<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 2, 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
incorporation or organization) Identification No.)
463 SEVENTH AVENUE
NEW YORK, NY 10018
-------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 947-2960
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of January 24, 1997, was approximately $37,951,000.
As of January 24, 1997, there were 7,640,120 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Registrant's definitive proxy statement for the annual
meeting of stockholders to be held March 31, 1997, which will be filed with the
Commission subsequent to the date hereof pursuant to Regulation 14A of the
Securities Exchange Act of 1934, are incorporated by reference into Part III of
this report.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Norton McNaughton, Inc. and Subsidiaries (the "Company") designs,
contracts for the manufacture of and markets a broad line of brand name,
moderately priced women's career and casual clothing. The Company's product
lines of related separates consist of collections of color and style coordinated
jackets, skirts, pants, shorts, blouses and knit products. Founded in 1981, the
Company markets its products under its nationally known labels, including Norton
McNaughton(R), Norton McNaughton(R) Petite, Maggie McNaughton(R), Maggie
McNaughton(R) Petite, Modiano(R), Pant-her(R), Danielle Paige(TM), D.P.S.(TM)
and Norton Studio(TM), as well as Lauren Alexandra(R), which is a registered
trademark owned by Federated Department Stores, Inc.
The Company's products are marketed primarily as collections of related
separates of jackets, skirts, pants, shorts, blouses and knit products, which,
while sold as separates, are coordinated as to styles, colors and fabrics and
are designed to be merchandised and worn together. The products are fabricated
from natural and synthetic fibers and blends and are manufactured in misses,
petite and large sizes. New collections of coordinated separates are introduced
in six principal selling seasons-spring, summer, transition, fall, winter and
holiday/resort. The introduction of different collections in each season is
staggered to ensure that consumers are introduced on a monthly basis to fresh
full-priced merchandise. The Company's clothing collections are moderately
priced and are designed primarily for career women's needs. The Company's
products generally retail for $20 to $100, averaging approximately $30 to $60.
The following table sets forth information concerning the Company's
product lines:
<TABLE>
<CAPTION>
LABEL PRINCIPAL DISTRIBUTION CHANNELS RETAIL PRICE RANGE
----- ------------------------------- ------------------
<S> <C> <C>
Norton McNaughton Department stores $25-100
Norton McNaughton Petite
Maggie McNaughton
Maggie McNaughton Petite
Pant-her The May Department Stores Company $25-90
Lauren Alexandra Federated Department Stores, Inc. $25-90
Modiano Retail chains $25-75
Danielle Paige/D.P.S. Department stores, chains and mass $20-40
merchants
Norton Studio Department stores $25-80
</TABLE>
Norton McNaughton
The Norton McNaughton product lines feature color and style coordinated
jackets, skirts, pants, shorts, blouses and sweaters. The product lines are sold
in misses, petite and large sizes under the Norton McNaughton, Norton McNaughton
Petite, Maggie McNaughton and Maggie McNaughton Petite labels to department
stores. The target customer for these product lines are working women aged 25 to
55 with annual income of $20,000 to $50,000.
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<PAGE> 3
Pant-her
The Pant-her product line was introduced in July 1993 and is sold
exclusively to The May Department Stores Company ("May Company"). This product
line features a full line of traditional related separates in misses, petite and
large sizes. The Pant-her product line is designed for women ranging from 40 to
70 plus years old.
The Company has an agreement with May Company which requires the
Company to sell Pant-her products exclusively to May Company stores and requires
May Company to purchase not less than $7 million of Pant-her products during the
12-month period ending June 30, 1997 and each succeeding 12-month period
thereafter. The agreement is terminable by either party on 180 days notice and
grants to May Company an option to acquire the Pant-her name only in the event
that the Company terminates the agreement for reasons other than a breach by May
Company. The Company does not have any long-term commitments or contracts with
any of its customers other than May Company.
Lauren Alexandra
The Lauren Alexandra product line was introduced in June 1995, and is
sold exclusively to Federated Department Stores, Inc. ("Federated"). This
product line offers moderately priced career sportswear collections in misses
and large sizes for women ages 25 to 60 years old.
Modiano
The Modiano product line was introduced in January 1994 as a full line
of related separates targeted to national and regional retail chains. It has
similar silhouettes to the Norton McNaughton line but is sold at slightly lower
price points in retail chains such as Sears, Roebuck and Co.
Danielle Paige/D.P.S.
The Danielle Paige and D.P.S. product lines were introduced in August
1995, and offer a line of moderately priced weekend wear. The lines consist of
casual separates including jumpers, sport dresses, pants, shirts, skirts,
shorts, jackets and leggings. The lines are designed for the same target
customer as the Norton McNaughton product line and are sold to department
stores, chains and mass merchants.
Norton Studio
The Norton Studio product line was introduced in January 1996, and
consists of moderately priced women's career and casual knitwear collections.
The line is designed for the same target customer as the Norton McNaughton
product line and is sold in department stores. This product line is being
expanded to include a large size division in the Spring of 1997 which will also
be sold in department stores.
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CUSTOMERS
The Company's products are sold nationwide in an estimated 5,000
individual stores operated by over 130 department store chains, mass merchants
and specialty retailers. The following table sets forth approximate percentages
of the Company's net sales to its three largest customers in fiscal 1996, fiscal
1995 and fiscal 1994:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
---- ---- ----
Name
----
<S> <C> <C> <C>
May Company (1) 34% 36% 38%
Federated (2) 20 19 16
J.C. Penney 12 7 9
---- ---- ----
Total 66 % 62% 63%
---- ---- ----
</TABLE>
- - - - ---------------
(1) Included in May Company are Hechts, Foley's, Robinsons-May, Kaufmann's,
Filene's, Famous Barr and Meier & Frank.
(2) Included in Federated are A&S, Rich's, Burdines, Lazarus, Bon Marche,
Jordan Marsh, Stern's and Macy's.
MARKETING AND SALES
The Company's sales force is located in the Company's New York City
showroom. In addition, senior management, principally Sanford Greenberg (Chief
Executive Officer), Norton Sperling (President) and Howard Greenberg (Vice
President-Sales), are actively involved in the Company's marketing and selling
efforts. The Company emphasizes the development of long-term customer
relationships by consulting with its customers concerning the style and
coordination of clothing purchased by the store, optimal delivery schedules,
floor presentation, pricing and other merchandising considerations. Frequent
communication between the Company's senior management and other sales personnel
and their counterparts at various levels in the buying organizations of the
Company's customers is an important element of the Company's marketing and sales
efforts. These contacts allow the Company to monitor retail sales volume and to
adjust product mix and pricing in an attempt to maximize sales at acceptable
profit margins for both the Company and its customers. The Company's marketing
efforts attempt to build upon the success of prior selling seasons to encourage
existing retail customers to devote greater selling space to the Company's
product lines, to penetrate different buying groups at large customers, and to
obtain additional retail store customers. New merchandising efforts include more
fashionable product offerings and wider product assortments merchandised in
tighter fashion groups that should reach the consumer on retail selling floors
in a more easily comprehended manner. As a result of these efforts, departments
should look fresher and more variety will be offered to the consumer, which the
Company believes will help it achieve stronger sell-throughs with improved gross
margin levels.
DESIGN
The Company's design philosophy is to reproduce popular designer
fashions at moderate prices. The Company's design team is responsible for the
creation, development and coordination of product lines which interpret and
mirror existing fashion trends in better women's apparel. The design team also
seeks to enhance consumer appeal by combining functional fabrics in creative
looks and color schemes to encourage the coordination of outfits, resulting in
the purchase of more than one garment. Through its design and marketing staff,
the Company actively monitors the sales of its products to assess changes in
consumer preferences, fashion trends and the marketplace at large.
The Company maintains an in-house art department for its print design
process. Rather than buying all of its printed fabrics from suppliers' open
lines of fabrics, the Company's design staff starts with "art work" which the
Company purchases from over 25 art studios worldwide. Working with the art
departments at mills, converters and other fabric suppliers, the Company's art
department redesigns the "art work" by altering colors, backgrounds, graphics,
shapes and other items to make it suitable for printed fabrics which it believes
will fit the fashion tastes of the Company's target retail consumers.
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<PAGE> 5
The design process begins with the development of fashion concepts,
color schemes and fabric selections for the related separates within a product
line approximately six to twelve months before final designs are produced. Once
color schemes, fabric selections and other concepts are developed, designs are
finalized, fabric swatches and silhouettes are selected, and finally, samples
are produced. Approximately three to nine months prior to a product line's
release, previews are held in the Company's design headquarters and its New York
City showroom with the Company's major customers to exchange ideas and to review
colors, patterns, fabrics, styling and price points. These previews, and the
flexibility in production scheduling resulting from the Company's domestic
sourcing of a large portion of its fabrics and manufacturing (see "Manufacturing
and Distribution" below), allow the Company to redesign and refocus the
components of its collections before significant fabric and production
commitments are made.
MANUFACTURING AND DISTRIBUTION
The Company contracts for the manufacture of all of its products. The
Company believes that contract manufacturing allows it to maximize production
flexibility while avoiding significant capital expenditures and the fixed cost
of managing a large production work force. The Company also believes that
domestic contract manufacturing gives it production flexibility by allowing the
Company to defer its commitment to produce substantial quantities until receipt
of initial orders and to adjust production to more closely match buying trends,
thereby minimizing excess inventory. During fiscal 1996 and fiscal 1995,
approximately 57% and 71%, respectively, of the Company's products were
manufactured in the United States, substantially all of which were manufactured
in the New York City metropolitan area. The Company believes that foreign
contract manufacturing allows it to take advantage of lower manufacturing costs
for products which require more labor to produce and to avail itself of a
skilled labor force which is better equipped and trained to produce certain
products, particularly knitwear. As the Company's product lines diversify or as
fashion trends dictate, the Company anticipates that it will produce more of its
products overseas. The Company attributes the increase in overseas production of
its products during the past few fiscal years to more competitive pricing, a
highly skilled labor force and higher quality standards. The Company anticipates
that approximately 50% to 60% of its products will be manufactured outside the
United States in fiscal 1997.
The cycle time from fabric purchase commitment to finished goods
receipt is generally two to four months for domestically sourced fabrics and
manufacturing, and four to ten months for foreign sourced fabrics and
manufacturing. Once fabric purchase commitments have been made, the Company's
domestically sourced manufacturing allows production commitments to be made
three to eight weeks in advance of the proposed shipment date to customers. In
contrast, the Company's foreign manufacturing requires the Company to order
production in advance of the proposed shipment date by four to ten months.
The domestic manufacturing process begins with the receipt in the
Company's warehouse of fabrics from mills, converters and other fabric
suppliers. Over the next one to four weeks, fabrics are cut to the Company's
design specifications by the Company's contract cutter. The cut goods are
shipped to the various outside contractors for sewing. The sewing process
generally takes one to four weeks and finished goods are then returned to the
Company's distribution contractor at its warehouse. Over the next one to six
weeks shipments are made to the Company's customers in quantities, at locations,
and in packaging as specified by these customers.
The Company's sources of fabric and trim supply are established. The
Company has experienced little difficulty in obtaining raw materials and
believes that the current and potential sources of fabric and trim supply are
sufficient to meet its needs for the foreseeable future.
In fiscal 1996, the Company engaged the services of approximately 60
sewing and knitting contractors in the United States and nine overseas master
contractors in the Dominican Republic, Central America, the Far East, the Middle
East and Europe. Most of the Company's domestic contractors perform
manufacturing exclusively for the Company. However, the Company does not have
any long-term supply agreements with any of its sewing or knitting contractors.
No single sewing or knitting contractor accounted for more than 10% of the
Company's domestic manufacturing in fiscal 1996.
The Company has long-term agreements with its domestic cutting
contractor (Cutting Edge Services, Inc., formerly Toni-Linda Productions, Inc.)
and its finished goods distribution contractor (Railroad Enterprises, Inc.) who
perform their functions in the contractors' leased cutting and warehouse
facilities. Generally, these agreements require the Company to utilize the
services of the contractors exclusively unless a contractor experiences volume
limitations which prevent it from performing services for the Company. The
agreements also require the contractors to provide their services exclusively to
the Company. The agreements have initial terms ending on June 30, 2000
(distribution) and June 30, 2001 (cutting), respectively, and may be terminated
by the Company upon notice and lapse of cure periods in the event that the
contractors are not performing their services under the agreements.
5
<PAGE> 6
In addition, after 2000 and 2001, respectively, the Company may terminate either
of the agreements on June 30 of any year in the event that it elects to perform
"in-house" the services provided by the applicable contractor. In such event,
the Company would be obligated to pay the terminated contractor a fee equal to
$0.15 for each garment cut or $0.10 for each garment distributed, as applicable,
during the year preceding the date on which the Company terminated the
agreement, but not less than $1,500,000, in the case of the cutting contractor,
or $750,000, in the case of the distribution contractor. In addition, the
Company would be required to assume certain obligations of the terminated
contractor arising under real estate leases (including the leased warehouse
facilities) and equipment purchase contracts, in either case for property
utilized in rendering services to the Company. The Company cannot determine the
amount of these obligations. The Company has no present intention of bringing
the cutting or distribution functions "in-house" or otherwise terminating the
long-term agreements. The loss of the services of either of these two
contractors would have a materially adverse effect on the Company's business
until alternative supply arrangements could be secured. The Company believes
that it could replace either or both of the contractors within a six-month
period. In addition to its agreements with these two contractors, the Company
subleases its fabric warehouse (see "Properties") from its cutting contractor
and guarantees the contractor's obligations under its prime lease in an amount
up to approximately $250,000 in the aggregate. The Company guarantees its
distribution contractor's obligations under its lease in an amount up to
$500,000 in the aggregate. From time to time, in the ordinary course of
business, the Company makes interest bearing loans to its distribution
contractor to facilitate the expansion and improvement of the contractor's
distribution facilities for the benefit of the Company. All such loans have been
paid and are being paid in accordance with their terms.
The Company's foreign contractors are located in the Dominican
Republic, Central America, the Far East, the Middle East and Europe. These
contractors may in turn subcontract work to other sewing contractors. The
Company believes that contract manufacturing in the Dominican Republic will
account for the majority of the Company's foreign sourced manufacturing in
fiscal 1997 and permits the Company to take advantage of "807" customs
regulations which, in general, provide that articles assembled abroad from
United States components may be exempt from United States duties on the value of
these components. In addition, the Dominican Republic has a large and skilled
labor pool which permits the Company to produce products which require higher
labor intensification at competitive prices. Foreign sourcing of products
requires a significant lead time between order and receipt as compared to
domestic production, ranging from four to eight months in the case of Dominican
Republic and Central American sourced manufacturing and six to ten months in the
case of Far Eastern, Middle Eastern and European sourced manufacturing.
The Company's quality control personnel monitor the manufacturing
processes at the Company's contractors in order to ensure that they meet the
Company's quality standards. Substantially all of the Company's fabrics for
domestic production are inspected upon receipt in the Company's warehouse. In
addition, the Company's quality control program includes on-site inspections of
work-in-process and finished goods during the production process and inspection
of finished goods upon receipt. To date, the Company has experienced a return
rate of less than one percent for poor quality garments.
The Company has expanded its Electronic Data Interchange (EDI) program
to include the majority of its major customers and allow the Company to comply
with customers' specific requirements. This technology allows the electronic
exchange of purchase orders, invoices, and advanced shipping notices. In
addition, the Company is bar coding all merchandise to allow customers to track
sales at store registers, monitor inventory levels and provide timely feedback.
The Company has implemented significant changes to its management
information systems which enable the Company to integrate purchasing, shipping,
production and financial processes that were previously performed in stand-alone
applications. The new system is also able to process a greater volume of
transactions, provide improved financial and non-financial reporting and
facilitate various business processes. The Company will continue to improve and
upgrade its management information systems in fiscal 1997.
6
<PAGE> 7
RETAIL OUTLET STORES
The Company operates 12 retail outlet stores under the name Norty's in
which it sells end-of-stock, out-of-season and other miscellaneous merchandise.
The Company utilizes these retail outlets to minimize sales to off-price
retailers and as a means to liquidate excess inventory. The Company's retail
stores are strategically located to avoid competition with the Company's major
customers. The size of these stores ranges from 1,950 to 2,750 square feet with
annual minimum rental payments ranging from approximately $28,000 to $39,000.
TRADEMARKS
The Company has registered the trademarks Norton McNaughton, Maggie
McNaughton, Modiano and Pant-her in the United States and has filed for the U.S.
registration of the trademarks Danielle Paige, D.P.S. and Norton Studio. The
trademark Lauren Alexandra is owned by Federated. The Company has registered the
trademark Pant-her in Canada, and has filed for the registration of the Norton
McNaughton and Maggie McNaughton trademarks in Canada. The Company has also
registered the trademark Norton McNaughton in Mexico and Chile and has filed for
registration in the European Economic Community. The Company has also registered
the trademark Maggie McNaughton in the United Kingdom. The Company regards its
trademarks as valuable assets and believes that they have value in the marketing
of its products.
BACKLOG
At November 2, 1996, the Company had a total of approximately $63.0
million of unfilled, confirmed and unconfirmed customer orders compared to
approximately $67.1 million at November 4, 1995. These orders are generally
scheduled for delivery within one to two months after confirmation. The amount
of unfilled orders at a particular time is affected by a number of factors,
including the scheduling of the manufacturing and shipping of the products
which, in many instances, depends on customers' demands. Accordingly, a
comparison of unfilled orders from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments. There can be
no assurance that cancellations, rejections and returns will not reduce the
amount of sales realized from the backlog of orders.
COMPETITION
There is intense competition in the women's apparel industry. The
Company competes with numerous other manufacturers and distributors, many of
which are larger and have substantially greater resources than the Company. The
Company believes that it competes favorably on the basis of the style, quality
and value of its products, the production flexibility which it enjoys as a
result of the domestic sourcing of a large portion of its fabric and
manufacturing, and the long-term customer relationships which it has developed.
EMPLOYEES
The Company presently has approximately 283 full-time employees,
including approximately eight in executive or managerial positions,
approximately 219 in production, design, marketing and sales positions and
approximately 56 in administrative and accounting positions. None of the
Company's employees are subject to a collective bargaining agreement. The
Company considers its relations with its employees to be good.
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ITEM 2. PROPERTIES
The Company currently conducts its business (other than retail outlet
stores) from the following leased facilities:
<TABLE>
<CAPTION>
Lease Approximate Approximate
Expiration Number of Annual Rental
Facility Location Date Square Feet Expenses(1)
- - - - -------- -------- ---- ----------- -----------
<S> <C> <C> <C> <C>
Executive, 463 Seventh Avenue July 31, 2008 60,000 $665,000
production 5th, 9th and 10th Floors
and design offices New York, NY
Showroom 1407 Broadway January 31, 2004 11,600 $400,000
26th Floor
New York, NY
Showroom(2) 1400 Broadway January 31, 1998 4,000 $135,000
12th Floor
New York, NY
Fabric 3349 Whelan Road December 31, 2003 50,000 $200,000
warehouse(3) East Rutherford, NJ
</TABLE>
- - - - ---------------
(1) Before escalations for taxes, CPI and other adjustments.
(2) The Company sublets the entire space on a month-to-month basis.
(3) This warehouse space is leased from the Company's cutting contractor.
See "Business-Manufacturing and Distribution."
The Company believes that its existing facilities are well-maintained,
in good operating condition and will be adequate for its operations for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain legal actions and claims arising in
the ordinary course of business. It is the opinion of management that such
litigation and claims will be resolved without material effect on the Company's
financial position, results of operations and cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ Stock Market
("NASDAQ") under the symbol NRTY. The table below sets forth the high and low
sales prices as reported by NASDAQ.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
----------------------------- -------------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st quarter $19.75 $5.75 $18.25 $12.50
2nd quarter $11.50 $7.00 $19.75 $15.00
3rd quarter $12.50 $6.00 $18.25 $14.00
4th quarter $ 8.94 $6.00 $23.25 $17.75
</TABLE>
The closing sales price of the Company's Common Stock on January 24,
1997 was $7.00 per share.
The Company has never paid cash or other dividends on its Common Stock.
The payment of dividends is within the discretion of the Company's Board of
Directors; however, in view of potential working capital needs and in order to
finance future growth, it is unlikely that the Company will pay any cash
dividends on its Common Stock in the foreseeable future.
On January 24, 1997, there were approximately 75 record holders of the
Company's Common Stock and, the Company estimates, approximately 800 beneficial
holders of the Company's Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended (1)
--------------------------------------------------------------------------------------
November 2, November 4, November 4, November 5, November 6,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands, Except Per Share Amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net sales $220,823 $227,530 $168,621 $133,329 $117,778
Income from
operations 4,781 17,813 17,487 7,418 6,967
Net income 1,524 9,703 8,821 (2) 2,692 2,637
Net income per
common
share (3) $0.20 $1.20 $1.22 (2) $0.43 $0.42
===== ===== ===== ===== =====
Weighted average
shares and share
equivalents
outstanding 7,781 8,056 7,084 5,086 5,086
===== ===== ===== ===== =====
BALANCE SHEET DATA:
Working
capital $ 40,057 $ 43,502 $ 34,586 $ 6,651 $ 11,466
Total assets 61,109 73,524 55,331 35,226 28,413
Long-term debt,
excluding current
portion
- - - 14,280 19,775
Class B Preferred
Stock - redeemable
- - - 4,000 4,000
Stockholders'
equity
(deficiency) 48,286 50,469 40,300 (5,352) (9,864)
</TABLE>
(Footnotes on following page)
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(1) The Company operates on a 52 or 53-week fiscal year. During fiscal year
1995, the Company made the determination that its fiscal year would end
on October 31, if such date fell on a Saturday, or the first Saturday
following October 31. In fiscal years 1994 and prior, the Company's
fiscal year ended on October 31, if such date fell on a Friday, or the
first Friday following October 31. Closing its fiscal year on a
Saturday enables the Company to report the results of its operations in
a manner that is more consistent with both retail/apparel industry
practice and the close of its actual business cycle. Data for the
fiscal years ended November 2, 1996, November 4, 1995, November 4,
1994, November 5, 1993, and November 6, 1992 include the results of
operations for 52, 52, 52, 52, and 53 weeks, respectively.
(2) Reflects net income after extraordinary item of $401,000, or $0.06 per
share. As a result of the repayment of long-term indebtedness in March
1994, the Company wrote off the remaining unamortized balance of
deferred financing costs of $704,000. This write-off was reflected as
an extraordinary item, net of tax of $303,000, in the consolidated
statement of income for the fiscal year ended November 4, 1994.
(3) Reflects net income available to holders of Common Stock after payment
of dividends on Class B Preferred Stock-redeemable of $168,000,
$480,000 and $480,000 in fiscal 1994, 1993, and 1992, respectively.
This stock was redeemed by the Company in March 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company continually investigates the synergies and complementary
aspects of additional product lines directed at its target customer. In
furtherance of this activity, the Company launched several new product lines in
fiscal 1995 and 1996. The Lauren Alexandra private-label collection for
Federated Department Stores, Inc. which commenced shipments in June 1995,
contributed to both net sales and operating income in fiscal 1995. The Company
also introduced the Danielle Paige and Norton Studio product lines in the fourth
quarter of fiscal 1995 and the first quarter of fiscal 1996, respectively. These
two new product lines, which offer the Company's target moderate customer casual
apparel, were fully rolled out in Spring 1996. The Company has monitored, and
will continue to closely review, the success, in terms of sales, profitability
and customer acceptance, of its product lines. In the event that one or more of
its product lines does not meet the Company's expectations, the Company will
discontinue their production. 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 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 continued 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 fiscal 1997 may decrease from those
in fiscal 1996.
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 granted a higher level of sales allowances to customers in
fiscal 1996 as compared to fiscal 1995.
In furtherance of the Company's ongoing effort to control costs, the
Company implemented certain cost savings measures at the end of the third
quarter of fiscal 1996, which resulted in a significant reduction of its
workforce. In addition, the Company eliminated its in-store specialist program
as of the end of fiscal 1996. The benefits of these measures will be fully
realized in fiscal 1997.
11
<PAGE> 12
This Management's Discussion and Analysis contains forward-looking
information about the Company's anticipated operating results for fiscal 1997.
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 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 1997 and beyond.
Results of Operations
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The following table is derived from the Company's
Consolidated Statements of Income and sets forth, for the periods indicated,
selected operating data as a percentage of net sales.
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------
1996 1995 1994
---- ----- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 79.7 75.5 72.5
---- ---- ----
Gross profit 20.3 24.5 27.5
Selling, general and administrative expenses 18.1 16.7 17.2
---- ---- ----
Income from operations 2.2 7.8 10.3
Interest expense and amortization of deferred
financing costs 1.1 0.6 0.8
Other income, net (0.1) (0.1) (0.1)
---- ---- ----
Income before provision for income taxes and extraordinary item 1.2 7.3 9.6
Provision for income taxes 0.5 3.0 4.2
Extraordinary item, net of tax - - 0.2
---- ---- ----
Net income 0.7 % 4.3% 5.2%
==== ==== ====
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Net sales decreased by $6.7 million, or 2.9%, to $220.8 million in
fiscal 1996 from $227.5 million in fiscal 1995. This decrease in net sales
resulted primarily from a decrease in net sales of $19.5 million in the Norton
McNaughton product lines and a decrease in net sales of $8.2 million resulting
from the discontinuation of the Kate McNaughton suit division in May 1996. The
decrease in net sales in the Norton McNaughton product lines resulted primarily
from (i) the reallocation by retailers of purchases from Norton McNaughton to
Norton Studio in fiscal 1996, (ii) a planned decrease in sales volume as the
Company began to minimize the production of merchandise which it did not
anticipate could be sold at a profit and (iii) the grant to customers of higher
sales allowances in fiscal 1996 as compared to fiscal 1995 due to competitive
pressures. These decreases were offset by an increase in net sales of $10.8
million resulting from the commencement of shipments of the Norton Studio
product line in January 1996, an increase in net sales of $8.1 million, in the
aggregate, resulting from shipments of the Lauren Alexandra and Danielle Paige
product lines, which commenced shipments in June 1995 and August 1995,
respectively, and an increase in net sales of $2.6 million, or 19.3%, in the
Pant-her product line.
The gross profit margin was 20.3% in fiscal 1996 as compared to 24.5%
in fiscal 1995. The decrease was primarily attributable to lower gross margins
experienced in the Norton McNaughton product line in fiscal 1996 as compared to
fiscal 1995 due to the sale of certain inventory at break-even or below cost, a
higher level of sales allowances granted to customers in all divisions in fiscal
1996 as compared to fiscal 1995, and the liquidation of the Kate McNaughton
inventory in conjunction with the discontinuation of that product line in the
second quarter of fiscal 1996.
12
<PAGE> 13
Selling, general and administrative expenses ("SG&A" expenses) were
$40.0 million in fiscal 1996, or 18.1% of net sales, as compared to $37.9
million in fiscal 1995, or 16.7% of net sales. The increase in dollar amount of
$2.1 million was primarily attributable to an increase in personnel costs
resulting from the hiring of additional production, design, and selling staff
necessitated by the introduction of the Danielle Paige product line in August
1995 and the Norton Studio product line in January 1996, and an increase in
personnel costs, professional fees and other various expenses related to the
Company's implementation of new management information systems. The increase in
SG&A expenses as a percentage of net sales resulted from the spreading of the
increased SG&A dollars over lower net sales in fiscal 1996.
Operating income decreased to $4.8 million in fiscal 1996 from $17.8
million in fiscal 1995. The decrease in operating income resulted from the
decrease in gross profit and the increase in SG&A expenses in fiscal 1996 as
compared to fiscal 1995.
Interest expense increased to $2.3 million in fiscal 1996 from $1.4
million in fiscal 1995. The increase was caused by higher working capital
requirements associated with the build-up of inventory to support the
introduction of the Lauren Alexandra, Danielle Paige and Norton Studio product
lines, the earlier placement of goods into production in fiscal 1996 as compared
to fiscal 1995 and the purchase of treasury stock under the Company's previously
announced stock repurchase program.
Fiscal 1995 Compared to Fiscal 1994
Net sales increased by 34.9% from $168.6 million in fiscal 1994 to
$227.5 million in fiscal 1995. This increase resulted primarily from an increase
in net sales of $33.3 million, or 22.9%, in the Norton McNaughton product lines,
the commencement of shipments of the Kate McNaughton and Lauren Alexandra
product lines, which contributed $11.2 million and $4.0 million, respectively,
to the increase in net sales, and increases in net sales in the Modiano and
Pant-her product lines, which contributed $8.3 million in the aggregate to the
increase in net sales.
The gross profit margin was 24.5% in fiscal 1995 as compared to 27.5%
in fiscal 1994. The decrease was primarily attributable to lower gross profit
margins experienced in the Norton McNaughton product lines in fiscal 1995 as
compared to fiscal 1994, resulting from the sale of a significant portion of
inventory at breakeven or below cost in the fourth quarter, and a higher level
of sales allowances granted to customers. In addition, gross profit margins for
fiscal 1995 were affected by an introductory pricing strategy for the Kate
McNaughton product line.
SG&A expenses were $37.9 million in fiscal 1995, or 16.7% of net sales,
as compared to $28.9 million in fiscal 1994, or 17.2% of net sales. The increase
in dollar amount included approximately $4.4 million in personnel costs
resulting from the hiring of additional production, design, selling and support
staff necessitated by the increase in net sales in the Norton McNaughton product
lines, the introduction of the Kate McNaughton, Danielle Paige and Norton Studio
product lines, and $3.5 million in variable distribution expenses resulting from
an increase in the volume of products shipped in fiscal 1995. The decrease in
SG&A expenses as a percentage of net sales resulted primarily from the spreading
of the fixed component of such expenses over higher sales in fiscal 1995.
Operating income increased to $17.8 million in fiscal 1995, or 7.8% of
net sales, from $17.5 million in fiscal 1994, or 10.3% of net sales. The
increase in operating income resulted from the increase in net sales and the
reduction in SG&A expenses as a percentage of net sales. Operating income
decreased as a percentage of net sales primarily as a result of the lower gross
profit margins experienced in fiscal 1995 as compared to fiscal 1994.
Interest expense increased to $1.4 million in fiscal 1995 from $1.3
million in fiscal 1994. The increase was caused by higher working capital
requirements associated with the build-up of inventory to support the increase
in net sales volume as well as the earlier placement of goods into production in
fiscal 1995.
13
<PAGE> 14
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 primary sources of working capital are cash flow from operations
and advances under the Company's factoring agreement for its trade accounts
receivable (the "Factoring Agreement"). The Company's borrowing requirements for
working capital purposes are seasonal, with peak working capital needs generally
arising at the end of the third fiscal quarter and extending through the fourth
fiscal quarter. The Company had working capital of $40.1 million at November 2,
1996 as compared to $43.5 million at November 4, 1995. The decrease resulted
primarily from the purchase of the Company's Common Stock under its previously
announced stock repurchase program and capital expenditures described below.
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 borrows additional amounts from the factor in excess of those
set forth in the preceding sentence. No such additional amounts were outstanding
at November 2, 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 November 2,
1996, outstanding advances under the Factoring Agreement were approximately
$25.1 million. There were no outstanding advances under the $10.0 million
additional advance facility. Letters of credit outstanding amounted to
approximately $13.1 million at November 2, 1996.
The Company incurred capital expenditures of approximately $1.3 million
during fiscal 1996, in connection with software and hardware upgrades to its
management information systems (see "Business - Manufacturing and
Distribution"). The Company anticipates that it will incur an additional
$800,000 to $900,000 of capital expenditures in connection with the upgrade of
its management information systems in fiscal 1997. The Company expects to
finance these capital expenditures from internally generated funds and advances
under the Factoring Agreement.
As previously announced, the Company's Board of Directors has
authorized a stock repurchase program, under which the Company may repurchase up
to $7.5 million of the Company's Common Stock. The Company expects that the
shares may be purchased from time to time in the open market and in block
transactions. In fiscal 1996, the Company purchased 396,000 shares of its stock
in the open market at an aggregate cost of $3,751,825. As of the first quarter
of fiscal 1997, the Company has 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 through at
least the next fiscal year.
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 season merchandise is generally shipped between February and April.
14
<PAGE> 15
PART III
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Information called for by this Item 8 is included following the "Index
to Consolidated Financial Statements, Financial Statement Schedule and
Supplementary Data" appearing at the end of this Annual Report on Form 10-K
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information which is called for by this Item 10 is incorporated by
reference to the information set forth under the heading "Election of Directors"
in the Company's Proxy Statement relating to its 1997 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A (the "Company's 1997 Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information called for by this Item 11 is incorporated by reference to
the information set forth under the headings "Executive Compensation",
"Compensation of Directors" and "Employment Agreements" in the Company's 1997
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by this Item 12 is incorporated by reference to
the information set forth under the heading "Information Concerning Certain
Stockholders" in the Company's 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by this Item 13 is incorporated by reference to
the information set forth under the headings "Election of Directors" and
"Certain Relationships and Related Transactions" in the Company's 1997 Proxy
Statement.
15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. and 2. See "Index to Consolidated Financial Statements, Financial
Statement Schedule and Supplementary Data" on page F-1.
3. The Exhibits which are required to be filed as part of this
Annual Report on Form 10-K are listed on the Exhibit Index
on page 17. Exhibits 10.3, 10.4, 10.6, 10.7, 10.8 and
10.8(a) are the management contracts and compensatory plans
or arrangements required to be filed as part of this Annual
Report on Form 10-K.
(b) There were no Current Reports on Form 8-K filed during the
thirteen weeks ended November 2, 1996.
16
<PAGE> 17
Norton McNaughton, Inc. and Subsidiaries
Exhibit Index
Exhibit
No. Description
--- -----------
3.1 Certificate of Incorporation of Norton McNaughton,
Inc., as amended (incorporated herein by reference to
Exhibit 3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended May 5, 1995).
3.2* By-Laws of the Company.
4.1* Specimen form of Common Stock Certificate.
4.2 Rights Agreement between Norton McNaughton, Inc. and
American Stock Transfer and Trust Company dated as of
January 19, 1996 (incorporated herein by reference to
Exhibit 4.1 to Registrant's Current Report in Form
8-K filed January 26, 1996).
10.1***** 1994 Stock Option Plan, as amended.
10.1 (a) Amended Norton McNaughton, Inc. 1994 Stock Option
Plan (incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 4,1996).
10.2** 1994 Employee Stock Purchase Plan.
10.3**** Amended and Restated Employment Agreement dated as of
December 15, 1995 between Sanford Greenberg and
Norton McNaughton of Squire, Inc.
10.4**** Amended and Restated Employment Agreement dated as of
December 15, 1995 between Norton Sperling and Norton
McNaughton of Squire, Inc.
10.5 Letter Agreement dated January 31, 1996 terminating
Jay Greenberg's Employment Agreement with Norton
McNaughton of Squire, Inc. dated as of November 5,
1993 (incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended February 3, 1996).
10.5 (a) Consulting Agreement dated January 19, 1996 between
Norton McNaughton of Squire, Inc. and Jay Greenberg
(incorporated herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended February 3, 1996).
10.6* Amended and Restated Employment Agreement dated as of
November 5, 1993 between Andrew Miller and Norton
McNaughton of Squire, Inc.
10.7* Amended and Restated Employment Agreement dated as of
November 5, 1993 between Howard Greenberg and Norton
McNaughton of Squire, Inc.
10.8* Employment Agreement dated as of November 5, 1993
between Amanda J. Bokman and Norton McNaughton of
Squire, Inc.
10.8(a) Amendment dated April 1, 1995 to Employment Agreement
as of November 5, 1993, between Amanda J. Bokman and
Norton McNaughton of Squire, Inc. (incorporated
herein by reference to Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
May 5, 1995).
17
<PAGE> 18
Norton McNaughton, Inc. and Subsidiaries
Exhibit Index
Exhibit
No. Description
--- -----------
10.9 Amended and Restated Factoring Agreement dated
March 1, 1994 between Norton McNaughton of Squire,
Inc. and NationsBank Commercial Corporation
(incorporated herein by reference to Exhibit 10 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 6, 1994).
10.9(a) Amendment dated as of December 30, 1994 to Amended
and Restated Factoring Agreement dated March 1, 1994
between Norton McNaughton of Squire, Inc. and
NationsBank Commercial Corporation (incorporated
herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended February 3, 1995).
10.9(b) Amendment to the Amended and Restated Factoring
Agreement between NationsBank Commercial Corporation
and Norton McNaughton of Squire, Inc. dated September
15, 1995 (incorporated herein by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended August 4, 1995).
10.9(c) Amendment dated May 31, 1996 to the Amended and
Restated Factoring Agreement between Norton
McNaughton of Squire, Inc., and NationsBank
Commercial Corporation (incorporated herein by
reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
May 4, 1996).
10.10* Security Agreement dated May 21, 1990 between Norton
McNaughton of Squire, Inc. and Citizens and Southern
Commercial Corporation and The Citizens and Southern
National Bank.
10.11* Letter of Credit and Acceptance Financing Agreement
dated May 21, 1990 between Norton McNaughton of
Squire, Inc. and Citizens and Southern Commercial
Corporation.
10.12* Acceptance Agreement dated May 21, 1990 between
Norton McNaughton of Squire, Inc. and The Citizens
and Southern National Bank.
10.13* Pledge Agreement dated as of January 14, 1994 made by
Sanford Greenberg in favor of Norton McNaughton of
Squire, Inc.
10.14*** First Amendment to Pledge Agreement dated July 15,
1994, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Sanford
Greenberg in favor of Norton McNaughton of Squire,
Inc.
10.14(a) Second Amendment to Pledge Agreement dated March 27,
1995, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Sanford
Greenberg in favor of Norton McNaughton of Squire,
Inc. (incorporated herein by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 5, 1995).
10.15* Pledge Agreement dated as of January 14, 1994 made by
Norton Sperling in favor of Norton McNaughton of
Squire, Inc.
18
<PAGE> 19
Norton McNaughton, Inc. and Subsidiaries
Exhibit Index (continued)
Exhibit
No. Description
--- -----------
10.16*** First Amendment to Pledge Agreement dated July 15,
1994, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Norton Sperling
in favor of Norton McNaughton of Squire, Inc.
10.16(a) Second Amendment to Pledge Agreement dated March 27,
1995, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Norton Sperling
in favor of Norton McNaughton of Squire, Inc.
(incorporated herein by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 5, 1995).
10.17* Pledge Agreement dated as of January 14, 1994 made by
Jay Greenberg in favor of Norton McNaughton of
Squire, Inc.
10.17(a)*** First Amendment to Pledge Agreement dated July 15,
1994, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Jay Greenberg in
favor of Norton McNaughton of Squire, Inc.
10.17(b) Second Amendment to Pledge Agreement dated March 27,
1995, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Jay Greenberg in
favor of Norton McNaughton of Squire, Inc.
(incorporated herein by reference to Exhibit 10.3 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 5, 1995).
10.18* Pledge Agreement dated as of January 14, 1994 made by
Andrew Miller in favor of Norton McNaughton of
Squire, Inc.
10.18(a)*** First Amendment to Pledge Agreement dated July 15,
1994, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Andrew Miller in
favor of Norton McNaughton of Squire, Inc.
10.18(b) Second Amendment to Pledge Agreement dated March 27,
1995, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Andrew Miller in
favor of Norton McNaughton of Squire, Inc.
(incorporated herein by reference to Exhibit 10.4 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 5, 1995).
10.19* Pledge Agreement dated as of January 14, 1994 made by
Howard Greenberg in favor of Norton McNaughton of
Squire, Inc.
10.19(a)*** First Amendment to Pledge Agreement dated July 15,
1994, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Howard Greenberg
in favor of Norton McNaughton of Squire, Inc.
10.19(b) Second Amendment to Pledge Agreement dated March 27,
1995, amending and supplementing the Pledge Agreement
dated as of January 14, 1994 made by Howard Greenberg
in favor of Norton McNaughton of Squire, Inc.
(incorporated herein by reference to Exhibit 10.5 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 5, 1995).
10.20* Amended and Restated Non-Negotiable Limited Recourse
Promissory Note of Sanford Greenberg dated as of
November 5, 1993 payable to Norton McNaughton of
Squire, Inc. in the principal amount of $920,000.
19
<PAGE> 20
Norton McNaughton, Inc. and Subsidiaries
Exhibit Index (continued)
Exhibit
No. Description
--- -----------
10.20(a)*** Second Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated July 15, 1994,
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Sanford Greenberg
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$920,000.
10.20(b) Third Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated March 27, 1995
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Sanford Greenberg
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$920,000 (incorporated herein by reference to Exhibit
10.6 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 5, 1995).
10.21* Amended and Restated Non-Negotiable Limited Recourse
Promissory Note of Norton Sperling dated as of
November 5, 1993 payable to Norton McNaughton of
Squire, Inc. in the principal amount of $920,000.
10.21(a)*** Second Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated July 15, 1994,
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Norton Sperling
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$920,000.
10.21(b) Third Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated March 27, 1995
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Norton Sperling
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$920,000 (incorporated herein by reference to Exhibit
10.7 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 5, 1995).
10.22* Amended and Restated Non-Negotiable Limited Recourse
Promissory Note of Jay Greenberg dated as of November
5, 1993 payable to Norton McNaughton of Squire, Inc.
in the principal amount of $920,000.
10.22(a)*** Second Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated July 15, 1994,
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Jay Greenberg
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$920,000.
10.22(b) Third Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated March 27, 1995
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Jay Greenberg
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$920,000 (incorporated herein by reference to Exhibit
10.8 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 5, 1995).
10.23* Amended and Restated Non-Negotiable Limited Recourse
Promissory Note of Andrew Miller dated as of November
5, 1993 payable to Norton McNaughton of Squire, Inc.
in the principal amount of $120,000.
10.23(a)*** Second Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated July 15, 1994,
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Andrew Miller
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$120,000.
20
<PAGE> 21
Norton McNaughton, Inc. and Subsidiaries
Exhibit Index (continued)
Exhibit
No. Description
--- -----------
10.23(b) Third Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated March 27, 1995
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Andrew Miller
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$120,000 (incorporated herein by reference to Exhibit
10.9 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 5, 1995).
10.24* Amended and Restated Non-Negotiable Limited Recourse
Promissory Note of Howard Greenberg dated as of
November 5, 1993 payable to Norton McNaughton of
Squire, Inc. in the principal amount of $120,000.
10.24(a)*** Second Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated July 15, 1994,
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Howard Greenberg
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$120,000.
10.24(b) Third Amended and Restated Non-Negotiable Limited
Recourse Promissory Note dated March 27, 1995
amending the Amended and Restated Non-Negotiable
Limited Recourse Promissory Note of Howard Greenberg
dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the principal amount of
$120,000 (incorporated herein by reference to Exhibit
10.10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended May 5, 1995).
10.25* Form of Indemnification Agreement with Directors and
Executive Officers.
10.26* Agreement dated March 17, 1993 between Norton
McNaughton of Squire, Inc. and Toni-Linda
Productions, Inc., as amended December 15, 1993.
10.26(a)**** Amendment dated November 7, 1995 to Agreement dated
March 17, 1993 between Norton McNaughton of Squire,
Inc. and Toni-Linda Productions, Inc., now known as
Cutting Edge Services, Inc.
10.27* Sublease Agreement dated January 17, 1994 between
Norton McNaughton of Squire, Inc. and Toni-Linda
Productions, Inc.
10.27(a)**** Amendment dated November 7, 1995 to Sublease
Agreement dated January 17, 1994 between Norton
McNaughton of Squire, Inc. and Toni-Linda
Productions, Inc., now known as Cutting Edge
Services, Inc.
10.28* Limited Guaranty dated December 30, 1993 made by
Norton McNaughton of Squire, Inc. in favor of Braun
Management Inc.
10.28(a)**** Amendment dated November 7, 1995 to Limited Guaranty
dated December 30, 1993 made by Norton McNaughton of
Squire, Inc. in favor of Braun Management Inc.
10.29* Agreement dated January 7, 1993 between Norton
McNaughton of Squire, Inc. and Railroad Enterprises,
Inc.
10.30* 5.48% Promissory Note of Railroad Enterprises, Inc.
dated October 31, 1993 payable to Norton McNaughton
of Squire, Inc. in the principal amount of $305,000.
21
<PAGE> 22
Norton McNaughton, Inc. and Subsidiaries
Exhibit Index (continued)
Exhibit
No. Description
--- -----------
10.30(a) 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
(incorporated herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 4, 1996).
10.31* Guaranty dated May 19, 1992 made by Norton McNaughton
of Squire, Inc. in favor of 5 Empire Boulevard
Associates.
10.32* Agreement dated February 1, 1993 between Norton
McNaughton of Squire, Inc. and May Company.
10.33* Lease Agreement dated December 7, 1993 between
Gettinger Associates and Norton McNaughton of Squire,
Inc.
10.34* Lease Agreement dated October 4, 1991 between 1400
Broadway Associates and McNaughton Affiliates Inc.
10.35* Lease Agreement dated April 30, 1993 between The
Arsenal Company and Norton McNaughton of Squire, Inc.
10.36 Lease Agreement dated February 1, 1995 between Norton
McNaughton of Squire, Inc. and The Arsenal Company
(incorporated herein by reference to Exhibit 10 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended February 3, 1995).
10.37 Lease Agreement dated July 6, 1995 between L.H.
Charney Associates and Norton McNaughton of Squire,
Inc. (incorporated herein by reference to Exhibit 10
to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended August 4, 1995).
10.38**** Split Dollar Agreement dated March 8, 1994 between
Norton McNaughton, Inc. and Northwestern Mutual Life
Insurance Company for Sanford Greenberg.
10.39**** Split Dollar Agreement dated March 8, 1994 between
Norton McNaughton, Inc. and Northwestern Mutual Life
Insurance Company for Norton Sperling.
10.40**** Split Dollar Agreement dated March 8, 1994 between
Norton McNaughton, Inc. and Northwestern Mutual Life
Insurance Company for Jay Greenberg.
21+ List of Registrant's Subsidiaries.
23+ Consent of Ernst & Young LLP.
27+ Financial Data Schedule (For SEC use only).
22
<PAGE> 23
Norton McNaughton, Inc., and Subsidiaries
Exhibit Index (continued)
99 Press Release dated March 15, 1996 (incorporate
herein by reference to Exhibit 99 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
February 3, 1996).
99(a) Press Release dated June 17, 1996 (incorporated
herein by reference to Exhibit 99 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
May 4, 1996).
* Incorporated herein by reference to Exhibits to the Registrant's
Registration Statement on Form S-1 No. 33-74200.
** Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 No. 33-80370.
*** Incorporated herein by reference to Exhibits to the Registrant's Annual
Report on Form 10-K for the period ended November 4, 1994.
**** Incorporated herein by reference to Exhibits to the Registrant's Annual
Report on Form 10-K for the period ended November 4, 1995.
***** Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 No. 33-92252.
+ Filed herewith.
Exhibits have been included in copies of this Report filed with the Securities
and Exchange Commission. Stockholders of the Company will be provided with
copies of these exhibits upon written request to the Company.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: January 30, 1997 NORTON MCNAUGHTON, INC.
(Registrant)
By: /s/ Sanford Greenberg
-------------------------------------
Sanford Greenberg, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on January 30, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Sanford Greenberg Chairman of the Board, Chief Executive Officer
- - - - ----------------------------- and Director
(Sanford Greenberg)
/s/ Norton Sperling President and Director
- - - - -----------------------------
(Norton Sperling)
/s/ Amanda J. Bokman Vice President, Chief Financial Officer, Secretary,
- - - - ----------------------------- Treasurer and Director (principal financial and
(Amanda J. Bokman) accounting officer)
/s/ David M. Blumberg Director
- - - - -----------------------------
(David M. Blumberg)
/s/ Bradley P. Cost Director
- - - - -----------------------------
(Bradley P. Cost)
/s/ Robert Mann Director
- - - - -----------------------------
(Robert Mann)
/s/ Jerald Politzer Director
- - - - -----------------------------
(Jerald Politzer)
/s/ Stephen F. Powers Director
- - - - -----------------------------
(Stephen F. Powers)
</TABLE>
24
<PAGE> 25
Norton McNaughton, Inc. and Subsidiaries
Index to Consolidated Financial Statements, Financial Statement
Schedule and Supplementary Data
<TABLE>
<CAPTION>
Page
Financial Statements: ----
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets at November 2, 1996 and November 4, 1995 F-3
Consolidated Statements of Income for Each of the Three Years
in the Period Ended November 2, 1996 F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for Each of the
Three Years in the Period Ended November 2, 1996 F-5
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended November 2, 1996 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
II - "Valuation and Qualifying Accounts" F-15
</TABLE>
Note: Schedules other than that referred to above have been omitted as
inapplicable or not required under the instructions contained in Regulation S-X
or the information is included elsewhere in the financial statements or the
notes thereto.
Supplementary Data:
<TABLE>
<S> <C>
Quarterly Financial Data (Unaudited) F-16
</TABLE>
F-1
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Norton McNaughton, Inc.
We have audited the accompanying consolidated balance sheets of Norton
McNaughton, Inc. and Subsidiaries as of November 2, 1996 and November 4, 1995,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended November 2, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Norton McNaughton, Inc. and Subsidiaries at November 2, 1996 and November 4,
1995 and the consolidated results of their operations, changes in their
stockholders' equity and their cash flows for each of the three years in the
period ended November 2, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
ERNST & YOUNG LLP
New York, New York
December 16, 1996
F-2
<PAGE> 27
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 2, NOVEMBER 4,
1996 1995
--------------------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 333 $ 444
Due from factor, net 30,794 35,810
Inventory 17,939 27,516
Prepaid income taxes 99 390
Prepaid expenses and other current assets 2,880 1,769
------- --------
Total current assets 52,045 65,929
Fixed assets, net 5,077 3,864
Notes receivable from management stockholders 2,655 2,660
Other assets 1,332 1,071
------- --------
Total assets $61,109 $73,524
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,334 $21,639
Accrued expenses and other current liabilities 654 788
------- --------
Total current liabilities 11,988 22,427
Other long-term liabilities 835 628
------- --------
Total liabilities 12,823 23,055
Commitments and contingencies
Class B Preferred Stock-redeemable, $1 par value, none authorized, issued and
outstanding - -
Stockholders' equity:
Preferred stock, $1 par value, authorized 1,000,000 shares, none issued and
outstanding - -
Common stock, $0.01 par value, authorized 20,000,000 shares,
8,052,718 and 8,046,824 shares issued, respectively and
7,636,718 and 8,026,824 shares outstanding, respectively 80 80
Capital in excess of par 23,865 23,820
Retained earnings 28,419 26,895
Treasury stock, at cost, 416,000 shares and 20,000 shares, respectively (4,078) (326)
------- -------
Total stockholders' equity 48,286 50,469
------- --------
Total liabilities and stockholders' equity $61,109 $73,524
======= ========
</TABLE>
See accompanying notes
F-3
<PAGE> 28
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------
NOVEMBER 2, NOVEMBER 4, NOVEMBER 4,
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Net sales $220,823 $227,530 $168,621
Cost of goods sold 176,063 171,780 122,209
-------- -------- --------
Gross profit 44,760 55,750 46,412
Selling, general and administrative expenses 39,979 37,937 28,925
-------- -------- --------
Income from operations 4,781 17,813 17,487
Interest expense and amortization of deferred financing costs 2,294 1,440 1,341
Other income, net (164) (218) (87)
-------- -------- --------
Income before provision for income taxes and extraordinary
item 2,651 16,591 16,233
Provision for income taxes 1,127 6,888 7,011
-------- -------- --------
Income before extraordinary item 1,524 9,703 9,222
Extraordinary item - loss on early extinguishment of debt, net
of taxes of $303 - - 401
-------- -------- --------
Net income $1,524 $9,703 $8,821
======== ======== ========
Net income $1,524 $9,703 $8,821
Less: Dividends on Class B Preferred Stock - redeemable - - 168
-------- -------- --------
Net income applicable to common stock $1,524 $9,703 $8,653
======== ======== ========
PER SHARE DATA:
Income before extraordinary item $0.20 $1.20 $1.28
Extraordinary item, net - - 0.06
-------- -------- --------
Net income $0.20 $1.20 $1.22
======== ======== ========
Weighted average number of common shares and common stock
equivalents outstanding 7,781 8,056 7,084
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 29
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED NOVEMBER 2, 1996, NOVEMBER 4, 1995, AND NOVEMBER 4, 1994
(In Thousands)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN RETAINED TREASURY
SHARES AMOUNT EXCESS OF PAR EARNINGS STOCK TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 5, 1993 5,086 $ 51 $(13,942) $ 8,539 $ -- $ (5,352)
Net income for the year -- -- -- 8,821 -- 8,821
Dividends on redeemable
preferred stock -- -- -- (168) -- (168)
Sale of common stock, net of
offering costs of $926 2,913 29 36,970 -- -- 36,999
-------- -------- -------- -------- -------- --------
Balance at November 4, 1994 7,999 80 23,028 17,192 -- 40,300
Net income for the year -- -- -- 9,703 -- 9,703
Treasury stock acquired, 20,000
shares, at cost -- -- -- -- (326) (326)
Issuance of common stock
through stock purchase plan 4 -- 57 -- -- 57
Issuance of common stock
through stock option plan 44 -- 609 -- -- 609
Tax benefit from issuance of
common stock through stock
option plan -- -- 126 -- -- 126
-------- -------- -------- -------- -------- --------
Balance at November 4, 1995 8,047 80 23,820 26,895 (326) 50,469
Net income for the year -- -- -- 1,524 -- 1,524
Treasury stock acquired, 396,000
shares, at cost -- -- -- -- (3,752) (3,752)
Issuance of common stock
through stock purchase plan 6 -- 45 -- -- 45
-------- -------- -------- -------- -------- --------
Balance at November 2, 1996 8,053 $ 80 $ 23,865 $ 28,419 $ (4,078) $ 48,286
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 30
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
NOVEMBER 2, NOVEMBER 4, NOVEMBER 4,
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Net income $ 1,524 $ 9,703 $ 8,821
Adjustments to reconcile net income to net cash provided by (used
for) operating activities:
Depreciation and amortization of fixed assets 628 447 348
Amortization of intangibles 34 34 199
Extraordinary item - loss on early extinguishment of debt, net of
taxes -- -- 401
Changes in operating assets and liabilities:
Due from factor, net 5,016 (5,171) (20,243)
Inventory 9,577 (10,876) (4,130)
Prepaid income taxes 291 (7,393) 3,994
Prepaid expenses and other current assets (1,111) (100) (409)
Other assets (295) (564) (58)
Accounts payable (10,305) 8,629 (625)
Accrued compensation to management stockholders -- -- (2,000)
Accrued expenses and other current liabilities (134) 6,212 (2,049)
Other long-term liabilities 207 186 215
-------- -------- --------
Net cash provided by (used for) operating activities 5,432 1,107 (15,536)
-------- -------- --------
INVESTING ACTIVITIES
Purchase of fixed assets (1,841) (1,599) (1,042)
Notes receivable from management stockholders 5 243 97
Loss on investment -- -- 100
-------- -------- --------
Net cash used for investing activities (1,836) (1,356) (845)
-------- -------- --------
FINANCING ACTIVITIES
Purchase of treasury stock (3,752) (326) --
Proceeds from issuance of common stock, net 45 792 36,999
Redemption of Class B Preferred Stock - redeemable -- -- (4,000)
Proceeds from long-term debt -- -- 2,000
Payments of long-term debt -- -- (18,785)
Dividends-redeemable preferred stock -- -- (168)
-------- -------- --------
Net cash (used for) provided by financing activities (3,707) 466 16,046
-------- -------- --------
(Decrease) increase in cash (111) 217 (335)
Cash at beginning of year 444 227 562
-------- -------- --------
Cash at end of year $ 333 $ 444 $ 227
======== ======== ========
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 529 $ 8,429 $ 4,189
Interest paid $ 2,272 $ 1,440 $ 1,276
</TABLE>
See accompanying notes.
F-6
<PAGE> 31
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Norton McNaughton, Inc. and Subsidiaries (the "Company") was
incorporated in Delaware on December 30, 1993. On January 14, 1994, in a
reorganization effected in order to form a Delaware holding company, the Company
became the owner of all of the issued and outstanding stock of Norton McNaughton
of Squire, Inc., a New York corporation ("Squire"). As part of this
reorganization, the stockholders of Squire exchanged each share of common stock
of Squire for 508.6 shares of Common Stock of the Company and exchanged each
share of cumulative preferred stock of Squire for one share of Class B Preferred
Stock - redeemable of the Company. The January 14, 1994 reorganization has been
accounted for in the same manner as a pooling of interests in accordance with
APB 16 since control of the entities did not change. Management stockholders and
Merrill Lynch Interfunding Inc. ("MLIF") owned 100% of Squire before the
reorganization. The accompanying financial statements give retroactive effect to
this reorganization.
In March 1994, the Company sold 2,912,860 shares of Common Stock
through an initial public offering at a price of $14 per share (the "Offering").
The Company received net proceeds of approximately $37.0 million from the
Offering. The net proceeds were used to repay $16.1 million in long-term
indebtedness to MLIF, redeem the outstanding Class B Preferred Stock-redeemable
owned by MLIF for $4.0 million and reduce the principal amount outstanding under
the Company's Factoring Agreement by $16.9 million (resulting in an increase in
amounts due from factor). As a result of the repayment of long-term indebtedness
to MLIF, the Company wrote off the remaining unamortized balance of deferred
financing costs of $704,000. This write-off was reflected as an extraordinary
item, net of tax of $303,000, in the consolidated statement of income for the
fiscal year ended November 4, 1994.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation.
PRINCIPAL BUSINESS ACTIVITY
The Company designs, contracts for the manufacture of and markets a
broad line of brand name, moderately priced women's career and casual clothing.
The Company's customer base consists principally of department and chain stores,
and specialty retailers.
FISCAL YEAR
During fiscal year 1995, the Company made the determination that its
fiscal year would end on October 31, if such date fell on a Saturday, or the
first Saturday following October 31. Closing its fiscal year on a Saturday
enables the Company to report the results of its operations in a manner that is
more consistent with both retail/apparel industry practice and the close of its
actual business cycle. Prior thereto, the Company's fiscal year ended on October
31, if such date fell on a Friday, or the first Friday following October 31.
Data for each of the fiscal years ended November 2, 1996, November 4, 1995 and
November 4, 1994 includes the results of operations for 52 weeks.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or
market.
FIXED ASSETS
Fixed assets are stated on the historical cost basis. Depreciation of
fixed assets is provided for by the straight-line method over the estimated
useful lives of the assets ranging from five to seven years for financial
reporting purposes and by accelerated methods for income tax purposes. Leasehold
improvements are amortized using the straight-line method over the term of the
related lease.
F-7
<PAGE> 32
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are recorded at the time of shipment of merchandise. The
Company establishes reserves for sales discounts, returns and allowances.
DEFERRED RENT
Rent expense on leases is recorded by the straight-line method over the
lease period. The excess of rent expense over the actual cash paid has been
recorded as other long-term liabilities.
EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of shares
of Common Stock and common stock equivalents of the Company during the
respective periods, and after giving retroactive effect to the January 1994
reorganization (see above). Common stock equivalents are shares issuable upon
the exercise of stock options. In the computation of net income per share, net
income in each period, prior to its redemption in March 1994, is reduced by the
required dividends on the Class B Preferred Stock-redeemable.
SUPPLEMENTAL EARNINGS PER SHARE
Supplemental earnings per share includes the number of shares of Common
Stock sold by the Company in connection with the Offering (2,912,860) to repay
approximately $33,000,000 of indebtedness and to redeem the $4,000,000 of
outstanding Class B Preferred Stock-redeemable, as if such indebtedness and
Class B Preferred Stock-redeemable had been repaid and redeemed as of November
5, 1993. Earnings per share for the year ended November 4, 1994 would have been
$1.16 if such shares had been issued at the beginning of the fiscal year.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, cash and cash equivalents
include all liquid debt instruments with a maturity of three months or less when
purchased.
CREDIT RISK
The Company sells its accounts receivable to a factor. At November 2,
1996, the amount due from factor was $30.8 million. Other financial instruments
which potentially subject the Company to concentration of credit risk consist
principally of temporary cash investments. The Company places its temporary cash
investments with high quality financial institutions and limits the amount of
credit exposure at any one financial institution.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-8
<PAGE> 33
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SALES TO MAJOR CUSTOMERS
For the year ended November 2, 1996 net sales made to three customers
were 34%, 20% and 12%. For the years ended November 4, 1995 and November 4, 1994
net sales made to two customers were approximately 36% and 19%, and 38% and 16%,
respectively.
3. DUE FROM FACTOR
The Company sells its accounts receivable to a factor without recourse,
up to a maximum established by the factor for each customer. Receivables sold in
excess of these limitations are subject to recourse in the event of nonpayment
by the 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 November
2, 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 November 2, 1996, outstanding
advances under the Factoring Agreement were approximately $25.1 million. There
were no outstanding advances under the $10.0 million additional advance
facility. At November 2, 1996, commitments on outstanding letters of credit were
approximately $13.1 million.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
November 2, November 4,
1996 1995
-------------------------------
( In Thousands)
<S> <C> <C>
Raw materials $ 5,530 $ 7,462
Work-in-process 3,337 10,368
Finished goods 9,072 9,686
------- -------
$17,939 $27,516
======= =======
</TABLE>
5. FIXED ASSETS
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
November 2, November 4,
1996 1995
---------------------------
(In Thousands)
<S> <C> <C>
Machinery and equipment $ 693 $ 655
Furniture and fixtures 404 381
Computer equipment 2,531 843
Leasehold improvements 2,991 2,899
------ ------
Total 6,619 4,778
Less accumulated depreciation
and amortization 1,542 914
------ ------
$5,077 $3,864
====== ======
</TABLE>
F-9
<PAGE> 34
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES RECEIVABLE FROM MANAGEMENT STOCKHOLDERS
Effective November 5, 1993, the Company and its stockholders modified
certain of the Company's repurchase rights set forth in the Stockholders
Agreement in effect prior to the Offering. As a result of these modifications,
the Company was deemed, for income tax purposes, to have paid noncash
compensation to the management stockholders of $5,610,000 in the aggregate, for
which the Company was entitled to a deduction for income tax purposes and the
management stockholders were deemed to have received compensation income in the
same amount. The Company recorded a tax benefit of $2,300,000 from this
deduction as an increase to capital in excess of par. In connection with this
event, the Company paid the management stockholders a special bonus of
$1,250,000 which represented the differential between capital gains tax and
ordinary income tax on this income. To enable the management stockholders to pay
the taxes on this income, the Company loaned these stockholders $3,000,000 in
the aggregate. Each loan is evidenced by a limited recourse promissory note with
interest accruing at 5.84% per annum. These loans mature on November 5, 2003.
The Company's recourse on the promissory notes is limited to the management
stockholders' pledge of a portion of their Common Stock of the Company. In the
event of any sale or transfer of shares of Common Stock by any of the management
stockholders, such person is required to apply a portion of the net proceeds of
the sale or transfer to the repayment of his note.
At November 2, 1996, loans to management stockholders were $2,654,680
in the aggregate. Interest income relating to these loans for the years ended
November 2, 1996, November 4, 1995 and November 4, 1994 amounted to
approximately $155,000, $158,000 and $174,000, respectively.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company operates principally in leased premises and leases other
assets under operating leases expiring through 2008. Some of the leases contain
escalation clauses and renewal options. The future minimum rental commitments
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year (In Thousands)
----------- --------------
<S> <C>
1997 $ 1,874
1998 1,848
1999 1,664
2000 1,534
2001 1,451
Thereafter 7,776
-------
$16,147
=======
</TABLE>
Rent expense for the years ended November 2, 1996, November 4, 1995 and
November 4, 1994 amounted to approximately $2,200,000, $1,790,000 and
$1,572,000, respectively.
F-10
<PAGE> 35
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain executive
officers which provide for aggregate minimum annual compensation of
approximately $2.8 million through November 1997 and $1.6 million through
November 1999. Such amounts reflect the Company's acceptance of the resignation
of one of its executive officers effective January 31, 1996 who was serving
pursuant to an employment agreement with the Company. Such officer continues to
serve as a consultant to the Company through November 1997. All employment
agreements provide that the payment of bonuses will be determined at the
discretion of the Compensation Committee of the Board of Directors. No bonuses
were paid for the years ended November 2, 1996, November 4, 1995 and November 4,
1994.
CONTRACTOR AGREEMENTS
The Company has entered into agreements with a distribution contractor and
a cutting contractor. The agreements have initial terms ending on June 30, 2000
and June 30, 2001, respectively, and may be terminated by the Company upon
notice and lapse of cure periods in the event that the contractors are not
performing their services under the agreements. In addition, after the year 2000
and 2001, respectively, the Company may terminate either agreement on June 30 of
any year for minimum termination fees of $750,000 for the distribution agreement
and $1,500,000 for the cutting agreement. In addition, each of the agreements
provides that in the event that the agreement is terminated under such
circumstances, the Company must assume certain obligations of the terminated
contractor arising under real estate leases and equipment purchase contracts for
property utilized to render services to the Company. At this time, the Company
cannot determine the amount of these obligations. The Company guarantees its
distribution contractor's obligation under its lease in an amount up to $500,000
in the aggregate. The Company subleases warehouse space from its cutting
contractor and guarantees the contractor's obligations under its lease in an
amount up to approximately $250,000 in the aggregate. For the years ended
November 2, 1996, November 4, 1995 and November 4, 1994, the Company paid
approximately $8.6 million, $7.6 million and $5.2 million, respectively, to its
distribution contractor and approximately $5.8 million, $7.7 million and $4.7
million, respectively, to its cutting contractor.
STOCK REPURCHASE
The Company's Board of Directors has authorized a stock repurchase
program, under which the Company may repurchase up to $7.5 million of the
Company's Common Stock. The Company expects that the shares may be purchased
from time to time in the open market and in block transactions. The Company
purchased 20,000 shares in the open during fiscal 1995 at an aggregate cost of
$326,250. In fiscal 1996, the Company purchased 396,000 shares of its stock in
the open market at an aggregate cost of $3,751,825. As of the first quarter of
fiscal 1997, the Company has purchased a total of 416,000 shares at an aggregate
cost of $4,078,075.
LITIGATION
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. It is the opinion of management that such
litigation and claims will be resolved without material effect on the Company's
financial position, results of operations and cash flow.
F-11
<PAGE> 36
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CLASS B PREFERRED STOCK - REDEEMABLE
The Class B Preferred Stock-redeemable had a mandatory redemption
provision and had a liquidation value of $1,000 per share. The holders were
entitled to receive annual cumulative cash dividends at the rate of 12% payable
quarterly. The Class B Preferred Stock-redeemable was redeemed in March 1994
upon completion of the Offering.
9. INCOME TAXES
Income taxes are provided using the liability method prescribed by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the liability method, deferred income taxes reflect tax
carryforwards and the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial statement and income tax
purposes, as determined under enacted tax laws and rates. The financial effect
of changes in tax laws or rates is accounted for in the period of enactment.
Provision for income taxes for the fiscal years ended November 2, 1996, November
4, 1995 and November 4, 1994 is comprised of the following:
<TABLE>
<CAPTION>
Years ended
------------------------------------
November 2, November 4, November 4,
1996 1995 1994
------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C>
Current:
Federal $ 530 $ 5,779 $5,054
State and local 180 1,545 1,957
------- ------- ------
710 7,324 7,011
Deferred:
Federal 326 (342) -
State and local 91 (94) -
------- ------- ------
417 (436) -
------- ------- ------
$ 1,127 $ 6,888 $7,011
======= ======= ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities relating to research and
development, fixed assets, inventory, and capitalized rent. At November 2, 1996
and November 4, 1995, there were net deferred tax assets of $105,000 and
$592,000, respectively, related primarily to uniform capitalization of inventory
costs and the reporting of rent expense using the straight-line method. At
November 4, 1994, there were no significant temporary differences.
Reconciliation of the statutory federal tax rate and the effective rate
for the fiscal years ended November 2, 1996, November 4, 1995 and November 4,
1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Amount % Amount % Amount %
------ -- ------ -- ------ --
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal statutory tax rate $ 928 34% $5,807 35% $5,465 34%
------ -- ------ -- ------ --
State and local taxes, net of
federal income tax benefit 176 7 995 6 1,090 7
Other, net 23 2 86 1 456 2
------ -- ------ -- ------ --
Provision for income taxes $1,127 43% $6,888 42% $7,011 43%
====== == ====== == ====== ==
</TABLE>
F-12
<PAGE> 37
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The Company has ongoing federal and state tax audits. The Company believes
any adjustments that may arise as a result of these audits will not be material
to the Company's financial position, results of operations and cash flow.
10. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
Pursuant to the Stock Option Plan, as amended, the Company may grant stock
options to eligible individuals to purchase up to 850,000 shares of its Common
Stock. The exercise price for stock options may not be less than 100% (110% for
holders of 10% or more of the Company's outstanding stock) of the fair market
value of the stock on the date of grant and the options will vest at the
discretion of the Stock Option Committee of the Board of Directors.
The change in outstanding options under the Company's Stock Option Plan
for each of the three years in the period ended November 2, 1996, expressed in
number of shares, is as follows:
<TABLE>
<CAPTION>
Range of Exercise
Number of Shares Price Per Share
---------------- ---------------
<S> <C> <C>
Outstanding at November 5, 1993 - -
Granted 248,000 $14 -$17.25
Canceled (5,000) $14
Exercised - -
-------
Outstanding at November 4, 1994 243,000 $14 - $17.25
Granted 207,000 $13.25
Canceled - -
Exercised (43,500) $14
-------
Outstanding at November 4, 1995 406,500 $13.25 -$17.25
Granted 274,500 $6.00 - $13.25
Canceled (61,000) $7.38 - $14.00
Exercised - -
-------
Outstanding at November 2, 1996 620,000 $6.00 -$17.25
=======
</TABLE>
As of November 2, 1996, 58 individuals held options, 209,500 of which were
exercisable, and 186,500 shares were available for future grants under the Stock
Option Plan.
On November 4, 1996, the Compensation Committee of the Board of Directors
of the Company granted non-qualified stock options to purchase an aggregate
50,000 shares of Common Stock under the Stock Option Plan to outside Directors
of the Company. The options vest 50% on December 10, 1997 and 25% on December
10, 1998 and December 10, 1999 at an exercise price of $8.19 per share.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, which provides an
alternative to APB Opinion No. 25, Accounting for Stock Issued to Employees, in
accounting for stock-based compensation issued to employees. The Statement
allows for a fair value based method of accounting for employee stock options
and similar equity instruments. The Company has determined it will continue to
report stock-based compensation for all options that are earned under APB
Opinion No. 25.
F-13
<PAGE> 38
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
STOCK PURCHASE PLAN
Pursuant to a Stock Purchase Plan adopted on January 7, 1994, an aggregate
of 100,000 shares of Common Stock was made available for purchase to eligible
employees. The purchase price of the Common Stock under the plan is 85% of the
stock price, as defined. Participating employees may authorize the Company to
withhold a portion of their compensation, subject to certain deemed limitations,
to purchase the shares. As of November 2, 1996, 10,358 shares of Common Stock
have been issued under this plan.
SAVINGS PLAN
Effective January 1, 1995, the Company began sponsoring an employee savings plan
under Section 401(k) of the Internal Revenue Code for all full-time employees
with six months of continuous service. Eligible employees may make pre-tax
contributions of up to 15% of their annual compensation subject to the maximum
allowable contribution. Employee contributions of up to 6% of compensation are
matched by the Company at a rate of 35%. Employees are 100% vested in their
pre-tax contributions immediately, and become vested in the employer matching
contributions as follows: 25% vested after two years of service, 50% vested
after three years of service, 75% vested after four years of service and 100%
vested after five years of service. The Company's matching contribution was
$192,687 for fiscal 1996 and $146,524 for fiscal 1995.
11. 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.
F-14
<PAGE> 39
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Balance at Balance
Beginning Costs and at End
Description of Year Expenses Deductions(1) of Year
----------- ------- -------- ------------- -------
<S> <C> <C> <C> <C>
Year ended November 2, 1996
Reserve for sales discounts, returns
and allowances...................... $ 1,448 $50,648 $51,596 $ 500
Year ended November 4, 1995
Reserve for sales discounts, returns
and allowances ..................... $ 501 $43,136 $42,189 $ 1,448
Year ended November 4, 1994
Reserve for sales discounts, returns
and allowances ..................... $ 2,873 $27,345 $29,717 $ 501
</TABLE>
(1) Discounts, returns and allowances granted to customers and charged against
reserve.
F-15
<PAGE> 40
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
FISCAL 1996 Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 42,407 $57,439 $48,261 $ 72,716 $220,823
Gross profit 9,810 10,050 11,210 13,690 44,760
Net income (loss) (280) (736) 583 1,957 1,524
PER SHARE DATA:
Net income $ (0.03) $ (0.09) $ 0.08 $ 0.26 $ 0.20
======== ======= ======= ======== ========
Weighted average number of common shares
and common stock equivalents outstanding 8,004 7,792 7,654 7,646 7,781
======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
<S> <C> <C> <C> <C> <C>
Net sales $ 34,564 $59,594 $50,848 $ 82,524 $227,530
Gross profit 9,631 16,412 13,544 16,163 55,750
Net income 1,335 3,917 2,219 2,232 9,703
PER SHARE DATA:
Net income $0.17 $ 0.49 $ 0.28 $ 0.28 $ 1.20
======== ======= ======= ======== ========
Weighted average number of common shares
and common stock equivalents outstanding 8,039 8,060 8,028 8,089 8,056
======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1994
<S> <C> <C> <C> <C> <C>
Net sales $ 30,161 $47,921 $34,337 $ 56,202 $168,621
Gross profit 8,372 13,188 10,612 14,240 46,412
Income before extraordinary item 710 3,138 1,808 3,566 9,222
Extraordinary item, net -- 401 -- -- 401
Net income 710 2,737 1,808 3,566 8,821
PER SHARE DATA:
Income before extraordinary item (1) $ 0.12 $ 0.43 $ 0.23 $ 0.45 $ 1.28
Extraordinary item, net -- 0.06 -- -- 0.06
-------- ------- ------- -------- --------
Net income $ 0.12 $ 0.37 $ 0.23 $ 0.45 $ 1.22
======== ======= ======= ======== ========
Weighted average number of common shares
and common stock equivalents outstanding 5,086 7,254 7,999 7,999 7,084
======== ======= ======= ======== ========
</TABLE>
(1) Reflects net income available to holders of Common Stock after payment of
dividends on Class B Preferred Stock-redeemable of $120,000 and $48,000 in the
first and second quarters of fiscal 1994, respectively. This stock was redeemed
by the Company in March 1994.
F-16
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Norton McNaughton of Squire, Inc., a New York Corporation ("Squire"), is a
wholly-owned subsidiary of the Company. Norty's Inc., a Delaware corporation, is
a wholly-owned Subsidiary of Squire.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-80370) and (Form S-8 No. 33-92252) pertaining to the
Stock Option Plan of Norton McNaughton, Inc. and the Employee Stock Purchase
Plan of Norton McNaughton, Inc. of our report dated December 16, 1996, with
respect to the consolidated financial statements and schedule of Norton
McNaughton, Inc. included in this Annual Report (Form 10-K) for the year ended
November 2, 1996.
ERNST & YOUNG LLP
New York, New York
January 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> NOV-05-1995
<PERIOD-END> NOV-02-1996
<EXCHANGE-RATE> 1
<CASH> 333
<SECURITIES> 0
<RECEIVABLES> 30,794
<ALLOWANCES> 0
<INVENTORY> 17,939
<CURRENT-ASSETS> 52,045
<PP&E> 6,619
<DEPRECIATION> 1,542
<TOTAL-ASSETS> 61,109
<CURRENT-LIABILITIES> 12,823
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 48,206
<TOTAL-LIABILITY-AND-EQUITY> 61,109
<SALES> 220,823
<TOTAL-REVENUES> 220,823
<CGS> 176,063
<TOTAL-COSTS> 39,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,130
<INCOME-PRETAX> 2,651
<INCOME-TAX> 1,127
<INCOME-CONTINUING> 1,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,524
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
