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 November 1, 1997
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 28, 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.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements
of Operations for the Quarters and
Nine Months Ended November 1, 1997
and November 2, 1996.............................. 3
Condensed Consolidated Balance Sheets as of
November 1, 1997 and February 1, 1997............. 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended November 1, 1997 and
November 2, 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 Nine Months Ended November 1, 1997 and November 2, 1996
(unaudited)
Quarters Ended Nine Months Ended
------------------- ------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
-------- -------- -------- -------
(in thousands)
Net sales............................. $187,200 $212,670 $569,263 $584,999
Cost of sales......................... 94,468 115,580 292,541 324,008
------- ------- ------- -------
Gross profit.......................... 92,732 97,090 276,722 260,991
Selling, general and
administrative expenses............. 78,669 75,838 229,039 216,121
Employment contract separation expense --- 3,500 --- 3,500
Amortization of goodwill.............. 2,760 2,578 8,280 7,331
------- ------- ------- -------
Operating income...................... 11,303 15,174 39,403 34,039
Interest expense...................... 4,958 6,345 15,531 18,676
Other expense, net.................... 342 898 617 474
------- ------- ------- -------
Income before income taxes............ 6,003 7,931 23,255 14,889
Income tax provision.................. 3,818 4,669 13,610 9,188
------- ------- ------- -------
Income before extraordinary loss...... 2,185 3,262 9,645 5,701
Extraordinary loss (net of income
tax benefit of $130,000)............ --- --- (173) ---
------- ------- ------- -------
Net income......................... $ 2,185 $ 3,262 $ 9,472 $ 5,701
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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[PAGE 4]
ANNTAYLOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
November 1, 1997 and February 1, 1997
November 1, February 1,
1997 1997
----------- -----------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash and cash equivalents.................... $ 7,116 $ 7,025
Accounts receivable, net..................... 66,662 63,605
Merchandise inventories...................... 114,377 100,237
Prepaid expenses and other current assets.... 23,333 25,653
------- -------
Total current assets....................... 211,488 196,520
Property and equipment.......................... 234,809 209,081
Less accumulated depreciation and
amortization............................. 91,968 65,648
------- -------
Net property and equipment................. 142,841 143,433
Goodwill, net................................... 333,499 341,779
Deferred financing costs, net................... 1,596 2,743
Other assets.................................... 2,715 3,664
------- -------
Total assets............................... $692,139 $688,139
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable............................. $ 43,921 $ 34,341
Accrued expenses............................. 50,357 43,042
Current portion of long-term debt............ 964 287
------- -------
Total current liabilities.................. 95,242 77,670
Long-term debt.................................. 105,515 130,905
Deferred income taxes........................... 3,872 4,872
Other liabilities............................... 9,630 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.................... 445,795 443,952
Retained earnings............................. 32,084 22,787
------- -------
Total stockholder's equity............... 477,880 466,740
------- -------
Total liabilities and stockholder's
equity................................. $692,139 $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 Nine Months Ended November 1, 1997 and November 2, 1996
(unaudited)
Nine Months Ended
------------------
Nov. 1, Nov. 2,
1997 1996
------ --------
(in thousands)
Operating activities:
Net income......................................... $ 9,472 $ 5,701
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary loss............................... 303 ---
Employment contract separation expense........... --- 3,500
Equity earnings in CAT........................... --- (1,043)
Provision for loss on accounts receivable........ 1,366 1,315
Depreciation and amortization.................... 21,022 19,232
Amortization of goodwill......................... 8,280 7,331
Amortization of deferred financing costs......... 1,097 1,198
Amortization of deferred compensation............ 797 25
Deferred income taxes............................ --- 3,200
Loss on disposal of property and equipment....... 246 641
Change in assets and liabilities net of
effects from purchase of ATGS:
(Increase) decrease in:
Receivables.................................. (4,423) (1,441)
Merchandise inventories...................... (14,140) (19,731)
Prepaid expenses and other current assets.... 1,320 1,472
Increase (decrease) in:
Accounts payable............................. 9,580 (3,515)
Accrued expenses............................. 7,315 5,576
Other non-current assets and liabilities, net 2,171 208
------- -------
Net cash provided by operating activities.......... 44,406 23,669
Investing activities:
Purchases of property and equipment................ (20,220) (9,795)
Purchase of ATGS................................... --- (356)
------- -------
Net cash used by investing activities.............. (20,220) (10,151)
------- -------
Financing activities:
Net repayments under revolving credit agreement.... --- (94,000)
Net repayments under term loan..................... (24,500) ---
Term loan prepayment penalty....................... (184) ---
Payments on mortgage............................... (213) (198)
Parent company contribution........................ 871 96,200
Net repayments under receivables facility.......... --- (14,000)
Payments of financing costs........................ (69) (382)
------- -------
Net cash used by financing activities.............. (24,095) (12,380)
------- -------
Net increase in cash................................ 91 1,138
Cash, beginning of period........................... 7,025 1,283
------- -------
Cash, end of period................................. $ 7,116 $ 2,421
======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for interest........... $ 12,491 $ 14,998
======= =======
Cash paid during the period for income taxes....... $ 12,973 $ 4,803
======= =======
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 November 1, 1997 and November 2, 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
November 1, 1997.
(in thousands)
8-3/4% Notes........................... $100,000
Mortgage............................... 6,479
-------
Total debt........................... 106,479
Less current portion................... 964
-------
Total long-term debt................. $105,515
=======
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. On November
19, 1997, the maturity date of the facility was extended to July
29, 1998.
3. Supplementary Data
------------------
The following unaudited proforma condensed consolidated
operating data for the quarter and nine months ended November 2,
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 Nine Months Ended
----------------- -----------------
November 2, 1996 November 2, 1996
----------------- -----------------
Actual Proforma Actual Proforma
------ -------- ------ --------
(in thousands)
Sales..................... $212,670 $212,670 $584,999 $584,999
Net income................ $ 3,262 $ 3,863 $ 5,701 $ 8,629
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
Nine Months Ended
-----------------------
November 1, November 2,
1997 1996
----------- -----------
Number of Stores:
Open at beginning of period............ 309 306
Opened during period................... 24 9
Expanded during period*................ 8 7
Closed during period................... 9 6
Open at end of period.................. 324 309
Type of Stores Open at End of Period:
AnnTaylor Stores....................... 283 260
AnnTaylor Factory Stores............... 14 13
AnnTaylor Loft stores.................. 27 27
AnnTaylor Studio stores................ --- 9
- -------------------
* Expanded stores are excluded from comparable store sales for the
first year following expansion.
Nine Months Ended November 1, 1997 Compared to Nine Months Ended
- ----------------------------------------------------------------
November 2, 1996
- ----------------
The Company's net sales in the first nine months of 1997
decreased to $569,263,000 from $584,999,000 in the first nine
months of 1996, a decrease of $15,736,000 or 2.7%. Management
believes that the decrease in net sales was primarily
attributable to lower customer acceptance of certain of the
Company's summer and third quarter merchandise offerings and the
Company's lower promotional inventory position in the second
quarter and the beginning of the third quarter, compared to the
prior year. Comparable stores sales decreased 5.5% for the first
nine months of 1997 compared to the first nine months of 1996 due
principally to the same factors.
Gross profit as a percentage of net sales increased to 48.6%
in the first nine months of 1997 from 44.6% in the first nine
months of 1996. This increase was attributable to increased
initial markups resulting from the Sourcing Acquisition and
lower markdowns associated with decreased promotional activities
compared to the prior year.
Selling, general and administrative expenses were
$229,039,000, or 40.2% of net sales, in the first nine months of
1997, compared to $216,121,000, or 36.9% of net sales, in the
first nine months of 1996. The increase in operating expense was
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[PAGE 9]
primarily attributable to increased expenses in marketing and
information systems as well as increased tenancy and store
payroll expense related to increased retail square footage. The
increase in operating expense as a percentage of net sales was
primarily the result of decreased leverage on fixed expenses as a
result of lower sales.
As a result of the foregoing, operating income increased to
$39,403,000, or 6.9% of net sales, in the first nine months of
1997, from $34,039,000, or 5.8% of net sales, in the first nine
months of 1996. Operating income for the first nine months of
1996 reflects a one-time charge of $3,500,000, or 0.4% of net
sales, representing the Company's obligations under the former
chairperson's employment contract. Amortization of goodwill was
$8,280,000 in the first nine months of 1997 compared to
$7,331,000 in the first nine months of 1996. Operating income,
without giving effect to such goodwill amortization in either
year, was $47,683,000, or 8.4% of net sales, in the 1997 period
and $41,370,000, or 7.1% of net sales, in the 1996 period.
Interest expense was $15,531,000 in the first nine months of
1997 and $18,676,000 in the first nine months of 1996. The
decrease in interest expense is primarily attributable to reduced
outstanding indebtedness in the first nine months of 1997.
The income tax provision was $13,610,000, or 58.5% of income
before income taxes in the 1997 period, compared to $9,188,000,
or 61.7% of income before income taxes in the 1996 period. The
effective income tax rate for both periods was higher than the
statutory rate primarily as a result 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 $9,472,000, or 1.7% of net sales, for the first nine
months of 1997, compared to net income of $5,701,000, or 1.0% of
net sales, for the first nine months of 1996.
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[PAGE 10]
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.24.6 Notification of extension of termination
date of the Amended and Restated Credit
Agreement, dated as of September 20, 1996
between AnnTaylor Global Sourcing, Inc. and
the HongKong and Shanghai Banking
Corporation Limited. Incorporated by
reference to Exhibit 10.25.6 to the
Quarterly Report on Form 10-Q of ATSC for
the Quarter ended November 1, 1997 filed on
December 16, 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: December 16, 1997 By: /s/ J. Patrick Spainhour
--------------------- ----------------------------
J. Patrick Spainhour
Chairman and Chief
Executive Officer
Date: December 16, 1997 By: /s/ Walter J. Parks
--------------------- -----------------------------
Walter J. Parks
Senior Vice President and
Chief Financial Officer
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