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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. 1-10738
ANNTAYLOR STORES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3499319
(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
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, $.0068 PAR VALUE THE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
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Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No _.
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 1, 1996 was $294,711,644.
The number of shares of the registrant's Common Stock outstanding as of
March 1, 1996 was 23,080,278.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the Registrant's 1996
Annual Meeting of Stockholders to be held on June 14, 1996 are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
AnnTaylor Stores Corporation (the "Company"), through its wholly owned
subsidiary, AnnTaylor, Inc. ("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.
The Company is a holding company that was incorporated under the laws of the
state of Delaware in 1988 under the name AnnTaylor Holdings, Inc. The Company
changed its name to AnnTaylor Stores Corporation in April 1991. The Company was
formed at the direction of Merrill Lynch Capital
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Partners, Inc. ("ML Capital Partners"), a wholly owned subsidiary of Merrill
Lynch & Co., Inc. ("ML&Co."), for the purpose of acquiring Ann Taylor in a
leveraged buyout transaction (the "Acquisition") in 1989. As of March 1, 1996,
certain limited partnerships controlled directly or indirectly by ML Capital
Partners, together with certain other affiliates of ML&Co. (collectively, the
"ML Entities"), owned 6,155,118 shares, or approximately 26.7%, of the
outstanding Common Stock of the Company. The ML Entities have two designees on
the Company's Board of Directors and, therefore, are in a position to influence
management of the Company. Unless the context indicates otherwise, all
references herein to the Company include the Company and its wholly owned
subsidiary Ann Taylor.
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. See "Business--General;-- Stores;
and--Expansion".
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. See "Business--Advertising and
Promotion".
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
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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. The Company 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 "Business--Merchandise Design and Production; and
- --CAT/Cygne Transaction" and "Management's Discussion and Analysis--Liquidity
and Capital Resources; and --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,
3
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.
See "Business--Expansion".
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.
MERCHANDISE DESIGN AND PRODUCTION
Ann Taylor merchandise is developed based upon current fashion trends and
analysis of prior year sales. The Company's product design and development and
merchandising groups determine needs for the upcoming season, design styles to
fill those needs, and arrange for the production of merchandise either through
the Company's CAT merchandise sourcing joint venture, or through vendors who are
private label specialists, or directly with manufacturers.
The Company's production management department establishes the technical
specifications for all Ann Taylor merchandise, inspects and certifies factories
in which Ann Taylor merchandise is produced, conducts periodic inspections of
factories while goods are in production to identify potential problems prior to
shipment of merchandise by vendors, and, upon receipt, inspects merchandise on a
test basis for uniformity of sizes and colors, as well as for overall quality of
manufacturing.
The Company is continuing to develop its capability to source its
merchandise directly with manufacturers. The Company believes that direct
sourcing improves its competitive position by reducing costs and shortening lead
times. To this end, in May 1992, the Company commenced a joint venture with
Cygne known as CAT, which was formed for the purpose of acting as a sourcing
agent exclusively for Ann Taylor, placing merchandise orders directly with
manufacturers. Merchandise purchased by Ann Taylor through CAT represented 38.3%
and 36.3% of all merchandise purchased by the Company in Fiscal 1995 and 1994,
respectively. The Company currently owns a 40% interest in CAT, and Cygne owns
the remaining 60% of CAT. As described below, the Company has entered into an
agreement in principle with Cygne to acquire Cygne's interest in CAT as well as
the assets of the Ann Taylor Woven Division of Cygne that are used in sourcing
merchandise for Ann Taylor.
In Fiscal 1995, the Company purchased merchandise from approximately 170
vendors, including five vendors each of whom accounted for 4% or more of the
Company's merchandise purchases: CAT (38.3%), Cygne (16.3%), D.S. Studio (5.3%),
Parigi (4.9%), and Depeche (4.8%). In 1995, most of the Company's merchandise
was purchased from domestic vendors, including CAT. However, consistent with the
retail apparel industry as a whole, many of the Company's domestic vendors
import a large portion of their merchandise from abroad. For example,
substantially all of the merchandise purchased through CAT is manufactured
outside the United States.
The Company cannot predict whether any of the foreign countries in which its
products are currently manufactured or any of the countries in which the Company
may manufacture its products in the future will be subject to future import
restrictions by the U.S. government, including the likelihood, type or effect of
any trade retaliation. Trade restrictions, including increased tariffs or
quotas, or both, against apparel items could affect the importation of apparel
generally and, in that event, could increase the cost or reduce the supply of
apparel available to the Company and adversely affect the Company's business,
financial condition and results of operations. The Company's merchandise flow
may also be adversely affected by political instability in any of the countries
in which its goods are manufactured, significant fluctuation in the value of the
U.S. dollar against foreign currencies and restrictions on the transfer of
funds.
The Company does not maintain any long-term or exclusive commitments or
arrangements to purchase merchandise from any supplier, although it does have an
equity investment in its direct
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sourcing venture CAT. The Company believes it has a good relationship with its
suppliers and that, as the number of stores increases and existing stores are
expanded, there will continue to be adequate sources to produce a sufficient
supply of quality goods in a timely manner and on satisfactory economic terms.
Nevertheless, if there were an interruption or cessation of business by CAT, the
Company could, as a result of the quantity of its merchandise purchased through
CAT, experience a material disruption in its ability to obtain sufficient
merchandise inventories until alternate merchandise supplies were secured. In
addition, the Company could experience an increase in the cost of merchandise,
if it were not able to obtain merchandise from replacement suppliers at prices
as favorable as it has been able to obtain from CAT. See "Management's
Discussion and Analysis--Liquidity and Capital Resources".
As indicated above, in Fiscal 1995 the Company purchased approximately 16%
of its merchandise directly from Cygne. In November 1995, Cygne disclosed that
it was in violation of certain terms of the bank credit agreement that provides
Cygne's principal source of working capital financing and that, as a result of
such violation, the lender under that credit facility has the right to cancel
the facility and to demand immediate repayment of the amounts outstanding
thereunder. Cygne also disclosed that a separate trade credit facility had been
suspended as a result of Cygne's failure to make payments thereunder when due.
Cygne has stated that if it is unable to restore its suspended trade credit
facility, maintain its present financing and credit facilities or otherwise
obtain necessary working capital, it could experience a liquidity shortfall that
would adversely affect its ability to finance its operations. If Cygne's
operations were interrupted or discontinued, the Company could experience
temporary inventory shortfalls, disruptions or delays with respect to any
unfilled purchase orders then outstanding with Cygne, although the Company
believes that adequate alternate sources would be available that could replace
Cygne as a merchandise resource for the products that the Company typically
purchases from Cygne; however, there can be no assurance that such alternate
sources will be available.
CAT obtains its working capital financing pursuant to a $40 million loan
facility provided by the same bank that provides Cygne with its principal
working capital facility. Such loan facility expires in May 1996 and there can
be no assurance that CAT will be able to renew such facility. Although CAT
currently 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. As a result of Cygne's default under its bank credit agreement,
CAT's current lender presently has the right to cancel CAT's $40 million credit
facility and to demand repayment of the amounts outstanding under that facility.
See "Management's Discussion and Analysis--Liquidity and Capital Resources".
The Company's agreement with Cygne relating to the parties' ownership of CAT
provides that either Cygne or Ann Taylor may offer to purchase the other party's
interest in CAT. The party that receives the offer then has the option to either
accept the offer and sell its interest in CAT on the terms offered, or purchase
the offering party's interest in CAT on the terms offered. There can be no
assurance that if the Company were to offer to purchase Cygne's interest in CAT
under this provision, that Cygne would not elect instead to purchase the
Company's interest, or that if Cygne were to offer to purchase the Company's
interest in CAT, that such offer would reflect the value of such interest, or
that the Company would have the financial ability to purchase Cygne's interest
in CAT at the offered price. If Cygne were to purchase the Company's interest in
CAT, there can be no assurance that the Company would be able to continue to do
business with CAT on terms having the same economic effect as its current
arrangement or be able to replace CAT as a merchandise sourcing agent on similar
terms.
CAT/CYGNE TRANSACTION
The Company and Cygne have entered into an agreement in principle, dated as
of April 8, 1996 (the "CAT/Cygne Agreement"), pursuant to which the Company,
through a newly formed subsidiary, will purchase all of the shares of CAT stock
owned by Cygne (the "CAT Shares") 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 the Company. In addition to continuing its own sourcing
activities on behalf of the Company, CAT will own the Assets of
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the Division and will perform all sourcing functions for Ann Taylor currently
performed by Cygne (the "Cygne Sourcing Business"). The aggregate consideration
to be paid by the Company pursuant to the CAT/Cygne Transaction consists of (i)
shares of Common Stock of the Company having a market price, based on the
closing price of the Company'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, the Company 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. See "Management's Discussion and Analysis--Liquidity and Capital
Resources". 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. See "Business--Business Strategy". 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,
and there can be no assurance that the CAT/Cygne Transaction will be
consummated. See "Management's Discussion and Analysis--Recent Developments".
INVENTORY CONTROL AND MERCHANDISE ALLOCATION
The Company's merchandise planning and allocation department analyzes each
store's size, location, demographics, sales and inventory history to determine
the quantity of merchandise to be purchased for and the allocation of
merchandise to the Company's stores. Upon receipt, merchandise is allocated in
order to achieve an emphasis that is suited to each store's customer base.
Merchandise typically is sold at its original marked price for several
weeks, with the length of time varying by item. The Company reviews its
inventory levels on an on-going basis in order to identify slow-moving
merchandise and broken assortments (items no longer in stock in a sufficient
range of sizes) and uses markdowns to clear merchandise. Markdowns may be used
if inventory exceeds customer demand for reasons of style, seasonal adaptation
or changes in customer preference or if it is determined that the inventory will
not sell at its currently marked price. Marked-down items remaining unsold are
periodically moved to the Company's Factory Stores where additional markdowns
may be taken. In Fiscal 1995, inventory turned 4.3 times and in Fiscal 1994,
inventory turned 4.6 times. Inventory turnover is determined by dividing net
cost of goods sold by the average of the cost of inventory at the beginning and
end of the period.
The Company uses a centralized distribution system, under which nearly all
Ann Taylor merchandise is distributed to the Company's stores through its
Kentucky distribution facility, other than hosiery which is shipped from the
manufacturer directly to the Company's stores. Merchandise is shipped to the
Company's stores nearly every business day. In Spring 1995, the Company
completed construction of a 256,000 square foot distribution facility in
Louisville, Kentucky that replaced the Company's former Connecticut distribution
facilities. See "Properties".
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STORES
As of February 3, 1996, the Company operated 306 stores in 40 states and the
District of Columbia, comprising 258 Ann Taylor Stores, 22 Ann Taylor Factory
Stores, 17 Ann Taylor Loft stores, and 9 Ann Taylor Studio stores. The Company's
258 Ann Taylor Stores were distributed as follows: 126 stores were located in
regional malls, 64 stores were in upscale specialty centers, 43 stores were in
village locations, and 25 stores were in downtown locations. The Company's 22
Ann Taylor Factory Stores and 17 Ann Taylor Loft stores were all located in
factory outlet centers. The Company's nine Ann Taylor Studio stores were located
in regional malls in which there is also an Ann Taylor Store. The following
table sets forth by state the stores that were open as of February 3, 1996:
LOCATIONS BY STATE
NUMBER NUMBER
OF OF
STATE STORES STATE STORES
- ---------------------- ------ ---------------------- ------
Alabama............... 2 Louisiana............. 4
Arizona............... 4 Maryland.............. 6
Arkansas.............. 1 Massachusetts......... 13
California............ 52 Michigan.............. 8
Colorado.............. 4 Minnesota............. 5
Connecticut........... 11 Mississippi........... 1
Delaware.............. 1 Missouri.............. 7
District of
Columbia.............. 6 Nebraska.............. 2
Nevada................ 2
Florida............... 25 New Hampshire......... 2
Georgia............... 6 New Jersey............ 13
Hawaii................ 2 New Mexico............ 2
Illinois.............. 12 New York.............. 26
Indiana............... 6 North Carolina........ 6
Kentucky.............. 2
NUMBER
OF
STATE STORES
- ---------------------- ------
Ohio.................. 13
Oklahoma.............. 3
Oregon................ 2
Pennsylvania.......... 14
Rhode Island.......... 1
South Carolina........ 3
Tennessee............. 6
Texas................. 17
Utah.................. 2
Vermont............... 1
Virginia.............. 9
Washington............ 3
Wisconsin............. 1
The Company selects store locations that it believes are convenient for its
customers. Store locations are determined on the basis of various factors,
including geographic location, demographic studies, anchor tenants in a mall
location, other specialty stores in a mall or specialty center location or in
the vicinity of a village location, and the proximity to professional offices in
a downtown or village location. Ann Taylor Factory Stores and Ann Taylor Loft
stores are generally located in factory outlet malls in which co-tenants include
a significant number of nationally recognized upscale brand name retailers.
Ann Taylor Stores opened prior to January 30, 1993 averaged 3,500 square
feet in size, with the exception of three stores that ranged between 10,300
square feet and 12,500 square feet. During 1992, the Company designed two new
store prototypes for its Ann Taylor Stores. The first is a store model of
approximately 5,500 square feet, on which most new and expanded stores opened
since 1993 are based. The Company also designed a new larger store prototype of
approximately 10,000 to 12,000 square feet, which is reserved for certain
premier markets that management believes can support such a store. Both new
store prototypes incorporate modified display features, fixtures and fitting
rooms. The Company believes that these store formats enhance the Company's
ability to merchandise its customer offerings and reinforce its total wardrobing
concept, provide area necessary for the proper presentation of Ann Taylor shoes,
petites and other product line extensions, and improve customer service and ease
of shopping. The typical Ann Taylor Store has approximately 19% of its total
square footage allocated to stockroom and other non-selling space.
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In Fall 1995, the Company opened two flagship Ann Taylor Stores, each in
excess of 20,000 square feet, one on Madison Avenue in New York City, and the
other on Post Street in San Francisco. These two larger stores represent the
fullest assortment of Ann Taylor merchandise, and include amenities unique to
these stores. The Madison Avenue store replaced the Company's former 12,500
square foot store on 57th Street in New York City.
Ann Taylor Factory Stores average 6,500 square feet and are 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. Ann
Taylor Factory Stores serve as a clearance vehicle for marked-down merchandise
from the Company's various store concepts. Prior to the introduction of Ann
Taylor Loft stores in 1995, the Company also produced merchandise specifically
for sale at its Factory Stores. Ann Taylor Factory Stores now also sell full
price Ann Taylor Loft merchandise, as well as certain Ann Taylor products that
the Company believes represent exceptional value, such as ATdenim and the
"destination" fragrance and personal care line, concurrently with and at the
same price as the Ann Taylor Stores.
The success of the Company's Factory Stores and consumers' continuing
emphasis on value led the Company to begin testing, in 1995, a separate
moderately-priced store concept under the name "Ann Taylor Loft". Ann Taylor
Loft stores opened in Fiscal 1995 are approximately 10,000 square feet and are
located in factory outlet centers. Although the Company generally has been
satisfied with the initial results of many of its Loft stores, the Company
believes it will be able to improve sales per square foot productivity of Loft
stores by decreasing the average store size. The Company will continue to test
the Loft concept in Fiscal 1996, with plans to open two Loft stores of between
6,000 and 7,000 square feet each, in locations that are not factory outlet
centers.
In Fall 1994, the Company also introduced Ann Taylor Studio stores, a
free-standing shoe and accessory store concept. These stores carry the broadest
selection of Ann Taylor footwear, and also offer Ann Taylor hosiery, small
leather accessories such as belts and handbags, and the "destination" product
line. As of February 3, 1996, the Company had nine Ann Taylor Studio stores,
located in regional malls in which the Company also has an Ann Taylor Store. Ann
Taylor Studio stores average approximately 1,900 square feet. The Ann Taylor
Studio stores have not yet met the Company's initial profit objectives for these
stores. The Company will continue to test the Ann Taylor Studio store concept,
although it does not plan to open any additional Studio stores in Fiscal 1996.
EXPANSION
An important aspect of the Company's business strategy has been a real
estate expansion program designed to reach new customers through the opening of
new stores, as well as the expansion of existing stores in order to accommodate
product extensions and improve customer service. The Company adds additional
stores or expands the size of existing stores in markets where Ann Taylor
already has a presence, as market conditions warrant and sites become available.
The Company also opens new stores in additional markets that it believes have a
sufficient concentration of its target customers. Prior to 1993, the Company's
store expansion program focused primarily on adding new Ann Taylor Stores. Since
developing the larger Ann Taylor Store prototypes in 1992, the expansion of
existing Ann Taylor Stores was also made an integral part of the Company's
expansion strategy. Stores expanded by more than 15% are excluded from
comparable sales calculations until they have been open over one year at their
expanded size.
The following table sets forth certain information regarding store openings,
expansions and closings for Ann Taylor Stores ("ATS"), Ann Taylor Factory Stores
("ATO"), Ann Taylor Loft stores
8
("ATL") and Ann Taylor Studio stores ("ATA") since the consummation of the
Acquisition in the beginning of 1989:
NO. STORES NO. STORES OPEN
TOTAL STORES OPENED DURING NO. STORES NO. STORES AT END OF
OPEN AT FISCAL YEAR EXPANDED CLOSED FISCAL YEAR
BEGINNING OF --------------------- DURING DURING -----------------------------
FISCAL YEAR FISCAL YEAR(A) ATS ATO ATL ATA FISCAL YEAR(B) FISCAL YEAR(B) ATS ATO ATL ATA TOTAL
- ------------------------ -------------- --- --- --- --- -------------- -------------- --- --- --- --- -----
1989.................... 119 20 1 -- -- 2 1 138 1 -- -- 139
1990.................... 139 29 3 -- -- 3 1 166 4 -- -- 170
1991.................... 170 33 -- -- -- 3 3 196 4 -- -- 200
1992.................... 200 20 -- -- -- 5 1 215 4 -- -- 219
1993.................... 219 8 5 -- -- 12 1 222 9 -- -- 231
1994.................... 231 18 12 -- 5 25 4 236 21 -- 5 262
1995.................... 262 26 2 16 4 30 4 258 22 17 9 306
- ------------
(a) Prior to 1989, all stores operated by the Company were Ann Taylor Stores.
(b) All stores expanded and all stores closed were Ann Taylor Stores, except
that one store expanded in 1994 was an ATO store, and one store expanded
in 1995 was an ATO store that was converted into an ATL store in
connection with such expansion.
The Company believes that its existing store base is a significant strategic
asset of its business. Ann Taylor Stores are located in some of the most
productive retail centers in the United States. The Company believes that it is
one of the most sought after tenants by real estate developers because of its
strong Ann Taylor brand franchise and its high sales per square foot
productivity ($518 per square foot in Fiscal 1995). The Company has invested
approximately $117 million in its store base since 1993; approximately 53% of
its stores are either new or have been completely remodeled, as a result of an
expansion or relocation, in the last three years.
Since 1993, another important aspect of the Company's business strategy has
been the addition of new channels of distribution through the development of new
store concepts. The Company's real estate efforts support this strategy by
seeking real estate sites compatible with each particular concept.
In 1995, the Company opened 26 Ann Taylor Stores (including the two flagship
stores referred to above), 16 Ann Taylor Loft stores, 2 Ann Taylor Factory
Stores and 4 Ann Taylor Studio stores, expanded 29 existing Ann Taylor Stores,
expanded one existing Factory Store that was then converted to a Loft store, and
closed 4 Ann Taylor Stores. This real estate expansion program resulted in a net
increase in the Company's total store square footage from approximately
1,173,000 square feet to approximately 1,651,000 square feet, a net increase of
approximately 478,000 square feet, or 40.8%. Capital expenditures for the
Company's Fiscal 1995 store expansion program, net of landlord construction
allowances, totaled approximately $65.1 million, including expenditures for
store refurbishing and store refixturing.
As described above under "Business--Business Strategy", in Fiscal 1996 the
Company intends to reduce the number of real estate projects under development
from 1995 levels, so that management may focus on addressing the business issues
that inhibited the Company's performance in Fiscal 1995. In Fiscal 1996, the
Company expects to increase store square footage by approximately 75,000 square
feet, or 4.5%, representing approximately 7 new Ann Taylor Stores, 2 new Ann
Taylor Loft stores, one new Ann Taylor Factory Store, and the expansion of 5
existing Ann Taylor Stores. The Company expects that capital expenditures for
its Fiscal 1996 store expansion program, net of landlord construction
allowances, will be approximately $10 million, including expenditures for store
refurbishing and store refixturing. The Company expects to evaluate its store
expansion strategy for Fiscal 1997 and beyond later in 1996. Ann Taylor's bank
credit agreement restricts the Company's annual capital expenditures to $25
million in Fiscal 1996 and to $32.5 million for subsequent years, subject to
increase if certain conditions are satisfied. See Note 2 to the Company's
Consolidated Financial Statements.
9
The Company's ability to continue to increase store square footage will be
dependent upon general economic and business conditions affecting consumer
confidence and spending, the availability of desirable locations and the
negotiation of acceptable lease terms. See "Management's Discussion and
Analysis--Liquidity and Capital Resources".
INFORMATION SYSTEMS
Over the past three years, the Company has invested in computer hardware,
systems applications and local and wide area networks to improve customer
service, to support the planning, allocation and merchandising processes, and to
improve operating efficiencies.
In Spring 1994, the Company completed the roll out of a new point of sale
system to all Ann Taylor stores. The new system allows the introduction of a
number of features that enable the Company to manage its business more
effectively and cost efficiently. Through the new system, the Company has
introduced on-line acknowledgment of inventory receipts and transfers, which
results in more timely inventory information and a reduction in paperwork; and
advance ship notices to stores prior to their receipt of merchandise, allowing
better store labor planning. The new system permits automated promotional
tracking, providing better information to the stores on current promotions and
providing the results of these promotions to the Company's headquarters on a
more timely basis. This allows the Company to respond more quickly and
accurately to customer preferences. During Fiscal 1995, the Company began to
implement on-line entry of time and attendance information and staff scheduling,
improving accuracy and reducing paperwork. Implementation of this feature should
be completed during Spring 1996.
During Fiscal 1994, the Company also made significant upgrades to its
inventory management system. These upgrades, along with the new point of sale
system, enabled the Company to introduce full price look-up and provide for more
timely information on inventory levels and improved analysis of sales trends.
This information will allow the Company to more fully integrate its merchandise
planning and allocation systems.
In Fiscal 1995, the Company continued to make significant upgrades to its
inventory management system. The Company's inventory management system employs a
relational database to enable the Company to analyze sales and inventory
information at a high level of detail. The inventory management system is being
further integrated with the Company's merchandise planning, allocation, and
replenishment systems. This integration allows the Company to respond more
quickly to individual store trends and make allocations of merchandise more
closely aligned with an individual store's customer base.
CUSTOMER CREDIT
Customers may pay for merchandise with the Ann Taylor credit card, American
Express, Visa, MasterCard, cash or check. Credit card sales were 77.0% of net
sales in Fiscal 1995, 77.7% in Fiscal 1994 and 77.9% in Fiscal 1993. In Fiscal
1995, 24.7% of net sales were made with the Ann Taylor credit card and 52.3%
were made with third-party credit cards. As of February 3, 1996, the Company's
Ann Taylor credit card accounts receivable totaled $57.4 million, net of
allowance for doubtful accounts. Accounts written off in Fiscal 1995 were
approximately $1,475,000, or 0.2% of net sales.
Ann Taylor has offered customers its proprietary credit card since 1976. The
Company believes that the Ann Taylor credit card enhances customer loyalty while
providing the customer with additional credit. The percentage of the Company's
total sales made with its proprietary credit card has been declining over the
past few years. The Company believes the declining penetration of its Ann Taylor
credit card as a percentage of sales is attributable to the gain of market share
by bank cards throughout the retail industry generally, as well as to the
increase in the number of the Company's Ann Taylor Factory Stores and Loft
stores, which experience a significantly lower penetration of sales with the Ann
10
Taylor card. At February 3, 1996, the Company had over 520,000 Ann Taylor credit
card accounts that had been used during the past 18 months.
ADVERTISING AND PROMOTION
For many years, including 1995, the Company has relied on its Ann Taylor
fashion catalog, mailed principally to Ann Taylor credit card holders, as its
principal advertising vehicle. Prior to 1994, the Company also occasionally ran
print advertisements in national women's fashion magazines such as Elle, Vogue
and Harpers Bazaar. The Company did not run any such magazine advertisements in
1995 or 1994.
In early 1996, the Company suspended its fashion catalog and is presently
evaluating the effectiveness of various advertising strategies, including
limited print advertisements in national women's fashion magazines and other
advertising media, including various outdoor venues such as bus shelters or mass
transit posters.
TRADEMARKS AND SERVICE MARKS
The trademarks and service marks for Ann Taylor and Ann Taylor Loft,
including ATdenim and "destination", either have been registered or have
trademark applications pending with the United States Patent and Trademark
Office and with the registries of many foreign countries.
The Company's rights in the "AnnTaylor" mark and the other marks used by it
are a significant part of the Company's business, as the Company believes its
marks are well known in the women's retail apparel industry. Accordingly, the
Company intends to maintain its "AnnTaylor" mark and related registrations.
COMPETITION
The women's retail apparel industry is highly competitive. The Company's
stores compete with certain departments in national or local department stores,
and with other specialty store chains and independent retail stores carrying
similar lines of merchandise. The Company believes that its focused merchandise
selection, exclusive Ann Taylor brand name fashions, personalized service and
convenience distinguish it from other specialty retailers. Many of the Company's
competitors are considerably larger and have substantially greater financial,
marketing and other resources than the Company and there is no assurance that
the Company will be able to compete successfully with them in the future.
EMPLOYEES
Store management receives compensation in the form of salaries and
performance-based bonuses. Sales associates are paid on an hourly basis plus
performance incentives. A number of programs exist that offer incentives to both
management and sales associates to increase sales and support the Company's
total wardrobing strategy. For example, certain incentive programs offer
individual associates payment for selling multiple wardrobe items and for
achieving individual sales goals.
As of February 3, 1996, the Company had 5,962 employees, of whom 1,366 were
full-time salaried employees, 1,663 were full-time hourly employees and 2,933
were part-time hourly employees working less than 30 hours per week. None of the
Company's employees are represented by a labor union. The Company believes that
its relationship with its employees is good.
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
11
well as for the payment of certain other expenses, such as insurance, utilities
and repair and maintenance expenses, and real estate taxes. The current terms of
the Company's leases, including renewal options, expire as follows:
FISCAL YEARS LEASE NUMBER OF
TERMS EXPIRE STORES
- --------------------------------- ---------
1996-1998........................ 69
1999-2001........................ 82
2002-2004........................ 82
2005 and later................... 73
Ann Taylor leases corporate offices at 142 West 57th Street, New York,
containing approximately 86,700 square feet. The lease for these premises
expires in 2006. The Company also leases office space in New Haven, which
contains approximately 31,000 square feet. The lease for these premises expires
in 1998.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed and traded on the New York Stock
Exchange under the symbol ANN. The number of holders of record of Common Stock
at March 1, 1996 was 860. The following table sets forth the high and low
closing sale prices for the Common Stock on the New York Stock Exchange during
Fiscal 1995 and Fiscal 1994.
MARKET PRICE
--------------------------------
FISCAL YEAR 1995 HIGH LOW
------------- -------------
Fourth quarter.......................... $ 15 5/8 $ 9 1/2
Third quarter........................... 21 7/8 10 1/4
Second quarter.......................... 25 5/8 19 1/2
First quarter........................... 37 3/4 25 1/8
FISCAL YEAR 1994
Fourth quarter.......................... $ 44 1/4 $ 31 7/8
Third quarter........................... 44 35
Second quarter.......................... 41 1/8 31 1/2
First quarter........................... 36 20 7/8
The Company has never paid dividends on the Common Stock and does not intend
to pay dividends in the foreseeable future. As a holding company, the ability of
the Company to pay dividends is dependent upon the receipt of dividends or other
payments from Ann Taylor. The payment of dividends by Ann Taylor to the Company
is subject to certain restrictions under Ann Taylor's bank credit agreement (the
"Bank Credit Agreement"), the indenture (the "Indenture") relating to Ann
Taylor's 8 3/4% Subordinated Notes due 2000 (the "8 3/4% Notes"), and the
Receivables Facility described below under "Management's Discussion and
Analysis--Liquidity and Capital Resources". The payment of cash dividends on the
Common Stock by the Company is also subject to certain restrictions contained in
the Company's guarantee of Ann Taylor's obligations under the Bank Credit
Agreement. Any determination to pay cash dividends in the future will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's results of operations, financial condition, contractual restrictions
and other factors deemed relevant at that time by the Company's Board of
Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial information for the periods
indicated has been derived from the audited consolidated financial statements of
the Company. The Company's consolidated statements of operations, stockholders'
equity and cash flows for each of the three fiscal years ended February 3, 1996,
January 28, 1995 and January 29, 1994, and consolidated balance sheets as of
February 3, 1996 and January 28, 1995, as audited by Deloitte & Touche LLP,
independent auditors, appear elsewhere in this document. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis" and the consolidated financial statements and notes thereto of the
Company included elsewhere in this document. All references to years are to the
fiscal year of the Company, which ends on the Saturday nearest January 31 in the
following calendar year. All fiscal years for which financial information is set
forth below had 52 weeks, with the exception of 1995, which had 53 weeks.
13
FISCAL YEARS ENDED
------------------------------------------------------------
FEB. 3, JAN. 28, JAN. 29, JAN. 30, FEB. 1,
1996 1995 1994 1993 1992
---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SQUARE FOOT DATA AND PER
SHARE DATA)
OPERATING STATEMENT INFORMATION:
Net sales, including leased shoe
departments (a)........................ $ 731,142 $ 658,804 $501,649 $468,381 $437,711
Cost of sales.......................... 425,225 357,783 271,749 264,301 234,136
---------- ---------- -------- -------- --------
Gross profit....................... 305,917 301,021 229,900 204,080 203,575
Selling, general and administrative
expenses............................... 271,136 214,224 169,371 152,072 150,842
Distribution center restructuring
charge (b)............................. -- -- 2,000 -- --
Amortization of goodwill (c)........... 9,506 9,506 9,508 9,504 9,506
---------- ---------- -------- -------- --------
Operating income................... 25,275 77,291 49,021 42,504 43,227
Interest expense (d)................... 20,956 14,229 17,696 21,273 33,958
Stockholder litigation settlement
(e).................................... -- -- -- 3,905 --
Other (income) expense, net............ 38 168 (194) 259 542
---------- ---------- -------- -------- --------
Income before income taxes and
extraordinary loss..................... 4,281 62,894 31,519 17,067 8,727
Income tax provision................... 5,157 30,274 17,189 11,150 7,703
---------- ---------- -------- -------- --------
Income (loss) before extraordinary
loss................................... (876) 32,620 14,330 5,917 1,024
Extraordinary loss (f)................. -- 868 11,121 -- 16,835
---------- ---------- -------- -------- --------
Net income (loss).................. $ (876) $ 31,752 $ 3,209 $ 5,917 $(15,811)
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Income (loss) per share before
extraordinary loss..................... $ (.04) $ 1.40 $ .66 $ .28 $ .05
Extraordinary loss per share (f)....... -- (.04) (.51) -- (.87)
---------- ---------- -------- -------- --------
Net income (loss) per share........ $ (.04) $ 1.36 $ .15 $ .28 $ (.82)
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Weighted average shares outstanding (in
thousands)............................. 23,209 23,286 21,929 21,196 19,326
OPERATING INFORMATION:
Percentage increase (decrease) in total
comparable store sales (g)............. (8.9)% 13.7% 2.3% (1.0)% (5.6)%
Percentage increase (decrease) in owned
comparable store sales (g) (h)......... (8.9)% 13.7% 4.0% 0.8% (0.9)%
Net sales per square foot (i).......... $ 518 $ 627 $ 576 $ 600 $ 642
Number of stores:
Open at beginning of the period.... 262 231 219 200 170
Opened during the period........... 48 35 13 20 33
Expanded during the period......... 30 25 12 5 3
Closed during the period........... 4 4 1 1 3
Open at the end of the period...... 306 262 231 219 200
Total store square footage at end of
period................................. 1,651,000 1,173,000 929,000 814,000 746,000
Capital expenditures................... $ 78,378 $ 61,341 $ 25,062 $ 4,303 $ 10,004
Depreciation and amortization,
including goodwill (c)............... $ 28,294 $ 21,293 $ 18,013 $ 16,990 $ 15,709
Working capital turnover (j)........... 7.8x 8.5x 12.1x 16.8x 12.8x
Inventory turnover (k)................. 4.3x 4.6x 4.9x 5.3x 4.6x
BALANCE SHEET INFORMATION (AT END OF
PERIOD):
Working capital (l).................... $ 86,477 $ 102,181 $ 53,283 $ 29,539 $ 26,224
Goodwill, net (c)...................... 313,525 323,031 332,537 342,045 351,549
Total assets........................... 678,709 598,254 513,399 487,592 491,747
Total debt............................. 272,458 200,000 189,000 195,474 211,917
Stockholders' equity................... 325,688 326,112 259,271 245,298 229,464
(Footnotes on following page)
14
(Footnotes for preceding page)
(a) Prior to 1990, all shoes sold in Ann Taylor Stores were "Joan & David" shoes, sold in
leased shoe departments by Joan & David Helpern, Inc. ("Joan & David") pursuant to a
license agreement. In 1990, the Company introduced a line of Ann Taylor brand shoes.
Beginning in August 1990, Joan & David began a scheduled withdrawal of its leased shoe
departments, vacating departments in groups of stores every six months through the end
of Fiscal 1992. As of February 1, 1993, Joan & David no longer operated leased shoe
departments in any Ann Taylor stores. Sales from leased shoe departments were
$8,207,000 in Fiscal 1992 and $16,056,000 in Fiscal 1991.
(b) Relates to the relocation of the Company's distribution center, completed in late
Spring 1995, and represents a charge of $1,100,000 principally for severance and job
training benefits and $900,000 for the write-off of the net book value of certain
assets not used in the new facility. This charge reduced Fiscal 1993 net earnings by
$.05 per share.
(c) As a result of the Acquisition, which was effective as of January 29, 1989,
$380,250,000, representing the excess of the allocated purchase price over the fair
value of the Company's net assets, was recorded as goodwill and is being amortized on a
straight-line basis over 40 years.
(d) Includes non-cash interest expense of $1,004,000, $978,000, $4,199,000, $8,581,000, and
$12,243,000 in Fiscal 1995, 1994, 1993, 1992 and 1991, respectively, from amortization
of deferred financing costs, and in 1993, 1992 and 1991, from accretion of original
issue discount and, in 1992 and 1991, from the issuance of additional 10% junior
subordinated exchange notes due 2004.
(e) Relates to the settlement in January 1993 of a stockholder class action lawsuit that
was filed against the Company and certain other defendants in October 1991.
(f) In Fiscal 1994, Ann Taylor incurred an extraordinary loss of $1,522,000 ($868,000, or
$.04 per share, net of income tax benefit), in connection with the prepayment of
long-term debt with the proceeds of a public sale of common stock of the Company. In
Fiscal 1993, Ann Taylor incurred an extraordinary loss of $17,244,000 ($11,121,000, or
$.51 per share, net of income tax benefit) due to debt refinancing activities. In
Fiscal 1991, Ann Taylor incurred an extraordinary loss of $25,900,000 ($16,835,000, or
$.87 per share, net of income tax benefit), in connection with the repurchase of a
portion of its then outstanding debt securities with proceeds from the Company's
initial public stock offering.
(g) Comparable store sales are calculated by excluding the net sales of a store for any
month of one period if the store was not open during the same month of the prior
period. A store opened within the first two weeks of a month is deemed to have been
opened on the first day of that month and a store opened later in a month is deemed to
have been opened on the first day of the next month. For example, if a store were
opened on June 8, 1994, its sales from June 8, 1994 through year-end 1994 and its sales
from June 1, 1995 through year-end 1995 would be included in determining comparable
store sales for 1995, compared to 1994. In addition, in a year with 53 weeks, the extra
week is not included in determining comparable store sales. For periods prior to 1993,
when a store's square footage was increased as a result of expansion or relocation in
the same mall or specialty center, the store continued to be treated as a comparable
store after the expansion. Commencing with stores expanded in Fiscal 1993, any store
the square footage of which is expanded by more than 15% is treated as a new store for
the first year following the opening of the expanded store. Comparable store sales for
1995 reflect a 52-week period.
(h) Excludes sales from leased shoe departments for periods prior to Fiscal 1993.
(i) Net sales per square foot ("sales per square foot") is determined by dividing net sales
for the period by the average of the gross square feet at the beginning and end of each
period. Unless otherwise indicated, references herein to square feet are to gross
square feet, rather than net selling space.
(j) Working capital turnover is determined by dividing net sales by the average of the
amount of working capital at the beginning and end of the period.
(k) Inventory turnover is determined by dividing cost of sales (excluding costs of leased
shoe departments) by the average of the cost of inventory at the beginning and end of
the period.
(l) Includes current portion of long-term debt of $40,266,000, $0, $8,757,000, $37,000,000
and $26,000,000 in Fiscal 1995, 1994, 1993, 1992 and 1991, respectively.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION GENERAL
During Fiscal 1995, the Company added 26 Ann Taylor Stores, 16 Ann Taylor
Loft stores, 2 Ann Taylor Factory Stores, 4 Ann Taylor Studio stores, expanded
29 existing Ann Taylor Stores, and expanded one existing Factory Store that was
then converted to a Loft store, and closed 4 Ann Taylor Stores. This real estate
expansion program resulted in a net increase in the Company's retail store space
of approximately 478,000 square feet, to a total of approximately 1,651,000
square feet, representing a 40.8% increase over total retail store space of
approximately 1,173,000 square feet at the end of Fiscal 1994. The Company
expects to increase its retail store space by approximately 75,000 square feet,
or 4.5%, in Fiscal 1996. The Company's ability to continue to expand will be
dependent upon general economic and business conditions affecting consumer
spending, the availability of desirable locations and the negotiation of
acceptable lease terms for new locations. In addition, the Bank Credit Agreement
restricts the Company's annual capital expenditures to $25 million in Fiscal
1996 and to $32.5 million thereafter, subject to increase if certain conditions
are satisfied. See "Business--Expansion" and Note 2 to the Company's
Consolidated Financial Statements.
The Company's net sales do not show significant seasonal variation, although
net sales in the fourth quarter have historically been moderately higher than in
the other quarters. The Company believes that its merchandise is purchased
primarily by women who are buying for their own wardrobes rather than as gifts,
and the Company historically has experienced only moderate increases in net
sales during the Christmas season. As a result of these factors, the Company has
not had significant overhead and other costs generally associated with large
seasonal variations.
The following table shows the distribution of the Company's annual net sales
and operating income by quarter for Fiscal 1995, 1994 and 1993:
FISCAL 1995(A) FISCAL 1994 FISCAL 1993
---------------------- ---------------------- ----------------------
OPERATING
INCOME OPERATING OPERATING
NET SALES (LOSS) NET SALES INCOME NET SALES INCOME(B)
--------- --------- --------- --------- --------- ---------
First Quarter............ 23.0% 48.0% 22.0% 25.3% 24.0% 24.3%
Second Quarter........... 25.1 (3.1) 24.3 24.2 24.9 25.3
Third Quarter............ 24.4 34.4 25.0 25.7 24.3 25.2
Fourth Quarter........... 27.5 20.7 28.7 24.8 26.8 25.2
--------- --------- --------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
- ------------
(a) Fiscal 1995 was a 53-week year and therefore the fourth quarter included an "extra"
week. Excluding the last week of the fourth quarter, net sales in Fiscal 1995 were
distributed among the first through fourth quarters as follows: 23.3%, 25.5%, 24.7% and
26.5%, respectively.
(b) Excludes the $2,000,000 charge to earnings relating to the relocation of the Company's
distribution center.
Sales per square foot were $518 in Fiscal 1995, $627 in Fiscal 1994 and $576
in Fiscal 1993. Since 1993, Ann Taylor Stores opened by the Company average
6,000 square feet, compared to the average store size prior to 1993 of 3,500
square feet. In addition, since 1993, the Company has expanded 66 stores from an
average of 3,500 square feet to an average store size of 6,000 square feet. Ann
Taylor Factory Stores average 6,500 square feet, and Ann Taylor Loft stores
opened in Fiscal 1995 average 10,000 square feet in size. The increase in
average store size has had, and is expected to continue to have, a negative
effect on sales per square foot. In Fiscal 1995, the decrease in sales per
square foot was also a result of negative comparable store sales and sales per
square foot productivity of new store square footage added in Fiscal 1995 that
was lower than the Company average sales per square foot. In
16
Fiscal 1994, the increase in sales per square foot was a result of positive
comparable store sales, offset in part by sales per square foot productivity of
new store square footage added in Fiscal 1994 that was lower than the Company
average sales per square foot.
RESULTS OF OPERATIONS
The following table sets forth operating statement data expressed as a
percentage of net sales for the historical periods indicated:
FISCAL 1995 FISCAL 1994 FISCAL 1993
----------- ----------- -----------
Net sales....................................... 100.0% 100.0% 100.0%
Cost of sales................................... 58.2 54.3 54.2
----- ----- -----
Gross profit................................. 41.8 45.7 45.8
Selling, general and administrative expenses.... 37.0 32.5 33.8
Distribution center restructuring charge........ -- -- 0.4
Amortization of goodwill........................ 1.3 1.5 1.8
----- ----- -----
Operating income............................. 3.5 11.7 9.8
Interest expense................................ 2.9 2.2 3.5
Other (income) expense, net (a)................. -- -- --
----- ----- -----
Income before income taxes and extraordinary
loss............................................ 0.6 9.5 6.3
Income tax provision............................ 0.7 4.6 3.4
----- ----- -----
Income (loss) before extraordinary loss......... (0.1) 4.9 2.9
Extraordinary loss.............................. -- 0.1 2.3
----- ----- -----
Net income (loss)............................ (0.1)% 4.8% 0.6%
----- ----- -----
----- ----- -----
- ------------
(a) Other (income) expense, net was less than 0.1% of net sales in 1995, 1994
and 1993.
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.
17
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 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. See "Management's Discussion and Analysis--Liquidity and Capital
Resources".
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.
FISCAL 1994 COMPARED TO FISCAL 1993
The Company's net sales increased to $658,804,000 in 1994 from $501,649,000
in 1993, an increase of $157,155,000, or 31.3%. The increase in net sales was
attributable to the inclusion of a full year of operating results for the 13
stores opened and 12 stores expanded during 1993, the opening of 35 new stores
and expansion of 25 stores in 1994 and a 13.7% increase in comparable store
sales. The 13.7% increase in comparable stores sales was due primarily to
customer acceptance of the Company's merchandise offerings in 1994, including
product extensions such as Ann Taylor Petites, shoes and "destination". The
sales increase was partially offset by the closing of four stores in 1994.
Gross profit as a percentage of net sales decreased slightly to 45.7% in
1994 from 45.8% in 1993. This decrease was attributable to increased cost of
goods sold resulting from lower initial markups, offset by lower markdowns
associated with reduced promotional activities.
Selling, general and administrative expenses as a percentage of net sales
decreased to 32.5% in 1994 from 33.8% in 1993. The decrease was primarily
attributable to the leveraging of fixed four-wall
18
expenses as a result of comparable store sales growth and the leveraging of
fixed central expenses over a larger sales base. Such decrease was partially
offset by increased expenditures relating primarily to the Company's information
systems, expansion of the Company's merchandising and product design teams, and
higher catalog expenses.
Operating income increased to $77,291,000, or 11.7% of net sales, in 1994,
from $49,021,000, or 9.8% of net sales, in 1993. Operating income for 1993 was
reduced by a $2,000,000 restructuring charge representing 0.4% of net sales.
Amortization of goodwill from the Acquisition was $9,506,000 in 1994 and
$9,508,000 in 1993. Operating income without giving effect to such amortization
was $86,797,000, or 13.2% of net sales, in 1994, and $58,529,000, or 11.6% of
net sales, in 1993.
Interest expense was $14,229,000, including $978,000 of non-cash interest
expense, in 1994 and $17,696,000, including $4,199,000 of non-cash interest
expense, in 1993. The decrease is attributable to lower interest rates
applicable to the Company's debt obligations in the 1994 period, resulting
principally from refinancing transactions entered into in the Fall of 1993 and
Summer of 1994 and the reduction of the Company's long-term debt with the net
proceeds from a common stock offering in May 1994. After taking into account the
Company's interest rate swap agreement (see Note 2 to the Company's Consolidated
Financial Statements), in 1994 all of the Company's debt obligations were at
variable rates of interest. The weighted average interest rate on the Company's
outstanding indebtedness at January 28, 1995 was 8.90% compared to 6.22% at
January 29, 1994.
The income tax provision was $30,274,000, or 48.1% of income before income
taxes and extraordinary loss, in the 1994 period compared to $17,189,000, or
54.5% of income before income taxes and extraordinary loss, in 1993. The
effective tax rates for both periods were higher than the statutory rates,
primarily as a result of non-deductible goodwill expense.
In connection with the debt refinancing activities undertaken by the Company
in 1994 (see Note 9 to the Company's Consolidated Financial Statements), the
Company incurred an extraordinary loss of $1,522,000 ($868,000 net of income tax
benefit). The Company also incurred an extraordinary loss of $17,244,000
($11,121,000 net of income tax benefit) in 1993 as a result of debt refinancing
activities undertaken in that year.
As a result of the foregoing factors, the Company had net income of
$31,752,000, or 4.8% of net sales, for 1994 compared to net income of
$3,209,000, or 0.6% of net sales, for 1993.
CHANGES IN FINANCIAL POSITION
Accounts receivable increased to $70,395,000 at the end of 1995 from
$61,211,000 at the end of 1994, an increase of $9,184,000, or 15.0%. This
increase was primarily attributable to an increase in Ann Taylor credit card
receivables, which increased $7,709,000, or 15.5% to $57,440,000 in 1995,
primarily as a result of a change in Fiscal 1995 of certain credit card terms,
including a decrease in the amount of the minimum monthly payment required to be
made on Ann Taylor credit card accounts.
Prepaid expenses and other current assets were $12,808,000 at the end of
1995, compared to $6,601,000 at the end of 1994, an increase of $6,207,000 or
94.0%. This increase was partially attributable to increases in the purchase of
components for the Company's fragrance and personal care products, prepaid
fabric and prepaid store selling supplies. Prepaid tenancy costs increased to
$8,099,000 at the end of 1995 from $1,355,000 at the end of 1994, an increase of
$6,744,000, primarily due to the timing of payments to landlords, as a result of
the inclusion of a fifty-third week in the fiscal calendar for 1995.
19
As indicated above under "Business--Merchandise Design and Production",
Cygne Designs, Inc., one of the Company's principal suppliers, disclosed in
November 1995 that it is in default of certain provisions of its credit
agreements. The Company from time to time has made advances to Cygne in order to
assist it in carrying fabric purchases made by Cygne in anticipation of the
issuance by the Company of merchandise purchase orders. Advances from the
Company to Cygne outstanding at February 3, 1996 totaled approximately $8
million. In the event of a default by Cygne on such Company advances, the
Company believes that it would have a right of set-off to the extent of accounts
payable by the Company to Cygne for merchandise purchased from Cygne. No
assurances can be given that a court would uphold such right of set-off. At
February 3, 1996, accounts payable to Cygne totaled approximately $5 million.
Prepaid expenses and other current assets referenced above include the net
amount of the Company's advances to Cygne. If the CAT/Cygne Transaction is
consummated, the Company will assume the liability for these advances, and the
purchase price for the assets acquired will be reduced in a like amount.
Merchandise inventories increased to $102,685,000 at the end of 1995 from
$93,705,000 at the end of 1994, an increase of $8,980,000, or 9.6%. Total square
footage increased to approximately 1,651,000 square feet at February 3, 1996
from approximately 1,173,000 square feet at January 28, 1995. Merchandise
inventory on a per square foot basis was approximately $62 at the end of Fiscal
1995, compared to approximately $80 at the end of Fiscal 1994, a decrease of
approximately 22%. This decrease is a reflection of more conservative inventory
management and a reduction in merchandise purchases in reaction to lower sales
per square foot productivity.
Accounts payable increased to $42,909,000 at the end of 1995 from
$36,625,000 at the end of 1994, an increase of $6,284,000. The increase in
accounts payable is primarily due to the increase in inventory at the end of
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flow from
operations and borrowings under the Company's revolving credit facility under
the Bank Credit Agreement and the Receivables Facility described below. The
following sets forth material measures of the Company's liquidity:
FISCAL YEAR
------------------------------
1995 1994 1993
------- -------- -------
(DOLLARS IN THOUSANDS)
Cash provided by operating activities........ $ 7,376 $ 17,149 $47,322
Working capital.............................. $86,477 $102,181 $53,283
Current ratio................................ 1.77:1 2.55:1 1.78:1
Debt to equity ratio......................... .84:1 .61:1 .73:1
Cash provided by operating activities decreased in 1995 principally as a
result of a decrease in earnings and an increase in merchandise inventories,
prepaid expenses and accounts receivable, offset by an increase in accounts
payable. Working Capital decreased as a result of an increase in the current
portion of long-term debt of $40,266,000 and an increase in accounts payable,
offset by an increase in merchandise inventories, prepaid expenses and accounts
receivable.
In September 1995, the Company entered into the Bank Credit Agreement, that
amended and restated the Company's 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
20
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
balance under the revolving credit facility to $50,000,000 or less for a 30-day
period in 1996 and in each fiscal year thereafter. At February 3, 1996, the
Company had $101,000,000 outstanding under the revolving credit facility. 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 requirements to maintain certain
financial ratios and specified levels of net worth. The Company's ability to
satisfy such financial covenants will be dependent upon, among other things, the
Company's sales and earnings and the amount of capital expenditures made by the
Company. 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.
In July 1993, in conjunction with the issuance of the 8 3/4% Notes, Ann
Taylor 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. The
Company is required to pay a rate of 5.375% through the maturity of the swap
agreement in July 1996.
In November 1995, Ann Taylor 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 apply one-half of the proceeds of the mortgage to reduce
the amount available under the revolving credit facility and to prepay a portion
of the term loan.
On October 31, 1995, AnnTaylor Funding, Inc., a wholly owned subsidiary of
Ann Taylor, 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. The
financial covenants in the new agreement were revised to mirror certain of the
financial covenants contained in the Bank Credit Agreement. The Receivables
Facility is secured by Ann Taylor credit card receivables, and AnnTaylor
Funding, Inc. can borrow up to $40,000,000 under this facility based on its
eligible receivables balance. As of February 3, 1996, the maximum of $40,000,000
was outstanding under this facility. The Receivables Facility matures January
1997. The Company expects to negotiate an extension of the maturity of this
facility during 1996.
The Company's capital expenditures totaled $78,378,000, $61,341,000, and
$25,062,000 in Fiscal 1995, 1994 and 1993, respectively. The increase in capital
expenditures in 1995 is due primarily to increased spending on new and expanded
stores, including two flagship stores, and an increase in the number of
expansions of existing stores over the prior year, offset by lower expenditures
for the Kentucky distribution center compared to 1994. The Company expects its
capital expenditure requirements to be approximately $11,000,000 in 1996. The
actual amount of the Company's capital expenditures will depend in part on the
number of stores opened, expanded and refurbished and on the amount of
construction allowances the Company receives from the landlords of its new or
expanded stores. See "Business--Expansion".
Dividends and distributions from Ann Taylor to the Company are restricted by
the Bank Credit Agreement, the Receivables Facility and the Indenture for the 8
3/4% Notes.
As indicated above under "Business--Merchandise Design and Production", in
Fiscal 1995 the Company purchased approximately 38% of its merchandise through
its CAT sourcing joint venture.
21
CAT obtains its principal working capital financing pursuant to a $40 million
loan facility provided by the same bank that provides Cygne with its principal
working capital facility. Such loan facility expires in May 1996 and there can
be no assurance that CAT will be able to renew such facility. Although CAT
currently 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. As a result of Cygne's default under its bank credit agreement
described above under "Business-- Merchandise Design and Production", CAT's
current lender presently has the right to cancel CAT's $40 million credit
facility and to demand immediate repayment of all amounts outstanding under that
facility. If CAT's lender were to take such action, CAT would require alternate
financing in order to meet such obligations and to continue to operate its
business as presently conducted. The Company believes that such alternate
financing would be available for CAT. However, if CAT's existing lender were to
exercise its right to cancel CAT's facility or were not to renew such facility
and CAT were unable to obtain such replacement financing, the interruption or
cessation of business by CAT could have a material adverse effect on the
Company.
Ann Taylor has outstanding a $4 million standby letter of credit to support
CAT's obligations to its principal lender. The lender has the right under
certain circumstances to draw on such letter of credit to cover unpaid principal
and interest owed by CAT.
In order to finance its operations and capital requirements, the Company
expects to use internally generated funds, trade credit and funds available to
it under the Bank Credit Agreement and the Receivables Facility. The Company
typically purchases merchandise from its suppliers on terms requiring payment to
the suppliers within 30 days after the Company's receipt of the merchandise, or,
in the case of CAT, within a shorter period after such receipt. The Company did
not experience any change in trade terms with its suppliers in 1995, nor does it
anticipate any changes in trade terms in the future. However, if some or all of
the Company's suppliers were to demand shorter payment terms, the Company's
working capital needs would increase. Subject to there being no material change
in the Company's trade terms with its suppliers and CAT's ability to continue to
obtain financing for its operations, the Company believes that cash flow from
operations and funds available under the Bank Credit Agreement and the
Receivables Facility are sufficient to enable it to meet its ongoing cash needs
for its business, as presently conducted, for the foreseeable future.
The Company is exploring various financing opportunities to improve its
financial flexibility, including continuing to pursue financing a portion of its
capital expenditures and investments through fixture and equipment lease
financing arrangements, realizing greater liquidity from its Ann Taylor credit
card receivables portfolio, and the possible public or private issuance of
additional debt or equity securities.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" and No. 123, "Accounting for
Stock-Based Compensation". The Company believes that these statements will not
have a material impact on the financial statements of the Company when adopted
in Fiscal 1996.
RECENT DEVELOPMENTS
In Fiscal 1995, the Company purchased approximately 16% of its merchandise
directly from Cygne and an additional 38% of its merchandise through CAT, the
Company's direct sourcing joint venture which is 40% owned by the Company and
60% owned by Cygne. The Company and Cygne have entered into the CAT/Cygne
Agreement pursuant to which the Company, through a newly formed subsidiary, will
purchase the CAT Shares and the Cygne Sourcing Business. Upon consummation of
the
22
CAT/Cygne Transaction, CAT will become an indirect wholly owned subsidiary of
the Company and, in addition to continuing its own sourcing activities on behalf
of the Company, will own the Assets of the Division and will perform the Cygne
Sourcing Business. The aggregate consideration to be paid by the Company
pursuant to the CAT/Cygne Transaction consists of (i) shares of Common Stock of
the Company having a market price, based on the closing price of the Company'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, the Company
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.
As part of the CAT/Cygne Transaction, the Company will offer to hire certain
Division employees, and will enter into a new employment agreement with Mr.
Dwight Meyer, President of CAT. The Company will also assume the payment to Mr.
Meyer of amounts due under his existing employment agreement with CAT as a
result of the CAT/Cygne Transaction. In addition, in order to facilitate the
integration of CAT and the Cygne Sourcing Business into the Company's
operations, the Company will enter into two 3-year consulting agreements with
Cygne for the services of Mr. Bernard Manuel, Chief Executive Officer of Cygne,
and Mr. Irving Benson, President of Cygne, with aggregate annual payments of
$450,000 for such services, pursuant to which Mr. Manuel will provide advice
with regard to sourcing particularly in Hong Kong and Asia, and Mr. Benson will
provide advice with regard to design, merchandising and product development.
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 the Company
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.
Upon the closing of the CAT/Cygne Transaction, Cygne and the Company will
enter into a stockholders agreement pursuant to which (i) the shares of Common
Stock of the Company to be acquired by Cygne will not be transferable until 30
days after expiration of the lock-up period applicable to the 144A Offering
(except pursuant to a pledge to Cygne's lenders), (ii) Cygne will receive shelf
registration rights for the resale of such shares upon termination of the period
referred to in clause (i), and (iii) Cygne will be subject to a three-year
standstill agreement. The standstill agreement, among other things, (i) places
certain restrictions on Cygne's ability to engage in a proxy contest, propose a
change in control or otherwise seek to influence or control the Company, and
(ii) limits Cygne's ability to sell more than 2% of the outstanding Common Stock
of the Company in a two-week period other than pursuant to a tender offer, a
class action court settlement, a pro rata dividend or other pro rata
distribution to all Cygne stockholders upon liquidation of Cygne or otherwise,
or pursuant to an underwritten public offering (in which certain further limits
apply on sales to holders of 5% or more of the outstanding Common Stock of the
Company and on sales of more than 2% of the outstanding Common Stock of the
Company to any single purchaser or group of related purchasers).
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
23
production management in order to shorten lead times, improve merchandise
quality and reduce costs. See "Business--Business Strategy". The Company
believes that the integration of CAT's business and the Cygne Sourcing Business
with the Company's operations will enable CAT and the Cygne Sourcing Business 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 Company will form AnnTaylor Finance Trust, a Delaware business trust, to
offer securities not registered or required to be registered under the
Securities Act of 1933. 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. The Company 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 the Company's Convertible Subordinated Debentures due
2016. The convertible preferred securities will be convertible at the option of
the holders thereof into Common Stock of the Company. The Company plans to use
the proceeds of the offering to reduce borrowings outstanding under the
revolving credit facility without reduction of the commitment thereunder. If the
CAT/Cygne Transaction is consummated, Ann Taylor 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 1933, and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
24
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 Stockholders' Equity for the fiscal years ended
February 3, 1996, January 28, 1995 and January 29, 1994.
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.
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to
the Section entitled "Nominees for Election as Directors" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Company's Proxy
Statement for its 1996 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Sections entitled "Compensation of Directors", "Executive Compensation" and
"Employment Contracts" in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Section entitled "Beneficial Ownership of Common Stock" in the Company's
Proxy Statement for its 1996 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the Sections entitled "Compensation of Directors and Related Matters" and
"Compensation Committee Report on Executive Compensation--Compensation Committee
Interlocks and Insider Participation" in the Company's Proxy Statement for its
1996 Annual Meeting of Stockholders.
26
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 31 through 48 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 Stockholders' Equity for the fiscal years ended February 3,
1996, January 28, 1995 and January 29, 1994; 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 Restated Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8
filed with the Securities and Exchange Commission (the "Commission") on
August 10, 1992 (Registration No. 33-50688).
3.2 By-Laws of the Company. Incorporated by reference to Exhibit 3.2 to the Form
10-Q of the Company for the Quarter ended November 2, 1991 filed on December
17, 1991 (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.
10.1 Form of Warrant Agreement entered into between Ann Taylor and The Connecticut
Bank and Trust Company, National Association, including the form of Warrant.
Incorporated by reference to Exhibit 4.3 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 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.
10.2.1 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.
27
EXHIBIT NUMBER
- --------------
10.3 Amended and Restated Guaranty, dated as of September 29, 1995, made by the
Company 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.
10.4 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.
10.5 Amended and Restated Security and Pledge Agreement, dated as of September 29,
1995, made by the Company 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.
10.6 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.
10.7 1989 Stock Option Plan. Incorporated by reference to Exhibit 10.18 to the
Registration Statement of the Company and Ann Taylor filed on May 3, 1989
(Registration No. 33-28522).
10.7.1 Amendment to 1989 Stock Option Plan. Incorporated by reference to Exhibit
10.15.1 to the Annual Report on Form 10-K of the Company filed on April 30,
1993.
10.8 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 the Company and Ann Taylor
filed on May 3, 1989 (Registration No. 33-28522).
10.8.1 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 the Company filed on April 11, 1991
(Registration No. 33-39905).
10.8.2 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 the Company filed on April 29, 1993.
10.8.3 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.
10.8.4 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 the Company filed on
April 28, 1995.
10.8.5 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 the Company filed on April 28, 1995.
10.9 Tax Sharing Agreement, dated as of July 13, 1989, between the Company and Ann
Taylor. Incorporated by reference to Exhibit 10.24 to Amendment No. 2 to the
Registration Statement of the Company and Ann Taylor filed on July 13, 1989
(Registration No. 33-28522).
10.10 Employment Agreement, effective as of February 3, 1992, between the Company
and Sally Frame Kasaks. Incorporated by reference to Exhibit 10.28 to the
Annual Report on Form 10-K of the Company filed on April 28, 1992.
10.10.1 Employment Agreement dated as of February 1, 1994 between the Company and
Sally Frame Kasaks. Incorporated by reference to Exhibit 10.8 to the Form
10-Q of the Company for the Quarter ended October 29, 1994 filed on December
9, 1994.
10.11 Employment Agreement dated February 16, 1996 between the Company and J.
Patrick Spainhour.
10.12 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 the Company's Registration Statement on Form S-8 filed with
the Commission on June 30, 1994 (Registration No. 33-50688).
28
EXHIBIT NUMBER
- --------------
10.13 Amended and Restated Management Performance Compensation Plan as approved by
stockholders on June 1, 1994. Incorporated by reference to Exhibit 10.22.1
to the Annual Report on Form 10-K of the Company filed on April 28, 1995.
10.13.1 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 the Company filed on
April 28, 1995.
10.14 Associate Stock Purchase Plan. Incorporated by reference to Exhibit 10.31 to
the Form 10-Q of the Company for the Quarter Ended October 31, 1992 filed on
December 15, 1992.
10.15 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.
10.16 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.
10.17 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.)
10.18 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 the Company for the Quarter ended October 28, 1995 filed
on December 8, 1995.
10.19 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 the Company filed on March 31, 1994.
10.20 AnnTaylor Stores Corporation Deferred Compensation Plan. Incorporated by
reference to Exhibit 10.33 to the Annual Report on Form 10-K of the Company
filed on April 28, 1995.
10.20.1 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 the Company for the Quarter
Ended July 29, 1995 filed on September 11, 1995.
10.21 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.
10.22 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.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
99 Unaudited Historical and Pro Forma Combined Financial Statements
29
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 STORES CORPORATION
By: /S/ SALLY FRAME
KASAKS
..................................
Sally Frame Kasaks
Chairman and Chief Executive
Officer
Date: April 8, 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 8, 1996
.............................................. Officer and Director
Sally Frame Kasaks
/S/ J. PATRICK SPAINHOUR President, Chief Operating April 8, 1996
.............................................. Officer and Director
J. Patrick Spainhour
/S/ PAUL E. FRANCIS Executive Vice President-- April 8, 1996
.............................................. Finance and
Paul E. Francis Administration, Chief
Financial Officer, and
Director
/S/ WALTER J. PARKS Senior Vice President-- April 8, 1996
.............................................. Finance and Principal
Walter J. Parks Accounting Officer
/S/ GERALD S. ARMSTRONG Director April 8, 1996
..............................................
Gerald S. Armstrong
/S/ JAMES J. BURKE, JR. Director April 8, 1996
..............................................
James J. Burke, Jr.
/S/ ROBERT C. GRAYSON Director April 8, 1996
..............................................
Robert C. Grayson
/S/ ROCHELLE B. LAZARUS Director April 8, 1996
..............................................
Rochelle B. Lazarus
/S/ HANNE M. MERRIMAN Director April 8, 1996
..............................................
Hanne M. Merriman
30
ANNTAYLOR STORES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.............................................. 32
Consolidated Financial Statements:
Consolidated Statements of Operations for the fiscal years ended
February 3, 1996, January 28, 1995 and January 29, 1994................... 33
Consolidated Balance Sheets as of February 3, 1996 and January 28,
1995...................................................................... 34
Consolidated Statements of Stockholders' Equity for the fiscal years
ended February 3, 1996, January 28, 1995 and January 29, 1994............. 35
Consolidated Statements of Cash Flows for the fiscal years ended
February 3, 1996, January 28, 1995 and January 29, 1994................... 36
Notes to Consolidated Financial Statements............................ 37
31
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
ANNTAYLOR STORES CORPORATION:
We have audited the accompanying consolidated financial statements of
AnnTaylor Stores Corporation and its subsidiary, 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 subsidiary
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 8, 1996 as to Note 15)
32
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 1996,
FISCAL YEARS ENDED
--------------------------------------------------------
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net income (loss) per share of common stock:
Income (loss) per share before extraordinary
loss.......................................... $ (.04) $ 1.40 $ .66
Extraordinary loss per share.................. -- (.04) (.51)
---------------- ---------------- ----------------
Net income (loss) per share............. $ (.04) $ 1.36 $ .15
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Weighted average shares and share equivalents
outstanding................................... 23,209 23,286 21,929
See accompanying notes to consolidated financial statements.
33
ANNTAYLOR STORES CORPORATION
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 STOCKHOLDERS' 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
Stockholders' equity
Common stock, $.0068 par value; 40,000,000 shares authorized;
23,127,743 and 23,106,572 shares issued, respectively............ 157 157
Additional paid-in capital.......................................... 311,284 310,714
Warrants to acquire 36,605 and 58,412 shares of common stock,
respectively..................................................... 596 951
Retained earnings................................................... 14,120 14,996
Deferred compensation on restricted stock........................... (33) (149)
----------- -----------
326,124 326,669
Treasury stock, 44,983 and 65,843 shares, respectively, at
cost........................................................ (436) (557)
----------- -----------
Total stockholders' equity.................................... 325,688 326,112
----------- -----------
Total liabilities and stockholders' equity.................... $ 678,709 $ 598,254
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
34
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 1996,
JANUARY 28, 1995 AND JANUARY 29, 1994
(IN THOUSANDS)
RETAINED
EARNINGS
COMMON STOCK ADDITIONAL WARRANTS (ACCUM- NOTE RESTRICTED TREASURY STOCK
-------------- PAID-IN -------------- ULATED DUE FROM STOCK ---------------
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT) STOCKHOLDER AWARDS SHARES AMOUNT
------ ------ ---------- ------ ------ -------- ----------- ---------- ------ -------
Balance at January 30, 1993....... 21,158 $144 $ 261,820 512 $8,341 $(19,965) $(999) $ (398) 523 $(3,645)
Net income........................ -- -- -- -- -- 3,209 -- -- -- --
Exercise of stock options......... 745 5 6,121 -- -- -- -- -- -- --
Tax benefits related to stock
options........................... -- -- 3,240 -- -- -- -- -- -- --
Exercise of warrants.............. -- -- 550 (66) (963 ) -- -- -- (66) 413
Activity related to common stock
issued as employee incentives.... -- -- 79 -- -- -- -- 279 (6) 41
Repayment of note due from
stockholder....................... -- -- -- -- -- -- 999 -- -- --
------ ------ ---------- ------ ------ -------- ----- ----- ------ -------
Balance at January 29, 1994....... 21,903 149 271,810 446 7,378 (16,756) -- (119) 451 (3,191)
Net income........................ -- -- -- -- -- 31,752 -- -- -- --
Exercise of stock options......... 191 2 2,915 -- -- -- -- -- 3 (118)
Tax benefits related to stock
options........................... -- -- 1,565 -- -- -- -- -- -- --
Exercise of warrants.............. -- -- 3,675 (388) (6,427) -- -- -- (388) 2,752
Issuance of common stock.......... 1,000 6 30,414 -- -- -- -- -- -- --
Activity related to common stock
issued as employee incentives.... 13 -- 335 -- -- -- -- (30) -- --
------ ------ ---------- ------ ------ -------- ----- ----- ------ -------
Balance at January 28, 1995....... 23,107 157 310,714 58 951 14,996 -- (149) 66 (557)
Net loss.......................... -- -- -- -- -- (876) -- -- -- --
Exercise of stock options......... 23 -- 320 -- -- -- -- -- -- (12)
Tax benefits related to stock
options........................... -- -- 85 -- -- -- -- -- -- --
Exercise of warrants.............. -- -- 203 (21) (355 ) -- -- -- (22) 152
Activity related to common stock
issued as employee incentives.... (2) -- (38) -- -- -- -- 116 1 (19)
------ ------ ---------- ------ ------ -------- ----- ----- ------ -------
Balance at February 3, 1996....... 23,128 $157 $ 311,284 37 $ 596 $ 14,120 $ -- $ (33) 45 $ (436)
------ ------ ---------- ------ ------ -------- ----- ----- ------ -------
------ ------ ---------- ------ ------ -------- ----- ----- ------ -------
See accompanying notes to consolidated financial statements.
35
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
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)
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 issuance of common stock................ -- 30,420 --
Net proceeds from 8 3/4% Notes............................ -- -- 107,387
Proceeds from term loan................................... 25,000 -- 80,000
Proceeds from note due from stockholder................... -- -- 999
Proceeds from mortgage.................................... 7,000 -- --
Proceeds from Receivables Facility........................ 4,000 3,000 33,000
Purchase of 8 3/4% Notes.................................. -- -- (10,225)
Proceeds from exercise of stock options................... 384 4,371 9,486
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.
36
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of AnnTaylor
Stores Corporation (the "Company") and AnnTaylor, Inc. ("Ann Taylor"). The
Company has no material assets other than the common stock of Ann Taylor and
conducts no business other than the management of Ann Taylor. 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.
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.
37
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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.
NET INCOME PER SHARE
Net income per share is calculated by dividing net income by the weighted
average number of common shares and common share equivalents outstanding during
the period and assumes the exercise of the warrants and the dilutive effect of
the stock options.
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 FAIR VALUE AMOUNT FAIR 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
-------- ---------- -------- ----------
-------- ---------- -------- ----------
In September 1995, Ann Taylor 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
38
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. LONG-TERM DEBT--(CONTINUED)
$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, Ann Taylor 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 Ann Taylor's outstanding common stock held by the Company 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, Ann Taylor sells its proprietary credit
card accounts receivable to AnnTaylor Funding, Inc., a wholly owned subsidiary
of Ann Taylor, 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, Ann Taylor 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, Ann Taylor 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.
39
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. LONG-TERM DEBT--(CONTINUED)
Ann Taylor 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.
In November 1995, Ann Taylor 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, Ann Taylor 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
----------------------------------------------------
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 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
------- ------- -------
------- ------- -------
40
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
RENTAL COMMITMENTS
Ann Taylor 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 Ann
Taylor 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 Ann Taylor 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
----------------------------------------------------
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(IN THOUSANDS)
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 11
and Note 15). 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.
41
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In addition, Ann Taylor 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. COMMON STOCK WARRANTS
At February 3, 1996, the Company had outstanding warrants to acquire, in the
aggregate, 36,605 shares of the common stock of the Company (the "Warrants").
The Warrants, when exercised, entitle the holders thereof to acquire such
shares, subject to adjustment, at no additional cost. The Warrants expire on
July 15, 1999 and became exercisable as a result of the initial public offering
of the Company's common stock in May 1991.
6. PREFERRED STOCK
At February 3, 1996, January 28, 1995 and January 29, 1994, there were
2,000,000 shares of preferred stock, par value $.01, authorized and unissued.
7. STOCK OPTION PLANS
In 1989 and 1992, the Company established stock option plans. Under the
terms of both plans, the exercise price of any option may not be less than 100%
of the fair market value of the common stock on the date of grant. 156,203
shares of common stock are reserved for issuance under the 1989 plan and
1,456,600 shares of common stock are reserved for issuance under the 1992 plan.
At February 3, 1996, there were 19,357 shares under the 1989 plan and 239,269
shares under the 1992 plan available for future grant. Generally, options
granted under the plans expire ten years from the date of the grant.
Pursuant to an employment agreement with the Company, as of February 3,
1992, the Chairman of the Board and Chief Executive Officer of the Company was
granted 100,000 stock options at $22.125 per share and 100,000 stock options at
$26.00 per share.
42
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLANS--(CONTINUED)
The following summarizes stock option transactions for the fiscal years
ended February 3, 1996, January 28, 1995 and January 29, 1994:
OPTION PRICES NUMBER OF SHARES
--------------- ----------------
Outstanding Options January 30, 1993...... $6.80-$26.00 1,462,084
Granted................................. $18.125-$26.00 279,000
Exercised............................... $6.80-$22.25 (745,346)
Canceled................................ $6.80-$22.25 (86,426)
----------------
Outstanding Options January 29, 1994...... $6.80-$26.00 909,312
Granted................................. $25.375-$42.75 787,500
Exercised............................... $6.80-$28.00 (190,771)
Canceled................................ $6.80-$28.00 (108,035)
----------------
Outstanding Options January 28, 1995...... $6.80-$42.75 1,398,006
Granted................................. $12.50-$44.125 478,250
Exercised............................... $6.80-$22.75 (22,611)
Canceled................................ $6.80-$42.75 (299,468)
----------------
Outstanding Options February 3, 1996...... $6.80-$44.125 1,554,177
----------------
----------------
At February 3, 1996, January 28, 1995 and January 29, 1994 there were
exercisable 586,135 options, 461,669 options and 516,889 options, respectively.
In 1994, the Company's 1992 stock option plan was amended and restated to
include restricted stock and unit awards. On February 23, 1994, 13,630 shares of
restricted stock and 6,820 restricted units were awarded. The restrictions on
these grants lapse with respect to one-third of the shares and units awarded on
each of the first through third anniversaries of the date of the grant. In the
event a grantee terminates employment with the Company, any restricted stock or
restricted units remaining subject to restrictions are forfeited. As of February
3, 1996, 6,643 shares of restricted stock and 3,324 restricted units were
outstanding. The resulting unearned compensation expense was charged to
stockholders' equity and is being amortized over the applicable restricted
period.
The Financial Accounting Standards Board issued in October 1995, Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 requires companies to either (i) expense
the fair value of stock-based awards on the date of grant or (ii) follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations, the existing accounting
rules, provided that proforma disclosures are made of net income and earnings
per share determined as if the fair value method under SFAS 123 had been
adopted. Under APB 25, the Company currently does not recognize compensation
expense for its stock options plans as the exercise price equals the market
price of the underlying stock on the date of grant. Additionally, the
measurement of compensation expense required by SFAS 123 for restricted stock is
consistent with practice under APB 25, expensing the fair value at the date of
grant over the vesting period. The Company expects to elect to continue to
account for stock-based compensation in accordance with APB 25, and accordingly,
this statement will have no effect on the financial statements of the Company
when adopted in fiscal 1996.
8. EXECUTIVE COMPENSATION
As of February 3, 1992, the Chairman of the Board and Chief Executive
Officer of the Company received 60,000 shares of restricted common stock. The
resulting unearned compensation expense of $1,327,500, based on the market value
on the date of the grant, was charged to stockholders' equity and was amortized
over the restricted period applicable to these shares. As of January 28, 1995,
unearned compensation expense was fully amortized.
43
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EXECUTIVE COMPENSATION--(CONTINUED)
Effective February 1, 1994, the Company and the Chairman and Chief Executive
Officer of the Company entered into a new employment agreement (the "1994
Agreement"). Pursuant to the 1994 Agreement, the Company advanced the Chairman
and Chief Executive Officer the sum of $500,000, which bears interest at the
rate of 7.32% per annum compounded semi-annually. All principal and accrued
interest on the loan is due January 31, 1999, or otherwise forgiven if the
Chairman and Chief Executive Officer fulfills the requirements of the 1994
Agreement.
9. EXTRAORDINARY ITEMS
On May 18, 1994, the Company completed a public offering of 1,000,000 shares
of common stock (the "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 Offering payable by the Company). As required by the
Company's then-existing bank credit agreement, $30,000,000 of the net proceeds
of the Offering were used 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 Offering and refinancing of
long-term debt resulted in an extraordinary loss of $1,522,000 ($868,000 net of
income tax benefit). Pro forma income before extraordinary loss, income before
extraordinary loss per share and weighted average shares outstanding, assuming
the Offering had occurred at the beginning of the year, would have been
$32,875,000, $1.40 and 23,536,000, respectively.
The 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 the Company's common stock held by them.
The Company did not receive any of the proceeds of the shares sold by the
Selling Stockholders.
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 Ann Taylor'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.
10. 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.
11. 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 the outstanding common stock. Two of the members of the Board of Directors of
the Company and Ann Taylor 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 Ann Taylor and the Company.
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%
44
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--(CONTINUED)
Notes. In 1994, the Company also paid underwriting commissions of approximately
$1,027,000 to Merrill Lynch in connection with the Offering. The Company agreed
to indemnify Merrill Lynch, as underwriter, against certain liabilities,
including certain liabilities under the federal securities law, in connection
with the 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 Ann Taylor may offer to purchase the other party's interest in CAT.
Merchandise purchased by Ann Taylor 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.
12. 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
-----------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 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
----------- ----------- -----------
----------- ----------- -----------
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
-----------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 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
----------- ----------- -----------
----------- ----------- -----------
45
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(CONTINUED)
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:
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
(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
----------- -----------
----------- -----------
13. RETIREMENT PLANS
SAVINGS PLAN. Ann Taylor 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. Ann Taylor makes a matching
contribution of 50%, with respect to the first 3% of each participant's annual
earnings contributed to the plan. Ann Taylor'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 Ann Taylor 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
Ann Taylor. Ann Taylor'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":
FEBRUARY 3, JANUARY 28, JANUARY 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)
----------- ----------- -----------
----------- ----------- -----------
46
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RETIREMENT PLANS--(CONTINUED)
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
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%
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL 1995
Net sales........................................ $168,306 $183,695 $178,500 $200,641
Operating income (loss).......................... 12,123 (783) 8,687 5,248
Net income (loss)................................ 3,491 (3,809) 686 (1,244)
Net income (loss) per share...................... $ .15 $ (.16) $ .03 $ (.05)
FISCAL 1994
Net sales........................................ $145,283 $159,936 $164,632 $188,953
Operating income................................. 19,530 18,733 19,853 19,175
Income before extraordinary loss................. 8,060 7,923 8,284 8,353
Extraordinary loss............................... -- (868) -- --
Net income....................................... 8,060 7,055 8,284 8,353
Income per share before extraordinary loss....... $ .36 $ .34 $ .35 $ .35
Extraordinary loss per share..................... -- (.04) -- --
-------- -------- -------- --------
Net income per share............................. $ .36 $ .30 $ .35 $ .35
-------- -------- -------- --------
-------- -------- -------- --------
The sum of the quarterly per share data may not equal the annual amounts due
to changes in the weighted average shares and share equivalents outstanding.
15. SUBSEQUENT EVENT
The Company and Cygne have entered into an agreement in principle dated as
of April 8, 1996 (the "CAT/Cygne Agreement"), pursuant to which the Company,
through a newly formed subsidiary, will purchase all of the shares of CAT stock
owned by Cygne (the "CAT Shares") 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 the Company. In
47
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENT--(CONTINUED)
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 the Company pursuant to the CAT/Cygne Transaction consists of (i) shares of
Common Stock of the Company having a market price, based on the closing price of
the Company'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,
the Company 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 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.
48
INDEX TO EXHIBITS
EXHIBITS
- ---------
3.1 Restated Certificate of Incorporation of the Company. Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission (the "Commission") on August 10, 1992
(Registration No. 33-50688).
3.2 By-Laws of the Company. Incorporated by reference to Exhibit 3.2 to the Form 10-Q
of the Company for the Quarter ended November 2, 1991 filed on December 17, 1991
(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.
10.1 Form of Warrant Agreement entered into between Ann Taylor and The Connecticut Bank
and Trust Company, National Association, including the form of Warrant.
Incorporated by reference to Exhibit 4.3 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 Amended and Restated Credit Agreement, dated as of September 29, 1995, 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
10.1 to the Current Report on Form 8-K of Ann Taylor filed on October 17, 1995.
10.2.1 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.
10.3 Amended and Restated Guaranty, dated as of September 29, 1995, made by the Company
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.
10.4 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.
10.5 Amended and Restated Security and Pledge Agreement, dated as of September 29, 1995,
made by the Company 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.
10.6 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.
10.7 1989 Stock Option Plan. Incorporated by reference to Exhibit 10.18 to the
Registration Statement of the Company and Ann Taylor filed on May 3, 1989
(Registration No. 33-28522).
10.7.1 Amendment to 1989 Stock Option Plan. Incorporated by reference to Exhibit 10.15.1
to the Annual Report on Form 10-K of the Company filed on April 30, 1993.
10.8 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 the Company and Ann Taylor filed
on May 3, 1989 (Registration No. 33-28522).
10.8.1 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
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EXHIBITS
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the Company filed on April 11, 1991 (Registration No. 33-39905).
10.8.2 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 the Company filed on April 29, 1993.
10.8.3 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.
10.8.4 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 the Company filed on April 28, 1995.
10.8.5 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 the Company filed on April 28, 1995.
10.9 Tax Sharing Agreement, dated as of July 13, 1989, between the Company and Ann
Taylor. Incorporated by reference to Exhibit 10.24 to Amendment No. 2 to the
Registration Statement of the Company and Ann Taylor filed on July 13, 1989
(Registration No. 33-28522).
10.10 Employment Agreement, effective as of February 3, 1992, between the Company and
Sally Frame Kasaks. Incorporated by reference to Exhibit 10.28 to the Annual
Report on Form 10-K of the Company filed on April 28, 1992.
10.10.1 Employment Agreement dated as of February 1, 1994 between the Company and Sally
Frame Kasaks. Incorporated by reference to Exhibit 10.8 to the Form 10-Q of the
Company for the Quarter ended October 29, 1994 filed on December 9, 1994.
10.11 Employment Agreement dated February 16, 1996 between the Company and J. Patrick
Spainhour.
10.12 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 the Company's Registration Statement on Form S-8 filed with the
Commission on June 30, 1994 (Registration No. 33-50688).
10.13 Amended and Restated Management Performance Compensation Plan as approved by
stockholders on June 1, 1994. Incorporated by reference to Exhibit 10.22.1 to the
Annual Report on Form 10-K of the Company filed on April 28, 1995.
10.13.1 Amendment to the 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 the Company filed on April 28, 1995.
10.14 Associate Stock Purchase Plan. Incorporated by reference to Exhibit 10.31 to the
Form 10-Q of the Company for the Quarter Ended October 31, 1992 filed on December
15, 1992.
10.15 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.
10.16 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.
10.17 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.)
10.18 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 the Company for the Quarter ended October 28, 1995 filed on December 8,
1995.
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EXHIBITS
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10.19 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 the Company filed on March 31, 1994.
10.20 AnnTaylor Stores Corporation Deferred Compensation Plan. Incorporated by reference
to Exhibit 10.33 to the Annual Report on Form 10-K of the Company filed on April
28, 1995.
10.20.1 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 the Company for the Quarter Ended July 29,
1995 filed on September 11, 1995.
10.21 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.
10.22 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.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
99 Unaudited Historical and Pro Forma Combined Financial Statements.
51