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 April 29, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10738
ANNTAYLOR STORES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3499319
- - -------------------------------- --------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
142 West 57th Street, New York, NY 10019
- - ---------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(212) 541-3300
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(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No_____.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Outstanding as of
Class May 26, 1995
------ -----------------
Common Stock, $.0068 par value 23,050,121
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INDEX TO FORM 10-Q
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters Ended April 29, 1995 and
April 30, 1994 3
Condensed Consolidated Balance Sheets at
April 29, 1995 and January 28, 1995 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended April 29, 1995 and
April 30, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters Ended April 29, 1995 and April 30, 1994
(unaudited)
Quarters Ended
--------------------------------
April 29, 1995 April 30, 1994
(in thousands, except per share amounts)
Net sales $168,306 $145,283
Cost of sales 91,355 76,403
------- -------
Gross profit 76,951 68,880
Selling, general and administrative expenses 62,451 46,973
Amortization of goodwill 2,377 2,377
------- -------
Operating income 12,123 19,530
Interest expense 4,498 3,456
Other expense, net 57 140
Income before income taxes 7,568 15,934
Income tax provision 4,077 7,874
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Net income $ 3,491 $ 8,060
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Net income per share of common stock $ .15 $ .36
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Weighted average number of shares and
share equivalents outstanding 23,499 22,384
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See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
April 29, 1995 and January 28, 1995
April 29, January 28,
1995 1995
--------- ----------
1995
(unaudited)
(in thousands)
ASSETS
Current assets
Cash $ 1,132 $ 1,551
Accounts receivable, net of allowances of
$750,000 and $931,000, respectively 69,021 61,211
Merchandise inventories 110,313 93,705
Prepaid expenses and other current assets 8,668 7,956
Deferred income taxes 3,650 3,650
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Total current assets 192,784 168,073
Property and equipment
Land 499 499
Leasehold improvements 46,392 43,370
Furniture and fixtures 62,782 59,105
Construction in progress 32,922 24,867
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142,595 127,841
Less accumulated depreciation and
amortization 34,001 31,503
------- -------
Net property and equipment 108,594 96,338
Goodwill, net of accumulated amortization
of $59,596,000 and $57,219,000, respectively 320,654 323,031
Investment in CAT 4,039 3,792
Deferred income taxes 1,600 1,600
Deferred financing costs, net of accumulated
amortization of $1,149,000 and $956,000,
respectively 2,636 2,829
Other assets 2,423 2,591
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Total assets $632,730 $598,254
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $39,403 $36,625
Accrued rent 5,326 5,243
Accrued expenses 26,600 24,024
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Total current liabilities 71,329 65,892
Long-term debt 225,300 200,000
Other liabilities 6,392 6,250
Commitments and contingencies
Stockholders' equity
Common stock, $.0068 par value; 40,000,000
shares authorized; 23,110,631 and
23,106,572 shares issued, respectively 157 157
Additional paid-in capital 310,879 310,714
Warrants to acquire 52,214 and 58,412 shares
of common stock, respectively 851 951
Retained earnings 18,487 14,996
Deferred compensation on restricted stock (123) (149)
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330,251 326,669
Less treasury stock, 60,510 and 65,843 shares,
respectively, at cost (542) (557)
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Total stockholders' equity 329,709 326,112
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Total liabilities and stockholders'
equity $632,730 $598,254
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See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended April 29, 1995 and April 30, 1994
(unaudited)
Quarters Ended
-------------------------
April 29, April 30,
1995 1994
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(in thousands)
Operating activities:
Net income $3,491 $8,060
Adjustments to reconcile net income to
net cash (used by) provided by
operating activities:
Equity earnings in CAT (247) (150)
Provision for loss on accounts receivable 122 298
Depreciation and amortization 3,566 2,583
Amortization of goodwill 2,377 2,377
Amortization of deferred financing costs 193 348
Amortization of deferred compensation 26 45
Loss on disposal of property and equipment 277 46
(Increase) decrease in:
Receivables (7,932) (8,986)
Merchandise inventories (16,608) (11,713)
Prepaid expenses and other current assets (401) 2,270
Increase in:
Accounts payable 2,778 601
Accrued expenses 1,274 7,489
Other non-current assets and
liabilities, net 312 244
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Net cash (used by) provided by operating
activities (10,772) 3,512
Investing activities:
Purchases of property and equipment (16,412) (4,883)
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Net cash used by investing activities (16,412) (4,883)
Financing activities:
Increase in bank overdrafts 1,385 1,598
Borrowing under line of credit agreement 27,000 1,000
Exercise of stock options 80 1,677
Net repayments of receivables facility (1,700) (2,434)
Payment of financing costs --- (122)
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Net cash provided by financing activities 26,765 1,719
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Net (decrease) increase in cash (419) 348
Cash, beginning of period 1,551 292
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Cash, end of period $1,132 $ 640
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Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for interest $1,489 $ 973
======= ======
Cash paid during the period for income taxes $1,587 $ 631
======= ======
See accompanying notes to condensed consolidated financial statements.
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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 1995 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The January 28, 1995 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor Stores Corporation.
Certain fiscal 1994 amounts have been reclassified to conform
to the 1995 presentation.
It is not considered necessary to include detailed footnote
information as of April 29, 1995 and April 30, 1994. The
financial information set forth herein should be read in
conjunction with the Notes to the Company's Consolidated
Financial Statements contained in the AnnTaylor Stores
Corporation 1994 Annual Report to Stockholders.
2. Income Per Share
- - --------------------
Net income per share is calculated by dividing net income by
the total of the weighted average number of common shares and
common share equivalents outstanding, assuming the exercise of
outstanding warrants and the dilutive effect of outstanding stock
options, computed in accordance with the treasury stock method.
The number of shares used in the calculation was as follows:
April 29, 1995 April 30, 1994
-------------- --------------
(in thousands)
Common shares 23,045 21,776
Warrants 57 180
Stock options 397 428
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23,499 22,384
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3. Long-term Debt
- - ------------------
The following summarizes long-term debt outstanding at April
29, 1995:
(in thousands)
Revolving Credit Agreement $ 91,000
8-3/4% Notes 100,000
Revolving Receivables Facility 34,300
-------
Total long-term debt $225,300
=======
At April 29, 1995, AnnTaylor, Inc. and AnnTaylor Funding, Inc. were
not in compliance with one financial covenant under the revolving credit
agreement and the receivables financing agreement relating to
AnnTaylor, Inc.'s fixed charge coverage ratio, which event of noncompliance
was waived by Bank of America, NT & SA, as agent for the lenders under the
revolving credit agreement, and by the parties to the receivables financing
agreement.
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Item 2. Management's Discussion and Analysis of Operations
- - ------------------------------------------------------------
Results of Operations
Quarters Ended
--------------------
April 29, April 30,
1995 1994
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Number of Stores:
Open at beginning of period 262 231
Opened during period 15 5
Expanded during period* 12 2
Closed during period (2) (2)
Open at end of period 275 234
Type of Stores Open at End of Period:
AnnTaylor Stores 240 223
AnnTaylor Factory Stores 23 11
Ann Taylor Loft stores 6 ---
AnnTaylor Studio stores 6 ---
----------
* Expanded stores are excluded from comparable store sales
for the first year following expansion.
Quarter Ended April 29, 1995 Compared to Quarter Ended April 30, 1994
- - ----------------------------------------------------------------------
The Company's net sales in the first quarter of 1995 increased
to $168,306,000 from $145,283,000 in the first quarter of 1994,
an increase of $23,023,000 or 15.8%. The increase in net sales
was attributable to the opening of new stores and the expansion
of existing stores, offset by the closing of two stores and a
0.7% decrease in comparable store sales in the first quarter of
1995. The decrease in comparable store sales was due primarily
to negative comparable sales in the dress department.
Gross profit as a percentage of net sales decreased to 45.7%
in the first quarter of 1995 from 47.4% in the first quarter of
1994. This decrease was attributable to increased cost of goods
sold as a percentage of net sales resulting from markdowns
associated with increased promotional activities.
Selling, general and administrative expenses represented 37.1%
of net sales in the first quarter of 1995 compared to 32.3% of
net sales in the first quarter of 1994. The 4.8% increase is
primarily attributable to higher tenancy, store maintenance and
store selling costs as a percentage of sales (approximately 70%
of the increase), additional catalog expense relating to the
Company's test of its catalog as a mail order vehicle
(approximately 15% of the increase) and higher merchandising and
design expense (approximately 15% of the increase). The Company
has decided to return its catalog format to principally an
advertising vehicle, rather than a mail order business,
commencing Fall 1995.
As a result of the foregoing, operating income decreased to
$12,123,000, or 7.2% of net sales, in the first quarter of 1995
from $19,530,000, or 13.4% of net sales, in the first quarter of
1994. Amortization of goodwill was $2,377,000 in the first
quarter of 1995 and 1994. Operating income, without giving
effect to such amortization in either year, was $14,500,000, or
8.6% of net sales, in the 1995 period and $21,907,000, or 15.1%
of net sales, in the 1994 period.
Interest expense was $4,498,000, including $193,000 of non-
cash interest expense, in the first quarter of 1995, and
$3,456,000, including $348,000 of non-cash interest expense, in
the first quarter of 1994. The increase in interest expense is
primarily attributable to higher interest rates and higher
outstanding indebtedness in 1995.
The income tax provision was $4,077,000, or 53.9% of income
before income taxes, in the first quarter of 1995 compared to
$7,874,000, or 49.4% of income before income taxes, in the first
quarter of 1994. The effective income tax rate for both periods
was higher than the statutory rate primarily because of non-
deductible goodwill amortization.
As a result of the foregoing factors, the Company had net
income of $3,491,000, or 2.1% of net sales, for the first quarter
of 1995 compared to $8,060,000, or 5.5% of net sales, for the
first quarter of 1994.
AnnTaylor Stores Corporation conducts no business other than
the management of AnnTaylor, Inc.
Financial Condition
- - -------------------
For the first quarter of 1995, net cash used by operating
activities totaled $10,772,000, primarily as a result of
increases in working capital, partially offset by income from
operations and non-cash operating expenses. Cash used for
investing activities during the first quarter of 1995 amounted to
$16,412,000, for the purchase of property and equipment including
$2,453,000 for the purchase of equipment for the Company's new
distribution center in Louisville, Kentucky. Cash provided by
financing activities during the first quarter of 1995 amounted to
$26,765,000.
Accounts receivable increased to $69,021,000 at April 29, 1995
from $61,211,000 at January 29, 1995, an increase of $7,810,000
or 12.8%. This increase was partially attributable to Ann Taylor
credit card receivables, which increased approximately
$1,088,000, and to third-party credit card receivables (American
Express, MasterCard and VISA), which increased $2,395,000 due to
the timing of payments by third-party credit card issuers.
Construction allowance receivables increased $3,829,000 due to
the timing of receipts for stores opened in fiscal year 1994,
stores opened in the first quarter of 1995 and stores planned to
be opened in the second quarter of 1995.
Merchandise inventories increased to $110,313,000 at April 29,
1995 from $93,705,000 at January 28, 1995, an increase of
$16,608,000. The higher inventory level at April 29, 1995 was
attributable to the purchase of inventory for new and expanded
stores opened in the first quarter of 1995, anticipation of store
square footage increases in the second quarter of 1995, planned
comparable store sales growth, and the timing of receipt of
goods.
At April 29, 1995, $91,000,000 was outstanding under the
Revolving Credit Agreement and $34,300,000 was outstanding under
AnnTaylor Funding, Inc's receivables facility. Ann Taylor can
borrow up to $125,000,000 under the Revolving Credit Agreement
and AnnTaylor Funding, Inc. can borrow up to $40,000,000 under
the receivables facility, depending upon its accounts receivable
balance.
At April 29, 1995, Ann Taylor and AnnTaylor Funding, Inc. were
not in compliance with one financial covenant under the
revolving credit agreement and the receivables financing
agreement relating to AnnTaylor's fixed charge coverage ratio,
which event of noncompliance was waived by Bank of America, NT
& SA, as agent for the lenders under the revolving credit
agreement, and by the parties to the receivables financing agreement.
Satisfaction of this covenant in future periods will be dependent upon
the Company's sales and earnings for those periods.
The Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation and
refurbishment programs, totaled $61,341,000, $25,062,000 and
$4,303,000 in 1994, 1993 and 1992, respectively. Capital
expenditures totaled $16,412,000 in the first quarter of 1995.
The Company expects its capital expenditure requirements for the
remainder of 1995 to be approximately $55,900,000, including
$1,400,000 for the new distribution center and material handling
equipment.
Dividends and distributions from AnnTaylor, Inc. to the
Company are restricted by both the Revolving Credit Agreement and
the indenture relating to AnnTaylor, Inc.'s
8-3/4% Subordinated Notes due 2000.
In order to finance its operations and the majority of its
capital requirements, the Company expects to use internally
generated funds and funds available to it under the Revolving
Credit Agreement. The Company believes that cash flow from
operations and funds available under the Revolving Credit
Agreement will be sufficient to enable it to meet its ongoing
cash needs for the foreseeable future.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- - -------------------------------------------------------------
AnnTaylor Stores Corporation's 1995 Annual Meeting of
Stockholders was held on June 7, 1995. The following matters
were voted upon and approved by the Company's stockholders at the
meeting:
1. Ms. Rochelle B. Lazarus and Mr. Robert C. Grayson were
reelected as Class I Directors of the Company, for terms
expiring in 1998. 18,485,908 and 18,401,674 shares were voted
in favor of, and 83,358 and 167,592 shares were voted against or
abstained from voting on the proposal for Ms. Lazarus and
Mr. Grayson, respectively. Mr. James J. Burke, Jr. and
Ms. Sally Frame Kasaks continued as Class II Directors, with
terms expiring in 1996, and Mr. Gerald S. Armstrong,
Mr. Paul E. Francis and Ms. Hanne M. Merriman continued
as Class III Directors with terms expiring in 1997.
2. The appointment of Deloitte & Touche llp as the Company's
independent accountants for the 1995 fiscal year was ratified.
18,556,964 shares were voted in favor of, and 12,302 shares were
voted against or abstained from voting on, this proposal.
Item 6. Exhibits and Reports on Form 8-K
- - ------------------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AnnTaylor Stores Corporation
Date: June 13, 1995 By: /s/ Paul E. Francis
-------------------------
Paul E. Francis
Executive Vice President -
Finance and Administration
(Chief Financial Officer)
Date: June 13, 1995 By: /s/ Walter J. Parks
--------------------------
Walter J. Parks
Senior Vice President-
Finance
(Principal Accounting
Officer)