SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended January 29, 2000
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NO. 1-10738
ANNTAYLOR STORES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3499319
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
142 West 57th Street, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
(212) 541-3300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
Common Stock, The New York Stock Exchange
$.0068 Par Value
Securities registered pursuant to Section 12(g) of the Act: None.
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes |_|No |X| .
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 31, 2000 was $654,895,854.
The number of shares of the registrant's Common Stock outstanding as of
March 31, 2000 was 28,722,617.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the Registrant's 2000
Annual Meeting of Stockholders to be held on May 18, 2000 are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS
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GENERAL
AnnTaylor Stores Corporation (the "Company"), through its wholly owned
subsidiaries, is a leading national specialty retailer of better quality women's
apparel, shoes and accessories sold primarily under the Ann Taylor brand name.
The Company believes that "Ann Taylor" is a highly recognized national brand
that defines a distinct fashion point of view. Ann Taylor merchandise represents
classic styles, updated to reflect current fashion trends. The Company's stores
offer a full range of career and casual separates, dresses, tops, weekend wear,
shoes and accessories, coordinated as part of a total wardrobing strategy. This
total wardrobing strategy is reinforced by an emphasis on customer service. Ann
Taylor sales associates are trained to assist customers in merchandise selection
and wardrobe coordination, helping them achieve the "Ann Taylor look" while
reflecting the customers' personal styles.
As of January 29, 2000, the Company operated 405 retail stores in 42
states, the District of Columbia and Puerto Rico under the names Ann Taylor, Ann
Taylor Loft and Ann Taylor Factory Store. The Company's 319 Ann Taylor stores
compete in the "better"-priced market. These stores represent the Company's core
merchandise line. Approximately three-quarters of these stores are located in
regional malls and upscale specialty retail centers, with the balance located in
downtown and village locations. The Company believes that the customer base for
its Ann Taylor stores consists primarily of relatively affluent,
fashion-conscious women from the ages of 25 to 55, and that the majority of its
customers are working women with limited time to shop, who are attracted to Ann
Taylor by its focused merchandising and total wardrobing strategies,
personalized customer service, efficient store layouts and continual flow of new
merchandise.
As of January 29, 2000, the Company operated 75 Ann Taylor Loft stores.
Ann Taylor Loft stores compete in the "upper-moderate"-priced market. Ann Taylor
Loft is designed for women with a more relaxed lifestyle, who appreciate the Ann
Taylor style but are more price sensitive. Merchandise is created uniquely for
these stores and is sold under the Ann Taylor Loft label. The first Ann Taylor
Loft stores opened by the Company were located in factory outlet centers,
including some Ann Taylor Factory Stores that, in 1996, were converted to Loft
stores after the introduction of the Loft concept. In 1998, the Company began
opening Ann Taylor Loft stores outside the factory outlet environment, in
regional malls and strip shopping centers. At January 29, 2000, over 40 Ann
Taylor Loft stores were located in these venues. Management believes that Ann
Taylor Loft represents a significant opportunity for the Company to compete in
the upper-moderate-priced women's apparel market. See "Stores and Expansion",
"Competition" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Statement Regarding Forward Looking Disclosures"
below.
At January 29, 2000, the Company also operated 11 Ann Taylor Factory
stores in factory outlet centers. These stores serve primarily as a clearance
vehicle for merchandise from Ann Taylor stores. Many of these stores also offer
a limited selection of original priced Ann Taylor Loft merchandise.
From time to time, the Company introduces new product categories to its
merchandise assortment. The Company believes that product extensions support the
Company's total wardrobing strategy and provide existing and new customers with
additional reasons to shop at the Company's stores. Product extensions
introduced over the last several years include petite sizes in the Company's
apparel offerings, and fragrance and personal care products in both Ann Taylor
and Ann Taylor Loft stores. In Fall of 2000, the Company intends to test market
its own line of color cosmetics in a select group of Ann Taylor stores.
The Company was incorporated under the laws of the state of Delaware in
1988 under the name AnnTaylor Holdings, Inc. The Company changed its name to
AnnTaylor Stores Corporation in April 1991. The Company completed an initial
public offering of its common stock in May 1991. Unless the context indicates
otherwise, all references herein to the Company include the Company and its
wholly owned subsidiaries.
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MERCHANDISE DESIGN AND PRODUCTION
Substantially all merchandise offered by the Company's stores is developed
by the Company's in-house product design and development teams, which design
merchandise exclusively for the Company. The Company's merchandising groups
determine inventory needs for the upcoming season, edit the assortments
developed by the design teams, plan monthly merchandise flows, and arrange for
the production of merchandise by independent manufacturers, either through the
Company's sourcing division, or through private label specialists.
The Company's production management and quality assurance departments
establish the technical specifications for all Company merchandise, inspect
factories in which the merchandise is produced, including periodic in-line
inspections while goods are in production to identify potential problems prior
to shipment and, upon receipt, inspect merchandise on a test basis for
uniformity of size and color, as well as for conformity with specifications and
overall quality of manufacturing.
The Company sources merchandise from approximately 236 manufacturers and
vendors, none of which accounted for more than 4% of the Company's merchandise
purchases in Fiscal 1999. The Company's merchandise is manufactured in over 20
countries, with approximately 35% of the Company's merchandise manufactured in
China, 14% in Korea, and 12% in Hong Kong. Any event causing a sudden disruption
of manufacturing or imports from China, Korea or Hong Kong, including the
imposition of additional import restrictions, could have a material adverse
effect on the Company's operations. Substantially all of the Company's foreign
purchases are negotiated and paid for in U.S. dollars.
The Company cannot predict whether any of the foreign countries in which
its products are currently manufactured or any of the countries in which the
Company may manufacture its products in the future will be subject to future or
increased import restrictions by the U.S. government, including the likelihood,
type or effect of any trade restriction. Trade restrictions, including increased
tariffs or quotas, against apparel, footwear or other items sold by the Company
could affect the importation of such merchandise generally and could increase
the cost or reduce the supply of merchandise available to the Company and
adversely affect the Company's business, financial condition, results of
operations and liquidity. The Company's merchandise flow may also be adversely
affected by financial or political instability in any of the countries in which
its goods are manufactured, if it affects the production or export of
merchandise from such countries. Merchandise flow may also be adversely affected
by significant fluctuation in the value of the U.S. dollar against foreign
currencies or restrictions on the transfer of funds.
The Company does not maintain any long-term or exclusive commitments or
arrangements to purchase merchandise from any single supplier. The Company
believes it has a good relationship with its suppliers and that, as the number
of the Company's stores increases, subject to the discussion above, there will
continue to be adequate sources to produce a sufficient supply of quality goods
in a timely manner and on satisfactory economic terms.
INVENTORY CONTROL AND MERCHANDISE ALLOCATION
The Company's planning departments analyze each store's size, location,
demographics, and sales and inventory history to determine the quantity of
merchandise to be purchased for and the allocation of merchandise to the
Company's stores. Upon receipt, merchandise is allocated in order to achieve an
emphasis that is suited to each store's customer base.
Merchandise typically is sold at its original marked price for several
weeks, with the length of time varying by item. The Company reviews its
inventory levels on an on-going basis in order to identify slow-moving
merchandise styles and broken assortments (items no longer in stock in a
sufficient range of sizes) and uses markdowns to clear this merchandise.
Markdowns may be used if inventory exceeds customer demand for reasons of
design, seasonal adaptation or changes in customer preference or if it is
determined that the inventory will not sell at its currently marked price.
Marked-down items remaining unsold are moved periodically to the Company's
factory outlet stores, where additional markdowns may be taken.
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In Fiscal 1999, inventory turned 4.8 times compared to 5.0 times in Fiscal
1998 and 5.1 times in Fiscal 1997. Inventory turnover is determined by dividing
cost of sales by the average of the cost of inventory at the beginning and the
end of the period, excluding inventory associated with the Company's sourcing
division. Sourcing division inventory consists principally of finished goods in
transit from factories. Effective February 1, 1998 the Company elected to change
its method of inventory valuation to the average cost method as discussed in
Note 1 to the Consolidated Financial Statements of the Company.
In Fiscal 1998, the Company selected a new comprehensive merchandising
information system to provide improved systems support for the Company's
merchandising functions. Since selection of the system, the Company has been
conducting a methodical, detailed review of both the new system's functionality
and the Company's internal merchandising processes, in order to design
adaptations to the new system and, in some cases, changes to the Company's
processes, so that the Company may make best use of the new system. The Company
began piloting the new system for four merchandise categories in December 1999,
and plans to introduce the system to all merchandising departments in the Spring
of 2000. When fully operational, this new system will serve as the Company's
central source of information regarding merchandise items, inventory management,
purchasing, allocation, replenishment, receiving and distribution.
The Company uses a centralized distribution system, under which nearly all
merchandise is distributed to the Company's stores through its distribution
center, located in Louisville, Kentucky. See "Properties". Merchandise is
shipped by the distribution center to the Company's stores several times each
week.
STORES AND EXPANSION
An important aspect of the Company's business strategy is a real estate
expansion program designed to reach new customers through the opening of new
stores. The Company opens new stores in markets that it believes have a
sufficient concentration of its target customers. The Company also adds stores,
or expands the size of existing stores, in markets where the Company already has
a presence, as market conditions warrant and sites become available. Store
locations are determined on the basis of various factors, including geographic
location, demographic studies, anchor tenants in a mall location, other
specialty stores in a mall or specialty center location or in the vicinity of a
village location, and the proximity to professional offices in a downtown or
village location. Stores opened in factory outlet centers are located in factory
outlet malls in which co-tenants generally include a significant number of
outlet or discount stores operated under nationally recognized upscale brand
names. Store size also is determined on the basis of various factors, including
geographic location, demographic studies, and space availability.
As of January 29, 2000, the Company operated 405 stores throughout the
United States, the District of Columbia and Puerto Rico, of which 319 were Ann
Taylor stores, 75 were Ann Taylor Loft stores, and 11 were Ann Taylor Factory
Stores.
The average Ann Taylor store is approximately 5,000 square feet in size.
The Company also has two flagship Ann Taylor stores in New York City and San
Francisco, that are in excess of 20,000 square feet. These flagship stores
represent the fullest assortment of Ann Taylor merchandise, and include
amenities unique to these stores. In Fiscal 1999, the Company opened 18 Ann
Taylor stores that averaged approximately 5,000 square feet. In Fiscal 2000, the
Company plans to open approximately 15 Ann Taylor stores, which are expected to
average approximately 4,500 square feet.
Ann Taylor Loft stores that are located in factory outlet centers average
approximately 9,000 square feet. Ann Taylor Loft stores that are located in
regional malls and strip shopping centers average approximately 6,000 square
feet. In Fiscal 1999, the Company opened 29 Ann Taylor Loft stores that averaged
approximately 6,000 square feet. In Fiscal 2000, the Company expects to open
approximately 70 Ann Taylor Loft stores, primarily in regional malls and strip
shopping centers. These stores are also expected to average approximately 6,000
square feet.
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The Company's 11 Ann Taylor Factory Stores, located in factory outlet
centers, average 7,000 square feet.
The Company's stores typically have approximately 20% of their total
square footage allocated to stockroom and other non-selling space.
The following table sets forth certain information regarding store
openings, expansions and closings for Ann Taylor stores ("ATS"), Ann Taylor
Factory Stores ("ATFS"), Ann Taylor Loft stores ("ATL") and the Company's former
Ann Taylor Studio shoe stores ("ATA") over the past five years:
<TABLE>
<CAPTION>
No. No.
Total Stores No. Stores Stores Stores No. Stores Open
Open at Opened During Expanded Closed at End of
Beginning Fiscal Year During During Fiscal Year
of Fiscal --------------------- Fiscal Fiscal -----------------------------------
Fiscal Year Year ATS ATFS ATL ATA(a) Year(b) Year(b) ATS ATFS ATL ATA(a) Total
- ----------- ---- --- ---- --- ------ -------- ------- --- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995................. 262 26 4 14 4 30 4 258 22 17 9 306
1996................. 306 9 1 1 --- 7 8 259 14(c) 27(c) 9 309
1997................. 309 27 --- --- --- 9 12 283 14 27 --- 324
1998................. 324 26 --- 19 --- 8 4 306 13 46 --- 365
1999................. 365 18 --- 29 --- 8 7 319 11 75 --- 405
</TABLE>
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(a) Ann Taylor Studio was a free-standing shoe and accessory store concept
tested by the Company in 1994 and 1995. All Ann Taylor Studio stores were
closed during Fiscal 1997.
(b) All stores expanded and all stores closed were Ann Taylor stores, except
that one store expanded in 1995 was an ATL store, one store closed in 1998
was an ATFS store and nine stores closed in 1997 were ATA stores. Four
stores closed in 1999 were Ann Taylor stores that were replaced in the
same locations with new ATL stores.
(c) In 1995, certain ATFS and ATL stores that sold both original price Ann
Taylor Loft merchandise and clearance merchandise from Ann Taylor stores
and Ann Taylor Loft stores were classified as ATFS stores. In 1996, these
stores were reclassified as ATL stores. During 1997, these stores'
merchandise assortment was changed to be predominantly Ann Taylor Loft
merchandise, and these stores are now operated as ATL stores.
The Company believes that its existing store base is a significant
strategic asset of its business. Ann Taylor stores are located in some of the
most productive retail centers in the United States. In addition, the Company
believes that it is among the tenants most highly desired by real estate
developers because of its strong Ann Taylor brand franchise and its high average
sales per square foot productivity ($502 per square foot in Fiscal 1999)
relative to other specialty apparel retailers.
The Company has invested approximately $153 million in its store base
since the beginning of Fiscal 1995; approximately 58% of its stores are either
new or have been remodeled, as a result of an expansion or relocation, in the
last five years.
The Company's 1999 real estate expansion plan resulted in an increase in
the Company's total store square footage of approximately 242,000 square feet
(net of store closings), or 11.9%, from approximately 2,038,000 square feet at
the end of fiscal 1998 to approximately 2,280,000 square feet at the end of
fiscal 1999. In Fiscal 2000, the Company intends to increase store square
footage by approximately 460,000 square feet, or 20%, representing approximately
15 new Ann Taylor stores, the expansion or relocation of approximately 5
existing Ann Taylor stores, and approximately 70 new Ann Taylor Loft stores.
Capital expenditures for the Company's Fiscal 1999 store expansion
program, net of landlord construction allowances, totaled approximately $33.5
million, including expenditures for store refurbishing and store refixturing.
The Company expects that capital expenditures for its Fiscal 2000 store
expansion program, net of landlord construction allowances, will be
approximately $57.6 million, including expenditures for store refurbishing and
store refixturing.
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The Company's ability to continue to increase store square footage will be
dependent upon, among other things, general economic and business conditions
affecting consumer confidence and spending, the availability of desirable
locations and the negotiation of acceptable lease terms. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Statement Regarding Forward
Looking Disclosures".
INTERNET STRATEGY
During fiscal 1999, the Company conducted rigorous research and analysis
of the potential for an Ann Taylor web site on the Internet. The Company
believes that an Ann Taylor web site offering Company merchandise on-line
presents the opportunity for incremental sales, both over the Internet and by
attracting customers to its stores. The Company believes that an Ann Taylor web
site would also enhance the Company's brand building activities, client service
and communication. The Company is currently developing the design and features
of its proposed initial web site. The Company expects that, at least initially,
site design, hosting, order fulfillment and customer service support for the
Company's web site will be performed by outside vendors, under the supervision
of the Company's new Internet division. The Company intends to finalize its
Internet entry strategy during fiscal 2000, and expects to have a web site
operational by Holiday 2000 or Spring 2001.
INFORMATION SYSTEMS
In 1997, the Company completed a thorough review of its information
systems, and developed a five-year strategic plan to upgrade these systems. The
Company reviews this plan annually, enhancing and adding projects as business
needs evolve. The Company believes that enhanced information systems are
critical to providing its management with efficient decision support tools and
maintaining the Company's competitive position.
The implementation of the core merchandising information system referred
to above under "Inventory Control and Merchandise Allocation" was a component of
the original five-year information systems upgrade plan.
An upgrade of the Company's store point of sale system is also part of
this five-year strategic plan. The Company will begin to pilot a new point of
sale system for its retail stores in 2000, and intends to roll the new system
out to all of its stores in fiscal 2001. The new point of sale system will give
the Company added capability for data exchange between store systems and home
office systems, providing the opportunity for enhanced operating efficiencies.
For example, when fully implemented, the new point of sale system will permit
stores to transmit certain associate information directly through the store
systems, reducing paperwork and increasing efficiency and accuracy.
During 1999, the Company developed an intensive training program for the
Company's store associates, designed to elevate sales associates' wardrobing
knowledge and client relationship skills. This training program will be
introduced in the Company's stores in the fall of 2000. Training will be
conducted, in part, through computerized modules delivered on CD-ROM, on a
dedicated personal computer to be installed at each store location. The
Company's information systems plan has been expanded to incorporate this
training program.
The original five-year information systems plan contemplated aggregate
investment in information systems of approximately $35 million. As a result of
updates to the plan, including addition of the stores training program and
internet initiatives described above, the five-year plan now contemplates
aggregate investment in information systems totaling approximately $41 million
for such period, of which approximately $25 million had been expended through
1999, including approximately $12 million expended in 1999. The Company expects
that approximately $16 million of its capital expenditures in 2000 will be
invested in information systems.
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CUSTOMER CREDIT
Customers may pay for merchandise with the Ann Taylor credit card,
American Express, Visa, MasterCard, JCB, Diner's Club, cash or check. The
Company also plans to introduce Discover card payment to its stores in 2000.
Credit card sales were 80.5% of net sales in Fiscal 1999, 80.2% in Fiscal 1998
and 78.7% in Fiscal 1997. In Fiscal 1999, 14.2% of net sales were made with the
Ann Taylor credit card, and 66.3% were made with third-party credit cards. As of
January 29, 2000, the Company's Ann Taylor credit card accounts receivable
totaled $51,440,000, net of allowance for doubtful accounts. Accounts written
off in Fiscal 1999 were approximately $1,186,000, or 0.1% of net sales.
The Company has offered customers its proprietary Ann Taylor credit card
since 1976. The Company believes that the Ann Taylor credit card enhances
customer loyalty while providing the customer with additional credit. However,
the percentage of the Company's total sales made with its proprietary credit
card has been declining over the past several years. The Company believes the
declining penetration of its Ann Taylor credit card as a percentage of sales is
attributable to the gain of market share by bank cards throughout the retail
industry generally. In addition, the Company's Ann Taylor Loft and Factory
Stores historically have experienced a significantly lower penetration of sales
with the Ann Taylor card. At January 29, 2000, over 357,000 Ann Taylor credit
card accounts had been used during the past 18 months.
ADVERTISING AND PROMOTION
The Company believes it is strategically important to communicate on a
regular basis directly with its current customer base and with potential
customers, through national and regional advertising, including outdoor media,
as well as through direct mail marketing and in-store presentation. Marketing
expenditures as a percentage of sales were 2.4% in Fiscal 1999, 2.0% in Fiscal
1998, and 1.3% in Fiscal 1997.
TRADEMARKS AND SERVICE MARKS
The Ann Taylor trademark, and certain other trademarks and service marks
used by the Company, either are registered or have trademark applications
pending with the United States Patent and Trademark Office ("USPTO") and with
the registries of many foreign countries. The Company's rights in the
"AnnTaylor" mark are a significant part of the Company's business, as the
Company believes its trademark is well known in the women's retail apparel
industry. Accordingly, the Company intends to maintain its "AnnTaylor" mark and
related registrations and vigorously protect its trademarks against
infringement.
In 1994, the Company initiated trademark registration applications with
the USPTO for its AnnTaylor Loft trademark in the categories of retail store
services and apparel. Registration of the trademark was issued in the retail
store services category in 1996. However, the Company's application for a
trademark registration in the apparel classification was challenged in the USPTO
by a French company, Freche et Fils, which cited its own "Loft Design By..."
trademark in opposition to the Ann Taylor Loft mark. In February 2000, the USPTO
granted the Company's motion for summary judgment, dismissing with prejudice
Freche et Fils' opposition to the Company's AnnTaylor Loft trademark
application, and granting the counterclaim filed by the Company to cancel Freche
et Fils' U.S. registration of their "Loft Design By . . . " mark. This decision
is subject to appeal by Freche et Fils.
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COMPETITION
The women's retail apparel industry is highly competitive. The Company's
stores compete with certain departments in national or local department stores,
and with other specialty store chains, independent retail stores, and catalog
and internet businesses that offer similar categories of merchandise. The
Company believes that its focused merchandise selection, exclusive fashions,
personalized service and convenience distinguish it from other apparel
retailers. Many of the Company's competitors are considerably larger and have
substantially greater financial, marketing and other resources than the Company
and there is no assurance that the Company will be able to compete successfully
with them in the future. In addition, the Company has only limited experience in
the "moderate" priced category, and existing competitors may have significantly
greater brand recognition among this customer segment than the Company. Further,
certain of the Company's competitors have established presence on and greater
experience with the Internet.
EMPLOYEES
As of January 29, 2000, the Company had approximately 7,980 employees, of
whom 1,900 were full-time salaried employees, 2,035 were full-time hourly
employees and 4,045 were part-time hourly employees working less than 30 hours
per week. None of the Company's employees are represented by a labor union. The
Company believes that its relationship with its employees is good.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURES
Sections of this Annual Report on Form 10-K 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", "intend", "project",
"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 predict accurately customer fashion
preferences; a decline in the demand for merchandise offered by the Company;
competitive influences; changes in levels of store traffic or consumer spending
habits; effectiveness of the Company's brand awareness and marketing programs;
lack of sufficient customer acceptance of the Ann Taylor Loft concept in the
upper-moderate-priced women's apparel market; general economic conditions that
are less favorable than expected or a downturn in the retail industry; 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; lack of
sufficient consumer interest in an Ann Taylor Internet web site; 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; financial or political instability in any of the
countries in which the Company's goods are manufactured; or an adverse outcome
of the litigation referred to in Note 5 to the Consolidated Financial Statements
of the Company as of January 29, 2000 that materially and adversely affects the
Company's financial condition. The Company assumes no obligation to update or
revise any such forward looking statements, which speak only as of their date,
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Statement Regarding Forward Looking
Disclosures".
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ITEM 2. PROPERTIES
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As of January 29, 2000, the Company operated 405 stores, all of which were
leased. The store leases typically provide for initial terms of ten years,
although some leases have shorter or longer initial periods, and grant the
Company the right to extend the term for one or two additional five-year
periods. Most of the store leases require Ann Taylor to pay a specified minimum
rent, plus a contingent rent based on a percentage of the store's net sales in
excess of a specified threshold. Most of the leases also require Ann Taylor to
pay real estate taxes, insurance and certain common area and maintenance costs.
The current terms of the Company's leases, including renewal options, expire as
follows:
FISCAL YEARS LEASE NUMBER OF
TERMS EXPIRE STORES
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2000 - 2002........................ 34
2003 - 2005........................ 106
2006 - 2008........................ 159
2009 and later..................... 106
Ann Taylor leases corporate offices at 142 West 57th Street in New York
City, containing approximately 143,000 square feet and approximately 59,000
square feet of office space at 1372 Broadway in New York City. The leases for
these premises expire in 2006 and 2010, respectively. The Company also leases
office space in New Haven, Connecticut, containing approximately 39,000 square
feet. This lease expires in October, 2001.
Ann Taylor's wholly owned subsidiary, AnnTaylor Distribution Services,
Inc., owns its 256,000 square foot distribution center located in Louisville,
Kentucky. Nearly all Ann Taylor merchandise is distributed to the Company's
stores through this facility. The parcel on which the Louisville distribution
center is located comprises approximately 20 acres and could accommodate
possible future expansion of the facility.
ITEM 3. LEGAL PROCEEDINGS
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On April 26, 1996, certain alleged stockholders of the Company filed a
purported class action lawsuit in the United States District Court Southern
District of New York, against the Company, the Company's wholly owned subsidiary
AnnTaylor, Inc., ("Ann Taylor"), certain officers and directors of the Company
and Ann Taylor, Merrill Lynch & Co. ("ML&Co.") and certain affiliates of ML&Co.
(Novak v. Kasaks, et. al., No. 96 CIV 3073 (S.D.N.Y. 1996)). The complaint
alleged causes of action under Section 10(b) and Section 20(a) of the Securities
Exchange Act of 1934, as amended, by alleging that the Company and the other
defendants engaged in a fraudulent scheme and course of business that operated a
fraud or deceit on purchasers of the Company's common stock during the period
commencing February 3, 1994 through May 4, 1995, due to alleged false and
misleading statements about the Company and Ann Taylor. The complaint sought,
among other things, certification as a class action on behalf of all purchasers
of common stock during the period commencing February 3, 1994 through May 4,
1995, the awarding of compensatory damages to the plaintiffs and purported
members of the class, the awarding of costs, including pre-judgment and
post-judgment interest, reasonable attorneys' fees and expert witness fees to
the plaintiffs and purported members of the class and equitable and/or
injunctive relief. On November 9, 1998, the District Court issued an order
granting the defendants' motion to dismiss the amended complaint with prejudice,
for its failure to plead fraud with particularity. On or about December 15,
1998, the plaintiffs filed a notice of appeal to the United States Court of
Appeals for the Second Circuit, seeking review of the District court's order.
The Court heard oral argument on this appeal on September 15, 1999. ML&Co., its
affiliates and the two directors who previously served on the Company's Board of
Directors as representatives of certain affiliates of ML&Co. (the "settling
defendants"), reached a settlement with the plaintiffs, which provides, among
other things, for the establishment of a settlement fund in the amount of
$3,000,000 plus interest. On or about December 14, 1999, the District Court
entered an Order and Final Judgment approving this partial settlement,
dismissing the amended complaint with prejudice as to the settling defendants,
and barring and enjoining any future claims by, among others, the remaining
defendants against the settling defendants for contribution. The appeal as
-8-
- --------------------------------------------------------------------------------
<PAGE>
against the remaining defendants, including the Company, is pending before the
Second Circuit Court of Appeals. As a result, any liability that may arise from
this action cannot be predicted at this time. The Company believes that the
amended complaint is without merit and intends to continue to defend the action
vigorously.
The Company is also a party to routine litigation incident to its
business. Although the amount of any liability that could arise with respect to
these actions cannot be accurately predicted, in the opinion of the Company, any
such liability will not have a material adverse effect on the financial
position, results of operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
None.
-9-
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<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -------
The Company's common stock is listed and traded on the New York Stock
Exchange under the symbol ANN. The number of holders of record of common stock
at February 25, 2000 was 580. The following table sets forth the high and low
closing sale prices for the common stock on the New York Stock Exchange during
Fiscal 1999 and Fiscal 1998.
MARKET PRICE
----------------
HIGH LOW
-------- ------
FISCAL YEAR 1999
Fourth quarter.............................. $46-5/16 $22-1/4
Third quarter............................... 45 32-1/2
Second quarter.............................. 50-7/16 34-1/2
First quarter............................... 52-13/16 33-1/8
FISCAL YEAR 1998
Fourth quarter.............................. $41-9/16 $28-3/4
Third quarter............................... 29-5/8 19-3/8
Second quarter.............................. 23-1/2 16-1/8
First quarter............................... 16-1/2 11-13/16
The Company has never paid dividends on the common stock and does not
intend to pay dividends in the foreseeable future. As a holding company, the
ability of the Company to pay dividends is dependent upon the receipt of
dividends or other payments from its subsidiaries, including the Company's
direct wholly owned subsidiary AnnTaylor, Inc. ("Ann Taylor"). The payment of
dividends by Ann Taylor to the Company is subject to certain restrictions under
Ann Taylor's Credit Facility described below under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources". The payment of cash dividends on the common stock by the Company is
also subject to certain restrictions contained in the Company's guarantee of Ann
Taylor's obligations under the Credit 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.
ITEM 6. SELECTED FINANCIAL DATA
- -------
The following selected historical financial information for the periods
indicated has been derived from the audited consolidated financial statements of
the Company. The Company's consolidated statements of income, stockholders'
equity and cash flows for each of the three fiscal years ended January 29, 2000,
January 30, 1999 and January 31, 1998 and consolidated balance sheets as of
January 29, 2000 and January 30, 1999, as audited by Deloitte & Touche LLP,
independent auditors, appear elsewhere in this document. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto of the Company included elsewhere in this
document. All references to years are to the fiscal year of the Company, which
ends on the Saturday nearest January 31 in the following calendar year. All
fiscal years for which financial information is set forth below had 52 weeks,
except the fiscal year ended February 3, 1996 which had 53 weeks.
-10-
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------------------
January 29, January 30, January 31, February 1, February 3,
2000 1999 1998 1997 1996
------------- ----------- ------------ ----------- -----------
(dollars in thousands, except per square foot data and per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Information:
Net sales ................................... $ 1,084,519 $ 911,939 $ 781,028 $ 798,117 $ 731,142
Cost of sales ............................... 536,014 455,724 411,756 443,443 425,225
----------- ----------- ----------- ----------- -----------
Gross profit ................................ 548,505 456,215 369,272 354,674 305,917
Selling, general and administrative expenses 413,058 349,955 308,232 291,027
271,136
Studio shoe stores closing expense (a) ...... -- -- -- 3,600 --
Employment contract separation expense (b) .. -- -- -- 3,500 --
Retirement of assets (c) .................... -- 3,633 -- -- --
Amortization of goodwill (d) ............... 11,040 11,040 11,040 10,086 9,506
----------- ----------- ----------- ----------- -----------
Operating income ............................ 124,407 91,587 50,000 46,461 25,275
Interest income ............................. 4,378 2,241 1,157 176 34
Interest expense (e) ........................ 11,814 20,358 21,146 24,592 20,990
Other (income) expense, net ................. 1,257 567 548 403 38
----------- ----------- ----------- ----------- -----------
Income before income taxes and
extraordinary loss .......................... 115,714 72,903 29,463 21,642 4,281
Income tax provision ........................ 50,221 33,579 17,466 12,975 5,157
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary loss ..... 65,493 39,324 11,997 8,667 (876)
Extraordinary loss (f) ...................... 962 -- 173 -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)............................ $ 64,531 $ 39,324 $ 11,824 $ 8,667 $ (876)
=========== =========== =========== =========== ===========
Basic earnings (loss) per share before
extraordinary loss........................... $ 2.25 $ 1.53 $ 0.47 $ 0.36 $ (0.04)
Extraordinary loss per share (f) ............ 0.03 -- 0.01 -- --
----------- ----------- ----------- ----------- -----------
Basic earnings (loss) per share ............. $ 2.22 $ 1.53 $ 0.46 $ 0.36 $ (0.04)
=========== =========== =========== =========== ===========
Diluted earnings (loss) per share before
extraordinary loss........................... $ 2.08 $ 1.44 $ 0.47 $ 0.36 $ (0.04)
Extraordinary loss per share (f) ............ 0.03 -- 0.01 -- --
----------- ----------- ----------- ----------- -----------
Diluted earnings (loss) per share ........... $ 2.05 $ 1.44 $ 0.46 $ 0.36 $ (0.04)
=========== =========== =========== =========== ===========
Weighted average shares outstanding (in 000s) 29,021 25,715 25,628 23,981
23,067
Weighted average shares outstanding,
assuming dilution (in 000s) ................. 32,849 31,006 25,693 24,060 23,167
Operating Information:
Percentage increase (decrease) in comparable
store sales (g) ............................. 8.4% 7.9% (5.5)% 1.8% (8.9)%
Net sales per gross square foot (h) ......... $ 502 $ 474 $ 445 $ 476 $ 518
Number of stores:
Open at beginning of period ................. 365 324 309 306 262
Opened during the period .................... 47 45 27 11 48
Expanded during the period .................. 8 8 9 7 30
Closed during the period .................... 7 4 12 8 4
Open at the end of the period ............... 405 365 324 309 306
Total store square footage at
end of period.............................. 2,280,000 2,038,000 1,808,000 1,705,000 1,651,000
Capital expenditures......................... $ 53,409 $ 45,131 $ 22,945 $ 16,107 $ 78,378
Depreciation and amortization including
goodwill (d)................................. $ 41,387 $ 39,823 $ 38,843 $ 36,294 $ 28,294
Working capital turnover (i) ............... 6.8x 6.3x 6.5x 7.8x 7.8x
Inventory turnover (j) ...................... 4.8x 5.0x 5.1x 4.7x 4.3x
Balance Sheet Information (at end of period):
Working capital (k).......................... $ 151,368 $ 168,708 $ 122,181 $ 118,850 $ 86,477
Goodwill, net (d) ........................... 308,659 319,699 330,739 341,779 313,525
Total assets ................................ 765,117 775,417 683,661 688,139 678,709
Total debt .................................. 115,785 105,157 106,276 131,192 272,458
Preferred securities ........................ -- 96,624 96,391 96,158 --
Stockholders' equity ........................ 515,622 432,699 384,107 370,582 325,688
</TABLE>
(Footnotes on following page)
-11-
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<PAGE>
(Footnotes for preceding page. In Fiscal 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" and all prior year
per share information has been recalculated. Unless otherwise noted, all per
share information is for diluted earnings per share.)
(a) Relates to the closing of the nine Ann Taylor Studio shoe stores. The
charge of $3,600,000 ($2,052,000, or $0.08 per share, net of income tax
benefit) in Fiscal 1996 was comprised of $2,500,000 related to the
write-off of the net book value of the nine stores and $1,100,000 related
to leases and other related costs for these locations.
(b) In connection with the resignation in August 1996 of a former executive, a
one-time pre-tax charge of $3,500,000 ($1,958,000, or $0.08 per share, net
of related tax benefit) was recorded in Fiscal 1996 relating to the
estimated costs of the Company's obligations under her employment contract
with the Company.
(c) A charge of $3,633,000 ($2,180,000, or $0.07 per share, net of tax benefit)
was recorded in Fiscal 1998 for the retirement of certain assets in
connection with the renovation of the Company's corporate offices.
(d) The Company acquired Ann Taylor in a leveraged buyout in 1989. As a result
of that transaction, $380,250,000, representing the excess of the allocated
purchase price over the fair value of the Company's net assets, was
recorded as goodwill and is being amortized on a straight-line basis over
40 years. In addition, as a result of the September 1996 acquisition of the
operations that comprise the Company's sourcing division, the Company
recorded goodwill of $38,430,000 that is being amortized on a straight-line
basis over 25 years.
(e) Includes non-cash interest expense of $3,026,000, $1,290,000, $1,419,000,
$1,574,000 and $1,004,000, in Fiscal 1999, 1998, 1997, 1996 and 1995,
respectively, from amortization of deferred financing costs.
(f) In Fiscal 1999, Ann Taylor incurred an extraordinary loss of $1,603,000
($962,000, or $0.03 per share, net of income tax benefit) in connection
with the redemption of its outstanding 8 3/4% Subordinated Notes due 2000.
In Fiscal 1997, Ann Taylor incurred an extraordinary loss of $303,000
($173,000, or $0.01 per share, net of income tax benefit), in connection
with the prepayment of the outstanding balance of a term loan.
(g) Comparable store sales are calculated by excluding the net sales of a store
for any month of one period if the store was not also open during the same
month of the prior period. In a year with 53 weeks, such as Fiscal 1995,
sales in the last week of that year are not included in determining
comparable store sales. A store that is expanded by more than 15% is
treated as a new store for the first year following the opening of the
expanded store.
(h) Net sales per square foot ("sales per square foot") is determined by
dividing net sales for the period by the average of the gross square feet
at the beginning and end of each period. Unless otherwise indicated,
references herein to square feet are to gross square feet, rather than net
selling space.
(i) Working capital turnover is determined by dividing net sales by the average
of the amount of working capital at the beginning and end of the period.
(j) Inventory turnover is determined by dividing cost of sales by the average
of the cost of inventory at the beginning and end of the period (excluding
inventory associated with the Company's sourcing division). Effective
February 1, 1998, the Company elected to change its method of inventory
valuation to the average cost method as discussed in Note 1 to the
Consolidated Financial Statements of the Company.
(k) Includes current portion of long-term debt of $1,300,000, $1,206,000,
$1,119,000, $287,000 and $40,266,000, in Fiscal 1999, 1998, 1997, 1996 and
1995, respectively.
-12-
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SALES
The following table sets forth certain sales and store data for the
periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales ($000).............................. $1,084,519 $ 911,939 $ 781,028
Total net sales increase (decrease) percentage 18.9% 16.8% (2.1)%
Comparable store sales increase
(decrease) percentage ...................... 8.4% 7.9% (5.5)%
Net sales per average square foot............. $ 502 $ 474 $ 445
Total store square footage at end of period .. 2,280,000 2,038,000 1,808,000
Number of
New stores ................................. 47 45 27
Expanded stores ............................ 8 8 9
Closed stores .............................. 7 4 12
Total stores open at end of period ........... 405 365 324
</TABLE>
The Company's net sales do not show significant seasonal variation,
although net sales in the fourth quarter have historically been moderately
higher than in the other quarters. As a result, the Company has not had
significant overhead and other costs generally associated with large seasonal
variations.
RESULTS OF OPERATIONS
The following table sets forth income statement data expressed as a
percentage of net sales for the periods indicated:
Fiscal Year
-------------------------------
1999 1998 1997
----- ----- -----
Net sales............................ 100.0% 100.0% 100.0%
Cost of sales........................ 49.4 50.0 52.7
---- ---- -----
Gross profit..................... 50.6 50.0 47.3
Selling, general and
administrative expenses.......... 38.1 38.4 39.5
Retirement of assets................. --- 0.4 ---
Amortization of goodwill............. 1.0 1.2 1.4
----- ----- -----
Operating income................. 11.5 10.0 6.4
Interest income...................... 0.4 0.2 0.1
Interest expense..................... 1.1 2.2 2.7
Other expense, net................... 0.1 --- ---
----- ----- -----
Income before income taxes and
extraordinary loss............... 10.7 8.0 3.8
Income tax provision................. 4.6 3.7 2.3
----- ----- -----
Income before extraordinary loss..... 6.1 4.3 1.5
Extraordinary loss................... 0.1 --- ---
----- ----- -----
Net income........................... 6.0% 4.3% 1.5%
===== ===== =====
-13-
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<PAGE>
FISCAL 1999 COMPARED TO FISCAL 1998
The Company's net sales increased to $1,084,519,000 over $911,939,000 in
Fiscal 1998, an increase of $172,580,000, or 18.9%. Comparable store sales for
Fiscal 1999 increased 8.4%, compared to an increase of 7.9% in Fiscal 1998. The
sales increase was primarily attributable to the opening of new stores, the
expansion of existing stores and the net increase in comparable store sales in
1999. Management believes that the increase in comparable store sales was the
result of improved customer acceptance of the Company's product offerings and
merchandise assortment.
Gross profit as a percentage of net sales increased to 50.6% in 1999 from
50.0% in 1998. This increase in gross margin reflects a higher initial markup
rate, reflecting on-going improvements achieved by the Company's sourcing
division, offset in part by a higher markdown rate on goods that were sold below
full price.
Selling, general and administrative expenses were $413,058,000, or 38.1%
of net sales, in 1999, compared to $349,955,000, or 38.4% of net sales, in 1998.
The decrease in selling, general and administrative expenses as a percentage of
net sales was primarily attributable to increased leverage on fixed expenses
resulting from increased comparable store sales and improved operating
efficiencies. The benefits of this leverage were partially offset by an increase
in marketing expenditures in support of the Company's strategic initiatives to
enhance the Ann Taylor brand and increased investment in infrastructure,
including in the Company's stores organization, to support the planned expansion
of the Company's Ann Taylor Loft business.
Operating income increased to $124,407,000, or 11.5% of net sales, in 1999
from $91,587,000, or 10.0% of net sales, in 1998. Amortization of goodwill was
$11,040,000, or 1.0% of net sales, in 1999 compared to $11,040,000, or 1.2% of
net sales, in 1998. Operating income without giving effect to such amortization
was $135,447,000, or 12.5 % of net sales, in 1999 and $102,627,000, or 11.2% of
net sales, in 1998.
Interest income was $4,378,000 in 1999 compared to $2,241,000 in 1998. The
increase was primarily attributable to interest income earned on increased cash
on hand for the portion of the fiscal year prior to execution by the Company, in
the second half of 1999, of the securities repurchase program described below
under "Liquidity and Capital Resources".
Interest expense was $11,814,000 in 1999 compared to $20,358,000 in 1998.
The decrease in interest expense was primarily attributable to the redemption
during the second quarter of 1999 of the preferred securities issued by
AnnTaylor Finance Trust, the Company's special purpose finance trust, and the 8
3/4% Notes, issued by the Company's wholly-owned subsidiary, AnnTaylor, Inc.
("Ann Taylor") described below under "Liquidity and Capital Resources." This
reduction in interest expense was offset in part by interest expense on the
Convertible Subordinated Debentures due 2019 (the "Convertible Debentures")
issued by the Company during the second quarter of 1999, also described below
under "Liquidity and Capital Resources". The weighted average interest rate on
the Company's outstanding indebtedness at January 29, 2000 was 3.88% compared to
8.60% at January 30, 1999.
The income tax provision was $50,221,000, or 43.4% of income before income
taxes and extraordinary loss, in the 1999 period, compared to $33,579,000, or
46.1% of income before income taxes in 1998. The effective tax rates for both
periods were higher than the statutory rates, primarily as a result of
non-deductible goodwill expense.
On July 22, 1999, the Company applied the proceeds received from the
issuance of the Convertible Debentures to the redemption of Ann Taylor's
outstanding 8 3/4% Notes. This resulted in an extraordinary charge to earnings
in Fiscal 1999 of $962,000, net of income tax benefit, or $0.03 per share on a
diluted basis.
As a result of the foregoing factors, the Company had net income of
$64,531,000, or 6.0% of net sales, for 1999, compared to net income of
$39,324,000, or 4.3% of net sales, for 1998.
-14-
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<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
The Company's net sales increased to $911,939,000 in Fiscal 1998 over
$781,028,000 in Fiscal 1997, an increase of $130,911,000, or 16.8%. Comparable
store sales for Fiscal 1998 increased 7.9%, compared to a decrease of 5.5% in
Fiscal 1997. The sales increase was primarily attributable to the opening of new
stores, the expansion of existing stores and the net increase in comparable
store sales in 1998. Management believes that the net increase in comparable
store sales was the result of improved customer acceptance of the Company's
product offerings and merchandise assortment.
Gross profit as a percentage of net sales increased to 50.0% in 1998 from
47.3% in 1997. As discussed in Note 1 to the Consolidated Financial Statements,
the Company elected in Fiscal 1998 to change the method by which the Company
accounts for inventory, from the retail method to the average cost method. The
effect of this accounting change on Fiscal 1998 net income was an increase of
$1,272,000, or $0.04 per share on a diluted basis. Under the retail method,
gross margin as a percentage of net sales would have been approximately 49.8%.
The increase in gross margin reflects continued merchandise margin improvements
resulting from the maturation of the Company's sourcing organization, since the
acquisition of the Company's sourcing joint venture in September 1996, as well
as a reduction in markdowns as a percentage of sales.
Selling, general and administrative expenses were $349,955,000, or 38.4%
of net sales, in 1998, compared to $308,232,000, or 39.5% of net sales, in 1997.
The decrease in selling, general and administrative expenses as a percentage of
net sales was primarily attributable to increased leverage on fixed expenses
resulting from increased comparable store sales. The benefits of this leverage
were partially offset by an increase in the provision for management performance
bonus expense, and an increase in marketing expenditures in support of the
Company's strategic initiatives to enhance the Ann Taylor brand.
Operating income increased to $91,587,000, or 10.0% of net sales, in 1998
from $50,000,000, or 6.4% of net sales, in 1997. Operating income in 1998 was
reduced by $3,633,000, or 0.4% of net sales, for the retirement of certain
assets in connection with the renovation of the Company's corporate offices.
Amortization of goodwill was $11,040,000, or 1.2% of net sales, in 1998 compared
to $11,040,000, or 1.4% of net sales, in 1997. Operating income without giving
effect to such amortization was $102,627,000, or 11.2% of net sales, in 1998 and
$61,040,000, or 7.8% of net sales, in 1997.
Interest income was $2,241,000 in 1998 compared to $1,157,000 in 1997. The
increase was primarily attributable to interest income earned on increased cash
on hand.
Interest expense was $20,358,000 in 1998 compared to $21,146,000 in 1997.
The decrease in interest expense was primarily attributable to a decrease in the
Company's outstanding long-term debt, resulting in part from the prepayment in
July 1997 of a $24,500,000 term loan. The weighted average interest rate on the
Company's outstanding indebtedness at January 30, 1999 was 8.60% compared to
8.59% at January 31, 1998.
The income tax provision was $33,579,000, or 46.1% of income before income
taxes, in the 1998 period, compared to $17,466,000, or 59.3% of income before
income taxes and extraordinary loss, in 1997. The effective tax rates for both
periods were higher than the statutory rates, primarily as a result of
non-deductible goodwill expense. Without giving effect to such non-deductible
goodwill amortization, the Company's effective income tax rate was 40% of income
before income taxes in the 1998 period, compared to 43% before income taxes and
extraordinary loss in the 1997 period. The decrease in the effective income tax
rate resulted primarily from the implementation of additional state tax planning
and from an increase in the amount of income earned outside the United States by
the Company's non-U.S. sourcing subsidiaries.
As a result of the foregoing factors, the Company had net income of
$39,324,000, or 4.3% of net sales, for 1998, compared to net income of
$11,824,000, or 1.5% of net sales, for 1997.
-15-
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<PAGE>
CHANGES IN FINANCIAL POSITION
Accounts receivable decreased to $67,092,000 at the end of 1999 from
$71,049,000 at the end of 1998, a decrease of $3,957,000, or 5.6%. This decrease
was primarily attributable to construction allowance receivables, which
decreased $4,079,000 to $8,406,000 in 1999.
Merchandise inventories increased to $140,026,000 at January 29, 2000 from
$136,748,000 at January 30, 1999, an increase of $3,278,000, or 2.4%. The
increase in merchandise inventories is primarily due to inventory purchased for
new store square footage. Merchandise inventories at January 29, 2000 and
January 30, 1999 included approximately $22,959,000 and $32,329,000,
respectively, of inventory associated with the Company's sourcing division,
which is principally finished goods in transit from factories. Total square
footage increased to approximately 2,280,000 square feet at January 29, 2000
from approximately 2,038,000 square feet at January 30, 1999. Merchandise
inventory on a per square foot basis, excluding inventory associated with the
Company's sourcing division, was approximately $51 at the end of 1999 as well as
1998. Inventory turned 4.8 times in 1999 compared to 5.0 times in 1998,
excluding inventory associated with the Company's sourcing division. Inventory
turnover is determined by dividing cost of sales by the average of the cost of
inventory at the beginning and end of the period (excluding inventory associated
with the sourcing division).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of working capital is cash flow from
operations. The following table sets forth material measures of the Company's
liquidity:
Fiscal Year
-----------------------------
1999 1998 1997
---- ---- -----
(dollars in thousands)
Cash provided by operating activities....... $ 98,299 $75,535 $ 71,589
Working capital............................. $151,368 $168,708 $ 122,181
Current ratio............................... 2.26:1 2.30:1 2.39:1
Debt to equity ratio........................ .22:1 .24:1 .28:1
Cash provided by operating activities, as presented on the consolidated
statements of cash flows, increased in 1999 principally as a result of earnings,
noncash charges and decreases in net long term assets and receivables partially
offset by decreases in accounts payable and accrued liabilities and increases in
deferred income taxes, prepaid expenses and other current assets and merchandise
inventories.
Ann Taylor's principal credit facility is a bank credit facility that it
entered into in June 1998 with a syndicate of lenders (the "Credit Facility").
Ann Taylor uses the Credit Facility for the issuance of commercial and standby
letters of credit and to provide funds for other general corporate purposes. The
lenders' commitment under the Credit Facility was originally $150,000,000. The
Credit Facility had an original maturity date of June 30, 2000, subject to
extension upon the satisfaction of certain conditions. Effective September 3,
1999, Ann Taylor elected to reduce the commitment of the lenders under the
Credit Facility by $25,000,000 to $125,000,000 and extended the term of the
Credit Facility to June 30, 2001.
Loans outstanding under the Credit Facility at any time may not exceed
$50,000,000. The Company did not make any borrowings under the loan provisions
of the Credit Facility during Fiscal 1999, and there were no loans outstanding
at fiscal year end. The outstanding loan balance is required to be reduced to
zero for the thirty-day period commencing January 1 each year. This cleandown
period was achieved for January 2000. Maximum availability for loans and letters
of credit under the Credit Facility is governed by a monthly borrowing base,
determined by the application of specified advance rates against certain
eligible assets. Based on this calculation, the maximum amount available for
loans and letters of credit under the Credit Facility at January 29, 2000 was
$125,000,000. Commercial and standby letters of credit outstanding under the
Credit Facility at January 29, 2000 were approximately $69,649,000.
-16-
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<PAGE>
Amounts outstanding under the Credit Facility bear interest at a rate
equal to, at Ann Taylor's option, the lead lender's Base Rate or Eurodollar
Rate, plus a margin ranging from 0.25% to 1.00% and from 1.25% to 2.00%,
respectively. In addition, Ann Taylor is required to pay the lenders a quarterly
commitment fee on the unused revolving loan commitment amount at a rate ranging
from 0.375% to 0.5% per annum. Fees for outstanding commercial and standby
letters of credit range from 0.625% to 1.0% and from 1.25% to 2.0%,
respectively.
The Credit Facility contains financial and other covenants, including
limitations on indebtedness, liens and investments, restrictions on dividends or
other distributions to stockholders and maintenance of certain financial ratios
including a specified fixed charge ratio and specified levels of net worth.
The lenders have been granted a pledge of the common stock of Ann Taylor
and certain of its subsidiaries, and a security interest in substantially all
other tangible and intangible assets, including accounts receivable, trademarks,
inventory, store furniture and fixtures, of Ann Taylor and its subsidiaries, as
collateral for Ann Taylor's obligations under the Credit Facility.
During the second quarter of Fiscal 1999, the Company completed the
issuance of an aggregate of $199,072,000 principal amount at maturity of its
Convertible Debentures. The Convertible Debentures were sold at an original
issue price of $552.56 per $1,000 principal amount at maturity of Debenture. The
net proceeds of the sale were applied to the redemption, described below, of the
$100,000,000 outstanding 8 3/4% Subordinated Notes due 2000 (the "8 3/4% Notes")
issued by Ann Taylor. Cash interest is payable on the principal amount at
maturity of the Convertible Debentures at the rate of 0.55% per annum. This
interest rate and the accrual of original issue discount represent a yield to
maturity on the Convertible Debentures of 3.75%. The Convertible Debentures are
convertible at the option of the holders thereof initially into 12.078 shares of
the Company's common stock per $1,000 principal amount at maturity of Debenture.
The Convertible Debentures may be redeemed at the Company's option on or after
June 18, 2004. The Company's obligations with respect to the Convertible
Debentures are guaranteed on a subordinated basis by Ann Taylor.
On July 22, 1999, Ann Taylor redeemed all of its outstanding 8 3/4% Notes,
at a redemption price of 101.375% of principal amount, plus accrued unpaid
interest to the redemption date. The redemption of the 8 3/4% Notes resulted in
an extraordinary charge to earnings in the second quarter and fiscal year of
$962,000, or $0.03 per share on a diluted basis, net of income tax benefit.
On June 29, 1999, the Company's special purpose financing vehicle,
AnnTaylor Finance Trust, redeemed all of its outstanding 8 1/2% Company
Obligated Mandatorily Redeemable Convertible Preferred Securities ("preferred
securities"). All but $100,000 liquidation amount of the preferred securities
were tendered for conversion into an aggregate of 5,116,717 shares of Company
common stock prior to the redemption date, at a conversion price of $19.65 per
share of common stock, or 2.545 shares of common stock per $50 liquidation
amount of the security. The 5,116,717 shares of Company common stock issued
represented approximately 16% of the Company's outstanding common stock as of
the date of issuance. Holders of preferred securities that were not tendered for
conversion received a cash payment equal to 105.95% of the liquidation amount of
the preferred securities redeemed, plus accrued distributions.
Ann Taylor and its wholly owned subsidiary, AnnTaylor Distribution
Services, Inc., are parties to a $7,000,000 seven-year mortgage loan maturing in
Fiscal 2002. The loan is secured by the Company's distribution center land and
building in Louisville, Kentucky. The mortgage loan bears interest at 7.5% and
is payable in monthly installments of approximately $130,000. The mortgage loan
balance at January 29, 2000 was $3,950,000.
The Company's capital expenditures totaled $53,409,000, $45,131,000 and
$22,945,000, in Fiscal 1999, 1998 and 1997, respectively. Capital expenditures
were primarily attributable to the Company's store expansion, renovation and
refurbishment programs, as well as the investment the Company made in certain
information systems and, in Fiscal 1999 and 1998, the Company's corporate
offices. The Company expects its total capital expenditure requirements in
Fiscal 2000 will be approximately $78,000,000, including capital for new store
construction for a planned square footage increase of approximately 460,000
square feet, or 20%, as well as capital to support continued investments in
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information systems. The actual amount of the Company's capital expenditures
will depend in part on the number of stores opened, expanded and refurbished and
on the amount of construction allowances the Company receives from the landlords
of its new or expanded stores. See "Business--Stores and Expansion".
On September 9, 1999, the Company announced a securities repurchase
program authorized by its Board of Directors, pursuant to which the Company was
authorized to purchase up to $40,000,000 of the Company's common stock and/or
Convertible Debentures, through open market purchases and privately negotiated
transactions. In January 2000, the Board of Directors authorized a $50,000,000
increase in the securities repurchase program, bringing the total amount of
securities that may be repurchased under the program to $90,000,000. In the
third and fourth quarters of 1999, the Company repurchased an aggregate of
3,012,500 shares of its Common Stock, for an aggregate repurchase price of
$89,900,000 (exclusive of brokerage commissions), pursuant to this program. All
of the repurchased shares became treasury shares and may be used for general
corporate and other purposes. No Convertible Debentures were repurchased.
Dividends and distributions from Ann Taylor to the Company are restricted
by the Credit Facility.
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 Facility. The Company believes that cash flow from
operations and funds available under the Credit Facility are sufficient to
enable it to meet its on-going cash needs for its business, as presently
conducted, for the foreseeable future.
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 average cost method, which traces each inventory unit and
its cost, is a preferable method for matching the cost of merchandise with the
revenues generated. The retail method does not provide for individual unit cost
information. The cumulative effect of this accounting change on February 1, 1998
was not material. The effect of this accounting change on Fiscal 1998 net income
was an increase of $1,272,000, or $0.04 per share on a diluted basis. It is not
possible to determine the effect of the change on income in fiscal periods
ending prior to February 1, 1998 as no cost information was available.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133". This statement establishes accounting
and reporting standards for derivative instruments embedded in other contracts,
and for hedging activities. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management is currently
evaluating the impact of this statement and believes its adoption will not
affect the Company's consolidated financial position, results of operations or
cash flows.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURES
Sections of this Annual Report on Form 10-K, 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", "intend", "project", "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 predict accurately
customer fashion preferences; a decline in the demand for merchandise offered by
the Company; competitive influences; changes in levels of store traffic or
consumer spending habits; effectiveness of the Company's brand awareness and
marketing programs; lack of sufficient customer acceptance of the Ann Taylor
Loft concept in the upper-moderate-priced women's apparel market; general
economic conditions that are less favorable than expected or a downturn in the
retail industry; 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; lack of sufficient consumer interest in an Ann Taylor Internet
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Website; 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; financial or political instability in
any of the countries in which the Company's goods are manufactured; or an
adverse outcome of the litigation referred to in Note 5 to the Consolidated
Financial Statements of the Company as of January 29, 2000, that materially and
adversely affects the Company's financial condition. The Company assumes no
obligation to update or revise any such forward looking statements, which speak
only as of their date, 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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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company maintains the majority of its cash and cash equivalents in
financial instruments with original maturities of three months or less. These
financial instruments are subject to interest rate risk and will decline in
value if interest rates increase. Due to the short duration of these financial
instruments, a change of 100 basis points in interest rates would not have a
material effect on the Company's financial condition.
The Company's outstanding long-term debt as of January 29, 2000 bears
interest at fixed rates; therefore, the Company's results of operations would
only be affected by interest rate changes to the extent that fluctuating rate
loans are outstanding under the Credit Facility. As of January 29, 2000, the
Company has no such amounts outstanding. Future borrowings would be affected by
interest rate changes; however, the Company does not believe that a change of
100 basis points in interest rates would have a material effect on the Company's
financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company for the
years ended January 29, 2000, January 30, 1999 and January 31, 1998 are
included as a part of this Report (See Item 14):
Consolidated Statements of Income for the fiscal years ended January 29,
2000, January 30, 1999 and January 31, 1998.
Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999.
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 29, 2000, January 30, 1999 and January 31, 1998.
Consolidated Statements of Cash Flows for the fiscal years ended January
29, 2000, January 30, 1999 and January 31, 1998.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to the Section entitled "Election of Class III Directors", "Executive Officers"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
Proxy Statement for its 2000 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Sections entitled "Compensation of Directors and Related Matters",
"Compensation Committee Report on Executive Compensation" and "Executive
Compensation" in the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the Section entitled "Beneficial Ownership of Common Stock" in the Company's
Proxy Statement for its 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the Section entitled "Compensation Committee Report on Executive
Compensation--Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" in the Company's Proxy Statement for its 2000 Annual
Meeting of Stockholders.
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PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Annual Report:
The following consolidated financial statements of the Company are
included on pages 28 through 47 and are filed as part of this Annual
Report: Independent Auditors' Report; Consolidated Statements of
Income for the fiscal years ended January 29, 2000, January 30, 1999
and January 31, 1998; Consolidated Balance Sheets as of January 29,
2000 and January 30, 1999; Consolidated Statements of Stockholders'
Equity for the fiscal years ended January 29, 2000, January 30, 1999
and January 31, 1998; Consolidated Statements of Cash Flows for the
fiscal years ended January 29, 2000, January 30, 1999, and January 31,
1998; Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K
The Company filed a report dated January 10, 2000 with the Commission
on Form 8-K, with respect to the approval by the Company's Board of
Directors of a $50,000,000 increase in the Company's securities
repurchase program that was originally announced in September 1999,
raising the total amount of the securities that may be purchased under
the program to $90,000,000.
(c) Exhibits
The exhibits listed below are filed as a part of this Annual Report.
EXHIBIT NUMBER
--------------
3.1 Restated Certificate of Incorporation of the Company as amended
through May 18, 1999. Incorporated by reference to Exhibit 3.1 to
the Form 10-Q of the Company for the Quarter Ended May 1, 1999
filed on June 1, 1999.
3.2 By-Laws of the Company. Incorporated by reference to Exhibit 3.2 to
the Form 10-Q of the Company for the Quarter Ended November 2, 1991
filed on December 17, 1991 (Registration No. 33-28522).
4.1 Indenture, dated as of June 18, 1999, between the Company, Ann
Taylor, and the Bank of New York, as Trustee relating to the
Company's Convertible Subordinated Debentures due 2019.
Incorporated by reference to Exhibit 4.01 to the Registration
Statement of the Company filed on September 13, 1999.
4.2 Registration Rights Agreement, dated as of June 18, 1999, between
the Company, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith and Banc America Securities LLC. Incorporated by reference to
Exhibit 4.02 to the Registration Statement of the Company filed on
September 13, 1999.
10.1 1989 Stock Option Plan. Incorporated by reference to Exhibit 10.18
to the Registration Statement of the Company and Ann Taylor filed
on May 3, 1989 (Registration No. 33-28522).
10.1.1 Amendment to 1989 Stock Option Plan. Incorporated by reference to
Exhibit 10.15.1 to the Annual Report on Form 10-K of the Company
filed on April 30, 1993.
10.2 Lease, dated as of March 17, 1989, between Carven Associates and
Ann Taylor concerning the West 57th Street headquarters.
Incorporated by reference to Exhibit 10.21 to the Registration
Statement of the Company and Ann Taylor filed on May 3, 1989
(Registration No. 33-28522).
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<PAGE>
EXHIBIT NUMBER
- --------------
10.2.1 First Amendment to Lease, dated as of November 14, 1990, between
Carven Associates and Ann Taylor. Incorporated by reference to
Exhibit 10.17.1 to the Registration Statement of the Company filed
on April 11, 1991 (Registration No. 33-39905).
10.2.2 Second Amendment to Lease, dated as of February 28, 1993, between
Carven Associates and Ann Taylor. Incorporated by reference to
Exhibit 10.17.2 to the Annual Report on Form 10-K of the Company
filed on April 29, 1993.
10.2.3 Extension and Amendment to Lease dated as of October 1, 1993,
between Carven Associates and Ann Taylor. Incorporated by reference
to Exhibit 10.11 to the Form 10-Q of Ann Taylor for the Quarter
ended October 30, 1993 filed on November 26, 1993.
10.2.4 Modification of Amendment and Extension to Lease, dated as of April
14, 1994 between Carven Associates and Ann Taylor. Incorporated by
reference to Exhibit 10.15.4 to the Annual Report on Form 10-K of
the Company filed on April 28, 1995.
10.2.5 Fifth Amendment to Lease, dated as of March 14, 1995, between
Carven Associates and Ann Taylor. Incorporated by reference to
Exhibit 10.15.5 to the Annual Report on Form 10-K of the Company
filed on April 28, 1995.
10.2.6 Sixth Amendment to Lease, dated as of January 5, 1996, between
Pacific Metropolitan Corporation and Ann Taylor. Incorporated by
reference to Exhibit 10.8.6 to the Annual Report on Form 10-K of
the Company filed on April 30, 1998.
10.2.7 Seventh Amendment to Lease, dated as of June 5, 1996, between
Pacific Metropolitan Corporation and Ann Taylor. Incorporated by
reference to Exhibit 10.8.7 to the Annual Report on Form 10-K of
the Company filed on April 30, 1998.
10.2.8 Eighth Amendment to Lease, undated, between Pacific Metropolitan
Corporation and Ann Taylor. Incorporated by reference to Exhibit
10.8.8 to the Annual Report on Form 10-K of the Company filed on
April 30, 1998.
10.2.9 Ninth Amendment to Lease, dated as of May 13, 1997, between Pacific
Metropolitan Corporation and Ann Taylor. Incorporated by reference
to Exhibit 10.8.9 to the Annual Report on Form 10-K of the Company
filed on April 30, 1998.
10.2.10 Tenth Amendment to Lease, dated as of May 21, 1997, between Pacific
Metropolitan Corporation and Ann Taylor. Incorporated by reference
to Exhibit 10.8.10 to the Annual Report on Form 10-K of the Company
filed on April 30, 1998.
10.2.11 Eleventh Amendment to Lease, dated as of May 15, 1998, between
Pacific Metropolitan Corporation and Ann Taylor. Incorporated by
reference to Exhibit 10.3.11 to the Annual Report on Form 10-K of
the Company filed on March 29, 1999.
10.2.12 Sublease Agreement, dated as of February 23, 1999, between Societe
Air France (formerly known as Compagnie Nationale Air France) and
Ann Taylor.
10.3 Tax Sharing Agreement, dated as of July 13, 1989, between the
Company and Ann Taylor. Incorporated by reference to Exhibit 10.24
to Amendment No. 2 to the Registration Statement of the Company and
Ann Taylor filed on July 13, 1989 (Registration No. 33-28522).
10.4 Employment Agreement dated as of February 1, 1994 between the
Company and Sally Frame Kasaks. Incorporated by reference to
Exhibit 10.8 to the Form 10-Q of the Company for the Quarter ended
October 29, 1994 filed on December 9, 1994.
10.5 Employment Agreement dated February 16, 1996 between the Company
and J. Patrick Spainhour. Incorporated by reference to Exhibit 10.4
to the Annual Report on Form 10-K of the Company filed on April 8,
1996.
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<PAGE>
EXHIBIT NUMBER
- --------------
10.5.1 Amendment to the Employment Agreement, dated August 23, 1996,
between the Company and J. Patrick Spainhour. Incorporated by
reference to Exhibit 10.11.1 to the Annual Report on Form 10-K of
the Company filed on May 1, 1997.
10.5.2 Amendment #2 to the Employment Agreement, dated August 12, 1999,
between the Company and J. Patrick Spainhour. Incorporated by
reference to Exhibit 10.6.2 to the Form 10-Q of the Company
for the Quarter ended July 31, 1999 filed on September 14, 1999.
Confidential treatment has been granted with respect to certain
portions of this exhibit.
10.5.3 Amendment #3 to the Employment Agreement, dated March 10, 2000,
between the Company and J. Patrick Spainhour.
10.6 Employment Agreement dated November 25, 1996 between the Company
and Patricia DeRosa. Incorporated by reference to Exhibit 10.3 to
Form 10-Q of Ann Taylor for the Quarter ended November 2, 1996
filed on December 17, 1996.
10.6.1 Amendment #1 to the Employment Agreement, dated as of February 16,
2000, between the Company and Patricia DeRosa. Confidential
treatment has been requested with respect to certain portions of
this exhibit.
10.7 Employment Agreement dated September 20, 1996 between Ann Taylor
and Dwight F. Meyer. Incorporated by reference to Exhibit 10.4 to
the Form 10-Q of Ann Taylor for the Quarter ended November 2, 1996
filed on December 17, 1996.
10.8 The AnnTaylor Stores Corporation 1992 Stock Option and Restricted
Stock and Unit Award Plan, Amended and Restated as of February 23,
1994. Incorporated by reference to Exhibit 10.15 to the Annual
Report on Form 10-K of the Company filed on May 1, 1997.
10.8.1 Amendment to the AnnTaylor Stores Corporation Amended and Restated
1992 Stock Option and Restricted Stock and Unit Award Plan, as
approved by stockholders on June 18, 1997. Incorporated by
reference to Exhibit 10.15.1 to the Form 10-Q of the Company for
the Quarter Ended August 2, 1997 filed on September 12, 1997.
10.8.2 Amendment to the AnnTaylor Stores Corporation Amended and
Restated 1992 Stock Option and Restricted Stock and Unit Award
Plan dated as of January 16, 1998. Incorporated by reference to
Exhibit 10 of Form 8-K of the Company filed on March 12, 1998.
10.8.3 Amendment to the AnnTaylor Stores Corporation Amended and Restated
1992 Stock Option and Restricted Stock and Unit Award Plan dated as
of May 2, 1998. Incorporated by reference to Exhibit 10.16.3 to the
Form 10-Q of the Company for the Quarter ended April 2, 1998 filed
on June 16, 1998.
10.8.4 Amendment to the AnnTaylor Stores Corporation Amended and Restated
1992 Stock Option and Restricted Stock and Unit Award Plan dated as
of March 10, 2000.
10.9 AnnTaylor Stores Corporation Amended and Restated Management
Performance Compensation Plan, as approved by stockholders on June
18, 1997. Incorporated by reference to Exhibit 10.16 to the Form
10-Q of the Company for the Quarter Ended August 2, 1997 filed on
September 12, 1997.
10.9.1 Amendment to the AnnTaylor Stores Corporation Amended and Restated
Management Performance Compensation Plan dated as of March 12,
1998. Incorporated by reference to Exhibit 10.17.1 to the Annual
Report on Form 10-K of the Company filed on April 30, 1998.
10.9.2 Amendment to the AnnTaylor Stores Corporation Amended and Restated
Management Performance Compensation Plan, dated as of March 10,
2000.
10.10 Associate Stock Purchase Plan. Incorporated by reference to Exhibit
10.31 to the Form 10-Q of the Company for the Quarter Ended October
31, 1992 filed on December 15, 1992.
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EXHIBIT NUMBER
- --------------
10.11 AnnTaylor Stores Corporation Deferred Compensation Plan.
Incorporated by reference to Exhibit 10.33 to the Annual Report on
Form 10-K of the Company filed on April 28, 1995.
10.11.1 Amendment to the AnnTaylor Stores Corporation Deferred Compensation
Plan as approved by the Board of Directors on August 11, 1995.
Incorporated by reference to Exhibit 10.33.1 to the Form 10-Q of
the Company for the Quarter Ended July 29, 1995 filed on September
11, 1995.
10.12 Mortgage, Assignment of Rents and Leases, Security Agreement and
Fixture Financing Statement dated November 20, 1995, between
AnnTaylor Distribution Services, Inc., as Mortgagor, and General
Electric Capital Assurance Company, as Mortgagee. Incorporated by
reference to Exhibit 10.34 to the Form 10-Q of Ann Taylor for the
Quarter ended October 28, 1995 filed on December 8, 1995.
10.13 Promissory Note dated November 20, 1995 from Ann Taylor and
AnnTaylor Distribution Services, Inc., collectively as Borrower, to
General Electric Capital Assurance Company, as Lender. Incorporated
by reference to Exhibit 10.35 to the Form 10-Q of Ann Taylor for
the Quarter ended October 28, 1995 filed on December 8, 1995.
10.14 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.
Incorporated by reference to Exhibit 10.27 to the Form 10-Q of the
Company for the Quarter Ended May 2, 1998 filed on June 16, 1998.
10.15 Credit Agreement, dated as of June 30, 1998 among Ann Taylor, Bank
of America, Citicorp USA and First Union National Bank, as
Co-Agents, the financial institutions from time to time party
thereto, BancAmerica Robertson Stephens, as Arranger, and Bank of
America, as Administrative Agent. Incorporated by reference to
Exhibit 10.28 to the Form 10-Q of the Company for the Quarter Ended
August 1, 1998 filed on September 14, 1998.
10.15.1 Trademark Security Agreement, dated as of June 30, 1998, made by
Ann Taylor in favor of Bank of America, as Administrative Agent.
Incorporated by reference to Exhibit 10.28.1 to the Form 10-Q of
the Company for the Quarter Ended August 1, 1998 filed on September
14, 1998.
10.15.2 Guaranty, dated as of June 30, 1998, made by the Company in favor
of Bank of America, as Administrative Agent. Incorporated by
reference to Exhibit 10.28.2 to the Form 10-Q of the Company for
the Quarter Ended August 1, 1998 filed on September 14, 1998.
10.15.3 Security and Pledge Agreement, dated as of June 30, 1998, made by
the Company in favor of Bank of America, as Administrative Agent.
Incorporated by reference to Exhibit 10.28.3 to the Form 10-Q of
the Company for the Quarter Ended August 1, 1998 filed on September
14, 1998.
10.15.4 Security and Pledge Agreement, dated as of June 30, 1998 made by
Ann Taylor in favor of Bank of America, as Administrative Agent.
Incorporated by reference to Exhibit 10.28.4 to the Form 10-Q of
the Company for the Quarter Ended August 1, 1998 filed on September
14, 1998.
10.15.5 Subsidiary Guaranty, dated as of June 30, 1998 made by AnnTaylor
Distribution Services in favor of Bank of America, as
Administrative Agent. Incorporated by reference to Exhibit 10.28.5
to the Form 10-Q of the Company for the Quarter Ended August 1,
1998 filed on September 14, 1998.
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EXHIBIT NUMBER
- --------------
10.15.6 First Amendment to the Credit Agreement, dated as of September 7,
1999, among Ann Taylor, Bank of America, N.A., Citibank, N.A.,
First Union National Bank and each of the other lenders party to
the Credit Agreement, NationsBanc Montgomery Securities LLC, as
Arranger and Bank of America, as Administrative Agent. Incorporated
by reference to Exhibit 10.19.6 to the Form 10-Q of the Company for
the Quarter Ended July 31, 1999 filed on September 14, 1999.
10.15.7 Second Amendment to the Credit Agreement, dated December 1999,
among Ann Taylor, Bank of America, N.A., Citibank, N.A., First
Union National Bank, and each of the other lenders party to the
Credit Agreement, NationsBanc Montgomery Securities LLC, as
Arranger and Bank of America, as Administrative Agent.
10.16 AnnTaylor Stores Corporation Long-Term Cash Incentive Compensation
Plan, as approved by stockholders on June 17, 1998. Incorporated by
reference to Exhibit A to the Proxy Statement dated May 1, 1998
filed on May 6, 1998.
10.16.1 Amendment to the AnnTaylor Stores Corporation Long-Term Cash
Incentive Compensation Plan, dated as of March 10, 2000.
10.17 Separation Agreement dated March 25, 1999 between Ann Taylor and
Walter Parks. Incorporated by reference to Exhibit 10.21 to the
Form 10-Q of the Company for the Quarter Ended May 1, 1999 filed on
June 1, 1999.
10.18 AnnTaylor Stores Corporation Special Severance Plan, dated as of
March 10, 2000.
18 Preferability letter relating to the change in accounting
principle. Incorporated by reference to Exhibit 18 to the Form 10-Q
of the Company for the Quarter Ended May 2, 1998 filed on June 16,
1998.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ J. Patrick Spainhour
-------------------------
J. Patrick Spainhour
Chairman and Chief Executive Officer
Date: April 18, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ J. Patrick Spainhour Chairman and Chief Executive April 18, 2000
- ------------------------ Officer and Director
J. Patrick Spainhour
/s/ Patricia DeRosa President and Chief Operating April 18, 2000
- ------------------------- Officer and Director
Patricia DeRosa
/s/ Barry Erdos Executive Vice President - April 18, 2000
- ------------------------- Chief Financial Officer
Barry Erdos and Treasurer
/s/ James M. Smith Vice President and Controller April 18, 2000
- ------------------------- Principal Accounting Officer
James M. Smith
/s/ Gerald S. Armstrong Director April 18, 2000
- -------------------------
Gerald S. Armstrong
/s/ James J. Burke, Jr. Director April 18, 2000
- -------------------------
James J. Burke, Jr.
/s/ Wesley E. Cantrell Director April 18, 2000
- --------------------------
Wesley E. Cantrell
/s/ Robert C. Grayson Director April 18, 2000
- --------------------------
Robert C. Grayson
/s/ Ronald W. Hovsepian Director April 18, 2000
- --------------------------
Ronald W. Hovsepian
/s/ Rochelle B. Lazarus Director April 18, 2000
- --------------------------
Rochelle B. Lazarus
/s/ Hanne M. Merriman Director April 18, 2000
- --------------------------
Hanne M. Merriman
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<PAGE>
ANNTAYLOR STORES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Independent Auditors' Report...................................... 29
Consolidated Financial Statements:
Consolidated Statements of Income for the fiscal years ended
January 29, 2000, January 30, 1999 and January 31, 1998... 30
Consolidated Balance Sheets as of January 29, 2000 and
January 30, 1999......................................... 31
Consolidated Statements of Stockholders' Equity for the fiscal
years ended January 29, 2000, January 30, 1999 and
January 31, 1998........................................... 32
Consolidated Statements of Cash Flows for the fiscal years
ended January 29, 2000, January 30, 1999 and
January 31, 1998........................................... 33
Notes to Consolidated Financial Statements................... 34
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INDEPENDENT AUDITORS' REPORT
To the Stockholders of
ANNTAYLOR STORES CORPORATION:
We have audited the accompanying consolidated financial statements of
AnnTaylor Stores Corporation and its subsidiaries, listed in the accompanying
index. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries at January 29, 2000 and January 30, 1999 and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended January 29, 2000 in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, during
the fiscal year ended January 30, 1999, the Company changed its method of
inventory valuation to the average cost method from the retail method.
DELOITTE & TOUCHE LLP
New York, New York
March 6, 2000
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<PAGE>
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended January 29, 2000, January 30, 1999
and January 31, 1998
Fiscal Years Ended
----------------------------------
January 29, January 30, January 31,
2000 1999 1998
--------- --------- ----------
(in thousands, except per share amounts)
Net sales.............................. $1,084,519 $ 911,939 $ 781,028
Cost of sales.......................... 536,014 455,724 411,756
-------- -------- --------
Gross profit........................... 548,505 456,215 369,272
Selling, general and administrative
expenses............................. 413,058 349,955 308,232
Retirement of assets................... --- 3,633 ---
Amortization of goodwill............... 11,040 11,040 11,040
-------- -------- --------
Operating income....................... 124,407 91,587 50,000
Interest income........................ 4,378 2,241 1,157
Interest expense....................... 11,814 20,358 21,146
Other expense, net..................... 1,257 567 548
-------- -------- --------
Income before income taxes and
extraordinary loss................... 115,714 72,903 29,463
Income tax provision................... 50,221 33,579 17,466
-------- -------- --------
Income before extraordinary loss....... 65,493 39,324 11,997
Extraordinary loss (net of income
tax benefit of $641,000, $0
and $130,000, respectively).......... 962 --- 173
-------- -------- --------
Net income......................... $ 64,531 $ 39,324 $ 11,824
======== ======== ========
Basic earnings per share:
Basic earnings per share before
extraordinary loss............... $ 2.25 $ 1.53 $ 0.47
Extraordinary loss per share....... 0.03 --- 0.01
-------- -------- --------
Basic earnings per share........... $ 2.22 $ 1.53 $ 0.46
======== ======== =======
Diluted earnings per share:
Diluted earnings per share before
extraordinary loss............... $ 2.08 $ 1.44 $ 0.47
Extraordinary loss per share....... 0.03 --- 0.01
-------- -------- --------
Diluted earnings per share......... $ 2.05 $ 1.44 $ 0.46
======== ======== ========
See accompanying notes to consolidated financial statements.
-30-
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<PAGE>
ANNTAYLOR STORES CORPORATION
CONSOLIDATED BALANCE SHEETS
January 29, 2000 and January 30, 1999
January 29, January 30,
2000 1999
---------- ----------
ASSETS (in thousands)
Current assets
Cash and cash equivalents..............................$ 35,081 $67,031
Accounts receivable, net............................... 67,092 71,049
Merchandise inventories................................ 140,026 136,748
Prepaid expenses and other current assets.............. 29,390 23,637
------ ------
Total current assets............................... 271,589 298,465
Property and equipment, net.............................. 173,639 151,785
Goodwill, net............................................ 308,659 319,699
Deferred financing costs, net............................ 5,358 2,627
Other assets............................................. 5,872 2,841
------ ------
Total assets.......................................$765,117 $775,417
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................$ 56,175 $65,419
Accrued salaries and bonus............................. 23,297 17,132
Accrued tenancy........................................ 7,800 8,465
Gift certificates and merchandise credits redeemable... 15,618 12,102
Accrued expenses....................................... 16,031 25,433
Current portion of long-term debt...................... 1,300 1,206
------ ------
Total current liabilities.......................... 120,221 129,757
Long-term debt, net...................................... 114,485 103,951
Deferred lease costs and other liabilities............... 14,789 12,386
Commitments and contingencies
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of Subsidiary, AnnTaylor
Finance Trust, Holding Solely Convertible Debentures... --- 96,624
Stockholders' equity
Common stock, $.0068 par value; 120,000,000 and
40,000,000 shares authorized, respectively;
31,598,423 and 26,035,301 shares issued,
respectively......................................... 215 177
Additional paid-in capital............................. 470,307 359,805
Warrants to acquire 0 and 2,814 shares of common
stock, respectively.................................. --- 46
Retained earnings...................................... 137,730 73,295
Deferred compensation on restricted stock.............. (2,246) (272)
------ ------
606,006 433,051
Treasury stock, 3,028,448 and 17,201 shares,
respectively, at cost........................... (90,384) (352)
------- ------
Total stockholders' equity......................... 515,622 432,699
------- -------
Total liabilities and stockholders' equity.........$765,117 $775,417
======= =======
See accompanying notes to consolidated financial statements.
-31-
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<PAGE>
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Fiscal Years Ended January 29, 2000, January 30, 1999
and January 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Warrants Restricted Treasury Stock
--------------------- Paid-In --------------- Retained Stock ------------------
Shares Amount Capital Shares Amount Earnings Awards Shares Amount
--------- --------- --------- ------ ------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1997 ....... 25,598 $ 174 $ 349,545 3 $ 46 $ 22,613 $ (1,590) 12 $ (206)
Net income ........................ -- -- -- -- -- 11,824 -- -- --
Exercise of stock options and
related tax benefit ............ 48 -- 890 -- -- -- -- 1 (10)
Amortization of discount on
preferred securities .......... -- -- -- -- -- (233) -- -- --
Activity related to common
stock issued as employee
incentives ..................... 12 -- 212 -- -- -- 853 -- (11)
--------- -------- --------- ----- ------- --------- --------- -------- --------
Balance at January 31, 1998 ....... 25,658 174 350,647 3 46 34,204 (737) 13 (227)
Net income ........................ -- -- -- -- -- 39,324 -- -- --
Exercise of stock options and
related tax benefit ............ 373 3 9,061 -- -- -- -- 3 (106)
Amortization of discount on
preferred securities .......... -- -- -- -- -- (233) -- -- --
Activity related to common
stock issued as employee
incentives ..................... 4 -- 97 -- -- -- 465 1 (19)
--------- -------- --------- ----- ------- --------- --------- -------- --------
Balance at January 30, 1999 ....... 26,035 177 359,805 3 46 73,295 (272) 17 (352)
Net income ........................ -- -- -- -- -- 64,531 -- -- --
Exercise of stock options and
related tax benefit ............ 352 2 10,039 -- -- -- -- 1 (55)
Amortization of discount on
preferred securities .......... -- -- -- -- -- (96) -- -- --
Activity related to common
stock issued as employee
incentives ..................... 94 1 3,850 -- -- -- (1,974) -- --
Exercise and expiration of warrants -- -- 28 (3) (46) -- -- (3) 18
Repurchase of common stock ........ -- -- -- -- -- -- -- 3,013 (89,995)
Conversion of preferred
securities .................... 5,117 35 96,585 -- -- -- -- -- --
--------- --------- --------- ----- ------- --------- --------- -------- --------
Balance at January 29, 2000 ....... 31,598 $ 215 $470,307 -- -- $ 137,730 $ (2,246) 3,028 $(90,384)
========= ========= ========= ===== ======= ========= ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended January 29, 2000, January 30, 1999
and January 31, 1998
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------
January 29, January 30, January 31,
2000 1999 1998
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net income ..................................................... $ 64,531 $ 39,324 $ 11,824
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss ........................................ 1,603 --- 303
Provision for loss on accounts receivable ................. 1,032 1,476 1,795
Depreciation and amortization ............................. 30,347 28,783 27,803
Amortization of goodwill .................................. 11,040 11,040 11,040
Amortization of deferred compensation ..................... 1,877 465 1,065
Non-cash interest ......................................... 3,026 1,290 1,419
Deferred income taxes ..................................... (3,843) 3,966 (2,687)
Loss on disposal of property and equipment ................ 1,219 4,175 248
Changes in assets and liabilities:
Decrease (increase) in receivables .................. 2,925 (12,314) 1,599
Decrease (increase) in merchandise inventories ...... (3,278) (39,514) 3,003
Decrease (increase) in prepaid expenses and
other current assets ............................ (5,680) (5,581) 1,894
Decrease in other non-current assets and liabilities,
net ............................................. 3,131 679 2,861
Increase (decrease) in accounts payable and
and accrued liabilities .............................. (9,631) 41,746 9,422
--------- --------- ---------
Net cash provided by operating activities ...................... 98,299 75,535 71,589
--------- --------- ---------
Investing activities:
Purchases of property and equipment ............................ (53,409) (45,131) (22,945)
--------- --------- ---------
Net cash used by investing activities .......................... (53,409) (45,131) (22,945)
--------- --------- ---------
Financing activities:
Proceeds from issuance of Convertible Debentures ............... 110,000 --- ---
Redemption of 8 3/4% Notes ..................................... (101,375) --- ---
Redemption of Company Obligated Mandatorily Redeemable
Convertible Preferred Secutities ............................. (100) --- ---
Repayment of term loan ......................................... -- --- (24,500)
Term loan prepayment penalty ................................... -- --- (184)
Payments of mortgage ........................................... (1,206) (1,119) (416)
Repurchase of common stock ..................................... (89,995) --- ---
Proceeds from exercise of stock options ........................ 9,986 9,036 869
Payment of financing costs ..................................... (4,150) (2,659) (69)
--------- --------- ---------
Net cash provided by (used by) financing activities ............ (76,840) 5,258 (24,300)
--------- --------- ---------
Net increase (decrease) in cash ................................... (31,950) 35,662 24,344
Cash, beginning of year ........................................... 67,031 31,369 7,025
--------- --------- ---------
Cash, end of year ................................................. $ 35,081 $ 67,031 $ 31,369
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ......................... $ 9,405 $ 18,582 $ 19,251
========= ========= =========
Cash paid during the year for income taxes ..................... $ 51,222 $ 33,934 $ 17,220
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-33-
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<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is a leading national specialty retailer of better quality
women's apparel, shoes and accessories sold principally under the Ann Taylor
brand name.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of AnnTaylor
Stores Corporation (the "Company") and its subsidiaries, including AnnTaylor,
Inc. ("Ann Taylor"). The Company has no material assets other than the common
stock of Ann Taylor and conducts no business other than the management of Ann
Taylor. All intercompany accounts have been eliminated in consolidation.
Certain Fiscal 1998 and 1997 amounts have been reclassified to conform to
the Fiscal 1999 presentation.
FISCAL YEAR
The Company follows the standard fiscal year of the retail industry, which
is a 52 or 53 week period ending on the Saturday closest to January 31 of the
following calendar year. All fiscal years presented include 52 weeks.
REVENUE RECOGNITION
The Company records revenue as merchandise is sold. The Company's policy
with respect to gift certificates is to record revenue as the certificates are
redeemed for merchandise. Prior to their redemption, the certificates are
recorded as a liability.
CASH EQUIVALENTS
Cash and short-term highly liquid investments with original maturities of
three months or less are considered cash or cash equivalents.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of average cost or market.
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 average cost method is a preferable method for matching the
cost of merchandise with the revenues generated. This is principally because the
average cost method traces each individual unit sold during a period and its
individual cost, while the retail method estimates the cost value of the
inventory sold, instead of using the actual cost of each individual unit. The
cumulative effect of this accounting change on February 1, 1998 was not
material. The effect of this accounting change on Fiscal 1998 net income was an
increase of $1,272,000, or $0.04 per share on a diluted basis. It is not
possible to determine the effect of the change on income in any previously
reported fiscal years as no cost information was available.
The majority of the Company's inventory represents finished goods
available for sale.
-34-
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<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
assets (3 to 40 years) or, in the case of leasehold improvements, over the lives
of the respective leases, if shorter.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized using the interest method
over the term of the related debt. Accumulated amortization at January 29, 2000
and January 30, 1999 was $1,628,000 and $3,119,000, respectively.
FINANCE SERVICE CHARGE INCOME
Income from finance service charges relating to customer receivables,
which is deducted from selling, general and administrative expenses, amounted to
$8,650,000 for Fiscal 1999, $8,422,000 for Fiscal 1998 and $8,568,000 for Fiscal
1997.
GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill relating to the 1989 acquisition of Ann Taylor by the Company is
being amortized on a straight-line basis over 40 years. Goodwill relating to the
acquisition, in 1996, of the operations comprising the Company's sourcing
division, is being amortized on a straight-line basis over 25 years. Accumulated
amortization at January 29, 2000 and January 30, 1999 was $109,931,000 and
$98,891,000, respectively.
The Company evaluates its long-lived assets for impairment annually or
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. The Company compares the carrying value of its long-lived
assets to an estimate of their expected future cash flows (undiscounted and
without interest charges) to evaluate the reasonableness of the carrying value
and remaining depreciation or amortization period. If the sum of the expected
future cash flows is less than the carrying amount of the asset, an impairment
loss is recognized.
ADVERTISING
Costs associated with the production of advertising, such as printing and
other costs, are expensed as incurred. Costs associated with communicating
advertising that has been produced, such as magazine ads, are expensed when the
advertising first takes place. Costs of direct mail catalogs and postcards are
expensed when the advertising arrives in customers' homes. Advertising costs
were $25,700,000, $17,800,000 and $10,500,000 in Fiscal 1999, 1998 and 1997,
respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires an asset and liability method of accounting for deferred income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized, and income or expense is recorded, for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
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<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from these estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133". This statement establishes accounting
and reporting standards for derivative instruments embedded in other contracts,
and for hedging activities. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management is currently
evaluating the impact of this statement and believes its adoption will not
affect the Company's consolidated financial position, results of operations or
cash flows.
2. LONG-TERM DEBT
The following table summarizes long-term debt outstanding at January 29,
2000 and January 30, 1999:
January 29, 2000 January 30, 1999
------------------- -------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- -------- -------- --------
(in thousands)
Mortgage............................ $ 3,950 $ 3,950 $ 5,157 $ 5,157
8 3/4% Notes ....................... -- -- 100,000 101,875
Convertible Debentures, net ........ 111,835 84,606 -- --
-------- -------- -------- --------
Total debt .................. 115,785 88,556 105,157 107,032
Less current portion ............... 1,300 1,300 1,206 1,206
-------- -------- -------- --------
Total long-term debt......... $114,485 $ 87,256 $103,951 $105,826
======== ======== ======== ========
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments", the
Company determined the estimated fair value of its financial instruments using
quoted market information, as available. As judgement is involved, the estimates
are not necessarily indicative of the amounts the Company could realize in a
current market exchange.
Ann Taylor's principal credit facility is a bank credit facility that it
entered into in June 1998 with a syndicate of lenders (the "Credit Facility").
Ann Taylor uses the Credit Facility for the issuance of commercial and standby
letters of credit and to provide funds for other general corporate purposes. The
lenders' commitment under the Credit Facility was originally $150,000,000. The
Credit Facility had an original maturity date of June 30, 2000, subject to
extension upon the satisfaction of certain conditions. Effective September 3,
1999, Ann Taylor elected to reduce the commitment of the lenders under the
Credit Facility by $25,000,000 to $125,000,000 and extended the term of the
credit agreement to June 30, 2001.
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<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. LONG-TERM DEBT (CONTINUED)
Loans outstanding under the Credit Facility at any time may not exceed
$50,000,000. The Company did not make any borrowings under the loan provisions
of the Credit Facility during Fiscal 1999, and there were no loans outstanding
at fiscal year end. The outstanding loan balance is required to be reduced to
zero for the thirty-day period commencing January 1 each year. This cleandown
period was achieved for January 2000. Maximum availability for loans and letters
of credit under the Credit Facility is governed by a monthly borrowing base,
determined by the application of specified advance rates against certain
eligible assets. Based on this calculation, the maximum amount available for
loans and letters of credit under the Credit Facility at January 29, 2000 was
$125,000,000. Commercial and standby letters of credit outstanding under the
Credit Facility at January 29, 2000 were approximately $69,649,000.
Amounts outstanding under the Credit Facility bear interest at a rate
equal to, at Ann Taylor's option, the lead lender's Base Rate or Eurodollar
Rate, plus a margin ranging from 0.25% to 1.00% and from 1.25% to 2.00%,
respectively. In addition, Ann Taylor is required to pay the lenders a quarterly
commitment fee on the unused revolving loan commitment amount at a rate ranging
from 0.375% to 0.5% per annum. Fees for outstanding commercial and standby
letters of credit range from 0.625% to 1.0% and from 1.25% to 2.0%,
respectively.
The Credit Facility contains financial and other covenants, including
limitations on indebtedness, liens and investments, restrictions on dividends or
other distributions to stockholders and maintenance of certain financial ratios
including a specified fixed charge coverage ratio and specified levels of net
worth.
The lenders have been granted a pledge of the common stock of Ann Taylor
and certain of its subsidiaries, and a security interest in substantially all
other tangible and intangible assets, including accounts receivable, trademarks,
inventory, store furniture and fixtures, of Ann Taylor and its subsidiaries, as
collateral for Ann Taylor's obligations under the Credit Facility.
During the second quarter of Fiscal 1999, the Company completed the
issuance of an aggregate of $199,072,000 principal amount at maturity of its
Convertible Subordinated Debentures due 2019 ("Convertible Debentures"). The
Convertible Debentures were sold at an original issue price of $552.56 per
$1,000 principal amount at maturity of Debenture. The net proceeds of the sale
were applied to the redemption, described below, of the $100,000,000 outstanding
8 3/4% Subordinated Notes due 2000 (the "8 3/4% Notes") issued by Ann Taylor.
Cash interest is payable on the principal amount at maturity of the Convertible
Debentures at the rate of 0.55% per annum. This interest rate and the accrual of
original issue discount represent a yield to maturity on the Convertible
Debentures of 3.75%. The Convertible Debentures are convertible at the option of
the holders thereof initially into 12.078 shares of the Company's common stock
per $1,000 principal amount at maturity of Debenture. The Convertible Debentures
may be redeemed at the Company's option on or after June 18, 2004. The Company's
obligations with respect to the Convertible Debentures are guaranteed on a
subordinated basis by Ann Taylor.
On July 22, 1999, Ann Taylor redeemed all of its outstanding 8 3/4% Notes,
at a redemption price of 101.375% of principal amount, plus accrued unpaid
interest to the redemption date. The redemption of the 8 3/4% Notes resulted in
an extraordinary charge to earnings in the second quarter and fiscal year of
$962,000, or $0.03 per share on a diluted basis, net of income tax benefit.
-37-
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<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. LONG-TERM DEBT (CONTINUED)
Ann Taylor and its wholly owned subsidiary AnnTaylor Distribution
Services, Inc. are parties to a $7,000,000 seven-year mortgage loan maturing in
Fiscal 2002. The loan is secured by the Company's distribution center land and
building in Louisville, Kentucky. The mortgage loan bears interest at 7.5% and
is payable in monthly installments of approximately $130,000. The mortgage loan
balance at January 29, 2000 was $3,950,000.
The aggregate principal payments for the next five years of all long-term
obligations at January 29, 2000 are as follows :
Fiscal Year
----------- (in thousands)
2000............................................$ 1,300
2001............................................ 1,400
2002............................................ 1,250
2003............................................ ---
2004............................................ ---
------
Total...........................................$ 3,950
======
3. PREFERRED SECURITIES
In April and May of Fiscal 1996, the Company completed the sale of an
aggregate of $100,625,000 of 8 1/2% Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities (the "preferred securities") issued by its
financing vehicle, AnnTaylor Finance Trust, a Delaware business trust (the
"Trust"). On June 29, 1999, AnnTaylor Finance Trust redeemed all of the
outstanding preferred securities. All but $100,000 of the liquidation amount of
the preferred securities were tendered for conversion into an aggregate of
5,116,717 shares of Company common stock prior to the redemption date, at a
conversion price of $19.65 per share of common stock, or 2.545 shares of common
stock per $50 liquidation amount of the security. Holders of preferred
securities that were not tendered for conversion received 105.95% of the
liquidation amount of the preferred securities redeemed, plus accrued
distributions.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of activity in the allowance for doubtful accounts for the fiscal
years ended January 29, 2000, January 30, 1999 and January 31, 1998 is as
follows:
Fiscal Years Ended
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
(in thousands)
Balance at beginning of year ............ $ 820 $ 812 $ 811
Provision for loss on accounts receivable 1,032 1,476 1,795
Accounts written off .................... (1,186) (1,468) (1,794)
------- ------- -------
Balance at end of year .................. $ 666 $ 820 $ 812
======= ======= =======
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<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. COMMITMENTS AND CONTINGENCIES
RENTAL COMMITMENTS
The Company occupies its retail stores and administrative facilities under
operating leases, most of which are non-cancelable. Some leases contain renewal
options for periods ranging from one to ten years under substantially the same
terms and conditions as the original leases. Most of the store leases require
payment of a specified minimum rent, plus a contingent rent based on a
percentage of the store's net sales in excess of a specified threshold. In
addition, most of the leases require payment of real estate taxes, insurance and
certain common area and maintenance costs in addition to the future minimum
lease payments shown below.
Future minimum lease payments under non-cancelable operating leases at
January 29, 2000 are as follows:
Fiscal Year (in thousands)
-----------
2000.........................................$ 95,655
2001......................................... 94,422
2002......................................... 91,391
2003......................................... 85,413
2004......................................... 81,065
2005 and thereafter.......................... 288,433
-------
Total........................................$ 736,379
=======
Rent expense for the fiscal years ended January 29, 2000, January 30, 1999
and January 31, 1998 was as follows:
Fiscal Years Ended
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
(in thousands)
Minimum rent..................... $72,763 $66,358 $59,495
Percentage rent.................. 3,131 2,414 1,671
------ ------ ------
Total....................... $75,894 $68,772 $61,166
====== ====== ======
LITIGATION
The Company has been named as a defendant in several legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to these actions cannot be accurately predicted, in the
opinion of the Company, any such liability will not have a material adverse
effect on the financial position, results of operations or liquidity of the
Company.
In addition, the Company, Ann Taylor, certain directors and former
officers and directors of the Company and Ann Taylor, Merrill Lynch & Co.
("ML&Co.") and certain affiliates of ML&Co. have been named as defendants in a
purported class action lawsuit filed in April 1996 by certain alleged
stockholders, alleging that the Company and the other defendants engaged in a
fraudulent scheme and course of business that operated a fraud or deceit on
purchasers of the Company's common stock during the period from February 3, 1994
through May 4, 1995. On November 9, 1998, the District Court issued an order
granting the defendants' motion to dismiss the amended complaint with prejudice
for its failure to plead fraud with particularity. On or about December 15,
1998, the plaintiffs filed a notice of appeal to the United States Court of
Appeals for the Second Circuit, seeking review of the District court's order.
The Court heard oral argument on this appeal on September 15, 1999. ML&Co., its
affiliates and the two directors who previously served on the Company's Board of
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<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Directors as representatives of certain affiliates of ML&Co. (the "settling
defendants") reached a settlement with the plaintiffs, which provides, among
other things, for the establishment of a settlement fund in the amount of
$3,000,000 plus interest. On or about December 14, 1999, the District Court
entered an Order and Final Judgment approving this partial settlement,
dismissing the amended complaint with prejudice as to the settling defendants,
and barring and enjoining any future claims by, among others, the remaining
defendants against the settling defendants for contribution. The appeal as
against the remaining defendants, including the Company, is pending before the
Second Circuit Court of Appeals. As a result, any liability that may arise from
this action cannot be predicted at this time. The Company believes that the
amended complaint is without merit and intends to continue to defend the action
vigorously.
6. NET INCOME 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 assumes the issuance of additional shares of common stock,
that are issuable by the Company upon the conversion of all outstanding
warrants, stock options and convertible securities. Basic and diluted earnings
per share calculations follow:
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------------------------------
January 29, 2000 January 30, 1999 January 31, 1998
----------------------- -------------------- ------------------------
(In thousands, except per share amounts)
Per Per Per
Share Share Share
Income Shares Amount Income Shares Amount Income Shares Amount
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
- ------------------------
Income Available
to common stockholders
before extraordinary
loss ............................... $65,493 29,021 $2.25 $39,324 25,715 $1.53 $11,997 25,628 $0.47
==== ==== ====
EFFECT OF DILUTIVE
SECURITIES
- ---------
Warrants .............................. --- 1 --- 3 --- 3
Stock options ......................... --- 269 --- 166 --- 62
Preferred securities................... 1,123 2,083 5,189 5,122 --- ---
Convertible Debentures ................ 1,570 1,475 --- --- --- ---
------- ------- ------ ----- ------ ------
DILUTED EARNINGS PER SHARE
- --------------------------
Income available
to common stockholders
before extraordinary loss........... $68,186 32,849 $2.08 $44,513 31,006 $1.44 $11,997 25,693 $0.47
======= ======= ==== ====== ====== ==== ====== ====== ====
</TABLE>
Conversion of the preferred securities into common stock is not included in
the computation of diluted earnings per share for the fiscal year ended January
31, 1998 due to the antidilutive effect of the conversion as of that date.
-40-
- --------------------------------------------------------------------------------
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. ENTERPRISE-WIDE OPERATING INFORMATION
In Fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosure About Segments of an Enterprise and Related
Information", which establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, major customers and the material countries in which the entity holds
assets and reports revenues.
The Company is a specialty retailer of women's apparel, shoes and
accessories. Given the economic characteristics of the store formats, the
similar nature of the products sold, the type of customer and method of
distribution, the operations of the Company are aggregated into one reportable
segment. The Company believes that the customer base for its stores consists
primarily of relatively affluent, fashion-conscious women from the ages of 25 to
55, and that the majority of its customers are working women with limited time
to shop.
8. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Fiscal Years Ended
---------------------------
January 29, January 30,
2000 1999
----------- -----------
(in thousands)
Land and building..........................$ 8,774 $ 8,683
Leasehold improvements..................... 110,573 93,168
Furniture and fixtures..................... 169,521 153,395
Construction in progress................... 23,518 11,059
------- -------
312,386 266,305
Less accumulated depreciation
and amortization...................... 138,747 114,520
------- -------
Net property and equipment............$173,639 $151,785
======= =======
9. OTHER EQUITY AND STOCK OPTION PLANS
COMMON STOCK
During 1999, the number of authorized shares of common stock was increased
from 40,000,000 to 120,000,000.
PREFERRED STOCK
At January 29, 2000, January 30, 1999 and January 31, 1998, there were
2,000,000 shares of preferred stock, par value $0.01, authorized and unissued.
REPURCHASE PROGRAM
During the third quarter of Fiscal 1999, the Company's Board of Directors
authorized a program under which the Company was authorized to purchase up to
$40,000,000 of the Company's common stock and/or Convertible Debentures through
open market purchases and/or in privately negotiated transactions. On January
10, 2000, the Board of Directors increased the amount of securities that could
be purchased under the program to $90,000,000. As of January 29, 2000, 3,012,500
shares of the Company's common stock had been repurchased for an aggregate
purchase price of $89,900,000 (exclusive of brokerage commissions), completing
the securities repurchase program. All of the repurchased shares became treasury
shares and may be used for general corporate or other purposes. No Convertible
Debentures were purchased.
-41-
- --------------------------------------------------------------------------------
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. OTHER EQUITY AND STOCK OPTION PLANS (CONTINUED)
ASSOCIATE DISCOUNT STOCK PURCHASE PLAN
In Fiscal 1999, the Company established an Associate Discount Stock
Purchase Plan (the "Plan") through which participating eligible employees may
purchase shares of the Company's common stock semi-annually, at a price equal to
the lower of 85% of the closing price of the Company's common stock on the grant
date or the purchase date of each semiannual stock purchase period.
Participating employees pay for their stock purchases under the Plan by
authorizing limited payroll deductions of up to a maximum of 15% of their
compensation. No shares of common stock will be issued pursuant to the Plan
until Fiscal 2000. At January 29, 2000, there were 250,000 shares available for
future issuance under this Plan.
STOCK OPTION PLANS
In 1989 and 1992, the Company established stock option plans. At January
29, 2000, 22,547 shares of common stock were reserved for issuance under the
1989 plan and 2,299,305 shares of common stock were reserved for issuance under
the 1992 plan. Under the terms of both plans, the exercise price of any option
may not be less than 100% of the fair market value of the common stock on the
date of grant.
Stock options granted prior to 1994 generally vest over a five year
period, with 20% becoming exercisable immediately upon grant of the option and
20% per year for the next four years. Stock options granted since 1994 generally
vest either (i) over a four year period, with 25% becoming exercisable on each
of the first four anniversaries of the grant, or (ii) in seven or nine years
with accelerated vesting upon the achievement of specified earnings or stock
price targets within a five year period. All stock options granted under the
1989 plan and the 1992 plan expire ten years from the date of grant. At January
29, 2000, there were no shares under the 1989 plan and 446,300 shares under the
1992 plan available for future grant.
The Company accounts for the stock options in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation costs have been
recognized for stock option awards. Had compensation costs of option awards been
determined under a fair value alternative method as stated in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company would have been required to prepare a fair value
model for such options and record such amount in the financial statements as
compensation expense. Pro forma net income before extraordinary loss and net
income per share before extraordinary loss, on a diluted basis, after taking
into account such expense would have been $63.9 million and $2.03, respectively
for Fiscal 1999, $38.4 million and $1.41, respectively for Fiscal 1998 and $11.0
million and $0.43, respectively, for Fiscal 1997. For purposes of this
calculation, the Company arrived at the fair value of each stock grant at the
date of grant by using the Black Scholes option pricing model with the following
weighted average assumptions used for grants for the fiscal years ended January
29, 2000, January 30, 1999 and January 31, 1998: risk-free interest rate of
4.9%, 5.4% and 6.2%, respectively; expected life of 4.0 years, 4.0 years and 5.0
years, respectively; and expected volatility of 49.1%, 59.4% and 67.9%,
respectively.
-42-
- --------------------------------------------------------------------------------
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. OTHER EQUITY AND STOCK OPTIONS PLANS (CONTINUED)
The following summarizes stock option transactions for the fiscal years
ended January 29, 2000, January 30, 1999 and January 31, 1998:
Weighted
Average Number
Option Prices Price of Shares
------ ------ -------- ---------
Outstanding Options February 1, 1997 .. $ 6.80 - $44.125 $22.69 1,664,085
Granted ............................. $14.25 - $22.75 $20.60 590,000
Exercised ........................... $ 6.80 - $20.00 $15.45 (47,436)
Canceled ............................ $11.50 - $39.75 $25.11 (585,557)
----------
Outstanding Options January 31, 1998 .. $ 6.80 - $44.125 $21.20 1,621,092
Granted ............................. $14.00 - $36.25 $17.52 306,574
Exercised ........................... $ 6.80 - $36.25 $19.09 (373,544)
Canceled ............................ $ 6.80 - $42.50 $23.68 (162,224)
----------
Outstanding Options January 30, 1999 .. $ 6.80 - $44.125 $20.67 1,391,898
Granted.......................... $22.813- $47.688 $43.56 882,500
Exercised ........................... $ 6.80 - $42.50 $18.65 (351,737)
Canceled ............................ $11.00 - $44.25 $25.41 (123,980)
----------
Outstanding Options January 29, 2000 .. $11.50 - $47.688 $31.98 1,798,681
=========
At January 29, 2000, January 30, 1999 and January 31, 1998 there were
exercisable 558,321 options, 696,596 options and 450,776 options, respectively,
which have weighted average exercise prices of $20.74 per share, $19.76 per
share and $19.02 per share, respectively.
In 1994, the Company's 1992 stock option plan was amended and restated to
include restricted stock and unit awards. A unit represents the right to receive
the cash value of a share of common stock on the date the restrictions on the
unit lapse. The restrictions on grants generally lapse over a four year period
from the date of the grant. In the event a grantee terminates employment with
the Company, any restricted stock or restricted units remaining subject to
restrictions are forfeited. During 1997, 1998 and 1999, certain executives were
awarded restricted common stock and, in some cases, restricted units. The
resulting unearned compensation expense, based upon the market value on the date
of grants, was charged to stockholders' equity and is being amortized over the
restricted period.
10. EXECUTIVE COMPENSATION
In 1996, J. Patrick Spainhour, the Chairman and Chief Executive Officer of
Ann Taylor, was granted 75,000 shares of restricted common stock. The resulting
unearned compensation expense of $1,171,875, based upon the market value on the
date of the grant, was charged to stockholders' equity and was amortized over
the restricted period applicable to these shares. In 1999, Mr. Spainhour was
granted an additional 25,000 shares of restricted stock which will vest on March
8, 2000. This restricted stock award resulted in unearned compensation expense
of $829,688, based on the market value of the common stock on the date of the
grant. The unearned compensation expense was charged to stockholders' equity and
is being amortized over the restricted period applicable to these shares. In
addition to the restricted stock, Mr. Spainhour was awarded a non-qualified
stock option award to purchase 250,000 shares of common stock at the current
market price, as well as "super-incentive" non-qualified performance-vesting
stock options to purchase 100,000 shares of common stock. The "super-incentive"
-43-
- --------------------------------------------------------------------------------
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. EXECUTIVE COMPENSATION (CONTINUED)
non-qualified performance vesting stock options will become exercisable upon
achievement of various earnings per share targets between March 2000 and March
2002. Additionally, as of December 9, 1996, the President and Chief Operating
Officer of the Company received a grant of 30,000 restricted shares of common
stock and 20,000 restricted units. The resulting unearned compensation expense
of $592,500, based on the market value of the common stock on the date of the
grant, was charged to stockholders' equity and was amortized over the restricted
period applicable to these shares.
11. EXTRAORDINARY ITEMS
On July 22, 1999, the Company applied the proceeds received from the
issuance of its Convertible Debentures to redeem the outstanding 8 3/4% Notes.
This resulted in an extraordinary charge to earnings in Fiscal 1999 of $962,000,
net of income tax benefit of $641,000.
On July 2, 1997, the Company used available cash to prepay $24,500,000,
the outstanding balance of its term loan due September 1998, which resulted in
an extraordinary charge to earnings in Fiscal 1997 of $173,000, net of income
tax benefit of $130,000.
12. NONRECURRING CHARGES
RETIREMENT OF ASSETS
In the fourth quarter of Fiscal 1998, the Company recorded a $3,633,000
non-cash pre-tax charge for the retirement of certain assets. This charge
related to the write-off of the net book value of assets relinquished during the
renovation of the Company's corporate offices.
13. INCOME TAXES
The provision for income taxes for the fiscal years ended January 29,
2000, January 30, 1999 and January 31, 1998 consists of the following:
Fiscal Years Ended
---------------------------------------
January 29, January 30, January 31,
2000 1999 1998
---- ---- ----
(in thousands)
Federal:
Current...........................$ 41,682 $21,589 $14,427
Deferred.......................... (3,033) 2,748 (1,917)
------- ------ -------
Total federal................... 38,649 24,337 12,510
------ ------ ------
State and local:
Current........................... 11,856 7,869 5,538
Deferred.......................... (809) 1,217 (769)
------- ------ -------
Total state and local........... 11,047 9,086 4,769
------ ------ ------
Foreign:
Current........................... 525 156 187
Deferred.......................... --- --- ---
------ ------ ------
Total foreign................... 525 156 187
------ ------ ------
Total.............................$ 50,221 $33,579 $17,466
====== ====== ======
-44-
- --------------------------------------------------------------------------------
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. INCOME TAXES (CONTINUED)
The reconciliation between the provision for income taxes and the
provision for income taxes at the federal statutory rate for the fiscal years
ended January 29, 2000, January 30, 1999 and January 31, 1998 is as follows:
Fiscal Years Ended
---------------------------------------
January 29, January 30, January 31,
2000 1999 1998
---- ---- ----
(in thousands)
Income before income taxes and
extraordinary loss...................$ 115,714 $ 72,903 $ 29,463
======= ======= =======
Federal statutory rate.................. 35% 35% 35%
====== ======= =======
Provision for income taxes at
federal statutory rate...............$ 40,500 $ 25,516 $ 10,312
State and local income taxes,
net of federal income tax
benefit.............................. 6,278 4,660 3,800
Non-deductible amortization of goodwill. 3,500 3,500 3,500
Earnings of foreign subsidiaries........ 79 (188) (314)
Other................................... (136) 91 168
------- ------- -------
Provision for income taxes..............$ 50,221 $ 33,579 $ 17,466
====== ======= =======
The tax effects of significant items comprising the Company's deferred tax
assets (liabilities) as of January 29, 2000 and January 30, 1999 are as follows:
January 29, January 30,
2000 1999
---------- ----------
(in thousands)
Current:
Inventory.................................. $ 2,071 $ 128
Accrued expenses........................... 2,306 3,812
Real estate................................ (2,050) (1,686)
Other...................................... --- ---
------- -------
Total current............................... $ 2,327 $ 2,254
======= =======
Noncurrent:
Accrued expenses........................... $ 763 $ ---
Depreciation and amortization.............. (2,936) (5,510)
Rent expense............................... 5,168 4,786
Other...................................... 327 276
------- -------
Total noncurrent............................ $ 3,322 $ (448)
======= ========
Income taxes provided reflect the current and deferred tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. U.S. federal income taxes are provided on unremitted foreign earnings
except those that are considered permanently reinvested, which at January 29,
2000 amounted to approximately $6,852,000. However, if these earnings were not
considered permanently reinvested, under current law, the incremental tax on
such undistributed earnings would be approximately $2,137,000.
14. RETIREMENT PLANS
Savings Plan. Ann Taylor maintains a defined contribution 401(k) savings
plan for substantially all full-time employees of Ann Taylor and its
subsidiaries. Participants may contribute to the plan an aggregate of up to 10%
of their annual earnings. Ann Taylor makes a matching contribution of 50% with
respect to the first 3% of each participant's annual earnings contributed to the
plan. Ann Taylor's contributions to the plan for Fiscal 1999, Fiscal 1998 and
Fiscal 1997 were $697,000, $592,000 and $519,000, respectively.
-45-
- --------------------------------------------------------------------------------
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. RETIREMENT PLANS (CONTINUED)
Pension Plan. Substantially all full-time employees of Ann Taylor and its
subsidiaries are covered under a noncontributory defined benefit pension plan.
Through December 31, 1997, the pension plan was a "cash balance pension plan",
under which each participant accrued a benefit based on compensation and years
of service with Ann Taylor. As of January 1, 1998, the plan was amended and the
formula to calculate benefits was changed to a career average formula. The new
career average formula was used to determine the funding status of the plan
beginning in Fiscal 1997. Ann Taylor's funding policy for the plan is to
contribute annually the amount necessary to provide for benefits based on
accrued service and projected pay increases. Plan assets consist primarily of
cash, equity and fixed income securities.
In Fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", which standardizes the disclosure requirements for
pension and other postretirement benefits, eliminates certain disclosures, and
requires additional information on the changes in the benefit obligations and
fair value of plan assets.
The following table provides information for the Pension Plan at January
29, 2000, January 30, 1999 and January 31, 1998:
Fiscal Years Ended
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
---- ---- ----
(in thousands)
Change in benefit obligation:
Benefit obligation, beginning
of year........................ $ 4,642 $ 3,820 $3,413
Service cost..................... 1,129 669 571
Interest......................... 340 292 250
Plan amendments.................. --- --- 81
Actuarial loss (gain)............ 19 348 (103)
Benefits paid.................... (1,176) (487) (392)
-------- -------- -------
Benefit obligation, end of year.. 4,954 4,642 3,820
------- ------- -------
Change in plan assets:
Fair value of plan assets,
beginning of year.............. 7,486 5,128 4,745
Actual return on plan assets..... 763 1,205 907
Employer contribution (refund)... 2,416 1,640 (132)
Benefits paid.................... (1,176) (487) (392)
-------- -------- -------
Fair value of plan assets,
end of year.................... 9,489 7,486 5,128
-------- -------- -------
Funded status (fair value of
plan assets less
benefit obligation)........... 4,535 2,844 1,308
Unrecognized net actuarial gain.. (1,621) (1,675) (1,361)
Unrecognized prior service cost.. 63 69 75
------- ------- -------
Prepaid benefit cost.............$ 2,977 $ 1,238 $ 22
======= ======= =======
-46-
- --------------------------------------------------------------------------------
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. RETIREMENT PLANS (CONTINUED)
Net pension cost includes the following components:
Fiscal Years Ended
-------------------------------------
January 29, January 30, January 31,
2000 1999 1998
---- ---- ----
(in thousands)
Service cost..............................$ 1,129 $ 669 $ 571
Interest cost............................. 340 292 250
Expected return on assets................. (776) (481) (409)
Amortization of prior gains............... (22) (61) (42)
Amortization of prior service cost........ 6 6 6
------- ------- --------
Net periodic pension cost.................$ 677 $ 425 $ 376
======= ======= ========
For the fiscal years ended January 29, 2000, January 30, 1999 and January
31, 1998, the following actuarial assumptions were used:
Fiscal Years Ended
-------------------------------------
January 29, January 30, January 31,
2000 1999 1998
---- ---- ----
Discount rate............................. 8.25% 6.75% 7.50%
Long-term rate of return on assets........ 9.00% 9.00% 9.00%
Rate of increase in future compensation... 4.00% 4.00% 4.00%
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter
------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(in thousands, except per share amounts)
Fiscal 1999
Net sales ....................... $249,400 $ 265,747 $272,289 $297,083
Gross profit .................... 131,337 125,905 149,875 141,388
Income before extraordinary loss 14,755 13,373 21,448 15,917
Extraordinary loss .............. -- 962 -- --
-------- ----------- -------- --------
Net income ...................... $ 14,755 $ 12,411 $ 21,448 $ 15,917
======== =========== ======== ========
Basic earnings per share before
extraordinary loss............ $ 0.56 $ 0.47 $ 0.68 $ 0.53
Extraordinary loss per share .... -- 0.03 -- --
-------- ----------- -------- --------
Basic earnings per share......... $ 0.56 $ 0.44 $ 0.68 $ 0.53
======== =========== ======== ========
Diluted earnings per share before
extraordinary loss............ $ 0.51 $ 0.42 $ 0.65 $ 0.50
Extraordinary loss per share .... -- 0.03 -- --
-------- ----------- -------- --------
Diluted earnings per share....... $ 0.51 $ 0.39 $ 0.65 $ 0.50
======== =========== ======== ========
Fiscal 1998
Net sales........................ $198,170 $ 223,393 $227,535 $262,841
Gross profit .................... 101,334 104,934 124,418 125,529
Net income....................... $ 6,419 $ 7,044 $ 14,074 $ 11,787
======== =========== ======== ========
Basic earnings per share......... $ 0.25 $ 0.27 $ 0.55 $ 0.46
======== =========== ======== ========
Diluted earnings per share....... $ 0.25 $ 0.27 $ 0.50 $ 0.42
======== =========== ======== ========
The sum of the quarterly per share data may not equal the annual amounts
due to changes in the weighted average shares and share equivalents outstanding.
-47-
EXHIBIT 10.2.12
SUBLEASE AGREEMENT
SOCIETE AIR FRANCE
As Sublandlord
AND
ANN TAYLOR, INC.
As Subtenant
Dated as of the 23rd day of February, 1999
Premises: 18th Floor and Portion of 17th Floor
142 West 57th Street
New York, New York
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. SUBLEASING............................................. 1
2. RENT................................................... 2
3. SUBORDINATION TO MAIN LEASE............................ 3
4. RIGHTS AND OBLIGATIONS: EXCEPTIONS..................... 4
5. USE.................................................... 5
6. ELECTRICITY............................................ 6
7. DEFAULT................................................ 6
8. CONDITION OF SUBLET PREMISES........................... 6
9. IMPROVEMENTS........................................... 7
10. ADDITIONAL SERVICES REQUIRED BY SUBTENANT.............. 7
11. ASSIGNMENT AND SUBLETTING.............................. 7
12. ATTORNMENT............................................. 8
13. SUBTENANT'S REPRESENTATIONS............................ 8
14. SUBLANDLORD'S REPRESENTATIONS.......................... 9
15. BROKERS................................................ 10
16. SUBLANDLORD'S PERFORMANCE UNDER MAIN LEASE............. 10
17. NOTICES................................................ 10
18. INSURANCE.............................................. 11
19. ENTIRE AGREEMENT....................................... 11
20. NEW YORK LAW........................................... 11
21. SUCCESSORS AND ASSIGNS................................. 11
22. RENEWAL OPTION......................................... 11
23. HEADINGS............................................... 12
24. LANDLORD'S CONSENT..................................... 12
-i-
- --------------------------------------------------------------------------------
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (hereinafter referred to as the "SUBLEASE") is
-----------------------
made as of the 23rd day of February, 1999 between SOCIETE AIR FRANCE (formerly
-----------------
known as Compagnie Nationale Air France), a French corporation authorized to do
business in New York State, having offices at 888 Seventh Avenue, New York, New
York 10022 (hereinafter referred to as "SUBLANDLORD") and ANN TAYLOR, INC., a
----------------
Delaware corporation having offices at 142 West 57th Street, New York, New York
10019 (hereinafter referred to as "SUBTENANT").
WITNESSETH:
-----------
WHEREAS, pursuant to a certain Lease dated as of May 3, 1993 between
-------
Carven Associates, as landlord (hereinafter referred to as "LANDLORD"), and
Sublandlord, as tenant as modified by Amendment To Lease dated 1993 (hereinafter
collectively referred to the "MAIN LEASE" or "LEASE"), Sublandlord is the tenant
of certain premises consisting of the entire 18th floor and a portion of the
17th floor in the building located at142 West 57th Street, New York, New York
(hereinafter referred to as the "BUILDING"); and
WHEREAS, Sublandlord wishes to sublease to Subtenant, and Subtenant
-------
wishes to sublet from Sublandlord, the premises demised to Sublandlord under the
Main Lease (hereinafter referred to as the "SUBLET PREMISES").
NOW, THEREFORE, for and in consideration of the rental payments to be
---------------
made hereunder by Subtenant to Sublandlord and the mutual consideration
hereinafter set forth, Sublandlord and Subtenant hereby covenant and agree as
follows:
1. SUBLEASING
(a) Sublandlord does hereby sublease to Subtenant, and Subtenant does hereby
hire and take from Sublandlord, the Sublet Premises for the term and on the
conditions hereinafter set forth, and subject to all the terms, covenants and
provisions of the Main Lease, except as otherwise herein provided.
(b) The term of this Sublease shall commence on June 1, 1999 (hereinafter
sometimes referred to as the "Sublease Commencement Date") and shall expire at
noon on September 30, 2006 or such earlier date on which this Sublease may
expire or be cancelled or terminated pursuant to its terms or the terms of the
Main Lease or as provided by law (hereinafter referred to as the "Sublease
Expiration Date") .
- --------------------------------------------------------------------------------
<PAGE> 2
2. RENT
(a) Subtenant covenants and agrees to pay to Sublandlord rent (herein referred
to as the "Fixed Rent") for the Sublet Premises at the rate of (i) $925,000.00
per annum, in equal monthly installments of $77,083.00, from June 1, 1999
through December 31, 2002, and (ii) $1,017,500.00 per annum, in equal monthly
installments of $84,791.67, from January 1, 2003through September 30, 2006.
Fixed Rent shall be payable in advance on the first day of each calendar month.
Fixed Rent and all other amounts payable by Subtenant to Sublandlord
under the provisions of this Sublease (herein referred to as the "ADDITIONAL
RENT") shall be paid promptly when due, without notice or demand therefor, and
without deduction, abatement, counterclaim or setoff of any amount or for any
reason whatsoever except as may be otherwise provided herein. Fixed Rent and
Additional Rent shall be paid to Sublandlord in lawful money of the United
States at the address of Sublandlord set forth in Article 17 of this Sublease or
to such other person or at such other address as Sublandlord may from time to
time designate by notice to Subtenant as provided for herein. No payment by
Subtenant or receipt by Sublandlord of any lesser amount than the amount
stipulated to be paid hereunder shall be deemed other than on account of the
earliest stipulated Fixed Rent or Additional Rent nor shall any endorsement or
statement on any check or letter be deemed an accord and satisfaction, and
Sublandlord may accept any check or payment without prejudice to Sublandlord's
right to recover the balance due or to pursue any other remedy available to
Sublandlord. Any provision in the Main Lease referring to fixed rent or
additional rent incorporated herein by reference shall be deemed to refer to the
Fixed Rent and Additional Rent due under this Sublease.
(b) In addition to the Fixed Rent, Subtenant shall pay to Sublandlord as
Additional Rent, within ten (10) days' after demand from Sublandlord from time
to time: (x) the difference, if any, between (i) Tenant's "Tax Payment" payable
by Sublandlord as tenant under the Main Lease during any "Tax Year" (as said
terms are defined in Article 39 of the Main Lease), and (ii) Tenant's Tax
Payment payable by Sublandlord as tenant under the Main Lease for Tax Year July
1, 1998 - June 30, 1999, and (y) the difference, if any, between (i) Subtenant's
Share of Tenant's "Operating Payment" payable by Sublandlord as tenant under the
Main Lease during any "Operation Year" (as said terms are defined in Article 40
of the Main Lease), and (ii) Tenant's Operating Payment payable by Sublandlord
as tenant under the Main Lease for Operation Year 1999. All such demands shall
be accompanied by a copy of any invoice, bill, notice or request received by
Sublandlord from Landlord. Subtenant shall also pay to Sublandlord as Additional
Rent, upon demand from time to time, all other amounts payable by Sublandlord to
Landlord under the Main Lease pursuant to the provisions thereof. If Sublandlord
is required by Landlord under the Main Lease to make advance payments, estimated
payments or deposits of any of the foregoing amounts, Subtenant shall make such
advance payments, estimated payments or deposits to Sublandlord consistent with
- --------------------------------------------------------------------------------
<PAGE> 3
the above provisions. Subtenant's obligations under this Article 2 shall be
apportioned for any period at the beginning or end of the term of this Sublease
that is less than a full calendar year or fiscal year. Sublandlord shall have
the right to demand payment of any amount of such Additional Rent during the
term of this Sublease or after the expiration of the term of this Sublease or
the earlier termination of this Sublease.
(c) If the sum of any installment or estimated payments made by Subtenant on
account of any or all of the items set forth in subparagraph (b) of this Article
2 exceed Sublandlord's share of such item(s) under the Main Lease for any year,
Sublandlord shall refund the excess to Subtenant within ten (10) days after the
amount of the excess is refunded to Sublandlord by Landlord. If the sum of any
installment or estimated payments made by Subtenant on account of any or all of
the items set forth in subparagraph (b) of this Article 2 are less than such
item(s) under the Main Lease for any year, Subtenant shall pay the amount of
such deficiency to Sublandlord within ten (10) days after demand.
(d) All costs, expenses and fees other than Fixed Rent which Subtenant assumes
or agrees to pay pursuant to this Sublease (including, without limitation, all
costs, expenses and fees payable by Sublandlord as tenant under the Main Lease
which are payable hereunder by Subtenant by their incorporation herein by
reference to the Main Lease) shall be deemed Additional Rent and, in the event
of non-payment, Sublandlord shall have all the rights and remedies provided for
in the case of non-payment of Fixed Rent.
(e) Subtenant shall pay, on or before the date same is due, any occupancy,
sales, use or similar tax, charge or fee that is at any time due or payable with
respect to the occupancy or use of the Sublet Premises or the payment of Fixed
Rent or Additional Rent by Subtenant to Sublandlord, and which is attributable
to this Sublease.
3. SUBORDINATION TO MAIN LEASE
This Sublease is and shall be expressly subject and subordinate to all
of the terms, provisions, covenants, agreements and conditions of the Main
Lease. This Sublease is also subject and subordinate to all instruments,
agreements and other matters to which the Main Lease is or shall be subject or
subordinate.
4. RIGHTS AND OBLIGATIONS; EXCEPTIONS
(a) A copy of the Main Lease, with certain financial terms redacted, has been
delivered to Subtenant. Subtenant confirms that Subtenant has read the Main
Lease and is familiar with the terms and provisions thereof. Except as otherwise
expressly provided herein, all of the terms, provisions, covenants, agreements
and conditions of the Main Lease are incorporated herein by reference and made a
part of this Sublease with the same force and effect as though set forth in full
herein. Subtenant shall conform to, and use the Sublet Premises in accordance
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<PAGE> 4
with, all the terms, provisions, covenants, agreements and conditions of the
Main Lease, and will do no act which will result in a violation of said terms,
provisions, covenants, agreements and conditions. Subtenant shall perform the
terms, provisions, covenants, agreements and conditions of the Main Lease on the
part of Sublandlord to be performed (except as otherwise may be expressly
provided herein). To the extent there are inconsistencies between any provision
of the Main Lease and any provision of this Sublease, this Sublease shall
control unless the use or occupancy of the Sublet Premises by Subtenant or any
action or inaction by Subtenant in accordance with said provision becomes a
default under the terms of the Main Lease, in which event the provisions of the
Main Lease shall control.
Subtenant shall be entitled to the rights of Sublandlord, as tenant
under the Main Lease. Sublandlord shall have no liability by reason of any
default of Landlord under the Main Lease, it being understood that if
Sublandlord shall fail to fulfill any obligation of the Sublandlord hereunder
and if such failure is caused by the failure of Landlord to comply with its
obligations under the Main Lease, then Sublandlord shall have no obligation or
liability by reason of such failure. Without limiting the generality of the
foregoing, Subtenant understands that the supplying of services including,
without limitation, heat, light, water, air conditioning and other utilities,
janitorial cleaning, window washing and elevator services, and building
maintenance and repair are the obligations of Landlord, and that Sublandlord has
no control thereof, and assumes no responsibility in connection therewith; and
no failure to furnish, or interruption of, any such services or facilities shall
give rise to any (x) abatement, diminution or reduction of Subtenant's
obligations under this Sublease, (y) constructive eviction, in whole or in part,
or (z) liability on the part of Sublandlord.
If Landlord shall default in any of its obligations to Sublandlord with
respect to the Sublet Premises, Subtenant, at Subtenant's sole cost and expense,
shall have the right in its own name, and if required that of Sublandlord, or,
if required, both, to bring an action or proceeding with respect to such
default. Sublandlord agrees to take such steps as Subtenant may reasonably
request to cooperate with Subtenant in any such legal proceeding or action, all
at Subtenant's sole cost and expense. If Subtenant shall commence any proceeding
or take any other action to enforce the obligations of Landlord insofar as such
obligations relate to the Sublet Premises, Subtenant agrees to indemnify and
hold Sublandlord harmless from and against any costs, liabilities, damages or
expenses (including reasonable attorneys' fees) which Sublandlord may incur in
connection therewith or by reason thereof.
Notwithstanding anything to the contrary in the foregoing, Sublandlord
shall promptly forward to Landlord any requests or other communications made by
Subtenant related to the performance by Landlord of its obligation under the
Main Lease, and shall promptly forward to Subtenant any communication received
from Landlord related to the Sublet Premises.
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<PAGE> 5
(b) Notwithstanding anything to the contrary contained in this Sublease or the
Main Lease:
(i) for the purposes of incorporation of the Main Lease by reference
in this Sublease, except as otherwise expressly provided herein, and except
to the extent that they are inapplicable or modified by the terms and
provisions of this Sublease (a) references in the Main Lease to the
"Premises" or the "demised premises" shall be deemed to refer to the Sublet
Premises, (b) references in the Main Lease to "Landlord" shall be deemed to
refer to Sublandlord under this Sublease, (c) references in the Main Lease
to "Tenant" shall be deemed to refer to Subtenant under this Sublease, (d)
references in the Main Lease to "this Lease" shall be deemed to refer to
this Sublease, (e) references in the Main Lease to the "Expiration Date"
shall be deemed to refer to the Sublease Expiration Date, (f) references in
the Main Lease to the "Commencement Date" shall be deemed references to the
Sublease Commencement Date, and (g) where Landlord's consent is required
pursuant to the Lease, both Landlord's and Sublandlord's consent shall be
required and Sublandlord shall not be deemed to have unreasonably withheld
its consent if Landlord shall fail or refuse to give its consent and
Sublandlord agrees that it shall not unreasonably withhold or delay its
consent where Landlord has granted its consent;
(ii) the Fixed Rent and Additional Rent to be paid by Subtenant
hereunder shall be governed by the terms and provisions of Article 2 of
this Sublease;
(iii) the time limits contained in the Main Lease for the giving of
notices, making of demands or performing of any act, condition or covenant
on the part of the tenant thereunder, or for the exercise by the tenant
thereunder of any right, remedy or option, are changed for the purposes of
incorporation herein by reference by shortening the same in each instance
by three (3) days, so that in each instance Subtenant shall have three (3)
days less time to observe or perform hereunder than Sublandlord has as the
tenant under the Main Lease;
(iv) the following parts, provisions and exhibits of the Main Lease
are not applicable to this Sublease, and are not incorporated herein by
reference:
(1) Articles 38 D&E, 41, 44, 47A, 51, 55, 56, 58, 61, 62, 66 and
Third Rider (Takeover Agreement) and Exhibits thereto; and
(2) Exhibits B, E and F.
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<PAGE> 6
5. USE
Subtenant shall use the Sublet Premises for executive, administrative
and general offices and for no other purposes.
6. ELECTRICITY
Subtenant covenants and agrees to pay to Sublandlord for the use of
electrical energy in the Sublet Premises at the rate of $55,500.00 per annum
($3.00 per square foot) payable in equal monthly installments of $4,625, said
payments to be made by Subtenant together with payments of Fixed Rent. Subtenant
shall also pay to Sublandlord, within ten (10) after demand from Sublandlord
from time to time, any amount that Sublandlord's payments to Landlord for the
use of electrical energy under the Main Lease exceeds the rate of $55,500.00 per
annum.
7. DEFAULT
Subtenant covenants and agrees that in the event that it shall default
in the performance of any of the terms, covenants and conditions of this
Sublease (including those portions of the Main Lease incorporated herein by
reference) beyond any applicable notice and grace period provided for in the
Main Lease and incorporated herein by reference (as shortened by Article
4(B)(iii) hereof), Sublandlord shall be entitled to exercise any and all of the
rights and remedies to which it is entitled by law, including, without
limitation, the remedy of summary proceeding, and also any and all of the rights
and remedies specifically provided for in the Main Lease and incorporated herein
by reference.
8. CONDITION OF SUBLET PREMISES
The Sublet Premises are demised to Subtenant in the "as is" condition
which shall exist on the Sublease Commencement Date. Subtenant is subleasing the
Sublet Premises from the Sublandlord after having had an opportunity to fully
inspect the Sublet Premises. Subtenant agrees that the term "as is" means that
it will sublease the Sublet Premises without warranty or representation, either
oral or written, or expressed or implied, as to the physical condition of the
Sublet Premises or the compliance of same with building, fire, health and zoning
codes and other applicable laws, ordinances and regulations. Sublandlord
expressly disclaims any warranty or representation made to Subtenant unless such
warranty or representation is contained in writing as a part of this Sublease.
Subtenant shall be solely responsible for all costs which may be imposed on
Sublandlord or Subtenant under the Main Lease in connection with the condition
of the Sublet Premises. Prior to the Sublease Commencement Date Sublandlord
shall have the right to remove any furniture or furnishings on the Sublet
Premises.
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<PAGE> 7
9. IMPROVEMENTS
(a) Subtenant may make changes, alterations, additions or improvements to
the Sublet Premises, subject, however, to the consent of Sublandlord and, to the
extent required under the Main Lease, the consent of Landlord; however
Sublandlord agrees that it shall not unreasonably withhold or delay its consent
to any changes, alterations, additions or improvements to the Sublet Premises
consented to by Landlord. Any changes, alterations, additions or improvements by
or on behalf of Subtenant shall be made subject to and in accordance with the
provisions of the Main Lease.
(b) Subtenant shall pay any and all actual fees or charges Sublandlord may
incur and any and all fees or charges Landlord may incur in connection with
Subtenant's making changes, alterations, additions or improvements to the Sublet
Premises. Except as expressly set forth in this Sublease, on or before the
expiration or sooner termination of this Sublease, if Landlord requires
Sublandlord to restore the Sublet Premises to their condition prior to the
making of any changes, alterations, additions or improvements by Sublandlord or
Subtenant, Subtenant shall, at its sole cost and expense, promptly make such
restoration and repair any damage caused by such thereby.
10. ADDITIONAL SERVICES REQUIRED BY SUBTENANT
Subtenant shall attempt to make its own arrangements with Landlord for
the furnishing of additional services to the Sublet Premises other than those
which are required to be furnished by Landlord under the terms of the Main Lease
and any such additional services shall be paid for by Subtenant. If Landlord
shall refuse to respond to such request for additional service, Sublandlord
shall, at Subtenant's sole cost and expense, request Landlord to perform such
additional services at Subtenant's sole cost and expense. For the purposes of
this Article 10, the term "additional services" shall include, but not be
limited to, overtime HVAC service, overtime freight elevator service and
increased capacity of electric energy.
11. ASSIGNMENT AND SUBLETTING
(a) Subtenant for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Sublease, nor
underlet, or suffer or permit the Sublet Premises or any part thereof to be used
by others without the prior consent of Sublandlord and Landlord.
(b) Sublandlord agrees that its consent to any proposed assignment or
subletting by Subtenant shall not be unreasonably withheld so long as Subtenant
and the proposed subtenant or assignee shall (i) deliver to Sublandlord (A) in
the case of a proposed assignment, an instrument of assignment, in form and
substance satisfactory to Landlord and reasonably satisfactory to Sublandlord,
duly executed by Subtenant and such assignee, in which such assignee shall
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<PAGE> 8
assume observance and performance of, and agree to be bound by, all of the
terms, covenants and conditions of this Sublease on Subtenant's part to be
performed, or (B) in the case of a proposed subletting, a sublease agreement on
terms and conditions satisfactory to Landlord and reasonably satisfactory to
Sublandlord, duly executed by Subtenant and the proposed sub-subtenant, and (ii)
deliver to Sublandlord any instrument required by Landlord in connection with
its consent to such transaction and obtain the consent of Landlord (if required
pursuant to the terms of the Main Lease), and (iii) pay or cause to be paid to
Sublandlord and Landlord any reasonable costs that may be incurred by
Sublandlord (not to exceed $1,000) or Landlord in connection with said
assignment or sublease, including, without limitation, the costs of making
investigations as to the acceptability of the proposed assignee or subtenant and
reasonable legal costs incurred in connection with the review of any term sheet,
proposed assignment or sublease or any documentation in connection therewith and
in the preparation of any documentation in connection with any request for
consent, whether or not granted. Each such assignment instrument or sublease
shall contain a provision to the effect that such instrument or sublease shall
not be effective unless and until Sublandlord and Landlord (if required pursuant
to the terms of the Main Lease) shall have consented thereto.
12. ATTORNMENT
In the event of termination, re-entry or dispossession of Sublandlord by
Landlord under the Main Lease, Landlord may, at its option, take over all of the
right, title and interest of Sublandlord, as sublessor, under this Sublease, and
Subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then
executory provisions of this Sublease, except that Landlord shall not (i) be
liable for any previous act, omission or negligence of Sublandlord under this
Sublease, which theretofore accrued to Subtenant against Sublandlord, (ii) be
subject to any counterclaim, defense or offset not expressly provided for in
this Sublease which theretofore accrued to Subtenant against Sublandlord, (iii)
be bound by any previous modification of this Sublease not consented to by
Landlord or by any previous prepayment of more than one month's Fixed Rent and
Additional Rent unless such prepayment was actually received by Landlord, or
(iv) be bound to perform any work which Sublandlord is obligated to perform
hereunder, or to pay Subtenant or any other person or entity for the same.
Subtenant waives all rights under any present or future laws or otherwise to
elect, by reason of the termination of the Main Lease, to terminate this
Sublease or surrender possession of the Sublet Premises. Nothing in this Article
12 shall be deemed to affect any liability that Sublandlord may have to
Subtenant pursuant to this Sublease.
13. SUBTENANT'S REPRESENTATIONS
Subtenant covenants, warrants and represents:
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<PAGE> 9
(a) that Subtenant shall perform all of its obligations under this Sublease
(including, without limitation, all of the obligations arising under the Main
Lease which are incorporated herein by reference);
(b) that Subtenant will not do or omit to do anything which would
constitute a default under the provisions of the Main Lease incorporated herein
by reference: and
(c) that Subtenant shall indemnify, defend and hold harmless Sublandlord
and Landlord and their respective agents and employees from and against any and
all claims, liabilities, damages, losses or expenses (including, without
limitation, reasonable attorneys fees) which may be imposed upon or incurred by
or asserted against Sublandlord and/or Landlord and/or their respective agents
or employees by reason of (i) Subtenant's failure to comply with the provisions
of this Sublease, (ii) the negligent or improper use or occupancy of the Sublet
Premises by Subtenant or its successors or assigns, (iii) any work or thing done
whatsoever by or at the instance of Subtenant, its agents, contractors,
subcontractors, employees, licensees, successors or assigns (other than work
performed by Sublandlord), or any condition created by Subtenant, its agents,
contractors, subcontractors, employees, licensees, successors or assigns in, on
or about the Sublet Premises, (iv) any negligence or other wrongful act or
omission on the part of Subtenant or any of its agents, contractors,
subcontractors, employees, licensees, successors or assigns, or (v) any
accident, injury or damage to any person or property occurring in, on or about
the Sublet Premises or any part thereof during the term of this Sublease, except
to the extent caused by the negligence or willful misconduct of Sublandlord
(with respect to a claim against Sublandlord) or Landlord (with respect to a
claim against Landlord). In case any action or proceeding is brought against
Sublandlord and/or Landlord and/or their respective agents and employees by
reason of any such claim, neither Sublandlord nor Landlord shall settle the same
without Subtenant's written consent and Subtenant, upon written notice from
Sublandlord and/or Landlord, shall at Subtenant's expense resist and defend such
action or proceeding by counsel selected by its insurance carrier or other
counsel approved by Sublandlord and/or Landlord in writing, which approval will
not be unreasonably withheld by Sublandlord.
14. SUBLANDLORD'S REPRESENTATIONS
Sublandlord represents that (i) it has paid all rent and additional rent
presently payable pursuant to the Main Lease as of the date of this Sublease,
(ii) to its knowledge no event has occurred which is, or with the giving of
notice or passage of time or both will become, a condition of limitation under
the Main Lease, on the part of either Sublandlord or Landlord, (iii) it is
currently the tenant under the Main Lease and the Main Lease is presently in
full force and effect, (iv) it has not received any notices of default citing
any defaults under the Main Lease which remain uncured, and (v) the Main Lease,
a copy of which has been examined by Subtenant (including said Amendment),
represents the entire agreement with respect to the Sublet Premises between
Landlord and Sublandlord.
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<PAGE> 10
15. BROKERS
(a) Subtenant represents that Subtenant has dealt with no broker in
connection with this transaction. Subtenant shall indemnify and hold Sublandlord
and Landlord harmless from and against any and all claims, liabilities, costs
and expenses of any kind and nature (including reasonable attorneys' fees)
arising from or related to a breach of the foregoing representation.
(b) Sublandlord represents that it has dealt with no broker in connection
with this transaction. Sublandlord shall indemnify and hold Subtenant and
Landlord harmless from and against any and all claims, liabilities, costs and
expenses of any kind and nature (including reasonable attorneys' fees) arising
from or related to a breach of the foregoing representation.
16. SUBLANDLORD'S PERFORMANCE UNDER MAIN LEASE
(a) Sublandlord will duly observe and perform every term and condition of
the Main Lease to the extent that such term and condition is not provided in
this Sublease to be observed or performed by Subtenant (and except to the extent
that any failure so to pay or any failure in such observance or performance
shall have resulted, directly or indirectly, from any default by Subtenant in
its obligation to pay any amount of the Fixed Rent or Additional Rent hereunder
or to observe or perform any of the terms, covenants or conditions in this
Sublease or in the Main Lease on Subtenant's part to observe or perform).
(b) Sublandlord shall not enter into any modification or amendment of the
Main Lease, or any other agreement, or take any other action which results in
the modification, surrender or cancellation of the Main Lease, if such
modification, surrender or cancellation decreases any of Subtenant's rights
under this Sublease, or increases any of Subtenant's obligations or remedies
under this Sublease, without the prior written consent of Subtenant. Any such
modification, amendment, agreement, surrender or cancellation made without such
consent shall have no effect on the rights or obligations of Subtenant under
this Sublease.
17. NOTICES
All notices, requests, demands, and other communications hereunder shall
be in writing, shall be sent by registered or certified mail, return receipt
requested, or by nationally recognized overnight carrier providing for receipted
delivery and shall be deemed have been given or made when received at the
respective addresses of Sublandlord and Subtenant first set forth above. Any of
the said addresses may be changed on ten (10) days written notice, given as
above provided. Duplicate originals of all notices to Sublandlord shall be sent
to Whitman Breed Abbott & Morgan LLP, 200 Park Avenue, New York, New York 10166,
Attention: Neil Underberg, Esq. Duplicate originals of all notices to Subtenant
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<PAGE> 11
shall be sent to Ann Taylor, Inc., 404 Chapel Street, New Haven, Connecticut
06511, Attention: Vice President Finance.
18. INSURANCE
Subtenant shall maintain all insurance required of Sublandlord as tenant
in accordance with and pursuant to the Main Lease, which insurance shall name
both Landlord and Sublandlord as additional insureds.
19. ENTIRE AGREEMENT
This Sublease contains the entire agreement between Sublandlord and
Subtenant with respect to the subject matter hereof. This Sublease cannot be
changed in any manner except by a written agreement signed by Sublandlord and
Subtenant, and, if required, consented to by Landlord.
20. NEW YORK LAW
This Sublease shall be governed in all respects by the laws of the State
of New York.
21. SUCCESSORS AND ASSIGNS
The provisions of this Sublease, except as herein otherwise specifically
provided, shall extend to, bind and inure to the benefit of the parties hereto
and their respective successors and, in the case of Sublandlord, assigns. In the
event of any assignment or transfer of the leasehold estate under the Main Lease
the transferor or assignor, as the case may be, shall be and hereby is entirely
relieved and freed of all obligations under this Sublease upon the assumption by
the transferor or assignee of Sublandlord's obligations hereunder.
22. RENEWAL OPTION
Tenant shall have the option to renew this Sublease for the period
October 1, 2006 to March 19, 2012. The renewal period shall be upon all of the
agreements, terms, covenants, and conditions hereof, except that the Fixed Rent
shall be at the rate of $1,110,000.00 per annum ($92,500 per month) and
Subtenant shall have no further renewal right. The exercise by Subtenant of said
renewal option shall be evidenced and effected by Subtenant giving Sublandlord
written notice of Subtenant's intention to renew this Sublease prior to April 1,
2005; and provided further, that on the date of the giving of such notice and on
September 30, 2006 this Sublease shall be in full force and effect and no
default shall have occurred and be continuing. Such notice of renewal shall be
effective without the necessity of any other act or instrument, but either party
will at any time upon request of the other execute, acknowledge, and deliver an
instrument evidencing such renewal.
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<PAGE> 12
23. HEADINGS
The article headings in this Sublease are inserted only as a matter of
convenience and are not to be given any effect in construing this Sublease.
24. LANDLORD'S CONSENT
This Sublease is conditional upon Landlord's consent and shall not
become effective unless and until Landlord's consent is obtained.
IN WITNESS WHEREOF, this Sublease has been duly executed as of the date
------------------
first set forth above.
SUBLANDLORD:
SOCIETE AIR FRANCE
By: /s/Auguste Gayte
_______________________________
Name: Augueste Gayte
Title: Senior Vice President
SUBTENANT:
ANN TAYLOR, INC.
By: /s/Valerie Richardson
_______________________________
Name: Valerie Richardson
Title: Senior Vice President
Real Estate and Development
EXHIBIT 10.5.3
AMENDMENT #3 TO EMPLOYMENT AGREEMENT
This AMENDMENT #3 (this "Amendment") is entered into as of the 10th
day of March, 2000, by and between ANNTAYLOR STORES CORPORATION (the "Company")
and J. PATRICK SPAINHOUR ("Executive"), and amends the Employment Agreement
between the Company and the Executive, dated as of February 16, 1996 and
effective as of February 19, 1996, as amended to date (the "Employment
Agreement").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the Company and Executive agree as
follows:
1. All capitalized terms used and not defined herein shall have the meanings
ascribed to them in the Employment Agreement.
2. Section 7(d)(2) of the Employment Agreement is hereby amended to read as
follows:
"(2) (A) unless clause (B) below applies, then following the Date of
Termination and for the longer of the remaining Term of this Agreement and
the Severance Period, the Company shall pay to the Executive monthly an
amount equal to the Severance Payments (as defined in Section 7(a)(ii)
hereof), or (B) in the event the Date of Termination occurs following a
Change in Control, then, within five (5) days after the Date of
Termination, the Company shall pay to the Executive in a lump sum an
amount equal to the product of (x) the sum of the Executive's base salary
at the rate in effect as of the Date of Termination and the average of the
annual bonuses earned by the Executive in the three fiscal years of the
Company ended immediately prior to the Date of Termination (or, if higher,
in the three fiscal years of the Company ended immediately prior to the
Change in Control) multiplied by (y) the number three (3). For purposes of
this subsection (2): (i) if the Date of Termination occurs prior to the
occurrence of a Change in Control but during the pendency of a Potential
Change in Control (as hereinafter defined), such Date of Termination shall
be deemed to have occurred following a Change in Control and (ii) a
"Potential Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following clauses shall have occurred:
(1) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(2) the Company or any Person (as defined in Section 6(d)(2)(A)
hereof) publicly announces an intention to take or to consider taking
actions which, if consummated, would constitute a Change in Control;
-1-
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<PAGE>
(3) any Person becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 15% of or more of either the then outstanding
shares of common stock of the Company or the combined voting power of
the Company's then outstanding securities (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company); or
(4) the Board adopts a resolution to the effect that, for
purposes of this subsection (2), a Potential Change in Control has
occurred.
3. Section 7(d)(3) of the Employment Agreement is hereby amended to
read as follows:
(3)the Executive shall continue to be provided with the same medical
and life insurance coverage as existed immediately prior to the
applicable Notice of Termination or Notice of Nonrenewal, as the
case may be, such coverage to continue throughout the period with
respect to which the Executive is entitled to receive Severance
Payments (or, if clause (B) of Section 7(d)(2) applies, for a period
of three (3) years following the Date of Termination);
4. Section 7(d) of the Employment Agreement is hereby further
amended by adding a new subsection (5) to read as follows:
(5)the Executive shall be entitled to continue to exercise all
outstanding options that were exercisable as of the Date of
Termination until the 90th day following expiration of the period
with respect to which the Executive is entitled to receive Severance
Payments (or, if clause (B) of Section 7(d)(2) applies, following
the third anniversary of the Date of Termination), but in no event
after expiration of the term of such options."
5. The first sentence of paragraph 5(c) of Amendment #2 to the
Employment Agreement, dated August 12, 1999, is hereby amended to read as
follows: "The Executive shall be awarded an additional 25,000 restricted shares
under the Option Plan on March 10, 2000."
6. From and after the date hereof, the term "Agreement" as used in
the Employment Agreement, shall mean the Employment Agreement as amended through
the date hereof, and the Employment Agreement, as so amended, shall continue in
full force and effect.
-2-
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<PAGE>
7. Sections 13 through 17 of the Employment Agreement are hereby
made a part of, and are incorporated by this reference into, this Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the 10th day of March, 2000.
ANNTAYLOR STORES CORPORATION
By: /s/ Robert C. Grayson /s/ J. Patrick Spainhour
------------------------ -------------------------
Robert C. Grayson, Director J. PATRICK SPAINHOUR
EXHIBIT 10.6.1
AMENDMENT #1 TO EMPLOYMENT AGREEMENT
------------------------------------
This AMENDMENT #1 (this "Amendment") is entered into as of the 16th
day of February, 2000, by and between ANNTAYLOR STORES CORPORATION (the
"Company") and PATRICIA DEROSA ("Executive"), and amends the Employment
Agreement between the Company and the Executive, dated November 25, 1996 (the
"Employment Agreement").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the Company and Executive agree as
follows:
1. All capitalized terms used and not defined herein shall have the
meanings ascribed to them in the Employment Agreement.
2. (a) The Term of Executive's employment by the Company provided for in
Section 2 of the Employment Agreement, is hereby extended to February 28, 2003.
(b) The first sentence of Section 3 of the Employment Agreement is
hereby amended to read as follows: "The Executive shall serve as President and
Chief Operating Officer of the Company with, in addition to her other duties,
responsibility and direct reporting relationships for management of the "Ann
Taylor" brand, including marketing, merchandising, sourcing, product
development, product design and store design, and shall have such
responsibilities, duties and authority consistent with such positions as may
from time to time be determined by the Board of Directors of the Company."
3. Section 5(a)(i) of the Employment Agreement is hereby amended to
provide that, commencing April 1, 2000, Executive's annual base salary shall be
increased to a rate of $750,000.
4. The fourth sentence of Section 5(a)(ii) of the Employment Agreement is
hereby amended to read as follows: "Commencing with the Fiscal Year 2000
Performance Period under the Performance Plan, the Executive's Performance
Percentage (as that term is defined in such Plan) shall be established at 60%
per annum during the Term." Section 5(a)(ii) is hereby further amended by adding
the following at the end thereof: "Executive also shall participate in the Long
Term Cash Incentive Compensation Plan currently maintained by the Company, and
her Target Award (as defined in such Plan) shall be 40%."
- --------------------------------------------------------------------------------
<PAGE>
5. The second sentence of Section 6(a)(iv) of the Employment Agreement is
hereby amended to read as follows: "For purposes of this Agreement, the
Executive shall have "Good Reason" to terminate her employment hereunder (1)
upon a failure by the Company to comply with any material provision of this
Agreement which has not been cured within ten (10) business days after notice of
such compliance has been given by the Executive to the Company, (2) upon action
by the Company resulting in a diminution of the Executive's title or authority,
(3) upon the Company's relocation of the Executive's principal place of
employment outside the New York City Metropolitan Area, or (3) one year after a
Change in Control."
6. Section 6(e)(ii) of the Employment Agreement is hereby amended to read
as follows: "(ii) (A) unless clause (B) below applies, then following the Date
of Termination and for the longer of twelve (12) months thereafter or the
balance of the Term, but in no event greater than twenty-four (24) months, the
Company shall pay to the Executive monthly an amount ("Severance Payments")
equal to the quotient of (1) the Executive's annual base salary at the rate in
effect as of the Date of Termination (the "Base Salary"), divided by (2) the
number twelve (12), or (B) in the event the Date of Termination occurs following
a Change in Control, then, within five (5) days after the Date of Termination,
the Company shall pay to the Executive in a lump sum an amount equal to the
product of (1) the sum of the Executive's Base Salary and the average of the
annual bonuses earned by the Executive in the three fiscal years of the Company
ended immediately prior to the Date of Termination (or, if higher, in the three
fiscal years of the Company ended immediately prior to the Change in Control)
multiplied by (2) the number of full and partial years remaining in the Term
(but in no event less than the number one (1)). For purposes of this subsection
(ii): (I) if the Date of Termination occurs prior to the occurrence of a Change
in Control but during the pendency of a Potential Change in Control (as
hereinafter defined), such Date of Termination shall be deemed to have occurred
following a Change in Control and (II) a "Potential Change in Control" shall be
deemed to have occurred if the event set forth in any one of the following
clauses shall have occurred:
(1) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control;
(2) the Company or any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
modified and used in Sections 13(d) and 14(d) thereof (a "Person"), except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities,
or (iv) a corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership of
stock of the Company) publicly announces an intention to take or to consider
taking actions which, if consummated, would constitute a Change in Control;
- --------------------------------------------------------------------------------
<PAGE>
(3) any Person becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 15% of or more of either the then outstanding shares of
common stock of the Company or the combined voting power of the Company's
then outstanding securities (not including in the securities beneficially
owned by such Person any securities acquired directly from the Company); or
(4) the Board adopts a resolution to the effect that, for purposes of
this subsection (ii), a Potential Change in Control has occurred.
For purposes of this Agreement, the period during or with respect to which
Executive is entitled to receive payments hereunder is referred to as the
"Severance Period";"
7. Section 6(e)(iii) is hereby amended by changing the word "season" to
"fiscal year" each time such word occurs in such Section.
8. Executive is hereby awarded fifty thousand (50,000) restricted shares
of Company Common Stock under the Company's 1992 Stock Option and Restricted
Stock and Unit Award Plan (the "Option Plan"). Executive's rights to such shares
shall vest, and the restrictions thereon shall lapse, (i) as to 16,666 shares,
on February 28, 2001, provided that the Company shall have achieved at least
110% of the net income provided for in the Company's fiscal year 2000 operating
budget as approved by the Board of Directors of the Company in the ordinary
course, (ii) as to 16,667 shares, on February 28, 2002, provided that the
Company shall have achieved at least 110% of the net income provided for in the
Company's fiscal year 2001 operating budget as approved by the Board of
Directors of the Company in the ordinary course, and (iii) as to the remaining
16,667 shares, on February 28, 2003, provided that the Company shall have
achieved at least 110% of the net income provided for in the Company's fiscal
year 2002 operating budget as approved by the Board of Directors of the Company
in the ordinary course. If any of the restricted shares do not vest on the date
specified in any of clauses (i), (ii) or (iii) as a result of the failure of the
Company to achieve at least 110% of budgeted net income for the fiscal year
referenced in such clause, then Executive's rights to such unvested restricted
shares shall automatically be forfeited by Executive on such date and such
shares shall be canceled.
The Company shall enter into a Restricted Stock Award Agreement with
Executive for the above grant of restricted shares, incorporating the vesting
terms set forth above and otherwise on the terms and conditions set forth in the
form of Restricted Stock Award Agreement previously approved by the Compensation
Committee of the Board of Directors for restricted stock awards under the Option
Plan, including, but not limited to, terms providing for accelerated
exercisability upon the occurrence of an Acceleration Event (as defined in the
Option Plan).
9. Executive is hereby awarded a non-qualified performance-vesting stock
- --------------------------------------------------------------------------------
<PAGE>
option to purchase 100,000 shares of Common Stock under the Option Plan, having
an exercise price equal to the Fair Market Value of the Common Stock on the date
of this Amendment. Such option shall become exercisable in accordance with the
vesting schedule set forth in Exhibit A to this Amendment and shall be treated
as a Performance Option within the meaning of Section 6(e)(vii) of the
Employment Agreement.
The Company shall enter into a Stock Option Agreement with the Executive
for the above stock option grant, incorporating the vesting terms set forth on
Exhibit A and the provisions of Section 6(e)(vii) of the Employment Agreement
and otherwise substantially on the terms and conditions set forth in the form of
the Company's standard Stock Option Agreement applicable to "performance
vesting" options previously approved by the Compensation Committee of the Board
of Directors, including, but not limited to, terms providing for accelerated
exercisability upon the occurrence of an Acceleration Event (as defined in the
Option Plan).
10. From and after the date hereof, the term "Agreement" as used in the
Employment Agreement, shall mean the Employment Agreement as amended by this
Amendment, and the Employment Agreement, as so amended, shall continue in full
force and effect.
[Continued Next Page]
- --------------------------------------------------------------------------------
<PAGE>
11. Sections 11 through 15 of the Employment Agreement are hereby made a
part of, and are incorporated by this reference into, this Amendment.
12. IN WITNESS WHEREOF, the parties have executed this Amendment this 16th
day of February, 2000.
ANNTAYLOR STORES CORPORATION EXECUTIVE
By: /s/ J. Patrick Spainhour /s/ Patricia DeRosa
----------------------------------- -------------------
J.Patrick Spainhour, Chairman and PATRICIA DEROSA
Chief Executive Officer
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
STOCK OPTION VESTING SCHEDULE
Total Grant: 100,000
Grant Date: February 16, 2000
Exercise Price: Fair Market Value of the Common Stock on February 16,
2000 (i.e., closing market price of the Common Stock on the
NYSE on February 15, 2000).
Vesting Schedule:
1. On each Vesting Date set forth in Column A below, if for the fiscal year
set forth in Column C corresponding to such date:
(i) the Company shall have achieved net income per share equal to or more
than the target net income amount set forth in Column F for such fiscal
year, then on that Vesting Date, the option shall vest and become
exercisable with respect to 100% of the corresponding number of shares set
forth in column B;
(i) the Company shall have achieved net income per share that is less than
the amount set forth in Column F for such fiscal year, but equal to or
more than the minimum net income per share amount set forth in Column E
for such fiscal year, then on that Vesting Date the option shall vest and
become exercisable with respect to a percentage of the corresponding
number of shares set forth in column B determined in accordance with the
following formula:
% Vesting = Actual Net Income minus Col. D Budgeted Net Income
-----------------------------------------------------------
Col. F Target Net Income minus Col. D Budgeted Net Income
See example set forth below table.
- ---------------:-------------:--------:-------------:-------------:------------
: : : : :
Column A : B : C : D : E : F
- ---------------:-------------:--------:-------------:-------------:------------
Vesting Date :# of Shares : Fiscal : Budgeted : Minimum Net : Target
: Subject to : Year : Net Income : Income Per : Net Income
: Vesting : : Per Share : Share : Per Share
- ---------------:-------------:--------:-------------:-------------:------------
2/28/01 : 33,333 : 2000 : $[****]*: $[****]* : $[****]*
- ---------------:-------------:--------:-------------:-------------:------------
2/28/02 : 33,333 : 2001 : $[****]*: $[****]* : $[****]*
- ---------------:-------------:--------:-------------:-------------:------------
2/28/03 : 33,334 : 2002 : $[****]*: $[****]* : $[****]*
- ---------------:-------------:--------:-------------:-------------:------------
3-Year : : : : : $[****]*
Aggregate : : : : :
- ---------------:-------------:--------:-------------:-------------:------------
EXAMPLE: If the Company earns net income per share for fiscal year 2000 of
$[****]*, options to purchase 23,666 shares (71% of the 33,333) shall vest and
become exercisable on 2/28/01.
- ----------------
* Confidential Treatment Requested by AnnTaylor Stores Corporation.
- --------------------------------------------------------------------------------
<PAGE>
2. If the Company shall have achieved cumulative net income per share
aggregating at least $[****]* for the three fiscal year period from fiscal
2000 through fiscal 2002, then any options that did not vest pursuant to
Section 1 above shall vest and become exercisable on February 28, 2003.
3. Any options that have not vested by February 28, 2003 pursuant to Section
1 or Section 2 above, shall be automatically be terminated and canceled on
such date, without becoming exercisable.
4. For purposes of this Exhibit A:
(a)a "fiscal year" of the Company shall mean the fiscal year commencing
on the Sunday closest to January 31 in the year mentioned (for example,
"fiscal year 2000" means the fiscal year that began on January 30, 2000
and ends on February 3, 2001);
(b)"net income" shall mean that net income set forth on the Company's
audited consolidated operating statement for the fiscal year in
question, and "net income per share" shall mean the net income per
share, on a diluted basis, set forth on the Company's audited
consolidated operating statement for the fiscal year in question.
- ----------------
* Confidential Treatment Requested by AnnTaylor Stores Corporation.
EXHIBIT 10.8.4
AMENDMENT TO THE
ANNTAYLOR STORES CORPORATION
1992 STOCK OPTION AND RESTRICTED
STOCK AND UNIT AWARD PLAN
This Amendment is made to the AnnTaylor Stores Corporation 1992 Stock
Option and Restricted Stock and Unit Award Plan, as heretofore restated and
amended (the "Plan"). This Amendment shall be effective as of March 10, 2000.
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Plan.
WHEREAS, by resolution adopted on March 10, 2000 by the Board of Directors
of AnnTaylor Stores Corporation (the "Company"), the Company has determined that
it is in its best interest and that of its stockholders to amend the Plan as set
forth herein, pursuant to the authority retained by the Company in Section 10 of
the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 6(i)(2) of the Plan is amended by restating the final two
sentences thereof to read as follows:
Following the Acceleration Event, the Committee shall provide for the
cancellation of all Options then outstanding. Upon such cancellation, the
Corporation shall make, in exchange therefor, a cash payment for each such
Option in an amount per share equal to the difference between the per
share exercise price of such Option and the Fair Market Value of a share
of Common Stock on the date during the prior sixty-day period that
produces the highest Fair Market Value.
Except as herein modified, the Plan shall remain in full force and effect.
EXHIBIT 10.9.2
AMENDMENT TO THE
----------------
ANNTAYLOR STORES CORPORATION
----------------------------
MANAGEMENT PERFORMANCE COMPENSATION PLAN
----------------------------------------
This Amendment is made to the AnnTaylor Stores Corporation Management
Performance Compensation Plan, which was most recently amended and restated as
March 12, 1998 (the "Plan"). This Amendment shall be effective as of March 10,
2000. Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Plan.
WHEREAS, by resolution adopted on March 10, 2000 by the Board of Directors
of AnnTaylor Stores Corporation (the "Company"), the Company has determined that
it is in its best interest and that of its stockholders to amend the Plan as set
forth herein, pursuant to the authority retained by the Company in Section 8 of
the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 2 of the Plan is amended by adding the following
definition as Section 2(d) and renumbering the following paragraphs of Section 2
accordingly:
"(d) A "Change in Control" shall be deemed to have occurred if:
(i) any "person", as such term is used in Section 13(d) and 14(d) of the
Exchange Act, other than (1) the Company, (2) any trustee or other
fiduciary holding securities under an employee benefits plan of the
Company, or (3) any corporation owned, directly or indirectly, by the
stockholders of the Company (in substantially the same proportion as
their ownership of shares) (a "Person") is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding voting
securities;
(ii) during any period of not more than two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in clause (i), (iii) or (iv) of this Section 2(d)) whose election by
the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors at the beginning of the period or
whose election or nomination for election for election was previously
so approved, cease for any reason to constitute at least a majority
thereof;
(iii)the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (A) a merger or
-1-
- --------------------------------------------------------------------------------
<PAGE>
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving or parent entity) 50% or more of the
combined voting power of the voting securities of the Company or such
surviving or parent entity outstanding immediately after such merger
or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no Person is or becomes the beneficial owner (as defined in
clause (i) above), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting power of the
Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets (or any
transaction having a similar effect)."
2. Section 5 of the Plan is amended by adding thereto a new
paragraph (f) to read as follows:
"(f) Notwithstanding the preceding provisions of this Section 5, in the
event of a Change in Control, a pro rata cash payment, in cancellation
of outstanding Awards in respect of the Performance Period in effect
as of the date of the Change in Control, shall be made to each
Participant within thirty (30) business days following the date of the
Change in Control. The pro rata payment to such Participant with
respect to such Performance Period shall be calculated by multiplying
(X) and (Y), where (X) equals the amount to which the Participant
would have been entitled had the Performance Period been completed,
assuming for this purpose that all Performance Goals applicable to the
Participant were achieved at a level equating to a Performance Ratio
of 100% and (Y) equals a fraction the numerator of which is the number
of full and partial months in such Performance Period that have
elapsed as of the date of the Change in Control and the denominator of
which is the number of months in the complete Performance Period."
Except as herein modified, the Plan shall remain in full force and
effect.
-2-
EXHIBIT 10.15.7
SECOND AMENDMENT dated as of December 28, 1999
(this "Second Amendment"), to the Credit
------ ---------
Agreement dated as of June 30, 1998 (as
amended, the "Credit Agreement"), among
------ ---------
AnnTaylor, Inc., a Delaware corporation (the
"Borrower"), Bank of America National Trust and
--------
Savings Association, now known as Bank of
America, N.A. ("Bank of America"), Citibank,
---- -- -------
N.A. ("Citibank"), First Union National Bank
--------
and each of the other lenders party to the
Credit Agreement, NationsBanc Montgomery
Securities LLC, now known as BancAmerica
Securities LLC, as Arranger, Bank of America,
as Administrative Agent (the "Administrative
--------------
Agent"), Citicorp USA and First Union Capital
-----
Markets, as Syndication Agents, and Bank of
America, Citibank and First Union National
Bank, as Issuing Banks.
The Borrower intends to enter into Accommodation Obligations for the
purpose of guaranteeing the performance by AnnTaylor Retail, Inc., a direct,
wholly-owned Restricted Subsidiary, formerly known as AnnTaylor Loft, Inc.
("AnnTaylor Retail") of its obligations associated with its retail operations
--------- ------
and entered into in the ordinary course of business (the "Retail
------
Accommodation Obligations").
- -------------------------
Further, pursuant to the First Amendment to the Credit Agreement, dated
as of September 7, 1999, the Credit Agreement was amended to permit the
repurchase by AnnTaylor Stores Corporation ("ATSC") of Common Stock of ATSC
----
and the prepayment of Subordinated Debt, collectively in an amount not to
exceed $40,000,000 (the "Repurchase"). ATSC has consummated the Repurchase
----------
and in connection therewith, the Borrower wishes to be permitted to declare
and pay dividends of up to $40,000,000 (the "Repurchase Dividend") to ATSC in
---------- --------
order to pay the consideration with respect to the Repurchase.
The Borrower has requested that the Lenders and the Administrative
Agent amend the Credit Agreement (i) to permit the Borrower to enter into the
Retail Accommodation Obligations and (ii) to permit the Borrower to pay the
Repurchase Dividend.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement (the Credit
Agreement, as amended by, and together with, this Second Amendment, and as
hereinafter amended, modified, extended or restated from time to time, being
called the "Amended Agreement").
-----------------
Accordingly, the parties hereto hereby agree as follows:
SECTION 1.01. Amendment to Section 8.04. Section 8.04 is hereby
----------------------------
amended by deleting the word "and" at the end of subsection (e), by adding
the word "and" immediately following the semicolon (";") at the end of
subsection (f) and by adding the following new subsection (g):
- --------------------------------------------------------------------------------
<PAGE> 2
"(g) guarantees by the Borrower of obligations of
AnnTaylor Retail, Inc., a Restricted Subsidiary of the Borrower,
not relating to Indebtedness (other than Indebtedness incurred in
relation to clause (d) of the definition of Indebtedness herein),
to third parties with respect to retail operations of AnnTaylor
Retail, Inc., entered into on an arm's length basis and in the
ordinary course of business."
SECTION 1.02. Amendments to Section 8.05. Section 8.05 is hereby
-----------------------------
amended by deleting clause (j) in its entirety and replacing it with the
following:
"(j) dividends paid and declared by the Borrower to ATSC to fund (i)
any redemption, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct of indirect, of any shares of Common
Stock of ATSC now or hereafter outstanding or (ii) any payment or prepayment
of principal of, premium, if any, or interest on, and any redemption,
purchase, retirement or defeasance of, or sinking fund or similar payment
with respect to any Subordinated Debt; provided that (A) the aggregate
--------
consideration paid pursuant to this clause (j) shall not exceed $40,000,000
and (B) immediately prior to and after giving effect thereto, no Event of
Default shall have occurred and be continuing."
SECTION 1.03. Acknowledgment of the Repurchase. The Administrative
----------------------------------
Agent and the Requisite Lenders hereby acknowledge the consummation of the
Repurchase effected by ATSC prior to the date hereof.
SECTION 1.04. Representations and Warranties. The Borrower hereby
--------------------------------
represents and warrants to each Lender, each Issuing Bank, the Syndication
Agents and the Administrative Agent, as follows; provided that the Borrower
--------
makes no representation as to the qualification to do business and good
standing of AnnTaylor Retail as a foreign corporation in any jurisdiction
other than that the failure to be so qualified and in good standing has not
had a Material Adverse Effect:
(a) The representations and warranties set forth in
Article V of the Amended Agreement, and in each other Loan
Document, are true and correct in all material respects on and as
of the date hereof and on and as of the Second Amendment
Effective Date (as hereinafter defined) with the same effect as
if made on and as of the date hereof or the Second Amendment
Effective Date, as the case may be, except to the extent such
representations and warranties expressly relate solely to an
earlier date.
(b) The Borrower is in compliance with all the terms and
conditions of the Amended Agreement and the other Loan Documents
on its part to be observed or performed and no Event of Default
has occurred and is continuing.
(c) The execution, delivery and performance by the
Borrower of this Second Amendment have been duly authorized by
the Borrower.
(d) This Second Amendment constitutes the legal, valid
and binding obligation of the Borrower, enforceable against it in
accordance with its terms.
- --------------------------------------------------------------------------------
<PAGE> 3
The execution, delivery and performance by the Borrower of
this Second Amendment will not (i) constitute a tortious
interference with any Contractual Obligation of any Person, any
liability resulting from which would have or be reasonably
expected to have a Material Adverse Effect, or (ii) conflict with
or violate the Borrower's Certificate of Incorporation or By-Laws
or (iii) conflict with, result in a breach of or constitute (with
or without notice or lapse of time or both) a default under any
Requirement of Law or material Contractual Obligation of ATSC or
of the Borrower or any Subsidiary of the Borrower or (iv) result
in or require the creation or imposition of any Lien whatsoever
upon any of the properties or assets of ATSC, the Borrower or any
Subsidiary of the Borrower (other than Liens in favor of the
Administrative Agent or the Issuing Banks arising pursuant to the
Loan Documents or Liens permitted pursuant to Section 8.02(b) of
the Credit Agreement), or (v) require any approval of
stockholders, unless such approval has been obtained.
SECTION 1.05. Effectiveness. This Second Amendment shall become
-------------
effective only upon satisfaction of the following conditions precedent (the
first date upon which each such condition has been satisfied being herein
called the "Second Amendment Effective Date"):
-------------------------------
(a) The Administrative Agent shall have received duly
executed counterparts of this Second Amendment which, when taken
together, bear the authorized signatures of the Borrower and the
Requisite Lenders.
(b) The Administrative Agent shall be satisfied that the
representations and warranties set forth in Section 1.04 of this
Second Amendment are true and correct on and as of the Second
Amendment Effective Date.
(c) There shall not be any action pending or any
judgment, order or decree in effect that, in the reasonable
judgment of the Administrative Agent or the Lenders, is likely to
restrain, prevent or impose materially adverse conditions upon
performance by the Borrower of its obligations under the Amended
Agreement.
(d) The Administrative Agent shall have received such
other documents, legal opinions, instruments and certificates
relating to this Second Amendment as they shall reasonably
request and such other documents, legal opinions, instruments and
certificates shall be satisfactory in form and substance to the
Administrative Agent and the Lenders. All corporate and other
proceedings taken or to be taken in connection with this Second
Amendment and all documents incidental thereto, whether or not
referred to herein, shall be satisfactory in form and substance
to the Administrative Agent and the Lenders.
(e) The Borrower shall have paid all fees and expenses
referred to in Section 1.07 of this Second Amendment for which
they have been billed.
- --------------------------------------------------------------------------------
<PAGE> 4
SECTION 1.06. APPLICABLE LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED
---------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 1.07. Expenses. The Borrower shall pay all reasonable
--------
out-of-pocket expenses incurred by the Administrative Agent in connection
with the preparation, negotiations execution, delivery and enforcement of
this Second Amendment, including, but not limited to, the reasonable fees and
disbursements of counsel to the Administrative Agent.
SECTION 1.08. Counterparts. This Second Amendment may be executed in
------------
any number of counterparts, each of which shall constitute an original but
all of which when taken together shall constitute but one agreement.
Delivery of an executed counterpart of a signature page to this Second
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Second Amendment.
SECTION 1.09. Loan Documents. Except as expressly set forth herein,
---------------
the amendments provided herein shall not by implication or otherwise limit,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Administrative Agent, the Issuing Banks or the Arranger under
the Amended Agreement or any other Loan Document, nor shall they constitute a
waiver of any Event of Default, nor shall they alter, modify, amend or in any
way affect any of the terms, conditions, obligations, covenants or agreements
contained in the Amended Agreement or any other Loan Document. Each of the
amendments provided herein shall apply and be effective only with respect to
the provisions of the Amended Agreement specifically referred to by such
amendments. Except as expressly amended herein, the Amended Agreement and
the other Loan Documents shall continue in full force and effect in
accordance with the provisions thereof. As used in the Amended Agreement,
the terms "Agreement", "herein", "hereinafter", "hereunder", "hereto" and
words of similar import shall mean, from and after the date hereof, the
Amended Agreement.
[signature pages to follow]
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by duly authorized officers, all as of the date
first above written.
ANNTAYLOR, INC., as Borrower
By /s/James Smith
---------------------
Name: James Smith
Title: Vice President and Controller
- --------------------------------------------------------------------------------
BANK OF AMERICA, N.A.,
as Administrative Agent, Issuing Bank and as a
Lender
By /s/Timothy H. Spanos
--------------------
Name: Timothy H. Spanos
Title: Managing Director
- --------------------------------------------------------------------------------
AMSOUTH BANK,
as a Lender
By /s/Kathleen F. Kerlinger
------------------------
Name: Kathleen F. Kerlinger
Title: Attorney-In-Fact
- --------------------------------------------------------------------------------
FIRST UNION NATIONAL BANK, as Issuing Bank
and as a Lender
By /s/Irene Rosen Marks
--------------------
Name: Irene Rosen Marks
Title: Vice President
- --------------------------------------------------------------------------------
HELLER FINANCIAL, INC.,
as a Lender
By /s/Dennis Graham
----------------------
Name: Dennis Graham
Title: Vice President
- --------------------------------------------------------------------------------
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as a Lender
By /s/ Elizabeth M. Lynch
-------------------------
Name: Elizabeth M. Lynch
Title: Senior Vice President
- --------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION,
as a Lender
By /s/ Perry Vavoules
--------------------------
Name: Perry Vavoules
Title: Senior Vice President
- --------------------------------------------------------------------------------
JACKSON NATIONAL LIFE INSURANCE COMPANY,
as a Lender
By: PPM Finance Inc., as its Attorney-In-Fact
By /s/James Curgone
-------------------------
Name: James Curgone
Title: Vice President
- --------------------------------------------------------------------------------
CITICORP USA, as a Lender
By /s/ Miles D. McManus
--------------------------
Name: Miles D. McManus
Title: Vice President
- --------------------------------------------------------------------------------
CITIBANK, N.A., as an Issuing Bank
By /s/Miles D. McManus
--------------------------
Name: Miles D. McManus
Title: Vice President
- --------------------------------------------------------------------------------
FINOVA CAPITAL CORPORATION, successor by merger
to FREMONT FINANCIAL CORPORATION,
as a Lender
By /s/ Jeffrey Stanek
-----------------------------
Name: Jeffrey Stanek
Title: Vice President, Team Leader
- --------------------------------------------------------------------------------
LASALLE NATIONAL BANK,
as a Lender
By /s/Robert Corsentino
----------------------------
Name: Robert Corsentino
Title:
- --------------------------------------------------------------------------------
SUMMIT BANK,
as a Lender
By /s/Yuri Piltser
-----------------------------
Name: Yuri Piltser
Title: V.P.
EXHIBIT 10.16.1
AMENDMENT TO THE
----------------
ANNTAYLOR STORES CORPORATION
----------------------------
LONG-TERM CASH INCENTIVE COMPENSATION PLAN
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This Amendment is made to the AnnTaylor Stores Corporation Long-Term Cash
Incentive Compensation Plan (the "Plan"). This Amendment shall be effective as
of March 10, 2000. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Plan.
WHEREAS, by resolution adopted on March 10, 2000 by the Board of Directors
of AnnTaylor Stores Corporation (the "Company"), the Company has determined that
it is in its best interest and that of its stockholders to amend the Plan as set
forth herein, pursuant to the authority retained by the Company in Section 9 of
the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 2 of the Plan is amended by adding the following
definition as Section 2(d) and renumbering the following paragraphs of Section 2
accordingly:
"(d) A "Change in Control" shall be deemed to have occurred if:
(I) any "person", as such term is used in Section 13(d) and 14(d) of
the Exchange Act, other than (1) the Company, (2) any trustee or
other fiduciary holding securities under an employee benefits
plan of the Company, or (3) any corporation owned, directly or
indirectly, by the stockholders of the Company (in substantially
the same proportion as their ownership of shares) (a "Person")
is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
of the Company representing 30% or more of the combined voting
power of the Company's then outstanding voting securities;
(II) during any period of not more than two consecutive years,
individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by
a person who has entered into an agreement with the Company to
effect a transaction described in clause (I), (III) or (IV) of
this Section 2(d)) whose election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the
directors at the beginning of the period or whose election or
nomination for election for election was previously so approved,
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cease for any reason to constitute at least a majority thereof;
(III) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) 50% or
more of the combined voting power of the voting securities of the
Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the beneficial owner
(as defined in clause (I) above), directly or indirectly, of
securities of the Company representing 30% or more of the combined
voting power of the Company's then outstanding securities; or
(IV) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect)."
2. Section 6 of the Plan is amended by adding thereto a new
paragraph (f) to read as follows:
"(f) Notwithstanding the preceding provisions of this Section 6, in
the event of a Change in Control, a pro rata cash payment in
cancellation of outstanding Awards in respect of each incomplete
Performance Cycle shall be made to each Participant within thirty
(30) business days following the date of the Change in Control. The
pro rata payment with respect to each incomplete Performance Cycle
applicable to such Participant shall be calculated by multiplying
(X) times (Y), where (X) equals the amount to which the Participant
would be entitled had the Performance Cycle been completed, taking
into account for this purpose (1) actual earnings per share for any
fiscal year within the Performance Cycle that was completed prior to
the Change in Control, (2) for the fiscal year in which the Change
in Control occurs, the earnings per share derived from the
Board-approved operating budget for such fiscal year, and (3) for
any fiscal year in such Performance Cycle subsequent to the fiscal
year in which the Change in Control occurs, the projected earnings
per share for such fiscal year presented to the Committee at the
time the Performance Goal for such Performance Cycle was
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established, and (Y) equals a fraction the numerator of which is the
number of full and partial months in such incomplete Performance
Cycle that have elapsed as of the date of the Change in Control and
the denominator of which is the number of months in the complete
Performance Cycle."
Except as herein modified, the Plan shall remain in full force and
effect.
` Exhibit 10.18
ANNTAYLOR STORES CORPORATION
SPECIAL SEVERANCE PLAN
AnnTaylor Stores Corporation, a Delaware corporation (the
"Company"), hereby adopts the AnnTaylor Stores Corporation Special Severance
Plan (the "Plan") for the benefit of certain employees of the Company and its
subsidiaries, on the terms and conditions hereinafter stated.
The Plan, as set forth herein, is intended to help retain qualified
employees, maintain a stable work environment and provide economic security to
certain employees of the Company in the event of a Qualifying Termination (as
defined herein). The Plan, as a "severance pay arrangement" within the meaning
of Section 3(2)(B)(i) of ERISA, is intended to be excepted from the definitions
of "employee pension benefit plan" and "pension plan" set forth under Section
3(2) of ERISA, and is intended to meet the descriptive requirements of a plan
constituting a "severance pay plan" within the meaning of regulations published
by the Secretary of Labor at Title 29, Code of Federal Regulations, ss.
2510.3-2(b).
SECTION 1. DEFINITIONS. As hereinafter used:
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1.1 "Affiliate" shall mean any corporation, directly or indirectly,
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through one or more intermediaries, controlling, controlled by or under common
control with the Company.
1.2 "Annual Compensation" shall mean (i) the Severed Employee's
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current rate of base salary (determined immediately prior to the Qualifying
Termination and without regard to any decrease in such salary constituting Good
Reason), plus (ii) the average of the Severed Employee's annual bonuses earned
in respect of the three full fiscal years (or the number of full years worked
with the Company, if fewer than three) immediately preceding the year in which
the Change in Control occurs or, if higher, in which the Qualifying Termination
occurs.
1.3 "Board" shall mean the Board of Directors of the Company.
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1.4 "Cause" shall mean, with respect to a termination of the
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Employee's employment with the Company, (i) the willful and continued failure by
the Employee to substantially perform the Employee's duties with the Company
(other than by reason of physical or mental incapacity) or (ii) the conviction
of the Employee for the commission of a felony involving moral turpitude.
1.5 "Change in Control" shall be deemed to have occurred if:
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(I) any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act, other than (A) the Company, (B)
any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or (C) any
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corporation owned, directly or indirectly, by the
stockholders of the Company (in substantially the same
proportion as their ownership of shares), (a "Person") is
or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
voting securities;
(II) during any period of not more than two consecutive years,
individuals who at the beginning of such period constitute
the Board, and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in
clause (I), (III) or (IV) of this Section 1.5) whose
election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning
of the period or whose election or nomination for election
was previously so approved, cease for any reason to
constitute at least a majority thereof;
(III) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving or parent entity) 50% or more of the combined
voting power of the voting securities of the Company or such
surviving or parent entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no Person is or becomes the
beneficial owner (as defined in clause (I) above), directly or
indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then
outstanding securities; or
(IV) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
1.6 "Code" shall mean the Internal Revenue Code of 1986, as it may
----
be amended from time to time.
1.7 "Committee" shall mean the Compensation Committee of the Board.
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1.8 "Company" shall mean AnnTaylor Stores Corporation, a Delaware
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corporation, or any successor thereto.
1.9 "Disability" shall mean a physical or mental condition causing
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the Employee to be unable to substantially perform his or her duties with the
Company, including, without limitation, such condition entitling him or her to
benefits under any sick pay or disability income policy or program of the
Company.
1.10 "Effective Date" shall mean January 1, 2000.
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1.11 "Employee" shall mean any employee of the Company or any direct
--------
or indirect subsidiary of the Company who is a Level I, Level II, Level III or
Level IV Employee.
1.12 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as it may be amended from time to time.
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended.
1.14 "Good Reason" shall mean any of the following acts or omissions
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that take place on or after the occurrence of a Change in Control: (i) the
material diminution in the Employee's duties or authority; (ii) a change of the
Employee's place of employment by more than fifty (50) miles; or (iii) a
reduction in the Employee's salary or bonus opportunity; provided, however, that
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clause (i) above shall only be applicable to an Employee who is as a Level I or
Level II Employee.
1.15 "Level I Employee" shall mean an Employee who has the title of
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Executive Vice President of the Company or any direct or indirect subsidiary of
the Company.
1.16 "Level II Employee" shall mean an Employee who has the title of
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Senior Vice President of the Company or any direct or indirect subsidiary of the
Company.
1.17 "Level III Employee" shall mean an Employee who has the title
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of Vice President of the Company or any direct or indirect subsidiary of the
Company.
1.18 "Level IV Employee" shall mean an Employee who is a
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Director-level employee of the Company or any direct or indirect subsidiary of
the Company (including District Managers and Merchandising Managers).
1.19 "Person" shall mean any individual, entity or group, within the
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meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act.
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1.20 "Plan Administrator" shall mean the person or persons
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designated by the Committee or by the Board to administer the Plan.
1.21 "Potential Change in Control" shall be deemed to occur in the
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event that, after the Effective Date, the Company enters into an agreement, the
consummation of which would result in a Change in Control or the Company, or any
Person publicly announces an intention to take or to consider taking action
which, if consummated, would constitute a Change in Control.
1.22 "Qualifying Termination" shall mean a termination of an
-----------------------
Employee's employment following a Change in Control and on or before such
Employee's Qualifying Termination Date, either (i) by the Company without Cause
or (ii) by the Employee for Good Reason. Severance Benefits will not be paid in
the event of termination of an Employee's employment by reason of retirement or
death, by the Company for Cause or Disability or by the Employee without Good
Reason. A termination of employment will not be deemed to have occurred upon (1)
the transfer of the Employee to employment with an Affiliate of the Company if
the Affiliate assumes the Company's responsibilities under the Plan with respect
to the Employee or (2) the divestiture of a business with which the Employee is
primarily associated if the Employee is offered comparable employment by the
successor company and such successor company assumes the Company's
responsibilities under the Plan with respect to such Employee.
1.23 "Qualifying Termination Date" shall mean the date occurring
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twenty-four (24) months following a Change in Control.
1.24 "Severance Benefits" shall mean the payments and benefits
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provided to Severed Employees pursuant to Section 2.1 and 2.2 hereof.
1.25 "Severance Date" shall mean the date on which an Employee
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incurs a Qualifying Termination.
1.26 "Severance Multiple" shall mean:
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(a) with respect to Level I Employees, two and one-half;
(b) with respect to Level II employees, two;
(c) with respect to Level III Employees, one and one-half; and
(d) with respect to Level IV Employees, one.
1.27 "Severed Employee" shall mean an Employee who has incurred a
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Qualifying Termination.
Additional definitions are set forth within the Plan and shall have the meanings
ascribed to them in the Plan.
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SECTION 2. BENEFITS.
2.1 Subject to Section 2.4 hereof, each Severed Employee shall be
entitled to receive from the Company an amount equal to the product of (i) the
Severed Employee's Annual Compensation and (ii) the Severed Employee's Severance
Multiple (the "Severance Amount"). The Severance Amount shall be paid to such
Severed Employee in a lump sum as soon as practicable but no later than ten days
following the first date on which the Release referred to in Section 2.5 hereof
is no longer revocable. The Severance Amount that a Severed Employee receives
under this Plan shall not be taken into account for purposes of determining
benefits under any other qualified or nonqualified plans of the Company.
2.2 Subject to Section 2.4 hereof, commencing on the date
immediately following the Severed Employee's Severance Date and continuing for
the period set forth below (the "Welfare Benefit Continuation Period"), the
Company shall provide each Severed Employee and anyone entitled to claim under
or through such Severed Employee with all Company-paid benefits under any group
health plan and life insurance plan of the Company (as in effect immediately
prior to the such Severed Employee's Severance Date or, if more favorable to the
Severed Employee, immediately prior to the Change in Control) for which
employees of the Company and its subsidiaries are eligible, to the same extent
as if such Severed Employee had continued to be an employee of the Company or
any subsidiary thereof during the Welfare Benefit Continuation Period. To the
extent that the Severed Employee's participation in Company benefit plans is not
practicable, the Company shall arrange to provide, at the Company's sole
expense, the Severed Employee and anyone entitled to claim under or through such
Severed Employee with equivalent health and life insurance benefits under an
alternative arrangement during the Welfare Benefit Continuation Period. The
coverage period for purposes of the group health continuation requirements of
Section 4980B of the Code shall commence at the expiration of the Welfare
Benefit Continuation Period. For purposes of this Section 2.2, the Welfare
Benefit Continuation Period shall be the product of (a) the Severed Employee's
Severance Multiple and (b) twelve months.
2.3 In the event of a claim by an Employee as to the amount or
timing of any payment or benefit under the Plan, such Employee shall present the
reason for his or her claim in writing to the Plan Administrator. The Plan
Administrator shall, within thirty (30) days after receipt of such written
claim, send a written notification to the Employee as to its disposition. In the
event the claim is wholly or partially denied, such written notification shall
(i) state the specific reason or reasons for the denial, (ii) make specific
reference to pertinent Plan provisions on which the denial is based, (iii)
provide a description of any additional material or information necessary for
the Employee to perfect the claim and an explanation of why such material or
information is necessary, and (iv) set forth the procedure by which the Employee
may appeal the denial of his or her claim. In the event an Employee wishes to
appeal the denial of his or her claim, he or she may request a review of such
denial by making application in writing to the Plan Administrator within fifteen
(15) days after receipt of such denial. Such Employee (or his or her duly
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authorized legal representative) may, upon written request to the Plan
Administrator, review any documents pertinent to his or her claim, and submit in
writing issues and comments in support of his or her position. Within thirty
(30) days after receipt of a written appeal (unless special circumstances, such
as the need to hold a hearing, require an extension of time, but in no event
more than thirty (30) days after such receipt), the Plan Administrator shall
notify the Employee of the final decision. The final decision shall be in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, and specific references to the
pertinent Plan provisions on which the decision is based.
2.4 No Employee shall be eligible to receive Severance Benefits
unless he or she first executes a Release (substantially in the form of Exhibit
A hereto) in favor of the Company and others set forth on said Exhibit A,
relating to all claims or liabilities of any kind relating to his or her
employment with the Company or a subsidiary thereof and the termination of the
Employee's employment.
2.5 The Company shall pay to each Employee all reasonable legal fees
and expenses incurred by such Employee in seeking in good faith to obtain or
enforce any right or benefit provided under this Plan (other than any such fees
and expenses incurred in pursuing any claim determined to be frivolous by an
arbitrator or by a court of competent jurisdiction).
2.6 (a) In the event that any payment or benefit received or to be
received hereunder by a Severed Employee who is a Level I Employee or a Level II
Employee (a "Severed Executive") would be subject (in whole or in part) to the
tax (the "Excise Tax") imposed under Section 4999 of the Code, the Company shall
pay to the Severed Executive such additional amounts (the "Gross-Up Payment") as
may be necessary to place the Severed Executive in the same after-tax position
in which he or she would have been had no portion of the Total Payments (as
hereinafter defined) been subject to the Excise Tax. For purposes of the Plan,
"Total Payments" shall mean any payments made or benefits provided in connection
with a Change in Control of the Company or the termination of the Severed
Executive's employment, whether such payments or benefits are received pursuant
to the terms of this Plan or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control of the Company
or any person affiliated with the Company or such person.
(b) In the event that the Excise Tax is subsequently determined to
be less than the amount taken into account hereunder, the Severed Executive
shall repay to the Company, at the time that the amount of such reduction in
Excise Tax is finally determined, the portion of the Gross-Up Payment
attributable to the reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the Gross-Up Payment being repaid by the Severed Executive to the extent that
such repayment results in a reduction in Excise Tax and/or federal, state or
income tax deduction) plus interest on the amount of such repayment at the rate
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provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account hereunder (including by
reason of any payment the existence of which cannot be determined as the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Severed Executive with respect of such excess) at the time that the amount of
such excess if finally determined. The Severed Executive and the Company shall
each reasonably cooperate with the other in connection with any administrative
or judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments.
SECTION 3. PLAN ADMINISTRATION.
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3.1 The Plan shall be interpreted, administered and operated by the
Plan Administrator, which shall have complete authority, in its sole discretion
subject to the express provisions of the Plan, to determine who shall be
eligible for Severance Benefits, to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable for the administration of the Plan.
3.2 All questions of any character whatsoever arising in connection
with the interpretation of the Plan or its administration or operation shall be
submitted to and settled and determined by the Plan Administrator in an
equitable and fair manner in accordance with the procedure for claims and
appeals described in Section 2.3 hereof.
3.3 The Plan Administrator may delegate any of its duties hereunder
to such person or persons from time to time as it may designate.
3.4 The Plan Administrator is empowered, on behalf of the Plan, to
engage accountants, legal counsel and such other personnel as it deems necessary
or advisable to assist it in the performance of its duties under the Plan. The
functions of any such persons engaged by the Plan Administrator shall be limited
to the specified services and duties for which they are engaged, and such
persons shall have no other duties, obligations or responsibilities under the
Plan. Such persons shall exercise no discretionary authority or discretionary
control respecting the management of the Plan. All reasonable expenses thereof
shall be borne by the Company.
SECTION 4. PLAN MODIFICATION OR TERMINATION.
--------------------------------
The Plan may be amended or terminated by the Board at any time;
provided, however, that (i) no termination or amendment of the Plan may reduce
the Severance Benefits payable under the Plan to an Employee if the Employee's
termination of employment with the Company has occurred prior to such
termination of the Plan or amendment of its provisions and (ii) during the
pendency of a Potential Change in Control and following a Change in Control, the
Plan may not be terminated and may not be amended without the consent of each
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affected Employee, if such amendment would be adverse to the interests of any
Employee.
SECTION 5. GENERAL PROVISIONS.
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5.1 Except as otherwise provided herein or by law, none of the
payments, benefits or rights of any Employee shall be subject to any claim of
any creditor, and, in particular, to the fullest extent permitted by law, all
such payments, benefits and rights shall be free from attachment, garnishment,
trustee's process, or any other legal or equitable process available to any
creditor of such Employee. No Employee shall have the right to alienate,
anticipate, commute, pledge, encumber or assign any of the benefits or payments
which he or she may expect to receive, contingently or otherwise, under this
Plan.
5.2 Neither the establishment of the Plan, nor any modification
thereof, nor the creation of any fund, trust or account, nor the payment of any
benefits shall be construed as giving any Employee, or any person whomsoever,
the right to be retained in the service of the Company or any subsidiary
thereof, and all Employees shall remain subject to discharge to the same extent
as if the Plan had never been adopted.
5.3 If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and this Plan shall be construed and enforced as if such
provisions had not been included.
5.4 This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties, including each Employee,
present and future, and any successor to the Company.
5.5 The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
5.6 The Plan shall not be funded. No Employee shall have any right
to, or interest in, any assets of the Company which may be applied by the
Company to the payment of benefits or other rights under this Plan.
5.7 Any benefit payable to or for the benefit of a minor, an
incompetent person or other person incapable of giving a receipt therefor shall
be deemed paid when paid to such person's guardian or to the party providing or
reasonably appearing to provide for the care of such person, and such payment
shall fully discharge the Company, its subsidiaries, the Plan Administrator and
all other parties with respect thereto. If a Severed Employee dies prior to the
payment of all benefits due such Severed Employee, such unpaid amounts shall be
paid to the executor, personal representative or estate of such Employee.
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5.8 Any notice or other communication required or permitted pursuant
to the terms hereof shall have been duly given when delivered or mailed by
United States mail, first class, postage prepaid, addressed to the intended
recipient at his, her or its last known address.
5.9 This Plan shall be construed and enforced according to the laws
of the State of Delaware, without giving effect to its principles of conflicts
of law, to the extent not preempted by federal law, which shall otherwise
control.
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EXHIBIT A
RELEASE AGREEMENT
-----------------
In consideration of the payments and benefits provided for in the
annexed AnnTaylor Stores Corporation Special Severance Plan (the "Plan"), and
the release from [insert employee's name] (the "Employee") set forth herein,
AnnTaylor Stores Corporation (the "Company") and the Employee agree to the terms
of this Release Agreement. Capitalized terms used and not defined in this
Release Agreement shall have the meanings assigned thereto in the Plan.
1. The Employee acknowledges and agrees that the Company is under no
obligation to offer the Employee the payments and benefits set forth in the
annexed Plan, unless the Employee consents to the terms of this Release
Agreement. The Employee further acknowledges that he/she is under no obligation
to consent to the terms of this Release Agreement and that the Employee has
entered into this agreement freely and voluntarily.
2. The Employee voluntarily, knowingly and willingly releases and
forever discharges the Company and its Affiliates, together with its and their
respective officers, directors, partners, shareholders, employees and agents,
and each of its and their predecessors, successors and assigns (collectively,
"Releasees"), from any and all charges, complaints, claims, promises,
agreements, controversies, causes of action and demands of any nature whatsoever
that the Employee or his/her executors, administrators, successors or assigns
ever had, now have or hereafter can, shall or may have against Releasees by
reason of any matter, cause or thing whatsoever arising prior to the time of
signing of this Release Agreement by the Employee. The release being provided by
the Employee in this Release Agreement includes, but is not limited to, any
rights or claims relating in any way to the Employee's employment relationship
with the Company or any its Affiliates, or the termination thereof, or under any
statute, including the federal Age Discrimination in Employment Act of 1967,
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1990, the
Americans with Disabilities Act of 1990, the Employee Retirement Income Security
Act of 1974, the Family and Medical Leave Act of 1993, each as amended, and any
other federal, state or local law or judicial decision.
3. The Employee acknowledges and agrees that he/she shall not,
directly or indirectly, seek or further be entitled to any personal recovery in
any lawsuit or other claim against the Company or any other Releasee based on
any event arising out of the matters released in paragraph 2.
4. Nothing herein shall be deemed to release (i) any of the
Employee's rights under the Plan or (ii) any of the vested benefits that the
Employee has accrued prior to the date this Release Agreement is executed by the
Employee under the employee benefit plans and arrangements of the Company or any
of its Affiliates.
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5. In consideration of the Employee's release set forth in paragraph
2, the Company knowingly and willingly releases and forever discharges the
Employee from any and all charges, complaints, claims, promises, agreements,
controversies, causes of action and demands of any nature whatsoever that the
Company now has or hereafter can, shall or may have against him/her by reason of
any matter, cause or thing whatsoever arising prior to the time of signing of
this Release Agreement by the Company, provided, however, that nothing herein is
intended to release any claim the Company may have against the Employee for any
illegal conduct.
6. The Employee acknowledges that the Company has advised him/her to
consult with an attorney of his/her choice prior to signing this Release
Agreement. The Employee represents that, to the extent he/she desires, he/she
has had the opportunity to review this Release Agreement with an attorney of
his/her choice.
7. The Employee acknowledges that he/she has been offered the
opportunity to consider the terms of this Release Agreement for a period of at
least forty-five (45) days, although he/she may sign it sooner should he/she
desire. The Employee further shall have seven additional days from the date of
signing this Release Agreement to revoke his/her consent hereto by notifying, in
writing, the General Counsel of the Company. This Release Agreement will not
become effective until seven days after the date on which the Employee has
signed it without revocation.
Dated: ____________________ _______________________________
[Employee Name]
ANNTAYLOR STORES CORPORATION
By:
---------------------------------
Title:
Exhibit 21
SUBSIDIARIES OF ANNTAYLOR STORES CORPORATION
AnnTaylor, Inc., a Delaware corporation
AnnTaylor Sourcing Far East Ltd.
AnnTaylor Travel, Inc., a Delaware corporation
AnnTaylor Distribution Services, Inc., a Delaware corporation
AnnTaylor Retail, Inc., a Delaware corporation
Annco, Inc., a Delaware corporation
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in AnnTaylor
Stores Corporation's Registration Statements No. 33-31505 on Form
S-8, No. 33-50688 on Form S-8, No. 33-54387 on Form S-8, No.
33-52389 on Form S-8, No. 33-55629 on Form S-8, No. 333-32977 on
Form S-8, No. 333-37145 on Form S-8 and No. 333-79921 on Form S-8,
and No. 333-86955 on Form S-3 of our report dated March 6, 2000
(which expresses an unqualified opinion and includes an explanatory
paragraph concerning the change in method of inventory valuation)
appearing in the Annual Report on Form 10-K of AnnTaylor Stores
Corporation for the year ended January 29, 2000.
DELOITTE & TOUCHE LLP
NEW YORK, NEW YORK
April 18, 2000
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<ARTICLE> 5
<LEGEND>
THIS SUMMARY 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 CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JAN-29-2000
<CASH> 35,081
<SECURITIES> 0
<RECEIVABLES> 67,758
<ALLOWANCES> 666
<INVENTORY> 140,026
<CURRENT-ASSETS> 271,589
<PP&E> 312,386
<DEPRECIATION> 138,747
<TOTAL-ASSETS> 765,117
<CURRENT-LIABILITIES> 120,221
<BONDS> 111,835
0
0
<COMMON> 215
<OTHER-SE> 515,407
<TOTAL-LIABILITY-AND-EQUITY> 765,117
<SALES> 1,084,519
<TOTAL-REVENUES> 1,084,519
<CGS> 536,014
<TOTAL-COSTS> 536,014
<OTHER-EXPENSES> 425,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,436
<INCOME-PRETAX> 115,714
<INCOME-TAX> 50,221
<INCOME-CONTINUING> 65,493
<DISCONTINUED> 0
<EXTRAORDINARY> 962
<CHANGES> 0
<NET-INCOME> 64,531
<EPS-BASIC> 2.22
<EPS-DILUTED> 2.05
</TABLE>
