<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED MARCH 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22480
DM MANAGEMENT COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-2973769
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
25 RECREATION PARK DRIVE 02043
HINGHAM, MA (ZIP Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 740-2718
Indicate by check mark whether the 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 [ ]
Shares outstanding of the Registrant's common stock (par value $0.01) at
May 5, 1997: 4,540,707
================================================================================
<PAGE> 2
DM MANAGEMENT COMPANY & SUBSIDIARY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 29, 1997
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements ......................... 3-8
Consolidated Balance Sheets at March 29, 1997, March
30, 1996 and December 28, 1996 ............................ 3
Consolidated Statements of Operations for the three
months ended March 29, 1997 and March 30, 1996 ............ 4
Consolidated Statements of Cash Flows for the three
months ended March 29, 1997 and March 30, 1996 ............ 5
Notes to Consolidated Financial Statements ................ 6-8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ............. 9-11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ....... 12
Item 6. Exhibits and Reports on Form 8-K .......................... 13
Signature ............................................................... 14
2
<PAGE> 3
<TABLE>
DM MANAGEMENT COMPANY & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
MARCH 29, MARCH 30, DECEMBER 28,
ASSETS 1997 1996 1996
-------- -------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 383 $ 166 $ 384
Marketable securities, net of unrealized loss ......... 3,846 3,884 3,879
Inventory ............................................. 12,379 9,396 12,637
Prepaid catalog expenses .............................. 4,201 4,327 2,714
Deferred income taxes ................................. 2,670 -- 2,670
Other current assets .................................. 1,462 3,862 724
------- ------- -------
Total current assets ............................. 24,941 21,635 23,008
Property and equipment, net ................................ 7,081 6,859 7,173
Non-current assets of discontinued operations .............. -- 5,411 --
Deferred income taxes ...................................... 7,928 -- 7,928
------- ------- -------
Total assets ..................................... $39,950 $33,905 $38,109
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 8,033 $ 5,383 $ 8,143
Accrued expenses ...................................... 2,132 1,842 1,877
Accrued customer returns .............................. 2,008 1,528 1,309
Short-term borrowings ................................. 697 1,475 --
Current portion of mortgage note and long-term debt ... 971 289 1,017
------- ------- -------
Total current liabilities ........................ 13,841 10,517 12,346
Mortgage note .............................................. 1,283 1,393 1,311
Long-term debt ............................................. 3,028 4,055 3,229
Commitments
Stockholders' equity:
Special preferred stock (par value $0.01)
1,000,000 shares authorized ...................... -- -- --
Common stock (par value $0.01) 15,000,000 shares
authorized, 4,534,157, 4,292,168 and
4,456,908 shares issued and outstanding
as of March 29, 1997, March 30, 1996 and
December 28, 1996, respectively .................. 45 43 44
Additional paid-in capital ............................ 40,115 39,868 40,048
Unrealized loss on marketable securities .............. (149) (110) (115)
Accumulated deficit ................................... (18,213) (21,861) (18,754)
------- ------- -------
Total stockholders' equity ....................... 21,798 17,940 21,223
------- ------- -------
Total liabilities and stockholders' equity ....... $39,950 $33,905 $38,109
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
<TABLE>
DM MANAGEMENT COMPANY & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 29, MARCH 30,
1997 1996
-------- --------
<S> <C> <C>
Net sales .......................................................... $24,543 $19,736
Costs and expenses:
Product ....................................................... 10,852 8,262
Operations .................................................... 3,910 3,052
Selling ....................................................... 6,210 5,740
General and administrative .................................... 2,623 2,280
Interest, net ................................................. 61 124
------- -------
Income from continuing operations before income taxes .............. 887 278
Provision for income taxes ......................................... 346 28
------- -------
Income from continuing operations .................................. 541 250
Income from discontinued operations ................................ -- 14
------- -------
Net income ......................................................... $ 541 $ 264
======= =======
NET INCOME PER SHARE:
Primary:
Continuing operations ......................................... $ 0.11 $ 0.06
Discontinued operations ....................................... -- --
------- -------
Net income per share .......................................... $ 0.11 $ 0.06
======= =======
Weighted-average common and common equivalent shares outstanding ... 4,962 4,503
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
<TABLE>
DM MANAGEMENT COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 29, MARCH 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 541 $ 264
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation ................................................... 337 221
Liability for expected losses .................................. (49) --
Amortization related to discontinued operations ................ -- 113
Changes in assets and liabilities:
Decrease in inventory .......................................... 258 458
(Increase) decrease in prepaid catalog expenses ................ (1,487) 1,339
Increase in other current assets ............................... (690) (266)
Increase (decrease) in accounts payable and accrued expenses ... 145 (711)
Increase in accrued customer returns ........................... 699 663
------ ------
Net cash provided by (used in) operating activities ................. (246) 2,081
Cash flows used in investing activities:
Additions to property and equipment ............................ (245) (408)
Proceeds from sale of marketable securities .................... -- 6
Payment for purchase of Carroll Reed ........................... -- (907)
------ ------
Net cash used in investing activities ............................... (245) (1,309)
Cash flows provided by (used in) financing activities:
Borrowings under debt agreements ............................... 4,465 6,791
Payments of debt borrowings .................................... (3,995) (7,700)
Principal payments on capital lease obligations ................ (48) (43)
Proceeds from stock transactions ............................... 68 5
------ ------
Net cash provided by (used in) financing activities ................. 490 (947)
Net decrease in cash and cash equivalents ........................... (1) (175)
Cash and cash equivalents at:
Beginning of period ............................................ 384 341
------ ------
End of period .................................................. $ 383 $ 166
====== ======
SUPPLEMENTAL INFORMATION:
Cash paid for interest .............................................. $ 114 $ 154
Cash paid for taxes, including discontinued operations .............. $ 10 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements included herein have been prepared by DM
Management Company (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and in the opinion of
management contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such
rules and regulations. Accordingly, although the Company believes that the
disclosures are adequate to make the information presented not misleading, these
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report to Stockholders for the transition period ended December 28, 1996.
A. DISCONTINUED OPERATIONS
On May 20, 1996, the Company announced its plan to divest its Carroll Reed
segment. Accordingly, the Carroll Reed segment has been accounted for as a
discontinued operation, and all assets, liabilities, results of operations and
cash flows associated with the Carroll Reed segment have been segregated from
those associated with continuing operations. In connection with this
divestiture, the Company recorded a charge of $3,175,000 for expected losses
during the phase-out period. The Company has substantially phased out the
operations of the Carroll Reed segment and has recorded $2,993,000 of operating
losses (including $49,000 for the three months ended March 29, 1997) against the
liability for expected losses. The Company expects to utilize the remaining
liability for expected losses for severance and other costs associated with the
Carroll Reed segment divestment. The Company continues to pursue the divestment
of the Carroll Reed customer list and trademark and expects to conclude this
divestiture during 1997. The results of the Carroll Reed operations for the
three months ended March 30, 1996 have been classified as income from
discontinued operations.
The net current assets and liabilities of the Carroll Reed segment, which
have been included in other current assets in the accompanying consolidated
balance sheets, are summarized below (in thousands):
<TABLE>
<CAPTION>
MARCH 29, MARCH 30, DECEMBER 28,
1997 1996 1996
-------- -------- -----------
<S> <C> <C> <C>
Current assets:
Inventory ..................................... $ -- $2,005 $ --
Prepaid catalog expenses ...................... -- 672 --
Other current assets 63 143 49
----- ------ -----
Total current assets ....................... 63 2,820 49
----- ------ -----
Current liabilities:
Accounts payable and accrued expenses ......... -- 327 --
Accrued customer returns ...................... -- 594 9
Liability for expected losses ................. 182 -- 231
----- ------ -----
Total current liabilities .................. 182 921 240
----- ------ -----
Net current assets (liabilities) of
discontinued operations ............. $(119) $1,899 $(191)
===== ====== =====
</TABLE>
Non-current assets of discontinued operations in the accompanying
consolidated balance sheet at March 30, 1996 are comprised solely of the net
intangible assets related to the Carroll Reed segment.
6
<PAGE> 7
DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
B. DEBT
The Company's credit facilities at March 29, 1997 consisted of (i) a
$1,650,000 mortgage note, payments on which are due monthly based on a 15-year
amortization, with the remaining balance payable in full on August 31, 1999;
(ii) a $4,000,000 secured term loan (the "Term Loan") with payments of $200,000
due quarterly through December 31, 2001; and (iii) an $8,000,000 secured
revolving line of credit which reduces to $5,000,000 during the months of May
through November and expires on June 1, 1997. The Company is currently in the
process of negotiating a replacement credit facility for its $8,000,000 secured
revolving line of credit and anticipates completing the negotiation well in
advance of the expiration of the existing facility.
<TABLE>
A summary of the Company's outstanding credit facilities follows (in
thousands):
<CAPTION>
MARCH 29, MARCH 30, DECEMBER 28,
1997 1996 1996
-------- -------- -----------
<S> <C> <C> <C>
Morgage note ......................... $1,393 $1,503 $1,421
Term loan ............................ 3,800 -- 4,000
Revolving credit facilities .......... 697 5,475 --
Capitalized lease obligations ........ 89 234 136
------ ------ ------
Total debt ...................... 5,979 7,212 5,557
Less current maturities ......... 1,668 1,764 1,017
------ ------ ------
Long-term debt .................. $4,311 $5,448 $4,540
====== ====== ======
</TABLE>
The Company's credit facilities are collateralized by substantially all
corporate assets. The mortgage note is also collateralized by a first mortgage
on the Company's operations center. The terms of the Company's financing
arrangements contain various lending conditions and covenants, including
restrictions on permitted liens, limitations on capital expenditures and
dividends, and compliance with certain financial coverage ratios.
C. NET INCOME PER SHARE
Net income per share ("EPS") is computed by dividing net income by the
weighted-average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents consist of common stock
issuable on the exercise of outstanding stock options and are calculated using
the treasury method. Fully diluted EPS has not been presented because the amount
would not differ materially from the primary EPS presented.
D. RECLASSIFICATIONS
Certain financial statement amounts have been reclassified to be consistent
with current period presentation.
7
<PAGE> 8
DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
E. RECENT ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share," which modifies the way in which EPS
is calculated and disclosed. Currently, the Company discloses primary and fully
diluted EPS. SFAS 128 requires the disclosure of basic and diluted EPS for
financial statements issued for periods ending after December 15, 1997. The
restatement of all prior period EPS data presented is also required upon
adoption. Basic EPS excludes potentially dilutive securities and is computed by
dividing net income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS, similar to
fully diluted EPS, reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock that then shared in the earnings of the entity. Early
application of SFAS 128 is not permitted.
The following table summarizes the Company's EPS and weighted-average
common and common equivalent shares outstanding as reported and on a pro forma
basis as calculated under SFAS 128. The pro forma results for the diluted
calculation do not differ materially from the fully diluted calculation;
therefore, no pro forma information for the diluted calculation has been
presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
MARCH 29, 1997 MARCH 30, 1996
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
PRIMARY BASIC PRIMARY BASIC
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
EPS:
Continuing operations ....................... $ 0.11 $ 0.12 $ 0.06 $ 0.06
Discontinued operations ..................... -- -- -- --
------ ------ ------ ------
Net income per share ........................ $ 0.11 $ 0.12 $ 0.06 0.06
====== ====== ====== ======
Weighted-average common and common equivalent
shares outstanding .......................... 4,962 4,510 4,503 4,287
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarterly Overview
For the three months ended March 29, 1997 ("first quarter 1997")
net income was $541,000, more than twice that of the comparable period
a year ago. Net income per share for first quarter 1997 was $0.11 as
compared to $0.06 for the three months ended March 30, 1996 ("first
quarter 1996"). The Company attributes its profit improvement and net
sales growth to its new business strategies which focus on creative
presentation and differentiation in merchandising execution as well as
circulation management.
<TABLE>
The following table represents the Company's consolidated
statements of operations as a percentage of net sales:
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 29, MARCH 30,
1997 1996
-------- --------
<S> <C> <C>
Net sales ........................................... 100.0% 100.0%
Costs and expenses:
Product ........................................ 44.2 41.9
Operations ..................................... 15.9 15.5
Selling ........................................ 25.3 29.1
General and administrative ..................... 10.7 11.5
Interest, net .................................. 0.3 0.6
----- -----
Income from continuing operations before income taxes 3.6 1.4
Provision for income taxes .......................... 1.4 0.1
----- -----
Income from continuing operations ................... 2.2 1.3
Income from discontinued operations ................. -- --
----- -----
Net income .......................................... 2.2% 1.3%
===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 29, 1997 WITH THE THREE
MONTHS ENDED MARCH 30, 1996
Sales and Circulation
First quarter 1997 net sales increased 24.4% to $24.5 million,
as compared to $19.7 million for first quarter 1996. The net sales
increase over last year's first quarter was primarily attributable to
circulation growth (19.7%) and increased customer response rates and
average order sizes. The circulation increase was primarily the result
of increased J. Jill mailings and earlier mailings of the Company's
second Spring season catalog.
Product Costs
Product costs as a percentage of net sales were 44.2% in first
quarter 1997 as compared to 41.9% in first quarter 1996. The 44.2% is
consistent with the past three quarters, all of which have been affected
by the continued highly competitive women's apparel market. Product
costs as a percentage of net sales in first quarter 1996 were lower than
normal due to lower than anticipated markdowns.
Operations
The Company continues to experience efficiencies related to the
re-engineering of its order fulfillment processes and delivery
mechanisms. However, these efficiencies were offset in first quarter
1997 by increased depreciation related to information systems upgrades
and increased occupancy costs associated with the Company's distribution
center.
Selling
Better catalog productivity and lower paper prices have resulted
in selling expenses decreasing to 25.3% of net sales for the first
quarter 1997, as compared to 29.1% for first quarter 1996.
9
<PAGE> 10
General and Administrative
General and administrative expenses are largely fixed in nature
and thus have declined as a percentage of net sales as a result of the
growth in net sales.
Income Taxes
In December 1996, the Company removed the valuation allowance
against the entire balance of its net deferred tax assets and recorded a
deferred tax benefit of $10,598,000. As a result, for first quarter
1997, the Company provided for income taxes at an effective tax rate
that includes the full federal statutory rate as well as the full tax
rate at the state level. The Company's provision for income taxes for
first quarter 1996 was significantly affected by the utilization of
federal net operating loss carryforwards. This resulted in an effective
tax rate significantly lower than the federal statutory rate for that
period.
Discontinued Operations
On May 20, 1996, the Company announced its plan to divest its
Carroll Reed segment. Accordingly, the Carroll Reed segment has been
accounted for as a discontinued operation, and all assets, liabilities,
results of operations and cash flows associated with the Carroll Reed
segment have been segregated from those associated with continuing
operations. The net loss from this discontinued operation for first
quarter 1997 was charged to the liability for expected losses
established in connection with the divestiture. The results of
operations for first quarter 1996 have been classified as income from
discontinued operations in the accompanying consolidated statement of
operations.
LIQUIDITY AND CAPITAL RESOURCES
During first quarter 1997, the Company funded its working
capital needs through cash generated from operations and through use of
its credit facilities. The Company used working capital to support costs
incurred in advance of revenue generation, primarily inventory
acquisition and catalog development, production and mailing costs
incurred prior to the beginning of each selling season. The Company has
two selling seasons which correspond to the fashion seasons. The Fall
season begins in July and ends in December. The Spring season begins in
January and ends in early July.
The Company's credit facilities at March 29, 1997 consisted of
(i) a $1.7 million mortgage note, payments on which are due monthly
based on a 15-year amortization, with the remaining balance payable in
full on August 31, 1999; (ii) a $4.0 million secured term loan, with
payments of $200,000 due quarterly through December 31, 2001; and (iii)
an $8.0 million secured revolving line of credit, which reduces to $5.0
million during the months of May through November and expires on June 1,
1997. The Company is currently in the process of negotiating a
replacement credit facility for its $8,000,000 secured revolving line of
credit and anticipates completing the negotiation well in advance of the
expiration of the existing facility. During first quarter 1997, total
debt increased by $422,000, while during first quarter 1996 total debt
decreased by $952,000. These changes were a function of the total debt
balances outstanding at the beginning of each quarter. At the beginning
of first quarter 1997, total debt was $5.6 million, while at the
beginning of first quarter 1996, total debt was $8.2 million.
Cash used in investing activities was $245,000 in first quarter
1997 and $1.3 million in first quarter 1996. Capital investments for
both periods included additions to property and equipment. In first
quarter 1996, investing activities included a final payment for the
purchase of Carroll Reed.
Inventory levels at March 29, 1997 were 31.7% higher than at
March 30, 1996. This increase is attributable to the growth of the
business. Prepaid catalog expenses at March 29, 1997 were 2.9% lower
than at March 30, 1996. This decline is primarily attributable to lower
paper inventory balances on hand at March 29, 1997 than at March 30,
1996.
Management intends to use its capital resources to fund
improvements to its information systems during 1997 and beyond.
Anticipated expenditures to upgrade its existing systems are estimated
at approximately $2.0 million. The Company's existing credit facilities
and those expected to be available in the future, and its cash flows
from operations, are expected to provide the capital resources necessary
to support the Company's operating needs for the foreseeable future.
10
<PAGE> 11
RECENT ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which
modifies the way in which earnings per share ("EPS") is calculated and
disclosed. Currently, the Company discloses primary and fully diluted
EPS. SFAS 128 requires the disclosure of basic and diluted EPS for
financial statements issued for periods ending after December 15, 1997.
The restatement of all prior period EPS data presented is also required
upon adoption. Basic EPS excludes potentially dilutive securities and is
computed by dividing net income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS, similar to fully diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock that then
shared in the earnings of the entity. Early application of SFAS 128 is
not permitted. See Note E to the accompanying consolidated financial
statements.
FORWARD-LOOKING STATEMENTS
The above discussion includes forward-looking statements. Such
forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among
others, the following: changes in consumer spending and consumer
preferences; general economic and business conditions; increasing
competition in the apparel industry; success of operating initiatives;
possible future increases in operating costs; advertising and
promotional efforts; brand awareness; the existence or absence of
adverse publicity; changes in business strategy; quality of management;
availability, terms and deployment of capital; business abilities and
judgment of personnel; availability of qualified personnel; labor and
employee benefit costs; change in, or the failure to comply with,
government regulations; and other factors.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Annual Meeting of Stockholders on May 8, 1997. At the
Annual Meeting, the stockholders of the Company voted to approve the following
actions by the following votes:
1. To fix the number of directors that shall constitute the whole Board
of Directors of the Company at six.
NUMBER OF SHARES
----------------
For ............................................. 3,664,454
Against ......................................... 5,598
Abstain ......................................... 250
2. To elect the following individuals as Directors of the Company:
WITHHOLDING
FOR AUTHORITY
--- -----------
Class A
-------
William E. Engbers ............ 3,514,275 156,027
Samuel L. Shanaman ............ 3,509,086 161,216
Class B
-------
Ruth M. Owades ................ 3,513,693 156,609
Class C
-------
Thomas J. Litle ............... 3,514,275 156,027
3. To amend the 1993 Incentive and Nonqualified Stock Option Plan to
increase the number of shares of common stock that may be issued
pursuant to the options granted thereunder from 700,000 to
1,200,000.
NUMBER OF SHARES
----------------
For ............................................. 2,097,727
Against ......................................... 235,487
Abstain ......................................... 850
Broker non-votes ................................ 1,336,238
4. To amend the 1993 Incentive and Nonqualified Stock Option Plan
further to alter the formula stock option grants thereunder to
non-employee directors of the Company.
NUMBER OF SHARES
----------------
For ............................................. 3,413,167
Against ......................................... 232,488
Abstain ......................................... 1,038
Broker non-votes ................................ 23,609
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) EXHIBITS
CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1 Restated Certificate of Incorporation of the Company (included as
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 25, 1993, File No. 0-22480, and incorporated
herein by reference)
3.2 By-Laws of the Company, as amended (included as Exhibit 3.2 to the
Company's Current Report on Form 8-K dated January 14, 1997, File
No. 0-22480, and incorporated herein by reference)
MATERIAL CONTRACTS
10.1 1993 Incentive and Nonqualified Stock Option Plan, as amended
(included as Appendix A to the Company's Proxy Statement for the
transition period ended December 28, 1996, File No. 0-22480, and
incorporated herein by reference)
10.2 1997 Incentive Compensation Plan
10.3 Employment Letter Agreement dated February 25, 1997, between the
Company and David Brown
PER SHARE EARNINGS
11.1 Statement re: computation of per share earnings
FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
(2) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K dated January 14, 1997, with the
Securities and Exchange Commission regarding its decision to change its year end
from the last Saturday in June to the last Saturday in December.
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DM MANAGEMENT COMPANY
Dated: May 12, 1997 By: /s/ Samuel L. Shanaman
--------------------------------
Samuel L. Shanaman
Authorized Officer
Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial Officer)
14
<PAGE> 15
DM MANAGEMENT COMPANY & SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 29, 1997
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3.1 Restated Certificate of Incorporation of the Company
3.2 By-Laws of the Company, as amended
10.1 1993 Incentive and Nonqualified Stock Option Plan,
as amended
10.2 1997 Incentive Compensation Plan 16
10.3 Employment Letter Agreement dated February 25, 1997,
between the Company and David Brown 19
11.1 Statement re: computation of per share earnings 22
27.1 Financial Data Schedule 24
15
<PAGE> 1
1997
INCENTIVE COMPENSATION PLAN
Purpose
- -------
This plan is designed to provide financial reward to key members of DM
Management for their contribution toward the attainment of the Company's
business objectives in 1997.
Participation
- -------------
This plan is restricted to key management personnel whose decisions have a
measurable impact on the major objectives of the Company. Selection to the plan
and determination of assigned bonus percentages is made by the Compensation
Committee of the Board of Directors in the case of executive officers and
otherwise by the President of the Company. Each participant is assigned a
"normal incentive percentage" which represents the premium on their regular
earnings associated with the bonus plan. The Compensation Committee and the
President may also award additional bonuses in their discretion based on such
performance factors as they determine to be appropriate.
Payment of Incentives
- ---------------------
To determine the amount of incentive to be paid an individual, the normal
incentive percentage is adjusted by the Company's performance rating using the
following formula:
Individual incentive award = base salary earnings for the performance
period X the normal incentive percentage X the Company's performance
rating.
Performance Period
- ------------------
This plan pertains to the fiscal year ending December 27, 1997. For measurement
purposes, the fiscal year will also be divided into two seasons--Spring
(January-June) and Fall (July-December).
Page 1 of 2
<PAGE> 2
Company Performance Rating
- --------------------------
Payment of bonus is determined by the Company achieving or exceeding its planned
earnings goals before interest and taxes for the Spring (January-June) and Fall
(July-December) season.
Rating factors are assigned as follows: Factor
------
. Achieving each seasonal plan .5/Season
Example
- -------
Assume: Base annual salary of $35,000 and a normal incentive percentage of 10%
CASE 1: The Company achieves plan for both seasons:
Base Normal
Salary X Incentive X Pro Rata = Incentive Award
------ --------- -------- ---------------
35,000 10% .5 (Spring) $1,750
.5 (Fall) 1,750
------
$3,500
CASE 2: The Company achieves the Spring plan but not the Fall plan:
Base Normal
Salary X Incentive X Pro Rata = Incentive Award
------ --------- -------- ---------------
35,000 10% .5 (Spring) $1,750
.0 (Fall) ---
------
$1,750
Payments
- --------
Incentive awards will be made to participants as soon as possible after the
close of each goaled period.
Page 2 of 2
<PAGE> 1
EXHIBIT 10.3
February 25, 1997
Mr. David Brown
24 Tanglewood Court
Richfield, CT 06877
Dear David:
On behalf of DM Management, I am pleased to offer you the position of Vice
President - Creative Director in accordance with the following:
- Your annual salary will be $125,000 paid to you on a biweekly basis.
You will report to Gordon Cooke, President and Chief Executive
Officer. Your start date will be March 3, 1997.
- Upon completion of one month of employment, you will receive a
one-time sign-on bonus of $25,000.
- As agreed, you will be in Hingham an average of three days per week
(other than location trips). We will reimburse you a flat rate of
$7500 per year for all expenses related to your automobile which
will be included in your biweekly check and will reimburse you for
any hotel expenses related to your overnight stays while in Hingham.
- You will be eligible for participation in the corporate bonus
program at 40 percent of your annual salary, subject to Board of
Directors' approval on March 4, 1997. This bonus is payable on a
seasonal basis: 20 percent Fall and 20 percent Spring. We will
guarantee payment of your bonus for the Spring '97 season which
would be $25,000 less applicable taxes.
- You will be eligible for a full range of company benefits described
in the information I will send to you under separate cover. Your
annual vacation benefit will be tracked on a fiscal-year basis.
- As required by federal law, employment at DM Management is dependent
upon providing documentation which proves your eligibility to work
in the United States. Typically, this would include such items as
driver's license, birth certificate, social security card, etc.
<PAGE> 2
David Brown
February 25, 1997
Page 2
David, we look forward to having you join the team here at DM Management and to
the contribution you will make to the overall continued success of the company.
Very truly yours,
/s/ Carol A. Maher
------------------------------------------
Carol A. Maher
Vice President of Human Resources
CAM/ple
/s/ David Brown
- ------------------------------
David Brown
Accepted and Agreed
/s/ Gordon R. Cooke
- ------------------------------
Gordon R. Cooke
Accepted and Agreed
<PAGE> 1
EXHIBIT 11.1
DM MANAGEMENT COMPANY AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 29, 1997
<TABLE>
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1997 1996
---------- ---------
<S> <C> <C>
PRIMARY:
Weighted-average shares of common stock outstanding during the period ... 4,509,925 4,287,436
Assumed exercise of options .............................................. 452,134 215,798
--------- ---------
Weighted-average common and common equivalent shares outstanding ......... 4,962,059 4,503,234
========= =========
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1997 1996
---------- ---------
<S> <C> <C>
FULLY DILUTED:
Weighted-average shares of common stock outstanding during the period ... 4,509,925 4,287,436
Assumed exercise of options .............................................. 576,330 265,554
--------- ---------
Weighted-average common and common equivalent shares outstanding ......... 5,086,255 4,552,990
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT MARCH 29, 1997 AND FROM THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 29, 1997 CONTAINED IN
THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 29,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON
FORM 10-Q.
</LEGEND>
<CIK> 0000910721
<NAME> DM MANAGEMENT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<CASH> 383
<SECURITIES> 3,846
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 12,379
<CURRENT-ASSETS> 24,941
<PP&E> 7,081
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,950
<CURRENT-LIABILITIES> 13,841
<BONDS> 4,311
0
0
<COMMON> 45
<OTHER-SE> 21,753
<TOTAL-LIABILITY-AND-EQUITY> 39,950
<SALES> 24,543
<TOTAL-REVENUES> 24,543
<CGS> 10,852
<TOTAL-COSTS> 14,762
<OTHER-EXPENSES> 8,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 887
<INCOME-TAX> 346
<INCOME-CONTINUING> 541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 541
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
