SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1994.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 33-28522
ANNTAYLOR STORES CORPORATION
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-3499319
______________________________ _____________________________
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
142 West 57th Street, New York, NY 10019
________________________________________ __________
(Address of principal executive offices) (Zip Code)
(212) 541-3300
____________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes (X) No ( ).
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Outstanding as of
Class May 28,1994
______________________________ _________________
Common Stock, $.0068 par value 22,938,671
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 30, 1994 and
May 1, 1993..................................... 3
Condensed Consolidated Balance Sheets at
April 30, 1994 and January 29, 1994 ............. 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended April 30, 1994 and
May 1, 1993..................................... 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.................................................. 12
Item 6. Exhibits and Reports on Form 8-K ................ 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters Ended April 30, 1994 and May 1, 1993
(unaudited)
Quarters Ended
April 30, 1994 May 1, 1993
______________ ___________
(in thousands except per share amounts)
Net sales . . . . . . . . . . . . . . . . . $145,283 $120,175
Cost of sales . . . . . . . . . . . . . . . 76,403 65,352
________ ________
Gross profit . . . . . . . . . . . . . . . 68,880 54,823
Selling, general and administrative expenses
46,973 40,036
Amortization of goodwill . . . . . . . . . 2,377 2,377
________ ________
Operating income . . . . . . . . . . . . . 19,530 12,410
Interest expense . . . . . . . . . . . . . 3,456 4,969
Other expense, net . . . . . . . . . . . . 140 50
-------- --------
Income before income taxes . . . . . . . . 15,934 7,391
Income tax provision . . . . . . . . . . . 7,874 4,101
________ ________
Net income . . . . . . . . . . . . . . . $ 8,060 $ 3,290
======== ========
Net income per share of common stock . . $ .36 $ .15
======== ========
Weighted average number of shares and
share equivalents outstanding . . . . . 22,384 21,642
======== ========
See accompanying notes to condensed consolidated financial
statements.
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 1994 and January 29, 1994
April 30, January 29,
1994 1994
__________ ___________
(unaudited)
(in thousands)
ASSETS
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . $ 640 $ 292
Accounts receivable, net of allowances of $722,000
and $787,000, respectively . . . . . . . . . 57,967 49,279
Merchandise inventories . . . . . . . . . . . . 72,603 60,890
Prepaid expenses and other current assets . . . 4,914 7,184
Deferred income taxes . . . . . . . . . . . . . 3,750 3,750
________ ________
Total current assets . . . . . . . . . . . . 139,874 121,395
Property and equipment, net of accumulated
depreciation of $31,179,000 and $28,703,000,
respectively . . . . . . . . . . . . . . . . . 50,304 48,053
Deferred financing costs, net of accumulated
amortization of $991,000 and $643,000,
respectively . . . . . . . . . . . . . . . . . . 4,764 4,990
Goodwill, net of accumulated amortization of
$50,090,000 and $47,713,000, respectively . . . . 330,160 332,537
Deferred income taxes . . . . . . . . . . . . . . . 1,500 1,500
Investment in CAT . . . . . . . . . . . . . . . . . 2,395 2,245
Other assets . . . . . . . . . . . . . . . . . . . 2,521 2,679
________ ________
Total assets . . . . . . . . . . . . . . . . $531,518 $513,399
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . $ 38,165 $ 37,564
Accrued expenses . . . . . . . . . . . . . . . 18,365 18,656
Accrued income taxes . . . . . . . . . . . . . 8,423 1,180
Accrued interest . . . . . . . . . . . . . . . 4,090 1,955
Current portion of long-term debt . . . . . . . 8,757 8,757
________ ________
Total current liabilities . . . . . . . . . . 77,800 68,112
Long-term debt . . . . . . . . . . . . . . . . . . 178,809 180,243
Other liabilities . . . . . . . . . . . . . . . . . 5,856 5,773
Commitments and contingencies
Stockholders' equity
Common stock, $.0068 par value; 40,000,000 shares
authorized; 22,002,681 and 21,902,811 shares
issued, respectively . . . . . . . . . . 150 149
Additional paid-in capital . . . . . . . . . . 277,481 271,810
Warrants to acquire 60,742 and 446,249 shares of
common stock, respectively . . . . . . . . . 996 7,378
Accumulated deficit . . . . . . . . . . . . . . (8,696) (16,756)
Deferred compensation on restricted stock . . . (420) (119)
________ ________
269,511 262,462
Less treasury stock, 65,310 and 450,817 shares,
respectively, at cost . . . . . . . . . . . . (458) (3,191)
________ ________
Total stockholders' equity . . . . . . . . 269,053 259,271
________ ________
Total liabilities and stockholders' equity $531,518 $513,399
======== ========
See accompanying notes to condensed consolidated financial statements.
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended April 30, 1994 and May 1, 1993
(unaudited)
Quarters Ended
April 30, May 1,
1994 1993
________ ________
(in thousands)
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . $8,060 $ 3,290
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity earnings in CAT . . . . . . . . . . . . . . . (150) ---
Provision for loss on accounts receivable . . . . . . 298 201
Depreciation and amortization . . . . . . . . . . . . 2,583 2,242
Amortization of goodwill . . . . . . . . . . . . . . 2,377 2,377
Accretion of original issue discount . . . . . . . . --- 1,577
Amortization of deferred financing costs . . . . . . 348 325
Amortization of deferred compensation . . . . . . . . 45 69
Loss on disposal of property and equipment . . . . . 46 86
(Increase) decrease in:
Receivables . . . . . . . . . . . . . . . . . . . (8,986) (6,158)
Merchandise inventories . . . . . . . . . . . . . (11,713) (12,621)
Prepaid expenses and other current assets . . . . 2,270 4,533
Increase in:
Accounts payable . . . . . . . . . . . . . . . . 601 7,449
Accrued expenses . . . . . . . . . . . . . . . . 7,489 1,182
Other non-current assets and liabilities, net . . 244 303
_______ ______
Net cash provided by operating activities . . . . . . . 3,512 4,855
Investing activities:
Purchases of property and equipment . . . . . . . . . . (4,883) (3,039)
Investment in CAT . . . . . . . . . . . . . . . . . . . --- (88)
_______ ______
Net cash used by investing activities . . . . . . . . . (4,883) (3,127)
Financing activities:
Increase (decrease) in bank overdrafts . . . . . . . . 1,598 (2,361)
Borrowing (repayments) under line of credit agreement . 1,000 (4,000)
Exercise of stock options . . . . . . . . . . . . . . . 1,677 4,543
Net repayments of receivables facility . . . . . . . . (2,434) ---
Payment of financing costs . . . . . . . . . . . . . (122) ---
______ ______
Net cash provided by (used by) financing activities . . 1,719 (1,818)
______ ______
Net increase (decrease) in cash . . . . . . . . . . . . . 348 (90)
Cash, beginning of period . . . . . . . . . . . . . . . . 292 226
______ ______
Cash, end of period . . . . . . . . . . . . . . . . . . . $ 640 $ 136
====== ======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest . . . . . . . $ 973 $ 991
====== ======
Cash paid during the period for income taxes . . . . . $ 631 $ 527
====== ======
See accompanying notes to condensed consolidated financial statements.
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 1994 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The January 29, 1994 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor Stores Corporation.
Certain fiscal 1993 amounts have been reclassified to conform
to the 1994 presentation.
It is not considered necessary to include detailed footnote
information as of April 30, 1994 and May 1, 1993. 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 1993 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 30, 1994 May 1, 1993
______________ ___________
Common shares . . . . . . . 21,775,912 20,814,461
Warrants . . . . . . . . . 179,539 508,058
Stock options . . . . . . . 428,288 319,320
__________ __________
22,383,739 21,641,839
========== ==========
3. Long-term Debt
The following summarizes long-term debt outstanding at April
30, 1994:
Senior debt: (in thousands)
Term Loan . . . . . . . . . . . . $54,000
Revolving Credit Loan . . . . . . 3,000
8-3/4% Notes . . . . . . . . . . . 100,000
Receivables Facility . . . . . . . 30,566
_______
Total senior debt . . . . . . . 187,566
Less: current portion . . . . . 8,757
_______
Total long term debt . . . . . . $178,809
========
At April 30, 1994, Ann Taylor was not in compliance with one
financial covenant under its bank credit agreement relating to
inventory turnover, which event of noncompliance was waived by
Bank of America, NT & SA, as agent for the lenders under the bank
credit agreement.
4. Subsequent Event
On May 18, 1994, the Company completed a public offering of
its common stock (the "Offering") in which it issued and sold
1,000,000 shares of common stock at a price of $32.00 per share,
resulting in aggregate net proceeds of approximately $30,600,000
(after payment of underwriting discounts and expenses of the
Offering payable by the Company). As required by the Company's
bank credit agreement, the net proceeds of the Offering were used
to reduce the amount outstanding under the term loan.
The following unaudited proforma condensed consolidated
operating data for the three months ended April 30, 1994 have been
presented to reflect the Offering as if it occurred at the beginning
of such period.
Quarter Ended April 30, 1994
Actual Pro Forma
______ _________
(in thousands except per share amounts)
Interest expense . . . . . . . . $3,456 $3,056(a)
Income before extraordinary loss 8,060 8,266
====== ======
Income before extraordinary loss
per share . . . . . . . . . . $ .36 $ .35
====== =======
Weighted average shares . . . . . 22,384 23,384
====== =======
(a) Reflects interest expense savings of $400,000 related to the
reduction of the term loan.
The Offering was consummated concurrently with the public
offering and sale by certain affiliates of Merrill Lynch Capital
Partners (the "Selling Stockholders") of 4,075,000 shares of the
Company's Common Stock held by them. The Company did not receive
any of the proceeds of the shares sold by the Selling
Stockholders. After giving effect to this sale, the Selling
Stockholders and other affiliates of Merrill Lynch Capital
Partners held shares representing approximately 32.5% of the
Company's Common Stock.
Item 2. Management's Discussion and Analysis of Operations
Results of Operations
Quarter Ended April 30, 1994 Compared to Quarter Ended May 1, 1993
The Company's net sales in the first quarter of 1994 increased
to $145,283,000 from $120,175,000 in the first quarter of 1993,
an increase of $25,108,000 or 20.9% over the first quarter of
1993. The increase in net sales was attributable to the
inclusion of the sales of 13 new stores and 10 expanded stores
opened during the last three quarters of 1993, three new Ann
Taylor stores, two expanded Ann Taylor stores and two Ann Taylor
Factory Stores opened in the first quarter of 1994, and an 8.6%
increase in comparable store sales. The Company operated 234
stores at April 30, 1994 compared to 218 stores at May 1, 1993.
The increase in comparable store sales was due primarily to
positive customer response to the Company's merchandise
assortments. The increase in net sales was partially offset by
the closing of two stores during the first quarter of 1994.
Gross profit as a percentage of net sales increased to 47.4%
in the first quarter of 1994 from 45.6% in the first quarter of
1993. This increase in gross margin reflected a higher level of
full price selling and lower levels of promotional activity.
Selling, general and administrative expenses decreased to
32.3% of net sales in the first quarter of 1994 compared to 33.3%
in the first quarter of 1993. The decrease in selling, general
and administrative expenses as a percentage of net sales was
primarily attributable to an increase in net sales at a rate
greater than the rate of increase in selling, general and
administrative expenses; an increase in sales from the Company's
factory stores, which have lower store operating expenses than
full price Ann Taylor Stores; and improved expense management.
As a result of the foregoing, operating income increased to
$19,530,000, or 13.4% of net sales, in the first quarter of 1994
from $12,410,000, or 10.3% of net sales, in the first quarter of
1993. Amortization of goodwill was $2,377,000 in the first
quarter of 1994 and 1993. Operating income, without giving
effect to such amortization in either year, was $21,907,000, or
15.1% of net sales, in the 1994 period and $14,787,000, or 12.3%
of net sales, in the 1993 period.
Interest expense was $3,456,000, including $348,000 of non-
cash interest expense, in the first quarter of 1994, and
$4,969,000, including $1,902,000 of non-cash interest expense, in
the first quarter of 1993. The decrease in interest expense is
primarily attributable to lower interest rates applicable to the
Company's debt obligations in the 1994 period, resulting
principally from refinancing transactions entered into in the
fall of 1993.
The income tax provision was $7,874,000, or 49.4% of income
before income taxes, in the first quarter of 1994 compared to
$4,101,000, or 55.5% of income before income taxes, in the first
quarter of 1993. 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 $8,060,000, or 5.5% of net sales, for the first quarter
of 1994 compared to $3,290,000, or 2.7% of net sales, for the
first quarter of 1993.
AnnTaylor Stores Corporation conducts no business other than
the management of AnnTaylor, Inc.
Financial Condition
For the first quarter of 1994, net cash provided by operating
activities totaled $3,512,000, primarily as a result of income
from operations and non-cash operating expenses, partially offset
by increases in working capital. Cash used for investing
activities during the first quarter of 1994 amounted to
$4,883,000, for the purchase of property and equipment. Cash
used for financing activities during the first quarter of 1994
amounted to $1,719,000.
Accounts receivable increased to $57,967,000 at April 30, 1994
from $49,279,000 at January 29, 1994, an increase of $8,688,000
or 17.6%. This increase was partially attributable to Ann Taylor
credit card receivables, which increased approximately
$4,677,000, and to third-party credit card receivables (American
Express, MasterCard and VISA), which increased $4,304,000 due to
the timing of payments by third-party credit card issuers. Ann
Taylor credit card sales were 10.2% higher in the first quarter
of 1994 compared to the last quarter of 1993, which is partially
attributable to the increase in total sales compared to the prior
period.
Merchandise inventories increased to $72,603,000 at April 30,
1994 from $60,890,000 at January 29, 1994, an increase of
$11,713,000. The higher inventory level at April 30, 1994 was
attributable to the purchase of inventory for new and expanded
stores opened in the first quarter of 1994, anticipation of store
square footage increases in the second quarter of 1994, planned
comparable store sales growth, and the early receipt of certain
goods.
The bank credit agreement entered into on June 28, 1993
between AnnTaylor and Bank of America, as agent for a syndicate
of banks (as amended, the "Bank Credit Agreement"), provides for
an $80,000,000 term loan ("Term Loan") and a $55,000,000
revolving credit facility ("Revolving Credit Facility"). At
April 30, 1994, the Company had $54,000,000 outstanding under the
Term Loan. On May 18, 1994, the Company completed a public
offering of 1,000,000 shares of common stock (the "Offering").
The aggregate net proceeds of the Offering of approximately
$30,600,000 (after payment of underwriting discounts and expenses
of the Offering payable by the Company) were used to reduce the
Term Loan. After application of the Offering net proceeds, the
Bank Credit Agreement requires the Company to make the following
scheduled principal payments on the Term Loan over the remainder
of its term: $3,795,000 in fiscal years 1994 and 1995,
$5,055,000 in fiscal years 1996 and 1997, and $5,007,000 in
fiscal year 1998. The Bank Credit Agreement also requires the
Company to make prepayments on the Term Loan if the Company sells
certain assets or issues debt or equity securities. Amounts
borrowed under the Revolving Credit Facility mature on January
15, 1999; however, the Company is required to reduce the
outstanding balance of the Revolving Credit Facility to
$20,000,000 or less for a 30-day period in fiscal 1994 and to
$15,000,000 or less for a 30-day period each year thereafter. At
April 30, 1994, Ann Taylor was not in compliance with one
financial covenant under the Bank Credit Agreement relating to
inventory turnover, which event of noncompliance was waived by
Bank of America, as agent for the lenders under the Bank Credit
Agreement.
At April 30, 1994, $30,566,000 was outstanding under AnnTaylor
Funding, Inc.'s receivables facility. AnnTaylor Funding, Inc.
can borrow up to $40,000,000 under the receivables facility,
depending upon its accounts receivable balance.
The Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation and
refurbishment programs, totaled $25,062,000, $4,303,000, and
$10,004,000 in 1993, 1992 and 1991, respectively. Capital
expenditures totaled $4,883,000 in the first quarter of 1994.
The Company expects its capital expenditure requirements for the
remainder of 1994 to be approximately $26,100,000, plus
$14,000,000 for the new distribution center. The Bank Credit
Agreement imposes limits on the Company's ability to make capital
expenditures and, for 1994, the limit is $31,000,000, exclusive
of expenditures for the distribution center. 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.
Dividends and distributions from the AnnTaylor, Inc. to the
Company are restricted by both the Bank Credit Agreement and the
indenture relating to AnnTaylor, Inc.'s 8-3/4% Subordinated Notes
due 2000. The payment by the Company of cash dividends on its
common stock is restricted by the Company's guarantee of
obligations under the Bank Credit Agreement.
In order to finance its operations and capital requirements,
including its debt service payments, the Company expects to use
internally generated funds and funds available to it under the
Revolving Credit Facility and may seek project financing for the
distribution center construction and material handling equipment
costs. The Company believes that cash flow from operations and
funds available under the Revolving Credit Facility will be
sufficient to enable it to meet its ongoing cash needs for the
foreseeable future.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
AnnTaylor Stores Corporation's 1994 Annual Meeting of
Stockholders was held on June 1, 1994. The following matters
were voted upon and approved by the Company's stockholders at the
meeting:
1. Mr. Gerald S. Armstrong, Mr. Paul E. Francis and Ms. Hanne M.
Merriman were reelected as Class III Directors of the Company,
for terms expiring in 1997. Mr. James J. Burke, Jr. and Ms. Sally
Frame Kasaks continued as Class II Directors, with terms expiring in
1996, and Mr. Robert C. Grayson and Ms. Rochelle B. Lazarus
continued as Class I Directors, with terms expiring in 1995.
2. The amendment and restatement of the Company's 1992 Stock
Option Plan was approved. 18,224,567 shares were voted in
favor of, and 1,539,556 shares were voted against or abstained
from voting on, this proposal.
3. The Company's Amended and Restated Management Performance Compensation
Plan was approved. 19,087,844 shares were voted in favor of, and
676,279 shares were voted against or abstained from voting on,
this proposal.
4. The appointment of Deloitte & Touche as the Company's independent
public accountants for the 1994 fiscal year was ratified. 19,287,133
shares were voted in favor of, and 476,990 shares were voted
against or abstained from voting on, this proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.3 Consulting and Severance Agreement dated
March 21, 1994 between AnnTaylor Stores
Corporation, AnnTaylor, Inc. and Bert A. Tieben.
(b) Reports on Form 8-K:
None
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, 1994 By: /s/ Paul E. Francis
_____________________
Paul E. Francis
Executive Vice President -
Finance and Administration
(Chief Financial Officer)
Date: June 13, 1994 By: /s/ Walter J. Parks
______________________
Walter J. Parks
Vice President -
Financial Reporting
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
10.3 Consulting and Severance Agreement dated
March 21, 1994 between AnnTaylor Stores
Corporation, AnnTaylor, Inc. and Bert A. Tieben