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 STORES CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3499319
- ------------------------------- -------------------------------------
(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, $.0068 par value 25,637,853
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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 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.... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders... 15
Item 6. Exhibits and Reports on Form 8-K...................... 16
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<PAGE 3>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR STORES CORPORATION
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 except per share amounts)
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
======= ======= ======= =======
Net income per share of common stock:
Income per share before
extraordinary loss.......... 0.04 0.03 0.29 0.11
Extraordinary loss per share.. (0.01) --- (0.01) ---
------- ------- ------- -------
Net income per share.......... $ 0.03 $ 0.03 $ 0.28 $ 0.11
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE 4>
ANNTAYLOR STORES CORPORATION
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 STOCKHOLDERS' 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
Company-Obligated Mandatorily
Redeemable Convertible
Preferred Securities of AnnTaylor
Finance Trust Holding Solely
Convertible Debentures................... 96,275 96,158
Stockholders' equity
Common stock, $.0068 par value;
40,000,000 shares authorized;
25,649,454 and 25,598,489 shares
issued, respectively.................... 174 174
Additional paid-in capital................ 350,531 349,545
Warrants to acquire 2,814 shares
of common stock......................... 46 46
Retained earnings......................... 29,783 22,613
Deferred compensation on restricted
stock................................... (1,201) (1,590)
------- -------
379,333 370,788
Less treasury stock, 11,601 shares,
at cost................................. (206) (206)
------- -------
Total stockholders' equity........... 379,127 370,582
------- -------
Total liabilities and
stockholders' equity...............$682,388 $688,139
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE 5>
ANNTAYLOR STORES CORPORATION
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)
Net proceeds from issuance of Preferred
Securities................................... --- 95,985
Exercise of stock options...................... 845 155
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 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 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 Stores Corporation.
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 AnnTaylor Stores Corporation 1996 Annual Report
to Stockholders.
2. Income Per Share
----------------
Net income per share is calculated by dividing net income by
the total of the weighted average number of common shares and
common share equivalents outstanding, assuming the exercise of
outstanding warrants and the dilutive effect of outstanding stock
options, computed in accordance with the treasury stock method.
The number of shares used in the calculation was as follows:
Quarters Ended Six Months Ended
------------------- ------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- --------- ---------
(in thousands)
Common shares.......... 25,631 23,097 25,616 23,091
Warrants............... 3 32 2 34
Stock options.......... 165 108 164 101
------ ------ ------ ------
25,799 23,237 25,782 23,226
====== ====== ====== ======
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<PAGE 7>
Fully diluted income per share, assuming the conversion into
common stock of the 8-1/2% Convertible Trust Originated Preferred
Securities, is not presented for the quarter and six months ended
August 2, 1997 or August 3, 1996, as there is no dilutive effect
of the assumed conversion.
The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which specifies the computation,
presentation and disclosure requirements for basic and diluted
earnings per share. This statement is effective for financial
statements for periods ending after December 15, 1997. The
Company has determined that this statement will have no material
effect on the Company's reported earnings per share.
3. 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, or
$0.01 per share.
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.
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<PAGE 8>
4. 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, except per share amounts)
Sales....................... $187,862 $187,862 $372,329 $372,329
Net income.................. $ 627 $ 1,791 $ 2,439 $ 4,766
Net income per share........ $ .03 $ .07 $ .11 $ .19
Weighed average shares
outstanding.............. 23,237 25,585 23,226 25,574
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.
5. 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 9>
Item 2. Management's Discussion and Analysis of Operations
---------------------------------------------------
Results of Operations
- ---------------------
Quarters Ended Six Months Ended
------------------- -------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- --------- ----------
Number of Stores:
Open at beginning of period....... 311 307 309 306
Opened during period.............. 7 1 9 5
Expanded during period*........... 1 1 1 1
Closed during period.............. 8 2 8 5
Open at end of period............. 310 306 310 306
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.
Quarter Ended August 2, 1997 Compared to Quarter Ended August 3, 1996
- ----------------------------------------------------------------------
The Company's net sales in the second quarter of 1997
decreased to $184,999,000 from $187,862,000 in the second quarter
of 1996, a decrease of $2,863,000 or 1.5%. Management believes
that the decrease in net 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 for the second quarter of 1997 decreased
3.6% compared to the second quarter of 1996, due principally to
the same factors. On a per square foot basis, inventories were
29.6% lower at the end of the second quarter of 1997 than at the
end of the second quarter of 1996, excluding inventories
associated with AnnTaylor Global Sourcing.
Gross profit as a percentage of net sales increased to 46.1%
in the second quarter of 1997 from 43.0% in the second quarter of
1996. This increase was primarily attributable to increased
initial markups resulting from the Sourcing Acquisition.
Selling, general and administrative expenses were $73,733,000,
or 39.9% of net sales in the second quarter of 1997, compared to
$70,029,000, or 37.3% of net sales in the second quarter of 1996.
The increase in operating expenses as a percentage of net sales
was primarily the result of decreased leverage on fixed expenses
as a result of negative comparable store sales. The increase in
expense dollars was primarily attributable to increased tenancy
and store payroll expense related to increased retail square
footage.
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<PAGE 10>
As a result of the foregoing, the Company had operating income
of $8,861,000, or 4.8% of net sales, in the second quarter of
1997, compared to operating income of $8,342,000, or 4.4% of net
sales, in the second quarter of 1996. Amortization of goodwill
was $2,760,000 in the second quarter of 1997 and $2,376,000 in
the second quarter of 1996. Operating income, without giving
effect to goodwill amortization in either year, was $11,621,000,
or 6.3% of net sales, in the 1997 period and $10,718,000, or 5.7%
of net sales, in the 1996 period.
Interest expense was $5,027,000 in the second quarter of 1997
and $6,210,000 in the second quarter of 1996. The decrease in
interest expense is attributable to reduced outstanding
indebtedness in the second quarter of 1997 compared to the second
quarter of 1996.
The income tax provision was $2,824,000, or 74.1% of income
before income taxes and extraordinary loss, in the second quarter
of 1997 compared to $1,798,000, or 74.1% of income before income
taxes, in the second quarter of 1996. 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 the
outstanding balance of its $24,500,000 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 second quarter of $0.01
per share.
As a result of the foregoing factors, the Company had net
income of $812,000, or 0.4% of net sales, for the second quarter
of 1997 compared to net income of $627,000, or 0.3% of net sales,
for the second quarter of 1996.
AnnTaylor Stores Corporation conducts no business other than
the management of Ann Taylor.
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 for the
reasons described above.
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<PAGE 11>
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.
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 $0.01 per share.
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<PAGE 12>
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.
Financial Condition
- -------------------
For the first six months of 1997, net cash provided by
operating activities totaled $56,706,000, primarily as a result
of non-cash operating expenses, a decrease in non-cash current
assets and an increase in current liabilities. Cash used for
investing activities during the first six months of 1997 amounted
to $14,000,000, for the purchase of property and equipment. Cash
used for financing activities during the first six months of 1997
amounted to $23,980,000, primarily attributable to funds used for
repayment of the term loan.
Accounts receivable decreased to $58,212,000 at August 2, 1997
from $63,605,000 at February 1, 1997, a decrease of $5,393,000 or
8.5%. This decrease is primarily attributable to a decrease in
Ann Taylor credit card receivables of $7,265,000 or 12.7%.
Accounts payable increased to $41,387,000 at August 2, 1997
from $34,341,000 at February 1, 1997, an increase of $7,046,000
or 20.5%, primarily due to timing of payments.
Merchandise inventories were $88,855,000 at August 2, 1997,
compared to inventories of $100,237,000 at February 1, 1997.
Total square footage increased to 1,732,000 square feet at August
2, 1997 from 1,705,000 square feet at February 1, 1997. On a per
square foot basis, merchandise inventories were 29.6% lower at
the end of the second quarter of 1997 than at the end of the
second quarter of 1996, excluding inventories associated with
AnnTaylor Global Sourcing.
At August 2, 1997, there were no borrowings outstanding under
either Ann Taylor's revolving credit facility or AnnTaylor
Funding, Inc.'s receivables facility. Ann Taylor can borrow up
to $122,000,000 under the revolving credit facility and AnnTaylor
Funding, Inc. can borrow up to $40,000,000 under the receivables
facility, depending upon its accounts receivable balance. Also
as of August 2, 1997, commercial and standby letters of credit
under AnnTaylor Global Sourcing, Inc.'s credit facility totaled
$37,583,000 and there were no borrowings outstanding under that
facility. This facility, which was scheduled to mature on July
29, 1997, was extended to January 30, 1998 and was increased to
$50,000,000, and is available principally for the issuance of
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<PAGE 13>
letters of credit; cash borrowings under the facility are
limited to a maximum of $5,000,000. In addition, the Company has
outstanding an aggregate of $100,625,000 of preferred securities
issued by its financing vehicle, AnnTaylor Finance Trust.
The Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation and
refurbishment programs, totaled $14,000,000 for the six months
ended August 2, 1997. The Company expects to open a total of 27
new Ann Taylor Stores and to expand 9 existing Ann Taylor Stores
in fiscal 1997.
Dividends and distributions from Ann Taylor to the Company are
restricted by the terms of the credit agreements relating to the
revolving credit facility and the receivables facility and the
Indenture for AnnTaylor, Inc.'s 8-3/4% Notes due 2000. The payment
of cash dividends by the Company on its capital stock is also
subject to certain restrictions contained in the Company's
guarantee of Ann Taylor's obligations under its bank credit
agreement. Any determination to pay cash dividends in the future
will be at the discretion of the Company's Board of Directors and
will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors
deemed relevant at that time by the Company's Board of Directors.
In order to finance its operations and capital requirements,
the Company expects to use internally generated funds, trade
credit and funds available to it under the credit facilities
described above. The Company believes that cash flow from
operations and funds available under these facilities are
sufficient to enable it to meet its on-going cash needs for its
business, as presently conducted, for the foreseeable future.
The FASB issued SFAS No. 128, "Earnings per Share", which
specifies the computation, presentation and disclosure
requirements for basic and diluted earnings per share. This
statement is effective for financial statements for periods
ending after December 15, 1997. The Company has determined that
this statement will have no material effect on the Company's
reported earnings per share.
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
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<PAGE 14>
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.
Statement Regarding Forward Looking Disclosures
- -----------------------------------------------
Sections of this Quarterly Report on Form 10-Q, including
the preceding Management's Discussion and Analysis of Financial
Condition and Results of Operations, contain various forward
looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, with respect to the financial
condition, results of operations and business of the Company.
These forward looking statements involve certain risks and
uncertainties, and no assurance can be given that any of such
matters will be realized. Actual results may differ materially
from those contemplated by such forward looking statements as a
result of, among other things, increased competition in the
retail apparel industry; failure by the Company to accurately
predict customer fashion preferences; a decline in the demand for
merchandise offered by the Company; greater costs or difficulties
than expected related to the assimilation of the sourcing
functions and employees acquired in connection with the Sourcing
Acquisition; general economic conditions that are less favorable
than expected; the inability of the Company to locate new store
sites or negotiate favorable lease terms for additional stores or
for the expansion of existing stores; a significant change in the
regulatory environment applicable to the Company's business; an
increase in the rate of import duties or export quotas with
respect to the Company's merchandise; an adverse outcome of
certain litigation described under "Legal Proceedings" in the
Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997 that materially and adversely affects the
company's financial condition; or lack of sufficient customer
acceptance of the Ann Taylor Loft concept in the moderate-priced
women's apparel market.
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<PAGE 15>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
AnnTaylor Stores Corporation's 1997 Annual Meeting of
Stockholders was held on June 18, 1997. The following matters
were voted upon and approved by the Company's stockholders at the
meeting:
1. Mr. Gerald S. Armstrong and Ms. Hanne M. Merriman were re-
elected as Class III Directors of the Company for terms
expiring in 2000. 22,558,073 and 22,558,419 shares were voted
in favor of, and 267,799 and 267,453 were voted against or
abstained from voting on the proposal for the reelection of
Mr. Armstrong and Ms. Merriman, respectively. Mr. Robert C.
Grayson, Ms. Rochelle B. Lazarus and Mr. J. Patrick Spainhour
continued as Class I Directors with terms expiring in 1998,
and Mr. James J. Burke, Jr. and Ms. Patricia DeRosa continued
as Class II Directors with terms expiring in 1999.
2. An amendment to the Company's Amended and Restated 1992 Stock
Option and Restricted Stock and Restricted Unit Award Plan to
(i) increase by 1,500,000 the number of shares available for
option grants under the Plan and (ii) establish a maximum
number of shares with respect to which options, restricted
stock awards and restricted unit awards may be granted to any
employee was approved. 18,176,534 shares were voted in favor
of, and 2,648,424 were voted against or abstained from voting
on the amendment.
3. A proposal to amend and restate the Company's Management
Performance Plan to, among other things, (i) increase the
amount of the maximum individual award payable in any
performance period and (ii) expand the types of corporate
business criteria that the Compensation committee may consider
in establishing each performance period's performance goals,
was approved. 22,522,835 shares were voted in favor of, and
303,037 were voted against or abstained from voting on, the
approval of this proposal.
4. The appointment of Deloitte & Touche llp as the Company's
independent auditors for the 1997 fiscal year was ratified.
22,793,840 shares were voted in favor of, and 32,032 shares
were voted against or abstained from voting on, this proposal.
=======================================================================
<PAGE 16>
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits:
10.15.1 Amendment to the AnnTaylor Stores
Corporation Amended and Restated 1992 Stock
Option and Restricted Stock and Unit Award
Plan, as approved by stockholders on June
18, 1997.
10.16 AnnTaylor Stores Corporation Amended and
Restated Management Performance
Compensation Plan, as approved by
stockholders on June 18, 1997.
10.25.4 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.
10.25.5 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.
(b) Reports on Form 8-K:
None.
==========================================================================
<PAGE 17>
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 Stores Corporation
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
FIRST AMENDMENT TO
THE ANNTAYLOR STORES CORPORATION
1992 STOCK OPTION AND
RESTRICTED STOCK AND UNIT AWARD PLAN,
AS AMENDED AND RESTATED AS OF FEBRUARY 23, 1994
The AnnTaylor Stores Corporation 1992 Stock Option and
Restricted Stock and Unit Award Plan, as amended and
restated as of February 23, 1994 (the "Plan"), is hereby
amended, effective as of February 20, 1997, subject to the
approval of stockholders, as set forth below.
1. The first clause of the second sentence of Section 5
of the Plan is hereby amended and restated in its entirety
as follows:
The aggregate number of shares of Common Stock as
to which Options may be granted from time to time under
this Plan shall not exceed 3,100,000.
2. The last sentence of the first paragraph of Section 5
is hereby amended and restated in its entirety as follows:
No single employee may be granted Options covering
more than 400,000 shares of Common Stock, or Restricted
Stock Awards or Restricted Unit Awards (constituting
performance based compensation within the meaning of
Section 162(m) of the Code) covering more than 50,000
shares of Common Stock, (subject to any adjustments
pursuant to Section 6(i) below) during any fiscal year
of the Company.
Except as set forth above, the Plan is hereby ratified
and affirmed in all respects.
ANNTAYLOR STORES CORPORATION
MANAGEMENT PERFORMANCE COMPENSATION PLAN
Effective as of August 7, 1992 the Board adopted
the Management Performance Compensation Plan and, effective
as of the beginning of the Fall 1994 Performance Period,
amended and restated such plan (the "Prior Plan"). The
Prior Plan, as amended and restated hereby (the "Plan") is
effective as of the beginning of the Fall 1997 Performance
Period, subject to the approval of the stockholders of the
Company at the 1997 Annual Meeting of the stockholders of
the Company.
1. PURPOSE. This Plan is an integral part of the
-------
Company's over-all compensation strategy which is aimed at
attracting and retaining in the employ of the Company and
its Subsidiaries highly motivated, results-oriented
personnel of experience and ability, by basing such
personnel's compensation, in part, on their contributions to
the growth and profitability of the Company, thereby giving
them incentive to remain with the Company and its
Subsidiaries and to continue to make contributions to the
Company in the future. Further, the purpose of the Plan is
to serve as a qualified performance-based compensation
program under Section 162(m) ("Section 162(m)") of the
Internal Revenue Code of 1986, as amended (the "Code").
2. DEFINITIONS. As used in this Plan, the following
-----------
capitalized terms shall have the meanings set forth below:
(a) "Board" means the Board of Directors of the
Company.
(b) "Budget" means the Company's operating budget
for a Performance Period.
(c) "Committee" means the Compensation Committee
of the Board, as appointed by the Board from time to time
and consisting of not less than two directors, at least two
of whom must be "outside directors" within the meaning of
Section 162(m). All actions taken by the Committee under
this Plan with respect to Executive Officers shall be taken
solely by those members of the Committee who are "outside
directors", even if less than a majority of the Committee,
and such members shall constitute a subcommittee for
purposes of Section 162(m). With respect to Eligible
Associates who are neither Executive Officers nor members of
the Executive Committee of the Company, the Committee may,
in its discretion, delegate to one or more officers of the
Company its duties hereunder.
(d) "Company" means AnnTaylor Stores Corporation.
(e) "Eligible Associate" has the meaning assigned
thereto in Section 3 hereof.
(f) "Executive Officer" means an officer of the
Company who, as of the beginning of a Performance Period, is
an "executive officer" within the meaning of Rule 3b-7
promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act").
(g) "Participant" means an Eligible Associate who
has been designated as a Participant by the Committee in
accordance with Section 4 of this Plan.
(h) "Performance Compensation" means the cash
amount payable to a Participant pursuant to this Plan.
(i) "Performance Goals" has the meaning assigned
thereto in Section 5(b) hereof.
(j) "Performance Percentage" and "Performance
Ratio" have the meanings assigned thereto in Section 5(a)
hereof.
(k) "Performance Period" means a period
designated by the Committee during which Performance
Compensation will be earned. A Performance Period may range
in length from the six-month period that coincides with the
Company's fiscal six-month Spring or Fall season to the
twelve-month period that coincides with the Company's fiscal
year.
(l) "Plan" means this AnnTaylor Stores
Corporation Management Performance Compensation Plan.
(m) "Subsidiary" means any corporation of which
the Company owns, directly or indirectly, at least a
majority of the outstanding voting capital stock.
3. ELIGIBILITY. Any salaried associate in the employ
-----------
of the Company or any of its Subsidiaries (including
officers and directors, but excluding persons who are
directors only or who are members of the Committee) shall be
eligible (an "Eligible Associate") to become a Participant
and receive Performance Compensation under this Plan.
4. SELECTION OF PARTICIPANTS.
--------------------------
(a) As promptly as possible after the Company's
Budget for a Performance Period shall have become available,
and after having received the recommendations of the
Company's Chief Executive Officer pursuant to Section 4(b)
below, the Committee shall designate from among all Eligible
Associates those who shall be Participants under this Plan
for such Performance Period.
(b) Prior to the beginning of a Performance
Period, or by such later date permissible under Section
162(m), and after the Company's Budget for a Performance
Period shall have become available, the Chief Executive
Officer of the Company shall submit to the Committee a list
of the names, titles, salaries and suggested Performance
Percentages of those Eligible Associates whom the Chief
Executive Officer recommends that the Committee designate as
Participants under this Plan for such Performance Period.
(c) The Committee shall have the authority to
designate from time to time prior to the commencement of as
well as during a Performance Period additional Eligible
Associates as Participants under this Plan for such
Performance Period.
(d) In selecting from among all Eligible
Associates those who shall become Participants in any
Performance Period and in determining the Performance
Percentages of such Participants for such Performance
Period, the Committee shall consider the position and
responsibilities of the Eligible Associates, the value of
their services to the Company and such other factors as the
Committee deems relevant.
5. FORMULA FOR DETERMINING AMOUNT OF PERFORMANCE
-----------------------------------------------------
COMPENSATION.
- ------------
(a) At the time the Committee selects
Participants under this Plan for a Performance Period, or
within such other time period which may comply with Section
162(m), the Committee shall, for each Participant:
(i) assign to such Participant their individual
"Performance Percentage" for such Performance
Period; and
(ii) establish a matrix, assigning a "Performance
Ratio" to various levels of Performance Goals
which might be achieved for such Performance
Period.
(b) As used in this Plan, "Performance Goals"
means the specific objectives established by the Committee
for each Participant for a Performance Period. In setting
these objectives, the Committee shall consider one or more
of the following business criteria: revenue; net or gross
sales; comparable store sales; gross margin; operating
profit; earnings before all or any of interest, taxes,
depreciation and/or amortization; cash flow; working
capital; return on equity, assets, capital or investment;
market share; sales (net or gross) measured by store,
product line, territory, operating or business unit,
customers, or other category; earnings or book value per
share; earnings from continuing operations; net worth;
turnover in inventory; levels of expense, cost or liability
by store, product line, territory, operating or business
unit or other category; appreciation in the price of shares
of the Company's common stock; total shareholder return
(stock price appreciation plus dividends); and
implementation of critical projects or processes. Where
applicable, the Performance Goals may be expressed in terms
of attaining a specified level of the selected criterion or
the attainment of a percentage increase or decrease in the
selected criterion, or may be applied to the performance of
the Company relative to a market index, a group of other
companies or a combination thereof, all as determined by the
Committee. Such Performance Goals may relate to the
performance of a store, business unit, product line,
division, territory, the Company or an individual or any
combination thereof. With respect to Participants who are
not Executive Officers, Performance Goals may also include
such individual objective or subjective performance criteria
as the Committee may, from time to time, establish.
Performance Goals may include a threshold level of
performance below which no award payment shall be made and
levels of performance at which specified percentages of the
target award shall be paid, and may also include a maximum
level of performance above which no additional award shall
be paid. Each of the foregoing Performance Goals shall be
determined in accordance with generally acceptable
accounting principles and, for Executive Officers and
Executive Committee members, shall be subject to
certification by the Committee. The Performance Goals
established by the Committee may be different with respect
to different Participants, different Performance Periods
and/or different operations.
The Committee shall have the authority to make
equitable adjustments to the Performance Goals in
recognition of unusual or nonrecurring events affecting the
Company, its financial statements or its shares, in response
to changes in applicable laws or regulations, or to account
for items of gain, loss or expense determined to be
extraordinary or unusual in nature or infrequent in
occurrence or related to the acquisition, disposition or
discontinuance of a business or a segment of a business, or
related to a change in accounting principles, or to reflect
capital changes.
(c) Subject to adjustment pursuant to Section
5(d) below, unless otherwise determined by the Committee, a
Participant's Performance Compensation for the Performance
Period for which he or she was designated by the Committee
as a Participant pursuant to Section 4 hereof shall be equal
to the product of (i) the Participant's annual base salary
for the fiscal year of which such Performance Period is a
part (prorated, as to any Participant who shall have become
an Eligible Associate and designated as a Participant after
the commencement of such fiscal year), multiplied by (ii)
the Performance Percentage assigned to such Participant for
such Performance Period pursuant to Section 5(a)(i) above,
multiplied by (iii) the Performance Ratio achieved by the
Company for such Performance Period.
(d) For any Performance Period, the Board may
establish a ceiling on the aggregate amount which may be
paid out in Performance Compensation for such Performance
Period. In the event that such a limit is established for
any Performance Period, the Performance Compensation
otherwise payable to all Participants for such Performance
Period pursuant to Section 5(c) above shall be reduced pro
rata. Notwithstanding any other provision of the Plan, no
participant who is an Executive Officer may receive
Performance Compensation for a twelve-month Performance
Period in excess of $1,500,000, such amount to be reduced
proportionately for Performance Periods of shorter duration.
(e) Performance Compensation shall be paid by the
Company or the Subsidiary employing the Participant promptly
following the end of the Performance Period to which it
relates. The foregoing notwithstanding, no payment of
Performance Compensation for a Performance Period may be
made to an Executive Officer until the performance results
for that Performance Period are certified by the Committee.
A Participant shall not be entitled to receive payment of
Performance Compensation unless such Participant is still in
the employ of (and shall not have delivered notice of
resignation to) the Company or one of its Subsidiaries at
the time the Performance Compensation is actually paid.
6. FINALITY OF DETERMINATIONS. The Committee shall
--------------------------
administer this Plan and construe its provisions. Any
determination by the Committee in carrying out,
administering or construing this Plan shall be final and
binding for all purposes and upon all interested persons and
their respective heirs, successors, and legal
representatives.
7. LIMITATIONS.
-----------
(a) No person shall at any time have any right to
receive Performance Compensation hereunder, unless such
person shall have been designated as a Participant by the
Committee pursuant to Section 4 hereof and the other terms
and conditions of this Plan shall have been satisfied. No
person shall have authority to enter into any agreement for
the inclusion of anyone as a Participant or the awarding of
Performance Compensation hereunder or to make any
representation or warranty with respect thereto.
Designation of an Eligible Associate as a Participant in any
Performance Period shall not guarantee or require that such
Eligible Associate be designated as a Participant in any
later Performance Period.
(b) No action of the Company or the Board in
establishing this Plan, nor any action taken by the Company,
the Board or the Committee under this Plan, nor any
provision of this Plan, shall be construed as conferring
upon any associate any right to continued employment for any
period by the Company or any of its Subsidiaries, or shall
interfere in any way with the right of the Company or any
Subsidiary to terminate such employment.
8. AMENDMENT AND TERMINATION OF PLAN. The Board at
---------------------------------
any time and from time to time may modify, amend, suspend or
terminate this Plan, without notice, provided that no
amendment which requires stockholder approval in order to
comply with Section 162(m) of the Code shall be effective
unless the same shall be approved by the requisite vote of
stockholders of the Company.
9. COMPLIANCE WITH SECTION 162(m). The Plan is
--------------------------------
designed and intended to comply with Section 162(m), and all
provisions hereof shall be construed in a manner to so
comply.
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of April 11, 1997 between
ANNTAYLOR GLOBAL SOURCING, INC., a Delaware corporation (the
"Company"), and THE HONGKONG AND SHANGHAI BANKING CORPORATION
LIMITED, a foreign banking corporation acting through its New
York Branch (the "Bank").
----
The Company and the Bank are parties to an Amended and
Restated Credit Agreement dated as of September 20, 1996 (as
heretofore amended, modified and supplemented and in effect on
the date hereof, the "Credit Agreement") providing, subject to
----------------
the terms and conditions thereof, for extensions of credit (by
issuing letters of credit and making loans) to be made by the
Bank to the Company in an aggregate face or principal amount not
exceeding $40,000,000.
The Company and the Bank wish to amend the Credit
Agreement (i) to decrease the Loan Commitment to an aggregate
principal amount not exceeding $5,000,000, (ii) to amend the
calculation of the Borrowing Base, and (iii) to permit the
consignment to the Borrower of certain goods and merchandise
relating to Letters of Credit issued by the Bank under the Credit
Agreement. Accordingly the parties hereto hereby agree as
follows:
Section 1. Definitions. Terms defined in the Credit
-----------
Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction
----------
of the conditions precedent specified in Section 4 below, but
effective as of the date hereof, the Credit Agreement shall be
amended as follows:
A. References in the Credit Agreement to "this
Agreement" shall be deemed to be references to the Credit
Agreement as amended hereby.
B. The definition of "Borrowing Base" in Section 1.01
of the Credit Agreement is amended in its entirety to read as
follows:
"Borrowing Base" shall mean, as at any day of
--------------
determination thereof, the sum of (i) 80% of the
aggregate amount of Eligible Receivables at said
date plus (ii) 50% of the aggregate amount of
----
Eligible Inventory at said date, which Eligible
Inventory shall in no event exceed $4,000,000 in
the aggregate prior to such fractional reduction,
plus (iii) 50% of the aggregate face amount of all
----
undrawn Letters of Credit at said date plus (iv)
----
the undrawn face amount of the AT Credit at said
date minus (v) an amount equal to two times the
-----
average monthly commissions or processing fees (to
the extent such are included in the value of
Inventory) paid to bailees, warehousemen, terminal
operators, Processors (as defined in the
definition of "Eligible Inventory" set forth in
==================================================================
[Page 2]
this Section 1.01) or other third parties with
whom the Company has lodged Inventory during the
period of two fiscal quarters most recently ended
on or before such date.
C. The definition of "Loan Commitment" in Section
1.01 of the Credit Agreement is amended in its entirety to read
as follows:
"Loan Commitment" shall mean the obligation
----------------
of the Bank to make Loans up to an aggregate
principal amount for all Loans at any one time
outstanding up to $5,000,000.
D. Section 2.02(e) of the Credit Agreement is deleted
in its entirety.
Section 3. Representations and Warranties. The Company
--------------------------------
represents and warrants to the Bank that the representations and
warranties set forth in Section 7 of the Credit Agreement are true
and complete on the date hereof as if made on and as of the date hereof
and as if each reference in said Section 7 to "this Agreement" included
reference to this Amendment No. 1.
Section 4. Conditions Precedent. As provided in Section 2
--------------------
above, the amendments to the Credit Agreement set forth in said Section 2
shall become effective, as of the date hereof, upon the satisfaction
of the following conditions precedent:
A. Execution by all Parties. This Amendment No. 1 shall have
------------------------
been executed and delivered by each of the parties hereto.
B. Corporate Action. The Bank shall have received certified
-----------------
copies of (i) the charter and by-laws (or equivalent documentation) of
the Company and (ii) all corporate action (or its equivalent) taken by
the Company approving this Amendment No. 1, the Credit Agreement as amended
hereby and the borrowings by the Company under the Credit Agreement as
amended hereby (including, without limitation, a certificate setting forth
the resolutions of the Board of Directors of the Company adopted in
respect of the transactions contemplated hereby and thereby).
C. Incumbency. The Bank shall have received a
----------
certificate of the Company in respect of each of the officers (i)
who is authorized to sign this Amendment No. 1 on its behalf and
(ii) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other
communications in connection with this Amendment No. 1 and the
Credit Agreement as amended hereby, and the transactions
contemplated hereby and thereby (and the Bank may conclusively
rely on such certificate until it receives notice in writing from
the Company to the contrary).
D. Certain Conditions. The Bank shall have received
------------------
a certificate of the president or a vice president of the Company
to the effect that (i) the Company has complied and is then in
======================================================================
[Page 3]
compliance with all of the terms, conditions and covenants of the
Credit Agreement, (ii) no Default or Event of Default has
occurred thereunder, (iii) the representations and warranties of
the Company contained in the Credit Agreement are true in all
respects as if such representations and warranties had been made
on the date hereof, and (iv) there shall have been no material
adverse change in the financial condition, business, operations
or property of the Company since December 31, 1996.
E. Opinion of Counsel to the Company. The Bank shall
---------------------------------
have received an opinion of counsel to the Company, substantially
in the form of Exhibit A hereto.
F. Other Documents. The Bank shall have received
----------------
such other documents as the Bank or its counsel may reasonably
request.
Section 5. Miscellaneous. THIS AMENDMENT NO. 1 SHALL BE
-------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK. Except as herein provided, the Credit Agreement shall remain
unchanged and in full force and effect. This Amendment No. 1 may
be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the
parties hereto may execute this Amendment No. 1 by signing any such
counterpart.
---------------------------------------
==============================================================================
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 1 to be duly executed as of the day and year first
above written.
ANNTAYLOR GLOBAL SOURCING, INC.
By /s/James M. Smith
------------------------------
Name: James M. Smith
Title:Vice President
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED,
NEW YORK BRANCH
By /s/AD Collins
--------------------------------
Name: AD Collins
Title:SVP
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of July 29, 1997 between
ANNTAYLOR GLOBAL SOURCING, INC., a Delaware corporation (the
"Company"), and THE HONGKONG AND SHANGHAI BANKING CORPORATION
-------
LIMITED, a foreign banking corporation acting through its New
York Branch (the "Bank").
----
The Company and the Bank are parties to an Amended and
Restated Credit Agreement dated as of September 20, 1996 (as
heretofore amended, modified and supplemented and in effect on
the date hereof, the ("Credit Agreement") providing, subject to
-----------------
the terms and conditions thereof, for extensions of credit (by
issuing letters of credit and making loans) to be made by the
Bank to the Company in an aggregate face or principal amount not
exceeding $40,000,000.
The Company and the Bank wish to increase the Letter of
Credit Commitment to an aggregate face amount not exceeding
$50,000,000, and to amend the Credit Agreement in certain other
respects, and accordingly, the parties hereto hereby agree as
follows:
Section 1. Definitions. Terms defined in the
-----------
Credit Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the
----------
satisfaction of the conditions precedent specified in Section 4
below, but effective as of the date hereof, the Credit Agreement
shall be amended as follows:
A. References in the Credit Agreement to "this
Agreement" shall be deemed to be references to the Credit
Agreement as amended hereby.
B. The definition of "Letter of Credit Commitment" in
Section 1.01 of the Credit Agreement is amended in its entirety
to read as follows:
"Letter of Credit Commitment" shall mean the
---------------------------
obligation of the Bank to issue Letters of Credit
up to an aggregate face amount for all Letters of
Credit at any one time outstanding up to
$50,000,000.
C. The definition of "Termination Date" in Section
1.01 of the Credit Agreement is amended in its entirety to read
as follows:
"Termination Date" shall mean January 30,
------------------
1998, unless otherwise extended to a later date by
the Bank pursuant to Section 2.06 hereof.
D. The definition of "Total Facility" in Section 1.01
of the Credit Agreement is amended in its entirety to read as
follows:
"Total Facility" shall mean, as to all
---------------
Credits hereunder, the aggregate face or principal
amount of $50,000,000.
=====================================================================
Page 2
E. Section 2.04(a)(ii) of the Credit Agreement is
amended to read in its entirety as follows:
The Company shall pay to the Bank a
commitment fee at a rate per annum equal to 0.125%
of the daily average Available Facility for the
period from and including the date hereof to and
including the date the Commitments expire or are
terminated.
F. Section 8.01(c) of the Credit Agreement is amended
to read in its entirety as follows:
As soon as available and in any event within
ten (10) days after the end of each month of each
fiscal year of the Company, an updated aged
accounts receivable schedule and inventory
schedule, which schedules shall be in form and
substance satisfactory to the Bank and certified
by the executive vice president, the senior vice
president - finance or the vice-president/controller
of the Company.
G. Section 8.01(d) of the Credit Agreement is amended
to read in its entirety as follows:
As soon as available and in any event within
ten (10) days after the end of each month of each
fiscal year of the Company, an updated Borrowing
Base Certificate, which certificate shall be in
form and substance satisfactory to the Bank and
certified by the executive vice president, the
senior vice president - finance or the vice
president/controller of the Company.
H. Section 8.10 of the Credit Agreement is deleted in
its entirety.
I. Section 8.11 of the Credit Agreement is deleted in
its entirety.
J. Section 8.12 of the Credit Agreement is deleted in
its entirety.
K. Section 8.14 of the Credit Agreement is amended to
read in its entirety as follows:
Without the prior written consent of the
Bank, the Company shall not engage to any
substantial extent in any line or lines of
business activity other than the business of
purchase and wholesale distribution of apparel,
shoes and accessories with respect to AT, ATSC and
their respective Affiliates.
L. Section 8.21 of the Credit Agreement is amended to
read in its entirety as follows:
Operating Account. Other than in connection
------------------
with its trade payable disbursements and payroll
operations, the Company shall maintain all of its
principal bank accounts with the Bank.
========================================================================
Page 3
Section 3. Representations and Warranties.
--------------------------------
The Company represents and warrants to the Bank that the
representations and warranties set forth in Section 7 of the
Credit Agreement are true and complete on the date hereof as if
made on and as of the date hereof and as if each reference in
said Section 7 to "this Agreement" included reference to this
Amendment No. 2.
Section 4. Conditions Precedent. As provided
--------------------
in Section 2 above, the amendments to the Credit Agreement set
forth in said Section 2 shall become effective, as of the date
hereof, upon the satisfaction of the following conditions
precedent:
A. Execution by all Parties. This Amendment No. 2
------------------------
shall have been executed and delivered by each of the parties
hereto.
B. Initial Commitment Fee. Evidence that the Company
-----------------------
shall have paid to the Bank the commitment fee set forth in that
certain Commitment Letter dated July 17, 1997 relating to this
Amendment No. 2.
C. AT Credit. Evidence that the expiry date of the
---------
AT Credit shall have been extended to a date no earlier than
January 30, 1998.
D. Corporate Action. The Bank shall have received
-----------------
certified copies of (i) the charter and by-laws (or equivalent
documentation) of the Company and (ii) all corporate action (or
its equivalent) taken by the Company approving this Amendment No.
2, the Credit Agreement as amended hereby and the borrowings by
the Company under the Credit Agreement as amended hereby
(including, without limitation, a certificate setting forth the
resolutions of the Board of Directors of the Company adopted in
respect of the transactions contemplated hereby and thereby).
E. Incumbency. The Bank shall have received a
----------
certificate of the Company in respect of each of the officers (i)
who is authorized to sign this Amendment No. 2 on its behalf and
(ii) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other
communications in connection with this Amendment No. 2 and the
Credit Agreement as amended hereby, and the transactions
contemplated hereby and thereby (and the Bank may conclusively
rely on such certificate until it receives notice in writing from
the Company to the contrary).
F. Certain Conditions. The Bank shall have received
------------------
a certificate of the president or a vice president of the Company
to the effect that (i) the Company has complied and is then in
compliance with all of the terms, conditions and covenants of the
Credit Agreement, (ii) no Default or Event of Default has
occurred thereunder, (iii) the representations and warranties of
the Company contained in the Credit Agreement are true in all
respects as if such representations and warranties had been made
on the date hereof, and (iv) there shall have been no material
adverse change in the financial condition, business, operations
or property of the Company since December 31, 1996.
G. Opinion of Counsel to the Company. The Bank shall
---------------------------------
have received an opinion of counsel to the Company, substantially
in the form of Exhibit A hereto.
=====================================================================
Page 4
H. Other Documents. The Bank shall have received
----------------
such other documents as the Bank or its counsel may reasonably
request.
Section 5. Miscellaneous. THIS AMENDMENT NO.
-------------
2 SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect.
This Amendment No. 2 may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same amendatory instrument and any of the parties hereto
may execute this Amendment No. 2 by signing any such counterpart.
---------------------------
=====================================================================
Page 5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 2 to be duly executed as of the day and year first
above written.
ANNTAYLOR GLOBAL SOURCING, INC.
By: /s/ Walter J. Parks
-------------------------
Name: Walte J. Parks
Title: Senior Vice President
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED,
NEW YORK BRANCH
By /s/ Adriana D. Collins
-------------------------
Name: Adriana D. Collins
Title: Assistant Vice President
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<CIK> 0000874214
<NAME> ANNTAYLOR STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
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0
0
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