<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________to________________
Commission File Number: 0-23440
Norton McNaughton, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3747173
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
463 Seventh Avenue, New York, N.Y. 10018
(Address of principal executive offices)
(Zip code)
(212) 947-2960
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value, 7,633,287 shares as of June 14, 1996.
<PAGE> 2
INDEX TO FORM 10-Q
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL STATEMENTS
ITEM I.
Financial Statements:
<S> <C>
Consolidated Balance Sheets at May 4, 1996 (Unaudited)
and November 4, 1995 3
Consolidated Statements of Operations for the thirteen
weeks ended May 4, 1996 and May 5, 1995 (Unaudited) and the
twenty-six weeks ended May 4, 1996 and May 5, 1995 (Unaudited) 4
Consolidated Statements of Stockholders' Equity for the twenty-six
weeks ended May 4, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows for the twenty-six weeks
ended May 4, 1996 and May 5, 1995 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
ITEM II.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II. OTHER INFORMATION 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 4, November 4,
1996 1995
(Unaudited) (Note)
----------- -----------
(In Thousands)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 353 $ 444
Due from factor, net 21,279 35,810
Inventory 28,891 27,516
Prepaid expenses and other current assets 4,013 2,159
-------- --------
Total current assets 54,536 65,929
Fixed assets, net of accumulated depreciation
of $1,222 and $914, respectively 4,419 3,864
Notes receivable from management stockholders 2,655 2,660
Other assets 1,384 1,071
-------- --------
Total assets $ 62,994 $ 73,524
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,082 $ 21,639
Accrued expenses and other current liabilities 461 788
-------- --------
Total current liabilities 16,543 22,427
Other long-term liabilities 726 628
-------- --------
Total liabilities 17,269 23,055
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value, authorized
1,000,000 shares, none issued and
outstanding -- --
Common stock, $.01 par value, authorized 20,000,000 shares,
8,049,287 and 8,046,824 shares issued, respectively,
and 7,633,287 and 8,026,824 shares outstanding, respectively 80 80
Capital in excess of par 23,844 23,820
Retained earnings 25,879 26,895
Treasury stock, at cost, 416,000 shares and
20,000 shares, respectively (4,078) (326)
-------- --------
Total stockholders' equity 45,725 50,469
-------- --------
Total liabilities and stockholders' equity $ 62,994 $ 73,524
======== ========
</TABLE>
Note: The balance sheet at November 4, 1995 has been derived from the audited
financial statements as of that date.
See accompanying notes.
3
<PAGE> 4
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
May 4, May 5, May 4, May 5,
1996 1995 1996 1995
-------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales $ 57,439 $ 59,594 $ 99,846 $ 94,158
Cost of goods sold 47,389 43,182 79,986 68,115
-------- -------- -------- --------
Gross profit 10,050 16,412 19,860 26,043
Selling, general and administrative expenses 10,753 9,770 20,678 17,171
-------- -------- -------- --------
Income (loss) from operations (703) 6,642 (818) 8,872
Other expense (income):
Interest expense 594 152 997 209
Interest income (40) (45) (79) (134)
-------- -------- -------- --------
Income (loss) before provision for income taxes (1,257) 6,535 (1,736) 8,797
Provision (benefit) for income taxes (521) 2,618 (720) 3,545
-------- -------- -------- --------
Net income (loss) $ (736) $ 3,917 $ (1,016) $ 5,252
======== ======== ======== ========
PER SHARE DATA:
Net income (loss) $ (0.09) $ 0.49 $ (0.13) $ 0.65
======== ======== ======== ========
Weighted average number of common shares and
common stock equivalents outstanding 7,792 8,060 7,898 8,050
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED MAY 4, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Capital
Common Stock in Excess Retained Treasury
Shares Amount of Par Earnings Stock Total
-------- -------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at November 4, 1995 8,047 $ 80 $ 23,820 $ 26,895 $ (326) $ 50,469
Net loss for the twenty-six weeks
ended May 4, 1996 -- -- -- (1,016) -- (1,016)
Treasury stock acquired, 396,000
shares, at cost -- -- -- -- (3,752) (3,752)
Sale of 2,463 shares of common
stock through the Employee
Stock Purchase Plan 2 -- 24 -- -- 24
-------- -------- -------- -------- -------- --------
Balance at May 4, 1996 8,049 $ 80 $ 23,844 $ 25,879 $ (4,078) $ 45,725
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
MAY 4, MAY 5,
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Net income (loss) $ (1,016) $ 5,252
Adjustments to reconcile net income (loss) to net
cash provided by (used for)
operating activities:
Depreciation and amortization of fixed assets 308 243
Amortization of intangibles 17 17
Changes in operating assets and liabilities:
Due from factor, net 14,531 (2,872)
Inventory (1,375) (9,207)
Prepaid expenses and other current assets (1,854) (2,224)
Other assets (330) (211)
Accounts payable (5,557) 9,476
Accrued expenses and other current liabilities (327) (42)
Other long-term liabilities 98 92
-------- --------
Net cash provided by operating activities 4,495 524
-------- --------
INVESTING ACTIVITIES
Notes receivable from management stockholders 5 --
Purchase of fixed assets (863) (587)
-------- --------
Net cash used for investing activities (858) (587)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 24 31
Purchase of treasury stock (3,752) --
-------- --------
Net cash (used for) provided by financing activities (3,728) 31
-------- --------
Decrease in cash (91) (32)
Cash at beginning of period 444 227
-------- --------
Cash at end of period $ 353 $ 195
======== ========
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 313 $ 3,435
Interest paid $ 1,008 $ 209
</TABLE>
See accompanying notes.
6
<PAGE> 7
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements of Norton
McNaughton, Inc. (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, all normal and recurring adjustments and accruals considered
necessary for a fair presentation of the Company's financial position at May 4,
1996 and the results of operations and cash flows for the twenty-six weeks ended
May 4, 1996 and May 5, 1995 have been included. These statements should be read
in conjunction with the audited consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Operating results for the twenty-six weeks
ended May 4, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending November 2, 1996.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material balances and transactions have been
eliminated in consolidation.
The Company has adopted a 52-53 week accounting period. The Company's fiscal
year ends on October 31, if such date falls on a Saturday, or the first Saturday
following October 31.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
Inventories consist of the following:
<TABLE>
<CAPTION>
May 4, November 4,
1996 1995
------- -------
(In Thousands)
<S> <C> <C>
Raw materials $10,599 $ 7,462
Work in process 5,432 10,368
Finished goods 12,860 9,686
------- -------
$28,891 $27,516
======= =======
</TABLE>
3. EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of shares of
common stock and the dilutive effect of the weighted average number of common
stock equivalents of the Company. Common stock equivalents are shares issuable
upon the exercise of stock options under the treasury stock method.
7
<PAGE> 8
4. STOCKHOLDERS' EQUITY
The Company's Board of Directors has authorized a stock repurchase program,
which would enable the Company to repurchase up to $7.5 million of the Company's
Common Stock. The Company expects that shares may be purchased from time to time
in the open market and in block transactions. The Company purchased 46,000
shares and 350,000 shares of its stock in the open market during the first and
second quarter of fiscal 1996, respectively, at a respective aggregate cost of
$540,500 and $3,211,325. Through the end of the second quarter of fiscal 1996,
the Company had purchased 416,000 shares at an aggregate cost of $4,078,075.
5. SHAREHOLDER RIGHTS PLAN
On January 19, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan in which shareholders of record on February 8, 1996 received a
dividend distribution of one common share purchase right for each outstanding
share of the Company's Common Stock held. Each right entitles the holder to
purchase from the Company Common Stock at an initial exercise price of $32.00.
The rights are not exercisable or transferable apart from the Common Stock until
the earlier to occur of (i) ten days following a public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 20% or more of the outstanding Common Stock of the Company, or (ii)
ten business days following the commencement of, or announcement of, an
intention to make a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 20% or more of
such outstanding Common Stock.
The rights are redeemable by the Company's Board of Directors at a price of
$0.01 per right at any time prior to the acquisition by a person or group of
beneficial ownership of 20% or more of the Company's Common Stock.
If a person or group acquires 20% or more of the Company's outstanding Common
Stock, each right will entitle the holder to purchase, at the right's exercise
price, a number of shares of the Company's Common Stock having a market value at
that time of twice the right's exercise price. If the Company is acquired in a
merger or other business combination transaction, each right will entitle its
holder to purchase, at the right's exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the right's
exercise price.
6. CREDIT FACILITIES
In May 1996, the Company amended its Factoring Agreement to provide for an
increase in its letter of credit facility to $20 million, and an increase in its
additional advance facility, enabling the Company to borrow up to $10 million in
addition to 90% of the net balance of eligible accounts receivable. Previously,
the Company had a letter of credit facility of $10 million and an additional
advance facility of $2 million.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
As previously reported, in May 1996 the Company closed its Kate McNaughton suit
division due to its inability to achieve a level of profitability within the
Company's profitability targets. The Company has monitored, and will continue to
closely review the success, in terms of sales, profitability and customer
acceptance, of existing and new product lines. In furtherance of this activity,
the Company reorganized its Danielle Paige division in the second quarter of
fiscal 1996 to enhance its profitability.
The Company contracts for the manufacture of all of its products. As a result,
the Company has modest amounts of property and equipment, as well as modest
annual depreciation expense and capital expenditures. In addition, the Company
generally ships its products in accordance with normal apparel industry shipping
cycles. The timing of shipping cycles or the delivery of finished goods may
result in shipments to customers occurring before or after a particular fiscal
quarter end, thereby affecting both fiscal quarter to quarter comparisons and
quarter to quarter results during a fiscal year.
As a result of the Company's focus on improving gross profit margin, the Company
intends to minimize the production of merchandise that it does not anticipate
can be sold at acceptable profit levels. Accordingly, the Company anticipates
that revenue levels in the second half of fiscal 1996 may decrease from these in
the corresponding period of fiscal 1995.
As is the norm in the apparel industry, the Company grants its customers sales
allowances which affect the Company's gross margin. The level of sales
allowances granted varies from quarter to quarter and year to year. Due to the
difficult retail environment in the United States, in particular for women's
apparel, the Company expects that it will grant a higher level of sales
allowances to customers in fiscal 1996 as compared to fiscal 1995.
This Management's Discussion and Analysis contains forward-looking information
about the Company's anticipated operating results for fiscal 1996. The Company's
ability to achieve its projected results is dependent on many factors which are
outside of management's control. Some of the most significant factors would be a
further increase in price pressures and other competitive factors and a
softening of retailer or consumer acceptance of the Company's products, any of
which could result in a decrease in anticipated revenues and gross profit
margins, the unanticipated loss of a major customer, the unanticipated loss of a
major contractor or supplier, unforeseen complications resulting from the
Company's implementation of major upgrades to its management information
systems, and weather conditions which could impact retail traffic. Accordingly,
there can be no assurance that the Company will achieve its anticipated
operating results for fiscal 1996.
Results of Operations
The following table is derived from the Company's Consolidated Statements of
Operations and sets forth, for the periods indicated, selected operating data as
a percentage of net sales:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
May 4, May 5, May 4, May 5,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 82.5 72.5 80.1 72.3
------ ------ ------ ------
Gross profit 17.5 27.5 19.9 27.7
Selling, general and
administrative expenses 18.7 16.4 20.7 18.2
------ ------ ------ ------
Income (loss) from operations (1.2) 11.1 (0.8) 9.5
Interest expense 1.1 0.2 1.0 0.2
Interest income (0.1) (0.1) (0.1) (0.1)
------ ------ ------ ------
Income (loss) before provision for
income taxes (2.2) 11.0 (1.7) 9.4
Provision (benefit) for income taxes (0.9) 4.4 (0.7) 3.8
------ ------ ------ ------
Net income (loss) (1.3)% 6.6% (1.0)% 5.6 %
====== ====== ====== ======
</TABLE>
9
<PAGE> 10
Quarter Ended May 4, 1996 Compared to Quarter Ended May 5, 1995
Net sales decreased 3.6% to $57.4 million in the second quarter of fiscal 1996,
from $59.6 million in the second quarter of fiscal 1995. The decrease of $2.2
million was primarily attributable to a decrease in net sales of $6.3 million or
13.7% in the Norton McNaughton product lines, and a decrease in net sales of
$2.7 million in the Kate McNaughton suit division, which were offset in part by
an increase in net sales of $6.7 million, in the aggregate, resulting from the
first shipments of the Lauren Alexandra product line in June 1995, the Danielle
Paige product line in August 1995 and the Norton Studio product line in January
1996. The decrease in net sales in the Norton McNaughton product lines resulted
primarily from the grant to customers of a higher level of sales allowances in
the second quarter of fiscal 1996 as compared to the second quarter of fiscal
1995 due to retail weakness experienced with holiday season merchandise.
The gross profit margin was 17.5% for the second quarter of fiscal 1996, as
compared to 27.5 % for the second quarter of fiscal 1995. The decrease was
primarily attributable to the granting of increased sales allowances to
customers of the Norton McNaughton product lines in the second quarter of fiscal
1996 as compared to the second quarter of fiscal 1995, and the liquidation of
the Kate McNaughton suit division's inventory at break-even or below cost in the
second quarter of fiscal 1996, in accordance with the Company's previously
announced plans to discontinue the operations of this division in May 1996.
Selling, general and administrative expenses ("SG&A" expenses) were $10.8
million in the second quarter of fiscal 1996, or 18.7% of net sales, as compared
to $9.8 million in the second quarter of fiscal 1995, or 16.4%. The increase in
dollar amount of $1.0 million was primarily attributable to an increase in
personnel costs resulting from the hiring of additional production, design,
selling and support staff necessitated by the introduction of the Danielle Paige
product line in August 1995 and the Norton Studio product line in January 1996,
an increase in personnel costs, professional fees and other various expenses
related to the Company's implementation of new management information systems,
and an increase in variable distribution and freight expenses resulting from an
increase in the volume of products shipped in the second quarter of fiscal 1996.
The increase in SG&A expenses as a percentage of net sales was primarily
attributable to the aforementioned hiring of additional production, design,
selling and support staff for the Danielle Paige and Norton Studio product
lines, as well as the additional expenses associated with the implementation of
the Company's new management information systems.
Operating income decreased from $6.6 million in the second quarter of fiscal
1995 to an operating loss of approximately $700,000 in the second quarter of
fiscal 1996. The decrease in operating income resulted from the decrease in
gross profit margin and the increase in SG&A expenses as a percentage of sales.
Interest expense increased to approximately $600,000 in the second quarter of
fiscal 1996 from approximately $200,000 in the second quarter of fiscal 1995.
The increase was caused by higher working capital requirements associated with
the build-up in inventory to support the introduction of the Lauren Alexandra,
Danielle Paige and Norton Studio product lines and the earlier placement of
goods into production in the second quarter of fiscal 1996 as compared to the
second quarter of fiscal 1995.
Twenty-six Weeks Ended May 4, 1996 Compared to Twenty-six Weeks Ended May 5,
1995
Net sales increased 6.0% to $99.9 million in the first half of fiscal 1996, from
$94.2 million in the first half of fiscal 1995. The increase of $5.7 million
resulted primarily from the commencement of shipments of the Lauren Alexandra
product line in June 1995, the Danielle Paige product line in August 1995 and
the Norton Studio product line in January 1996 which contributed $3.6 million,
$3.4 million and $3.4 million, respectively, to the increase in net sales. This
increase was offset in part by decreases in net sales in the Norton McNaughton
and Kate McNaughton product lines of $4.1 million and $2.6 million,
respectively. The decrease in net sales in the Norton McNaughton product lines
resulted primarily from the granting to customers of a higher level of sales
allowances in the first half of fiscal 1996 as compared to the first half of
fiscal 1995 due to retail weakness experienced with holiday season merchandise.
The gross profit margin was 19.9% for the first half of fiscal 1996, as compared
to 27.7% for the first half of fiscal 1995. The decrease was primarily
attributable to lower gross profit margins experienced in the Norton McNaughton
and Kate McNaughton product lines in the first half of fiscal 1996 as compared
to the first half of fiscal 1995. The decrease resulted from the sale of certain
Norton McNaughton and Kate McNaughton inventory at break-even or below cost and
the higher level of sales allowances granted in the first half of fiscal 1996 as
compared to the first half of fiscal 1995.
10
<PAGE> 11
SG&A expenses were $20.7 million in the first half of fiscal 1996, or 20.7% of
net sales, as compared to $17.2 million in the first half of fiscal 1995, or
18.2% of net sales. The increase in dollar amount of $3.5 million included
approximately $1.6 million in personnel costs resulting from the hiring of
additional production, design, selling and support staff in the Norton
McNaughton division, the introduction of the Danielle Paige product line in
August 1995 and the Norton Studio product line in January 1996, an increase in
personnel costs, professional fees and other various expenses related to the
Company's implementation of new management information systems, and an increase
in variable distribution and freight expenses resulting from an increase in the
volume of products shipped in the first half of fiscal 1996. The increase in
SG&A expenses as a percentage of net sales was primarily attributable to the
aforementioned hiring of additional production, design, selling and support
staff, the additional expenses associated with the implementation of the
Company's new management information systems, and the increase in distribution
and freight expenses as a result of the Company's expanding product lines.
Operating income decreased from $8.9 million in the first half of fiscal 1995 to
an operating loss of approximately $800,000 in fiscal 1996. The decrease in
operating income resulted from the decrease in gross profit margin and the
increase in SG&A expenses as a percentage of sales.
Interest expense increased to $1.0 million in the first half of fiscal 1996 from
approximately $200,000 in the first half of fiscal 1995. The increase was caused
by higher working capital requirements associated with the build-up in inventory
to support the introduction of the Lauren Alexandra, Danielle Paige and Norton
Studio product lines and the earlier placement of goods into production in the
first half of fiscal 1996 as compared to the first half of fiscal 1995.
Liquidity and Capital Resources
The Company's liquidity requirements arise from the funding of the Company's
working capital needs, primarily inventory and accounts receivable. The
Company's borrowing requirements for working capital purposes are seasonal, with
peak working capital needs generally arising during the second fiscal quarter
and at the end of the third fiscal quarter extending through the fourth fiscal
quarter. The Company had working capital of $38.0 million at May 4, 1996 as
compared to $43.5 million at November 4, 1995. The decrease resulted primarily
from the Company's expenditure of $3.8 million in connection with the open
market purchases of its common stock under its stock repurchase program and the
net loss for the first half of fiscal 1996.
The Company's Factoring Agreement provides for the sale of its trade accounts
receivable, generally without recourse, up to a maximum established by the
factor for each customer. The Company may borrow up to 90% of the net balance
due on eligible accounts receivable, up to $10.0 million of additional advances
and up to $20.0 million in letter of credit financing. From time to time, the
Company may borrow additional amounts from the factor in excess of those set
forth in the preceding sentence. No such additional amounts were outstanding at
May 4, 1996. Interest on factor advances is payable monthly at 0.75% below the
NationsBank of Georgia, N.A. prime rate (the "Nations Prime Rate") for amounts
advanced which are less than the purchase price of eligible accounts receivable,
and 1.25% above the Nations Prime Rate for amounts advanced in excess of the
purchase price of eligible accounts receivable. At May 4, 1996, outstanding
advances under the Factoring Agreement were approximately $28.5 million. There
were no outstanding advances under the $10.0 million additional advance
facility. Letters of credit outstanding amounted to approximately $16.7 million
at May 4, 1996.
The Company anticipates that it will incur an additional $100,000 to $200,000 of
capital expenditures in connection with the implementation of its new management
information systems and approximately $200,000 to $300,000 for consulting fees
in connection therewith, and approximately $400,000 to $500,000 for the upgrade
of its management information warehousing systems and related consulting fees in
the second half of fiscal 1996 and fiscal 1997. The Company expects to finance
these capital expenditures from internally generated funds and advances under
the Factoring Agreement.
The Company's Board of Directors has authorized a stock repurchase program,
which enables the Company to repurchase up to $7.5 million of the Company's
Common Stock. The Company expects that shares may be purchased from time to time
in the open market and in block transactions. The Company purchased 46,000
shares and 350,000 shares of its stock in the open market during the first and
second quarters of fiscal 1996, respectively, at a respective aggregate cost of
$540,500 and $3,211,325. Through the end of the second quarter of fiscal 1996,
the Company had purchased a total of 416,000 shares at an aggregate cost of
$4,078,075.
Management believes that cash generated from operations and advances under its
Factoring Agreement will provide sufficient cash resources to finance the
Company's working capital and capital expenditure requirements for the current
and next fiscal year.
11
<PAGE> 12
The moderate rate of inflation over the past few years has not had a significant
impact on the Company's sales or profitability. Inflation is not expected to
have a significant impact on the Company's business.
Seasonality
Historically, the Company has achieved its highest sales in the fourth quarter
and, to a lesser extent, the second quarter of each fiscal year. This pattern
results primarily from the timing of shipments for each season, although the
timing of shipments can vary from quarter to quarter and season to season. Fall
season merchandise is generally shipped between August and October and spring
merchandise is generally shipped between February and April.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 4. Submission of matters to vote of security holders.
The Company's annual meeting of stockholders was held on April 1,
1996. The following directors were elected:
<TABLE>
<CAPTION>
WITHHOLDING
NAME FOR AUTHORITY
---- --- ---------
<S> <C> <C>
Sanford Greenberg 6,858,042 8,614
Norton Sperling 6,858,042 8,614
Amanda J. Bokman 6,858,042 8,614
David M. Blumberg 6,858,042 8,614
Bradley P. Cost 6,858,042 8,614
Robert Mann 6,858,042 8,614
Stephen F. Powers 6,858,042 8,614
Jerald S. Politzer 6,858,042 8,614
</TABLE>
The amendment to the Norton McNaughton, Inc. 1994 Stock Option Plan
(the "Option Plan") to limit the number of shares of Common Stock
subject to options granted to any person under the Option Plan in any
two year period to 250,000 was approved with 6,810,877 shares voting in
favor, 20,814 against and 22,865 shares abstaining.
The appointment of Ernst and Young LLP as independent auditors for the
fiscal year ended November 2, 1996 was ratified with 6,862,554 shares
voting in favor, 3,502 shares against and 600 abstaining.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 10.1 6.00% Promissory Note of Railroad Enterprises, Inc.
dated May 1, 1996 payable to Norton McNaughton of
Squire, Inc. in the principal amount of $300,000.
Exhibit 10.2 Amended Norton McNaughton, Inc. 1994 Stock Option
Plan.
Exhibit 10.3 Amendment dated May 31, 1996 to the Amended and
Restated Factoring Agreement between Norton
McNaughton of Squire, Inc. and NationsBanc Commercial
Corporation.
Exhibit 27 Financial Data Schedule (For SEC use only).
Exhibit 99 Press release dated June 17, 1996.
b) There were no Current Reports on Form 8-K filed during the thirteen
weeks ended May 4, 1996.
13
<PAGE> 14
SIGNATURES
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.
NORTON MCNAUGHTON, INC.
(Registrant)
Date: June 17, 1996 By /s/ Sanford Greenberg
----------------------
SANFORD GREENBERG
Chairman of the Board and
Chief Executive Officer
(Principal Executive and
Operating Officer)
Date: June 17, 1996 By /s/ Amanda J. Bokman
---------------------
AMANDA J. BOKMAN
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
14
<PAGE> 15
EXHIBIT INDEX
Exhibit No. Description
10.1 6.00% Promissory Note of Railroad
Enterprises, Inc.-dated 5/1/96-
payable to Nortonm McNaughton of
Squire, Inc. in the principal
amount of $300,000.
10.2 Amended Norton McNaughton, Inc. 1994
Stock Option Plan.
10.3 Amendment-Dated 5/31/96-to the Amended
and Restated Factoring Agreement
between Norton McNaughton of
Squire,Inc. and NationsBanc Commercial
Corporation.
27 Financial Data Schedule
99 Press Release Dated June 17, 1996
<PAGE> 1
Exhibit 10.1
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, Railroad Enterprises,
Inc., a New Jersey corporation ("Railroad"), 734 Grand Avenue, Ridgefield, New
Jersey 07657, promises to pay to the order of Norton McNaughton of Squire, Inc.,
a New York corporation ("Norton"), 463 Seventh Avenue, New York, New York,
10018, the principal sum of Three Hundred Thousand Dollars ($300,000), together
with interest at the rate of six (6%) percent per annum until paid in full. The
principal amount of this Note shall be payable in thirty-six (36) equal monthly
installments of Nine Thousand One Hundred Twenty-six dollars and Fifty-eight
Cents ($9,126.58) each, in accordance with the amortization schedule set forth
on Exhibit A, commencing May 1, 1996 and terminating April 1, 1999, at which
time the principal amount of this Note then outstanding, together with any
outstanding accrued and unpaid interest thereon, shall be paid in full.
Railroad shall have the right, at its option, to prepay the
principal amount of this Note in whole or in part at any time and from time to
time, without premium or penalty, together with all interest accrued throughout
the date of prepayment in respect of the principal amount hereof so prepaid.
Norton shall have the right, without demand or notice, to
accelerate this Note and to declare the entire unpaid balance hereof and the
obligations evidenced hereby immediately due and payable and to seek and obtain
payment of this Note upon the occurrence of any of the following events of
default (each, an "Event of Default"), unless every such Event of Default shall
have been made good and cured: (a) Railroad fails to make payment of principal
or interest under this Note when and as the same shall become due and payable or
(b) Railroad admits in writing its inability to pay its debts generally as they
become due, files a petition in bankruptcy or a petition to take advantage of
any bankruptcy, reorganization or insolvency act, makes an assignment for the
benefit of creditors, or, on a petition in bankruptcy filed against it, is
adjudicated a bankrupt, which judgment, order or decree shall not be appealed
within the permitted time period from the date of entry thereof and subsequently
vacated. Upon such declaration, the obligations evidenced by this Note shall be
immediately due and payable.
In the event of any Event of Default hereunder, Railroad
agrees to pay to Norton all expenses, including, without limitation, reasonable
attorneys' fees and other legal expenses incurred by Norton in the enforcement
and collection of this Note.
This Note shall be governed by and construed in accordance
with the laws of the State of New York and shall be binding upon Railroad, its
successors and assigns, and inure to the benefit of Norton, its successors,
endorsees and assigns. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
RAILROAD ENTERPRISES, INC.
BY: Richard Gallo
----------------------
<PAGE> 2
INSTALLMENT NOTE SCHEDULE EXHIBIT A
RAILROAD ENTERPRISES
Interest rate: 6%
Term (mos.): 36
<TABLE>
<CAPTION>
BAL @ MONTH-END
------------------------------------------
MONTHLY AMOUNT APPLIED TO REMAIN'G REMAIN'G REMAIN'G
DATE PAYMENT PRINCIPAL INTEREST BAL CURRENT LONG-TERM
- - ------------ -------- -------------------------- ------------------------------------------
OPENING BALANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
300,000.00 94,078.15 205,921.85
1 9,126 58 7,626 58 1,500.00 292,373.42 94,548.54 197,824.88
2 9,126.58 7,664.71 1,461.87 284,708.71 95,021.29 189,687.42
3 9,126.58 7,703.04 1,423.54 277,005.67 95,496.39 181,509.28
4 9,126.58 7,741.55 1,385.03 269,264.12 95,973.88 173,290.24
5 9,126.58 7,780.26 1,346.32 261,483.86 96,453.74 165,030.12
6 9,126.58 7,819.16 1,307.42 253,664.70 96,936.01 156,728.69
7 9,126.58 7,858.26 1,268.32 245,806.44 97,420.69 148,385.75
8 9,126.58 7,897.55 1,229.03 237,908.89 97,907.80 140,001.10
9 9,126.58 7,937.04 1,189.54 229,971.86 98,397.34 131,574.52
10 9,126.58 7,976.72 1,149.86 221,995.14 98,889.32 123,105.82
11 9,126.58 8,016.60 1,109.98 213,978.53 99,383.77 114,594.76
12 9,126.58 8,056.69 1,069.89 205,921.85 99,880.69 106,041.16
13 9,126.58 8,096.97 1,029.61 197,824.88 100,380.09 97,444.78
14 9,126.58 8,137.46 989.12 189,687.42 100,881.99 88,805.43
15 9,126.58 8,178.14 948.44 181,509.28 101,386.40 80,122.88
16 9,126.58 8,219.03 907.55 173,290.24 101,893.33 71,396.91
17 9,126.58 8,260.13 866.45 165,030.12 102,402.80 62,627.31
18 9,126.58 8,301.43 825.15 156,728.69 102,914.81 53,813.87
19 9,126.58 8,342.94 783.64 148,385.75 103,429.39 44,956.36
20 9,126.58 8,384.65 741.93 140,001.10 103,946.54 36,054.56
21 9,126.58 8,426.57 700.01 131,574.52 104,466.27 27,108.26
22 9,126.58 8,468.71 657.87 123,105.82 104,988.60 18,117.22
23 9,126.58 8,511.05 615.53 114,594.76 105,513.54 9,081.22
24 9,126.58 8,553.61 572.97 106,041.16 106,041.16 (0.00)
25 9,126.58 8,596.37 530.21 97,444.78 97,444.79 (0.00)
26 9,126.58 8,639.36 487.22 88,805.43 88,805.43 (0.00)
27 9,126.58 8,682.55 444.03 80,122.88 80,122.88 (0.00)
28 9,126.58 8,725.97 400.61 71,396.91 71,396.91 (0.00)
29 9,126.58 8,769.60 356.98 62,627.31 62,627.32 (0.00)
30 9,126.58 8,813.44 313.14 53,813.87 53,813.87 (0.00)
31 9,126.58 8,857.51 269.07 44,956.36 44,956.36 (0.00)
32 9,126.58 8,901.80 224.78 36,054.56 36,054.56 (0.00)
33 9,126.58 8,946.31 180.27 27,108.26 27,108.26 (0.00)
34 9,126.58 8,991.04 135.54 18,117.22 18,117.22 (0.00)
35 9,126.58 9,035.99 90.59 9,081.22 9,081.22 (0.00)
36 9,126.63 9,081.22 45.41 (0.00) 0.00 (0.00)
</TABLE>
<PAGE> 1
Exhibit 10.2
NORTON MCNAUGHTON, INC.
1994 STOCK OPTION PLAN
(as amended March 27, 1995 and April 1, 1996)
1. Purposes of Plan. The purposes of the Plan, which shall be
known as the Norton McNaughton, Inc. 1994 Stock Option Plan and is hereinafter
referred to as the "Plan", are (i) to provide incentives for key employees,
directors, consultants and other individuals providing services to Norton
McNaughton, Inc. (the "Company") and its subsidiary or parent corporations
(within the respective meanings of Sections 424(f) and 424(e) of the Internal
Revenue Code of 1986, as amended (the "Code"), and referred to herein as
"Subsidiary" and "Parent", respectively) by encouraging their ownership of the
common stock, $.01 par value, of the Company (the "Stock") and (ii) to aid the
Company in retaining such key employees, directors, consultants and other
individuals upon whose efforts the Company's success and future growth depends,
and attracting other such employees, directors, consultants and other
individuals.
2. Administration. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors, as
hereinafter provided. For purposes of administration, the Committee, subject to
the terms of the Plan, shall have plenary authority to establish such rules and
regulations, to make such determinations and interpretations, and to take such
other administrative actions as it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be final,
conclusive and binding on all persons, including optionees and their legal
representatives and beneficiaries. Notwithstanding the foregoing, in the event
that there is no Compensation Committee, then the powers to be exercised by the
Compensation Committee hereunder shall be exercised by the Board of Directors.
The Committee shall be appointed from time to time by
the Board of Directors and shall consist of not fewer than three of its members.
Unless otherwise determined by the Board of Directors, no member of the Board of
Directors who serves on the Committee shall be eligible to participate in the
Plan. The Board of Directors shall designate one of the members of the Committee
as its Chairman. The Committee shall hold its meetings at such times and places
as it may determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all members shall be
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary (who need not be a member of the
Committee). No member of the Committee shall be liable for any act or omission
with respect to his service on the Committee, if he acts in good faith and in a
manner he reasonably believes to be in or not opposed to the best interests of
the Company.
3. Stock Available for Options. There shall be available for
options under the Plan a total of 850,000 shares of Stock, subject to any
adjustments which may be made pursuant to Section 5(f) hereof. Shares of Stock
used for purposes of the Plan may be either authorized and unissued shares, or
previously issued shares held in the treasury of the Company, or both. Shares of
Stock covered by options which have terminated or expired prior to exercise
shall be available for further options hereunder. Notwithstanding the foregoing,
the maximum number of shares of Stock which may be subject to options granted to
any one person under this Plan in any two year period shall not exceed 250,000
shares of Stock, subject to the adjustments provided in Section 5(f) hereof, and
no options shall be granted under this Plan after January 7, 2004.
4. Eligibility. Options under the Plan may be granted to key
employees of the Company or any Subsidiary or Parent, including officers or
directors of the Company or any Subsidiary or Parent, and to directors,
consultants and other individuals providing services to the Company or any
Subsidiary or Parent. Options may be granted to eligible employees whether or
not they hold or have held options previously granted under the Plan or
otherwise granted or assumed by the Company. In selecting employees for options,
the Committee may take into consideration any factors it may deem relevant,
including its estimate of the employee's present and potential contributions to
the success of the Company and its Subsidiaries. Service as a director, officer
or consultant of or to the Company or any Parent or Subsidiary shall be
considered employment for purposes of the Plan (and the period of such service
shall be considered the period of employment for purposes of Section 5(d) of the
Plan); provided, however, that incentive stock options may be granted under the
Plan only to an individual who is an "employee" (as such term is used in Section
422 of the Code) of the Company or any Subsidiary or Parent.
<PAGE> 2
5. Terms and Conditions of Options. The Committee shall, in
its discretion, prescribe the terms and conditions of the options to be granted
hereunder, which terms and conditions need not be the same in each case, subject
to the following:
(a) Option Price. The price at which each share of Stock
covered by an option granted under the Plan may be purchased shall not be less
than the market value per share of Stock on the date of grant of the option. The
date of the grant of an option shall be the date specified by the Committee in
its grant of the option.
(b) Option Period. The period for exercise of an option shall
in no event be more than ten years from the date of grant, or in the case of any
option intended to be an incentive stock option granted to an individual owning,
on the date of grant, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary,
more than five years from the date of grant. Options may, in the discretion of
the Committee, be made exercisable in installments during the option period. Any
shares not purchased on any applicable installment date may be purchased
thereafter at any time before the expiration of the option period.
(c) Exercise of Options. In order to exercise an option, the
Optionee shall deliver to the Company written notice specifying the number of
shares of Stock to be purchased, together with cash or a certified or bank
cashier's check payable to the order of the Company in the full amount of the
purchase price therefor; provided that, for the purpose of assisting an Optionee
to exercise an option, the Company may make loans to the Optionee or guarantee
loans made by third parties to the Optionee, on such terms and conditions as the
Board of Directors may authorize; and provided further that such purchase price
may be paid in shares of Stock owned by the Optionee having a market value on
the date of exercise equal to the aggregate purchase price, or in a combination
of cash and Stock. For purposes of this Section 5(c), the market value per share
of Stock shall be the last sale price regular way on the date of reference, or,
in case no sale takes place on such date, the average of the closing high bid
and low asked prices regular way, in either case on the principal national
securities exchange on which the Stock is listed or admitted to trading, or if
the Stock is not listed or admitted to trading on any national securities
exchange, the last sale price reported on the National Market System of the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
on such date, or the average of the closing high bid and low asked prices of the
Stock in the over-the-counter market reported on NASDAQ on such date, whichever
is applicable, or if there are no such prices reported on NASDAQ on such date,
as furnished to the Committee by any New York Stock Exchange member selected
from time to time by the Committee for such purpose. If there is no bid or asked
price reported on any such date, the market value shall be determined by the
Committee in accordance with the regulations promulgated under Section 2031 of
the Code, or by any other appropriate method selected by the Committee. If the
Optionee so requests, shares of Stock purchased upon exercise of an option may
be issued in the name of the Optionee or another person. An Optionee shall have
none of the rights of a stockholder until the shares of Stock are issued to him.
(d) Effect of Termination of Employment. An option may not be
exercised after the Optionee has ceased to be in the employ of the Company or
any Subsidiary or Parent, except in the following circumstances:
(i) If the Optionee's employment is terminated by action of
his employer, or by reason of disability or retirement under any
retirement plan maintained by the Company or any Subsidiary or Parent,
the option may be exercised by the Optionee within three months after
such termination, but only as to any shares exercisable on the date the
Optionee's employment so terminates;
(ii) In the event of the death of the Optionee during the
three month period after termination of employment covered by (i)
above, the person or persons to whom his rights are transferred by will
or the laws of descent and distribution shall have a period of one year
from the date of his death to exercise any options which were
exercisable by the Optionee at the time of his death;
(iii) In the event of the death of the Optionee while
employed, the option shall thereupon become exercisable in full, and
the person or persons to whom the Optionee's rights are transferred by
will or the laws of descent and distribution shall have a period of one
year from the date of the Optionee's death to exercise such option. The
provisions of the foregoing sentence shall apply to any outstanding
options which are incentive stock options to the extent permitted by
Section 422(d) of the Code and such outstanding options in excess
thereof shall, immediately upon the occurrence of the event described
in the preceding sentence, be treated for all purposes of the Plan as
nonstatutory stock options and shall be immediately exercisable as such
as provided in the foregoing sentence.
<PAGE> 3
In no event shall any option be exercisable more than ten years from the date of
grant thereof. Nothing in the Plan or in any option granted pursuant to the Plan
(in the absence of an express provision to the contrary) shall confer on any
individual any right to continue in the employ of the Company or any Subsidiary
or Parent or interfere in any way with the right of the Company to terminate his
employment at any time.
(e) Nontransferability of Options. During the lifetime of an
Optionee, options held by such Optionee shall be exercisable only by him. No
option shall be transferable other than by will or the laws of descent and
distribution.
(f) Adjustments for Change in Stock Subject to Plan. In the
event of a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of the Company, (i) except as
provided in (ii) below, the Committee shall make such adjustments, if any, as it
deems appropriate in the number and kind of shares subject to the Plan, in the
number and kind of shares covered by outstanding options, or in the option price
per share, or both and (ii) the Board of Directors of the Company shall make
such adjustments, if any, as it deems appropriate in the maximum number of
shares which may be subject to options granted to all directors of the Company
and in the maximum number of shares which may be subject to options granted to
each director, in each case pursuant to Section 5(j), in the number and kind of
shares covered by outstanding options, or in the option price per share, or
both, with respect to options held by directors of the Company.
(g) Acceleration of Exercisability of Options Upon Occurrence of
Certain Events. In connection with any merger or consolidation in which the
Company is not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all outstanding
options under the Plan shall become exercisable in full, notwithstanding any
other provision of the Plan or of any outstanding options granted thereunder, on
and after (i) the fifteenth day prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of commencement of
such tender offer or exchange offer, as the case may be. The provisions of the
foregoing sentence shall apply to any outstanding options which are incentive
stock options to the extent permitted by Section 422(d) of the Code and such
outstanding options in excess thereof shall, immediately upon the occurrence of
the event described in clause (i) or (ii) of the foregoing sentence, be treated
for all purposes of the plan as nonstatutory stock options and shall be
immediately exercisable as such as provided in the foregoing sentence.
Notwithstanding the foregoing, in no event shall any option be exercisable after
the date of termination of the exercise period of such option specified in
Sections 5(b), 5(d) and 5(j)(2).
(h) Registration, Listing and Qualification of Shares of Stock.
Each option shall be subject to the requirement that if at any time the Board of
Directors shall determine that the registration, listing or qualification of the
shares of Stock covered thereby upon any securities exchange or under any
federal or state law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the
granting of such option or the purchase of shares of Stock thereunder, no such
option may be exercised unless and until such registration, listing,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. The Company may require
that any person exercising an option shall make such representations and
agreements and furnish such information as it deems appropriate to assure
compliance with the foregoing or any other applicable legal requirement.
(i) Other Terms and Conditions. The Committee may impose such
other terms and conditions, not inconsistent with the terms hereof, on the grant
or exercise of options, as it deems advisable.
(j) Terms and Conditions of Options Granted to Directors.
Notwithstanding any provision contained in the Plan to the contrary, during any
period when any member of the Committee shall not be a "disinterested person" as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as such Rule
was in effect at April 30, 1991, then, the terms and conditions of options
granted under the Plan to any director of the Company during such period shall
be as follows:
(1) The price at which each share of Stock subject to an option
may be purchased shall, subject to any adjustments which may be made pursuant to
Section 5(f), in no event be less than the market value per share of Stock on
the date of grant, and provided further that in the event the option is intended
to be an incentive stock option pursuant to Section 6 and the Optionee owns on
the date of grant securities possessing more than 10% of the total combined
voting power of all classes of securities of the Company or of any Parent or
Subsidiary, the price per share shall not be less than 110% of the market value
per share of Stock on the date of grant.
<PAGE> 4
(2) The option may be exercised to purchase shares of Stock
covered by the option not sooner than six months following the date of grant.
The option shall terminate and no shares of Stock may be purchased thereunder
more than ten years after the date of grant, provided that if the option is
intended to be an incentive stock option pursuant to Section 6 and the Optionee
owns on the date of grant stock possessing more than 10% of the total combined
voting power of all classes of securities of the Company or of any Parent or
Subsidiary, the option shall terminate and no shares of Stock may be purchased
thereunder more than five years after the date of grant.
(3) The maximum number of shares of Stock which may be subject
to options granted to all directors pursuant to this Section 5(j) shall be
600,000 shares in the aggregate. The maximum number of shares of Stock which may
be subject to options granted to any director who is an officer or employee of
the Company is 150,000. The maximum number of shares of Stock which may be
subject to options granted to any director who is not an officer or employee of
the Company shall be 25,000 shares.
(k) Reload Options. If upon the exercise of an option granted
under the Plan (the "Original Option") the Optionee pays the purchase price for
the Original Option pursuant to Section 5(c) in whole or in part in shares of
Stock owned by the Optionee for at least six months, the Company shall grant to
the Optionee on the date of such exercise an additional option under the Plan
(the "Reload Option") to purchase that number of shares of Stock equal to the
number of shares of Stock so held for at least six months transferred to the
Company in payment of the purchase price in the exercise of the Original Option.
The price at which each share of Stock covered by the Reload Option may be
purchased shall be the market value per share of Stock (as specified in Section
5(c)) on the date of exercise of the Original Option. The Reload Option shall
not be exercisable until one year after the date the Reload Option is granted or
after the expiration date of the Original Option. Upon the payment of the
purchase price for a Reload Option granted hereunder in whole or in part in
shares of Stock held for more than six months pursuant to Section 5(c), the
Optionee is entitled to receive a further Reload Option in accordance with this
Section 5(k). Shares of Stock covered by a Reload Option shall not reduce the
number of shares of Stock available under the Plan pursuant to Section 3 and, in
the case of Reload Options granted to a director, the number of shares of Stock
available to directors, individually and in the aggregate, under the Plan
pursuant to Section 5(j)(3).
6. Additional Provisions Applicable to Incentive Stock Options.
The Committee may, in its discretion, grant options under the Plan to eligible
employees which constitute "incentive stock options" within the meaning of
Section 422 of the Code, provided, however, that (a) the aggregate market value
of the Stock with respect to which incentive stock options are exercisable for
the first time by the Optionee during any calendar year shall not exceed the
limitation set forth in Section 422(d) of the Code, (b) if the Optionee owns on
the date of grant securities possessing more than 10% of the total combined
voting power of all classes of securities of the Company or of any Parent or
Subsidiary, the price per share shall not be less than 110% of the market value
per share on the date of grant and (c) Section 5(d)(ii) hereof shall not apply
to any incentive stock option.
7. Amendment and Termination. Unless the Plan shall theretofore
have been terminated as hereinafter provided, the Plan shall terminate on, and
no option shall be granted hereunder after, January 7, 2004; provided, however,
that the Board of Directors may at any time prior to that date terminate the
Plan. The Board of Directors may at any time amend the Plan or the term of any
option outstanding under the Plan; provided, however, that, except as
contemplated in Section 5(f), the Board of Directors shall not, without approval
by a majority of the votes cast by the stockholders of the Company at a meeting
of stockholders at which a proposal to amend the Plan is voted upon, (i)
increase the maximum number of shares of Stock for which options may be granted
under the Plan, (ii) change the minimum option price, (iii) extend the period
during which options may be granted or exercised, or (iv) except as otherwise
provided in the Plan, amend the requirements as to the class of employees
eligible to receive options. No termination or amendment of the Plan or any
option outstanding under the Plan may, without the consent of an Optionee,
adversely affect the rights of such Optionee under any option held by such
Optionee.
8. Effectiveness of Plan. The Plan will not be made effective
unless approved by a majority of the votes cast thereon by the stockholders of
the Company at a meeting of stockholders duly called and held for such purpose
or by unanimous written consent of such stockholders, and no option granted
hereunder shall be exercisable prior to such approval.
9. Withholding. It shall be a condition to the obligation of the
Company to issue shares of Stock upon exercise of an option, that the Optionee
(or any beneficiary or person entitled to act under Section 5(d) hereof) pay to
the Company, upon its demand, such amount as may be requested by the Company for
the purpose of satisfying any liability to withhold federal, state or local
income or other taxes. If the amount requested is not paid, the Company may
refuse to issue such shares of Stock.
<PAGE> 5
10. Other Actions. Nothing contained in the Plan shall be
construed to limit the authority of the Company to exercise its corporate rights
and powers, including but not by way of limitation, the right of the Company to
grant or assume options for proper corporate purposes other than under the Plan
with respect to any employee or other person, firm, corporation or association.
<PAGE> 1
[NationsBanc Commercial Corporation Letterhead]
Exhibit 10.3
May 31, 1996
Norton McNaughton of Squire, Inc.
463 Seventh Avenue
New York, NY 10018
RE: Amended and Restated Factoring Agreement between us dated
March 1, 1994, as amended (the "Factoring Agreement")
Gentlemen:
This will confirm our agreement that the Factoring Agreement is hereby amended
by deleting Section 2.6 thereof and substituting the following in its place and
stead:
"Upon our request, prior to Payment Date you shall, so long as no
Default has occurred and is continuing:
(i) advance to us ninety percent (90%) of the purchase price of
Receivables;
(ii) advance to us, in addition to the amounts set forth in
subparagraph (i) above, up to Ten Million Dollars
($10,000,000.00);
(iii) arrange for NationsBank, N.A. (South) to open for our account,
under the terms of the Letter of Credit and Acceptance
Financing Agreement between us dated May 21, 1990, up to
Twenty Million Dollars ($20,000,000.00) of Letters of Credit
at any one time outstanding; and
(iv) permit the existence of Ledger Debt of up to Two Million
Dollars ($2,000,000.00) at any one time outstanding.
Any amounts outstanding, from time to time, in excess of (i), (ii),
(iii) or (iv) above shall also be subject to this Agreement."
Except as amended herein, all other terms and conditions of the
Factoring Agreement shall remain unchanged and in full force and
effect.
Would you please indicate your agreement to the foregoing by signing
where indicated below.
NationsBanc Commercial Corporation
By: L. Ransom Burts
--------------------------
Read and Agreed:
Norton McNaughton of Squire, Inc.
By: Amanda J. Bokman
--------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> NOV-05-1995
<PERIOD-END> MAY-04-1996
<CASH> 353
<SECURITIES> 0
<RECEIVABLES> 21,279
<ALLOWANCES> 0
<INVENTORY> 28,891
<CURRENT-ASSETS> 54,536
<PP&E> 5,641
<DEPRECIATION> 1,222
<TOTAL-ASSETS> 62,994
<CURRENT-LIABILITIES> 16,543
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 45,645
<TOTAL-LIABILITY-AND-EQUITY> 62,994
<SALES> 99,846
<TOTAL-REVENUES> 99,846
<CGS> 79,986
<TOTAL-COSTS> 20,678
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 918
<INCOME-PRETAX> (1,736)
<INCOME-TAX> (720)
<INCOME-CONTINUING> (1,016)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,016)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
<PAGE> 1
[MORGEN-WALKE ASSOCIATES, INC: LETTERHEAD]
NEWS RELEASE
EXHIBIT 99
FOR: Norton McNaughton, Inc.
APPROVED BY: Amanda Bokman
Chief Financial Officer
(212) 947-2960
FOR IMMEDIATE RELEASE
CONTACT: Investor Relations
June Filingeri/Howard Zar/
Shannon Moody
Press: Stacy Barns/
Michael McMullan
Morgen-Walke Associates
212/850-5600
NORTON MCNAUGHTON, INC. ANNOUNCES SECOND QUARTER 1996 RESULTS
New York, New York, June 17, 1996 -- Norton McNaughton, Inc. (Nasdaq:
NRTY) today announced sales and earnings for the second quarter ended May 4,
1996.
Net sales for the quarter were $57.4 million versus $59.6 million for
the comparable period in 1995. The net loss for the second quarter was
$736,000, or $0.09 per share, compared to net income of $3.9 million, or $0.49
per share, for the same period a year ago.
For the first six months of fiscal 1996, net sales were $99.8 million
compared to $94.2 million reported for the same period a year ago. The net loss
for the first six months was $1.0 million, or $0.13 per share, compared to net
income of $5.3 million, or $0.65 per share for the same period in 1995.
Sanford Greenberg, Chairman of the Board and Chief Executive Officer,
noted, "As previously announced, second quarter revenues and gross margins
reflect both the effects of the weak retail environment, which resulted in
higher than average allowances to retailers, and the closing of the Kate
McNaughton suit division."
-more-
<PAGE> 2
NRTY -- ANNOUNCES SECOND QUARTER 1996 RESULTS Page: 2
Mr. Greenberg continued, "It is our goal in coming quarters to improve
gross margin levels. Correspondingly, we are taking a close look at levels of
production in our core and other businesses. Unlike fiscal 1995, we may choose
not to produce merchandise in anticipation of retailers' needs, but rather only
when we believe that we will be able to sell it at an acceptable level of
profit. Accordingly, we anticipate that revenue levels in the second half of
fiscal 1996 may decrease from those in the corresponding period last year. In
addition, in the second half of fiscal 1996, we continue to see the need for
higher than previously anticipated markdown allowances related to continuing
competitive pressures. We are also continuing to examine our cost structure and
are in the process of taking steps to further reduce our overhead."
Mr. Greenberg concluded, "We anticipate that Norton McNaughton will
return to profitability in the third and fourth quarters. However, future
revenues and gross profit margin levels remain uncertain due to continuing
competitive pressures in the market. Currently, we expect earnings per share of
approximately $0.20 to $0.30 for fiscal 1996."
This press release contains forward-looking information about the
Company's anticipated operating results for fiscal 1996. The Company's ability
to achieve its anticipated results is dependent on many factors which are
outside of management's control. Some of the most significant factors would be
a further increase in price pressures and other competitive factors and a
softening of retailer or consumer acceptance of the Company's products, any of
which could result in a decrease in anticipated revenues and gross profit
margins, the unanticipated loss of a major customer, the unanticipated loss of
a major contractor or supplier, unforeseen complications resulting
-more-
<PAGE> 3
NRTY -- ANNOUNCES SECOND QUARTER 1996 RESULTS Page: 3
from the Company's implementation of major upgrades to its management
information systems, and weather conditions which could impact retail traffic.
Accordingly, there can be no assurance that the Company will achieve its
anticipated operating results for fiscal 1996.
Norton McNaughton, Inc. designs, contracts for the manufacture of and
markets a broad line of brand name, moderately priced woman's career and casual
clothing. The Company's product lines include collections of related separates
coordinated by color and style as well as casual weekend wear and related
knitwear separates. Founded in 1981, the Company markets its products under its
nationally known labels, including Norton McNaughton(R), Maggie McNaughton(R),
Katherine Marie(R), Modiano(TM), Danielle Paige(TM) and Norton Studio(TM), and
under private label including Lauren Alexandra(R) and Pant-her(R).
-- financial table to follow --
<PAGE> 4
NORTON McNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- ----------------------
May 4, May 5, May 4, May 5,
1996 1995 1996 1995
------ ------ ------ ------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales $57,439 $59,594 $99,846 $94,158
Cost of goods sold 47,389 43,182 79,986 68,115
------- ------- ------- --------
Gross profit 10,050 16,412 19,860 26,043
Selling, general and
administrative expenses 10,753 9,770 20,678 17,171
------- ------- ------- --------
Income (loss) from
operations (703) 6,642 (818) 8,872
Interest income (40) (45) (79) (134)
Interest expense 594 152 997 209
------- ------- ------- --------
Income (loss) before
provision for income
taxes (1,257) 6,535 (1,736) 8,797
Provision (benefit) for
income taxes (521) 2,618 (720) 3,545
------- ------- ------- --------
Net income (loss) $ (736) $ 3,917 $(1,016) $ 5,252
======= ======= ======= =======
PER SHARE DATA:
Net income (loss) $ (0.09) $ 0.49 $ (0.13) $ 0.65
======= ======= ======= =======
Weighted average number of
common shares and common
stock equivalents outstanding 7,792 8,060 7,898 8,050
======= ======= ======= =======
</TABLE>
