-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O67pVS8FNZ0umR8p5olA4qFOpJE7zRwKOmdgBi731qvnUS1+J2gHZFF8fM3lp3ST D/SSksUDN45zdb0XHPNElw== 0000850090-96-000012.txt : 19960918 0000850090-96-000012.hdr.sgml : 19960918 ACCESSION NUMBER: 0000850090-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960803 FILED AS OF DATE: 19960917 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANNTAYLOR INC CENTRAL INDEX KEY: 0000850090 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 510297083 STATE OF INCORPORATION: DE FISCAL YEAR END: 0128 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11980 FILM NUMBER: 96630999 BUSINESS ADDRESS: STREET 1: 142 W 57TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125413300 10-Q 1 ANNTAYLOR, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 3, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-11980 ANNTAYLOR, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 51-0297083 - ------------------------------- ------------------------------------- (State of other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 142 West 57th Street, New York, NY 10019 - --------------------------------------- --------------------------- (Address of principal executive offices) (Zip Code) (212) 541-3300 --------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____. Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Outstanding as of Class August 31, 1996 ----------------------------- ---------------- Common Stock, $1.00 par value 1 This registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. ============================================================================= INDEX TO FORM 10-Q ------------------- Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations for the Quarters and Six Months Ended August 3, 1996 and July 29, 1995........................ 3 Condensed Consolidated Balance Sheets at August 3, 1996 and February 3, 1996..................... 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 3, 1996 and July 29, 1995........................................... 5 Notes to Condensed Consolidated Financial Statements...... 6 Item 2. Management's Discussion and Analysis of Operations...... 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K........................ 11 ============================================================================= 3 PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements --------------------- ANNTAYLOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Quarters and Six Months Ended August 3, 1996 and July 29, 1995 (unaudited) Quarters Ended Six Months Ended ---------------------- ------------------- August 3, July 29, August 3, July 29, 1996 1995 1996 1995 -------- -------- --------- --------- (in thousands) Net sales $187,862 $183,695 $372,329 $352,001 Cost of sales 107,115 114,869 208,428 206,224 ------- ------- ------- ------- Gross profit 80,747 68,826 163,901 145,777 Selling, general and administrative expenses 70,029 67,233 140,283 129,684 Amortization of goodwill 2,376 2,376 4,753 4,753 ------- ------- ------- ------- Operating income (loss) 8,342 (783) 18,865 11,340 Interest expense 6,210 4,468 12,331 8,966 Other income, net (293) (231) (424) (174) ------- ------- ------- ------- Income (loss) before income taxes 2,425 (5,020) 6,958 2,548 Income tax provision (benefit) 1,798 (1,211) 4,519 2,866 ------- ------- ------- ------- Net income (loss) $ 627 $ (3,809) $ 2,439 $ (318) ======= ======= ======= ======= See accompanying notes to condensed consolidated financial statements. =============================================================================== 4 ANNTAYLOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS August 3, 1996 and February 3, 1996 August 3, February 3, 1996 1996 -------- ---------- (unaudited) (in thousands) ASSETS Current assets Cash $ 1,287 $ 1,283 Accounts receivable, net 64,112 70,395 Merchandise inventories 99,231 102,685 Prepaid expenses and other current assets 12,473 12,808 Prepaid tenancy 9,075 8,099 Deferred income taxes 3,400 3,400 ------- ------- Total current assets 189,578 198,670 Property and equipment Land and building 8,983 8,923 Leasehold improvements 78,055 73,677 Furniture and fixtures 109,513 99,548 Construction in progress 3,807 14,190 ------- ------- 200,358 196,338 Less accumulated depreciation and amortization 53,981 42,443 ------- ------- Net property and equipment 146,377 153,895 Goodwill, net of accumulated amortization of $71,478,000 and $66,725,000, respectively 308,772 313,525 Investment in CAT 6,198 5,438 Deferred financing costs, net of accumulated amortization of $2,740,000 and $1,960,000, respectively 3,216 3,933 ------- ------- Other assets 3,172 3,248 ------- ------- Total assets $657,313 $678,709 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable $ 36,112 $ 42,909 Accrued expenses 26,323 29,018 Current portion of long-term debt 26,276 40,266 ------- ------- Total current liabilities 88,711 112,193 Long-term debt 135,051 232,192 Deferred income taxes 1,300 1,300 Other liabilities 7,968 7,336 Commitments and contingencies Stockholder's equity Common stock, $1.00 par value; 1,000 shares authorized;1 share issued 1 1 Additional paid-in capital 407,780 311,567 Retained earnings 6,502 14,120 ------- ------- Total stockholder's equity 424,283 325,688 ------- ------- Total liabilities and stockholder's equity $657,313 $678,709 ======= ======= See accompanying notes to condensed consolidated financial statements. ============================================================================== 5 ANNTAYLOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended August 3, 1996 and July 29, 1995 (unaudited) Six Months Ended --------------------------- August 3, 1996 July 29, 1995 -------------- ------------- (in thousands) Operating activities: Net income (loss) $ 2,439 $ (318) Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: Equity earnings in CAT (760) (644) Provision for loss on accounts receivable 835 457 Depreciation and amortization 12,358 9,139 Amortization of goodwill 4,753 4,753 Amortization of deferred financing costs 780 385 Amortization of deferred compensation 16 52 Loss on disposal of property and equipment 220 401 (Increase) decrease in: Receivables 5,448 (11,619) Merchandise inventories 3,454 (5,706) Prepaid expenses and other current assets (641) (6,346) Increase (decrease) in: Accounts payable (6,797) 8,800 Accrued expenses (2,695) (5,912) Other non-current assets and liabilities, net 707 864 ------- ------- Net cash provided by (used by) operating activities 20,117 (5,694) Investing activities: Purchases of property and equipment (5,059) (43,319) ------ ------ Net cash used by investing activities (5,059) (43,319) Financing activities: Net (repayments) borrowings under revolving credit agreement (97,000) 45,000 Payments on mortgage (131) --- Parent company contribution 96,140 282 Net (repayments) borrowings under receivables facility (14,000) 4,000 Payment of financing costs (63) --- ------- ------- Net cash (used by) provided by financing activities (15,054) 49,282 Net increase in cash 4 269 Cash, beginning of period 1,283 1,551 ------- ------ Cash, end of period $ 1,287 $ 1,820 ======= ======= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest $ 11,395 $ 8,035 ======= ======= Cash paid during the period for income taxes $ 3,405 $ 5,915 ======= ======= See accompanying notes to condensed consolidated financial statements. ============================================================================== 6 ANNTAYLOR STORES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation --------------------- The condensed consolidated financial statements are unaudited but, in the opinion of management, contain all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany accounts and transactions have been eliminated. The results of operations for the 1996 interim period shown in this report are not necessarily indicative of results to be expected for the fiscal year. The February 3, 1996 condensed consolidated balance sheet amounts have been derived from the previously audited consolidated balance sheet of AnnTaylor, Inc. Certain fiscal 1995 amounts have been reclassified to conform to the 1996 presentation. The financial information set forth herein should be read in conjunction with the Notes to the Company's Consolidated Financial Statements contained in the AnnTaylor, Inc. 1995 Annual Report on Form 10-K. 2. Long-Term Debt -------------- The following summarizes long-term debt outstanding at August 3, 1996: (in thousands) Revolving Credit Facility......... $ 4,000 Term Loan......................... 24,500 8-3/4% Notes...................... 100,000 Receivables Facility.............. 26,000 Mortgage.......................... 6,827 ------- Total debt..................... 161,327 Less current portion.............. 26,276 ------- Total long-term debt........... $135,051 ======= ============================================================================= 7 On April 25, 1996, AnnTaylor Stores Corporation ("ATSC") completed the sale (the "Initial Sale"), in a private placement, of $87,500,000 8-1/2% Convertible Trust Originated Preferred Securities ("Preferred Securities") issued by its financing vehicle, AnnTaylor Finance Trust, a Delaware business trust (the "Trust"). On May 17, 1996, the Trust, a wholly-owned subsidiary of ATSC, issued an additional $13,125,000 of Preferred Securities pursuant to the exercise of an over-allotment option (the "Over- allotment Sale") granted to the placement agents in connection with the Initial Sale. The Preferred Securities have a liquidation preference of $50 per security ($100,625,000 in the aggregate) and are convertible at the option of the holders thereof into ATSC common stock at a conversion rate of 2.545 shares of common stock for each Preferred Security (equivalent to $19.65 per share of common stock, which represented a 20% premium to the $16.375 closing price of the common stock on the New York Stock Exchange at the date of the execution of the purchase agreement relating to the sale of the Preferred Securities). The sole assets of the Trust are $103,700,000 of 8-1/2% Convertible Subordinated Debentures of ATSC maturing on April 15, 2016. A total of 2,012,500 Preferred Securities were issued, and are convertible into an aggregate of 5,121,812 shares of common stock. The sale of the Preferred Securities enabled AnnTaylor, Inc. (the "Company"), a wholly owned subsidiary of ATSC, to pay down $94,000,000 of outstanding borrowings under its revolving credit facility, without reduction of the commitment thereunder. 3. CAT/Cygne Transaction --------------------- In Fiscal 1995, the Company purchased approximately 16% of its merchandise directly from Cygne Designs, Inc. ("Cygne") and an additional 38% of its merchandise through the Company's direct sourcing joint venture with Cygne known as CAT. In April 1996, ATSC announced that it had entered into an agreement in principle, dated as of April 8, 1996, pursuant to which ATSC will purchase from Cygne all the shares of CAT owned by Cygne and the assets of the Ann Taylor Woven Division of Cygne that are used in sourcing merchandise for Ann Taylor (the "CAT/Cygne Transaction"). On June 7, 1996 ATSC and the Company entered into a definitive purchase agreement with Cygne and its wholly owned subsidiary, Cygne Group (F.E.) Limited, providing for the CAT/Cygne Transaction. The Purchase Agreement was amended by the parties on August 27, 1996. Pursuant to the Purchase Agreement, as amended, the purchase price for Cygne's interest in CAT and the Ann Taylor Woven Division assets will consist of (i) shares of common stock of ATSC having an aggregate value, based on the market price of ATSC's common stock for the ten trading days prior to the closing of the transaction, of $36,000,000 (provided that ATSC will not be required to issue more than 2.5 million shares, unless the ============================================================================= 8 aggregate value of 2.5 million shares at closing is less than $32,500,000, in which case ATSC will issue shares of common stock having an aggregate value of $32,500,000, but not more than 3.0 million shares); and (ii) cash in an amount equal to the tangible net book value of the fixed assets (but not to exceed $2,646,000), plus the tangible net book value of the inventory of the Ann Taylor Woven Division, less the amount of certain liabilities of the Division to be assumed by ATSC. At the Company's option, it may deliver cash in lieu of some or all of any shares issuable in excess of 2.5 million shares. ATSC will also pay cash in respect of an obligation under an existing employment agreement with CAT. ATSC has agreed to register the shares to be issued to Cygne for resale, although Cygne is subject to certain restrictions on the timing of sales and the amount of shares which can be sold at any one time. The Purchase Agreement, as amended, provides that Cygne may terminate the agreement if the aggregate value of ATSC's common stock to be issued at closing, including any additional shares issuable or additional cash payable under the amendment, is less than $32,500,000, and that either party may terminate the agreement if the closing has not occurred by September 30, 1996. The Company received the consent of its lenders to the transaction contemplated by the original Purchase Agreement, and is currently seeking lender approval of the amendment to the Purchase Agreement. CAT has received a written commitment for the continuation of CAT's existing $40,000,000 credit facility. The closing of the CAT/Cygne Transaction is subject to various conditions, including (i) the approval of the transaction by Cygne's stockholders and (ii) the consent and release of liens by certain lenders to Cygne. It is currently anticipated that the transaction will close in September 1996 following approval by Cygne's stockholders. There can be no assurance, however, that the conditions referred to above will be satisfied, that the transaction will be consummated or, if consummated, that it will be consummated within the currently anticipated time frame. ============================================================================= 9 Item 2. Management's Discussion and Analysis of Operations --------------------------------------------------- Results of Operations - --------------------- Six Months Ended ---------------------- August 3, July 29, 1996 1995 --------- -------- Number of Stores: Open at beginning of period.................. 306 262 Opened during period......................... 5 29 Expanded during period*...................... 1 17 Closed during period......................... 5 2 Open at end of period........................ 306 289 Type of Stores Open at End of Period: AnnTaylor Stores.......................... 257 247 AnnTaylor Factory Stores.................. 23 23 AnnTaylor Loft stores..................... 17 11 AnnTaylor Studio stores................... 9 8 - -------------------- * Expanded stores are excluded from comparable store sales for the first year following expansion. Six Months Ended August 3, 1996 Compared to Six Months Ended July 29, 1995 - -------------------------------------------------------------------------- The Company's net sales in the first six months of 1996 increased to $372,329,000 from $352,001,000 in the first six months of 1995, an increase of $20,328,000 or 5.8%. The increase in net sales was primarily attributable to the 24 new stores opened and the 14 existing stores expanded since the end of the second quarter of 1995, partially offset by the closing of 7 stores since the end of the second quarter of 1995 and by a 7.4% decrease in comparable store sales in the first half of 1996. Management believes that the decrease in comparable store sales was due primarily to the Company's lower inventory position during the period; during the first half of 1996, inventories were on average approximately 24% lower on a per square foot basis compared to the same period of the prior fiscal year. Gross profit as a percentage of net sales increased to 44.0% in the first six months of 1996 from 41.4% in the first six months of 1995. This increase was attributable to the decreased cost of goods sold as a percentage of net sales, primarily resulting from lower markdowns. ============================================================================= 10 Selling, general and administrative expenses were $140,283,000, or 37.7% of net sales in the first six months of 1996, compared to $129,684,000, or 36.8% of net sales in the first six months of 1995. The increase in expense was primarily attributable to increased retail square footage, which at quarter end was 15.6% higher than at the end of the second quarter of 1995. The operating expense rate as a percentage of sales increased primarily as a result of decreased leverage on fixed expenses as a result of negative comparable store sales, and higher expense rates in new retail square footage, partially offset by increased productivity in selling expenses and the suspension of our mail order catalog. As a result of the foregoing, operating income increased to $18,865,000, or 5.1% of net sales, in the first six months of 1996, from $11,340,000, or 3.2% of net sales, in the first six months of 1995. Amortization of goodwill was $4,753,000 in the first six months of 1996 and 1995. Operating income, without giving effect to such amortization in either year, was $23,618,000, or 6.3% of net sales, in the 1996 period and $16,093,000, or 4.6% of net sales, in the 1995 period. Interest expense was $12,331,000 in the first six months of 1996 and $8,966,000 in the first six months of 1995. The increase in interest expense is primarily attributable to higher interest rates applicable to the Company's debt obligations and higher outstanding indebtedness in 1996. The income tax provision was $4,519,000, or 64.9% of income before income taxes in the 1996 period, compared to $2,866,000, or 112.5% of income before income taxes in the 1995 period. The effective income tax rate for both periods was higher than the statutory rate primarily as a result of non-deductible goodwill amortization. As a result of the foregoing factors, the Company had net income of $2,439,000 or 0.7% of net sales for the first six months of 1996 compared to a net loss of $318,000 or (0.1)% of net sales for the first six months of 1995. ============================================================================= 11 PART II. OTHER INFORMATION ----------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.1 Second Amendment to the Amended and Restated Credit Agreement, dated as of April 9, 1996 among the Company, Bank of America National Trust and Savings Association and Fleet Bank, National Association, as Co-Agents, the financial institutions from time to time party thereto, BA Securities Inc. as Arranger, and Bank of America as Agent. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of ATSC for the Quarter ended August 3, 1996 filed on September 16, 1996. 10.2 Amendment No. 1 to the Amended and Restated Declaration of Trust of AnnTaylor Finance Trust, dated as of August 27, 1996, between ATSC and Bank of New York, as Trustee. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of ATSC for the Quarter ended August 3, 1996 filed on September 16, 1996. ============================================================================= 12 Item 6. Exhibits and Reports on Form 8-K (continued) (b) Reports on Form 8-K: The Company filed a report with the Commission on Form 8-K dated June 10, 1996 with respect to the execution by ATSC and the Company of a definitive purchase agreement with Cygne and its wholly owned subsidiary, Cygne Group (F.E) Limited, providing for the Company's previously announced proposed acquisition of Cygne's interest in the Company's direct sourcing joint venture with Cygne and the assets of the Ann Taylor Woven Division of Cygne that sources merchandise for Ann Taylor. ATSC filed a report with the Commission on Form 8-K dated June 21, 1996 which provided combined Financial Statements of CAT US, Inc. and C.A.T. (Far East) Limited and subsidiary and the AnnTaylor Woven Division of Cygne as of February 3, 1996 and January 28, 1995 and for the two years ended February 3, 1996, and ATSC and acquired companies unaudited Historical and Proforma combined Financial Statements as of May 4, 1996 and for the quarter then ended. The Company filed a report with the Commission on Form 8-K dated August 29, 1996 with respect to (i) the resignation of Sally Frame Kasaks as the Company's Chairman and Chief Executive Officer and the promotion of J. Patrick Spainhour from President and Chief Operating Officer to Chairman and Chief Executive Officer, (ii) the amendment of the Stock and Asset Purchase Agreement among ATSC, the Company, Cygne Designs, Inc. and Cygne Group (F.E.) Limited, and (iii) preliminary unaudited pro forma financial information for ATSC, CAT U.S., Inc., C.A.T. (Far East) Limited and the AnnTaylor Woven Division of Cygne on a combined basis for the six months ended August 3, 1996. ============================================================================= 13 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AnnTaylor, Inc. Date: September 16, 1996 By: /s/ Paul E. Francis -------------------- ----------------------------- Paul E. Francis Executive Vice President - Finance and Administration (Chief Financial Officer) Date: September 16, 1996 By: /s/ Walter J. Parks --------------------- ----------------------------- Walter J. Parks Senior Vice President - Finance (Principal Accounting Officer) EX-27 2
5 This schedule contains summary financial information extracted from the condensed consolidated statements of operations and condensed consolidated balance sheets and is qualified in its entirety by reference to such financial statements. 0000850090 ANNTAYLOR, INC. 1,000 6-MOS FEB-01-1997 AUG-3-1996 1,287 0 64,827 715 99,231 189,578 200,358 53,981 657,313 88,711 100,000 0 0 1 424,282 657,313 372,329 372,329 208,428 208,428 144,612 0 12,331 6,958 4,519 0 0 0 0 2,439 0 0
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