UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2004
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 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 August 27, 2004 | |
| Common Stock, $.0068 par value | 71,373,713 |
| Page No. | ||||||
| PART I. | FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements | |||||
| 3 | ||||||
| Condensed Consolidated Balance Sheets at July 31, 2004 and January 31, 2004 (unaudited) |
4 | |||||
| 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 | 16 | ||||
| PART II. | OTHER INFORMATION | |||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 17 | ||||
| Item 6. | Exhibits | 18 | ||||
| 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. Prior period share and per share amounts herein are presented on a post-split basis.
2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters and Six Months Ended July 31, 2004 and August 2, 2003
(unaudited)
| Quarters Ended |
Six Months Ended | |||||||||||
| July 31, 2004 |
August 2, 2003 |
July 31, 2004 |
August 2, 2003 | |||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Net sales |
$ | 472,634 | $ | 390,207 | $ | 905,880 | $ | 742,224 | ||||
| Cost of sales |
222,339 | 187,646 | 402,682 | 350,648 | ||||||||
| Gross margin |
250,295 | 202,561 | 503,198 | 391,576 | ||||||||
| Selling, general and administrative expenses |
200,159 | 166,660 | 399,447 | 325,278 | ||||||||
| Operating income |
50,136 | 35,901 | 103,751 | 66,298 | ||||||||
| Interest income |
1,295 | 777 | 2,296 | 1,465 | ||||||||
| Interest expense |
1,079 | 1,674 | 2,749 | 3,368 | ||||||||
| Income before income taxes |
50,352 | 35,004 | 103,298 | 64,395 | ||||||||
| Income tax provision |
20,141 | 13,827 | 41,319 | 25,290 | ||||||||
| Net income |
$ | 30,211 | $ | 21,177 | $ | 61,979 | $ | 39,105 | ||||
| Basic earnings per share of common stock |
$ | 0.43 | $ | 0.32 | $ | 0.90 | $ | 0.59 | ||||
| Diluted earnings per share of common stock |
$ | 0.41 | $ | 0.30 | $ | 0.84 | $ | 0.56 | ||||
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 2004 and January 31, 2004
(unaudited)
| July 31, 2004 |
January 31, 2004 |
|||||||
| (in thousands) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 347,196 | $ | 337,087 | ||||
| Merchandise inventories |
206,276 | 172,058 | ||||||
| Prepaid expenses and other current assets |
78,424 | 68,223 | ||||||
| Total current assets |
631,896 | 577,368 | ||||||
| Property and equipment, net |
271,785 | 265,569 | ||||||
| Goodwill |
286,579 | 286,579 | ||||||
| Deferred financing costs, net |
1,564 | 4,886 | ||||||
| Other assets |
13,631 | 17,471 | ||||||
| Total assets |
$ | 1,205,455 | $ | 1,151,873 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 68,451 | $ | 52,170 | ||||
| Accrued expenses |
116,730 | 109,450 | ||||||
| Total current liabilities |
185,181 | 161,620 | ||||||
| Long-term debt, net |
— | 125,152 | ||||||
| Deferred lease costs and other liabilities |
35,492 | 34,465 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $.0068 par value; 120,000,000 shares authorized; 79,991,197 and 74,198,430 shares issued, respectively |
544 | 505 | ||||||
| Additional paid-in capital |
660,808 | 516,655 | ||||||
| Retained earnings |
455,303 | 393,926 | ||||||
| Deferred compensation on restricted stock |
(13,208 | ) | (6,148 | ) | ||||
| 1,103,447 | 904,938 | |||||||
| Treasury stock, 7,151,863 and 6,131,430 shares, respectively, at cost |
(118,665 | ) | (74,302 | ) | ||||
| Total stockholders’ equity |
984,782 | 830,636 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,205,455 | $ | 1,151,873 | ||||
See accompanying notes to condensed consolidated financial statements
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended July 31, 2004 and August 2, 2003
(unaudited)
| Six Months Ended |
||||||||
| July 31, 2004 |
August 2, 2003 |
|||||||
| (in thousands) | ||||||||
| Operating activities: |
||||||||
| Net income |
$ | 61,979 | $ | 39,105 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Amortization of deferred compensation |
3,949 | 1,540 | ||||||
| Deferred income taxes |
1,278 | (471 | ) | |||||
| Depreciation and amortization |
28,594 | 25,640 | ||||||
| Loss on disposal of property and equipment |
5 | 725 | ||||||
| Non-cash interest |
1,654 | 2,177 | ||||||
| Tax benefit from exercise of stock options |
5,765 | 666 | ||||||
| Changes in assets and liabilities: |
||||||||
| Receivables |
(2,131 | ) | (4,463 | ) | ||||
| Merchandise inventories |
(34,219 | ) | 16,801 | |||||
| Prepaid expenses and other current assets |
(6,832 | ) | (3,791 | ) | ||||
| Accounts payable and accrued expenses |
23,560 | 5,864 | ||||||
| Other non-current assets and liabilities, net |
2,352 | 5,070 | ||||||
| Net cash provided by operating activities |
85,954 | 88,863 | ||||||
| Investing activities: |
||||||||
| Purchases of property and equipment |
(34,815 | ) | (33,141 | ) | ||||
| Net cash used by investing activities |
(34,815 | ) | (33,141 | ) | ||||
| Financing activities: |
||||||||
| Common stock activity related to stock based compensation programs, net |
17,956 | 3,832 | ||||||
| Repurchases of common stock |
(58,986 | ) | (12,781 | ) | ||||
| Net cash used by financing activities |
(41,030 | ) | (8,949 | ) | ||||
| Net increase in cash |
10,109 | 46,773 | ||||||
| Cash and cash equivalents, beginning of period |
337,087 | 212,821 | ||||||
| Cash and cash equivalents, end of period |
$ | 347,196 | $ | 259,594 | ||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 1,090 | $ | 1,133 | ||||
| Income taxes |
$ | 28,630 | $ | 19,239 | ||||
| Conversion of long-term debt: |
||||||||
| Conversion of Convertible Debentures into common stock, net of unamortized deferred financing costs |
$ | 123,484 | $ | — | ||||
See accompanying notes to condensed consolidated financial statements.
5
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 Fiscal 2004 interim periods 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 previously 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. Certain Fiscal 2003 amounts have been reclassified to conform to the Fiscal 2004 presentation.
2. Earnings 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 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. As discussed further in Note 4, the conversion of Convertible Debentures had no effect on diluted earnings per share.
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. Shares and per share data in the table below, and throughout this document, are presented on a post-split basis.
| Quarters Ended | ||||||||||||||||
| July 31, 2004 |
August 2, 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 |
$ | 30,211 | 70,358 | $ | 0.43 | $ | 21,177 | 66,036 | $ | 0.32 | ||||||
| Effect of Dilutive Securities |
||||||||||||||||
| Stock options and restricted stock |
— | 1,570 | — | 998 | ||||||||||||
| Convertible Debentures |
381 | 2,794 | 722 | 5,409 | ||||||||||||
| Diluted Earnings per Share |
||||||||||||||||
| Income available to common stockholders |
$ | 30,592 | 74,722 | $ | 0.41 | $ | 21,899 | 72,443 | $ | 0.30 | ||||||
6
ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
2. Earnings Per Share (continued)
| Six Months Ended | ||||||||||||||||
| July 31, 2004 |
August 2, 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 |
||||||||||||||||