UNITED STATES
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 July 29, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-11980
ANNTAYLOR, INC.
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(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
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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 August 27, 1995
----- ----------------
Common Stock, $1.00 par value 1
This 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.
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INDEX TO FORM 10-Q
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters and Six Months Ended July 29,
1995 and July 30, 1994 3
Condensed Consolidated Balance Sheets at
July 29, 1995 and January 28, 1995 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended July 29, 1995 and
July 30, 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
========================================================================
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters and Six Months Ended July 29, 1995 and July 30, 1994
(unaudited)
Quarters Ended Six Months Ended
-------------------- -----------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands)
Net sales $183,695 $159,936 $352,001 $305,219
Cost of sales 114,869 87,991 206,224 164,394
------- ------- ------- -------
Gross profit 68,826 71,945 145,777 140,825
Selling, general and administrative
expenses 67,233 50,836 129,684 97,809
Amortization of goodwill 2,376 2,376 4,753 4,753
------- ------- ------- -------
Operating income (loss) (783) 18,733 11,340 38,263
Interest expense 4,468 3,117 8,966 6,573
Other (income) expense, net (231) 186 (174) 326
------- ------ ------- -------
Income (loss) before income taxes (5,020) 15,430 2,548 31,364
Income tax provision (benefit) (1,211) 7,507 2,866 15,381
------- ------- ------- ------
Income (loss) before extraordinary
loss (3,809) 7,923 (318) 15,983
Extraordinary loss (net of income
tax benefit of $654,000) --- (868) --- (868)
------- ------- ------- -------
Net income (loss) $(3,809) $ 7,055 $ (318) $15,115
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
===============================================================================
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 29, 1995 and January 28, 1995
July 29, January 28,
1995 1995
-------- -----------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash $ 1,820 $ 1,551
Accounts receivable, net of allowances
of $628,000 and $931,000,
respectively 72,373 61,211
Merchandise inventories 99,411 93,705
Prepaid expenses and other current
assets 14,302 7,956
Deferred income taxes 3,650 3,650
------- -------
Total current assets 191,556 168,073
Property and equipment
Land and building 9,175 499
Leasehold improvements 50,573 43,370
Furniture and fixtures 72,367 59,105
Construction in progress 36,952 24,867
------- -------
169,067 127,841
Less accumulated depreciation and
amortization 38,950 31,503
------- -------
Net property and equipment 130,117 96,338
Goodwill, net of accumulated amortization
of $61,972,000 and $57,219,000,
respectively 318,278 323,031
Investment in CAT 4,436 3,792
Deferred income taxes 1,600 1,600
Deferred financing costs, net of
accumulated amortization of
$1,341,000 and $956,000, respectively 2,444 2,829
Other assets 2,351 2,591
------- -------
Total assets $650,782 $598,254
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 45,425 $ 36,625
Accrued rent 6,487 5,243
Accrued salaries 4,781 5,929
Accrued expenses 12,087 18,095
------- -------
Total current liabilities 68,780 65,892
Long-term debt 249,000 200,000
Other liabilities 6,874 6,250
Commitments and contingencies
Stockholder's equity
Common stock, $1.00 par value;
1,000 shares authorized;
1 share issued 1 1
Additional paid-in capital 311,449 311,115
Retained earnings 14,678 14,996
------- -------
Total stockholder's equity 326,128 326,112
------- -------
Total liabilities and
stockholder's equity $650,782 $598,254
======= =======
See accompanying notes to condensed consolidated financial statements.
=========================================================================
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended July 29, 1995 and July 30, 1994
(unaudited)
Six Months Ended
---------------------------
July 29, July 30,
1995 1994
-------- -------
(in thousands)
Operating activities:
Net income (loss) $(318) $15,115
Adjustments to reconcile net income
(loss) to net cash (used by)
provided by operating activities:
Equity earnings in CAT (644) (694)
Extraordinary loss --- 1,522
Provision for loss on accounts receivable 457 811
Depreciation and amortization 9,139 5,278
Amortization of goodwill 4,753 4,753
Amortization of deferred financing costs 385 613
Amortization of deferred compensation 52 250
Loss on disposal of property and equipment 401 759
(Increase) decrease in:
Receivables (11,619) (6,485)
Merchandise inventories (5,706) (7,418)
Prepaid expenses and other current assets (6,346) 931
Increase (decrease) in:
Accounts payable 8,800 3,093
Accrued expenses (5,912) 61
Other non-current assets and liabilities,
net 864 258
------ ------
Net cash (used by) provided by operating
activities (5,694) 18,847
Investing activities:
Purchases of property and equipment (43,319) (21,861)
------- -------
Net cash used by investing activities (43,319) (21,861)
Financing activities:
Borrowing under revolving credit agreement 45,000 26,000
Payment of bank term loan --- (56,000)
Net proceeds from common stock offering --- 30,414
Parent Company contribution 282 2,121
Net borrowings under receivables facility 4,000 1,566
Payment of financing costs --- (122)
------- -------
Net cash provided by financing activities 49,282 3,979
------- -------
Net increase in cash 269 965
Cash, beginning of period 1,551 292
------- -------
Cash, end of period $ 1,820 $ 1,257
======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for interest $ 8,035 $ 5,969
====== =======
Cash paid during the period for income taxes $ 5,915 $14,169
====== ======
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 1995 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The January 28, 1995 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor, Inc.
Certain fiscal 1994 amounts have been reclassified to conform
to the 1995 presentation.
It is not considered necessary to include detailed footnote
information as of July 29, 1995 and July 30, 1994. 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. 1994 Annual Report on Form 10-K.
2. Long-term Debt
--------------
The following summarizes long-term debt outstanding at July
29, 1995:
(in thousands)
Revolving Credit Agreement $109,000
8-3/4% Notes 100,000
Receivables Facility 40,000
-------
Total long-term debt $249,000
========
The maturity date of the revolving credit agreement was
extended through July 29, 1998.
At July 29, 1995, the Company and AnnTaylor Funding, Inc. were
not in compliance with one financial covenant under the revolving
credit agreement and the receivables facility relating to the
Company's fixed charge coverage ratio. The revolving credit
agreement and the receivables facility were amended as of
September 7, 1995 and September 11, 1995, respectively, to
reduce the required fixed charge coverage ratio for the second
quarter, as a result of which the Company satisfied this
covenant, and to reduce the required fixed charge coverage
ratio for the third and fourth quarters of 1995. The amendment
to the revolving credit agreement also, among other things,
revised the cleandown provision for 1995 to require the
Company to reduce the outstanding loan balance under the
agreement to $85,000,000 or less for at least fifteen
consecutive days during the last six months of fiscal 1995
and added limitations on capital expenditures for fiscal 1995
through 1998 as follows: 1995: $78.2 million; 1996: $45
million; 1997: $30 million; and 1998: $30 million.
==================================================================
Item 2. Management's Discussion and Analysis of Operations
Results of Operations
Six Months Ended
------------------
July 29, July 30,
1995 1994
------- -------
Number of Stores:
Open at beginning of period 262 231
Opened during period 29 8
Expanded during period* 17 13
Closed during period 2 4
Open at end of period 289 235
Type of Stores Open at End of Period:
AnnTaylor Stores 247 222
AnnTaylor Factory Stores 23 13
Ann Taylor Loft stores 11 ---
AnnTaylor Studio stores 8 ---
---------------
* Expanded stores are excluded from comparable store sales
for the first year following expansion.
Six Months Ended July 29, 1995 Compared to Six Months Ended July
30, 1994
The Company's net sales in the first six months of 1995
increased to $352,001,000 from $305,219,000 in the first six
months of 1994, an increase of $46,782,000 or 15.3%. The
increase in net sales was attributable to the opening of new
stores and the expansion of existing stores, offset by the
closing of two stores and a 3.3% decrease in comparable store
sales in the first six months of 1995. The decrease in
comparable store sales is attributable to weak customer response
to the Company's spring merchandise selections, as well as to
continued weakness in demand for women's apparel generally.
Gross profit as a percentage of net sales decreased to 41.4%
in the first six months of 1995 from 46.1% in the first six
months of 1994. This decrease was attributable to the increased
cost of goods sold as a percentage of net sales primarily
resulting from markdowns associated with increased promotional
activities.
Selling, general and administrative expenses represented 36.8%
of net sales in the first six months of 1995, compared to 32.0%
of net sales in the first six months of 1994. The increase in
selling, general and administrative expenses as a percentage of
net sales was primarily attributable to higher tenancy, store
maintenance and store selling costs as a percentage of sales
(approximately 71% of the increase), higher distribution center
expense relating to the start-up costs in the second quarter of
the Company's new distribution facility in Louisville, Kentucky
in the second quarter (approximately 7% of the increase),
additional catalog expense relating to the Company's test of
its catalog as a mail order vehicle (approximately 11% of the
increase) and higher merchandising and design expense
(approximately 11% of the increase). The Company has decided to
return its catalog format to principally an advertising vehicle,
rather than a mail order business, commencing Fall 1995.
As a result of the foregoing, operating income decreased to
$11,340,000, or 3.2% of net sales, in the first six months of
1995, from $38,263,000, or 12.5% of net sales, in the first six
months of 1994. Amortization of goodwill was $4,753,000 in the
first six months of 1995 and 1994. Operating income, without
giving effect to such amortization in either year, was
$16,093,000, or 4.6% of net sales, in the 1995 period and
$43,016,000, or 14.1% of net sales, in the 1994 period.
Interest expense was $8,966,000 in the first six months of
1995 and $6,573,000 in the first six months of 1994. The
increase in interest expense is primarily attributable to higher
interest rates applicable to the Company's debt obligations and
higher outstanding indebtedness in 1995.
The income tax provision was $2,866,000, or 112.5% of income
before income taxes in the 1995 period, compared to $15,381,000,
or 49.0% of income before income taxes and extraordinary loss, in
the 1994 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 a net
loss of $318,000 or 0.1% of net sales, for the first six months
of 1995 compared to net income before extraordinary loss of
$15,983,000, or 5.2% of net sales, for the first six months of
1994.
In connection with the debt refinancing activities in May and
July 1994, the Company incurred an extraordinary loss of $868,000
net of taxes, in the second quarter of 1994. After giving effect
to these extraordinary losses, the Company had net income of
$15,115,000 in the first six months of 1994.
================================================================
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.4.2 Extension of the final maturity date of
the Revolving Credit Agreement to July 29,
1998, dated as of June 29, 1995, among the
Company, Bank of America National Trust and
Savings Association ("Bank of America"),
Fleet Bank, the financial institutions party
thereto, and Bank of America, as Agent.
Incorporated by reference to Exhibit 10.9.2
to the Quarterly Report on Form 10-Q of ATSC
for the Quarter ended July 29, 1995 filed on
September 12, 1995.
10.4.3 Amendment No. 2 to the Revolving Credit
Agreement, dated as of September 7, 1995,
among the Company, Bank of America, Fleet
Bank, the financial institutions party
thereto, and Bank of America, as Agent.
Incorporated by reference to Exhibit 10.9.3
to the Quarterly Report on Form 10-Q of ATSC
for the Quarter ended July 29, 1995 filed on
September 12, 1995.
10.26.3 Third Amendment to the Receivables
Financing Agreement, dated as of September
11, 1995, among AnnTaylor Funding, Inc., the
Company, Clipper Receivables Corporation,
State Street Boston Capital Corporation and
PNC Bank National Association. Incorporated
by reference to Exhibit 10.31.3 to the
Quarterly Report on Form 10-Q of ATSC for the
Quarter ended July 29, 1995 filed on
September 12, 1995.
10.28.1 Amendment to the AnnTaylor Stores Corporation
Deferred Compensation Plan as approved by the
Board of Directors on August 11, 1995.
Incorporated by reference to Exhibit 10.33.1
to the Quarterly Report on Form 10-Q of ATSC
for the Quarter ended July 29, 1995 filed on
September 12, 1995.
(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: September 11, 1995 By: /s/ Paul E. Francis
--------------------- --------------------
Paul E. Francis
Executive Vice President -
Finance and Administration
(Chief Financial Officer)
Date: September 11, 1995 By: /s/ Walter J. Parks
-------------------- ----------------------
Walter J. Parks
Senior Vice President -
Finance
(Principal Accounting Officer
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY OF 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.
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