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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED].
For the fiscal year ended January 28, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
Commission File No. 1-11980
ANNTAYLOR, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0297083
- --------------------------- -----------------
(State or 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
8-3/4% Subordinated The New York Stock Exchange
Notes due 2000
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_____ .
As of April 10, 1995, 1 share of Common Stock was
outstanding.
Documents Incorporated by Reference:
None.
The registrant meets the conditions set forth in General
Instruction J(1)(a) and (b) of Form 10-K and is therefore
filing this form with the reduced disclosure format.
====================================================================
PART I
ITEM 1. Business
General
AnnTaylor, Inc. (the "Company" or "Ann Taylor"), is a leading
national specialty retailer of better quality women's apparel,
shoes and accessories sold primarily under the Ann Taylor brand
name.
The first Ann Taylor store was opened in New Haven,
Connecticut in 1954. Over the years, the number of stores
gradually expanded, and by 1981, there were 36 stores. Allied
Stores Corporation ("Allied Stores") acquired the then parent of
Ann Taylor in 1981 and began a rapid expansion program for the
Ann Taylor stores, which continued after Allied Stores was
acquired by the Campeau Corporation in 1986. Ann Taylor grew
significantly after 1981, with the number of stores increasing
to 119 by the end of 1988, at which time Ann Taylor was acquired
by AnnTaylor Stores Corporation ("ATSC") (the "Acquisition").
As of January 28, 1995, the Company operated 262 stores in 38
states and the District of Columbia, including 236 Ann Taylor
Stores, 21 Ann Taylor Factory Stores, and 5 Ann Taylor Studio
stores.
As a result of the Acquisition, the Company became a wholly
owned subsidiary of ATSC. All of the outstanding capital stock
of the Company, consisting of one share of common stock, is
owned by ATSC.
The Company believes that the Ann Taylor name is a fashion
brand, defining a distinctive collection of apparel, shoes and
accessories which emphasizes classic styles, updated to reflect
current fashion trends. The Company's merchandising strategy
focuses on offering 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 assist
customers in merchandise selection and wardrobe coordination,
helping them achieve the "Ann Taylor look" while reflecting the
customers' personal styles. The Company believes that its
customer base consists primarily of relatively affluent, fashion-
conscious women from the ages of 25 to 55, and that the majority
of its customers is 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.
Since becoming Chairman and Chief Executive Officer in
February 1992, Sally Frame Kasaks has redirected the Company's
merchandising and marketing efforts to enhance the position of
Ann Taylor as a fashion brand. The Company's growth strategy
has been broadened to include not only the opening of new stores
in new and existing markets, but also the expansion of existing
stores and the introduction of product line extensions and
additional channels of distribution. The principal elements of
the Company's strategy include:
* Emphasis on product design and development to reinforce
the exclusivity of Ann Taylor merchandise by expanding the
Company's fabric and merchandise design team.
* Renewed focus on consistent quality and fit by
strengthening the production management team responsible
for technical design and factory and merchandise quality
assurance.
* Development of the Company's global and direct sourcing
capabilities to reduce costs and shorten lead times. The
Company increased its merchandise purchases through its
direct sourcing joint venture, which acts as an agent
exclusively for Ann Taylor, placing orders directly with
manufacturers, from 23.5% of merchandise purchased in
fiscal 1993 to 36.3% in fiscal 1994.
* Development of a merchandise pricing structure that
emphasizes consistent every day value rather than
promotions, adding to the credibility of the Ann Taylor
brand.
* Introduction of product line extensions building on the
strength of the Ann Taylor brand name. Over the past three
years, the Company has (i) increased its presence in casual
wear by introducing its own line of denim known as ATdenim,
(ii) introduced Ann Taylor petites, (iii) introduced its
signature fragrance "destination" and a limited line of
related personal care products, (iv) introduced its
"Action" label active wear line and (v) begun testing "Navy
label" merchandise, which offers career separates and
dresses at somewhat higher price points to compete with
designer bridge and diffusion lines.
* Introduction of two larger store prototypes. Since
1993, most new and expanded Ann Taylor Stores average
approximately 6,000 square feet and, in certain premier
markets, new and expanded stores are approximately 10,000
to 12,000 square feet. These store prototypes are designed
to allow the proper presentation of Ann Taylor product
extensions, reinforce the Ann Taylor total wardrobing
concept and improve customer service and ease of shopping.
* Introduction of additional channels of distribution. In
addition to its Ann Taylor Stores, at the end of fiscal
1994 the Company operated 21 Ann Taylor Factory Stores,
which were introduced beginning in 1993, and five AnnTaylor
Studio stores, a free-standing shoe and accessory store
concept introduced in fall 1994. In 1995 the Company will
begin testing AnnTaylor Loft stores, a moderate price store
concept.
* Increased investment in more sophisticated point-of-sale
and inventory management systems, including the integration
of the Company's merchandise planning, store assortment
planning, and merchandise allocation and replenishment
systems. These enhancements are designed to enable the
Company to manage its business more effectively and cost
efficiently by improving customer service and providing the
ability to better manage inventory levels.
* Construction of a 256,000 square foot distribution
center in Louisville, Kentucky to replace, in late spring
1995, the Company's existing 90,000 square foot
distribution facilities in Connecticut. See "Properties".
ITEM 2. Properties
As of January 28, 1995, the Company had 262 stores, all of
which were leased. The leases typically provide for an initial
five-to ten-year term and grant the Company the right to extend
the term for one or two additional five-year periods. In most
cases, the Company pays a minimum rent plus a contingent rent
based on the store's net sales in excess of a specified
threshold. The contingent rental payment is typically 5% of net
sales in excess of the applicable threshold. Substantially all
of the leases require the Company to pay insurance, utilities
and repair and maintenance expenses and contain tax escalation
clauses.
The Company also leases corporate offices at 142 West 57th
Street, New York and office space and its distribution center in
New Haven. The lease for the distribution center expires in
September 1995. In 1994, the Company purchased property in
Louisville, Kentucky on which it is constructing a 256,000
square foot facility to replace the Company's existing
distribution center facilities in Connecticut. The Company
expects to begin testing the flow of merchandise through this
facility in May 1995 and expects the facility to be fully
operational in late spring 1995. The Company expects capital
expenditures to build and equip the distribution center to total
approximately $16.0 million.
ITEM 3. Legal Proceedings
Ann Taylor 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 or results of operations of the
Company.
=================================================================
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
There is no public market for the common stock of the
Company. All of the outstanding capital stock of the Company,
consisting of one share of common stock, is owned by ATSC.
The payment of dividends by the Company to ATSC is subject to
certain restrictions under the Company's bank revolving credit
agreement (the "Revolving Credit Agreement") and the indenture
relating to the 8-3/4% Subordinated Notes due 2000
(the "8-3/4% Notes").
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Fiscal 1994 Compared to Fiscal 1993
The Company's net sales increased to $658,804,000 in 1994
from $501,649,000 in 1993, an increase of $157,155,000, or
31.3%. The increase in net sales was attributable to the
inclusion of a full year of operating results for the 13 stores
opened and 12 stores expanded during 1993, the opening of 35 new
stores and expansion of 25 stores in 1994 and a 13.7% increase
in comparable store sales. The 13.7% increase in comparable
stores sales was due primarily to customer acceptance of the
Company's merchandise offerings in 1994, including product
extensions such as Ann Taylor petites, shoes and "destination".
The sales increase was partially offset by the closing of four
stores in 1994.
Gross profit as a percentage of net sales decreased slightly
to 45.7% in 1994 from 45.8% in 1993. This decrease was
attributable to increased cost of goods sold resulting from
lower initial markups, offset by lower markdowns associated with
reduced promotional activities.
Selling, general and administrative expenses as a percentage
of net sales decreased to 32.5% in 1994 from 33.8% in 1993. The
decrease was primarily attributable to the leveraging of four-
wall expenses over a larger sales base and was partially offset
by increased expenditures relating primarily to the Company's
information systems, expansion of the Company's merchandising
and product design teams, and higher catalog expenses.
Operating income increased to $77,291,000, or 11.7% of net
sales, in 1994, from $49,021,000, or 9.8% of net sales, in 1993.
Operating income for 1993 was reduced by a $2,000,000
restructuring charge representing .4% of net sales.
Amortization of goodwill from the Acquisition was $9,506,000 in
1994 and $9,508,000 in 1993. Operating income without giving
effect to such amortization was $86,797,000, or 13.2% of net
sales, in 1994, and $58,529,000, or 11.6% of net sales, in 1993.
Interest expense was $14,229,000, including $978,000 of non-
cash interest expense, in 1994 and $17,696,000, including
$4,199,000 of non-cash interest expense, in 1993. The decrease
in interest expense is 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 and summer of 1994 and the reduction of the
Company's long-term debt with the net proceeds from the public
offering of 1,000,000 shares of ATSC common stock at a price of
$32.00 per share in May 1994. After taking into account the
Company's interest rate swap agreement (see Financial Statement
Note 4), all of the Company's debt obligations bear interest at
variable rates. The weighted average interest rate on the
Company's outstanding indebtedness at January 28, 1995 was 8.90%
compared to 6.22% at January 29, 1994. Because the Company's
debt bears interest at variable rates, the Company's interest
expense for fiscal 1994 is not necessarily indicative of
interest expense for future periods.
The income tax provision was $30,274,000, or 48.1% of income
before income taxes and extraordinary loss, in the 1994 period
compared to $17,189,000, or 54.5% of income before income taxes
and extraordinary loss, in 1993. The effective tax rates for
both periods were higher than the statutory rates, primarily as
a result of non-deductible goodwill expense.
In connection with the debt refinancing activities undertaken
by the Company in 1994 (see Financial Statement Notes 3 and 4),
the Company incurred an extraordinary loss of $1,522,000
($868,000 net of income tax benefit).
As a result of the foregoing factors, the Company had net
income of $31,752,000, or 4.8% of net sales, for 1994 compared
to net income of $3,209,000, or 0.6% of net sales, for 1993.
ITEM 8. Financial Statement and Supplementary Data
The following consolidated financial statements of the
Company for the years ended January 28, 1995, January 29, 1994
and January 30, 1993 are included as a part of this Report (See
Item 14):
Consolidated Statements of Operations for the fiscal years
ended January 28, 1995, January 29, 1994 and January 30,
1993.
Consolidated Balance Sheets as of January 28, 1995 and
January 29, 1994.
Consolidated Statements of Cash Flows for the fiscal years
ended January 28, 1995, January 29, 1994 and January 30,
1993.
Notes to Consolidated Financial Statements.
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
None.
====================================================================
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 and the independent auditors' report are included
on pages 11 through 24 and are filed as part of this
Annual Report:
Consolidated Statements of Operations for the fiscal years
ended January 28, 1995, January 29, 1994 and January 30,
1993; Consolidated Balance Sheets as of January 28, 1995
and January 29, 1994; Consolidated Statements of Cash
Flows for the fiscal years ended January 28, 1995, January
29, 1994 and January 30, 1993; Notes to Consolidated
Financial Statements; Independent Auditors' Report.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed in the following exhibit index are
filed as a part of this Annual Report.
Exhibit Number
- --------------
3.1 Certificate of Incorporation of the Company, as amended.
Incorporated by reference to Exhibit No. 3.3 to the
Registration Statement of ATSC and Ann Taylor filed on
May 3, 1989 (Registration No. 33-28522).
3.2 By-Laws of the Company. Incorporated by reference to
Exhibit No. 3.4 to the Registration Statement of ATSC
and Ann Taylor filed on May 3, 1989 (Registration No.
33-28522).
4.1 Indenture, dated as of June 15, 1993, between Ann
Taylor and Fleet Bank, N.A., as Trustee, including the
form of Subordinated Note due 2000. Incorporated by
reference to Exhibit 4.1 to the Current Report on Form
8-K of Ann Taylor filed on July 7, 1993.
10.1 Credit Agreement, dated as of June 28, 1993, between Ann
Taylor, Bank of America National Trust and Savings
Association ("Bank of America"), Bank of Montreal, the
financial institutions party thereto, and Bank of
America, as Agent. Incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K of Ann
Taylor filed on July 7, 1993.
10.1.1 Amendment No. 1 to Credit Agreement, dated as of
August 10, 1993, between Ann Taylor, Bank of America
National Trust and Savings Association ("Bank of
America"), Bank of Montreal, the financial
institutions party thereto, and Bank of America, as
Agent. Incorporated by reference to Exhibit 10.9 to
the Quarterly Report on Form 10-Q of Ann Taylor for
the Quarter ended October 30, 1993 filed on November
26, 1993.
10.1.2 Amendment No. 2 to Credit Agreement dated as of
October 6, 1993, between Ann Taylor, Bank of America
National Trust and Savings Association ("Bank of
America"), Bank of Montreal, the financial
institutions party thereto, and Bank of America, as
Agent. Incorporated by reference to Exhibit 10.10 to
the Quarterly Report on Form 10-Q of Ann Taylor for
the Quarter ended October 30, 1993 filed on November
26, 1993.
10.1.3 Amendment No. 3 to Credit Agreement dated as of
December 23, 1993, between Ann Taylor, Bank of America
National Trust and Savings Association ("Bank of
America"), Bank of Montreal, the financial
institutions party thereto, and Bank of America, as
Agent. Incorporated by reference to Exhibit 10.6.3 to
the Annual Report on Form 10-K of ATSC filed on March
31, 1994.
10.1.4 Amendment No. 4 to Credit Agreement dated as of
January 24, 1994, between Ann Taylor, Bank of America
National Trust and Savings Association ("Bank of
America"), Bank of Montreal, the financial
institutions party thereto, and Bank of America, as
Agent. Incorporated by reference to Exhibit 10.6.4 to
the Annual Report on Form 10-K of ATSC filed on March
31, 1994.
10.2 Guaranty, dated as of June 28, 1993, made by ATSC in
favor of Bank of America, as Agent. Incorporated by
reference to Exhibit 10.4 to the Current Report on
Form 8-K of Ann Taylor filed on July 7, 1993.
10.3 Security and Pledge Agreement, dated as of June 28,
1993, made by ATSC in favor of Bank of America, as
Agent. Incorporated by reference to Exhibit 10.5 to
the Current Report on Form 8-K of Ann Taylor filed on
July 7, 1993.
10.4 Revolving Credit Agreement, dated as of July 29, 1994,
between the Company, Bank of America National Trust
and Savings Association ("Bank of America"), Fleet
Bank, the financial institutions party thereto, and
Bank of America, as Agent. Incorporated by reference
to Exhibit 10.4 on Form 10-Q of Ann Taylor for the
Quarter ended July 30, 1994 filed on September 12,
1994.
10.4.1 Amendment No. 1 to the Revolving Credit Agreement,
dated as of January 27, 1995, between the Company,
Bank of America National Trust and Savings Association
("Bank of America"), Fleet Bank, the financial
institutions party thereto, and Bank of America, as
Agent. Incorporated by reference to Exhibit 10.9.1 to
the Annual Report on Form 10-K of ATSC filed on April
27, 1995.
10.5 Guaranty, dated as of July 29, 1994, made by ATSC in
favor of Bank of America, as Agent. Incorporated by
reference to Exhibit 10.5 on Form 10-Q of Ann Taylor
for the Quarter ended July 30, 1994 filed on September
12, 1994.
10.6 Pledge Agreement, dated as of July 29, 1994, made by the
Company in favor of Bank of America, as Agent.
Incorporated by reference to Exhibit 10.6 to the
Quarterly Report on Form 10-Q of Ann Taylor for the
Quarter ended July 30, 1994 filed on September 12,
1994.
10.7 Pledge Agreement, dated as of July 29, 1994 made by ATSC
in favor of Bank of America, as Agent. Incorporated
by reference to Exhibit 10.7 to the Quarterly Report
on Form 10-Q of Ann Taylor for the Quarter ended July
30, 1994 filed on September 12, 1994.
10.8 Form of Investor Stock Subscription Agreement, dated
February 8, 1989, between ATSC and each of the ML
Entities. Incorporated by reference to Exhibit No.
10.15 to the Registration Statement of ATSC and Ann
Taylor filed on May 3, 1989 (Registration No. 33-
28522).
10.9 1989 Stock Option Plan. Incorporated by reference to
Exhibit No. 10.18 to the Registration Statement of
ATSC and Ann Taylor filed on May 3, 1989 (Registration
No. 33-28522).
10.9.1 Amendment to 1989 Stock Option Plan. Incorporated by
reference to Exhibit 10.15.1 to the Annual Report on
Form 10-K of ATSC filed on April 30, 1993.
10.10 Lease, dated as of March 17, 1989, between Carven
Associates and Ann Taylor concerning the West 57th
Street headquarters. Incorporated by reference to
Exhibit No. 10.21 to the Registration Statement of
ATSC and Ann Taylor filed on May 3, 1989 (Registration
No. 33-28522).
10.10.1 First Amendment to Lease, dated as of November 14,
1990, between Carven Associates and Ann Taylor.
Incorporated by reference to Exhibit No. 10.17.1 to
the Registration Statement of ATSC filed on April 11,
1991 (Registration No. 33-39905).
10.10.2 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 ATSC filed on April 29,
1993.
10.10.3 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
Quarterly Report on Form 10-Q of Ann Taylor for the
Quarter ended October 30, 1993 filed on November 26,
1993.
10.10.4 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 ATSC
filed on April 27, 1995.
10.10.5 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 ATSC filed on April 27,
1995.
10.11 Lease, dated December 1, 1985, between Hamilton Realty
Co. and Ann Taylor concerning the New Haven
distribution center. Incorporated by reference to
Exhibit No. 10.22 to the Registration Statement of
ATSC and Ann Taylor filed on May 3, 1989 (Registration
No. 33-28522).
10.11.1 Agreement, dated March 22, 1993, between Hamilton
Realty Co. and Ann Taylor amending the New Haven
distribution center lease. Incorporated by reference
to Exhibit No. 10.14.1 to the Annual Report on Form 10-
K of Ann Taylor filed on April 30, 1993.
10.11.2 Extension dated February 24, 1994, between Hamilton
Realty Co. and Ann Taylor extending the New Haven
distribution center lease. Incorporated by reference
to Exhibit 10.16.2 to the Annual Report on Form 10-K
of ATSC filed on April 27, 1995.
10.11.3 Extension dated May 23, 1994, between Hamilton Realty
Co. and Ann Taylor extending the New Haven
distribution center lease. Incorporated by reference
to Exhibit 10.16.3 to the Annual Report on Form 10-K
of ATSC filed on April 27, 1995.
10.11.4 Extension dated March 13, 1995, between Hamilton
Realty Co. and Ann Taylor extending the New Haven
distribution center lease. Incorporated by reference
to Exhibit 10.16.4 to the Annual Report on Form 10-K
of ATSC filed on April 27, 1995.
10.12 Agreement, dated April 12, 1993, between Dixson
Associates and Ann Taylor amending the 3 East 57th
Street lease. Incorporated by reference to Exhibit
No. 10.15.1 to the Annual Report on Form 10-K of Ann
Taylor filed on April 30, 1993.
10.13 Tax Sharing Agreement, dated as of July 13, 1989,
between ATSC and Ann Taylor. Incorporated by
reference to Exhibit No. 10.24 to Amendment No. 2 to
the Registration Statement of ATSC and Ann Taylor
filed on July 13, 1989 (Registration No. 33-28522).
10.14 Employment Agreement, effective as of February 3, 1992,
between ATSC and Sally Frame Kasaks. Incorporated by
reference to Exhibit 10.28 to the Annual Report on
Form 10-K of ATSC filed on April 28, 1992.
10.15 Employment Agreement dated as of February 1, 1994
between ATSC and Sally Frame Kasaks. Incorporated by
reference to Exhibit 10.8 to the Quarterly Report on
Form 10-Q of ATSC filed on December 9, 1994.
10.16 The AnnTaylor Stores Corporation 1992 Stock Option Plan.
Incorporated by reference to Exhibit No. 4.3 to ATSC's
Registration Statement on Form S-8 filed with the
Commission on August 10, 1992 (Registration No. 33-
50688).
10.16.1 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 ATSC's Registration Statement on Form S-8
filed with the Commission on June 30, 1994
(Registration No. 33-50688).
10.17 Management Performance Compensation Plan. Incorporated
by reference to Exhibit 10.30 to the Quarterly Report
on Form 10-Q filed on December 15, 1992.
10.17.1 Amended and restated Management Performance Compensation
Plan as approved by stockholders on June 1, 1994.
Incorporated by reference to Exhibit 10.22.1 to the
Annual Report on Form 10-K of ATSC filed on
April 27, 1995.
10.17.2 Amendment to the AnnTaylor Stores Corporation
Management Performance Compensation Plan dated as of
February 24, 1995. Incorporated by reference to
Exhibit 10.22.2 to the Annual Report on Form 10-K of
ATSC filed on April 27, 1995.
10.18 Associate Stock Purchase Plan. Incorporated by
reference to Exhibit 10.31 to the Quarterly Report on
Form 10-Q filed on December 15, 1992.
10.19 Stipulation of Settlement dated February 16, 1993
providing for the settlement of Consolidated Action.
Incorporated by reference to Exhibit 10.27 to ATSC's
Annual Report on Form 10-K filed on April 30, 1993.
10.20 Agreement among Defendants to the Stipulation of
Settlement dated February 16, 1993 providing for the
settlement of Consolidated Action. Incorporated by
reference to Exhibit 10.28 to ATSC's Annual Report on
Form 10-K filed on April 30, 1993.
10.21 Opinion Re Settlement Plan of Allocation and Application
for Attorney's Fees and Expenses dated May 25, 1993,
In Re AnnTaylor Stores Securities Litigation.
Incorporated by reference to Exhibit 10.3 to ATSC's
Quarterly Report on Form 10-Q for the Quarter ended
May 1, 1993 filed on May 28, 1993.
10.22 Consulting and Severance Agreement dated April 6, 1993
between ATSC and Joseph J. Schumm. Incorporated by
reference to Exhibit 10.30 to ATSC's Annual Report on
Form 10-K filed on April 30, 1993.
10.22.1 Consulting and Severance Agreement dated March 21,
1994 between ATSC, the Company and Bert A. Tieben.
Incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q of ATSC for the Quarter
ended April 30, 1994 filed on June 13, 1994.
10.23 Interest Rate Swap Agreement dated as of July 22, 1993,
between Ann Taylor and Fleet Bank of Massachusetts,
N.A. Incorporated by reference to Exhibit 10.6 to the
Quarterly Report on Form 10-Q of Ann Taylor for the
Quarter ended July 31, 1993 filed on September 2,
1993.
10.24 Stock Purchase Agreement, dated as of July 13, 1993,
between Ann Taylor and Cleveland Investment, Ltd.
Incorporated by reference to Exhibit 10.7 to the
Quarterly Report on Form 10-Q of Ann Taylor for the
Quarter ended July 31, 1993 filed on September 2,
1993.
10.25 Agreement, dated July 13, 1993, among Cygne Designs,
Inc., CAT US, Inc., C.A.T. (Far East) Limited and Ann
Taylor. Incorporated by reference to Exhibit 10.8 on
Form 10-Q of Ann Taylor for the Quarter ended July 31,
1993 filed on September 2, 1993. (Confidential
treatment has been granted with respect to certain
portions of this Exhibit.)
10.26 Receivables Financing Agreement dated January 27, 1994,
among AnnTaylor Funding, Inc., Ann Taylor, Clipper
Receivables Corporation, State Street Boston Capital
Corporation and PNC Bank National Association.
Incorporated by reference to Exhibit 10.28 to the
Annual Report on Form 10-K of ATSC filed on March 31,
1994.
10.26.1 First Amendment to Receivables Financing Agreement,
dated as of May 31, 1994, among AnnTaylor Funding,
Inc., Ann Taylor, Clipper Receivables Corporation,
State Street Boston Corporation and PNC Bank National
Association. Incorporated by reference to Exhibit
10.31.1 to the Annual Report on Form 10-K of ATSC
filed on April 27, 1995.
10.26.2 Second Amendment to Receivables Financing Agreement,
dated as of March 31, 1995, among AnnTaylor Funding,
Inc., Ann Taylor, Clipper Receivables Corporation,
State Street Boston Capital Corporation and PNC Bank
National Association. Incorporated by reference to
Exhibit 10.31.2 to the Annual Report on Form 10-K of
ATSC filed on April 27, 1995.
10.27 Purchase and Sale Agreement dated as of January 27, 1994
between Ann Taylor and AnnTaylor Funding, Inc.
Incorporated by reference to Exhibit 10.29 to the
Annual Report on Form 10-K of ATSC filed on March 31,
1994.
10.28 AnnTaylor Stores Corporation Deferred Compensation Plan.
Incorporated by reference to Exhibit 10.33 to the
Annual Report on Form 10-K of ATSC filed on April 27,
1995.
====================================================================
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, INC.
By: /s/ PAUL E. FRANCIS
--------------------------
Paul E. Francis
Executive Vice President
Finance and Administration -
Chief Financial Officer
By: /s/ WALTER J. PARKS
------------------------------
Walter J. Parks
Senior Vice President -
Finance -
Principal Accounting
Officer
Date: April 27, 1995
---------------
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/ SALLY FRAME KASAKS Chairman, Chief Executive April 27, 1995
- ----------------------- Officer and Director --------------
Sally Frame Kasaks
/s/ PAUL E. FRANCIS Executive Vice President April 27, 1995
- ----------------------- Finance and Administration --------------
and Director
/s/ GERALD S. ARMSTRONG Director April 27, 1995
- ----------------------- ---------------
Gerald S. Armstrong
/s/ JAMES J. BURKE, JR. Director April 27, 1995
- ---------------------- ---------------
James J. Burke, Jr.
/s/ ROBERT C. GRAYSON Director April 27, 1995
- --------------------- ---------------
Robert C. Grayson
/s/ ROCHELLE B. LAZARUS Director April 27, 1995
- ----------------------- ----------------
Rochelle B. Lazarus
/s/ HANNE M. MERRIMAN Director April 27, 1995
- ---------------------- ----------------
Hanne M. Merriman
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material with respect to any annual
or other meeting of security holders has been sent to security
holders.
=======================================================================
ANNTAYLOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report 12
Consolidated Financial Statements:
Consolidated Statements of Operations for the fiscal
years ended January 28, 1995,
January 29, 1994 and January 30, 1993 13
Consolidated Balance Sheets as of January 28, 1995
and January 29, 1994 14
Consolidated Statements of Cash Flows for the
fiscal years ended January 28, 1995,
January 29, 1994 and January 30, 1993 15
Notes to Consolidated Financial Statements 16
=================================================================
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
ANNTAYLOR, INC.:
We have audited the accompanying consolidated financial
statements of AnnTaylor, Inc. 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 generally accepted
auditing standards. 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 28, 1995 and
January 29, 1994, and the results of their operations and their
cash flows for each of the three fiscal years in the period
ended January 28, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New Haven, Connecticut
April 5, 1995
=====================================================================
ANNTAYLOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended January 28, 1995, January 29, 1994
and January 30, 1993
Fiscal Years Ended
----------------------------------------
January 28, January 29, January 30,
1995 1994 1993
----------- ----------- -----------
(in thousands)
Net sales (including leased
shoe departments in 1992) $658,804 $501,649 $468,381
Cost of sales 357,783 271,749 264,301
------- ------- -------
Gross profit 301,021 229,900 204,080
Selling, general and
administrative expenses 214,224 169,371 152,072
Distribution center
restructuring charge --- 2,000 ---
Amortization of goodwill 9,506 9,508 9,504
------- ------- -------
Operating income 77,291 49,021 42,504
Interest expense 14,229 17,696 21,273
Stockholder litigation
settlement --- --- 3,905
Other (income) expense, net 168 (194) 259
------- ------- -------
Income before income taxes and
extraordinary loss 62,894 31,519 17,067
Income tax provision 30,274 17,189 11,150
------- ------- -------
Income before extraordinary loss 32,620 14,330 5,917
Extraordinary loss (net of income
tax benefit of $654,000 and
$6,123,000, respectively) 868 11,121 ---
------- ------- -------
Net income $31,752 $3,209 $5,917
======= ====== ======
See accompanying notes to consolidated financial statements.
==========================================================================
ANNTAYLOR, INC.
CONSOLIDATED BALANCE SHEETS
January 28, 1995 and January 29, 1994
January 28, January 29,
1995 1994
------------ ------------
(in thousands)
ASSETS
Current assets
Cash $ 1,551 $ 292
Accounts receivable, net of allowances
of $931,000 and $787,000,
respectively 61,211 49,279
Merchandise inventories 93,705 60,890
Prepaid expenses and other current
assets 7,956 7,184
Deferred income taxes 3,650 3,750
------- -------
Total current assets 168,073 121,395
Property and equipment
Land 499 ---
Leasehold improvements 43,370 30,539
Furniture and fixtures 59,105 37,596
Construction in progress 24,867 8,621
------- -------
127,841 76,756
Less accumulated depreciation
and amortization 31,503 28,703
------- -------
Net property and equipment 96,338 48,053
Goodwill, net of accumulated amortization
of $57,219,000 and $47,713,000,
respectively 323,031 332,537
Investment in CAT 3,792 2,245
Deferred income taxes 1,600 1,500
Deferred financing costs, net of
accumulated amortization of
$956,000 and $643,000, respectively 2,829 4,990
Other assets 2,591 2,679
------- -------
Total assets $598,254 $513,399
======== ========
LIABILITIES AND STOCHOLDER'S EQUITY
Current liabilities
Accounts payable $36,625 $ 33,087
Accrued salaries and wages 5,929 4,996
Accrued rent 5,243 3,584
Gift certificates redeemable 3,970 2,699
Accrued expenses 14,125 14,989
Current portion of long-term debt --- 8,757
------- -------
Total current liabilities 65,892 68,112
Long-term debt 200,000 180,243
Other liabilities 6,250 5,773
Commitments and contingencies
Stockholder's equity
Common stock, $1.00 par value;
1,000 shares authorized;
1 share issued and outstanding 1 1
Additional paid-in capital 311,115 276,026
Retained earnings (accumulated deficit) 14,996 (16,756)
-------- -------
Total stockholder's equity 326,112 259,271
-------- -------
Total liabilities and stockholder's
equity $598,254 $513,399
======== ========
See accompanying notes to consolidated financial statements.
==========================================================================
ANNTAYLOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended January 28, 1995, January 29, 1994
and January 30, 1993
Fiscal Years Ended
--------------------------------------
January 28, January 29, January 30,
1995 1994 1993
---------- ----------- ----------
(in thousands)
Operating activities:
Net income $ 31,752 $ 3,209 $ 5,917
Adjustments to reconcile net
income to net cashprovided
by operating activities:
Extraordinary loss 1,522 17,244 ---
Distribution center
restructuring charge --- 2,000 ---
Equity earnings in CAT (1,547) (517) ---
Provision for loss on accounts
receivable 1,727 1,171 1,240
Depreciation and amortization 11,787 8,505 7,486
Amortization of goodwill 9,506 9,508 9,504
Amortization of deferred
compensation 298 279 929
Non-cash interest 978 4,199 8,581
Deferred income taxes --- (1,750) (1,500)
Loss on disposal of property
and equipment 1,268 312 72
Increase in receivables (13,659) (7,447) (2,539)
Increase in merchandise inventories (32,815) (10,583) (4,325)
Increase in prepaid expenses and
other current assets (772) (1,280) (187)
Decrease (increase) in refundable
income taxes --- 5,097 (2,078)
Increase (decrease) in accounts
payable and accrued liabilities 6,537 18,218 (250)
Decrease (increase) in other
non-current assets and
liabilities, net 567 (843) 729
------- ------- -------
Net cash provided by operating
activities 17,149 47,322 23,579
------- ------- -------
Investing activities:
Purchases of property and equipment (61,341) (25,062) (4,303)
Investment in CAT --- (1,640) (88)
------- ------- -------
Net cash used by investing activities (61,341) (26,702) (4,391)
------- ------- -------
Financing activities:
Borrowings (repayments) under line
of credit agreement 64,000 (3,500) 2,500
Decrease in bank overdrafts --- (2,361) (4,660)
Payments of long-term debt (56,000) (137,610) (26,000)
Purchase of Subordinated Debt
Securities --- (93,689) ---
Net proceeds from 8-3/4% Notes --- 107,387 ---
Proceeds from Term Loan --- 80,000 ---
Parent company contributions 34,791 10,485 8,988
Proceeds from Receivables Facility 3,000 33,000 ---
Purchase of 8-3/4% Notes --- (10,225) ---
Payment of financing costs (340) (4,041) ---
------- ------- -------
Net cash provided by (used by)
financing activities 45,451 (20,554) (19,172)
------- ------- -------
Net increase in cash 1,259 66 16
Cash, beginning of year 292 226 210
------- ------- -------
Cash, end of year $1,551 $ 292 $ 226
======= ======= =======
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year
for interest $13,211 $12,664 $ 13,917
======= ======= ========
Cash paid during the year
for income taxes $26,242 $ 5,114 $ 11,192
======= ======= ========
See accompanying notes to consolidated financial statements.
============================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
AnnTaylor, Inc. (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.
All of the outstanding capital stock of the Company,
consisting of one share of common stock, is owned by AnnTaylor
Stores Corporation ("ATSC").
Basis of Presentation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All intercompany accounts
have been eliminated in consolidation.
Certain fiscal 1993 and 1992 amounts have been reclassified
to conform to the fiscal 1994 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.
Finance Service Charge Income
Income from finance service charges relating to customer
receivables, which is deducted from selling, general and
administrative expenses, amounted to $6,871,000 for fiscal 1994,
$6,166,000 for fiscal 1993 and $5,608,000 for fiscal 1992.
Merchandise Inventories
Merchandise inventories are accounted for by the retail
inventory method and are stated at the lower of cost (first-in,
first-out method) or market.
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 15 years) or, in the
case of leasehold improvements, over the lives of the respective
leases, if shorter.
Pre-Opening Expenses
Pre-opening store expenses are charged to selling, general
and administrative expenses in the period incurred.
Leased Shoe Department Sales
Net sales include leased shoe department sales of $8,207,000
for fiscal 1992. Leased shoe departments were phased out by
February 1, 1993. Accordingly, there were no leased shoe
department sales during fiscal 1993 or 1994. The gross profit
margin on leased shoe department sales was approximately 14.4%.
Deferred Financing Costs
Deferred financing costs are being amortized using the
interest method over the terms of the related debt.
Goodwill
Goodwill is being amortized on a straight-line basis over 40
years. On an annual basis the Company compares the carrying
value of its goodwill to an estimate of the Company's fair value
to evaluate the reasonableness of the carrying value and
remaining amortization period. Fair value is computed using
projections of future cash flows.
Income Taxes
During the first quarter of 1993, the Company adopted the
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109") 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 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. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for
the year in which those differences are expected to be recovered
or settled. Adoption of SFAS 109 did not have a material effect
on the results of operations.
Pursuant to a Tax Sharing Agreement, ATSC and the Company
have agreed to elect to file consolidated income tax returns for
federal income tax purposes and may elect to file such returns
in states and other relevant jurisdictions that permit such an
election, for income tax purposes. With respect to such
consolidated income tax returns, the Tax Sharing Agreement
generally requires the Company to pay to ATSC the entire tax
shown to be due on such consolidated returns, provided that the
amount paid by the Company shall not exceed the amount of taxes
that would have been owed by the Company on a stand-alone basis.
2. Restructuring
The Company recorded a $2,000,000 pre-tax restructuring
charge in the fourth quarter of 1993 in connection with the
announced relocation of its distribution center from New Haven,
Connecticut to Louisville, Kentucky. The primary components of
the restructuring charge are approximately $1,100,000 for
employee related costs, principally for severance and job
training benefits, and approximately $900,000 for the write-off
of the estimated net book value of fixed assets at the time of
relocation. The relocation is expected to be completed by late
spring 1995.
3. Extraordinary Items
On May 18, 1994, ATSC completed a public offering of
1,000,000 shares of common stock (the "ATSC Offering") at a
price of $32.00 per share, resulting in aggregate net proceeds
of $30,420,000 (after payment of underwriting discounts and
expenses of the ATSC Offering payable by ATSC). As required by
the Company's then-existing bank credit agreement, $30,000,000 of
the net proceeds of the ATSC Offering were contributed to the
Company and subsequently used by the Company to reduce the term
loan outstanding under that agreement. The write-off of
deferred financing costs associated with the payment on the term
loan with the proceeds of the ATSC Offering and refinancing of
long-term debt (see Note 4) resulted in an extraordinary loss of
$1,522,000 ($868,000 net of income tax benefit).
The ATSC Offering was consummated concurrently with the
public offering and sale by certain affiliates of Merrill Lynch
& Co., Inc. ("ML&Co.") (the "Selling Stockholders") of 4,075,000
shares of ATSC's common stock held by them. ATSC did not
receive any of the proceeds of the shares sold by the Selling
Stockholders.
In 1993, the Company entered into a series of debt
refinancing transactions that resulted in an extraordinary loss
of $17,244,000 ($11,121,000 net of income tax benefit). The
loss was attributable to the premiums paid in connection with
the purchase or discharge of the Company's 14-3/8% Senior
Subordinated Discount Notes due 1999 ("Discount Notes") and its
13-3/4% Subordinated Notes due 1999 ("Notes") and the purchase
of $10,000,000 principal amount of the Company's 8-3/4%
Subordinated Notes due 2000 ("8-3/4% Notes"), and the write-off
of deferred financing costs.
4. Long-Term Debt
The following summarizes long-term debt outstanding at
January 28, 1995 and January 29, 1994:
January 28, 1995 January 29, 1994
-------------------- -------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
Senior Debt:
Revolving Credit Agreement $64,000 $64,000 --- ---
Revolving Credit Facility --- --- $2,000 $2,000
Term loan --- --- 54,000 54,000
8-3/4% Notes 100,000 97,000 100,000 102,750
Interest rate swap agreement --- 4,125 --- (780)
Receivables facility 36,000 36,000 33,000 33,000
------- ------- ------- -------
Total debt 200,000 201,125 189,000 190,970
Less current portion --- --- 8,757 8,757
------- ------- ------- -------
Total long-term debt $200,000 $201,125 $180,243 $182,213
======== ======== ======== ========
The bank credit agreement entered into on June 28, 1993
between the Company and Bank of America, as agent for a
syndicate of banks (the "Bank Credit Agreement"), provided for
an $80,000,000 term loan ("Term Loan") and a $55,000,000
revolving credit facility ("Revolving Credit Facility")
(collectively, the "Bank Loans"). The Term Loan was subject to
regularly scheduled semi-annual repayments of principal, which
commenced on January 15, 1994. The Company made the semi-annual
payment of $6,000,000 in January 1994, and an additional payment
of $20,000,000. The maximum amount that was able to be borrowed
under the Revolving Credit Facility was reduced by the amount of
commercial and standby letters of credit outstanding under the
Bank Credit Agreement. At January 29, 1994, the amount
available under the Revolving Credit Facility was $46,150,000.
In May 1994, ATSC contributed to the Company $30,000,000 of
the net proceeds from the ATSC Offering referred to in Note 3
above, to reduce the amount of the Term Loan outstanding under
its then-existing bank credit agreement.
In July 1994, the Company completed the refinancing of its
outstanding bank debt by entering into a new credit agreement
(the "Revolving Credit Agreement"), which under its original
terms provided for a revolving loan facility of $75,000,000.
The Revolving Credit Agreement was amended on January 27, 1995
to provide for borrowings of up to $125,000,000. The Company
borrowed funds under this revolving credit facility to prepay in
full its outstanding Term Loan and other obligations under its
then-existing bank credit agreement.
The Revolving Credit Agreement has an initial term of three
years. The maximum amount that may be borrowed under this
facility is reduced by the amount of commercial and standby
letters of credit outstanding. There are no amortization
payments required to be made under the agreement during its
term, although the Company is required to reduce the outstanding
loan balance under the facility to $67,000,000 or less for
thirty consecutive days during fiscal 1995 and to $50,000,000 or
less for thirty consecutive days in each fiscal year thereafter.
At January 28, 1995, the amount available under the Revolving
Credit Agreement was $54,570,000.
The Revolving Credit Agreement bears interest at a rate per
annum equal to, at the Company's option, Bank of America's (1)
Base Rate, or (2) Eurodollar rate plus .75%. In addition, the
Company is required to pay Bank of America a quarterly
commitment fee of .30% per annum of the unused revolving loan
commitment. At January 28, 1995, the $64,000,000 outstanding
under the Revolving Credit Agreement bore interest at the
weighted average rate of 7.23% per annum.
Under the terms of the Revolving Credit Agreement, Bank of
America obtained a pledge of the Company's common stock. In
addition, the Revolving Credit Agreement contains financial and
other covenants, including limitations on indebtedness, liens
and investments, restrictions on dividends or other
distributions to stockholders, and maintaining certain financial
ratios and specified levels of net worth.
Beginning in the fourth quarter of 1993, the Company sells
its proprietary credit card accounts receivable to AnnTaylor
Funding, Inc., a wholly owned subsidiary, which uses the
receivables to secure borrowings under a receivables financing
facility due 1996 (the "Receivables Facility"). As of January
28, 1995, $36,000,000 was outstanding under the Receivables
Facility. AnnTaylor Funding, Inc. can borrow up to $40,000,000
under the Receivables Facility based on its accounts receivable
balance. The interest rate as of January 28, 1995 was 6.5%. At
January 28, 1995, AnnTaylor Funding, Inc. had total assets of
approximately $50,348,000 all of which are subject to the
security interest of the lender under the Receivables Facility.
On June 28, 1993, the Company issued $110,000,000 principal
amount of its 8-3/4% Notes, the net proceeds of $107,387,000 of
which were used in part to repay the outstanding indebtedness
under the Company's then-existing bank credit agreement. The
outstanding principal amount of these notes as of January 28,
1995 was $100,000,000.
In July 1993, the Company entered into a $110,000,000
(notional amount) interest rate swap agreement, which had the
effect of converting the Company's interest obligations on the 8-
3/4% Notes to a variable rate. Under the agreement, the Company
receives a fixed rate of 4.75% and pays a floating rate based on
LIBOR, as determined in six month intervals. The swap agreement
matures in July 1996. The Company is currently receiving a
fixed rate of 4.75% and paying a variable rate of 6.75%. Net
receipts or payments under the agreement are recognized as an
adjustment to interest expense. The Company is exposed to
credit loss in the event of non-performance by the other party
to the swap agreement; however, the Company does not anticipate
any such losses.
The aggregate principal payments of all long-term obligations
for the next five fiscal years are as follows:
Fiscal Year (in thousands)
-----------
1995 ---
1996 $36,000
1997 64,000
1998 ---
1999 ---
At January 28, 1995 and January 29, 1994, the Company had
outstanding commercial and standby letters of credit under its
credit facilities with Bank of America totaling $6,430,000 and
$6,850,000, respectively.
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 debt instruments and interest rate swap using
quoted market information, as available. As judgment is
involved, the estimates are not necessarily indicative of the
amounts the Company could realize in a current market exchange.
5. Allowance for Doubtful Accounts
A summary of activity in the allowance for doubtful accounts
for the fiscal years ended January 28, 1995, January 29, 1994
and January 30, 1993 is as follows:
Fiscal Years Ended
-------------------------------------
January 28, January 29, January 30,
1995 1994 1993
----------- ----------- ------------
(in thousands)
Balance at beginning of year $ 787 $ 1,006 $ 899
Provision for loss on accounts
receivable 1,727 1,171 1,240
Accounts written off (1,583) (1,390) (1,133)
------ ------ ------
Balance at end of year $ 931 $ 787 $ 1,006
======= ======= =======
6. Commitments and Contingencies
The Company occupies its retail stores, New Haven
distribution center and administrative facilities under
operating leases, most of which are non-cancellable. 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 leases require the Company to
pay real estate taxes, insurance and certain common area and
maintenance costs in addition to the future minimum lease
payments shown below. Most of the store leases require the
Company to pay a specified minimum rent, plus a contingent rent
based on a percentage of the store's net sales in excess of a
certain threshold.
Future minimum lease payments under non-cancellable operating
leases at January 28, 1995 are as follows:
Fiscal Year (in thousands)
----------
1995 $ 36,415
1996 34,647
1997 32,891
1998 31,614
1999 29,253
2000 and thereafter 113,757
-------
Total $278,577
=======
Rent expense for the fiscal years ended January 28, 1995,
January 29, 1994 and January 30, 1993 was as follows:
Fiscal Years Ended
---------------------------------------
January 28, January 29, January 30,
1995 1994 1993
----------- ----------- -----------
(in thousands)
Minimum rent $35,382 $28,076 $24,933
Percentage rent 4,684 3,343 4,217
------ ------ ------
Total $40,066 $31,419 $29,150
======= ======= =======
In January 1993, ATSC and the other defendants agreed to
settle a stockholder class action lawsuit filed against them in
October 1991. As a result of the settlement, ATSC was required
to pay to or for the benefit of the plaintiff class $2,800,000
(after application of insurance proceeds). To provide for the
settlement, ATSC charged the Company $3,905,000, which includes
certain of the legal defense costs and other expenses associated
with the suit, in its fiscal 1992 financial statements.
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 or results of operations of the
Company.
7. Certain Relationships and Related Transactions
Transactions with Merrill Lynch and its Affiliates
At January 28, 1995, certain affiliates of ML&Co. held
approximately 28.7% of ATSC's outstanding common stock. Two of
the members of the Board of Directors of the Company and ATSC
serve as representatives of ML&Co. and its affiliates. As a
result, ML&Co. and such affiliates are in a position to
influence the management of the Company and ATSC.
In January 1993, in connection with the settlement of a
stockholder class action lawsuit, ATSC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and ML&Co., among
others, entered into an agreement pursuant to which ML&Co. paid
$750,000 and ATSC paid the balance of the settlement to or for
the benefit of the plaintiffs. ATSC also reimbursed Merrill
Lynch $128,000 for certain costs incurred by it in connection
with the class action in fiscal 1992, pursuant to ATSC's
indemnification obligations.
The Company paid commissions aggregating approximately
$2,692,000 to Merrill Lynch in 1993 in connection with the
issuance of the 8-3/4% Notes, and repurchases of Discount Notes,
Notes and 8-3/4% Notes. In 1994, ATSC also paid underwriting
commissions of approximately $1,027,000 to Merrill Lynch in
connection with the ATSC Offering. ATSC agreed to indemnify
Merrill Lynch, as underwriter, against certain liabilities,
including certain liabilities under the federal securities law,
in connection with the ATSC Offering.
Transactions with CAT
In May 1992, the Company commenced a joint venture known as
CAT U.S., Inc. ("CAT") with Cygne Designs, Inc. ("Cygne"), which
was formed for the purpose of sourcing Ann Taylor merchandise
directly with manufacturers. As of January 28, 1995, the
Company owned a 40% interest in CAT which is being accounted for
under the equity method of accounting. The Company's agreement
with Cygne relating to the parties' ownership of CAT provides
that, at any time after July 1, 1995, either Cygne or the
Company may offer to purchase the other party's interest in CAT.
Merchandise purchased by the Company through CAT was
$142,429,000 or 36.3%, and $67,202,000, or 23.5%, of all
merchandise purchased by the Company in 1994 and 1993,
respectively. Accounts payable to CAT in the ordinary course of
business was approximately $4,800,000 and $3,100,000 as of
January 28, 1995 and January 29, 1994, respectively.
8. Income Taxes
The provision for income taxes for the fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993 consists
of the following:
Fiscal Years Ended
-----------------------------------------
January 28, January 29, January 30,
1995 1994 1993
----------- ----------- ------------
(in thousands)
Federal:
Current $22,534 $14,339 $9,300
Deferred --- (1,750) (1,500)
State and local 7,740 4,600 3,350
------- ------- -------
Total $30,274 $17,189 $11,150
======= ======= =======
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 28, 1995, January 29, 1994 and
January 30, 1993 is as follows:
Fiscal Years Ended
------------------------------------
January 28, January 29, January 30,
1995 1994 1993
---------- ---------- -----------
(in thousands)
Income before income taxes and
extraordinary loss $62,894 $ 31,519 $17,067
======= ======== =======
Federal statutory rate 35% 35% 34%
======= ======== =======
Provision for income taxes at
federal statutory rate $22,013 $ 11,032 $5,803
State and local income taxes,
net of federal income tax benefit 5,031 2,990 2,211
Non-deductible amortization of
goodwill 3,327 3,328 3,232
Other (97) (161) (96)
------- ------- -------
Provision for income taxes $30,274 $17,189 $11,150
======= ======= =======
The tax effects of significant items comprising the Company's
net deferred tax assets as of January 28, 1995 and January 29,
1994 are as follows:
January 28, January 29,
1995 1994
----------- -----------
(in thousands)
Current:
Inventory $1,464 $ 981
Accrued expenses 1,524 1,288
Restructuring 700 700
Other (38) 781
------ ------
Total current $3,650 $3,750
====== ======
Noncurrent:
Depreciation $ 340 $ 125
Rent expense 2,052 1,375
Other (792) ---
------ ------
Total noncurrent $1,600 $1,500
====== ======
9. Retirement Plans
Savings Plan. The Company maintains a defined contribution
401(k) savings plan for substantially all employees.
Participants may contribute to the plan an aggregate of up to
10% of their annual earnings. The Company makes a matching
contribution of 50%, with respect to the first 3% of each
participant's annual earnings contributed to the plan. The
Company's contributions to the plan for fiscal 1994, fiscal 1993
and fiscal 1992 were $333,000, $199,000 and $111,000,
respectively.
Pension Plan. Substantially all employees of the Company are
covered under a noncontributory defined benefit pension plan.
The pension plan is a "cash balance pension plan". An account
balance is established for each participant which is credited
with a benefit based on compensation and years of service with
the Company. The Company'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.
The following table sets forth the funded status of the
Pension Plan at January 28, 1995, January 29, 1994 and January
30, 1993, in accordance with Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions":
January 28, January 29, January 30,
1995 1994 1993
----------- ----------- ----------
(dollars in thousands)
Actuarial present value of
benefits obligation:
Accumulated benefit obligation,
including vested benefits of
$1,500,000, $1,056,000 and
$702,000, respectively $2,516 $2,401 $ 1,832
====== ====== ========
Projected benefit obligation
for service rendered to date $2,516 $2,401 $ 1,832
Plan assets at fair value 2,522 2,344 1,847
------ ------ --------
Plan assets in excess of projected
benefit obligation (projected
benefit obligation in excess of
plan assets) 6 (57) 15
Unrecognized net gain (136) (58) ---
------- ------ -------
Prepaid (accrued) pension cost $(130) $(115) $ 15
======= ====== ========
Net periodic pension cost for
fiscal 1994, 1993 and 1992
included the following components:
Service cost/benefits earned
during the year $ 622 $ 680 $ 521
Interest cost on projected benefit
obligation 133 117 100
Actual loss (return) on plan assets 72 (124) (100)
Net amortization and deferral (285) (36) 9
-------- ----- ------
Net periodic pension cost $542 $ 637 $ 530
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Assumptions used to determine the
projected benefit obligation
and plan assets were:
Discount rate 8.5% 7.0% 7.0%
Rate of increase in compensation level 5.5% 4.0% 4.0%
Expected long-term rate of return on
assets 8.0% 8.0% 9.0%
10. Stockholder's Equity
The following summarizes the changes in stockholder's equity
during fiscal 1994, fiscal 1993 and fiscal 1992:
Retained Total
Additional Earnings Stock-
Common Paid-In (Accumulated holder's
Stock Capital Deficit) Equity
----- --------- ----------- ---------
(in thousands)
Balance at February 1, 1992 $ 1 $255,345 $(25,882) $229,464
Net income --- --- 5,917 5,917
Parent company contributions --- 9,917 --- 9,917
------- ------- ------- -------
Balance at January 30, 1993 1 265,262 (19,965) 245,298
Net income --- --- 3,209 3,209
Parent company contributions --- 10,764 --- 10,764
------- ------- -------- -------
Balance at January 29, 1994 1 276,026 (16,756) 259,271
Net income --- --- 31,752 31,752
Parent company contributions --- 35,089 --- 35,089
------- ------- -------- -------
Balance at January 28, 1995 $ 1 $311,115 $ 14,996 $326,112
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