SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 1994.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 33-28522
-----------------------------
ANNTAYLOR, INC.
----------------
(Exact name of registrant as specified in its charter)
Delaware 51-0297083
---------- ------------
(State of 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 October 29, 1994
----- ----------------
Common Stock, $1.00 par value 1
The registrant meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing
this form with the reduced disclosure format.
======================================================================
INDEX TO FORM 10-Q
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters and Nine Months Ended
October 29, 1994 and October 30, 1993 3
Condensed Consolidated Balance Sheets at
October 29, 1994 and January 29, 1994 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended October 29, 1994 and
October 30, 1993 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
=====================================================================
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters and Nine Months Ended October 29, 1994 and October 30, 1993
(unaudited)
Quarters Ended Nine Months Ended
------------------- -------------------
Oct 29, Oct 30, Oct 29, Oct 30,
1994 1993 1994 1993
---- ---- ---- ----
(in thousands)
Net sales $164,632 $122,025 $469,851 $367,037
Cost of sales 87,576 64,929 251,970 199,001
------- ------- ------- -------
Gross profit 77,056 57,096 217,881 168,036
Selling, general and administrative
expenses 54,826 41,870 152,635 122,717
Amortization of goodwill 2,377 2,376 7,130 7,130
------- ------- ------- -------
Operating income 19,853 12,850 58,116 38,189
Interest expense 3,642 3,917 10,215 13,994
Other (income) expense, net (10) (2) 316 (111)
------- ------- ------- -------
Income before income taxes and
extraordinary loss 16,221 8,935 47,585 24,306
Income tax provision 7,937 4,614 23,318 13,065
------- ------- ------- -------
Income before extraordinary loss 8,284 4,321 24,267 11,241
Extraordinary loss (net of income
tax benefit of $654,000 and
$5,652,000, respectively) --- --- (868) (10,496)
------- ------- ------- -------
Net income $8,284 $4,321 $23,399 $ 745
====== ====== ======= =======
See accompanying notes to condensed consolidated financial statements.
============================================================================
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 29, 1994 and January 29, 1994
Oct 29, Jan 29,
1994 1994
------- --------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash $ 2,841 $ 292
Accounts receivable, net of allowances of
$802,000 and $787,000, respectively 60,919 49,279
Merchandise inventories 104,324 60,890
Prepaid expenses and other current assets 6,186 7,184
Deferred income taxes 3,750 3,750
------- -------
Total current assets 178,020 121,395
Property and equipment, net of accumulated
depreciation of $33,231,000 and
$28,703,000, respectively 71,610 48,053
Deferred financing costs, net of accumulated
amortization of $771,000 and $643,000,
respectively 2,969 4,990
Goodwill, net of accumulated amortization of
$54,843,000 and $47,713,000, respectively 325,407 332,537
Deferred income taxes 1,500 1,500
Investment in CAT 3,353 2,245
Other assets 2,393 2,679
------- -------
Total assets $585,252 $513,399
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 46,673 $ 37,564
Accrued expenses 17,055 16,252
Accrued interest 4,722 1,955
Accrued rent 4,905 3,584
Current portion of long-term debt --- 8,757
------ ------
Total current liabilities 73,355 68,112
Long-term debt 189,049 180,243
Other liabilities 5,933 5,773
Commitments and contingencies
Stockholder's equity
Common stock, $1.00 par value; 1,000 shares
authorized; 1 share issued and outstanding 1 1
Additional paid-in capital 310,271 276,026
Retained earnings (accumulated deficit) 6,643 (16,756)
------- -------
Total stockholder's equity 316,915 259,271
------- -------
Total liabilities and stockholder's equity $585,252 $513,399
======= =======
See accompanying notes to condensed consolidated financial statements.
=============================================================================
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended October 29, 1994 and October 30, 1993
(unaudited)
Nine Months Ended
------------------
Oct 29, Oct 30,
1994 1993
---- ----
(in thousands)
Operating activities:
Net income $23,399 $ 745
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary loss 1,522 16,148
Equity earnings in CAT (1,108) (409)
Provision for loss on accounts receivable 1,193 984
Depreciation and amortization 8,591 6,323
Amortization of goodwill 7,130 7,130
Accretion of original issue discount --- 2,864
Amortization of deferred financing costs 793 1,005
Amortization of deferred compensation 280 209
Deferred income taxes --- (250)
Loss on disposal of property and equipment 1,125 288
(Increase) decrease in:
Receivables (12,833) (8,107)
Merchandise inventories (43,434) (12,462)
Prepaid expenses and other current assets 998 5,379
Increase (decrease) in:
Accounts payable 9,109 7,110
Accrued expenses 4,891 (1,281)
Other non-current assets and liabilities, net 446 527
------- -------
Net cash provided by operating activities 2,102 26,203
Investing activities:
Purchases of property and equipment (33,273) (13,897)
Investment in CAT --- (1,640)
------- -------
Net cash used by investing activities (33,273) (15,537)
------- -------
Financing activities:
Decrease in bank overdrafts --- (2,361)
Borrowings under line of credit agreement --- 6,500
Payments of long-term debt --- (96,969)
Parent company contribution 33,965 9,233
Repurchase of Debt Securities --- (93,689)
Net proceeds from 8-3/4% Subordinated Notes --- 107,387
Payments of financing costs (294) (3,505)
Repayment of note due from stockholder --- 999
Repayment of 10% Junior Subordinated Notes --- (14,641)
Proceeds from (payment of) Term Loan (56,000) 80,000
Borrowing under revolving credit facility 53,000 ---
Net borrowing on receivables facility 3,049 ---
------- -------
Net cash provided by (used by) financing activities 33,720 (7,046)
------- -------
Net increase in cash 2,549 3,620
Cash, beginning of period 292 226
------- -------
Cash, end of period $ 2,841 $ 3,846
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 6,655 $ 7,601
======= =======
Cash paid during the period for income taxes $21,065 $ 3,744
======= =======
See accompanying notes to condensed consolidated financial statements.
=============================================================================
ANNTAYLOR, INC.
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 1994 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The January 29, 1994 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor, Inc..
Certain fiscal 1993 amounts have been reclassified to conform
to the 1994 presentation.
It is not considered necessary to include detailed footnote
information as of October 29, 1994 and October 30, 1993. 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, Inc. 1993 Annual
Report on Form 10-K.
2. Long-term Debt
--------------
In May 1994, the Company applied $30,000,000 of the net
proceeds from its public stock Offering referred to in Note 3
below, to reduce the amount of the Term Loan outstanding under
its then-existing bank credit agreement.
In July 1994, the Company completed the refinancing of its
outstanding bank debt by entering into a new credit agreement
(the "Revolving Credit Agreement") providing for a revolving loan
facility of $75,000,000. The Company borrowed funds under this
revolving credit facility to prepay in full its outstanding Term
Loan and other obligations under its then-existing bank credit
agreement.
The Revolving Credit Agreement has an initial term of three
years. There are no amortization payments required to be made
under the agreement during its term, although the Company is
required to reduce the outstanding loan balance under the
facility to $50,000,000 or less for thirty consecutive days
during fiscal 1994, to $40,000,000 or less for thirty consecutive
days during fiscal 1995, and to $30,000,000 or less for thirty
consecutive days in each fiscal year thereafter. The revolving
credit facility bears interest at a rate per annum equal to, at
the Company's option, Bank of America's (1) Base Rate or (2)
Eurodollar rate plus .75%. The Revolving Credit Agreement
contains financial and other covenants, including limitations on
indebtedness, liens and investments, restrictions on dividends or
other distributions to stockholders and maintaining certain
financial ratios and specified levels of net worth.
The following summarizes long-term debt outstanding at October
29, 1994:
(in thousands)
Revolving Credit Facility $ 53,000
8-3/4% Notes 100,000
Receivables Facility 36,049
--------
Total Long-term Debt $189,049
========
3. Extraordinary Item
------------------
On May 18, 1994, AnnTaylor Stores Corporation ("ATSC"), the
parent of the Company, completed a public offering of its common
stock (the "Offering") in which it issued and sold 1,000,000
shares of common stock at a price of $32.00 per share, resulting
in aggregate net proceeds of $30,414,000 (after payment of
underwriting discounts and expenses of the Offering payable by
the Company). As required by the Company's then-existing bank
credit agreement, $30,000,000 of the net proceeds of the Offering
were used to reduce the amount of the Term Loan outstanding under
that agreement. The non-cash charge associated with the payment
on the Term Loan with the proceeds of the Offering and
refinancing of long term debt (see Note 2) resulted in an
extraordinary loss of $1,522,000 ($868,000 net of taxes).
The Offering was consummated concurrently with the public
offering and sale by certain affiliates of Merrill Lynch Capital
Partners (the "Selling Stockholders") of 4,075,000 shares of
ATSC's Common Stock held by them. Neither ATSC nor the Company
received any of the proceeds of the shares sold by the Selling
Stockholders. After giving effect to this sale, the Selling
Stockholders and other affiliates of Merrill Lynch Capital
Partners held shares representing approximately 32.5% of ATSC's
Common Stock.
On November 22, 1994, the Selling Stockholders filed with the
Securities and Exchange Commission Notices on Form 144 of the
proposed sale of an aggregate of 804,000 shares of ATSC's
Common Stock held by them. Upon sale of such shares, the
interest of the Selling Stockholders and other affiliates of
Merrill Lynch Capital Partners would be reduced to
approximately 28.9% of ATSC's Common Stock.
4. Supplementary Data
------------------
The unaudited pro forma income before extraordinary loss,
assuming the Offering had occurred at the beginning of the year,
would have been $24,522,000 for the nine months ended October 29,
1994. Such computation reflects interest expense savings of
$500,000 related to the reduction of the term loan with the net
proceeds of the Offering.
===========================================================================
Item 2. Management's Discussion and Analysis of Operations
--------------------------------------------------
Results of Operations
Nine Months Ended
-----------------
Oct. 29, Oct. 30,
1994 1993
---- ----
Number of Stores:
Open at beginning of period 231 219
Opened during period 26 7
Expanded during period* 21 7
Closed during period 4 1
Open at end of period 253 225
Type of Stores Open at End of Period:
AnnTaylor Stores 231 219
AnnTaylor Factory Stores 17 6
AnnTaylor Studio Stores** 5 ---
----------------
* Expanded stores are excluded from comparable store sales
for the first year following expansion.
** The Company's free-standing shoe and accessory store
concept.
==========================================================================
Nine Months Ended October 29, 1994 Compared to Nine Months Ended
October 30, 1993
- -------------------------------------------------------------------
The Company's net sales increased to $469,851,000 in the first
nine months of 1994, from $367,037,000 in the first nine months
of 1993, an increase of $102,814,000, or 28.0%. The increase in
net sales was attributable to the opening of new stores, the
expansion of existing stores and an 11.5% increase in comparable
store sales, partially offset by the closing of 4 stores during
the first six months of 1994. The increase in comparable store
sales was due primarily to positive customer response to the
Company's merchandise assortments.
Gross profit as a percentage of net sales increased to 46.4%
in the first nine months of 1994, from 45.8% in the first nine
months of 1993. The increase in gross margin reflected a higher
level of full price selling and lower levels of promotional
activity.
Selling, general and administrative expenses represented 32.5%
of net sales in the first nine months of 1994, compared to 33.4%
of net sales in the first nine months of 1993. The decrease as a
percentage of net sales was primarily attributable to an increase
in net sales at a rate greater than the rate of increase in
selling, general and administrative expenses, principally as a
result of improved leverage on fixed expenses resulting from
strong comparable store sales growth, an increase in sales
from the Company's factory stores, which have lower store
operating expenses than full price Ann Taylor stores, and improved
expense management.
As a result of the foregoing, operating income increased to
$58,116,000, or 12.4% of net sales, in the first nine months of
1994, from $38,189,000, or 10.4% of net sales, in the first nine
months of 1993. Amortization of goodwill was $7,130,000 in the
first nine months of 1994 and in the first nine months of 1993.
Operating income, without giving effect to such amortization in
either year, was $65,246,000, or 13.9% of net sales, in the 1994
period and $45,319,000, or 12.3% of net sales, in the 1993
period.
Interest expense was $10,215,000, including $793,000 of non-
cash interest expense, in the first nine months of 1994 and
$13,994,000, including $3,869,000 of non-cash interest expense,
in the first nine months of 1993. The decrease in interest
expense is attributable to lower interest rates applicable to the
Company's debt obligations in the 1994 period, resulting
principally from refinancing transactions entered into in the
fall of 1993 and the reduction of the Company's term loan with
the net proceeds from the Offering in May 1994.
The income tax provision was $23,318,000, or 49.0% of income
before income taxes and extraordinary loss, in the 1994 period,
compared to $13,065,000, or 53.8% of income before income taxes
and extraordinary loss, in the 1993 period. The effective income
tax rate for both periods was higher than the statutory rate
primarily because of non-deductible goodwill amortization.
As a result of the foregoing factors, the Company had net
income before extraordinary loss of $24,267,000, or 5.2% of net
sales, for the first nine months of 1994, compared to net income
before extraordinary loss of $11,241,000, or 3.1% of net sales,
for the first nine months of 1993.
In connection with the debt refinancing activities described
above (see Financial Statements Notes 2 and 3), the Company
incurred an extraordinary loss of $868,000 net of taxes, in the
second quarter of 1994. The Company also incurred an
extraordinary loss of $10,496,000, net of taxes, in the second
quarter of 1993 as a result of debt refinancing activities
undertaken in the second quarter of 1993. After giving effect to
these extraordinary losses, the Company had net income of
$23,399,000 in the first nine months of 1994 compared to a net
income of $745,000 in the first nine months of 1993.
===================================================================
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.8 Employment Agreement dated as of February 1,
1994 between ATSC and Sally Frame
Kasaks. Incorporated by Reference to
Exhibit 10.8 on Form 10-Q of ATSC
for the Quarter ended October 29, 1994
filed on December 9, 1994.
27 Financial Data Schedule for the nine months
ended October 29, 1994.
(b) Reports on Form 8-K:
None
===================================================================
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, Inc.
Date: December 9, 1994 By: /s/ Paul E. Francis
------------------ ---------------------------
Paul E. Francis
Executive Vice President -
Finance and Administration
(Chief Financial Officer)
Date: December 9, 1994 By: /s/ Walter J. Parks
----------------- ---------------------------
Walter J. Parks
Vice President - Finance
(Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CONDENSED CONSOLIDATED
BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000850090
<NAME> ANNTAYLOR INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> OCT-29-1994
<CASH> 2,841
<SECURITIES> 0
<RECEIVABLES> 61,721
<ALLOWANCES> 802
<INVENTORY> 104,324
<CURRENT-ASSETS> 178,020
<PP&E> 104,841
<DEPRECIATION> 33,231
<TOTAL-ASSETS> 585,252
<CURRENT-LIABILITIES> 73,355
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 316,914
<TOTAL-LIABILITY-AND-EQUITY> 585,252
<SALES> 469,851
<TOTAL-REVENUES> 469,851
<CGS> 251,970
<TOTAL-COSTS> 251,970
<OTHER-EXPENSES> 160,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,215
<INCOME-PRETAX> 47,585
<INCOME-TAX> 23,318
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (868)
<CHANGES> 0
<NET-INCOME> 23,399
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
