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UNITED STATES
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 29, 1994
------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED).
Commission File No. 33-28522
---------------------------------
ANNTAYLOR, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0297083
---------------- ----------
(State or other jurisdication 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)
(Registrant's telephone number, including area code) (212) 541-3300
--------------
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 March 15, 1994, 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. As
of January 29, 1994, the Company operated 231 stores in 38 states and
the District of Columbia.
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"). Since the Acquisition, the number of stores has
increased to 231.
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's merchandising strategy focuses on achieving the "Ann
Taylor look", which emphasizes classic styles, updated to reflect
current fashion trends. The Company considers the Ann Taylor name a
fashion brand, defining a distinctive collection of career and casual
separates, weekend wear, dresses, tops, accessories and shoes,
coordinated as part of a total wardrobing strategy.
The Company's 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 20 to 50, 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.
As of January 29, 1994, 111 stores were in regional malls, 54
stores were in upscale specialty centers, 34 stores were in village
locations, 23 stores were in downtown locations and 9 stores were
factory stores located in factory outlet centers.
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 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
7.3% of merchandise purchased in fiscal 1992 to 23.5% in fiscal
1993.
- Development of a merchandise pricing structure that emphasizes
consistent everyday 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. In fall 1992, the
Company increased its presence in casual wear by introducing
its own line of denim know as ATdenim, that is now sold in all
Ann Taylor stores. In fall 1993, Ann Taylor petites were
tested in the career separates and dress categories in 25
stores. By fall 1994, a broader range of Ann Taylor petites
will be carried in approximately 100 Ann Taylor stores. In
fiscal 1994, the Company also plans to test an Ann Taylor
signature fragrance and related products.
- Introduction of two larger store prototypes. Most new and
expanded stores will be approximately 5,500 square feet, and,
in certain premier markets, new and expanded stores will be
approximately 10,000 to 12,000 square feet. These new store
prototypes are designed to reinforce the Ann Taylor total
wardrobing concept, allow the proper presentation of Ann Taylor
product extensions, and improve customer service and ease of
shopping.
2
- Introduction of additional channels of distribution. In fiscal
1993, the Company introduced Ann Taylor Factory Stores which
sell Ann Taylor merchandise designed or produced specifically
for the factory stores, in addition to serving as a clearance
vehicle for merchandise from Ann Taylor stores. In fiscal
1994, the Company intends to test free standing Ann Taylor shoe
stores as an additional channel of distribution for Ann Taylor
brand footwear. The Company also views its fashion catalog,
which presently is used principally as an advertising vehicle,
as a potential future channel of distribution.
- 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 250,000 square foot national distribution
center in Louisville, Kentucky, to replace, in early 1995, the
Company's existing 90,000 square foot distribution facilities
in Connecticut.
ITEM 2. Properties
As of January 29, 1994, the Company had 231 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 facility expires on March 31, 1995,
with an option to extend this lease for an additional three months.
In early 1994, the Company announced that it will be purchasing
property in Louisville, Kentucky on which it will construct a 250,000
square foot facility that will replace the Company's existing
distribution center facilities in Connecticut in early 1995.
ITEM 3. Legal Proceedings
3
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.
4
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
"Bank Credit Agreement"), and the indenture relating to the
$110,000,000 principal amount AnnTaylor, Inc. 8-3/4% Subordinated
Notes due 2000 ("8-3/4% Notes").
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FISCAL 1993 COMPARED TO FISCAL 1992
The Company's net sales increased to $501,649,000 in 1993 from
$468,381,000 in 1992, an increase of $33,268,000, or 7.1%. The
increase in net sales was attributable to the inclusion of a full
year of operating results for the 20 stores opened during 1992, the
opening of 13 new stores and expansion of 12 stores in 1993 and the
increase in comparable store sales. The 2.3% increase in total
comparable store sales was due primarily to customer acceptance of
the Company's merchandise offerings in 1993. The increase was
partially offset by the closing of one store in 1993. Net sales
included $29,922,000 and $25,638,000 from Ann Taylor brand shoes in
1993 and 1992, respectively.
Gross profit as a percentage of net sales increased to 45.8% in
1993 from 43.6% in 1992. This increase was attributable to reduced
cost of goods sold resulting from lower markdowns associated with
reduced promotional activities, higher initial markups and the
elimination of the leased shoe department which had a substantially
lower gross margin.
Selling, general and administrative expenses as a percentage of
net sales increased to 33.8% in 1993 from 32.5% in 1992. The
increase was primarily attributable to additional store tenancy and
selling expenses, severance costs, agency fees and relocation
expenses, and the Company's continuing investment in such areas as
design and manufacturing, marketing and information systems.
Operating income increased to $49,021,000, or 9.8% of net sales,
in 1993, from $42,504,000, or 9.1% of net sales, in 1992. As
described below, 1993 operating income was reduced by a $2,000,000,
or 0.4% of net sales, charge to earnings relating to the Company's
announced relocation of its distribution center facility from New
Haven, Connecticut to Louisville, Kentucky. Amortization of goodwill
5
from the Acquisition was $9,508,000 in 1993 and $9,504,000 in 1992.
Operating income without giving effect to such amortization was
$58,529,000, or 11.6% of net sales, in 1993, and $52,008,000, or
11.1% of net sales, in 1992.
In early 1994, the Company announced that it will be relocating
its distribution center from New Haven, Connecticut to Louisville,
Kentucky in early 1995. The Company will construct a 250,000 square
foot distribution center at a cost of approximately $14,000,000. The
relocation of the distribution center will affect approximately 105
employees. The Company recorded a $2,000,000 pre-tax restructuring
charge ($1,140,000 net of income tax benefit) representing
approximately $1,100,000 principally for severance and job training
benefits, and approximately $900,000 for the write-off of the net
book value of certain assets that are not expected to be utilized in
the new facility. The Company selected Louisville, Kentucky as the
site for its new distribution center facility because of Louisville's
central location relative to the Company's stores, which is expected
to result in reduced merchandise delivery times, the lower cost of
construction in Louisville as compared to the Northeast, and economic
incentives offered by the state of Kentucky.
Interest expense was $17,696,000, including $4,199,000 of non-cash
interest expense in 1993 and $21,273,000, including $8,581,000 of
non-cash interest expense in 1992. The decrease is mostly
attributable to lower interest rates resulting principally from
refinancing transactions entered into in 1993. As a result of these
refinancing transactions, the weighted average interest rate on the
Company's outstanding indebtedness at January 29, 1994 was 6.22%
compared to 9.50% at January 30, 1993. After taking into account the
Company's interest rate swap agreement, all of the Company's debt
obligations bear interest at variable rates. Therefore, the
Company's interest expense for fiscal 1993 is not necessarily
indicative of interest expense for future periods.
The income tax provision was $17,189,000, or 54.5% of income
before income taxes and extraordinary loss in the 1993 period
compared to $11,150,000, or 65.3% of income before income taxes in
1992. The effective tax rates for both periods were higher than the
statutory rates, primarily because of non-deductible goodwill.
During fiscal 1993, the Company adopted the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Adoption of SFAS 109 did not have a material effect on the
results of operations.
As a result of the foregoing factors, the Company had net income
of $3,209,000, or 0.6% of net sales, for 1993 compared to a net
income of $5,917,000, or 1.3% of net sales for 1992.
During 1993, the Company entered into a series of refinancing
transactions that lowered the Company's average cost of capital. The
following table summarizes these transactions:
6
Balance at Balance at
January 30, January 29,
1993 Additions Reductions 1994
--------- --------- ---------- -----------
(in thousands)
Previous term loan . . . $ 96,969 --- $ (96,969) ---
14-3/8% discount notes . 44,069 --- (44,069) ---
13-3/4% subordinated notes 34,295 --- (34,295) ---
Due to ATSC . . . . . . 14,641 --- (14,641) ---
8-3/4% notes . . . . . . --- $ 110,000 (10,000) $ 100,000
Term loan . . . . . . . --- 80,000 (26,000) 54,000
Receivables facility . . --- 33,000 --- 33,000
Revolving credit loan . 5,500 --- (3,500) 2,000
----- ------- ---------- --------
Total . . . . . . . $ 195,474 $ 223,000 $(229,474) $ 189,000
======== ======= ======== =======
7
The refinancing transactions referred to above resulted in an
extraordinary loss of $17,244,000 ($11,121,000 net of income tax
benefit), attributable to premiums paid to purchase or discharge Ann
Taylor's notes, and to the write-off of deferred financing costs
associated with the early retirement of indebtedness.
On March 31, 1994, ATSC filed a registration statement relating to
the proposed sale in a public offering by ATSC of 1,000,000 shares
of Common Stock and by certain affiliates of Merrill Lynch Capital
Partners, Inc. of 4,000,000 shares of Common Stock. If the proposed
offering is consummated, ATSC will contribute the net proceeds of its
sale of 1,000,000 shares to the Company to pay down amounts
outstanding under the term loan under the Bank Credit Agreement.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company for
the years ended January 29, 1994, January 30, 1993 and February 1,
1992 are included as a part of this Report (See Item 14):
Consolidated Statements of Operations for the fiscal years ended
January 29, 1994, January 30, 1993 and February 1, 1992.
Consolidated Balance Sheets as of January 29, 1994 and January 30,
1993.
Consolidated Statements of Cash Flows for the fiscal years ended
January 29, 1994, January 30, 1993 and February 1, 1992.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCOLUSRES
None.
8
\
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 15
through 31 and are filed as part of this Annual Report:
Consolidated Statements of Operations for the fiscal years
ended January 29, 1994, January 30, 1993 and February 1, 1992;
Consolidated Balance Sheets as of January 29, 1994 and January
30, 1993; Consolidated Statements of Cash Flows for the fiscal
years ended January 29, 1994, January 30, 1993 and February 1,
1992; 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.
9
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.
4.2 Irrevocable Trust Agreement dated as of July 29, 1993,
between Ann Taylor and State Street Bank and Trust Company,
as trustee under Indenture dated as of July 15, 1989, with
respect to the Discount Notes. Incorporated by Reference to
Exhibit 4.2 to the Quarterly Report of Ann Taylor on Form
10-Q for the Quarter Ended July 31, 1993 filed on September
2, 1993.
4.3 Irrevocable Trust Agreement dated as of July 29, 1993
between Ann Taylor and United States Trust Company of New
York, as trustee under Indenture dated as of July 15, 1989
with respect to the Notes. Incorporated by Reference to
Exhibit 4.3 to the Quarter Report on Form 10-Q of Ann Taylor
for the Quarter Ended July 31, 1993 filed on September 2,
1993.
10.1 Form of Indenture entered into between Ann Taylor and United
States Trust Company of New York, as Trustee, including the
form of Subordinated Note due 1999. Incorporated by
Reference to Exhibit No. 4.1 to Amendment No. 1 to the
Registration Statement of the Company and Ann Taylor filed
on June 21, 1989 (Registration No. 33-28522).
10.2 Form of Indenture entered into between Ann Taylor and State
Street Bank and Trust Company of Connecticut, as successor
trustee to The Connecticut Bank and Trust Company, National
Association, as Trustee, including the form of Senior
Subordinated Discount Note due 1999. Incorporated by
Reference to Exhibit No. 4.2 to Amendment No. 1 to the
Registration Statement of ATSC and Ann Taylor filed on June
21, 1989 (Registration No. 33-28522).
10
EXHIBIT
NUMBER
------
10.3 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.
10.3.1 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.
10.3.2 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.
10.3.3 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.
10.3.4 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.
10.4 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.
10.5 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.
11
EXHIBIT
NUMBER
------
10.6 License Agreement, dated as of April 30, 1984, between Ann
Taylor and Joan & David. Incorporated by Reference to
Exhibit No. 10.14 to the Registration Statement of ATSC and
Ann Taylor filed on May 3, 1989 (Registration No. 33-28522).
10.6.1 Agreement, dated March 22, 1990, between Ann Taylor and
Chapel Street Shoes, Inc. Incorporated by Reference to
Exhibit 10.12 to the Annual Report on Form 10-K of ATSC
filed on April 30, 1990.
10.7 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).
10.8 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).
10.8.1 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.
10.9 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).
10.9.1 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).
10.9.2 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.
10.9.3 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.
12
EXHIBIT
NUMBER
------
10.10 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).
10.10.1 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 Lease, dated October 1, 1988, between Dixson Associates and
Ann Taylor concerning Ann Taylor's 3 East 57th Street
offices and store, as amended. Incorporated by Reference to
Exhibit No. 10.23 to the Registration Statement of ATSC and
Ann Taylor dated May 3, 1989 (Registration No. 33-28522).
10.11.1 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.
10.12 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).
10.13 Employment Agreement, effective as of February 3, 1992,
between ATSC, Ann Taylor 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.
10.14 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).
10.15 Management Performance Compensation Plan. Incorporated by
Reference to Exhibit 10.30 to the Quarterly Report on Form
10-Q filed on December 15, 1992.
10.16 Associate Stock Purchase Plan. Incorporated by Reference to
Exhibit 10.31 to the Quarterly Report on Form 10-Q filed on
December 15, 1992.
13
EXHIBIT
NUMBER
------
10.17 Stipulation of Settlement dated February 16, 1993 providing
for the settlement of Consolidated Action. Incorporated by
Reference to Exhibit No. 10.27 to ATSC's Annual Report on
Form 10-K filed on April 30, 1993.
10.18 Agreement among Defendants to the Stipulation of Settlement
dated February 16, 1993 providing for the settlement of
Consolidated Action. Incorporated by Reference to Exhibit
No. 10.28 to ATSC's Annual Report on Form 10-K filed on
April 30, 1993.
10.19 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 No. 10.3 to ATSC's Quarterly Report on
Form 10-Q for the Quarter ended May 1, 1993 filed on May 28,
1993.
10.20 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.
10.21 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.
10.22 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.
10.23 Agreement, dated July 13, 1993, among Cygne Designs, Inc.,
Cygne Designs F.E. Limited, 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 Order has been granted with respect
to certain portions of the Exhibit.)
10.24 Receivables Financing Agreement dated January 27, 1994,
among AnnTaylor Funding, Inc., Ann Taylor, and Clipper
Receivables Corporation and 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.
14
EXHIBIT
NUMBER
------
10.25 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.
23 Consent of Deloitte & Touche.
15
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
Vice President of
Financial Reporting
Principal Accounting Officer
Date: April 19, 1994
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 Officer
- ---------------------- and Director April 19, 1994
Sally Frame Kasaks
/s/ PAUL E. FRANCIS Executive Vice President - Finance April 19, 1994
- ---------------------- and Administration and Director
Paul E. Francis
/s/ JAMES J. BURKE, JR. Director April 19, 1994
- ----------------------
James J. Burke, Jr.
/s/ GERALD S. ARMSTRONG Director April 19, 1994
- --------------------------
Gerald S. Armstrong
/s/ ROCHELLE B. LAZARUS Director April 19, 1994
- --------------------------
Rochelle B. Lazarus
/s/ ROBERT C. GRAYSON Director April 19, 1994
- ------------------------
Robert C. Grayson
/s/ HANNE M. MERRIMAN Director April 19, 1994
- ------------------------
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.
16
ANNTAYLOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-----
Independent Auditors' Report . . . . . . . . . . . . . . . 16
Consolidated Financial Statements:
Consolidated Statements of Operations for the fiscal years ended
January 29, 1994, January 30, 1993 and February 1, 1992 17
Consolidated Balance Sheets as of January 29, 1994
and January 30, 1993 . . . . . . . . . . . . . . 18
Consolidated Statements of Cash Flows for the fiscal years
ended January 29, 1994, January 30, 1993 and February 1,
1992 . . . . . . . . . . . . . . . . . . . . . . . 19
Notes to Consolidated Financial Statements . . . . . . 20
17
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS 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 29, 1994 and January 30,
1993, and the results of their operations and their cash flows for
each of the three fiscal years in the period ended January 29, 1994
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
New Haven, Connecticut
March 25, 1994
18
ANNTAYLOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND
FEBRUARY 1, 1992
FISCAL YEARS ENDED
----------------------------------------------------------
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
(IN THOUSANDS)
Net sales, including leased shoe departments . . . $ 501,649 $ 468,381 $ 437,711
Cost of sales . . . . . . . . . . . . . . . . . . 271,749 $ 264,301 $ 234,136
------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . . . 229,900 204,080 $ 203,575
Selling, general and administrative expenses . . . 169,371 152,072 150,842
Distribution center restructuring charge . . . . . 2,000 --- ---
Amortization of goodwill . . . . . . . . . . . . . 9,508 9,504 9,506
------- ------- -------
Operating income . . . . . . . . . . . . . . . . . 49,021 42,504 43,227
Interest expense . . . . . . . . . . . . . . . . . 17,696 21,273 33,958
Stockholder litigation settlement . . . . . . . . --- 3,905 ---
Other (income) expense, net . . . . . . . . . . . (194) 259 542
------- ------- -------
Income before income taxes and extraordinary loss 31,519 17,067 8,727
Income tax provision . . . . . . . . . . . . . . . 17,189 11,150 7,703
------- ------- -------
Income before extraordinary loss . . . . . . . . . 14,330 5,917 1,024
Extraordinary loss (net of income tax benefit of
$6,123,000 and $9,065,000, respectively) . . . . 11,121 --- 16,835
------- ------- -------
Net income (loss) . . . . . . . . . . . . . . $ 3,209 $ 5,917 $ (15,811)
======== ======== ========
See accompanying notes to consolidated financial statements.
19
ANNTAYLOR, INC.
CONSOLIDATED BALANCE SHEETS
January 29, 1994 and January 30, 1993
January 29, 1994 January 30, 1993
---------------- ----------
(in thousands)
ASSETS
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292 $ 226
Accounts receivable, net of allowances of $787,000 and $1,006,000, respectively. . . . 49,279 43,003
Merchandise inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,890 50,307
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . 7,184 5,904
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 5,097
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750 3,500
----- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,395 108,037
Property and equipment
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,539 25,070
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,596 28,508
Improvements in progress . . . . . . . . . . . . . . . . . . . . . . . . . . 8,621 624
----- --------
76,756 54,202
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . 28,703 22,394
------ -------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . 48,053 31,808
Deferred financing costs, net of accumulated amortization of
$643,000 and $11,917,000, respectively . . . . . . . . . . . . . . . . . . . 4,990 3,969
Goodwill, net of accumulated amortization of $47,713,000 and
$38,205,000, respectively . . . . . . . . . . . . . . . . . . . . . . . . . 332,537 342,045
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 ---
Investment in CAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,245 88
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,679 1,645
------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $513,399 $487,592
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,564 $ 23,779
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,791 17,719
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 8,757 37,000
----- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 68,112 78,498
Long-term debt, including due to ATSC of $14,641,000 in 1992 . . . . . . . . . . 180,243 158,474
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,773 5,322
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 . . . . . . . . . . . . . . . . . . . . . . . . . 276,026 265,262
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,756) (19,965)
-------- -------
Total stockholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . 259,271 245,298
-------- -------
Total liabilities and stockholder's equity . . . . . . . . . . . . . . . . . $513,399 $ 487,592
======== ========
See accompanying notes to consolidated financial statements.
20
ANNTAYLOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended January 29, 1994, January 30, 1993 and February 1, 1992
Fiscal Years Ended
---------------------------------------------------
January 29, 1994 January 30, 1993 February 1, 1992
---------------------------------------------------
(in thousands)
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ 3,209 $5,917 $(15,811)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Extraordinary loss . . . . . . . . . . . . . . . . . . . 17,244 --- 25,900
Distribution center restructuring charge . . . . . . . . 2,000 --- ---
Equity earnings in CAT . . . . . . . . . . . . . . . . . (517) --- ---
Provision for loss on accounts receivable . . . . . . . 1,171 1,240 1,211
Depreciation and amortization . . . . . . . . . . . . . 8,505 7,486 6,203
Amortization of goodwill . . . . . . . . . . . . . . . . 9,508 9,504 9,506
Accretion of original issue discount . . . . . . . . . . 2,864 5,726 8,893
Amortization of deferred financing costs . . . . . . . . 1,335 1,524 2,140
Amortization of deferred compensation . . . . . . . . . 279 929 ---
Deferred income taxes . . . . . . . . . . . . . . . . . (1,750) (1,500) (1,000)
Due to ATSC . . . . . . . . . . . . . . . . . . . . . . --- 1,331 1,210
Loss on disposal of property and equipment . . . . . . . 312 72 338
Decrease (increase) in receivables . . . . . . . . . . . (7,447) (2,539) 6,606
Decrease (increase) in merchandise inventories . . . . . (10,583) (4,325) 3,433
Increase in prepaid expenses and
other current assets . . . . . . . . . . . . . . . . . (1,280) (187) (1,633)
Decrease (increase) in refundable income taxes . . . . . 5,097 (2,078) (3,019)
Increase (decrease) in accounts payable and
accrued liabilities . . . . . . . . . . . . . . . . . 18,218 (250) (4,799)
Decrease (increase) in other non-current assets
and liabilities, net . . . . . . . . . . . . . . . . . (843) 729 975
---- --- ----
Net cash provided by operating activities . . . . . . . . . . 47,322 23,579 40,153
Investing activities:
Purchases of property and equipment . . . . . . . . . . . . . (25,062) (4,303) (10,004)
Investment in CAT . . . . . . . . . . . . . . . . . . . . . . (1,640) (88) ---
------ --- ---
Net cash used by investing activities . . . . . . . . . . . . (26,702) (4,391) (10,004)
Financing activities:
Payment of dividends . . . . . . . . . . . . . . . . . . . . --- --- (10)
Borrowings (repayments) under line of credit agreement . . . (3,500) 2,500 (19,000)
Increase (decrease) in bank overdrafts . . . . . . . . . . . (2,361) (4,660) 2,267
Payments of long-term debt . . . . . . . . . . . . . . . . . (96,969) (26,000) (13,000)
Purchase of Subordinated Debt Securities . . . . . . . . . . (93,689) --- ---
Net proceeds from 8-3/4% Notes . . . . . . . . . . . . . . . 107,387 --- ---
Proceeds from Term Loan . . . . . . . . . . . . . . . . . . . 80,000 --- ---
Parent company contribution . . . . . . . . . . . . . . . . . 10,485 8,988 ---
Payment of due to ATSC . . . . . . . . . . . . . . . . . . . (14,641) --- ---
Payment of Term Loan . . . . . . . . . . . . . . . . . . . . (26,000) --- ---
Proceeds from Receivables Facility . . . . . . . . . . . . . 33,000 --- ---
Purchase of 8-3/4% Notes . . . . . . . . . . . . . . . . . . (10,225) --- ---
Payment of financing costs . . . . . . . . . . . . . . . . . (4,041)
--- (232)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- --- (117)
--- --- ----
Net cash used by financing activities . . . . . . . . . . . . (20,554) (19,172) (30,092)
------- ------- -------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . 66 16 57
Cash, beginning of year . . . . . . . . . . . . . . . . . . . . . . . 226 210 153
--- ------ ------
Cash, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292 $ 226 $ 210
=== ====== ======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest . . . . . . . . . . . $ 12,664 $ 13,917 $ 22,611
====== ====== =======
Cash paid during the year for income taxes . . . . . . . . . $ 5,114 $ 11,192 $ 4,501
===== ======= ======
See accompanying notes to consolidated financial statements.
21
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 1992 and 1991 amounts have been reclassified to
conform to the fiscal 1993 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 $6,166,000 for fiscal 1993,
$5,608,000 for fiscal 1992 and $5,850,000 for fiscal 1991.
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.
22
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 and $16,056,000 for fiscal 1991. Leased shoe departments
were phased out beginning August 1, 1990, and the phaseout was
completed by February 1, 1993. Accordingly, there were no leased
shoe department sales during fiscal 1993. 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.
Income Taxes
Income tax expense is based on reported results of operations
before 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"). Adoption of SFAS 109 did
not have a material effect on the results of operations.
23
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes (continued)
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.
Advertising Expenses
Advertising expense was $6,388,000 for fiscal 1993, $5,509,000 for
fiscal 1992 and $8,645,000 for fiscal 1991.
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.
3. Extraordinary Items
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 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.
24
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Extraordinary Items (continued)
During May 1991, ATSC completed an initial public offering of its
common stock (the "ATSC IPO"). The net proceeds of the ATSC IPO were
used to repurchase outstanding Discount Notes and Notes. Subsequent
to the repurchase, ATSC contributed the notes to the Company for
retirement. The contribution was credited to additional paid-in
capital. The repurchase and write-off of related deferred financing
costs resulted in an extraordinary loss of $25,900,000 ($16,835,000
net of income tax benefit) in the second quarter of 1991.
4. Long-term Debt
The following summarizes long-term debt outstanding at January 29,
1994 and January 30, 1993:
January 29, 1994 January 30, 1993
---------------- ----------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(in thousands)
Senior Debt:
Term loan . . . . . . . . . . . . . . . . . . . $ 54,000 $ 54,000 $ 96,969 $96,969
Revolving credit loan . . . . . . . . . . . . . 2,000 2,000 5,500 5,500
14-3/8% Discount Notes, net of
unamortized discount of $6,261,000 . . . . . . --- --- 44,069 46,800
13-3/4% Notes, net of unamortized
discount of $287,000 . . . . . . . . . . . . . --- --- 34,295 37,350
Due to ATSC . . . . . . . . . . . . . . . . . . . --- --- 14,641 17,300
8-3/4% Notes . . . . . . . . . . . . . . . . . . . 100,000 102,750 --- ---
Receivables facility . . . . . . . . . . . . . . . 33,000 33,000 --- ---
------ ------ --- ---
189,000 191,750 195,474 203,919
Less current portion . . . . . . . . . . . . . . . 8,757 8,757 37,000 37,000
----- ----- ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . $ 180,243 $ 182,993 $158,474 $166,919
======= ======= ======= =======
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") provides 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 is 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 which reduced the originally
scheduled payments to $8,757,000 in fiscal years 1994 and 1995,
$11,676,000 in fiscal years 1996 and 1997, and $13,134,000 in fiscal
year 1998.
25
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Long-term Debt (continued)
Amounts borrowed under the Revolving Credit Facility may be repaid
at any time and are not subject to scheduled repayment prior to
January 1999. The maximum amount that may be borrowed under this
facility is reduced by the amount of commercial and standby letters
of credit outstanding under the Bank Credit Agreement. Amounts
borrowed under the Revolving Credit Facility mature on January 15,
1999; however, the Company is required to reduce the outstanding
balance of the Revolving Credit Facility to $20,000,000 or less for a
30-day period in fiscal 1994 and to $15,000,000 or less for a 30-day
period each year thereafter. At January 29, 1994 and January 30,
1993, the amount available under the Revolving Credit Facility was
$46,150,000 and $35,320,000, respectively.
The Term Loan and the Revolving Credit Facility bear interest at a
rate per annum equal to, at the Company's option, Bank of America's
(1) Base Rate plus .875%, or (2) Eurodollar rate plus 1.875%. In
addition, the Company is required to pay Bank of America a quarterly
commitment fee of .375% per annum of the unused revolving loan
commitment. At January 29, 1994, the $54,000,000 outstanding under
the Term Loan bore interest at the weighted average rate of 5.13% per
annum and the $2,000,000 outstanding under the Revolving Credit
Facility bore interest at the rate of 6.875% per annum.
Under the terms of the Bank Credit Agreement, Bank of America
obtained a pledge of the Company's common stock and a security
interest in certain assets. The Bank Credit Agreement requires, with
certain exceptions, that any net proceeds from the sale of assets and
debt or equity securities be applied to repay borrowings. In
addition, the Bank Credit Agreement contains financial and other
covenants, including limitations on indebtedness, liens, investments
and capital expenditures, restrictions on dividends or other
distributions to the parent company, and maintaining certain
financial ratios and specified levels of net worth.
In the fourth quarter of 1993, the Company sold its proprietary
credit card accounts receivable to AnnTaylor Funding, Inc., a wholly
owned subsidiary, which used the receivables to secure borrowings,
under a new receivables financing facility due 1996 (the "Receivables
Facility"). As of January 29, 1994, $33,000,000 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 29,
1994 was 3.67%. At January 29, 1994, AnnTaylor Funding, Inc. had
total assets of approximately $41,000,000 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 29, 1994 was
$100,000,000.
26
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Long-term Debt (continued)
The Company's obligations with respect to the Discount Notes and
Notes were discharged on July 29, 1993 when the Company deposited
with the trustees for the Discount Notes and Notes an aggregate of
$50,734,000 in irrevocable trusts. The Discount Notes and the Notes
will be redeemed with the proceeds of the trusts on or about July 15,
1994. The aggregate carrying value of the Discount Notes and Notes
as of January 29, 1994 would have been $45,004,000.
In July 1993, the Company entered into a $110,000,000 (notional
amount) interest rate swap agreement. 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. This agreement
lowered the effective interest rate on the 8-3/4% Notes by 125 basis
points for the first semi-annual period ended January 1994. The swap
agreement matures in July 1996. 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 non-performance
by the other party, which is a major financial institution. As of
January 29, 1994, fair market value of the swap agreement was
approximately $780,000.
The aggregate principal payments of all long-term obligations for
the next five fiscal years are as follows:
Fiscal Year (in thousands)
-----------
1994 . . . . . . . . . . . $ 8,757
1995 . . . . . . . . . . . 8,757
1996 . . . . . . . . . . . 44,676
1997 . . . . . . . . . . . 11,676
1998 . . . . . . . . . . . 15,134
At January 29, 1994, January 30, 1993 and February 1, 1992, the
Company had outstanding commercial and standby letters of credit with
Bank of America totaling $6,850,000, $9,180,000 and $3,280,000,
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 using quoted market information, as
available, or interest rates which are available to the Company. As
judgment is involved, the estimates are not necessarily indicative of
the amounts the Company could realize in a current market exchange.
27
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Allowance for Doubtful Accounts
A summary of activity in the allowance for doubtful accounts for
the fiscal years ended January 29, 1994, January 30, 1993 and
February 1, 1992 is as follows:
Fiscal Years Ended
------------------
January 29, January 30, February 1,
1994 1993 1992
---- ---- ----
(in thousands)
Balance at beginning of year . . . . . $1,006 $ 899 $1,000
Provision for loss on accounts receivable 1,171 1,240 1,211
Accounts written off . . . . . . . . . (1,390) (1,133) (1,312)
------ ------ ------
Balance at end of year . . . . . . . . $ 787 $1,006 $ 899
=== ===== =====
6. Commitments and Contingencies
The Company occupies its retail stores, 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 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 29, 1994 are as follows:
Fiscal Year (in thousands)
-----------
1994 . . . . . . . . . . $30,504
1995 . . . . . . . . . . 27,620
1996 . . . . . . . . . . 26,054
1997 . . . . . . . . . . 23,416
1998 . . . . . . . . . . 21,613
1999 and thereafter . . 82,242
--------
Total . . . . . .$211,449
=======
28
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Commitments and Contingencies (continued)
Rent expense for the fiscal years ended January 29, 1994, January
30, 1993 and February 1, 1992 was as follows:
Fiscal Years Ended
------------------
January 29, January 30, February 1,
1994 1993 1992
---- ---- ----
(in thousands)
Minimum rent $28,076 $24,933 $22,135
Percentage rent 3,343 4,217 4,423
------ ------ -------
Total $31,419 $29,150 $26,558
====== ====== ======
In January 1993, ATSC and the other defendants agreed to settle
the 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 the 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. Income Taxes
The provision for income taxes for the fiscal years ended January
29, 1994, January 30, 1993 and February 1, 1992 consists of the
following:
Fiscal Years Ended
------------------
January 29, January 30, February 1,
1994 1993 1992
---- ---- ----
(in thousands)
Federal
Current $14,339 $ 9,300 $ 6,203
Deferred (1,750) (1,500) (1,000)
State and Local 4,600 3,350 2,500
------ ------ -------
Total $17,189 $11,150 $ 7,703
====== ====== ======
29
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. 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 January 29, 1994, January 30, 1993 and February 1,
1992 is as follows:
Fiscal Years Ended
------------------
January 29, January 30, February 1,
1994 1993 1992
---- ---- ----
(in thousands)
Income before income taxes and extraordinary loss $31,519 $17,067 $ 8,727
====== ====== ======
Federal statutory rate 35% 34% 34%
====== ====== ======
Provision for income taxes at federal statutory
rate $11,032 $ 5,803 $ 2,967
State and local income taxes, net of
federal income tax benefit $ 2,990 $ 2,211 $ 1,650
Non-deductible amortization of goodwill $ 3,328 $ 3,232 $ 3,232
Other (161) (96) (146)
------ ------ ------
Provision for income taxes $17,189 $11,150 $ 7,703
====== ====== ======
The tax effects of significant items comprising the Company's
deferred tax asset as of January 29, 1994 are as follows:
Deferred tax assets: (in thousands)
Current:
Inventory . . . . . . . . . . $ 981
Accrued expenses . . . . . . 1,288
Restructuring . . . . . . . . 700
Other . . . . . . . . . . . . 781
-----
Total current . . . . . . . . . $ 3,750
=====
Noncurrent:
Depreciation . . . . . . . . $ 125
Rent expense . . . . . . . . 1,375
-----
Total noncurrent . . . . . . . $ 1,500
=====
For 1992 deferred income tax benefits have been provided for
temporary differences which result from recording certain
transactions in different years for income tax purposes than for
financial reporting purposes. Such transactions principally relate to
merchandise inventories, accounts receivable, fixed assets and
accrued expenses.
30
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Retirement Plans
Savings Plan. During 1989, the Company adopted 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 1993, fiscal 1992 and fiscal 1991 were $199,000,
$111,000 and $111,000, respectively.
Pension Plan. Substantially all employees of the Company are
covered under a noncontributory defined benefit pension plan
established during 1989. 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 29, 1994, January 30, 1993 and February 1, 1992, in
accordance with Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions":
January 29, January 30, February 1,
1994 1993 1992
---- ---- ----
(dollars in thousands)
Actuarial present value of benefits obligation:
Accumulated benefit obligation, including vested benefits of
$1,056,000, $702,000 and $411,000, respectively . . . . . $2,401 $ 1,832 $ 997
===== ===== ====
Projected benefit obligation for service rendered to date . . $2,401 $ 1,832 $ 997
Plan assets at fair value . . . . . . . . . . . . . . . . . . 2,344 1,847 855
----- ----- ---
Plan assets in excess of projected benefit obligation (projected
benefit obligation in excess of plan assets) . . . . . . (57) 15 (142)
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . (58) --- ---
--- --- ---
Prepaid (accrued) pension cost . . . . . . . . . . . . . . . $ (115) $ 15 $ (142)
==== == ====
Net periodic pension cost for fiscal 1993, 1992 and 1991 included
the following components:
Service cost/benefits earned during the year . . . . . . . . . $ 680 $ 521 $ 372
Interest cost on projected benefit obligation . . . . . . . . 117 100 61
Actual return on plan assets . . . . . . . . . . . . . . . . . (124) (100) (76)
Net amortization and deferral . . . . . . . . . . . . . . . . (36) 9 30
--- - --
Net periodic pension cost . . . . . . . . . . . . . . . . . . $ 637 $ 530 $ 387
=== === ===
Assumptions used in the development of pension cost
and accrual were:
Discount rate . . . . . . . . . . . . . . . . . . . . . . 7.0% 7.0% 9.0%
Rate of increase in compensation level . . . . . . . . . 4.0% 4.0% 6.0%
Expected long-term rate of return on assets . . . . . . . 8.0% 9.0% 10.0%
31
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Certain Relationships and Related Transactions
Transactions with Merrill Lynch and its Affiliates
At January 29, 1994 certain affiliates of Merrill Lynch & Co.,
Inc. ("ML&Co.") held approximately 52% of ATSC's outstanding common
stock and as a result have the voting power to determine the
composition of the Board of Directors of the Company and otherwise
control the business and affairs of the Company and ATSC. Two of the
members of the Boards of Directors of the Company and ATSC are
officers of Merrill Lynch Capital Partners, Inc. ("ML Capital
Partners") and serve as representatives of certain limited
partnerships controlled directly or indirectly by ML Capital
Partners, together with certain affiliates of ML&Co. See Note 11.
ATSC paid an underwriting commission of approximately $3,357,000
to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") in connection with the ATSC IPO. In addition, ATSC paid a
commission of approximately $599,000 to Merrill Lynch in connection
with the repurchase of the subordinated debt securities with the
proceeds from the ATSC IPO.
In January 1993, in connection with the settlement of the class
action lawsuit, ATSC, 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 connection with the issuance of the 8-3/4% Notes,
and repurchases of Discount Notes, Notes and
8-3/4% Notes.
Transactions with CAT
The Company commenced a joint venture known as CAT U.S., Inc.
("CAT") with Cygne Designs, Inc., which was formed for the purpose of
sourcing the Company's merchandise directly with manufacturers. As
of January 29, 1994, the Company owned a 40% interest in CAT which is
being accounted for under the equity method of accounting, an
increase of 20% from January 30, 1993. CAT places orders directly
with manufacturers exclusively as agent for the Company. Merchandise
purchased by the Company through CAT was $67,202,000 or 23.5%, and
$19,091,000, or 7.3%, of all merchandise purchased by the Company in
1993 and 1992, respectively. Accounts payable to CAT in the ordinary
course of business was approximately $3,100,000 as of January 29,
1994.
32
ANNTAYLOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Stockholder's Equity
The following summarizes the changes in stockholder's equity
during fiscal 1993, fiscal 1992 and fiscal 1991:
Additional Total
Common Paid-in Accumulated Stockholder's
Stock Capital Deficit Equity
--------- ----------- --------------- --------------
(in thousands)
Balance at February 2, 1991 . . . . . . . . . . $ 1 $ 88,534 $(10,071) $ 78,464
Net loss . . . . . . . . . . . . . . . . . . --- --- (15,811) (15,811)
Dividend . . . . . . . . . . . . . . . . . . --- (10) --- (10)
Parent company contributions . . . . . . . . --- 166,821 --- 166,821
--- ------- --------- -------
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
=== ======= ======= =======
11. Subsequent Events
ATSC intends to file a registration statement for a sale of its
common stock in the first quarter of 1994. 1,000,000 shares will be
sold by ATSC and 4,000,000 shares are expected to be sold by certain
stockholders of ATSC affiliated by ML&Co.
38