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 August 3, 1996
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 August 31, 1996
----------------------------- ----------------
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
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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
August 3, 1996 and July 29, 1995........................ 3
Condensed Consolidated Balance Sheets at
August 3, 1996 and February 3, 1996..................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended August 3, 1996 and
July 29, 1995........................................... 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
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<PAGE> 3
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
---------------------
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters and Six Months Ended August 3, 1996 and July 29, 1995
(unaudited)
Quarters Ended Six Months Ended
---------------------- -------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
-------- -------- --------- ---------
(in thousands)
Net sales $187,862 $183,695 $372,329 $352,001
Cost of sales 107,115 114,869 208,428 206,224
------- ------- ------- -------
Gross profit 80,747 68,826 163,901 145,777
Selling, general and
administrative expenses 70,029 67,233 140,283 129,684
Amortization of goodwill 2,376 2,376 4,753 4,753
------- ------- ------- -------
Operating income (loss) 8,342 (783) 18,865 11,340
Interest expense 6,210 4,468 12,331 8,966
Other income, net (293) (231) (424) (174)
------- ------- ------- -------
Income (loss) before income taxes 2,425 (5,020) 6,958 2,548
Income tax provision (benefit) 1,798 (1,211) 4,519 2,866
------- ------- ------- -------
Net income (loss) $ 627 $ (3,809) $ 2,439 $ (318)
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
August 3, 1996 and February 3, 1996
August 3, February 3,
1996 1996
-------- ----------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash $ 1,287 $ 1,283
Accounts receivable, net 64,112 70,395
Merchandise inventories 99,231 102,685
Prepaid expenses and other current assets 12,473 12,808
Prepaid tenancy 9,075 8,099
Deferred income taxes 3,400 3,400
------- -------
Total current assets 189,578 198,670
Property and equipment
Land and building 8,983 8,923
Leasehold improvements 78,055 73,677
Furniture and fixtures 109,513 99,548
Construction in progress 3,807 14,190
------- -------
200,358 196,338
Less accumulated depreciation and amortization 53,981 42,443
------- -------
Net property and equipment 146,377 153,895
Goodwill, net of accumulated amortization of
$71,478,000 and $66,725,000, respectively 308,772 313,525
Investment in CAT 6,198 5,438
Deferred financing costs, net of accumulated
amortization of $2,740,000 and
$1,960,000, respectively 3,216 3,933
------- -------
Other assets 3,172 3,248
------- -------
Total assets $657,313 $678,709
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 36,112 $ 42,909
Accrued expenses 26,323 29,018
Current portion of long-term debt 26,276 40,266
------- -------
Total current liabilities 88,711 112,193
Long-term debt 135,051 232,192
Deferred income taxes 1,300 1,300
Other liabilities 7,968 7,336
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 407,780 311,567
Retained earnings 6,502 14,120
------- -------
Total stockholder's equity 424,283 325,688
------- -------
Total liabilities and stockholder's equity $657,313 $678,709
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended August 3, 1996 and July 29, 1995
(unaudited)
Six Months Ended
---------------------------
August 3, 1996 July 29, 1995
-------------- -------------
(in thousands)
Operating activities:
Net income (loss) $ 2,439 $ (318)
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Equity earnings in CAT (760) (644)
Provision for loss on accounts receivable 835 457
Depreciation and amortization 12,358 9,139
Amortization of goodwill 4,753 4,753
Amortization of deferred financing costs 780 385
Amortization of deferred compensation 16 52
Loss on disposal of property and equipment 220 401
(Increase) decrease in:
Receivables 5,448 (11,619)
Merchandise inventories 3,454 (5,706)
Prepaid expenses and other current assets (641) (6,346)
Increase (decrease) in:
Accounts payable (6,797) 8,800
Accrued expenses (2,695) (5,912)
Other non-current assets and liabilities, net 707 864
------- -------
Net cash provided by (used by) operating activities 20,117 (5,694)
Investing activities:
Purchases of property and equipment (5,059) (43,319)
------ ------
Net cash used by investing activities (5,059) (43,319)
Financing activities:
Net (repayments) borrowings under revolving
credit agreement (97,000) 45,000
Payments on mortgage (131) ---
Parent company contribution 96,140 282
Net (repayments) borrowings under receivables facility (14,000) 4,000
Payment of financing costs (63) ---
------- -------
Net cash (used by) provided by financing activities (15,054) 49,282
Net increase in cash 4 269
Cash, beginning of period 1,283 1,551
------- ------
Cash, end of period $ 1,287 $ 1,820
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 11,395 $ 8,035
======= =======
Cash paid during the period for income taxes $ 3,405 $ 5,915
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
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 1996 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The February 3, 1996 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor, Inc.
Certain fiscal 1995 amounts have been reclassified to conform
to the 1996 presentation.
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. 1995 Annual
Report on Form 10-K.
2. Long-Term Debt
--------------
The following summarizes long-term debt outstanding at August
3, 1996:
(in thousands)
Revolving Credit Facility......... $ 4,000
Term Loan......................... 24,500
8-3/4% Notes...................... 100,000
Receivables Facility.............. 26,000
Mortgage.......................... 6,827
-------
Total debt..................... 161,327
Less current portion.............. 26,276
-------
Total long-term debt........... $135,051
=======
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<PAGE> 7
On April 25, 1996, AnnTaylor Stores Corporation ("ATSC")
completed the sale (the "Initial Sale"), in a private placement,
of $87,500,000 8-1/2% Convertible Trust Originated Preferred
Securities ("Preferred Securities") issued by its financing
vehicle, AnnTaylor Finance Trust, a Delaware business trust (the
"Trust"). On May 17, 1996, the Trust, a wholly-owned subsidiary
of ATSC, issued an additional $13,125,000 of Preferred Securities
pursuant to the exercise of an over-allotment option (the "Over-
allotment Sale") granted to the placement agents in connection
with the Initial Sale. The Preferred Securities have a
liquidation preference of $50 per security ($100,625,000 in the
aggregate) and are convertible at the option of the holders
thereof into ATSC common stock at a conversion rate of 2.545
shares of common stock for each Preferred Security (equivalent to
$19.65 per share of common stock, which represented a 20% premium
to the $16.375 closing price of the common stock on the New York
Stock Exchange at the date of the execution of the purchase
agreement relating to the sale of the Preferred Securities). The
sole assets of the Trust are $103,700,000 of 8-1/2% Convertible
Subordinated Debentures of ATSC maturing on April 15, 2016. A
total of 2,012,500 Preferred Securities were issued, and are
convertible into an aggregate of 5,121,812 shares of common
stock.
The sale of the Preferred Securities enabled AnnTaylor, Inc.
(the "Company"), a wholly owned subsidiary of ATSC, to pay down
$94,000,000 of outstanding borrowings under its revolving credit
facility, without reduction of the commitment thereunder.
3. CAT/Cygne Transaction
---------------------
In Fiscal 1995, the Company purchased approximately 16% of its
merchandise directly from Cygne Designs, Inc. ("Cygne") and an
additional 38% of its merchandise through the Company's direct
sourcing joint venture with Cygne known as CAT. In April 1996,
ATSC announced that it had entered into an agreement in
principle, dated as of April 8, 1996, pursuant to which ATSC will
purchase from Cygne all the shares of CAT owned by Cygne and the
assets of the Ann Taylor Woven Division of Cygne that are used in
sourcing merchandise for Ann Taylor (the "CAT/Cygne
Transaction"). On June 7, 1996 ATSC and the Company entered
into a definitive purchase agreement with Cygne and its wholly
owned subsidiary, Cygne Group (F.E.) Limited, providing for the
CAT/Cygne Transaction. The Purchase Agreement was amended by the
parties on August 27, 1996.
Pursuant to the Purchase Agreement, as amended, the purchase
price for Cygne's interest in CAT and the Ann Taylor Woven
Division assets will consist of (i) shares of common stock of
ATSC having an aggregate value, based on the market price of
ATSC's common stock for the ten trading days prior to the closing
of the transaction, of $36,000,000 (provided that ATSC will not
be required to issue more than 2.5 million shares, unless the
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<PAGE> 8
aggregate value of 2.5 million shares at closing is less than
$32,500,000, in which case ATSC will issue shares of common stock
having an aggregate value of $32,500,000, but not more than 3.0
million shares); and (ii) cash in an amount equal to the tangible
net book value of the fixed assets (but not to exceed
$2,646,000), plus the tangible net book value of the inventory of
the Ann Taylor Woven Division, less the amount of certain
liabilities of the Division to be assumed by ATSC. At the
Company's option, it may deliver cash in lieu of some or all of
any shares issuable in excess of 2.5 million shares. ATSC will
also pay cash in respect of an obligation under an existing
employment agreement with CAT. ATSC has agreed to register the
shares to be issued to Cygne for resale, although Cygne is
subject to certain restrictions on the timing of sales and the
amount of shares which can be sold at any one time.
The Purchase Agreement, as amended, provides that Cygne may
terminate the agreement if the aggregate value of ATSC's common
stock to be issued at closing, including any additional shares
issuable or additional cash payable under the amendment, is less
than $32,500,000, and that either party may terminate the
agreement if the closing has not occurred by September 30, 1996.
The Company received the consent of its lenders to the
transaction contemplated by the original Purchase Agreement, and
is currently seeking lender approval of the amendment to the
Purchase Agreement. CAT has received a written commitment for
the continuation of CAT's existing $40,000,000 credit facility.
The closing of the CAT/Cygne Transaction is subject to various
conditions, including (i) the approval of the transaction by
Cygne's stockholders and (ii) the consent and release of liens by
certain lenders to Cygne. It is currently anticipated that the
transaction will close in September 1996 following approval by
Cygne's stockholders. There can be no assurance, however, that
the conditions referred to above will be satisfied, that the
transaction will be consummated or, if consummated, that it will
be consummated within the currently anticipated time frame.
=============================================================================
<PAGE> 9
Item 2. Management's Discussion and Analysis of Operations
---------------------------------------------------
Results of Operations
- ---------------------
Six Months Ended
----------------------
August 3, July 29,
1996 1995
--------- --------
Number of Stores:
Open at beginning of period.................. 306 262
Opened during period......................... 5 29
Expanded during period*...................... 1 17
Closed during period......................... 5 2
Open at end of period........................ 306 289
Type of Stores Open at End of Period:
AnnTaylor Stores.......................... 257 247
AnnTaylor Factory Stores.................. 23 23
AnnTaylor Loft stores..................... 17 11
AnnTaylor Studio stores................... 9 8
- --------------------
* Expanded stores are excluded from comparable store sales for
the first year following expansion.
Six Months Ended August 3, 1996 Compared to Six Months Ended July 29, 1995
- --------------------------------------------------------------------------
The Company's net sales in the first six months of 1996
increased to $372,329,000 from $352,001,000 in the first six
months of 1995, an increase of $20,328,000 or 5.8%. The increase
in net sales was primarily attributable to the 24 new stores
opened and the 14 existing stores expanded since the end of the
second quarter of 1995, partially offset by the closing of 7
stores since the end of the second quarter of 1995 and by a 7.4%
decrease in comparable store sales in the first half of 1996.
Management believes that the decrease in comparable store sales
was due primarily to the Company's lower inventory position
during the period; during the first half of 1996, inventories
were on average approximately 24% lower on a per square foot
basis compared to the same period of the prior fiscal year.
Gross profit as a percentage of net sales increased to 44.0%
in the first six months of 1996 from 41.4% in the first six
months of 1995. This increase was attributable to the decreased
cost of goods sold as a percentage of net sales, primarily
resulting from lower markdowns.
=============================================================================
<PAGE> 10
Selling, general and administrative expenses were $140,283,000,
or 37.7% of net sales in the first six months of 1996, compared
to $129,684,000, or 36.8% of net sales in the first six months
of 1995. The increase in expense was primarily attributable to
increased retail square footage, which at quarter end was 15.6%
higher than at the end of the second quarter of 1995. The
operating expense rate as a percentage of sales increased
primarily as a result of decreased leverage on fixed expenses as
a result of negative comparable store sales, and higher expense
rates in new retail square footage, partially offset by increased
productivity in selling expenses and the suspension of our mail
order catalog.
As a result of the foregoing, operating income increased to
$18,865,000, or 5.1% of net sales, in the first six months of
1996, from $11,340,000, or 3.2% of net sales, in the first six
months of 1995. Amortization of goodwill was $4,753,000 in the
first six months of 1996 and 1995. Operating income, without
giving effect to such amortization in either year, was
$23,618,000, or 6.3% of net sales, in the 1996 period and
$16,093,000, or 4.6% of net sales, in the 1995 period.
Interest expense was $12,331,000 in the first six months of
1996 and $8,966,000 in the first six months of 1995. The
increase in interest expense is primarily attributable to higher
interest rates applicable to the Company's debt obligations and
higher outstanding indebtedness in 1996.
The income tax provision was $4,519,000, or 64.9% of income
before income taxes in the 1996 period, compared to $2,866,000,
or 112.5% of income before income taxes in the 1995 period. The
effective income tax rate for both periods was higher than the
statutory rate primarily as a result of non-deductible goodwill
amortization.
As a result of the foregoing factors, the Company had net
income of $2,439,000 or 0.7% of net sales for the first six
months of 1996 compared to a net loss of $318,000 or (0.1)% of
net sales for the first six months of 1995.
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<PAGE> 11
PART II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Second Amendment to the Amended and Restated
Credit Agreement, dated as of April 9, 1996
among the Company, Bank of America National
Trust and Savings Association and 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 Quarterly Report on Form 10-Q of ATSC for
the Quarter ended August 3, 1996 filed on
September 16, 1996.
10.2 Amendment No. 1 to the Amended and Restated
Declaration of Trust of AnnTaylor Finance
Trust, dated as of August 27, 1996, between
ATSC and Bank of New York, as Trustee.
Incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q of ATSC for
the Quarter ended August 3, 1996 filed on
September 16, 1996.
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<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K (continued)
(b) Reports on Form 8-K:
The Company filed a report with the Commission on
Form 8-K dated June 10, 1996 with respect to the
execution by ATSC and the Company of a definitive
purchase agreement with Cygne and its wholly owned
subsidiary, Cygne Group (F.E) Limited, providing
for the Company's previously announced proposed
acquisition of Cygne's interest in the Company's
direct sourcing joint venture with Cygne and the
assets of the Ann Taylor Woven Division of Cygne
that sources merchandise for Ann Taylor.
ATSC filed a report with the Commission on Form 8-K
dated June 21, 1996 which provided combined
Financial Statements of CAT US, Inc. and C.A.T.
(Far East) Limited and subsidiary and the AnnTaylor
Woven Division of Cygne as of February 3, 1996 and
January 28, 1995 and for the two years ended
February 3, 1996, and ATSC and acquired companies
unaudited Historical and Proforma combined
Financial Statements as of May 4, 1996 and for the
quarter then ended.
The Company filed a report with the Commission on
Form 8-K dated August 29, 1996 with respect to (i)
the resignation of Sally Frame Kasaks as the Company's
Chairman and Chief Executive Officer and the
promotion of J. Patrick Spainhour from President and
Chief Operating Officer to Chairman and Chief
Executive Officer, (ii) the amendment of the Stock
and Asset Purchase Agreement among ATSC, the
Company, Cygne Designs, Inc. and Cygne Group (F.E.)
Limited, and (iii) preliminary unaudited pro forma
financial information for ATSC, CAT U.S., Inc.,
C.A.T. (Far East) Limited and the AnnTaylor Woven
Division of Cygne on a combined basis for the six
months ended August 3, 1996.
=============================================================================
<PAGE> 13
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 16, 1996 By: /s/ Paul E. Francis
-------------------- -----------------------------
Paul E. Francis
Executive Vice President -
Finance and Administration
(Chief Financial Officer)
Date: September 16, 1996 By: /s/ Walter J. Parks
--------------------- -----------------------------
Walter J. Parks
Senior 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> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
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<CASH> 1,287
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<RECEIVABLES> 64,827
<ALLOWANCES> 715
<INVENTORY> 99,231
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<PP&E> 200,358
<DEPRECIATION> 53,981
<TOTAL-ASSETS> 657,313
<CURRENT-LIABILITIES> 88,711
<BONDS> 100,000
0
0
<COMMON> 1
<OTHER-SE> 424,282
<TOTAL-LIABILITY-AND-EQUITY> 657,313
<SALES> 372,329
<TOTAL-REVENUES> 372,329
<CGS> 208,428
<TOTAL-COSTS> 208,428
<OTHER-EXPENSES> 144,612
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</TABLE>
