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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 FEBRUARY 3, 1996
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 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)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
---------------------- --------------------
8-3/4% Subordinated Notes due 2000 The New York Stock Exchange
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 March 1, 1996, 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.
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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. Ann Taylor merchandise represents classic styles, updated
to reflect current fashion trends. The Company's stores offer a
full range of career and casual separates, weekend wear, dresses,
tops, accessories and shoes, coordinated as part of a total
wardrobing strategy. This total wardrobing strategy is
reinforced by an emphasis on customer service. Ann Taylor sales
associates are trained to assist customers in merchandise
selection and wardrobe coordination, helping them achieve the
"Ann Taylor look" while reflecting the customers' personal
styles.
The Company believes that "Ann Taylor" is a highly
recognized national brand that defines a distinct fashion point
of view. As a result of strong consumer acceptance of this niche
positioning, the Company's sales per square foot productivity and
operating profit margins have historically been among the highest
in the specialty apparel retailing industry. The Company has
adopted a growth strategy of capitalizing on this brand
recognition by introducing product extensions within its stores
and entering into new channels of distribution, as well as
continuing its retail store expansion program.
As of February 3, 1996, the Company operated 306 stores in
40 states and the District of Columbia, under the names Ann
Taylor, Ann Taylor Factory Store, Ann Taylor Loft and Ann Taylor
Studio. Of the 258 stores operated under the Ann Taylor name,
approximately three-quarters are located in regional malls and
upscale specialty retail centers, with the balance located in
downtown and village locations. These stores represent the
Company's core merchandise line. The Company believes that its
customer base for its Ann Taylor Stores consists primarily of
relatively affluent, fashion-conscious women from the ages of 25
to 55, and that the majority of its customers are working women
with limited time to shop, who are attracted to Ann Taylor by its
focused merchandising and total wardrobing strategies,
personalized customer service, efficient store layouts and
continual flow of new merchandise.
In 1993, the Company converted its four existing clearance
centers to Ann Taylor Factory Stores, and as of February 3, 1996,
operated 22 Ann Taylor Factory Stores located in factory outlet
centers. Outlet centers appeal to consumers' increasing
orientation to value and to manufacturers' and retailers' desire
for additional channels of distribution and control over
liquidation of their product. The success of the Company's
Factory Stores and consumers' continuing emphasis on value led
the Company to begin testing, in 1995, Ann Taylor Loft, a
separate moderate-priced store concept for customers who
appreciate the Ann Taylor style but have a smaller budget for
apparel, shoes and accessories. As of February 3, 1996, the
Company operated 17 Ann Taylor Loft stores, also located in
factory outlet centers. Merchandise manufactured for Loft stores
is sold under the Ann Taylor Loft and Shoe Loft labels. Ann
Taylor Loft stores also sell the Company's ATdenim and
"destination" fragrance and personal care lines described below.
The Company's Factory Stores serve as a clearance vehicle for
both Ann Taylor and Ann Taylor Loft merchandise, in addition to
selling ATdenim, the "destination" product line, and current Ann
Taylor Loft merchandise.
In Fall 1994, the Company began testing Ann Taylor Studio
stores, a free-standing shoe and accessory store concept offering
the broadest assortment of Ann Taylor shoes, as well as Ann
Taylor hosiery, small leather accessories such as belts and
handbags, and the Company's "destination" fragrance and personal
care line. As of February 3, 1996, the Company had nine Ann
Taylor Studio stores.
All of the outstanding capital stock of the Company,
consisting of one share of common stock, is owned by AnnTaylor
Stores Corporation ("ATSC"). Ann Taylor was acquired by ATSC
in a leveraged buyout transaction (the "Acquisition") in 1989.
Business Strategy
Under the leadership of Chairman and Chief Executive
Officer, Sally Frame Kasaks, the Company has pursued growth
through the extension of the Ann Taylor brand, through the
successful introduction of new product lines and new channels of
distribution, as well as through retail store expansion.
The Company believes that product extensions support the
Company's total wardrobing strategy, as well as provide existing
and new customers with additional reasons to patronize Ann Taylor
stores. Product extensions expanded or developed over the past
three years include Ann Taylor shoes, ATdenim, Ann Taylor
Petites, the "destination" fragrance and personal care line, and
Ann Taylor "navy label" merchandise.
Ann Taylor shoes, which were sold in 99 Ann Taylor Stores in
1992, were expanded to 188 stores by the end of Fiscal 1995, as
well as to the Company's nine Ann Taylor Studio stores. In Fall
1992, the Company increased its presence in casual wear by
introducing its own line of denim known as "ATdenim", now sold in
all Ann Taylor stores other than Ann Taylor Studio stores. In
Fall 1993, Ann Taylor Petites was tested in the career separates
and dress categories in 25 Ann Taylor Stores; by the end of
Fiscal 1995, a broader range of Ann Taylor Petites was carried in
171 stores. Ann Taylor Loft stores offer a full assortment of
Ann Taylor Loft Petites. In Fall 1994, the Company introduced a
fragrance and limited line of personal care products under the
name "destination", now sold in all Ann Taylor store concepts.
This product line was expanded in Fall 1995 to include hair care
and bath products, and a limited collection of home environment
products such as scented candles and scented sea glass. In
Spring 1995, the Company began testing Ann Taylor "navy label"
merchandise in the career separates and dress categories in 30
Ann Taylor Stores. Navy label merchandise is priced
approximately 30% higher than core Ann Taylor label merchandise,
and is intended to compete with designer bridge and diffusion
lines. The navy label collection will be limited to
approximately 50 Ann Taylor Stores whose customer demographics
the Company believes can support the higher price points of this
merchandise.
New channels of distribution expanded or introduced over the
past three years include the expansion of the Company's Ann
Taylor Factory Store concept; the introduction of Ann Taylor
Studio stores in Fall 1994; and the introduction of Ann Taylor
Loft in Spring 1995, described above.
In Fall 1994, the Company sought to convert its fashion
catalog, previously used primarily as an advertising vehicle,
into a direct response mail order business. Although the direct
response catalog had a good customer response rate to its initial
mailings, the Company determined during Spring 1995 that the
direct response mail order business was incompatible with the
Company's current objectives for a variety of logistical,
merchandising and financial reasons and returned its catalog to
an advertising vehicle in Fall 1995. The Company suspended its
catalog entirely in early 1996 and is presently evaluating the
effectiveness of various advertising strategies.
Over the past three years, the Company has doubled the
amount of its retail square footage, growing from 219 stores
encompassing approximately 814,000 square feet at the beginning
of Fiscal 1993, to 306 stores encompassing approximately
1,651,000 square feet at the end of Fiscal 1995. Of this,
approximately 478,000 net square feet was added in Fiscal 1995.
Since 1993, the Company has updated its Ann Taylor Store
prototype and also increased the size of a typical new Ann Taylor
Store from approximately 3,500 square feet to approximately 6,000
square feet, to enable the Company to more effectively present
its full merchandise assortment. The increase in the Company's
retail store square footage also reflects the expansion or
relocation during this period of 66 of the Company's most
productive stores to reflect the updated store prototype design.
To support the Company's growth strategy and improve
operating performance, since 1992 the Company has (i) introduced
an in-house product design and development department to further
distinguish and reinforce the exclusivity of Ann Taylor
merchandise and to improve consistency of product quality and
fit; (ii) added a significant number of new associates to support
the Company's efforts in merchandising, planning and production
management; (iii) increased its investment in corporate
infrastructure, particularly in information systems and by
constructing a new 256,000 square foot distribution center, which
was substantially completed in 1995; and (iv) sought to develop
its own global, direct sourcing capabilities in order to reduce
costs, shorten lead times and better control the quality of its
merchandise, by forming, in Fiscal 1992, a sourcing joint venture
with Cygne Designs, Inc. ("Cygne"), known as CAT U.S., Inc. and
C.A.T. (Far East) Limited (together "CAT"). Approximately 38% of
the Company's merchandise in Fiscal 1995 was purchased through
CAT. ATSC has entered into an agreement in principle with Cygne,
dated as of April 8, 1996, to acquire Cygne's interest in CAT and
the assets of the Ann Taylor Woven Division of Cygne that are
used in sourcing merchandise for Ann Taylor (collectively, the
"CAT/Cygne Transaction"). See "CAT/Cygne Transaction and Other
Recent Developments".
Fiscal 1995 Results
The Company believes that its brand growth strategy is sound
and contributed to the success of the business in Fiscal 1993 and
Fiscal 1994. However, the Company also believes, in retrospect,
that the introduction of multiple initiatives and acceleration of
growth in Fall 1994, at a time when the Company was also
expanding its infrastructure to support this growth, created a
strain on the business and contributed to the Company's
disappointing financial results in Fiscal 1995. During Fiscal
1994, the Company devoted substantial management time and
resources to the planning, implementation and supervision of new
store concepts (including the Ann Taylor Loft and Ann Taylor
Studio stores), new product lines, the test of a direct response
catalog business and the rapid expansion of its real estate
portfolio. The move to a more vertically integrated business
created an increased level of complexity in the Company's
business during this period. As a result of management's focus
on these initiatives and the assimilation of many new functions
and people, Ann Taylor merchandise in Fiscal 1995 failed to
achieve the cohesive, distinctive look that had defined the brand
in the previous two years. Management believes that in 1995 its
merchandise was "over-assorted" and, in some departments,
appeared too "young" or "trendy". In addition, the Company
experienced inconsistency in the fit of its apparel. The impact
of these merchandising issues was exacerbated by the generally
poor apparel retailing environment that prevailed throughout
Fiscal 1995.
The Company has taken a number of actions in response to its
disappointing results of Fiscal 1995. In recognition of the
increased vertical integration and resulting increased complexity
of the business, in 1995 the Company conducted an extensive
project with a nationally recognized consulting firm to improve
its internal processes in the areas of inventory planning,
merchandising, design and quality assurance. This project was
completed by the end of 1995 and the processes developed were
begun to be implemented in Fall 1995, during the planning and
procurement of the Spring 1996 merchandise assortment.
In the financial area, the Company is seeking to improve
inventory turns by reducing inventory levels on a per square foot
basis from Fiscal 1994 and 1995 levels. The Company believes
that improved merchandise execution and more conservative
inventory management will result in improved gross margins over
Fiscal 1995 levels, by reducing the Company's markdown rate. At
the end of Fiscal 1995, inventory levels were $62 per square
foot, or 22% lower per square foot than at the end of Fiscal
1994. The Company has also focused on improving management of
operating expenses by limiting the growth of central expenses and
seeking to operate its stores more efficiently. The Company also
has slowed its store expansion program for Fiscal 1996, planning
to undertake no more than 15 to 20 new stores or expansions in
1996, compared to 78 such projects in Fiscal 1995.
In February 1996, the Company strengthened its executive
management team by naming J. Patrick Spainhour as President and
Chief Operating Officer, a newly created position, to improve
execution of operations across the business and to allow Ms.
Kasaks to focus more of her time on merchandise content and
strategic direction.
CAT/Cygne Transaction and Other Recent Developments
ATSC and Cygne have entered into an agreement in principle,
dated as of April 8, 1996, pursuant to which ATSC, through a
newly formed subsidiary, will purchase all of the shares of CAT
stock owned by Cygne and the assets (the "Assets") of the Ann
Taylor Woven Division (the "Division") of Cygne that are used in
sourcing merchandise for Ann Taylor (collectively, the "CAT/Cygne
Transaction"). Upon consummation of the CAT/Cygne Transaction,
CAT will become an indirect wholly owned subsidiary of ATSC. In
addition to continuing its own sourcing activities on behalf of
the Company, CAT will own the Assets of the Division and will
perform all sourcing functions for Ann Taylor currently performed
by Cygne. The aggregate consideration to be paid by ATSC
pursuant to the CAT/Cygne Transaction consists of (i) shares of
Common Stock of ATSC having a market price, based on the closing
price of ATSC's Common Stock for the ten trading days prior to
the closing of the CAT/Cygne Transaction, of $36 million (but in
no event greater than 2.5 million shares), and (ii) cash in an
amount equal to the tangible net book value of the inventory and
fixed assets included in the Assets, less certain assumed
liabilities, currently estimated to be approximately $12.9
million. In addition, ATSC will assume the obligation to make
payment to the president of CAT of approximately $2.0 million
becoming due under his existing employment agreement with CAT as
a result of the CAT/Cygne Transaction.
The Company believes that the CAT/Cygne Transaction will
mitigate supply interruption risks arising from the financial
difficulties experienced by Cygne in 1995. Moreover, the
CAT/Cygne Transaction furthers the Company's strategy of
increasing its control over pre-production processes and
production management in order to shorten lead times, improve
merchandise quality and reduce costs. The Company believes that
the integration of CAT's business and the Division with the
Company's operations will enable CAT and the Division to share
their respective strengths in different areas of pre-production
processes and production management, such as CAT's system of
statistical quality control and Cygne's strength in fabric
development. In addition, the CAT/Cygne Transaction provides a
platform for the Company to standardize its pre-production work
for its other suppliers, which the Company believes will lead to
greater consistency in merchandise production, product fit
specifications and quality control. Finally, the Company
believes that greater control over pre-production processes and
production management will improve logistical coordination of the
entire supply chain process, thereby reducing production cycle
times and sourcing costs.
The closing of the CAT/Cygne Transaction is subject to various
conditions, including (i) the negotiation and execution of definitive
documentation, (ii) the consent and release of liens by each of
HongKong and Shanghai Banking Corporation and certain other lenders to
Cygne, (iii) the continuation of CAT's $40 million credit facility
by HongKong and Shanghai Banking Corporation, its current lender,
(iv) the consent of Ann Taylor's lenders under the Bank Credit
Agreement, (v) the approval of the transaction by Cygne's stockholders
and (vi) the consummation of an offering under Rule 144A described below
by ATSC with proceeds of $75 million less underwriting discounts and
commissions (the "144A Offering'). It is currently anticipated that
the CAT/Cygne Transaction will close in July 1996. However, there can
be no assurance that the conditions to closing will be satisfied or that
the CAT/Cygne Transaction will be consummated.
ATSC will form AnnTaylor Finance Trust (the "Trust"), a Delaware
business trust, to offer securities not registered or required to be
registered under the Securities Act of 1993. The Trust proposes to
offer up to 1.5 million convertible preferred securities with a
liquidation preference of $50 each and to grant the initial purchasers
an option to purchase an additional 225,000 convertible preferred
securities to cover over-allotments. ATSC will own all of the common
securities of the Trust. The securities will represent undivided
beneficial ownership interests in the Trust. The assets of the Trust
will consist solely of ATSC's Convertible Subordinated Debentures
due 2016. The convertible preferred securities will be convertible
at the options of the holders thereof into ATSC common stock.
ATSC plans to use the proceeds of the offering to reduce borrowings
outstanding under the Company's revolving credit facility, without
reduction of the commitment thereunder. If the CAT/Cygne Transaction
is consummated, the Company may reborrow funds under the revolving
credit facility to fund the cash portion of the purchase price and
related payments and expenses. The convertible preferred securities
will be sold in the United States and outside the United States in
a private placement under Rule 144A and Regulation S, respectively,
and have not been and will not be registered under the Securities
Act of 1993, and may not be offered or sold in the United States
absent registration or an applicable exemption from registration
requirements.
ITEM 2. Properties
As of February 3, 1996, the Company operated 306 stores, all
of which were leased. The leases typically provide for an
initial term of five to ten years and grant the Company the right
to extend the term for one or two additional five-year periods.
Most leases provide for additional rent based on a percentage of
store sales in excess of a specified threshold in addition to or
in lieu of minimum rentals, as well as for the payment of certain
other expenses, such as insurance, utilities and repair and
maintenance expenses, and real estate taxes.
Ann Taylor leases corporate offices at 142 West 57th Street,
New York, and office space in New Haven, Connecticut.
The Company owns its 256,000 square foot national
distribution center located in Louisville, Kentucky.
Construction of this facility was begun in 1994 and completed in
Spring 1995. The Company's capital expenditures to build and
equip the facility totaled approximately $19.0 million, of which
$6.2 million was incurred in Fiscal 1995. Nearly all Ann Taylor
merchandise is distributed to the Company's stores through this
facility, with the exception of hosiery that is shipped directly
to stores by the manufacturer. The parcel on which the
Louisville distribution center is located, which is owned by the
Company, contains approximately 20 acres and could accommodate
possible future expansion of the facility. The Louisville
distribution center replaced the Company's former 78,790 square
foot leased facility located in New Haven, Connecticut, the lease
for which expired in September 1995.
ITEM 3. Legal Proceedings
The Company is a party to routine litigation incident to its
business. Although the amount of any liability that could arise
with respect to these actions cannot be accurately predicted, in
the opinion of the Company, any such liability will not have a
material adverse effect on the financial position 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 credit
agreement, the indenture relating to the Company's 8-3/4%
Subordinated Notes due 2000 and the Company's Receivables
Facility. See Note 2 to the Consolidated Financial Statements of
the Company.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Fiscal 1995 Compared to Fiscal 1994
The Company's net sales increased to $731,142,000 in 1995
from $658,804,000 in 1994, an increase of $72,338,000, or 11.0%.
Total sales for the fifty-two week period ended January 27, 1996
were up 9.5% to $721,561,000 compared to 1994. The increase in
net sales was attributable to the inclusion of a full year of
operating results for the 35 stores opened and 25 stores expanded
during 1994, and the opening of 48 new stores and expansion of 30
stores in 1995. The sales increase was partially offset by the
closing of 4 stores in 1995 and by a 8.9% decrease in comparable
store sales for the fifty-two week period ended January 27, 1996.
The Company believes that the 8.9% decrease in its comparable
store sales in 1995 was attributable primarily to poor customer
reaction to the Company's merchandise offerings, as well as to
the generally weak economic environment for women's apparel sales
that prevailed throughout most of 1995. As described above under
"Business -- Business Strategy", the Company believes that its
1995 merchandise offerings were "over-assorted" and failed to
achieve the cohesive, distinctive look that had defined the brand
in the previous two years.
Gross profit as a percentage of net sales decreased to 41.8%
in 1995 from 45.7% in 1994. This decrease was primarily
attributable to higher markdowns associated with increased
promotional activities and, to a lesser extent, to a lower
initial mark up rate associated with merchandise manufactured for
Ann Taylor Factory Stores and Ann Taylor Loft stores, compared to
the initial mark up on merchandise manufactured for Ann Taylor
Stores.
Selling, general and administrative expenses as a percentage
of net sales increased to 37.0% in 1995 from 32.5% in 1994. The
increase in selling, general and administrative expenses as a
percentage of net sales was primarily due to higher tenancy,
store maintenance and store selling costs as a percentage of
sales as a result of both decreased comparable store sales and
lower than average sales per square foot productivity of stores
added in Fiscal 1995 (approximately 73% of the increase), higher
distribution center expense relating, in part, to start-up costs
of the Company's distribution center facility in Louisville,
Kentucky (approximately 8% of the increase), additional catalog
expense relating to the Company's test of its catalog as a mail
order vehicle (approximately 7% of the increase), higher
merchandising and design expense (approximately 6% of the
increase) and higher packaging and supplies expense
(approximately 5% of the increase). The Company returned its
catalog format to principally an advertising vehicle, rather than
a mail order business, in Fall 1995 and suspended publication of
its catalog entirely in early 1996.
Operating income decreased to $25,275,000, or 3.5% of net
sales, in 1995, from $77,291,000, or 11.7% of net sales, in 1994.
Amortization of goodwill from the acquisition of the Company by
ATSC was $9,506,000 in 1995 and 1994. Operating income without
giving effect to such amortization was $34,781,000, or 4.8% of
net sales, in 1995, and $86,797,000, or 13.2% of net sales, in
1994.
Interest expense was $20,956,000, including $1,004,000 of
non-cash interest expense, in 1995 and $14,229,000, including
$978,000 of non-cash interest expense, in 1994. The increase in
interest expense is attributable to higher interest rates
applicable to the Company's debt obligations throughout most of
the 1995 period and the increase in the Company's long-term debt.
The weighted average interest rate on the Company's outstanding
indebtedness at February 3, 1996 was 8.26% compared to 8.90% at
January 28, 1995. Because a substantial amount of the Company's
debt bears interest at variable rates, the Company's interest
expense for 1995 is not necessarily indicative of interest
expense for future periods.
The income tax provision was $5,157,000, or 120.5% of income
before income taxes and extraordinary loss, in the 1995 period
compared to $30,274,000, or 48.1% of income before income taxes
and extraordinary loss, in 1994. The effective tax rates for
both periods were higher than the statutory rates, primarily as a
result of non-deductible goodwill expense.
As a result of the foregoing factors, the Company had a net
loss of $876,000, or 0.1% of net sales, for 1995 compared to net
income of $31,752,000, or 4.8% of net sales, for 1994.
ITEM 8. Financial Statement and Supplementary Data
The following consolidated financial statements of the
Company for the years ended February 3, 1996, January 28, 1995
and January 29, 1994 are included as a part of this Report (See
Item 14):
Consolidated Statements of Operations for the fiscal years
ended February 3, 1996, January 28, 1995 and January 29, 1994.
Consolidated Balance Sheets as of February 3, 1996 and January
28, 1995.
Consolidated Statements of Cash Flows for the fiscal years
ended February 3, 1996, January 28, 1995 and January 29, 1994.
Notes to Consolidated Financial Statements.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
None.
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PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) List of documents filed as part of this Annual Report:
The following consolidated financial statements of the
Company and the independent auditors' report are included on
pages 13 through 27 and are filed as part of this Annual
Report:
Consolidated Statements of Operations for the fiscal years
ended February 3, 1996, January 28, 1995 and January 29,
1994; Consolidated Balance Sheets as of February 3, 1996 and
January 28, 1995; Consolidated Statements of Cash Flows for
the fiscal years ended February 3, 1996, January 28, 1995
and January 29, 1994; Notes to Consolidated Financial
Statements; Independent Auditors' Report.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed below 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 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 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.
4.1.1 Instrument of Resignation, Appointment and Acceptance,
dated as of December 1, 1995, among Ann Taylor, Fleet
Bank, N.A., as Resigning Trustee, and Norwest Bank
Minnesota, N.A., the Successor Trustee. Incorporated by
reference to Exhibit 4.1.1 to the Annual Report on Form
10-K of ATSC filed on April 8, 1996.
10.1 Amended and Restated Credit Agreement, dated as of
September 29, 1995, among Ann Taylor, Bank of America
National Trust and Savings Association ("Bank of
America"), and Fleet Bank, National Association, as Co-
Agents, the financial institutions from time to time
party thereto, BA Securities, Inc., as Arranger, and
Bank of America, as Agent. Incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K of Ann
Taylor filed on October 17, 1995.
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Exhibit Number
- --------------
10.1.1 First Amendment to Amended and Restated Credit
Agreement, dated as of January 4, 1996, among Ann
Taylor, Bank of America, Fleet Bank, National
Association, as Co-Agents, the financial institutions
from time to time party thereto, BA Securities, Inc., as
Arranger, and Bank of America, as Agent. Incorporated
by reference to Exhibit 10.2.1 to the Annual Report on
Form 10-K of ATSC filed on April 8, 1996.
10.2 Amended and Restated Guaranty, dated as of
September 29, 1995, 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 October 17, 1995.
10.3 Amended and Restated Security and Pledge Agreement,
dated as of September 29, 1995, made by Ann Taylor in
favor of Bank of America, as Agent. Incorporated by
reference to Exhibit 10.2 to the Current Report on Form
8-K of Ann Taylor filed on October 17, 1995.
10.4 Amended and Restated Security and Pledge Agreement,
dated as of September 29, 1995, 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 October 17, 1995.
10.5 Trademark Security Agreement, dated as of September
29, 1995, made by Ann Taylor in favor of Bank of
America, as Agent. Incorporated by reference to Exhibit
10.3 to the Current Report on Form 8-K of Ann Taylor
filed on October 17, 1995.
10.6 1989 Stock Option Plan. Incorporated by reference
to Exhibit 10.18 to the Registration Statement of ATSC
and Ann Taylor filed on May 3, 1989 (Registration No. 33-
28522).
10.6.1 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.
10.7 Lease, dated as of March 17, 1989, between Carven
Associates and Ann Taylor concerning the West 57th
Street headquarters. Incorporated by reference to
Exhibit 10.21 to the Registration Statement of ATSC and
Ann Taylor filed on May 3, 1989 (Registration No. 33-
28522).
10.7.1 First Amendment to Lease, dated as of November 14, 1990,
between Carven Associates and Ann Taylor. Incorporated
by reference to Exhibit 10.17.1 to the Registration
Statement of ATSC filed on April 11, 1991 (Registration
No. 33-39905).
10.7.2 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.
10.7.3 Extension and Amendment to Lease dated as of October 1,
1993, between Carven Associates and Ann Taylor.
Incorporated by reference to Exhibit 10.11 to the Form
10-Q of Ann Taylor for the Quarter ended October 30,
1993 filed on November 26, 1993.
10.7.4 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
28, 1995.
10.7.5 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 28, 1995.
====================================================================
Exhibit Number
- ---------------
10.8 Tax Sharing Agreement, dated as of July 13, 1989,
between ATSC and Ann Taylor. Incorporated by reference
to Exhibit 10.24 to Amendment No. 2 to the Registration
Statement of ATSC and Ann Taylor filed on July 13, 1989
(Registration No. 33-28522).
10.9 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.
10.9.1 Employment Agreement dated as of February 1, 1994
between ATSC and Sally Frame Kasaks. Incorporated by
reference to Exhibit 10.8 to the Form 10-Q of ATSC for
the Quarter ended October 29, 1994 filed on December 9,
1994.
10.10 Employment Agreement dated February 16, 1996 between
ATSC and J. Patrick Spainhour. Incorporated by
reference to Exhibit 10.11 to the Annual Report on Form
10-K of ATSC filed on April 8, 1996.
10.11 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).
10.12 Amended and Restated Management Performance Compensation
Plan as approved by stockholders of ATSC 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 28,
1995.
10.12.1 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
28, 1995.
10.13 Associate Stock Purchase Plan. Incorporated by
reference to Exhibit 10.31 to the Form 10-Q of ATSC for
the Quarter Ended October 31, 1992 filed on December 15,
1992.
10.14 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 Form 10-
Q of Ann Taylor for the Quarter ended July 31, 1993
filed on September 2, 1993.
10.15 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 Form 10-
Q of Ann Taylor for the Quarter ended July 31, 1993
filed on September 2, 1993.
10.16 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 to
the 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.)
10.17 Amended and Restated Receivables Financing Agreement
dated October 31, 1995, among AnnTaylor Funding, Inc.,
Ann Taylor, Market Street Capital Corp. and PNC Bank,
National Association. Incorporated by reference to
Exhibit 10.31.4 to the Form 10-Q of ATSC for the
Quarter ended October 28, 1995 filed on December 8,
1995.
=================================================================
Exhibit Number
- --------------
10.18 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.
10.19 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 28, 1995.
10.19.1 Amendment to the AnnTaylor Stores Corporation Deferred
Compensation Plan as approved by the Board of Directors
on August 11, 1995. Incorporated by reference to
Exhibit 10.33.1 to the Form 10-Q of ATSC for the Quarter
Ended July 29, 1995 filed on September 11, 1995.
10.20 Mortgage, Assignment of Rents and Leases, Security
Agreement and Fixture Financing Statement dated
November 20, 1995, between AnnTaylor Distribution
Services, Inc., as Mortgagor, and General Electric
Capital Assurance Company, as Mortgagee. Incorporated
by reference to Exhibit 10.34 to the Form 10-Q of Ann
Taylor for the Quarter ended October 28, 1995 filed on
December 8, 1995.
10.21 Promissory Note dated November 20, 1995 from Ann Taylor
and AnnTaylor Distribution Services, Inc., collectively
as Borrower, to General Electric Capital Assurance
Company, as Lender. Incorporated by reference to
Exhibit 10.35 to the Form 10-Q of Ann Taylor for the
Quarter ended October 28, 1995 filed on December 8,
1995.
===================================================================
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/ SALLY FRAME KASAKS
--------------------------
Sally Frame Kasaks
Chairman and Chief Executive Officer
Date: April 9, 1996
----------------------
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.
Signature Title Date
---------- ------ -----
/s/ SALLY FRAME KASAKS Chairman, Chief Executive April 9, 1996
- ---------------------- Officer and Director --------------
Sally Frame Kasaks
/s/ J. PATRICK SPAINHOUR President,Chief Operating April 9, 1996
- ------------------------ Officer and Director ---------------
J. Patrick Spainhour
/s/ PAUL E. FRANCIS Executive Vice President April 9, 1996
- ------------------------ Finance and Administration --------------
Paul E. Francis Chief Financial Officer, and
Director
/s/ WALTER J. PARKS Senior Vice President - April 9, 1996
- ------------------------ Finance and Principal --------------
Walter J. Parks Accounting Officer
/s/ GERALD S. ARMSTRONG Director April 9, 1996
- ------------------------ --------------
Gerald S. Armstrong
/s/ JAMES J. BURKE, JR. Director April 9, 1996
- ------------------------ --------------
James J. Burke, Jr.
/s/ ROBERT C. GRAYSON Director April 9, 1996
- ------------------------- --------------
Robert C. Grayson
/s/ ROCHELLE B. LAZARUS Director April 9, 1996
- ----------------------- -------------
Rochelle B. Lazarus
/s/ HANNE M. MERRIMAN Director April 9, 1996
- ----------------------- --------------
Hanne M. Merriman
============================================================================
ANNTAYLOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report................................ 14
Consolidated Financial Statements:
Consolidated Statements of Operations for the fiscal
years ended February 3, 1996, January 28, 1995
and January 29, 1994...................................... 15
Consolidated Balance Sheets as of February 3, 1996 and
January 28, 1995.......................................... 16
Consolidated Statements of Cash Flows for the fiscal
years ended February 3, 1996, January 28, 1995
and January 29, 1994...................................... 17
Notes to Consolidated Financial Statements................ 18
======================================================================
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 February 3, 1996 and January 28,
1995, and the results of their operations and their cash flows for
each of the three fiscal years in the period ended February 3,
1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
March 11, 1996 (April 9, 1996 as to Note 11)
=======================================================================
ANNTAYLOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended February 3, 1996, January 28, 1995 and
January 29, 1994
Fiscal Years Ended
February 3, January 28, January 29,
1996 1995 1994
----------- ------------ ------------
(in thousands)
Net sales $731,142 $658,804 $501,649
Cost of sales 425,225 357,783 271,749
------- ------- -------
Gross profit 305,917 301,021 229,900
Selling, general and administrative
expenses 271,136 214,224 169,371
Distribution center restructuring
charge --- --- 2,000
Amortization of goodwill 9,506 9,506 9,508
------- ------- -------
Operating income 25,275 77,291 49,021
Interest expense 20,956 14,229 17,696
Other (income) expense, net 38 168 (194)
------- ------- -------
Income before income taxes and
extraordinary loss 4,281 62,894 31,519
Income tax provision 5,157 30,274 17,189
------- ------- -------
Income (loss) before extraordinary
loss (876) 32,620 14,330
Extraordinary loss (net of income
tax benefit of $654,000 and
$6,123,000, respectively) --- 868 11,121
------- ------- -------
Net income (loss) $ (876) $ 31,752 $ 3,209
======== ======= =======
See accompanying notes to consolidated financial statements.
==============================================================================
ANNTAYLOR, INC.
CONSOLIDATED BALANCE SHEETS
February 3, 1996 and January 28, 1995
February 3, January 28,
1996 1995
----------- -----------
(in thousands)
ASSETS
Current assets
Cash $ 1,283 $ 1,551
Accounts receivable, net 70,395 61,211
Merchandise inventories 102,685 93,705
Prepaid expenses and other current assets 12,808 6,601
Prepaid tenancy 8,099 1,355
Deferred income taxes 3,400 3,650
------- -------
Total current assets 198,670 168,073
Property and equipment
Land and buildings 8,923 499
Leasehold improvements 73,677 43,370
Furniture and fixtures 99,548 59,105
Construction in progress 14,190 24,867
------- -------
196,338 127,841
Less accumulated depreciation and
amortization 42,443 31,503
------- -------
Net property and equipment 153,895 96,338
Goodwill, net of accumulated amortization
of $66,725,000 and $57,219,000,
respectively 313,525 323,031
Investment in CAT 5,438 3,792
Deferred income taxes --- 1,600
Deferred financing costs, net of accumulated
amortization of $1,960,000 and
$956,000, respectively 3,933 2,829
Other assets 3,248 2,591
------- -------
Total assets $678,709 $598,254
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 42,909 $ 36,625
Accrued expenses 29,018 29,267
Current portion of long-term debt 40,266 ---
------- -------
Total current liabilities 112,193 65,892
Long-term debt 232,192 200,000
Deferred income taxes 1,300 ---
Other liabilities 7,336 6,250
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 311,567 311,115
Retained earnings 14,120 14,996
------- -------
Total stockholder's equity 325,688 326,112
------- -------
Total liabilities and stockholder's equity $678,709 $598,254
======= =======
See accompanying notes to consolidated financial statements.
===========================================================================
ANNTAYLOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended February 3, 1996, January 28, 1995
and January 29, 1994
Fiscal Years Ended
Feb. 3, Jan. 28, Jan. 29,
1996 1995 1994
------ ------- --------
(in thousands)
Operating activities:
Net income (loss) $ (876) $ 31,752 $ 3,209
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Extraordinary loss --- 1,522 17,244
Distribution center restructuring charge --- --- 2,000
Equity earnings in CAT (1,646) (1,547) (517)
Provision for loss on accounts
receivable 1,280 1,727 1,171
Depreciation and amortization 18,788 11,787 8,505
Amortization of goodwill 9,506 9,506 9,508
Amortization of deferred compensation 68 298 279
Non-cash interest 1,004 978 4,199
Deferred income taxes 3,150 --- (1,750)
Loss on disposal of property and
equipment 1,143 1,268 312
Increase in receivables (10,464) (13,659) (7,447)
Increase in merchandise inventories (8,980) (32,815) (10,583)
Increase in prepaid expenses and
other current assets (12,951) (772) (1,280)
Decrease in refundable income taxes --- --- 5,097
Increase in accounts payable and
accrued liabilities 6,925 6,537 18,218
Decrease (increase) in other non-current
assets and liabilities, net 429 567 (843)
------- ------- -------
Net cash provided by operating activities 7,376 17,149 47,322
------- ------- -------
Investing activities:
Purchases of property and equipment (78,378) (61,341) (25,062)
Investment in CAT --- --- (1,640)
------- ------- -------
Net cash used by investing activities (78,378) (61,341) (26,702)
------- ------- -------
Financing activities:
Borrowings (repayments) under revolving
credit facility 37,000 64,000 (3,500)
Decrease in bank overdrafts --- --- (2,361)
Payments of long-term debt (542) (56,000) (137,610)
Purchase of Subordinated Debt Securities --- --- (93,689)
Net proceeds from 8-3/4% Notes --- --- 107,387
Proceeds from term loan 25,000 --- 80,000
Parent company contribution 384 34,791 10,485
Proceeds from mortgage 7,000 --- ---
Proceeds from Receivables Facility 4,000 3,000 33,000
Purchase of 8-3/4% Notes --- --- (10,225)
Payment of financing costs (2,108) (340) (4,041)
------- ------- -------
Net cash provided by (used by) financing
activities 70,734 45,451 (20,554)
------- ------- -------
Net increase (decrease) in cash (268) 1,259 66
Cash, beginning of year 1,551 292 226
------- ------- -------
Cash, end of year $ 1,283 $ 1,551 $ 292
======= ======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for interest $ 19,607 $ 13,211 $ 12,664
======= ======= =======
Cash paid during the year for income taxes $ 6,886 $ 26,242 $ 5,114
======= ======= =======
See accompanying notes to consolidated financial statements.
===============================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
-------------------------------------------
AnnTaylor, Inc. (the "Company" or "Ann Taylor") 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 1994 and 1993 amounts have been reclassified to
conform to the Fiscal 1995 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. The fiscal
year ended February 3, 1996 included 53 weeks.
Finance Service Charge Income
-----------------------------
Income from finance service charges relating to customer
receivables, which is deducted from selling, general and
administrative expenses, amounted to $8,328,000 for Fiscal 1995,
$6,871,000 for Fiscal 1994, and $6,166,000 for Fiscal 1993.
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. The Company
capitalized interest costs of approximately $1,300,000 and
$500,000 in Fiscal 1995 and Fiscal 1994, respectively.
Depreciation and amortization are computed on a straight-line
basis over the estimated useful lives of the assets (3 to 40
years) or, in the case of leasehold improvements, over the lives
of the respective leases, if shorter.
Pre-Opening Expenses
--------------------
Pre-opening store expenses are charged to selling, general and
administrative expenses in the period incurred.
Deferred Financing Costs
------------------------
Deferred financing costs are being amortized using the interest
method over the terms of the related debt.
===================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of Significant Accounting Policies - (Continued)
--------------------------------------------------------
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.
The Financial Accounting Standards Board issued in March 1995,
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of". The Company believes this statement will not
have a material impact on the financial statements of the Company
when adopted in Fiscal 1996.
Income Taxes
------------
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" which requires an asset and liability method of
accounting for deferred income taxes. Under the asset and
liability method, deferred tax assets and liabilities are
recognized 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.
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.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reported
period. Actual results could differ from these estimates.
2. Long-Term Debt
---------------
The following summarizes long-term debt outstanding at February
3, 1996 and January 28, 1995:
February 3, 1996 January 28, 1995
------------------- ------------------
Carrying Estimated Carrying Estimated
Amount Value Amount Value
------- ------- ------- ------
(in thousands)
Senior Debt:
Revolving credit facility $101,000 $101,000 $64,000 $ 64,000
Term loan 24,500 24,500 --- ---
Mortgage 6,958 6,958 --- ---
8-3/4% Notes 100,000 83,125 100,000 97,000
Interest rate swap agreement --- 384 --- 4,125
Receivables facility 40,000 40,000 36,000 36,000
------- ------- ------- -------
Total debt 272,458 255,967 200,000 201,125
Less current portion 40,266 40,266 --- ---
------- ------- ------- -------
Total long-term debt $232,192 $215,701 $200,000 $201,125
======= ======= ======= =======
===========================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Long-Term Debt (continued)
--------------------------
In September 1995, the Company entered into an amended and
restated credit agreement (the "Bank Credit Agreement") to replace
its then-existing bank credit agreement. The Bank Credit
Agreement provides, among other things, for a $25,000,000 term
loan and continuation of a $125,000,000 revolving credit facility
provided for under the preceding credit agreement. As described
below, the revolving credit facility was reduced to $122,000,000
in January 1996. The principal amount of the term loan is payable
on September 29, 1998, and the maturity date of the revolving
credit facility is July 29, 1998; however, the Company is required
to reduce the outstanding loan balance under the revolving credit
facility to $50,000,000 or less for thirty consecutive days during
Fiscal 1996 and in each fiscal year thereafter. The maximum
amount that may be borrowed under the revolving credit facility is
reduced by the amount of commercial and standby letters of credit
outstanding. At February 3, 1996 the amount available under the
revolving credit facility was $13,150,000.
The term loan bears interest at a rate equal to, at the
Company's option, the Bank of America National Trust and Savings
Association ("Bank of America") (1) Base Rate plus 2.50%, or (2)
Eurodollar Rate plus 3.50%, and amounts outstanding under the
revolving credit facility bear interest at a rate equal to, at the
Company's option, the Bank of America (1) Base Rate plus .75%, or
(2) Eurodollar Rate plus 1.75%. In addition, the Company is
required to pay Bank of America a quarterly commitment fee of
0.375% per annum of the unused revolving loan commitment. At
February 3, 1996, the $101,000,000 outstanding under the revolving
credit facility bore interest at the weighted average rate of
7.46% per annum and the $24,500,000 outstanding under the term
loan bore interest at 8.875% per annum.
Under the terms of the Bank Credit Agreement, Bank of America
obtained a pledge of the Company's outstanding common stock held
by ATSC and a security interest in certain assets of the
Company, excluding inventory and accounts receivable. In
addition, the Bank 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. The Bank Credit Agreement also
provides for, among other things, an annual limitation on capital
expenditures of $25,000,000 in Fiscal 1996 and $32,500,000 in
Fiscal 1997 and beyond, subject to increase if certain conditions
are satisfied.
Since the fourth quarter of 1993, the Company sells its
proprietary credit card accounts receivable to AnnTaylor Funding,
Inc., a wholly owned subsidiary of the Company, which uses the
receivables to secure borrowings under a receivables financing
facility due January 1997. In October 1995, AnnTaylor Funding,
Inc. entered into an amended and restated receivables financing
agreement (the "Receivables Facility"), refinancing its then
existing receivables financing facility on substantially the same
terms as the prior facility. AnnTaylor Funding, Inc. can borrow
up to $40,000,000 under the Receivables Facility based on its
eligible accounts receivable balance. As of February 3, 1996,
$40,000,000 was outstanding under the Receivables Facility. The
interest rate under this facility as of February 3, 1996 was 7.0%.
At February 3, 1996, AnnTaylor Funding, Inc. had total assets of
approximately $58,091,000 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% Subordinated Notes due 2000 ("8-3/4% Notes").
The outstanding principal amount of these notes as of February 3,
1996 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 rate of 5.375%. Net receipts or payments under
the agreement are recognized as an adjustment to interest expense.
==================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Long-Term Debt - (Continued)
----------------------------
In November 1995, the Company and its wholly owned subsidiary
AnnTaylor Distribution Services, Inc. received the proceeds of a
$7,000,000 seven-year mortgage loan secured by the Company's
distribution center land and building in Louisville, Kentucky.
The mortgage loan bears interest at 7.5% and is payable in monthly
installments of approximately $65,000 through December 1, 1997,
and thereafter in monthly installments sufficient to amortize the
then remaining principal balance over a period of five years. The
Bank Credit Agreement required the Company to reduce the
commitment under the revolving credit facility and term loan by
one-half the proceeds from the mortgage.
The aggregate principal payments of all long-term obligations
are as follows:
Fiscal Year (in thousands)
1996 $ 40,266
1997 287
1998 125,809
1999 333
2000 100,359
2001 and thereafter 5,404
-------
Total $272,458
=======
At February 3, 1996 and January 28, 1995, the Company had
outstanding commercial and standby letters of credit under its
credit facilities with Bank of America totaling $7,850,000 and
$6,430,000, 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.
3. Allowance for Doubtful Accounts
A summary of activity in the allowance for doubtful accounts
for the fiscal years ended February 3, 1996, January 28, 1995 and
January 29, 1994 is as follows:
Fiscal Years Ended
Feb. 3, Jan. 28, Jan. 28,
1996 1995 1994
------ -------- -------
(in thousands)
Balance at beginning of year $ 931 $ 787 $ 1,006
Provision for loss on accounts receivable 1,280 1,727 1,171
Accounts written off (1,475) (1,583) (1,390)
------- ------ ------
Balance at end of year $ 736 $ 931 $ 787
====== ====== ======
==============================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Commitments and Contingencies
-----------------------------
Rental Commitments
------------------
The Company occupies its retail stores and administrative
facilities under operating leases, most of which are non-
cancelable. Some leases contain renewal options for periods
ranging from one to ten years under substantially the same terms
and conditions as the original leases. Most of the 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-cancelable operating
leases at February 3, 1996 are as follows:
Fiscal Year (in thousands)
-----------
1996 $54,592
1997 53,745
1998 52,041
1999 49,500
2000 46,389
2001 and thereafter 240,858
-------
Total $497,125
=======
Rent expense for the fiscal years ended February 3, 1996,
January 28, 1995 and January 29, 1994 was as follows:
Fiscal Years Ended
---------------------------
(in thousands)
Feb. 3, Jan. 28, Jan. 29,
1996 1995 1994
-------- --------- -------
Minimum rent $47,132 $35,382 $28,076
Percentage rent 3,090 4,684 3,343
------ ------ ------
Total $50,222 $40,066 $31,419
====== ====== ======
Dependency on Certain Suppliers
-------------------------------
In 1995, the Company purchased 38.3% and 16.3% of its
merchandise from CAT U.S., Inc. ("CAT") and Cygne Designs, Inc.
("Cygne"), respectively (see Note 7 and Note 11). CAT is a joint
venture formed by the Company with Cygne for the purpose of
sourcing Ann Taylor merchandise directly with manufacturers. As
of February 3, 1996, the Company owned a 40% interest in CAT. CAT
has a loan facility in place with the same bank as Cygne and,
although CAT has represented that it is in compliance with the
terms of its credit agreement, the agreement contains a cross-
default provision relating to defaults under other indebtedness of
CAT or Cygne. Currently, Cygne is in default of its credit
agreement and CAT's lender has the right to cancel its $40 million
credit facility with CAT and demand repayment of all amounts
outstanding under the facility. Should the lender exercise such
right and if CAT was unable to obtain alternative financing, the
interruption or cessation of business by CAT could have a material
adverse effect on the consolidated financial statements of the
Company in an amount not presently determinable.
====================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Commitments and Contingencies (continued)
-----------------------------------------
In addition, the Company has outstanding a $4 million standby
letter of credit to support CAT's obligations to its lender under
the above mentioned credit facility.
While the Company has made significant purchases of merchandise
from Cygne in 1995, management believes that, if Cygne were to
experience problems in fulfilling its merchandise commitments,
alternative sources of product could be obtained and such
interruption would not have a material adverse effect on the
consolidated financial statements of the Company.
Additionally, three other sources accounted for approximately
15% of the Company's 1995 purchases. Management of the Company
believes that if these sources of product were interrupted,
alternative sources could be obtained without a material adverse
effect on the consolidated financial statements of the Company.
Litigation
----------
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 consolidated financial statements of the Company.
5. 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 amount of a 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 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 its 8-3/4% Notes and the write-off of deferred financing
costs.
6. 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 was completed by late spring 1995.
================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Certain Relationships and Related Transactions
----------------------------------------------
Transactions with Merrill Lynch and its Affiliates
--------------------------------------------------
At February 3, 1996, certain affiliates of ML&Co. held
approximately 26.7% 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.
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
---------------------
As previously discussed in Note 4, in May 1992, the Company
commenced a joint venture known as CAT which was formed for the
purpose of sourcing Ann Taylor merchandise directly with
manufacturers. As of February 3, 1996, 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 $167,000,000 or 38.3%, and $142,429,000,
or 36.3%, of all merchandise purchased by the Company in 1995 and
1994, respectively. Accounts payable to CAT in the ordinary
course of business was approximately $17,800,000 and $4,800,000 as
of February 3, 1996 and January 28, 1995, respectively.
8. Income Taxes
------------
The provision for income taxes for the fiscal years ended
February 3, 1996, January 28, 1995 and January 29, 1994 consists
of the following:
Fiscal Years Ended
----------------------------
Feb. 3, Jan. 28, Jan. 29
1996 1995 1994
------- -------- --------
(in thousands)
Federal:
Current $1,400 $22,534 $13,739
Deferred 2,249 --- (1,150)
----- ------ ------
Total federal 3,649 22,534 12,589
----- ------ ------
State and local:
Current 607 7,740 5,200
Deferred 901 --- (600)
----- ------ ------
Total state and local 1,508 7,740 4,600
Total $5,157 $30,274 $17,189
===== ====== ======
=========================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Income Taxes (continued)
------------------------
The reconciliation between the provision for income taxes and
the provision for income taxes at the federal statutory rate for
the fiscal years ended February 3, 1996, January 28, 1995 and
January 29, 1994 is as follows:
Fiscal Years Ended
--------------------------
Feb. 3, Jan. 28, Jan. 29,
1996 1995 1994
------- ------- -------
(in thousands)
Income before income taxes and extraordinary loss $4,281 $62,894 $31,519
===== ====== ======
Federal statutory rate 35% 35% 35%
==== ====== ======
Provision for income taxes at federal statutory rate $1,498 $22,013 11,032
State and local income taxes, net of federal
income tax benefit 980 5,031 2,990
Non-deductible amortization of goodwill 3,327 3,327 3,328
Undistributed income of joint venture (387) (420) ---
Other (261) 323 (161)
----- ------ ------
Provision for income taxes $5,157 $30,274 $17,189
===== ====== ======
The tax effects of significant items comprising the Company's
net deferred tax assets as of February 3, 1996 and January 28,
1995 are as follows:
Feb. 3, Jan. 28,
1996 1996
------- --------
(in thousands)
Current:
Inventory $1,899 $1,464
Accrued expenses 2,188 1,524
Real estate (1,139) (762)
Restructuring --- 700
Other 452 724
------ -------
Total current $ 3,400 $ 3,650
====== ======
Noncurrent:
Depreciation $(3,024) $ 340
Rent expense 2,840 2,052
Other (1,116) (792)
------ ------
Total noncurrent $(1,300) $ 1,600
====== ======
=======================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 1995, Fiscal 1994 and Fiscal 1993 were
$337,000, $333,000 and $199,000, 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 February 3, 1996, January 28, 1995 and January 29, 1994,
in accordance with Statement of Financial Accounting Standards No.
87, "Employers' Accounting for Pensions":
Feb .3, Jan. 28, Jan. 29,
1996 1995 1994
----- ---- -----
(dollars in thousands)
Actuarial present value of benefits
obligation:
Accumulated benefit obligation,
including vested benefits of
$2,064,000, $1,500,000 and
$1,056,000, respectively $2,893 $2,516 $2,401
===== ===== =====
Projected benefit obligation for
service rendered to date $2,893 $2,516 $2,401
Plan assets at fair value 2,537 2,522 2,344
----- ----- -----
Plan assets in excess of projected
benefit obligation (projected
benefit obligation in excess
of plan assets) (356) 6 (57)
Unrecognized net gain (231) (136) (58)
----- ----- -----
Accrued pension cost $ (587) $ (130) $ (115)
===== ===== =====
Net periodic pension cost for
fiscal 1995, 1994 and 1993
included the following
components:
Service cost/benefits earned
during the year $ 681 $ 622 $ 680
Interest cost on projected benefit
obligation 185 133 117
Actual loss (return) on plan assets (104) 72 (124)
Net amortization and deferral (132) (285) (36)
----- ----- -----
Net periodic pension cost $ 630 $ 542 $ 637
===== ===== =====
Assumptions used to determine
the projected benefit obligation
and plan assets were:
Discount rate 6.75% 8.50% 7.00%
Rate of increase in compensation
level 4.00% 5.50% 4.00%
Expected long-term rate of return
on assets 9.00% 8.00% 8.00%
=====================================================================
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stockholder's Equity
---------------------
The following summarizes the changes in stockholder's equity
during fiscal 1995, 1994 and 1993:
Retained
Additional Earnings Total
Common Paid-in Accummul. Stockholders'
Stock Capital Deficit Equity
----- --------- --------- ------------
(in thousands)
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
---- ------- ------ -------
Net loss --- --- (876) (876)
Parent company contributions --- 452 --- 452
---- ------- ------ -------
Balance at February 3, 1996 $ 1 $311,567 $14,120 $325,688
==== ======== ======= ========
11. Subsequent Event
----------------
ATSC and Cygne have entered into an agreement in principle
dated as of April 8, 1996, pursuant to which ATSC, through a newly
formed subsidiary, will purchase all of the shares of CAT stock
owned by Cygne and the assets (the "Assets") of the Ann Taylor
Woven Division (the "Division") of Cygne that are used in sourcing
merchandise for Ann Taylor (collectively, the "CAT/Cygne
Transaction"). Upon consummation of the CAT/Cygne Transaction,
CAT will become an indirect wholly owned subsidiary of ATSC. In
addition to continuing its own sourcing activities on behalf of
the Company, CAT will own the Assets of the Division and will
perform all sourcing functions for Ann Taylor currently performed
by Cygne. The aggregate consideration to be paid by ATSC pursuant
to the CAT/Cygne Transaction consists of (i) shares of common
stock of ATSC having a market price, based on the closing price of
ATSC's Common Stock for the ten trading days prior to the closing
of the CAT/Cygne Transaction, of $36,000,000 (but in no event
greater than 2,500,000 shares), and (ii) cash in an amount equal
to the tangible net book value of the inventory and fixed assets
included in the Assets, less certain assumed liabilities,
currently estimated to be approximately $12,900,000. In addition,
ATSC will assume the obligation to make payment to the president
of CAT of approximately $2,000,000 becoming due under his existing
employment agreement with CAT as a result of the CAT/Cygne
Transaction.
The closing of the CAT/Cygne Transaction is subject to various
conditions, and there can be no assurance that the CAT/Cygne
Transaction will be consummated.
==================================================================
April 9, 1996
Via EDGAR Transmission
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: AnnTaylor, Inc.
Annual Report on Form 10-K
Dear Sirs/Madams:
On behalf of AnnTaylor, Inc. (the "Company"), enclosed
and transmitted to you for filing pursuant to the Securities
Exchange Act of 1934, as amended, via the Electronic Data
Gathering Analysis and Retrieval System (EDGAR), is the Company's
Annual Report on Form 10-K, for the fiscal year ended February 3,
1996.
Pursuant to Rule 3a of the Rules of Practice, the filing
fee of $250 is in a wire transfer to Mellon Bank in Pittsburgh,
Pennsylvania on April 3, 1996.
Please contact the undersigned if you have any questions
or comments with respect to the foregoing.
Very truly yours,
/s/ Sallie A. DeMarsilis
--------------------------
Sallie A. DeMarsilis
Assistant Controller