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 October 28, 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.
-----------------------------------------------------
(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 November 24, 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.
===================================================================
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 28, 1995 and October 29, 1994 3
Condensed Consolidated Balance Sheets at
October 28, 1995 and January 28, 1995 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended October 28, 1995
and October 29, 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 Nine Months Ended October 28, 1995 and October 29, 1994
(unaudited)
Quarters Ended Nine Months Ended
----------------- ------------------
Oct. 28, Oct. 29, Oct. 28, Oct. 29,
1995 1994 1995 1994
-------- -------- -------- -------
(in thousands)
Net sales $178,500 $164,632 $530,501 $469,851
Cost of sales 98,362 87,576 304,586 251,970
------- ------- ------- -------
Gross profit 80,138 77,056 225,915 217,881
Selling, general and
administrative expenses 69,074 54,826 198,758 152,635
Amortization of goodwill 2,377 2,377 7,130 7,130
------- ------- ------- -------
Operating income 8,687 19,853 20,027 58,116
Interest expense 5,402 3,642 14,368 10,215
Other (income) expense, net 374 (10) 200 316
------- ------ ------- -------
Income before income taxes and
extraordinary loss 2,911 16,221 5,459 47,585
Income tax provision 2,225 7,937 5,091 23,318
------- ------- ------- -------
Income before extraordinary loss 686 8,284 368 24,267
Extraordinary loss (net of income
tax benefit of $654,000) --- --- --- 868
------- ------- ------- -------
Net income $ 686 $ 8,284 $ 368 $ 23,399
======= ======= ====== ========
See accompanying notes to condensed consolidated financial statements.
===============================================================================
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 28, 1995 and January 28, 1995
October 28, 1995 January 28,1995
---------------- ---------------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash $ 1,251 $ 1,551
Accounts receivable, net of allowances
of $684,000 and $931,000, respectively 73,849 61,211
Merchandise inventories 120,966 93,705
Prepaid expenses and other current assets 14,577 7,956
Deferred income taxes 3,650 3,650
-------- -------
Total current assets 214,293 168,073
Property and equipment
Land and building 9,189 499
Leasehold improvements 62,000 43,370
Furniture and fixtures 82,877 59,105
Construction in progress 33,966 24,867
------- -------
188,032 127,841
Less accumulated depreciation and
amortization 38,605 31,503
------- -------
Net property and equipment 149,427 96,338
Goodwill, net of accumulated amortization of
$64,349,000 and $57,219,000, respectively 315,901 323,031
Investment in CAT 4,856 3,792
Deferred income taxes 400 1,600
Deferred financing costs, net of accumulated
amortization of $1,580,000 and $956,000,
respectively 3,848 2,829
Other assets 2,837 2,591
------- -------
Total assets $691,562 $598,254
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 62,483 $ 36,625
Accrued rent 7,396 5,243
Accrued interest 5,370 1,994
Accrued expenses 13,541 22,030
------- -------
Total current liabilities 88,790 65,892
Long-term debt 268,000 200,000
Other liabilities 7,826 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 311,581 311,115
Retained earnings 15,364 14,996
------- -------
Total stockholder's equity 326,946 326,112
------- -------
Total liabilities and stockholder's
equity $691,562 $598,254
======= =======
See accompanying notes to condensed consolidated financial statements.
============================================================================
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended October 28, 1995 and October 29, 1994
(unaudited)
Nine Months Ended
-------------------------------
Oct. 28, 1995 Oct. 29, 1994
------------- -------------
(in thousands)
Operating activities:
Net income $ 368 $ 23,399
Adjustments to reconcile net income to net
cash providedby operating activities:
Extraordinary loss --- 1,522
Equity earnings in CAT (1,064) (1,108)
Provision for loss on accounts receivable 866 1,193
Depreciation and amortization 14,008 8,591
Amortization of goodwill 7,130 7,130
Amortization of deferred financing costs 624 793
Amortization of deferred compensation 78 280
Deferred income taxes 1,200 ---
Loss on disposal of property and equipment 947 1,125
(Increase) decrease in:
Receivables (13,444) (12,833)
Merchandise inventories (27,261) (43,434)
Prepaid expenses and other current assets (6,621) 998
Increase (decrease) in:
Accounts payable 25,372 9,109
Accrued expenses (2,071) 4,891
Other non-current assets and liabilities,
net 1,331 446
------- -------
Net cash provided by operating activities 1,463 2,102
Investing activities:
Purchases of property and equipment (68,994) (33,273)
------- -------
Net cash used by investing activities (68,994) (33,273)
------- -------
Financing activities:
Increase in bank overdrafts 486 ---
Borrowing under revolving credit agreement 39,000 53,000
Parent company contribution 388 33,965
Payments of financing costs (1,643) (294)
Proceeds from (payment of) term loan 25,000 (56,000)
Net borrowing on receivables facility 4,000 3,049
------- -------
Net cash provided by financing activities 67,231 33,720
------- -------
Net increase (decrease) in cash (300) 2,549
Cash, beginning of period 1,551 292
------ --------
Cash, end of period $ 1,251 $ 2,841
====== ======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for interest $10,398 $ 6,655
======= =======
Cash paid during the period for income taxes $ 7,549 $21,065
======= =======
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 Stores Corporation.
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 October 28, 1995 and October 29, 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 October
28, 1995:
(in thousands)
Revolving Credit Agreement $103,000
Term Loan 25,000
8-3/4% Notes 100,000
Receivables Facility 40,000
------
Total long-term debt $268,000
=======
On September 29, 1995, AnnTaylor, Inc. ("the Company") entered
into an amended and restated credit agreement to replace its
existing bank credit agreement. The amended and restated credit
agreement provides, among other things, for a new $25,000,000
term loan, in addition to the $125,000,000 revolving credit
facility provided for under the original credit agreement. The
term loan bears interest at a rate equal to, at the Company's
option, the Bank of America National Trust and Savings
Association ("Bank of America") (1) Base Rate plus 1.50%, or
(2) Eurodollar Rate plus 2.50%, and amounts outstanding under
the revolving credit facility bear interest at a rate equal to,
at the Company's option, the Bank of America (1) Base Rate plus
.75%, or (2) Eurodollar Rate plus 1.75%. Effective December 6,
1995, the interest rate on the term loan will increase by 1%.
The principal amount of the term loan is payable on September 29,
1998, and the maturity date of the revolving credit facility is
July 29, 1998. The amended and restated 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, some of which
provisions were amended by the new credit agreement. The amended
and restated credit agreement also provides for, among other
things, a limitation on capital expenditures commencing in fiscal
1996. The Company's payment obligations under the agreement are
guaranteed by its parent company, Ann Taylor Stores Corporation
("ATSC").
On October 31, 1995, AnnTaylor Funding, Inc., a wholly owned
subsidiary of the Company, entered into an amended and restated
receivables financing agreement, refinancing its existing
receivables financing facility on substantially the same terms as
the prior facility, except that the Lender under the agreement
changed from Clipper Receivables Corporation to Market Street
Capital Corp. The financial covenants in the new agreement were
revised to mirror certain of the financial covenants contained in
the Company's amended and restated bank credit agreement.
On November 27, 1995, the Company and its wholly owned
subsidiary AnnTaylor Distribution Services, Inc., received the
proceeds of a $7,000,000 seven year mortgage loan secured by the
Company's distribution center land and building in Louisville,
Kentucky. The mortgage loan bears interest at 7.5% and is
payable in monthly installments of $64,891 through December 1,
1997, and thereafter in monthly installments sufficient to
amortize the then remaining principal balance over a period of
five years.
=================================================================
Item 2. Management's Discussion and Analysis of Operations
Results of Operations
Nine Months Ended
-----------------------------------
October 28, 1995 October 29, 1994
---------------- ----------------
Number of Stores:
Open at beginning of period 262 231
Opened during period 43 26
Expanded during period* 29 21
Closed during period 2 4
Open at end of period 303 253
Type of Stores Open at End of Period:
AnnTaylor Stores 256 231
AnnTaylor Factory Stores 23 17
Ann Taylor Loft stores 15 ---
AnnTaylor Studio stores 9 5
------------------
* Expanded stores are excluded from comparable store sales for
the first year following expansion.
========================================================================
Nine Months Ended October 28, 1995 Compared to Nine Months Ended October
29, 1994
The Company's net sales in the first nine months of 1995
increased to $530,501,000 from $469,851,000 in the first nine
months of 1994, an increase of $60,650,000 or 12.9%. 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 6.2% decrease in comparable store
sales in the first nine months of 1995. The decrease in
comparable store sales is attributable to weak customer response
to the Company's Spring and Summer merchandise assortments, as
well as continued weakness in demand for women's apparel
generally.
Gross profit as a percentage of net sales decreased to 42.6%
in the first nine months of 1995 from 46.4% in the first nine
months of 1994. This decrease was primarily attributable to
markdowns associated with increased promotional activities.
Selling, general and administrative expenses represented 37.5%
of net sales in the first nine months of 1995, compared to 32.5%
of net sales in the first nine 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 74% of the increase), higher distribution center
expense relating to start-up costs of the Company's distribution
facility in Louisville, Kentucky in the second quarter
(approximately 8% of the increase), additional catalog expense
relating to the Company's test of its catalog as a mail order
vehicle (approximately 7% of the increase), higher merchandising
and design expense (approximately 8% of the increase) and
higher packaging and supplies expense (approximately 3% of the
increase). The Company returned 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
$20,027,000, or 3.8% of net sales, in the first nine months of
1995, from $58,116,000, or 12.4% of net sales, in the first nine
months of 1994. Amortization of goodwill was $7,130,000 in the
first nine months of each of 1995 and 1994. Operating income,
without giving effect to such amortization in either year, was
$27,157,000, or 5.1% of net sales, in the 1995 period and
$65,246,000, or 13.9% of net sales, in the 1994 period.
Interest expense was $14,368,000 in the first nine months of
1995 and $10,215,000 in the first nine months of 1994. The
increase in interest expense is attributable to higher interest
rates applicable to the Company's debt obligations and higher
outstanding indebtedness in 1995.
The income tax provision was $5,091,000, or 93.3% of income
before income taxes in the 1995 period, compared to $23,318,000,
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
income of $368,000 or 0.1% of net sales, for the first nine
months of 1995 compared to net income before extraordinary loss
of $24,267,000, or 5.2% of net sales, for the first nine months
of 1994.
In connection with debt financing activities undertaken in May
and July of 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 $23,399,000 in the first nine months of 1994.
==================================================================
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.4.4 Amended and Restated Credit Agreement,
dated as of September 29, 1995, among the
Company, Bank of America, Fleet Bank,
National Association, as Co-Agents, the
financial institutions from time to time
party thereto, BA Securities, Inc., as
Arranger, and Bank of America, as Agent.
Incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K of the
Company filed on October 17, 1995.
10.5.1 Amended and Restated Guaranty, dated as of
September 29, 1995, made by ATSC in favor
of Bank of America, as Agent. Incorporated
by reference to Exhibit 10.4 to the Current
Report on Form 8-K of the Company filed on
October 17, 1995.
10.6.1 Amended and Restated Security and Pledge
Agreement, dated as of September 29, 1995,
made by the Company in favor of Bank of
America, as Agent. Incorporated by
reference to Exhibit 10.2 to the Current
Report on Form 8-K of the Company filed on
October 17, 1995.
10.7.1 Amended and Restated Security and Pledge
Agreement, dated as of September 29, 1995,
made by ATSC in favor of Bank of America,
as Agent. Incorporated by reference to
Exhibit 10.5 to the Current Report on Form
8-K of the Company filed on October 17,
1995.
=======================================================================
Item 6. Exhibits and Reports on Form 8-K (continued)
(a) Exhibits (continued)
10.8 Trademark Security Agreement, dated as of
September 29, 1995, made by the Company in
favor of Bank of America, as Agent.
Incorporated by reference to Exhibit 10.3
to the Current Report on Form 8-K of the
Company filed on October 17, 1995.
10.26.4 Amended and Restated Receivables
Financing Agreement dated October 31, 1995,
among AnnTaylor Funding, Inc., the Company,
Market Street Capital Corp. and PNC Bank,
National Association. Incorporated by
reference to Exhibit 10.31.4 to the
Quarterly Report on Form 10-Q of ATSC for
the Quarter ended October 28, 1995 filed on
December 8, 1995.
10.29 Mortgage, Assignment of Rents and Leases,
Security Agreement and Fixture Financing
Statement dated November 20, 1995, between
AnnTaylor Distribution Services, Inc., as
Mortgagor, and General Electric Capital
Assurance Company, as Mortgagee.
Incorporated by reference to Exhibit 10.34
to the Quarterly Report on Form 10-Q of
ATSC for the Quarter ended October 28, 1995
filed on December 8, 1995.
10.30 Promissory Note dated November 20, 1995
from the Company and AnnTaylor Distribution
Services, Inc., collectively as Borrower,
to General Electric Capital Assurance
Company, as Lender. Incorporated by
reference to Exhibit 10.35 to the Quarterly
Report on Form 10-Q of ATSC for the Quarter
ended October 28, 1995 filed on December
8, 1995.
(b) Reports on Form 8-K:
The Company filed a report with the Commission on
Form 8-K dated September 29, 1995 with respect to
the amendment and restatement of the Company's
then existing revolving credit agreement and
ATSC's amended and restated guarantee of the
Company's indebtedness under that agreement.
========================================================================
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 8, 1995 By: /s/ Walter J. Parks
------------------- --------------------------
Walter J. Parks
Senior Vice President - Finance
(Duly Authorized Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0000850090
<NAME> ANNTAYLOR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> OCT-28-1995
<CASH> 1,251
<SECURITIES> 0
<RECEIVABLES> 74,533
<ALLOWANCES> 684
<INVENTORY> 120,966
<CURRENT-ASSETS> 214,293
<PP&E> 188,032
<DEPRECIATION> 38,605
<TOTAL-ASSETS> 691,562
<CURRENT-LIABILITIES> 88,790
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 326,945
<TOTAL-LIABILITY-AND-EQUITY> 691,562
<SALES> 530,501
<TOTAL-REVENUES> 530,501
<CGS> 304,586
<TOTAL-COSTS> 304,586
<OTHER-EXPENSES> 206,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,368
<INCOME-PRETAX> 5,459
<INCOME-TAX> 5,091
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 368
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
