limited time
to shop.
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<PAGE> 8
.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarters Ended
April 29, May 1,
2000 1999
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Number of Stores:
Open at beginning of period....................... 405 365
Opened during period.............................. 17 11
Expanded or remodeled during period*.............. 2 ---
Closed during period.............................. 1 5
Open at end of period............................. 421 371
Type of Stores Open at End of Period:
Ann Taylor stores................................. 320 309
Ann Taylor Loft stores............................ 88 50
Ann Taylor Factory Stores......................... 13 12
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* Expanded stores are excluded from comparable store sales for the first
year following expansion.
QUARTER ENDED APRIL 29, 2000 COMPARED TO QUARTER ENDED MAY 1, 1999
The Company's net sales in the first quarter of 2000 increased to
$277,068,000 from $249,400,000 in the first quarter of 1999, an increase of
$27,668,000 or 11.1%. Comparable store sales for the first quarter of 2000
decreased 0.5%, compared to an increase of 16.9% in the first quarter of 1999.
Management believes that the sales increase was primarily attributable to the
opening of new stores, partially offset by the net decrease in comparable store
sales. The net decrease in comparable store sales was the result of a sales
shortfall in April that management believes was principally attributable to the
unseasonably cold weather that affected many parts of the country during that
month.
Gross profit as a percentage of net sales increased to 53.6% in the first
quarter of 2000 from 52.7% in the first quarter of 1999. This increase in gross
margin primarily reflects improvements made in the Company's sourcing,
merchandising and inventory management processes, which resulted in higher
initial mark-ups and higher gross margins achieved on full price sales, compared
to the first quarter of 1999.
Selling, general and administrative expenses, excluding certain nonrecurring
expenses described below, represented 41.7% of net sales in the first quarter of
2000, compared to 39.2% of net sales in the first quarter of 1999. The Company
incurred a pre-tax nonrecurring charge of approximately $8,500,000, or 3.1% of
net sales, in connection with an extensive review conducted with the Company's
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<PAGE> 9
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, excluding the nonrecurring charge, was primarily
attributable to approximately $2,000,000 of expenses relating to the development
of the Company's proposed Internet e-commerce web site, and also reflected
increases in tenancy expenses, and increases in Ann Taylor Loft store
operations and marketing expenses, in support of the Company's strategic
initiatives to enhance the Ann Taylor brand.
As a result of the foregoing, the Company had operating income, after taking
into account the nonrecurring charge, of $21,739,000, or 7.8% of net sales, in
the first quarter of 2000, compared to operating income of $30,754,000, or 12.3%
of net sales, in the first quarter of 1999. Amortization of goodwill was
$2,760,000 in both the first quarter of 2000 and the first quarter of 1999.
Operating income, without giving effect to goodwill amortization in either year
or the nonrecurring charge described above, was $24,499,000, or 8.8% of net
sales, in the first quarter of 2000 and $33,514,000, or 13.5% of net sales, in
the first quarter of 1999.
Interest income was $464,000 in the first quarter of 2000 compared to
$721,000 in the first quarter of 1999. The decrease was primarily attributable
to lower cash on hand as a result of the Company's use of cash to repurchase
shares of its common stock during the third and fourth quarters of Fiscal 1999.
Interest expense was $1,796,000 in the first quarter of 2000 compared to
$5,042,000 in the first quarter of 1999. The decrease in interest expense was
primarily attributable to the net reduction in the Company's outstanding long
term debt and other obligations and a decrease in the interest rate borne by the
Company's remaining outstanding long term debt. During the second quarter of
1999, AnnTaylor Finance Trust, the Company's special purpose finance trust,
redeemed its 8 1/2% Company Obligated Mandatorily Redeemable Convertible
Preferred Securities, and AnnTaylor, Inc., a wholly owned subsidiary of the
Company ("Ann Taylor"), redeemed its 8 3/4% Subordinated Notes Due 2000. These
redemptions were completed using, in part, the proceeds from the issuance by the
Company, also during the second quarter of 1999, of its deep discount
Convertible Subordinated Debentures due 2019, which bear interest at a rate of
3.75% per annum.
The income tax provision was $9,119,000, or 44.7% of income before income
taxes, in the first quarter of 2000 compared to $11,677,000, or 44.2% of income
before income taxes, in the first quarter of 1999. 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
$11,282,000, or 4.1% of net sales, for the first quarter of 2000, compared to
net income of $14,755,000, or 5.9% of net sales, for the first quarter of 1999.
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<PAGE> 10
AnnTaylor Stores Corporation conducts no business other than the management
of Ann Taylor.
FINANCIAL CONDITION
For the first quarter of 2000, net cash provided by operating activities
totaled $8,297,000, primarily as a result of earnings, noncash charges and
increases in accounts payable and accrued liabilities, partially offset by
increases in merchandise inventories and receivables. Cash used by investing
activities during the first quarter of 2000 amounted to $16,857,000, for the
purchase of property and equipment. Cash provided by financing activities during
the first quarter of 2000 amounted to $657,000 primarily as a result of the
issuance of Company common stock under the Company's Associate Discount Stock
Purchase Plan.
Merchandise inventories were $164,497,000 at April 29, 2000, compared to
inventories of $140,026,000 at January 29, 2000. Merchandise inventories at
April 29, 2000 and January 29, 2000 included approximately $18,089,000 and
$22,959,000, respectively, of inventory associated with the Company's sourcing
division, which is primarily finished goods in transit from factories.
At April 29, 2000, there were no borrowings outstanding under Ann Taylor's
$125,000,000 senior secured revolving credit facility (the "Credit Facility").
Loans outstanding under the Credit Facility at any time may not exceed
$50,000,000. 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.
For Fiscal 2000, 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, are expected to be
approximately $79,000,000, net of landlord construction allowances, of which
$16,857,000 were incurred in the three months ended April 29, 2000. During the
first three months of Fiscal 2000, the Company opened two new Ann Taylor stores
and 15 Ann Taylor Loft stores, and completed the expansion of two Ann Taylor
stores. In addition, the Company closed one Ann Taylor store, that will be
converted to an Ann Taylor Loft store during the second quarter of Fiscal 2000.
The Company expects to open a total of approximately 20 Ann Taylor stores and
between 65 and 70 Ann Taylor Loft stores (including 2 Ann Taylor stores being
converted to Ann Taylor Loft stores), and to expand or relocate a total of 4 Ann
Taylor stores, in Fiscal 2000.
Dividends and distributions from Ann Taylor to the Company are restricted by
the terms of the Credit Facility.
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<PAGE> 11
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.
RECENT DEVELOPMENTS
On May 18, 2000, the Board of Directors of the Company adopted a Stockholder
Rights Plan, pursuant to which Rights were distributed as a dividend at the rate
of one Right for each share of Common Stock of the Company held by stockholders
of record as of the close of business on May 30, 2000. Each Right entitles
stockholders to buy one unit of a share of a new series of preferred stock for
$125. The Rights generally will be exercisable only if a person or group
acquires beneficial ownership of 15% or more of the Voting Power of the Company
as represented by the Company's Common Stock or commences a tender or exchange
offer upon consummation of which such person or group would beneficially own 15%
or more of the Voting Power of the Company as represented by the Company's
Common Stock. The Rights will expire on May 18, 2010.
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 an Ann Taylor Internet
website; a significant change in the regulatory environment applicable to the
Company's business; an increase in the rate of import duties or export quotas
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<PAGE> 12
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 January 29, 2000, 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.
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<PAGE> 13
PART II. OTHER INFORMATION
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AnnTaylor Stores Corporation's 2000 Annual Meeting of Stockholders was held
on May 18, 2000. The following matters were voted upon and approved by the
Company's stockholders at the meeting:
1. Mr. Gerald S. Armstrong, Mr. Wesley E. Cantrell and Ms. Hanne M. Merriman
were re-elected as Class III Directors of the Company for terms expiring
in 2003. 20,559,205, 23,961,023, and 20,866,552 shares were voted in
favor of, zero shares were voted against, and 3,518,956, 117,138, and
3,211,609 shares abstained from voting on, the reelection of Mr.
Armstrong, Mr. Cantrell and Ms. Merriman, respectively. Mr. James J.
Burke, Jr., Ms. Patricia DeRosa and Mr. Ronald W. Hovsepian continued as
Class II Directors with terms expiring in 2002 and Mr. Robert C. Grayson,
Ms. Rochelle B. Lazarus, and Mr. J. Patrick Spainhour continued as Class
I Directors with terms expiring in 2001.
2. The appointment of Deloitte & Touche LLP as the Company's independent
auditors for the 2000 fiscal year was ratified. 23,986,957 shares were voted
in favor of, 51,523 shares were voted against, and 39,681 shares abstained
from voting on, this proposal.
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<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a report dated May 18, 2000 with the Commission on
Form 8-K on May 23, 2000 with respect to the Company's adoption of a
Stockholder's Rights Plan, pursuant to which rights were distributed as a
dividend to stockholders of record at the close of business on May 30,
2000 at the rate of one Right for each share of Common Stock of the
Company.
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<PAGE> 15
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: June 12, 2000 By: /s/ J. Patrick Spainhour
----------------------- -----------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: June 12, 2000 By: /s/ Barry Erdos
----------------------- -----------------------------
Barry Erdos
Executive Vice President -
Chief Financial Officer and
Treasurer
