'UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 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 May 30, 1997
------------------------------ ------------------
Common Stock, $.0068 par value 25,618,553
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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 Ended May 3, 1997
and May 4, 1996...................................... 3
Condensed Consolidated Balance Sheets at
May 3, 1997 and February 1, 1997..................... 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended May 3, 1997 and
May 4, 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.................... 12
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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 Ended May 3, 1997 and May 4, 1996
(unaudited)
Quarters Ended
--------------------------
May 3, 1997 May 4, 1996
(in thousands, except per
share amounts)
Net sales...................................... $197,064 $184,467
Cost of sales.................................. 98,428 101,313
------- -------
Gross profit................................... 98,636 83,154
Selling, general and administrative expenses... 76,637 70,254
Amortization of goodwill....................... 2,760 2,377
------- -------
Operating income............................... 19,239 10,523
Interest expense............................... 5,546 6,121
Other expense (income), net.................... 250 (131)
------- -------
Income before income taxes..................... 13,443 4,533
Income tax provision........................... 6,968 2,721
------- -------
Net income................................... $ 6,475 $ 1,812
======= =======
Net income per share of common stock......... $ .25 $ .08
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
May 3, 1997 and February 1, 1997
May 3, 1997 February 1,1997
----------- ---------------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash and cash equivalents....................... $ 30,990 $ 7,025
Accounts receivable, net........................ 63,388 63,605
Merchandise inventories......................... 97,562 100,237
Prepaid expenses and other current assets....... 25,236 25,653
------- -------
Total current assets.......................... 217,176 196,520
Property and equipment
Land and building............................... 8,603 8,603
Leasehold improvements.......................... 77,243 76,576
Furniture and fixtures.......................... 122,215 120,595
Construction in progress........................ 7,683 3,307
------- -------
215,744 209,081
Less accumulated depreciation and
amortization................................ 72,545 65,648
------- -------
Net property and equipment.................... 143,199 143,433
Goodwill, net...................................... 339,019 341,779
Deferred financing costs, net...................... 2,351 2,743
Other assets....................................... 3,553 3,664
------- -------
Total assets.................................. $705,298 $688,139
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................ $ 33,102 $ 34,341
Accrued tenancy and income taxes................ 19,212 13,233
Accrued expenses................................ 34,632 29,809
Current portion of long-term debt............... 618 287
------- -------
Total current liabilities..................... 87,564 77,670
Long-term debt..................................... 130,504 130,905
Deferred income taxes.............................. 4,872 4,872
Other liabilities.................................. 8,454 7,952
Commitments and contingencies
Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities of
AnnTaylor Finance Trust Holding Solely
Convertible Debentures............................ 96,216 96,158
Stockholders' equity
Common stock, $.0068 par value; 40,000,000
shares authorized; 25,625,154 and 25,598,489
shares issued, respectively...................... 174 174
Additional paid-in capital....................... 350,112 349,545
Warrants to acquire 2,814 shares of
common stock................................... 46 46
Retained earnings................................ 29,030 22,613
Deferred compensation on restricted stock........ (1,468) (1,590)
------- -------
377,894 370,788
Less treasury stock, 11,601 shares, at cost...... (206) (206)
------- -------
Total stockholders' equity.................. 377,688 370,582
------- -------
Total liabilities and stockholders'
equity.................................... $705,298 $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 Quarters Ended May 3, 1997 and May 4, 1996
(unaudited)
Quarters Ended
------------------
May 3, May 4,
1997 1996
-------- ---------
(in thousands)
Operating activities:
Net income........................................... $ 6,475 $ 1,812
Adjustments to reconcile net income..................
to net cash provided by operating
activities:
Equity earnings in CAT............................. --- (312)
Provision for loss on accounts receivable.......... 409 360
Depreciation and amortization...................... 6,965 6,002
Amortization of goodwill........................... 2,760 2,377
Amortization of deferred financing costs........... 391 389
Amortization of deferred compensation.............. 263 8
Loss on disposal of property and equipment......... --- 81
(Increase) decrease in:
Receivables...................................... (192) (2,580)
Merchandise inventories.......................... 2,675 4,500
Prepaid expenses and other current assets........ 417 476
Increase (decrease) in:
Accounts payable................................. (1,239) (2,701)
Accrued liabilities.............................. 10,573 2,434
Other non-current assets and liabilities, net.... 612 254
------- -------
Net cash provided by operating activities............ 30,109 13,100
Investing activities:
Purchases of property and equipment.................. (6,500) (2,391)
------- -------
Net cash used by investing activities................ (6,500) (2,391)
Financing activities:
Repayments under revolving credit agreement.......... --- (90,000)
Payments on mortgage................................. (70) (65)
Net proceeds from issuance of preferred securities... --- 83,350
Exercise of stock options............................ 426 44
Net repayments under receivables facility............ --- (4,000)
Payment of financing costs........................... --- (25)
------- -------
Net cash (used by) provided by financing activities.. 356 (10,696)
------- -------
Net increase in cash.................................. 23,965 13
Cash and cash equivalents, beginning of period........ 7,025 1,283
------- -------
Cash and cash equivalents, end of period.............. $ 30,990 $ 1,296
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest............. $ 2,932 $ 3,357
======= =======
Cash paid during the period for income taxes......... $ 1,073 $ 116
======= =======
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 quarters
ended May 3, 1997 and May 4, 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:
Quarter Ended
-------------------------
May 3, 1997 May 4, 1996
----------- ------------
(in thousands)
Common shares........................... 25,600 23,086
Warrants................................ 3 36
Stock options........................... 167 98
------ ------
25,770 23,220
====== ======
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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 ended May 3, 1997 as
there is no dilutive effect of the assumed conversion.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 specifies the computation, presentation
and disclosure requirements for basic and diluted earnings per
share. 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 May 3,
1997:
(in thousands)
Term Loan.......................... $ 24,500
8-3/4% Notes....................... 100,000
Mortgage........................... 6,622
-------
Total debt...................... 131,122
Less current portion............... 618
-------
Total long-term debt............ $130,504
=======
4. Supplementary Data
------------------
The following unaudited pro forma condensed consolidated
operating data for the quarter ended May 4, 1996 has been
presented to reflect the acquisition of the Company's sourcing
subsidiary, that was consummated in September 1996 (the "Sourcing
Acquisition"), as if it had occurred at the beginning of such
period:
Quarter Ended
-----------------
May 4, 1996
-----------------
Actual Proforma
------ --------
(in thousands, except
per share amounts)
Sales........................ $184,467 $184,467
Net income................... 1,812 2,976
Net income per share......... .08 .12
Weighed average shares
outstanding................ 23,220 25,568
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
period presented or of results which may occur in the future.
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<PAGE> 8
Item 2. Management's Discussion and Analysis of Operations
- - ----------------------------------------------------------
Results of Operations
Quarters Ended
-------------------------
May 3, 1997 May 4, 1996
----------- -----------
Number of Stores:
Open at beginning of period.............. 309 306
Opened during period..................... 2 4
Expanded during period*.................. --- ---
Closed during period..................... --- 3
Open at end of period.................... 311 307
Type of Stores Open at End of Period:
Ann Taylor Stores..................... 261 258
Ann Taylor Factory Stores............. 10 9
Ann Taylor Loft stores................ 31 31
Ann Taylor Studio stores.............. 9 9
-------------
* Expanded stores are excluded from comparable store sales for
the first year following expansion.
Quarter Ended May 3, 1997 Compared to Quarter Ended May 4, 1996
- - ---------------------------------------------------------------
The Company's net sales in the first quarter of 1997 increased
to $197,064,000 from $184,467,000 in the first quarter of 1996,
an increase of $12,597,000 or 6.8%. The increase in net sales
was attributable to the opening of new stores and the expansion
of existing stores as well as a 4.4% increase in comparable store
sales. Management believes that the increase in comparable store
sales was due primarily to positive customer reaction to the
Company's Spring 1997 merchandise offerings.
Gross profit as a percentage of net sales increased to 50.1%
in the first quarter of 1997 from 45.1% in the first quarter of
1996. This increase was attributable to decreased cost of goods
sold resulting from higher initial markups, and lower markdowns
associated with decreased promotional activities.
Selling, general and administrative expenses represented 38.9%
of net sales in the first quarter of 1997, compared to 38.1% of
net sales in the first quarter of 1996.
As a result of the foregoing, the Company had operating income
of $19,239,000, or 9.8% of net sales, in the first quarter of
1997, compared to operating income of $10,523,000, or 5.7% of net
sales, in the first quarter of 1996. Amortization of goodwill
was $2,760,000 in the first quarter of 1997 and $2,377,000 in the
first quarter of 1996. Operating income, without giving effect
to goodwill amortization in either year, was $21,999,000, or
========================================================================
<PAGE> 9
11.2% of net sales, in the 1997 period and $12,900,000, or 7.0%
of net sales, in the 1996 period.
Interest expense was $5,546,000 in the first quarter of 1997
and $6,121,000 in the first quarter of 1996. The decrease in
interest expense is attributable to reduced outstanding
indebtedness in the first quarter of 1997 compared to the first
quarter of 1996.
The income tax provision was $6,968,000, or 51.8% of income
before income taxes, in the first quarter of 1997 compared to
$2,721,000, or 60.0% of income before income taxes, in the first
quarter of 1996. The effective income tax rate for both periods
differed from the statutory rate primarily because of non-
deductible goodwill amortization.
As a result of the foregoing factors, the Company had net
income of $6,475,000, or 3.3% of net sales, for the first quarter
of 1997 compared to net income of $1,812,000, or 1.0% of net
sales, for the first quarter of 1996.
AnnTaylor Stores Corporation conducts no business other than
the management of Ann Taylor.
Financial Condition
For the first quarter of 1997, net cash provided by operating
activities totaled $30,109,000, primarily as a result of net
income, non-cash operating expenses and an increase in current
liabilities. Cash used for investing activities during the first
quarter of 1997 amounted to $6,500,000, for the purchase of
property and equipment. Cash provided by financing activities
during the first quarter of 1997 amounted to $356,000, primarily
as a result of the receipt of proceeds from the exercise of
employee stock options, offset by payments on the mortgage loan.
Merchandise inventories were $97,562,000 at May 3, 1997,
compared to inventories of $100,237,000 at February 1, 1997.
Total square footage increased to 1,715,000 square feet at May 3,
1997 from 1,705,000 square feet at February 1, 1997.
At May 3, 1997, there were no borrowings outstanding under Ann
Taylor's revolving credit facility or under 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 May 3, 1997, commercial and standby letters of credit under
AnnTaylor Global Sourcing, Inc.'s $40,000,000 credit facility
totaled $29,015,000 and there were no borrowings outstanding
under that facility. This facility, which matures on July 29,
1997, is available principally for the issuance of letters of
credit; cash borrowings under the facility are limited to a
========================================================================
<PAGE> 10
maximum of $8,000,000. The Company expects to negotiate an
extension of the maturity of this facility in 1997. No assurance
can be given that the Company will be able to negotiate such an
extension on acceptable terms. 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 $6,500,000 in the first quarter
of 1997. The Company expects to open a total of 26 new Ann
Taylor Stores and to expand 11 existing Ann Taylor Stores in
fiscal 1997. Total capital expenditures for 1997 are expected to
be approximately $27,000,000.
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 Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 specifies the computation, presentation
and disclosure requirements for basic and diluted earnings per
share. The Company has determined that this statement will have
no material effect on the Company's reported earnings per share.
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
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<PAGE> 11
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> 12
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
========================================================================
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AnnTaylor Stores Corporation
Date: June 16, 1997 By: /s/ J. Patrick Spainhour
------------------- --------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: June 16, 1997 By: /s/ Walter J. Parks
-------------------- ---------------------------
Walter J. Parks
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statements of operations and condensed consolidated
balance sheets and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000874214
<NAME> ANNTAYLOR STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 30,990
<SECURITIES> 0
<RECEIVABLES> 64,174
<ALLOWANCES> 786
<INVENTORY> 97,562
<CURRENT-ASSETS> 217,176
<PP&E> 215,744
<DEPRECIATION> 72,545
<TOTAL-ASSETS> 705,298
<CURRENT-LIABILITIES> 87,564
<BONDS> 100,000
0
0
<COMMON> 174
<OTHER-SE> 377,514
<TOTAL-LIABILITY-AND-EQUITY> 705,298
<SALES> 197,064
<TOTAL-REVENUES> 197,064
<CGS> 98,428
<TOTAL-COSTS> 98,428
<OTHER-EXPENSES> 79,647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,546
<INCOME-PRETAX> 13,443
<INCOME-TAX> 6,968
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,475
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
