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 1-10738
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 November 28, 1997
------------------------------ -----------------
Common Stock, $.0068 par value 25,640,451
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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...... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 15
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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 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 except per share amounts)
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
======= ======= ======= =======
Net income per share of common stock:
Income per share before
extraordinary loss................$ 0.08 $ 0.13 $ 0.38 $ 0.24
Extraordinary loss per share........ --- --- (0.01) ---
------- ------- ------- -------
Net income per share.............$ 0.08 $ 0.13 $ 0.37 $ 0.24
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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[PAGE 4]
ANNTAYLOR STORES CORPORATION
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 STOCKHOLDERS' 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
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of AnnTaylor Finance Trust
Holding Solely Convertible Debentures............ 96,333 96,158
Stockholders' equity
Common stock, $.0068 par value; 40,000,000
shares authorized; 25,652,590 and 25,598,489
shares issued, respectively...................... 174 174
Additional paid-in capital......................... 350,567 349,545
Warrants to acquire 2,814 shares of
common stock..................................... 46 46
Retained earnings.................................. 31,910 22,613
Deferred compensation on restricted stock.......... (934) (1,590)
------- -------
381,763 370,788
Less treasury stock, 12,139 and 11,601 shares,
respectively, at cost............................ (216) (206)
------- -------
Total stockholders' equity.................... 381,547 370,582
------- -------
Total liabilities and stockholders' equity.... $692,139 $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 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)
Net proceeds from issuance of Preferred Securities.... --- 95,985
Exercise of stock options............................. 871 215
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 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 (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 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 Nine Months Ended
----------------- -----------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
-------- ------- ------- -------
(in thousands)
Common shares............ 25,639 24,229 25,624 23,470
Warrants................. 3 17 3 28
Stock options............ 73 88 119 99
------ ------ ------ ------
25,715 24,334 25,746 23,597
====== ====== ====== ======
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[PAGE 7]
2. Income Per Share (continued)
----------------------------
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 nine months ended
November 1, 1997 or November 2, 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
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, 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. On November
19, 1997, the maturity date of the facility was extended to July
29, 1998.
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[PAGE 8]
4. 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, except per share amounts)
Sales..................... $212,670 $212,670 $584,999 $584,999
Net income................ $ 3,262 $ 3,863 $ 5,701 $ 8,629
Net income per share...... $ 0.13 $ 0.15 $ 0.24 $ 0.34
Weighed average shares
outstanding............. 24,334 25,547 23,597 25,567
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 Nine Months Ended
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
------- ------- ------- -------
Number of Stores:
Open at beginning of period...... 310 306 309 306
Opened during period.............. 15 4 24 9
Expanded during period*........... 7 6 8 7
Closed during period.............. 1 1 9 6
Open at end of period............. 324 309 324 309
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.
Quarter Ended November 1, 1997 Compared to Quarter Ended November 2, 1996
- -------------------------------------------------------------------------
The Company's net sales in the third quarter of 1997 decreased
to $187,200,000 from $212,670,000 in the third quarter of 1996, a
decrease of $25,470,000 or 12.0%. Management believes that the
decrease in net sales was principally attributable to lower
customer acceptance of certain of the Company's third quarter
merchandise offerings and, to a lesser extent, a planned
reduction in promotional inventories at the beginning of the
quarter compared to last year. Comparable store sales for the
third quarter of 1997 decreased 15.9% compared to the third
quarter of 1996, due principally to the same factors. On a per
square foot basis, inventories were 19.6% lower at the end of the
third quarter of 1997 than at the end of the third quarter of
1996, excluding inventories associated with AnnTaylor Global
Sourcing.
Gross profit as a percentage of net sales increased to 49.5%
in the third quarter of 1997 from 45.7% in the third quarter of
1996. This increase was primarily attributable to increased
initial markups resulting from the Sourcing Acquisition,
partially offset by increased markdowns as a percentage of net
sales.
Selling, general and administrative expenses were $78,669,000,
or 42.0% of net sales, in the third quarter of 1997, compared to
$75,838,000, or 35.7% of net sales, in the third quarter of 1996.
The increase in operating expense was primarily attributable to
increased tenancy expense related to increased retail square
footage and investment in certain strategic initiatives, such as
marketing and enhanced merchandising information systems. 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 lower sales.
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[PAGE 10]
As a result of the foregoing, the Company had operating income
of $11,303,000, or 6.0% of net sales, in the third quarter of
1997, compared to operating income of $15,174,000, or 7.1% of net
sales, in the third quarter of 1996. Operating income for the
third quarter 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 $2,760,000 in the third quarter of 1997 and
$2,578,000 in the third quarter of 1996. Operating income,
without giving effect to goodwill amortization in either year,
was $14,063,000, or 7.5% of net sales, in the 1997 period and
$17,752,000, or 8.3% of net sales, in the 1996 period.
Interest expense was $4,958,000 in the third quarter of 1997
and $6,345,000 in the third quarter of 1996. The decrease in
interest expense is attributable to reduced outstanding
indebtedness in the third quarter of 1997 compared to the third
quarter of 1996.
The income tax provision was $3,818,000, or 63.6% of income
before income taxes, in the third quarter of 1997 compared to
$4,669,000, or 58.9% of income before income taxes, in the third
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 $2,185,000, or 1.2% of net sales, for the third quarter
of 1997 compared to net income of $3,262,000, or 1.5% of net
sales, for the third quarter of 1996.
AnnTaylor Stores Corporation conducts no business other than
the management of Ann Taylor.
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.
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[PAGE 11]
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
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, described above. 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 $0.01 per share.
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 12]
Financial Condition
- -------------------
For the first nine months of 1997, net cash provided by
operating activities totaled $44,406,000, primarily as a result
of net income and non-cash operating expenses. Cash used by
investing activities during the first nine months of 1997
amounted to $20,220,000, for the purchase of property and
equipment. Cash used for financing activities during the first
nine months of 1997 amounted to $24,095,000, primarily
attributable to funds used for repayment of the term loan.
Accounts receivable increased to $66,662,000 at November 1,
1997 from $63,605,000 at February 1, 1997, an increase of
$3,057,000 or 4.8%. This increase is primarily attributable to
an increase in construction allowance receivables outstanding of
$3,470,000.
Accounts payable increased to $43,921,000 at November 1, 1997
from $34,341,000 at February 1, 1997, an increase of $9,580,000
or 27.9%, primarily due to an increase in inventory and timing
of payments.
Merchandise inventories were $114,377,000 at November 1, 1997,
compared to inventories of $100,237,000 at February 1, 1997.
Total square footage increased to 1,804,000 square feet at
November 1, 1997 from 1,705,000 square feet at February 1, 1997.
On a per square foot basis, merchandise inventories were 19.6%
lower at the end of the third quarter of 1997 than at the end of
the third quarter of 1996, excluding inventories associated with
AnnTaylor Global Sourcing.
At November 1, 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. There
were no borrowings outstanding under AnnTaylor Global Sourcing,
Inc.'s $50,000,000 credit facility, which is available
principally for the issuance of letters of credit; cash
borrowings under the facility are limited to a maximum of
$5,000,000. The maturity date of this facility was extended to
July 29, 1998. In addition, the Company has outstanding an
aggregate of $100,625,000 of convertible trust originated
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 $20,220,000 for the nine months
ended November 1, 1997. The Company expects to open a total of
27 new Ann Taylor Stores and to expand a total of 9 existing Ann
Taylor Stores in fiscal 1997. Total capital expenditures for
1997 are expected to be approximately $23,000,000.
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[PAGE 13]
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 Company has been in the process of conducting a comprehensive
review of its computer systems to identify those that could be
adversely affected by the "Year 2000 issue" and is developing an
implementation plan to resolve the issue. The "Year 2000 issue"
refers to the inability of many computer systems to process
accurately dates later than December 31, 1999. Date codes in
many programs are abbreviated to allow only two digits for the
year, e.g. "97" for the year 1997. Unless these programs are
modified to handle the century date change, they will likely
interpret the year "00", that is, the year 2000, as the year
1900. The Year 2000 issue creates risk for the Company from
unforeseen problems in its own computer systems as well as in
computer systems of third parties with whom the Company does
business worldwide, including banks and credit card processing
entities, factories and others. The Company presently believes
that, with modifications to existing software and conversions to
new software that the Company plans to implement over the next
two years, the Year 2000 issue will not pose significant
operational problems for the Company's own computer systems as so
modified and converted. However, if such modifications and
conversions are not completed timely, the Year 2000 issue may
have a material adverse impact on the operations of the Company.
In addition, the Company cannot give assurance that the third
parties with whom it does business will address any Year 2000
issues in their own systems on a timely basis; their failure to do
so could also have a material adverse impact on the Company.
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.
===================================================================
[PAGE 14]
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.
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, failure by the Company to predict
accurately customer fashion preferences; failure to provide an
appropriate balance of merchandise offerings; a decline in the
demand for merchandise offered by the Company; competitive
influences; levels of store traffic; effectiveness of the
Company's brand awareness and marketing programs; 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. The Company assumes no obligation to update any such
forward-looking statements.
===================================================================
[PAGE 15]
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits:
10.25.6 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.
(b) Reports on Form 8-K:
None
========================================================================
[PAGE 16]
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: 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
================================================================
AMENDMENT #3
------------
HSBC Corporate Banking
The Hongkong and Shanghai Banking Corporation Limited
New York Branch: 140 Broadway, New York, NY 10005-1196
November 19, 1997
Mr. James M. Smith
Vice President and Controller
AnnTaylor Inc.
414 Chapel Street
New Haven, CT 06511
Dear Mr. Smith:
Reference is hereby made to that certain Amended and Restated Credit Agreement
dated as of September 20, 1996 between AnnTaylor Global Sourcing, Inc. and
The Hongkong and Shanghai Banking Corporation Limited (as heretofore amended,
supplemented or otherwise modified and in effect on the date hereof, the
"Credit Agreement"). All capitalized terms used in this letter have the
----------------
respective meanings set forth in the Credit Agreement.
The Termination Date relating to the Credit Agreement is presently
January 30, 1998. In response to your letter dated November 14, 1997
and in accordance with Section 2.06 of the Credit Agreement, we are
pleased to inform you that the Termination Date shall be extended to
July 29, 1998; provided, however the Company shall deliver to the Bank
-----------------
prior to January 29, 1998 evidence that the expiry date of the
AT Credit shall have been extended to a date no earlier than
July 29, 1998. Failure to deliver such evidence relating to the
AT Credit, satisfactory in form and substance to the Bank, by such date
shall render this letter of extension null and void.
We look forward to continuing to serve the trade finance needs of
AnnTaylor. Should you have any questions regarding the above, please do
not hesitate to contact the undersigned at (212) 658-5115.
Very truly yours,
/s/ Adriana D. Collins
----------------------
Adriana D. Collins
Assistant Vice President
Acknowledged by and Agreed to:
AnnTaylor Global Sourcing, Inc.
By: /s/ James Smith
----------------------------
Name: James Smith
Title:
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