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 May 4, 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 May 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.
======================================================================
INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters Ended May 4, 1996
and April 29, 1995...................................... 3
Condensed Consolidated Balance Sheets at
May 4, 1996 and February 3, 1996........................ 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended May 4, 1996 and
April 29, 1995.......................................... 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of Operations.... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................12
Item 6. Exhibits and Reports on Form 8-K.......................12
========================================================================
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters Ended May 4, 1996 and April 29, 1995
(unaudited)
Quarters Ended
-----------------------------
May 4, 1996 April 29, 1995
----------- --------------
(in thousands)
Net sales $184,467 $168,306
Cost of sales 101,313 91,355
------- -------
Gross profit 83,154 76,951
Selling, general and administrative expenses 70,254 62,451
Amortization of goodwill 2,377 2,377
------- -------
Operating income 10,523 12,123
Interest expense 6,121 4,498
Other (income) expense, net (131) 57
------- -------
Income before income taxes 4,533 7,568
Income tax provision 2,721 4,077
------- -------
Net income $ 1,812 $ 3,491
======= =======
See accompanying notes to condensed consolidated financial statements.
==========================================================================
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
May 4, 1996 and February 3, 1996
May 4, 1996 Feb. 3,1996
----------- -----------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash $ 1,296 $ 1,283
Accounts receivable, net 72,615 70,395
Merchandise inventories 98,185 102,685
Prepaid expenses and other current assets 12,457 12,808
Prepaid tenancy 7,974 8,099
Deferred income taxes 3,400 3,400
------- -------
Total current assets 195,927 198,670
Property and equipment
Land and building 8,923 8,923
Leasehold improvements 76,723 73,677
Furniture and fixtures 101,502 99,548
Construction in progress 11,291 14,190
------- -------
198,439 196,338
Less accumulated depreciation and
amortization 48,236 42,443
------- -------
Net property and equipment 150,203 153,895
Goodwill, net of accumulated amortization of
$69,102,000 and $66,725,000, respectively 311,148 313,525
Investment in CAT 5,750 5,438
Deferred financing costs, net of accumulated
amortization of $2,349,000 and
$1,960,000, respectively 3,569 3,933
Other assets 3,222 3,248
------- -------
Total assets $669,819 $678,709
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 40,208 $ 42,909
Accrued expenses 31,452 29,018
Current portion of long-term debt 36,269 40,266
------- -------
Total current liabilities 107,929 112,193
Long-term debt 142,124 232,192
Deferred income taxes 1,300 1,300
Other liabilities 7,564 7,336
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 394,969 311,567
Retained earnings 15,932 14,120
------- -------
Total stockholder's equity 410,902 325,688
------- -------
Total liabilities and stockholder's
equity $669,819 $678,709
======= =======
See accompanying notes to condensed consolidated financial statements.
==========================================================================
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended May 4, 1996 and April 29, 1995
(unaudited)
Quarters Ended
-----------------------------
May 4, 1996 April 29, 1995
(in thousands)
Operating activities:
Net income $ 1,812 $ 3,491
Adjustments to reconcile net income to
net cash (used by) provided by
operating activities:
Equity earnings in CAT (312) (247)
Provision for loss on accounts receivable 360 122
Depreciation and amortization 6,002 3,566
Amortization of goodwill 2,377 2,377
Amortization of deferred financing costs 389 193
Amortization of deferred compensation 8 26
Loss on disposal of property and equipment 81 277
(Increase) decrease in:
Receivables (2,580) (7,932)
Merchandise inventories 4,500 (16,608)
Prepaid expenses and other current assets 476 (401)
Increase (decrease) in:
Accounts payable (2,701) 2,778
Accrued expenses 2,434 1,274
Other non-current assets and
liabilities, net 254 312
------- --------
Net cash provided by (used by) operating
activities 13,100 (10,772)
Investing activities:
Purchases of property and equipment (2,391) (16,412)
------- -------
Net cash used by investing activities (2,391) (16,412)
Financing activities:
Increase in bank overdrafts --- 1,385
(Repayments) borrowings under revolving
credit agreement (90,000) 27,000
Payments on mortgage (65) ---
Parent company contribution 83,394 80
Net repayments under receivables facility (4,000) (1,700)
Payment of financing costs (25) ---
------- -------
Net cash (used by) provided by financing
activities (10,696) 26,765
------- -------
Net increase (decrease) in cash 13 (419)
Cash, beginning of period 1,283 1,551
------- -------
Cash, end of period $ 1,296 $ 1,132
======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for interest $ 3,357 $ 1,489
======= =======
Cash paid during the period for income taxes $ 116 $ 1,587
======= =======
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 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.
It is not considered necessary to include detailed footnote
information as of May 4, 1996 and April 29, 1995. 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 May 4,
1996:
(in thousands)
Revolving Credit Facility............ $11,000
Term Loan............................ 24,500
8-3/4% Notes......................... 100,000
Receivables Facility................. 36,000
Mortgage............................. 6,893
-------
Total debt......................... 178,393
Less current portion................. 36,269
-------
Total long-term debt..............$142,124
=======
On April 25, 1996, AnnTaylor Stores Corporation ("ATSC")
completed the sale (the "Initial Sale") 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 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 Initial Purchasers (as
defined herein) under the terms of the Purchase Agreement (the
"Purchase Agreement") between ATSC and the Initial Purchasers.
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). 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.
$83,000,000 of outstanding borrowings were paid down during the
quarter ended May 4, 1996 with the net proceeds of the Initial
Sale and $11,000,000 of outstanding borrowings were paid down on
May 20, 1996 with the net proceeds of the Over-allotment Sale.
The Preferred Securities were sold through Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, CS First
Boston Corporation, Donaldson, Lufkin & Jenrette Securities
Corporation and Robertson, Stephens & Company, LLC (collectively,
the "Initial Purchasers") in the United States and outside the
United States in a private placement under Rule 144A and
Regulation S, respectively, under the Securities Act of 1933.
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 price for Cygne's interest in
CAT and the Ann Taylor Woven Division assets will consist of
shares of common stock of ATSC having a market price, based on
the price of ATSC's common stock for the ten trading
days prior to the closing of the transaction, of $36 million
(provided that in no event will ATSC be required to issue more
than 2.5 million shares) and a cash payment 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. 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 will be
subject to certain restrictions on the timing of sales and the
amount of shares which can be sold at any one time.
The Company has received the consent of its lenders to the
CAT/Cygne Transaction and CAT has received a written commitment
of HongKong and Shanghai Banking Corporation to the continuation
of CAT's existing $40 million credit facility.
The closing of the CAT/Cygne Transaction is subject to various
other 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 August 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.
4. Legal Proceedings
-----------------
On April 26, 1996, certain alleged stockholders of ATSC filed
a purported class action lawsuit in the United States District
Court Southern District of New York against ATSC, the Company,
certain officers and directors of ATSC and the Company, Merrill
Lynch & Co. ("Merrill") and certain affiliates of Merrill (Novak
v. Kasaks, et. al., No. 96 CIV 3073 (S.D.N.Y. 1996)). The
complaint alleges causes of action under Section 10(b) and
Section 20(a) of the Securities Exchange Act of 1934, as amended,
by alleging that ATSC and the other defendants engaged in a
fraudulent scheme and course of business that operated a fraud or
deceit on purchasers of ATSC's common stock during the period
commencing February 3, 1994 through May 4, 1995 due to false
and misleading statements about ATSC and the Company. The
complaint seeks, among other things, certification as a class
action on behalf of all purchasers of common stock during the
period commencing February 3, 1994 through May 4, 1995, the
awarding of compensatory damages to the plaintiffs and purported
members of the class, the awarding of costs, including pre-judgment
post-judgment interest, reasonable attorneys' fees and expert
witness fees to the plaintiffs and purported members of the class
and equitable and/or injunctive relief. The Company believes that the
complaint is without merit and intends to defend the action vigorously.
=========================================================================
Item 2. Management's Discussion and Analysis of Operations
---------------------------------------------------
Results of Operations
- ---------------------
Quarters Ended
-----------------------------
May 4, 1996 April 29, 1995
----------- --------------
Number of Stores:
Open at beginning of period 306 262
Opened during period 4 15
Expanded during period* --- 12
Closed during period 3 2
Open at end of period 307 275
Type of Stores Open at End of Period:
Ann Taylor Stores 258 240
Ann Taylor Factory Stores 23 23
Ann Taylor Loft stores 17 6
Ann Taylor Studio stores 9 6
- ----------------------
* Expanded stores are excluded from comparable store sales for
the first year following expansion.
Quarter Ended May 4, 1996 Compared to Quarter Ended April 29, 1995
- -------------------------------------------------------------------
The Company's net sales in the first quarter of 1996 increased
to $184,467,000 from $168,306,000 in the first quarter of 1995,
an increase of $16,161,000 or 9.6%. The increase in net sales
was attributable to the opening of new stores and the expansion
of existing stores, offset by a 6.0% decrease in comparable store
sales in the first quarter of 1996. Management believes that the
decrease in comparable store sales was due primarily to the
Company's reduced inventory position. During the first quarter
of 1996, inventories were down approximately 25% on a per square
foot basis compared to the same period of the prior fiscal year.
Gross profit as a percentage of net sales decreased to 45.1%
in the first quarter of 1996 from 45.7% in the first quarter of
1995. This decrease was attributable to increased cost of goods
sold resulting from lower initial markups and to higher markdowns
associated with increased promotional activity.
Selling, general and administrative expenses represented 38.1%
of net sales in the first quarter of 1996, compared to 37.1% of
net sales in the first quarter of 1995. The increase is
primarily attributable to higher tenancy, store maintenance and
store selling costs.
As a result of the foregoing, the Company had operating income
of $10,523,000, or 5.7% of net sales, in the first quarter of
1996, compared to operating income of $12,123,000, or 7.2% of net
sales, in the first quarter of 1995. Amortization of goodwill
was $2,377,000 in the first quarter of 1996 and $2,377,000 in the
first quarter of 1995. Operating income, without giving effect
to such amortization in either year, was $12,900,000, or 7.0% of
net sales, in the 1996 period and $14,500,000, or 8.6% of net
sales, in the 1995 period.
Interest expense was $6,121,000 in the first quarter of 1996
and $4,498,000 in the first quarter of 1995. The increase in
interest expense is attributable to higher interest rates
applicable to the Company's debt obligations and higher
outstanding indebtedness in 1996.
The income tax provision was $2,721,000, or 60.0% of income
before income taxes, in the first quarter of 1996 compared to
$4,077,000, or 53.9% of income before income taxes, in the first
quarter of 1995. The effective income tax rate for both periods
differed from the statutory rate primarily because of non-
deductible goodwill amortization.
As a result of the foregoing factors, the Company had net
income of $1,812,000, or 1.0% of net sales, for the first quarter
of 1996 compared to net income of $3,491,000, or 2.1% of net
sales, for the first quarter of 1995.
===================================================================
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On April 26, 1996, certain alleged stockholders of ATSC filed
a purported class action lawsuit in the United States District
Court Southern District of New York against ATSC, the Company,
certain officers and directors of ATSC and the Company, Merrill
and certain affiliates of Merrill (Novak v. Kasaks, et. al., No.
96 CIV 3073 (S.D.N.Y. 1996)). The allegations in the complaint
are described above in Footnote 4 to the Condensed Consolidated
Financial Statements in this filing. The Company believes that
the complaint is without merit and intends to defend the action
vigorously.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
The Company filed a report with the Commission on
Form 8-K dated May 3, 1996 with respect to a
purported class action lawsuit filed in the United
States District Court Southern District of New
York State filed against ATSC, the Company,
certain officers and directors of ATSC and the
Company, Merrill and certain affiliates of Merrill
on April 26, 1996 by certain alleged stockholders
of ATSC.
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.
=====================================================================
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: June 18, 1996 By: /s/ J. Patrick Spainhour
--------------- ----------------------------
J. Patrick Spainhour
President and Chief
Operating Officer
Date: June 18, 1996 By: /s/ Walter J. Parks
---------------- -----------------------------
Walter J. Parks
Senior Vice President - Finance
(Principal Accounting Officer)
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<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statements of operations and condensed balance sheets and
is qualified in its entirety by reference to such financial statements.
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<NAME> ANNTAYLOR, INC.
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