Commission file number 1-10738
| Delaware | 13-3499319 | ||||
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | ||||
| 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).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.
| Class |
Outstanding as of May 28, 2004 | ||
| Common Stock, $.0068 par value | 69,039,153 |
| Page No. | |
| PART I. FINANCIAL INFORMATION | |
| Item 1. Financial Statements | |
| Condensed Consolidated Statements of Income | |
| for the Quarters Ended May 1, 2004 and | |
| May 3, 2003 (unaudited) | 3 |
| Condensed Consolidated Balance Sheets at | |
| May 1, 2004 and January 31, 2004 (unaudited) | 4 |
| Condensed Consolidated Statements of Cash Flows | |
| for the Quarters Ended May 1, 2004 and | |
| May 3, 2003 (unaudited) | 5 |
| Notes to Condensed Consolidated Financial | |
| Statements (unaudited) | 6 |
| Item 2. Management's Discussion and Analysis of Financial | |
| Condition and Results of Operations | 10 |
| Item 4. Controls and Procedures | 15 |
| PART II. OTHER INFORMATION | |
| Item 2. Changes in Securities, Use of Proceeds
and Issuer Purchases of Equity Securities |
16 |
| Item 4. Submission of Matters to a Vote of Security Holders | 16 |
| Item 6. Exhibits and Reports on Form 8-K | 17 |
| SIGNATURES | 19 |
| EXHIBIT INDEX | 20 |
Note: In April 2004, 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. All share and per share amounts herein are presented on a post-split basis.
| Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 | May 3, 2003 | |||||||
| (in thousands, except per share amounts) | ||||||||
| Net sales | $ | 433,246 | $ | 352,017 | ||||
| Cost of sales | . 180,343 | 163,002 | ||||||
| Gross margin | 252,903 | 189,015 | ||||||
| Selling, general and administrative expenses | 199,288 | 158,618 | ||||||
| Operating income | 53,615 | 30,397 | ||||||
| Interest income | 1,001 | 688 | ||||||
| Interest expense | 1,670 | 1,694 | ||||||
| Income before income taxes | 52,946 | 29,391 | ||||||
| Income tax provision | 21,178 | 11,463 | ||||||
| Net income | $ | 31,768 | $ | 17,928 | ||||
| Basic earnings per share of common stock | $ | 0.47 | $ | 0.27 | ||||
| Diluted earnings per share of common stock | $ | 0.43 | $ | 0.26 | ||||
See accompanying notes to condensed consolidated financial statements.
-3-
| May 1, 2004 | January 31, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 348,768 | $ | 337,087 | ||||
| Accounts receivable | 23,379 | 12,476 | ||||||
| Merchandise inventories | 214,057 | 172,058 | ||||||
| Prepaid expenses and other current assets | 64,928 | 55,747 | ||||||
| Total current assets | 651,132 | 577,368 | ||||||
| Property and equipment, net | 269,949 | 265,569 | ||||||
| Goodwill, net | 286,579 | 286,579 | ||||||
| Deferred financing costs, net | 1,693 | 4,886 | ||||||
| Other assets | 15,190 | 17,471 | ||||||
| Total assets | $ | 1,224,543 | $ | 1,151,873 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 75,957 | $ | 52,170 | ||||
| Accrued expenses | 116,771 | 109,450 | ||||||
| Convertible debentures, net | 126,047 | -- | ||||||
| Total current liabilities | 318,775 | 161,620 | ||||||
| Long-term debt, net | -- | 125,152 | ||||||
| Deferred lease costs and other liabilities | 32,994 | 34,465 | ||||||
| Stockholders' equity | ||||||||
| Common stock, $.0068 par value; 120,000,000 | ||||||||
| shares authorized, 74,529,165 and | ||||||||
| 74,198,430 shares issued, respectively | 338 | 336 | ||||||
| Additional paid-in capital | 534,742 | 516,824 | ||||||
| Retained earnings | 425,133 | 393,926 | ||||||
| Deferred compensation on restricted stock | (14,054 | ) | (6,148 | ) | ||||
| . | 946,159 | 904,938 | ||||||
| Treasury stock, 5,569,104 and 6,131,430 shares, | ||||||||
| respectively, at cost | (73,385 | ) | (74,302 | ) | ||||
| Total stockholders' equity | 872,774 | 830,636 | ||||||
| Total liabilities and stockholders' equity | $ | 1,224,543 | $ | 1,151,873 | ||||
See accompanying notes to condensed consolidated financial statements.
-4-
| Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 | May 3, 2003 | |||||||
| (in thousands) | ||||||||
| Operating activities: | ||||||||
| Net income | $ | 31,768 | $ | 17,928 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided (used) by operating activities: | ||||||||
| Amortization of deferred compensation | 1,716 | 780 | ||||||
| Deferred income taxes | 1,317 | 231 | ||||||
| Depreciation and amortization | 14,509 | 12,649 | ||||||
| Loss on disposal of property and equipment | 5 | 552 | ||||||
| Non-cash interest | 1,038 | 1,084 | ||||||
| Tax benefit from exercise of stock options | 5,286 | 53 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (10,903 | ) | (10,069 | ) | ||||
| Merchandise inventories | (41,999 | ) | (10,917 | ) | ||||
| Prepaid expenses and other current assets | (6,319 | ) | (6,808 | ) | ||||
| Accounts payable and accrued expenses | 31,108 | (10,022 | ) | |||||
| Other non-current assets and liabilities, net | (319 | ) | 2,411 | |||||
| Net cash provided (used) by operating activities | 27,207 | (2,128 | ) | |||||
| Investing activities: | ||||||||
| Purchases of property and equipment | (18,894 | ) | (9,035 | ) | ||||
| Net cash used by investing activities | (18,894 | ) | (9,035 | ) | ||||
| Financing activities: | ||||||||
| Common stock activity related to stock | ||||||||
| based compensation programs, net | 15,997 | (603 | ) | |||||
| Repurchase of common stock | (12,629 | ) | (12,781 | ) | ||||
| Net cash provided (used) by financing activities | 3,368 | (13,384 | ) | |||||
| Net increase (decrease) in cash | 11,681 | (24,547 | ) | |||||
| Cash and cash equivalents, beginning of period | 337,087 | 212,821 | ||||||
| Cash and cash equivalents, end of period | $ | 348,768 | $ | 188,274 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | 270 | $ | 301 | ||||
| Cash paid during the period for income taxes | $ | 5,579 | $ | 1,022 | ||||
See accompanying notes to condensed consolidated financial statements.
-5-
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 2004 interim period shown in this Report are not necessarily indicative of results to be expected for the fiscal year.
The January 31, 2004 Condensed Consolidated Balance Sheet amounts have been derived from the audited Consolidated Balance Sheet of AnnTaylor Stores Corporation (the “Company”).
Detailed footnote information is not included in this Report. The financial information set forth herein should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Company's 2003 Annual Report to Stockholders.
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 by the Company upon exercise of all outstanding stock options, conversion of all outstanding convertible securities and vesting of unvested restricted stock, if the effect is dilutive.
In
April 2004, 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 26, 2004 to stockholders of
record at the close of business on May 11, 2004. Share and per share data in the table
below, and throughout this document, are presented on a post-split basis.
| Quarters Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 | |||||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||||
| Net Income |
Shares |
Per Share |
Net Income |
Shares |
Per Share | |||||||||||||||
| Basic Earnings per Share | ||||||||||||||||||||
| Income available to common stockholders | $ | 31,768 | 67,979 | $ | 0.47 | $ | 17,928 | 66,065 | $ | 0.27 | ||||||||||
| Effect of Dilutive Securities | ||||||||||||||||||||
| Stock options and restricted stock | -- | 1,710 | -- | 399 | ||||||||||||||||
| Convertible Debentures | 732 | 5,409 | 724 | 5,409 | ||||||||||||||||
| Diluted Earnings per Share | ||||||||||||||||||||
| Income available to common stockholders | $ | 32,500 | 75,098 | $ | 0.43 | $ | 18,652 | 71,873 | $ | 0.26 | ||||||||||
-6-
Options
to purchase 1,315,200 and 4,153,340 shares of common stock were excluded from the above
computations of weighted average shares for diluted earnings per share for the quarters
ended May 1, 2004 and May 3, 2003, respectively. This was due to the antidilutive effect
of the options’ exercise prices as compared to the average market price of the common
shares during those periods.
The Company accounts for stock-based awards and employees’ purchase rights under the Associate Discount Stock Purchase Plan using the intrinsic value-based method of accounting in accordance with Accounting Principles Board Opinion No. 25, under which no compensation cost is recognized for stock option awards granted at fair market value and employees’ purchase rights under the Associate Discount Stock Purchase Plan. Had compensation costs of option awards and employees’ purchase rights been determined under a fair value alternative method as stated in SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123", the Company would have been required to prepare a fair value model for such options and employees’ purchase rights, and record such amount in the consolidated financial statements as compensation expense. Pro forma stock based employee compensation costs, net income and earnings per share, as they would have been recognized if the fair value method had been applied to all awards, are presented in the table below:
| Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 | |||||||
| (dollars in thousands, except per share data) | ||||||||
| Net income: | ||||||||
| As reported | $ | 31,768 | $ | 17,928 | ||||
| Deduct: Total stock-based employee compensation | ||||||||
| expense determined under fair value based | ||||||||
| method for all awards, net of related tax effects | (1,403 | ) | (974 | ) | ||||
| Pro forma | $ | 30,365 | $ | 16,954 | ||||
| Basic earnings per share: | ||||||||
| As reported | $ | 0.47 | $ | 0.27 | ||||
| Pro forma | $ | 0.45 | $ | 0.25 | ||||
| Diluted earnings per share: | ||||||||
| As reported | $ | 0.43 | $ | 0.26 | ||||
| Pro forma | $ | 0.41 | $ | 0.25 | ||||
-7-
During Fiscal 1999, the Company completed the issuance of an aggregate of $199,072,000 principal amount at maturity of its Convertible Subordinated Debentures due 2019 (“Convertible Debentures”). The Convertible Debentures may be redeemed at the Company’s option on or after June 18, 2004. In addition, the Company is obligated to purchase on specified purchase dates, beginning June 18, 2004 and each five years thereafter, at specified Put Prices plus accrued cash interest to the purchase date, any outstanding Convertible Debentures for which a written notice has been received from the holder. Also, the Convertible Debentures are convertible at the option of the holders thereof initially into 27.1755 shares of the Company’s common stock per $1,000 principal amount at maturity of Debenture.
The Company’s obligations with respect to the Convertible Debentures are unconditionally guaranteed on a subordinated basis by the Company’s wholly owned operating subsidiary, Ann Taylor, Inc. (“Ann Taylor”). The Company has no independently owned assets and conducts no business other than the management of Ann Taylor.
On May 20, 2004 the Company notified the holders that it will redeem the Convertible Debentures on June 18, 2004 at $635.42 per $1,000.00 of the principal amount. The holders have the option to convert their Convertible Debentures into common stock of the Company prior to redemption. As a result of this redemption notification, the Company expects that holders will convert their Convertible Debentures into approximately 5,400,000 shares of its common stock. This expectation is based on the Company’s common stock trading at a price greater than the conversion price. However, as the Company cannot predict with certainty whether the holders will elect to convert their Convertible Debentures into common stock, it has elected to classify the Convertible Debentures as a current liability at May 1, 2004 in its Condensed Consolidated Balance Sheet. Consistent with the treatment of the carrying value of the Convertible Debentures, the Company has classified the unamortized financing costs associated with the Convertible Debentures totaling $3,062,813 as a current asset in its Condensed Consolidated Balance Sheet.
In November 2003, Ann Taylor and certain of its subsidiaries entered into a Second Amended and Restated $175,000,000 senior secured revolving credit facility (the “Credit Facility”) with Bank of America N.A. and a syndicate of lenders. The Credit Facility matures on November 13, 2008 and will be used by Ann Taylor and certain of its subsidiaries for letters of credit and other general corporate purposes. There were no borrowings outstanding under the Credit Facility at any point during the first quarter of Fiscal 2004 or as of the date of this filing.
The Credit Facility permits the payment of cash dividends by the Company (and dividends by certain of its subsidiaries to fund such cash dividends) if liquidity (as defined in the Credit Facility) is at least $35,000,000. Certain subsidiaries of the Company are also permitted to: pay dividends to the Company to fund certain taxes owed by the Company; fund ordinary operating expenses of the Company not in excess of $500,000 per annum; repurchase common stock held by employees not in excess of $100,000 per annum; and for certain other stated purposes.
-8-
The
following table summarizes the components of net periodic pension cost for the Company:
| Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 | |||||||
| (in thousands) | ||||||||
| Service cost | $ | 1,052 | $ | 751 | ||||
| Interest cost | 297 | 242 | ||||||
| Expected return on plan assets | (375 | ) | (317 | ) | ||||
| Amortization of prior service cost | 2 | 2 | ||||||
| Amortization of net loss | 164 | 165 | ||||||
| Net periodic pension cost | $ | 1,140 | $ | 843 | ||||
While no contributions to the Company’s pension plan are required in Fiscal 2004, as the fair value of plan assets has been greater than the benefit obligation, the Company may make a contribution during the year.
The Company repurchased $12,629,000 of its common stock in the first quarter of Fiscal 2004 under a $75,000,000 securities repurchase plan, announced by the Company in March 2004. This plan, which replaced a $50,000,000 plan announced in August 2002, will expire when the Company has repurchased all securities authorized for repurchase thereunder, unless terminated earlier by resolution of the Board of Directors.
-9-
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
The Company continued to build on client acceptance of its merchandise assortments with strong sales and gross margin performance in the first quarter of Fiscal 2004. Significant indicators of this growth include the following:
| o | Total net sales were up 23.1% from the first quarter of Fiscal 2003, with Ann Taylor up 6.0% and Ann Taylor Loft up 54.6%; |
| o | Total comparable store sales were up 11.9%, with Ann Taylor up 4.2% and Ann Taylor Loft up 24.8%; |
| o | Ann Taylor experienced its fourth consecutive quarter of positive comparable store sales; |
| o |
Ann Taylor Loft had its third consecutive quarter of double-digit comparable store sales growth; |
| o | The Company achieved net income of $31,768,000 and diluted earnings per share of $0.43, both records for a first quarter. |
The retail environment remains very competitive. While these operating results may be difficult to maintain, the Company is optimistic about the remainder of Fiscal 2004 and plans to continue its store opening schedule using cash flow from operations. Management’s plan for future growth builds on the strengths discussed above, and is based on offering clients brand-appropriate merchandise at convenient, accessible locations. The Company’s ability to achieve this objective will be dependent on factors such as those outlined in the “Statement Regarding Forward-Looking Disclosures”.
During the Company’s planned expansion, it will continue to focus on inventory management and selling, general and administrative costs. Total inventory levels at the end of the first quarter of Fiscal 2004 decreased approximately 1% on a per square foot basis compared to last year. While selling, general and administrative expenses for the first quarter increased 0.9% over last year as a percentage of net sales, the Company anticipates that its increasing sales levels will allow it to adequately leverage these costs.
As discussed more fully below, on May 20, 2004 the Company notified holders of its Convertible Debentures that it will exercise its option to redeem such Debentures on June 18, 2004.
-10-
The following table sets forth consolidated income statement data expressed as a percentage of net sales:
| Quarters Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| May | ||||||||