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 2, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10738
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 29, 1997
----------------------------- ----------------
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.
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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
August 2, 1997 and August 3, 1996................... 3
Condensed Consolidated Balance Sheets at
August 2, 1997 and February 1, 1997................. 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended August 2, 1997 and
August 3, 1996...................................... 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
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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 2, 1997 and August 3, 1996
(unaudited)
Quarters Ended Six Months Ended
------------------ --------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- -------- ---------- --------
(in thousands)
Net sales........................ $184,999 $187,862 $382,063 $372,329
Cost of sales.................... 99,645 107,115 198,073 208,428
------- ------- ------- -------
Gross profit..................... 85,354 80,747 183,990 163,901
Selling, general and
administrative expenses........ 73,733 70,029 150,370 140,283
Amortization of goodwill......... 2,760 2,376 5,520 4,753
------- ------- ------- -------
Operating income................. 8,861 8,342 28,100 18,865
Interest expense................. 5,027 6,210 10,573 12,331
Other expense (income), net...... 25 (293) 275 (424)
------- ------- ------- -------
Income before income taxes........ 3,809 2,425 17,252 6,958
Income tax provision.............. 2,824 1,798 9,792 4,519
------- ------- ------- -------
Income before extraordinary loss.. 985 627 7,460 2,439
Extraordinary loss (net of income.
tax benefit of $130,000)........ (173) --- (173) ---
------- ------- ------- -------
Net income........................ $ 812 $ 627 $ 7,287 $ 2,439
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE 4>
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
August 2, 1997 and February 1, 1997
August 2, February 1,
1997 1997
---------- -----------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash and cash equivalents............... $ 25,751 $ 7,025
Accounts receivable, net................ 58,212 63,605
Merchandise inventories................. 88,855 100,237
Prepaid expenses and other
current assets........................ 24,342 25,653
------- -------
Total current assets.................. 197,160 196,520
Property and equipment..................... 221,596 209,081
Less accumulated depreciation and
amortization........................ 78,098 65,648
------- -------
Net property and equipment............ 143,498 143,433
Goodwill, net.............................. 336,259 341,779
Deferred financing costs, net.............. 1,848 2,743
Other assets............................... 3,623 3,664
------- -------
Total assets.......................... $682,388 $688,139
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable........................ $ 41,387 $ 34,341
Accrued expenses........................ 45,226 43,042
Current portion of long-term debt....... 824 287
------- -------
Total current liabilities............. 87,437 77,670
Long-term debt............................. 105,727 130,905
Deferred income taxes...................... 4,872 4,872
Other liabilities.......................... 8,950 7,952
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................ 445,444 443,952
Retained earnings......................... 29,957 22,787
------- -------
Total stockholder's equity........... 475,402 466,740
------- -------
Total liabilities and
stockholder's equity...............$682,388 $688,139
======= =======
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 2, 1997 and August 3, 1996
(unaudited)
Six Months Ended
-----------------------
August 2, August 3,
1997 1996
---------- -----------
(in thousands)
Operating activities:
Net income...................................... $ 7,287 $ 2,439
Adjustments to reconcile net income
to net cash provided by
operating activities:
Extraordinary loss............................ 303 ---
Equity earnings in CAT........................ --- (760)
Provision for loss on accounts receivable..... 909 835
Depreciation and amortization................. 13,976 12,358
Amortization of goodwill...................... 5,520 4,753
Amortization of deferred financing costs...... 775 780
Amortization of deferred compensation......... 530 16
Loss on disposal of property and equipment.... 191 220
(Increase) decrease in:
Receivables................................. 4,484 5,448
Merchandise inventories..................... 11,382 3,454
Prepaid expenses and other current assets... 1,311 (641)
Increase (decrease) in:
Accounts payable............................ 7,046 (6,797)
Accrued expenses............................ 1,955 (2,695)
Other non-current assets and liabilities, net 1,037 707
------- -------
Net cash provided by operating activities........ 56,706 20,117
Investing activities:
Purchases of property and equipment.............. (14,000) (5,059)
------- -------
Net cash used by investing activities............ (14,000) (5,059)
Financing activities:
Net repayments under revolving credit agreement... --- (97,000)
Net repayments under term loan.................... (24,500) ---
Term loan prepayment penalty...................... (184) ---
Payments on mortgage.............................. (141) (131)
Parent company contribution....................... 845 96,140
Net repayments under receivables facility......... --- (14,000)
Payment of financing costs........................ --- (63)
------- -------
Net cash used by financing activities............. (23,980) (15,054)
------- -------
Net increase in cash............................... 18,726 4
Cash and cash equivalents, beginning of period..... 7,025 1,283
------- -------
Cash and cash equivalents, end of period........... $ 25,751 $ 1,287
======== =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 10,103 $ 11,395
======= =======
Cash paid during the period for income taxes $ 12,682 $ 3,405
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE 6>
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 1997 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The February 1, 1997 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor, Inc. (the "Company")
Certain fiscal 1996 amounts have been reclassified to conform
to the 1997 presentation.
Detailed footnote information is not included for the periods
ended August 2, 1997 and August 3, 1996. The financial
information set forth herein should be read in conjunction with
the Notes to the Company's Consolidated Financial Statements
contained in the Company's 1996 Annual Report on Form 10-K.
2. Long-Term Debt
--------------
The following summarizes long-term debt outstanding at August
2, 1997:
(in thousands)
8-3/4% Notes........................... $100,000
Mortgage............................... 6,551
-------
Total debt........................... 106,551
Less current portion................... 824
-------
Total long-term debt................. $105,727
=======
On July 2, 1997, the Company used available cash to prepay
the outstanding balance of its $24,500,000 term loan due
September 1998. This loan repayment resulted in an extraordinary
charge to earnings of $173,000, net of income tax benefit.
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<PAGE 7>
On July 29, 1997, AnnTaylor Global Sourcing, Inc. amended
its credit facility with the Hongkong and Shanghai Banking
Corporation Limited, increasing the commitment available for
letters of credit under the facility to $50,000,000 and extending
the maturity date of the facility to January 30, 1998.
3. Supplementary Data
------------------
The following unaudited proforma condensed consolidated
operating data for the quarter and six months ended August 3,
1996 have been presented to give effect to the acquisition of the
Company's sourcing subsidiary, which was consummated in September
1996 (the "Sourcing Acquisition"), as if it had occurred at the
beginning of such periods:
Quarter Ended Six Months Ended
---------------- ------------------
August 3, 1996 August 3, 1996
-----------------
Actual Proforma Actual Proforma
-------- --------- ------ --------
(in thousands)
Sales......................... $187,862 $187,862 $372,329 $372,329
Net income.................... $ 627 $ 1,791 $ 2,439 $ 4,766
The proforma data set forth above does not purport to be
indicative of the results that actually would have occurred if
the Sourcing Acquisition had occurred at the beginning of the
periods presented or of results which may occur in the future.
4. Recently Issued Statements of Financial Accounting Standards
------------------------------------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which requires that changes in
comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements.
This statement is effective for periods beginning after December
15, 1997. The Company has determined that this statement will
have no material effect on the Company's financial statements.
Also, in June 1997, the FASB issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related
Information", which addresses segment reporting, including, where
applicable, requirements to report selected segment information
quarterly and provide entity-wide disclosures about products and
services, major customers, and the material countries in which
the entity holds assets and reports revenues. This statement is
effective for financial statements for periods beginning after
December 15, 1997. Management currently is evaluating the
effects of this change on the Company's financial statements.
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<PAGE 8>
Item 2. Management's Discussion and Analysis of Operations
--------------------------------------------------
Results of Operations
- ---------------------
Six Months Ended
---------------------
August 2, August 3,
1997 1996
--------- ---------
Number of Stores:
Open at beginning of period.................. 309 306
Opened during period......................... 9 5
Expanded during period*...................... 1 1
Closed during period......................... 8 5
Open at end of period........................ 310 306
Type of Stores Open at End of Period:
AnnTaylor Stores.......................... 268 257
AnnTaylor Factory Stores.................. 10 9
AnnTaylor Loft stores..................... 31 31
AnnTaylor Studio stores................... 1 9
- ---------------
* Expanded stores are excluded from comparable store sales
for the first year following expansion.
Six Months Ended August 2, 1997 Compared to Six Months Ended
- -----------------------------------------------------------------
August 3, 1996
- --------------
The Company's net sales in the first six months of 1997
increased to $382,063,000 from $372,329,000 in the first six
months of 1996, an increase of $9,734,000 or 2.6%. The increase
in net sales was attributable to an increase in sales during the
first quarter of 1997 compared to the first quarter of 1996,
resulting from the opening of new stores and the expansion of
existing stores as well as positive customer reaction to the
Company's first quarter merchandise offerings, offset by the
decrease in sales during the second quarter of 1997. The second
quarter decrease in sales was principally attributable to the
Company's lower promotional inventory position during the period,
and, to a lesser extent, lower customer acceptance of certain of
the Company's second quarter merchandise offerings. Comparable
store sales increased 0.4% for the first six months of
1997 compared to the first six months of 1996, reflecting a
comparable store sales increase of 4.4% in the first quarter of
1997, offset by a comparable store sales decrease of 3.6%
in the second quarter of 1997 compared to the same periods in
the prior year.
Gross profit as a percentage of net sales increased to 48.2%
in the first six months of 1997 from 44.0% in the first six
months of 1996. This increase was attributable to increased
initial markups resulting from the Sourcing Acquisition, and
lower markdowns associated with decreased promotional activities.
=================================================================
<PAGE 9>
Selling, general and administrative expenses were
$150,370,000, which represented 39.4% of net sales, in the first
six months of 1997, compared to $140,283,000 or 37.7% of net
sales, in the first six months of 1996. The increase in expense
was primarily attributable to increased tenancy and store payroll
expense related to increased retail square footage.
As a result of the foregoing, the Company had operating income
of $28,100,000, or 7.4% of net sales, in the first six months of
1997, compared to operating income of $18,865,000, or 5.1% of net
sales, in the first six months of 1996. Amortization of goodwill
was $5,520,000 in the first six months of 1997 and $4,753,000 in
the first six months of 1996. Operating income, without giving
effect to goodwill amortization in either year, was $33,620,000,
or 8.8% of net sales, in the 1997 period and $23,618,000, or 6.3%
of net sales, in the 1996 period.
Interest expense was $10,573,000 in the first six months of
1997 and $12,331,000 in the first six months of 1996. The
decrease in interest expense is attributable to reduced
outstanding indebtedness in the first six months of 1997 compared
to the first six months of 1996.
The income tax provision was $9,792,000, or 56.8% of income
before income taxes and extraordinary loss, in the 1997 period,
compared to $4,519,000, or 64.9% of income before income taxes,
in the 1996 period. The effective income tax rate for both
periods differed from the statutory rate primarily because of non-
deductible goodwill amortization.
On July 2, 1997, the Company used available cash to prepay
$24,500,000, the outstanding balance of its term loan due
September 1998. This loan repayment will result in annualized
interest expense savings of approximately $2,200,000, and
resulted in an extraordinary charge to earnings in the first six
months of fiscal 1997 of $173,000.
As a result of the foregoing factors, the Company had net
income of $7,287,000, or 1.9% of net sales, for the first six
months of 1997 compared to net income of $2,439,000 or 0.7% of
net sales, for the first six months of 1996.
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<PAGE 10>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.14.1 Amendment to the AnnTaylor Stores Corporation
("ATSC") Amended and Restated 1992 Stock
Option and Restricted Stock and Unit Award
Plan, as approved by stockholders of ATSC
on June 18, 1997. Incorporated by
reference to Exhibit 10.15.1 to the
Quarterly Report on Form 10-Q of ATSC
for the Quarter ended August 2, 1997 filed
on September 12, 1997.
10.15 AnnTaylor Stores Corporation Amended and
Restated Management Performance Compensation
Plan, as approved by stockholders of ATSC
on June 18, 1997. Incorporated by reference
to Exhibit 10.16 to the Quarterly Report on
Form 10-Q of ATSC for the Quarter ended
August 2, 1997 filed on September 12, 1997.
10.24.4 First Amendment to the Amended and Restated
Credit Agreement, dated as of April 11,
1997, between AnnTaylor Global Sourcing,
Inc. and the Hongkong and Shanghai Banking
Corporation Limited. Incorporated by
reference to Exhibit 10.25.4 to the
Quarterly Report on Form 10-Q of ATSC for
the Quarter ended August 2, 1997 filed on
September 12, 1997.
10.24.5 Second Amendment to the Amended and
Restated Credit Agreement, dated as of July
29, 1997, between AnnTaylor Global
Sourcing, Inc. and the Hongkong and
Shanghai Banking Corporation Limited.
Incorporated by reference to Exhibit
10.25.5 to the Quarterly Report on Form 10-Q
of ATSC for the Quarter ended August 2,
1997 filed on September 12, 1997.
(b) Reports on Form 8-K:
None.
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<PAGE 11>
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 12, 1997 By: /s/ J. Patrick Spainhour
----------------------- ---------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: September 12, 1997 By: /s/ Walter J. Parks
------------------------- ----------------------
Walter J. Parks
Senior Vice President
and Chief Financial Officer
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<NAME> ANNTAYLOR, INC.
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