ANNTAYLOR STORES CORP - 10-Q Quarterly Report

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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 October 30, 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

November 26, 2004

Common Stock, $.0068 par value

70,565,961

INDEX TO FORM 10-Q



PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income for the Quarters and Nine Months Ended October 30, 2004 and November 1, 2003 (unaudited)	3
	Condensed Consolidated Balance Sheets at October 30, 2004 and January 31, 2004 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 30, 2004 and November 1, 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 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

PART II.	OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 5.	Other Information	17

Item 6.	Exhibits	17

SIGNATURES		18

EXHIBIT INDEX		19

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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ANNTAYLOR STORES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Quarters and Nine Months Ended October 30, 2004 and November 1, 2003

(unaudited)


	Quarters Ended				Nine Months Ended
	Oct. 30, 2004		Nov. 1, 2003		Oct. 30, 2004		Nov. 1, 2003
	(in thousands, except per share amounts)
Net sales	$	460,365	$	396,807	$	1,366,245	$	1,139,031
Cost of sales		225,359		168,031		628,041		518,679

Gross margin		235,006		228,776		738,204		620,352
Selling, general and administrative expenses		211,470		177,356		610,917		502,634

Operating income		23,536		51,420		127,287		117,718
Interest income		1,290		803		3,586		2,268
Interest expense		464		1,716		3,213		5,084

Income before income taxes		24,362		50,507		127,660		114,902
Income tax provision		10,117		20,202		51,436		45,492

Net income	$	14,245	$	30,305	$	76,224	$	69,410

Basic earnings per share of common stock	$	0.20	$	0.45	$	1.10	$	1.05

Diluted earnings per share of common stock	$	0.20	$	0.42	$	1.05	$	0.99

See accompanying notes to condensed consolidated financial statements.

ANNTAYLOR STORES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

October 30, 2004 and January 31, 2004

(unaudited)


	October 30, 2004			January 31, 2004
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	188,732		$	337,087
Accounts receivable		20,197			12,476
Merchandise inventories		287,990			172,058
Prepaid expenses and other current assets		75,401			55,747

Total current assets		572,320			577,368
Property and equipment, net		286,636			265,569
Goodwill		286,579			286,579
Deferred financing costs, net		1,473			4,886
Other assets		12,138			17,471

Total assets	$	1,159,146		$	1,151,873

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	63,727		$	52,170
Accrued expenses		115,115			109,450

Total current liabilities		178,842			161,620

Long-term debt, net		—			125,152
Deferred lease costs and other liabilities		35,634			34,465

Stockholders’ equity:
Common stock, $.0068 par value; 120,000,000 shares authorized; 80,050,075 and 74,198,430 shares issued, respectively		544			505
Additional paid-in capital		662,866			516,655
Retained earnings		469,514			393,926
Deferred compensation on restricted stock		(11,091	)		(6,148	)

		1,121,833			904,938
Treasury stock, 9,564,685 and 6,131,430 shares, respectively, at cost		(177,163	)		(74,302	)

Total stockholders’ equity		944,670			830,636

Total liabilities and stockholders’ equity	$	1,159,146		$	1,151,873

See accompanying notes to condensed consolidated financial statements.

ANNTAYLOR STORES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended October 30, 2004 and November 1, 2003

(unaudited)


	Nine Months Ended
	October 30, 2004			November 1, 2003
	(in thousands)
Operating activities:
Net income	$	76,224		$	69,410
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred compensation		6,287			2,419
Deferred income taxes		658			1,073
Depreciation and amortization		43,826			39,208
Loss on disposal of property and equipment		696			724
Non-cash interest		1,745			3,277
Tax benefit from exercise of stock options		6,330			3,100
Changes in assets and liabilities:
Accounts receivable		(7,721	)		(7,209	)
Merchandise inventories		(115,932	)		(41,750	)
Prepaid expenses and other current assets		(17,243	)		(9,810	)
Accounts payable and accrued expenses		17,222			41,208
Other non-current assets and liabilities, net		3,433			6,788

Net cash provided by operating activities		15,525			108,438

Investing activities:
Purchases of property and equipment		(65,590	)		(54,241	)

Net cash used by investing activities		(65,590	)		(54,241	)

Financing activities:
Common stock activity related to stock based compensation programs, net		20,576			16,176
Repurchases of common stock		(118,866	)		(12,781	)

Net cash (used) provided by financing activities		(98,290	)		3,395

Net (decrease) increase in cash		(148,355	)		57,592
Cash and cash equivalents, beginning of period		337,087			212,821

Cash and cash equivalents, end of period	$	188,732		$	270,413

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,417		$	1,442

Income taxes	$	55,944		$	22,940

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.

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 Fiscal 2004 interim periods presented 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 June 2004 conversion of the Company’s 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
	October 30, 2004					November 1, 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	$	14,245	70,354	$	0.20	$	30,305	67,046	$	0.45

Effect of Dilutive Securities
Stock options and restricted stock		—	1,202				—	1,560
Convertible Debentures		—	—				722	5,409

Diluted Earnings per Share
Income available to common stockholders	$	14,245	71,556	$	0.20	$	31,027	74,015	$	0.42

ANNTAYLOR STORES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

2. Earnings Per Share (continued)


	Nine Months Ended
	October 30, 2004					November 1, 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	$	76,224	69,564	$	1.10	$	69,410	66,383	$	1.05

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