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 2, 1998
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 or 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 29, 1998
--------------------------- ------------------
Common Stock, $.0068 par value 25,643,555
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<PAGE 2>
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 2, 1998
and May 3, 1997....................................... 3
Condensed Consolidated Balance Sheets at
May 2, 1998 and January 31, 1998...................... 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended May 2, 1998 and
May 3, 1997........................................... 5
Notes to Condensed Consolidated Financial Statements.... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 14
Item 5. Other Information.................................... 14
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 Ended May 2, 1998 and May 3, 1997
(unaudited)
Quarters Ended
------------------------
May 2, 1998 May 3, 1997
----------- -----------
(in thousands, except
per share amounts)
Net sales....................................... $198,170 $197,064
Cost of sales................................... 96,836 98,428
------- -------
Gross profit.................................... 101,334 98,636
Selling, general and administrative expenses.... 81,129 76,637
Amortization of goodwill........................ 2,760 2,760
------- -------
Operating income................................ 17,445 19,239
Interest expense................................ 4,727 5,546
Other expense, net.............................. 180 250
------- -------
Income before income taxes...................... 12,538 13,443
Income tax provision............................ 6,119 6,968
------- -------
Net income.................................... $ 6,419 $ 6,475
======= =======
Basic and diluted earnings per share............ $ 0.25 $ 0.25
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE 4>
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
May 2, 1998 and January 31, 1998
May 2, 1998 Jan. 31,1998
----------- ------------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash and cash equivalents....................... $ 36,706 $ 31,369
Accounts receivable, net........................ 65,597 60,211
Merchandise inventories......................... 110,188 97,234
Prepaid expenses and other current assets....... 20,918 21,291
------- -------
Total current assets.......................... 233,409 210,105
Property and equipment, net........................ 140,251 139,610
Goodwill, net...................................... 327,979 330,739
Deferred financing costs, net...................... 972 1,258
Other assets....................................... 1,920 1,949
------- -------
Total assets.................................. $704,531 $683,661
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................ $ 46,531 $ 38,185
Accrued tenancy................................. 6,815 6,727
Accrued expenses................................ 47,637 41,893
Current portion of long-term debt............... 1,148 1,119
------- -------
Total current liabilities..................... 102,131 87,924
Long-term debt..................................... 104,856 105,157
Other liabilities.................................. 10,513 10,082
Commitments and contingencies
Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities
of Subsidiary, AnnTaylor Finance Trust,
Holding Solely Convertible Debentures........... 96,449 96,391
Stockholders' equity
Common stock, $.0068 par value;
40,000,000 shares authorized;
25,657,590 shares issued........................ 174 174
Additional paid-in capital....................... 350,647 350,647
Warrants to acquire 2,814 shares
of common stock................................ 46 46
Retained earnings................................ 40,565 34,204
Deferred compensation on restricted stock........ (604) (737)
------- -------
390,828 384,334
Treasury stock, 14,035 and
12,659 shares, respectively,
at cost....................................... (246) (227)
------- -------
Total stockholders' equity..................... 390,582 384,107
------- -------
Total liabilities and stockholders' equity..... $704,531 $683,661
======= =======
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 2, 1998 and May 3, 1997
(unaudited)
Quarters Ended
------------------------
May 2, 1998 May 3, 1997
----------- -----------
(in thousands)
Operating activities:
Net income............................................ $ 6,419 $ 6,475
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loss on accounts receivable........... 331 409
Depreciation and amortization....................... 7,053 6,965
Amortization of goodwill............................ 2,760 2,760
Non-cash interest................................... 286 391
Amortization of deferred compensation............... 133 263
Loss on disposal of property and equipment.......... 201 ---
(Increase) decrease in:
Receivables....................................... (5,717) (192)
Merchandise inventories........................... (12,954) 2,675
Prepaid expenses and other current assets......... 373 417
Increase (decrease) in:
Accounts payable.................................. 8,346 (1,239)
Accrued liabilities............................... 5,832 10,573
Other non-current assets and liabilities, net..... 456 612
------- -------
Net cash provided by operating activities............. 13,519 30,109
Investing activities:
Purchases of property and equipment................... (7,891) (6,500)
------- -------
Net cash used by investing activities................. (7,891) (6,500)
Financing activities:
Payments on mortgage.................................. (272) (70)
Proceeds from exercise of stock options............... --- 426
Repurchase of restricted stock........................ (19) ---
------- -------
Net cash (used by) provided by financing activities... (291) 356
------- -------
Net increase in cash................................... 5,337 23,965
Cash and cash equivalents, beginning of period......... 31,369 7,025
------- -------
Cash and cash equivalents, end of period............... $ 36,706 $ 30,990
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest.............. $ 2,389 $ 2,932
======= =======
Cash paid during the period for income taxes.......... $ 2,920 $ 1,073
======= =======
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 1998 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The January 31, 1998 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor Stores Corporation ("the
Company").
Certain fiscal 1997 amounts have been reclassified to conform
to the 1998 presentation.
Detailed footnote information is not included for the quarters
ended May 2, 1998 and May 3, 1997. 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 1997 Annual Report to Stockholders.
2. Net Income Per Share
--------------------
In Fiscal 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128") which specifies the computation, presentation and
disclosure requirements for basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income by
the weighted average number of common shares outstanding during
the period. Diluted earnings per share includes the addition of
potential common shares issued assuming the conversion of all
outstanding warrants and stock options, as follows:
Quarters Ended
---------------------------------------------
May 2, 1998 May 3, 1997
-------------------- ---------------------
(in thousands, except per share amounts)
Per Per
Share Share
Income Shares Amount Income Shares Amount
------- ------ ------ ------- ------ ------
Basic Earnings per Share
- - - ------------------------
Income available to
common stockholders.......... $ 6,419 25,644 $0.25 $ 6,475 25,600 $0.25
Effect of Dilutive Securities
- - - -----------------------------
Warrants....................... --- 3 --- --- 3 ---
Stock Options.................. --- 36 --- --- 95 ---
------ ------ ---- ------ ------ ----
Diluted Earnings per Share
- - - --------------------------
Income available to common
stockholders................. $ 6,419 25,683 $0.25 $ 6,475 25,698 $0.25
====== ====== ==== ====== ====== ====
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<PAGE 7>
ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Conversion of the preferred securities into common stock is
not included in the computation of diluted earnings per share for
the quarters ended May 2, 1998 and May 3, 1997 due to the
antidilutive effect of the conversion.
3. Long-Term Debt
--------------
The following summarizes long-term debt outstanding at May 2,
1998:
(in thousands)
8-3/4% Notes......................... $100,000
Mortgage............................. 6,004
-------
Total debt........................ 106,004
Less current portion................. 1,148
-------
Total long-term debt.............. $104,856
=======
On May 7, 1998, AnnTaylor, Inc. ("Ann Taylor") signed a
commitment for a new $150,000,000 senior secured revolving credit
facility (the "New Facility"). This New Facility will replace
the $122,000,000 credit facility scheduled to expire in July, and
will also result in the termination of the $50,000,000 credit
facility maintained by the Company's sourcing division and the
non-renewal of the $40,000,000 accounts receivable financing
facility.
The New Facility will have a term of two years, and will
include an automatic one-year extension, contingent upon the
satisfaction of certain conditions. The New Facility will be
used by Ann Taylor for the issuance of commercial and standby
letters of credit and to provide revolving loans for other
general corporate purposes.
Maximum availability under the New Facility will be governed
by a monthly borrowing base amount as determined through the
application of advance rates against certain eligible assets.
Additionally, the New Facility contains financial and other
covenants, including a cleandown provision.
The amounts outstanding under the New Facility will bear
interest at a rate equal to, at Ann Taylor's option, the Bank of
America (1) Base Rate, or (2) Eurodollar Rate. In addition, Ann
Taylor is required to pay the lenders a quarterly commitment fee
on the unused revolving loan commitment.
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<PAGE 8>
ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Under the terms of the New Facility, the lenders will obtain a
perfected first priority lien and security interest in (i) the
capital stock of Ann Taylor and certain subsidiaries; (ii) all
tangible and intangible assets, including accounts receivable,
trademarks, inventory, store furniture and fixtures of Ann Taylor
and its subsidiaries.
The New Facility is subject to negotiation and execution of a
credit agreement and related documentation. Ann Taylor
anticipates closing on the New Facility in June.
4. Change in Accounting Principle
------------------------------
Effective February 1, 1998, the Company elected to change its
method of inventory valuation from the retail method to the
average cost method. The Company believes the cost method is a
preferable method for matching the cost of merchandise with the
revenues generated. The cumulative effect of this accounting
change as of February 1, 1998 was immaterial, and therefore no
disclosure is noted on the condensed consolidated statement of
operations for the quarter ended May 2, 1998. It is not possible
to determine the effect of the change on income in any previously
reported fiscal periods.
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<PAGE 9>
Item 2. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- - - ---------------------
Quarters Ended
--------------------------
May 2, 1998 May 3, 1997
----------- -----------
Number of Stores:
Open at beginning of period............... 324 309
Opened during period...................... 16 2
Expanded during period*................... 2 ---
Closed during period...................... 1 ---
Open at end of period..................... 339 311
Type of Stores Open at End of Period:
Ann Taylor stores...................... 291 261
Ann Taylor Factory Stores.............. 14 14
Ann Taylor Loft stores................. 34 27
Ann Taylor Studio stores............... --- 9
- - - --------------------
* Expanded stores are excluded from comparable store sales for
the first year following expansion.
Quarter Ended May 2, 1998 Compared to Quarter Ended May 3, 1997
- - - ---------------------------------------------------------------
The Company's net sales in the first quarter of 1998 increased
to $198,170,000 from $197,064,000 in the first quarter of 1997,
an increase of $1,106,000 or 0.6%. This increase is attributable
to the opening of new stores and the expansion of existing
stores, offset by a decrease in comparable store sales of 5.5%.
Management believes that the decrease in comparable store sales
was principally attributable to lower customer acceptance of
certain of the Company's first quarter merchandise offerings, as
well as to an acceleration of the Company's end-of-fall season
clearance sale, held in February of the prior year, to January in
1998.
Gross profit as a percentage of net sales increased to 51.1%
in the first quarter of 1998 from 50.1% in the first quarter of
1997. This increase was primarily due to a change in the
accounting method by which the Company accounts for inventory,
from the retail method to the average cost method.
Selling, general and administrative expenses represented 40.9%
of net sales in the first quarter of 1998, compared to 38.9% of
net sales in the first quarter of 1997. The increase in selling,
general, and administrative expenses as a percentage of net sales
was primarily attributable to decreased leverage on fixed
expenses resulting from lower comparable store sales and
increased investments in marketing.
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<PAGE 10>
As a result of the foregoing, the Company had operating income
of $17,445,000, or 8.8% of net sales, in the first quarter of
1998, compared to operating income of 19,239,000, or 9.8% of net
sales, in the first quarter of 1997. Amortization of goodwill
was $2,760,000 in both the first quarter of 1998 and the first
quarter of 1997. Operating income, without giving effect to
goodwill amortization in either year, was $20,205,000, or 10.2%
of net sales, in the first quarter of 1998 and $21,999,000, or
11.2% of net sales, in the first quarter of 1997.
Interest expense was $4,727,000 in the first quarter of 1998
and $5,546,000 in the first quarter of 1997. The decrease in
interest expense is attributable to reduced outstanding
indebtedness in the first quarter of 1998 compared to the first
quarter of 1997.
The income tax provision was $6,119,000, or 48.8% of income
before income taxes, in the first quarter of 1998 compared to
$6,968,000, or 51.8% of income before income taxes, in the first
quarter of 1997. This decrease is attributable to a reduction in
the Company's effective income tax rate from 43% to 40%, which
was due to increased income earned outside the United States by
the Company's non-U.S. sourcing subsidiaries. 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 $6,419,000, or 3.2% of net sales, for the first quarter
of 1998, compared to net income of $6,475,000, or 3.3% of net
sales, for the first quarter of 1997.
AnnTaylor Stores Corporation conducts no business other than
the management of Ann Taylor.
Financial Condition
- - - --------------------
For the first quarter of 1998, net cash provided by operating
activities totaled $13,519,000, primarily as a result of net
income, non-cash operating expenses and an increase in current
liabilities, partially offset by an increase in current assets.
Cash used by investing activities during the first quarter of
1998 amounted to $7,891,000, for the purchase of property and
equipment. Cash used by financing activities during the first
quarter of 1998 amounted to $291,000, primarily as a result of
scheduled payments on the mortgage loan.
Merchandise inventories were $110,188,000 at May 2, 1998,
compared to inventories of $97,234,000 at January 31, 1998.
Merchandise inventories at May 2, 1998 and January 31, 1998
included approximately $10,605,000 and $21,124,000, respectively,
of inventory associated with the Company's sourcing division.
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<PAGE 11>
At May 2, 1998, 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. Outstanding
commercial and standby letters of credit under the revolving
credit facility totaled $36,025,000. AnnTaylor Funding, Inc. was
permitted to borrow up to $40,000,000 under the receivables
facility, which expired on May 4, 1998 and has not been renewed.
Also, as of May 2, 1998, commercial and standby letters of credit
under AnnTaylor Global Sourcing, Inc.'s $50,000,000 credit
facility totaled $22,289,000 and there were no borrowings
outstanding under that facility. This facility, which matures on
July 29, 1998, is available principally for the issuance of
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 convertible preferred
securities issued by its financing vehicle, AnnTaylor Finance
Trust.
On May 7, 1998, AnnTaylor, Inc. ("AnnTaylor") signed a
commitment for a new $150,000,000 senior secured revolving credit
facility (the "New Facility"). This New Facility will replace
the $122,000,000 credit facility scheduled to expire in July, and
will also result in the termination of the $50,000,000 credit
facility maintained by the Company's sourcing division and the
non-renewal of the $40,000,000 accounts receivable financing
facility.
The New Facility will have a term of two years, and will
include an automatic one-year extension, contingent upon the
satisfaction of certain conditions. The New Facility will be
used by Ann Taylor for the issuance of commercial and standby
letters of credit and to provide revolving loans for other
general corporate purposes.
Maximum availability under the New Facility will be governed
by a monthly borrowing base amount as determined through the
application of advance rates against certain eligible assets.
Additionally, the New Facility contains financial and other
covenants, including a cleandown provision.
The amounts outstanding under the New Facility will bear
interest at a rate equal to, at Ann Taylor's option, the Bank of
America (1) Base Rate, or (2) Eurodollar Rate. In addition, Ann
Taylor is required to pay the lenders a quarterly commitment fee
on the unused revolving loan commitment.
Under the terms of the New Facility, the lenders will obtain a
perfected first priority lien and security interest in (i) the
capital stock of Ann Taylor and certain subsidiaries; (ii) all
tangible and intangible assets, including accounts receivable,
trademarks, inventory, store furniture and fixtures, of Ann
Taylor and its subsidiaries.
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<PAGE 12>
The New Facility is subject to negotiation and execution of a
credit agreement and related documentation. Ann Taylor
anticipates closing on the New Facility in June.
The Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation and
refurbishment programs, totaled $7,891,000 in the first quarter
of 1998. The Company expects to open a total of 26 new Ann
Taylor Stores and 18 new Ann Taylor Loft stores, relocate 7 Ann
Taylor Stores and expand 1 existing Ann Taylor Store in fiscal
1998. Total capital expenditures for 1998 are expected to be
approximately $52,000,000. The Company believes that the New
Facility will allow for such expenditures.
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. It is expected that the payment of dividends and
distributions will also be restricted under the New Facility.
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.
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.
Examples of forward-looking statements are statements that use
the words "expect", "anticipate", "plan", "believe" and similar
expressions. 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 accurately predict customer fashion preferences; a
decline in the demand for merchandise offered by the Company;
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<PAGE 13>
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 January 31, 1998 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 or revise any such forward-looking statements, even if
experience or future events or changes make it clear that any
projected financial or operating results implied by such forward-
looking statements will not be realized.
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<PAGE 14>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - - --------------------------
As previously disclosed in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission
on April 30, 1998, the Company, Ann Taylor, certain current
and former officers and directors of the Company and Ann Taylor,
and Merrill Lynch & Co. and certain of its affiliates, are
defendants in a purported class action lawsuit filed on
April 26, 1996 by certain alleged stockholders of the Company
in the United States District Court for the Southern District
of New York. (Novak v. Kasaks, et. al., No. 96 CIV 3073
(S.D.N.Y. 1996)). On March 10, 1998, the Court granted the
defendants' motions to dismiss the complaint. The Court
found that the complaint failed to state a claim upon which
relief may be granted, and failed to plead fraud with
particularity. The Court's opinion granted the plaintiffs
leave to amend and re-file the complaint within thirty days
of the date of the opinion and an amended complaint was
filed by the plaintiffs on April 9, 1998. The Company
believes that the amended complaint is without merit and
intends to continue to defend the action vigorously.
Defendants have served the plaintiffs with motions to dismiss
the amended complaint and briefing on these motions is now
underway. As the case is in preliminary stages, any liability
that may arise from this action cannot be predicted at this time.
Item 5. Other Information
- - - --------------------------
Effective June 12, 1998, the size of the Company's Board of
Directors was increased from seven to eight members, and Ronald
W. Hovsepian was elected by the Board to fill the vacancy so
created and to serve as a Class II director for a term expiring
in 1999 concurrent with the other Class II directors. Mr. Hovsepian
is currently the General Manager of the IBM Corporation's
Global Retail and Distribution Industry Solutions organization.
He has served in various capacities at IBM since 1983, including
Business Unit Executive for the Retail Industry, and Vice
President of the Consumer Driven Supply Chain Solutions unit.
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<PAGE 15>
Item 6. Exhibits and Reports on Form 8-K
- - - -------------------------------------------
(a) Exhibits:
10.16.3 Amendment to the AnnTaylor Stores Corporation
Amended and Restated 1992 Stock Option and
Restricted Stock and Unit Award Plan dated as
of May 12, 1998.
10.27 Commitment Letter dated as of May 7, 1998
among Ann Taylor, Bank of America National
Trust and Savings Association, BancAmerica
Robertson Stephens, Citicorp USA and
CoreStates Bank, N.A.
18 Preferability letter relating to the change
in accounting principle
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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<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: June 16, 1998 By: /s/ J. Patrick Spainhour
------------------ -------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: June 16, 1998 By: /s/ Walter J. Parks
----------------- -------------------------
Walter J. Parks
Senior Vice President and
Chief Financial Officer
May 12, 1998 AMENDMENT to
THE ANNTAYLOR STORES CORPORATION
1992 STOCK OPTION AND RESTRICTED
STOCK AND UNIT AWARD PLAN
The AnnTaylor Stores Corporation 1992 Stock Option and
Restricted Stock and Unit Award Plan, amended and restated
as of February 23, 1994, and as subsequently amended through
January 16, 1998 (the "Plan"), is hereby further amended,
effective as of May 12, 1998, as follows:
1. Section 1 of the Plan is amended by adding a new
sentence, following the first sentence thereof, to read as
follows:
The Plan is also intended to encourage directors
of the Corporation who are not employees or
officers of the Corporation or its Subsidiary
Corporations ("Eligible Directors") to acquire or
increase a proprietary interest in the
Corporation, to further promote and strengthen the
interest of such Eligible Directors in the
development and financial success of the
Corporation, and to assist the Corporation in
attracting and retaining highly qualified
directors by providing such directors options to
purchase shares of Common Stock, as provided for
herein.
2. Section 6 of the Plan is hereby amended by adding
thereto, following paragraph (i) thereof, a new paragraph
(j) to read as follows, and by renumbering succeeding
paragraphs accordingly:
(j) GRANTS TO ELIGIBLE DIRECTORS. On and
after June 15, 1998, at the time an individual
first becomes an Eligible Director, such Eligible
Director shall automatically be granted an Option
to purchase 7,500 shares of Common Stock. In
addition, immediately following each annual
meeting of the stockholders of the Corporation
(beginning with the Corporation's 1998 annual
meeting of stockholders), each director of the
Corporation who is then an Eligible Director shall
automatically be granted an Option to purchase
2,000 shares of Common Stock. Further,
immediately following the 1998 annual meeting of
stockholders of the Corporation, each Eligible
Director who first became an Eligible Director
prior to June 15, 1998 shall automatically be
granted an Option to purchase 7,500 shares of
Common Stock. Notwithstanding any provision of
paragraph (e) of this Section 6 to the contrary,
-1-
===============================================================
Options granted pursuant to this paragraph (j)
shall first become exercisable on the first
anniversary of the date of their grant.
Notwithstanding any provisions of paragraphs (f)
or (g) of this Section 6 to the contrary, Options
granted pursuant to this paragraph (j), to the
extent exercisable at the time of the Eligible
Director's cessation of service on the Board,
shall remain exercisable for one year following
such cessation of service for any reason other
than removal for cause, but in no event later than
the end of the term of the Option as set forth in
paragraph (e) of this Section 6.
The Plan, as amended hereby, is hereby ratified and
affirmed in all respects.
-2-
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
BANCAMERICA ROBERTSON STEPHENS
CITICORP USA
CORESTATES, N.A.
May 7, 1998
$150,000,000 Senior Secured Revolving Credit Facilities
Commitment Letter
-----------------
AnnTaylor, Inc.
142 West 57th Street
New York, NY 10019
Attention: Walter Parks
Ladies and Gentlemen:
Bank of America National Trust and Savings Association
("Bank of America"), Citicorp USA ("Citicorp") and CoreStates
--------------- --------
Bank, N.A. ("CoreStates") are pleased to advise you that they are
----------
willing, subject to the terms and conditions contained in this
letter and in the attached Summary of Terms and Conditions (the
"Term Sheet"), to each commit severally $50,000,000 toward a
----------
$150,000,000 Senior Secured Revolving Credit Facility (the
"Facility") for AnnTaylor, Inc. (the "Company"). Upon your
-------- -------
acceptance of this commitment, BancAmerica Robertson Stephens
("BARS") will endeavor as arranger (the "Arranger") to assemble a
---- --------
syndicate of lenders (together with Bank of America, Citicorp and
CoreStates the "Lenders") to participate in the Facility. Bank
of America will serve as administrative agent for the Facility
(the "Administrative Agent").
--------------------
BARS is a wholly-owned, direct subsidiary of
BankAmerica Corporation, the parent company of Bank of America,
and is a registered broker-dealer. Please refer to the attached
"Disclosure Statement" for important additional information on
this relationship.
===============================================================
-2-
Certain of the fees payable to the Arranger and Bank of
America, Citicorp and CoreStates (collectively, the "Agents") in
-----
connection with the Facility are set forth in a separate letter
of even date herewith (the "Fee Letter").
----------
It is agreed that Bank of America will act as the sole
and exclusive Administrative Agent for the Facility, and that
BARS will act as the sole and exclusive Arranger for the
Facility, and each will, in such capacities, perform the duties
and exercise the authority customarily performed and exercised by
it in such capacities. Citicorp and First Union Capital Markets
will be given the title of Syndication Agents with respect to the
Facility but will have no duties or authority in such capacity.
You agree that no other agents, co-agents or arrangers will be
appointed, no other titles will be awarded and no compensation
(other than that expressly contemplated by the Term Sheet and the
Fee Letter) will be paid in connection with the Facility unless
you and we shall so agree.
As noted above, the Agents intend to syndicate the
Credit Facilities to a group of Lenders. You hereby authorize
BARS to commence syndication efforts immediately and agree
actively to assist BARS in achieving a syndication that is
satisfactory to BARS, the Agents and the Company. To assist BARS
in its syndication efforts, (i) you agree to promptly prepare and
provide to BARS and the Agents all information which we may
reasonably request, including all financial information and
projections, (ii) you understand that in arranging and
syndicating the Facility we may use and rely upon the information
and projections without independent verification thereof, (iii)
you agree to use commercially reasonable efforts to ensure that
the syndications efforts benefit materially from your existing
lending relationships, (iv) you agree to host with BARS one or
more meetings with prospective Lenders and you agree to make
senior management available for these meetings, and (v) you agree
to assist in the preparation of a Confidential Information
Memorandum and other marketing materials to be used in connection
with the syndication. BARS, as Arranger, will manage all aspects
of the syndication and reserves the right to allocate the
commitments from and fees offered to the Lenders. It is
understood and agreed that, unless otherwise agreed by the
Agents, the written commitments of Lenders in a form reasonably
satisfactory to the Company received pursuant to the syndication
shall reduce ratably the commitments of Bank of America, Citicorp
and CoreStates under this letter (it being agreed that a
commitment which is subject only to satisfactory documentation
shall be satisfactory to the Company). It is further understood
and agreed that the fees and commitment level tiers to be offered
to Lenders pursuant to the syndication shall be subject to the
agreement of all the Agents. You hereby represent and covenant
that (a) all information other than the projections that have
been or will be made available to BARS or the Agents by you or
any of your representatives is or will be, when furnished,
complete and correct in all material respects and does not or
will not, when furnished, contain any untrue statement of a
material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially
misleading in light of the circumstances under which such
statements are made and (b) the projections that have been or
will be made available to BARS or the Agents by you or any of
your representatives have been or will be prepared in good faith
based upon reasonable assumptions.
======================================================================
-3-
In addition to the conditions to funding or closing set
forth in the Term Sheet, the Agents' commitments to provide
financing hereunder is subject to, among other conditions, (i)
the satisfactory completion of its due diligence with respect to
the Company and it subsidiaries, including a satisfactory review
of its assets and liabilities, collateral appraisals, field
audits, businesses and operations, proposed organization and
legal structure, and tax, labor, environmental, financial, ERISA,
significant contracts and other matters, (ii) the negotiation and
execution of a definitive credit agreement and other related
documentation, including but not limited to guarantees, security
documents and opinions of counsel, satisfactory to the Company,
the Agents and the Lenders, (iii) there not occurring or becoming
known to BARS or the Agents any material adverse change in the
reasonable opinion of BARS and the Agents in the financial
condition, business, operations, properties or prospects of the
Company and its consolidated subsidiaries, (iv) the non-
occurrence of any material adverse change in loan syndication or
capital market conditions after the date of this letter,
generally, which in the reasonable opinion of BARS and the
Agents, would affect our syndication efforts in respect of any
portion of the Facility, and (v) until the earlier of June 30,
1998 or notification by BARS of the completion of the syndication
of the Facility, there be no competing offering, placement, or
arrangement of any debt securities or bank financing by or on
behalf of the Company.
Whether or not the transactions contemplated hereby are
consummated, the Company hereby agrees to indemnify and hold
harmless each of the Agents and BARS, and their respective
directors, officers, employees and affiliates (each, an
"indemnified person") from and against any and all losses,
------------------
claims, damages, liabilities (or actions or other proceedings
commenced or threatened in respect thereof) and expenses that
arise out of, result from or in any way relate to this commitment
letter, or the providing or syndication of the Facility, and to
reimburse each indemnified person, upon its demand, for any legal
or other expenses (including the allocated cost of in-house
counsel) incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or
action or other proceeding (whether or not such indemnified
person is a party to any action or proceeding out of which any
such expenses arise), other than any of the foregoing claimed by
any indemnified person to the extent incurred by reason of the
gross negligence or willful misconduct of any indemnified person.
Neither the Agents nor BARS, nor any of their affiliates, shall
be responsible or liable to the Company or any other person for
any consequential damages which may be alleged.
In addition, the Company hereby agrees to reimburse the
Administrative Agent and BARS from time to time upon demand for
their reasonable out-of-pocket costs and expenses (including the
costs and expenses of one outside counsel and, without
duplication, the allocated costs of in-house counsel) incurred by
the Administrative Agent or BARS in connection with the
negotiation and preparation of documents for the Facility,
regardless of whether the credit agreement is executed or the
Facility closes.
The terms contained in this letter, the Term Sheet and
the Fee Letter are confidential and, except for disclosure to
your board of directors, officers and employees, to professional
=======================================================================
-4-
advisors retained by you in connection with this transaction, or
as may be required by law, may not be disclosed in whole or in
part to any other person or entity without our prior written
consent. The Agents and BARS agree that they will keep and cause
their respective affiliates to keep as confidential in accordance
with customary banking practices all non-public information
regarding the Company and its subsidiaries disclosed by the
Company to the Agents and BARS in connection herewith or with the
Facility. No such information shall be provided to any
prospective assignee or participant unless it agrees to maintain
confidentiality in accordance with the preceding sentence. The
provisions of this letter shall be superseded by the definitive
documentation executed in connection with the Facility, except
for the obligations of the Company under the fourth paragraph of
this letter and the first sentence of this paragraph which shall
survive the execution of such definitive documentation.
Upon your delivery to us of a signed copy of this
letter and the Fee Letter, this letter agreement and the Fee
Letter shall become binding agreements under New York law as of
the date so accepted. The Agents' commitments hereunder shall
remain in effect until 5:00 p.m. Chicago time, on May 7, 1998
when, if not so accepted, the Agent's commitments hereunder will
terminate. The Agents' commitments will expire on July 29, 1998
if the Facility has not closed on or before that date.
We are pleased to have the opportunity to work with you
on this important financing.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Jody Pritchard
____________________________
Name: Jody Pritchard
Title: VP
BANCAMERICA ROBERTSON STEPHENS
By: /s/ Catherine Drake
____________________________
Name: Catherine Drake
Title: VP
=====================================================================
-5-
CITICORP USA
By: /s/ Brenda Cotsen
____________________________
Name: Brenda Cotsen
Title:
CORESTATES BANK, N.A.
By: Irene Rosen Marks
____________________________
Name: Irene Rosen Marks
Title: VP
Accepted and agreed to as of
the date first written above by:
ANNTAYLOR, INC.
By /s/ Walter J. Parks
____________________________
Name: Walter J. Parks
Title: SVP - CFO
=================================================================
BANCAMERICA ROBERTSON STEPHENS
DISCLOSURE STATEMENT
BancAmerica Robertson Stephens ("BARS") is a wholly-
----
owned, direct subsidiary of BankAmerica Corporation, the parent
company of Bank of America National Trust and Savings Association
("Bank of America"). BARS is a broker-dealer registered with the
---------------
Securities and Exchange Commission, and is a member of the New
York Stock Exchange, National Association of Securities Dealers,
Inc. and the Securities Investor Protection Corporation.
BARS is not a bank. The securities and financial
instruments sold, offered or recommended by BARS are not bank
deposits, are not guaranteed by, and are not otherwise
obligations of, any bank, thrift or other subsidiary of
BankAmerica Corporation, and are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency.
From time to time, Bank of America's affiliates may
lend to one or more issuers whose securities are underwritten,
dealt in, or placed by BARS. You are referred to the relevant
prospectus, offering statement or other disclosure document for
material information relating to any such lending relationship,
and whether the proceeds of an issue will be used to repay any
such loans. Furthermore, the obligations of BARS are not those
of any affiliated bank or thrift, and no such affiliated bank or
thrift is responsible for securities underwritten, dealt in, or
placed by BARS.
In order for Bank of America and its affiliates to
better serve you, they intend to share credit and other
information about you with each other and with BARS. BARS also
may share credit and other information regarding you with Bank of
America and its affiliates. You will be deemed to consent to
such sharing of information unless you object in writing.
BARS also may participate from time to time in a
primary or secondary distribution of securities offered or sold
to you by it. Further, BARS may act as an investment adviser to
issuers whose securities may be offered or sold to you by it.
Exhibit 18
June 11, 1998
AnnTaylor Stores Corporation
142 West 57th Street
New York, NY 10019
At your request, we have read the description included in
your Quarterly Report on Form 10-Q to the Securities and
Exchange Commission for the quarter ended May 2, 1998, of
the facts relating to the Company's change in its method of
inventory valuation from the retail method to the average
cost method. We believe, on the basis of the facts so set
forth and other information furnished to us by appropriate
officials of the Company, that the accounting change
described in your Form 10-Q is to an alternative accounting
principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of
AnnTaylor Stores Corporation and its consolidated
subsidiaries as of any date or for any period subsequent to
January 31, 1998. Therefore, we are unable to express, and
we do not express, an opinion on the facts set forth in the
above mentioned Form 10-Q, on the related information
furnished to us by officials of the Company, or on the
financial position, results of operations, or cash flows of
AnnTaylor Stores Corporation and its consolidated
subsidiaries as of any date or for any period subsequent to
January 31, 1998.
Yours truly,
DELOITTE & TOUCHE LLP
New York, New York
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STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> MAY-02-1998
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