<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 1O-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended Commission file number
February 28, 1995 0-6708
NAUTICA ENTERPRISES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-2431048
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
40 WEST 57TH STREET, NEW YORK, NEW YORK 10019
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 541-5757
------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock
par value $.10 per share
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
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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. / /
On May 19, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant, using the average bid and asked prices of the
registrant's stock on such date, was $502,025,090.
The number of shares outstanding of the registrant's common stock, $.10
par value, was 19,693,369 as of May 19, 1995, adjusted to reflect a
three-for-two stock split to be effected in the form of a stock dividend,
payable on July 6, 1995 to stockholders of record on May 5, 1995, subject to
stockholder approval of an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Identification of Document Part into which Incorporated
- ---------------------------------------- -----------------------------------
<S> <C>
Proxy Statement for Annual Meeting
of Stockholders to be held June 29, 1995 Part III -- Items 10, 11, 12 and 13
</TABLE>
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PART I
ITEM 1. BUSINESS
Nautica Enterprises, Inc., a Delaware corporation (the
"Company") designs, sources and markets men's apparel through two wholly owned
subsidiaries, Nautica International, Inc. ("Nautica") and State-O-Maine, Inc.
("State-O-Maine"). Nautica offers a lifestyle collection of men's sportswear,
outerwear and activewear with a distinctive active outdoor image. The
collection, sold under the Nautica brand, features innovative designs, classic
styling, bold primary colors and quality fabric. State-O-Maine offers: Nautica
brand men's dress shirts, robes and loungewear; sportswear and swimwear under
the Bayou Sport label; apparel designed and sourced for private label programs;
and, robes and loungewear under the Charles Goodnight and NFL (National Football
League Properties) labels.
Nautica's in-store shop program is a primary component of the
Company's growth strategy. Through this program, Nautica and a department store
customer create a specific area within the store dedicated to the exclusive
merchandising and sale of the Nautica collection. Each of these shops (referred
to herein as a "Nautica Shop") is outfitted with signature Nautica fixtures and
presents the Nautica collection in a visually attractive environment consistent
with the Nautica image.
In addition to Nautica's wholesale business, the Company
operates 28 Nautica factory outlet stores, one Company factory store and two
flagship stores in New York City and Newport Beach, California through its
wholly owned subsidiary Nautica Retail USA, Inc. ("Nautica Retail"). The
factory outlet stores provide an additional sales channel for Nautica products
and allow for organized distribution of excess and out-of-season merchandise.
The Company, through its wholly owned subsidiary Nautica
Apparel, Inc., strategically extends the Nautica product lines and broadens the
international distribution of the Nautica apparel collection through license
agreements. The Nautica name is currently licensed for a range of products
consistent with Nautica's design concepts and image, including men's cologne and
skin care products, watches, eyewear and footwear.
PRODUCTS
Nautica
Nautica offers a lifestyle collection of men's sportswear,
outerwear and activewear with a distinctive active outdoor image. The
collection, sold under the Nautica brand, features innovative designs, classic
styling, bold primary colors and quality fabrics. The Nautica name and
trademarks are prominently displayed on Nautica products to promote brand
awareness and maintain consumer loyalty. Although Nautica products are targeted
to the 25-54 year old age group, the Company believes that its products appeal
to both younger and older consumers who identify with the Nautica lifestyle and
image.
The Nautica collection is offered in three principal groups:
Anchor, Crew and Fashion. Products in each of these groups are designed by
Nautica's in-house staff and include sportswear, outerwear and activewear.
Sportswear includes sweaters, cardigans, woven shirts, knit shirts, rugbys,
pants and shorts. Outerwear includes parkas, anoraks, bomber jackets and foul
weather gear. Activewear includes fleece and french terry tops, french terry
pants and shorts, tee shirts and swimwear.
The Anchor group serves as the foundation for the Nautica
collection and consists of basic items, including cotton twill shirts, cotton
pique knit shirts, cotton twill pants, lightweight jackets and swimwear. These
seasonless products feature Nautica's signature color schemes and styles and are
available to retail customers throughout the year. The Company maintains
inventory of Anchor products in order to continuously
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replenish the stock of its retail customers. Since 1992, retail customers have
been able to re-order Anchor products through electronic data interchange (EDI).
The Crew and Fashion groups are usually presented in nine
deliveries during Nautica's four merchandising seasons. Crew is typically the
first collection delivery of the Spring, Transitional, Fall and Holiday seasons.
The Crew collections reinterpret Anchor basics by introducing seasonal colors
and offer additional items and styles. Fashion follows with two or three
deliveries in each of the Spring and Fall seasons and one delivery in each of
the Summer and Holiday seasons. The Fashion collections are based on seasonal
themes developed by Nautica's design and merchandising staffs. These themes,
which have recently included "Great Lakes Adventure" and "Windward Sailing"
reinforce the Nautica image. The Fashion group is distinguished by its
distinctive use of color, novelty prints and fabrics and unique design elements.
The Anchor, Crew and Fashion groups are developed to be merchandised together as
a cohesive Nautica collection.
The Company also licenses the Nautica name and trademarks for
a range of products consistent with Nautica's design concepts and image,
including men's cologne and skin care products, watches, eyewear and footwear.
See "Licensing."
State-O-Maine
State-O-Maine offers: Nautica brand men's dress shirts, robes
and loungewear; sportswear and swimwear under the Bayou Sport label; apparel
designed and sourced for private label programs; and, robes and loungewear under
the Charles Goodnight and NFL labels. The Nautica brand men's dress shirt line
targets the same consumer base as the Nautica collection, but is typically sold
and displayed in the men's furnishings department of leading department and
specialty stores. For its other lines, State-O-Maine employs more competitive
pricing and broader distribution strategies than those of Nautica.
In 1989, State-O-Maine commenced the development, sale and
distribution of distinctive men's dress shirts, robes and loungewear bearing the
Nautica label. This line features quality fabrics, classic styling and design
concepts inspired by the Nautica collections.
In 1992, State-O-Maine introduced a spirited line of men's
apparel under the Bayou Sport label. The Bayou Sport line of woven and knit
shirts and swimwear features vibrant prints and bold colors and patterns, and is
offered at competitive price points.
State-O-Maine continues to actively develop its private label
business for department store customers such as Belk and Dillard's and for
national chain store operators such as J.C. Penney, Target and Sears, Roebuck
and Co. Products designed and sourced for private label programs include
sportswear, swimwear, robes and loungewear. The Company uses its design and
sourcing expertise to offer quality products at competitive prices.
In 1994, State-O-Maine introduced robes and loungewear under
the NFL label and in 1995 is introducing robes and loungewear under the Charles
Goodnight label. The new license agreements will enable State-O-Maine to explore
new business opportunities through the sale and distribution of its core robe
and loungewear products.
MARKETING
Nautica's in-store shop program is a primary component of the
Company's growth strategy. Through this program, Nautica and a department store
customer create a specific area within the store dedicated to the exclusive
merchandising and sale of the Nautica collection. These Nautica Shops,
strategically located in the men's collections departments of leading department
stores, provide a distinctive selling environment tailored
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to Nautica's specifications and generally include cherry and ash wood flooring,
custom designed ash fixtures, brass hardware and nautical props. As a result of
their configuration, Nautica Shops stock a greater volume of Nautica inventory
per square foot than would typically be carried in a standard department store
setting. They also allow for enhanced customer service and monitoring of sales
performance. Accordingly, management believes that the Nautica Shops achieve
sales productivity significantly exceeding that of sales of Nautica products in
a standard department store setting.
Nautica plans to continue to install and expand Nautica Shops
in department stores which currently sell the Nautica collection and to install
Nautica Shops in additional retail locations. The continued development of the
Nautica Shop program is dependent on general apparel industry conditions,
continued participation by retail customers and continued demand by consumers
for the Nautica collection.
In order to maximize the effectiveness of the Nautica Shop
program, Nautica established a merchandise coordinator program in 1990. Each of
Nautica's merchandise coordinators services a group of retail customers within a
common geographic region. They communicate with and visit each of their
customers on a regular basis to ensure proper visual display of Nautica
merchandise, analyze inventory requirements, and provide selling and
merchandising support to the sales staff. Merchandise coordinators also train
certain department store employees with regard to Nautica's product features,
sales methods and shop management. They also provide sales information to the
Company's retail analysts who monitor retail customer performance and develop
plans to assist these retail customers with future purchases of Nautica
products. Management believes that the performance of Nautica Shops is enhanced
by the close interaction of its merchandise coordinators with its retail
customers.
Nautica concentrates its marketing efforts on national and
regional print advertising. The advertising captures the Nautica image in
environments that reflect the Nautica lifestyle collection. The Nautica
advertising campaign is featured throughout the year in national magazines
including Conde Nast Traveler, Details, Esquire, GQ, Men's Journal, The New York
Times Magazine, The New Yorker, Sports Illustrated, Vanity Fair; "W", and L'Uomo
Vogue; and in regional magazines. In addition, Nautica participates with its
retail customers in a cooperative advertising program.
The print advertising is supplemented by a series of special
events and sponsorships. Nautica was the official sports clothing of Pact
'95/Young America, the sailing team that competed in defense of the America's
Cup. In addition, Nautica continues its sponsorship of the U.S. Sailing Team,
and its title sponsorship of the World Youth Sailing Championship and
presentation of the Nautica Cup. The Company is the official apparel sponsor of
the Northville (L.I.) Classic and the Transamerica Senior Golf Championship, two
events on the Senior PGA tour. In 1995, Nautica also will sponsor the Nestle
Invitational, a PGA sanctioned tournament and the PaineWebber Invitational,
another Senior PGA event.
Nautica products are also sold through 29 Company-owned
factory outlet stores located throughout the United States and two Company-owned
retail stores located in New York City and Newport Beach, California. See
"Retail."
Nautica sells its products primarily to leading department and
specialty stores. Its principal customers include Dillard's, May Company
Department Stores (including Kaufmann's, Foley's, Filene's, Lord & Taylor and
Famous Barr), Dayton's-Hudson-Field's, Federated Department Stores (including
Macy's, Bloomingdale's, Lazarus/Rich's) and Nordstrom. Nautica maintains
showrooms in New York City and Dallas, Texas.
State-O-Maine sells its products primarily to department
stores including Dillard's and May Company Department Stores (including Lord &
Taylor, Kaufmann's, Foley's, Famous Barr and Filene's), Dayton's-Hudson-Field's,
and Federated Department Stores. In addition, State-O-Maine sells its products
to
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national chain store operators such as J.C. Penney Co., Inc. and Sears, Roebuck
and Co. State-O-Maine's Bayou Sport line and its private label program employ
more competitive pricing and broader distribution strategies than the Nautica
brand. State-O-Maine products are generally sold in individual product
categories through mainfloor classification departments. Its products are
marketed by its regional sales managers and sales representatives through its
showrooms in New York City, Dallas, Texas, and New Orleans, Louisiana. In fiscal
1995, Dillard's and May Company Department Stores each accounted for
approximately 17% of the Company's total gross sales. No other customer of the
Company accounted for 10% or more of the Company's sales during that period.
PRODUCT DESIGN AND SOURCING
The Company manages the development of its apparel from
initial product concept through color and pattern design, fabric identification
and testing and garment manufacturing. Products are designed by the in-house
staffs of Nautica and State-O-Maine. The design teams work in conjunction with
the sales and production teams to determine the apparel styles for a particular
season based upon an evaluation of current style trends, prior year's sales and
consultations with retail customers. In conjunction with agents located in
foreign countries, Nautica and State-O-Maine arrange fabric sourcing and garment
production to ensure that final products satisfy detailed specifications and
quality standards.
The Company contracts for the manufacture of its products and
does not own or operate any manufacturing facilities. The Company's
manufacturers are located primarily in Hong Kong, the People's Republic of
China, the Philippines, Malaysia, Singapore, Saipan, Thailand, India and Turkey.
The Company's agents, based in Hong Kong, Taiwan, Turkey and India monitor
production to ensure compliance with design specifications, quality standards
and timely delivery of finished garments. They are assisted by Company employees
based in New York who regularly visit with the manufacturers to monitor
production. To date, the Company has not experienced significant difficulty in
obtaining manufacturing services. Management believes that many alternate
manufacturing sources exist. However, the inability of current sources to
satisfy the Company's manufacturing requirements, the loss of certain
manufacturers, the loss of an agent of the Company or a delay in locating
manufacturing capacity following termination of a manufacturing relationship,
could have a material adverse effect on the Company's business and operating
results. While the Company has long standing relationships with many of its
manufacturers and believes its relations to be good, it does not have long-term
commitments with manufacturers.
The Company sources for many of its manufacturers a broad
range of natural and synthetic fabrics primarily from foreign textile mills and
converters. The Company separately negotiates with fabric suppliers for the sale
of required fabric which is then purchased by its manufacturers in accordance
with the Company's specifications. To date, the Company has not experienced
significant difficulty in sourcing fabrics for its manufacturers. Management
believes that many alternate sources of supplies exist. However, the inability
of current sources to satisfy the Company's fabric requirements, the loss of
certain fabric vendors, or a delay in manufacturers obtaining fabric from
certain vendors, could have a material adverse effect on the Company's business
and operating results. The Company does not have any long-term commitments with
fabric suppliers.
The Company contracts to purchase its goods in United States
dollars and has not experienced material difficulties as a result of foreign
political, economic or social instability. However, the Company's business
remains subject to the usual risks associated with foreign suppliers.
LICENSING
The Company strategically extends the Nautica product line and
broadens the international distribution of the Nautica apparel collection
through license agreements. These license agreements allow the Company to enter
new businesses and countries with minimal capital commitments and to benefit
from the experience of the licensee with the licensed product or the local
market. The Nautica name and related
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trademarks are licensed through the Company's wholly owned subsidiary, Nautica
Apparel, Inc. ("Nautica Licensing"). Net royalty income to the Company was
approximately $848,000, $942,000 and $1,285,000 in fiscal 1993, fiscal 1994 and
fiscal 1995, respectively.
Nautica Licensing currently licenses products for wholesale
distribution in the following product categories: men's cologne and skin care
products, neckwear, tailored clothing, rainwear, boys' apparel, footwear,
luggage, watches, caps, men's hosiery, eyewear, belts and small leather goods,
umbrellas and a Lincoln-Mercury Villager minivan.
Internationally, Nautica apparel is licensed for sale in
Australia, Belgium, Brazil, Canada, the Caribbean, Chile, Colombia, Greece, Hong
Kong, Italy, Japan, Korea, Mexico, New Zealand, Panama, Peru, Taiwan, Thailand,
the United Kingdom and Venezuela. In addition to wholesale distribution of
Nautica apparel, international licensees operate a total of approximately 53
Nautica retail stores in certain of these markets.
As a provision of the agreement by which the Company acquired
the Nautica brand in 1984, David Chu, Executive Vice President of the Company
and President of Nautica Licensing and Nautica, is entitled to receive 50% of
the net royalty income from licensing the Nautica name and trademarks. The
Company is entitled to receive the remaining 50% of such net royalty income.
RETAIL
Factory Outlet Stores
The Company operates 28 Nautica factory outlet stores
generally located in manufacturers' outlet centers throughout the United States
and one Company factory outlet store located in one of its Rockland, Maine
facilities. The Company's retail operations are conducted through its wholly
owned subsidiary, Nautica Retail USA, Inc. ("Nautica Retail"). These factory
outlet stores have enabled the Company to increase sales in certain geographic
markets where Nautica products were not previously available and to consumers
who favor value-oriented retailers. They also provide opportunities for Nautica
to sell excess and out-of-season merchandise, thereby reducing the need to sell
such merchandise to discounters at excessively low prices. Nautica factory
outlet stores are geographically positioned to minimize potential conflict with
the Company's retail customers.
Flagship Stores
The Company operates two Nautica flagship stores, one in New
York City and one in Newport Beach, California. With their signature Nautica
cherry and ash wood flooring, ash fixtures, brass hardware and nautical props,
these stores are designed to convey the complete Nautica image. The stores carry
a wide range of Nautica brand products, including Nautica furnishings, watches
and footwear. These stores serve as a showcase for Nautica's retail customers
and build brand recognition among consumers.
SEASONALITY
Historically, the Company has experienced its highest level of
sales in the third quarter and its lowest level in the first quarter. This
pattern has resulted primarily from the timing of shipments to retail customers
for Spring and Fall seasons. In the future, the timing of seasonal shipments may
vary by quarter.
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TRADEMARKS
Nautica and its related trademarks (the "Nautica Marks"),
including the Nautica Spinnaker, are registered trademarks of Nautica Apparel,
Inc. in the United States for apparel and other products, including cologne,
eyewear, watches, small leather goods, umbrellas, luggage and jewelry.
Applications to register the Nautica Marks in other product categories have been
filed by the Company in the United States. In addition, the Company has
registered or is in the process of registering the Nautica Marks in over 70
countries throughout the world for apparel and in other complementary product
categories.
State-O-Maine is a registered trademark, and Bayou Sport is a
trademark, of State-O-Maine in the United States for certain apparel items.
State-O-Maine has filed trademark applications in the United States for Bayou
Sport.
The Company regards its trademarks and other proprietary
rights as valuable assets.
COMPETITION
The apparel industry is highly competitive. The Company
encounters substantial competition from brands such as Polo/Ralph Lauren, Tommy
Hilfiger and Claiborne, as well as from certain non-designer lines. In addition,
department stores, including some of the Company's major retail customers, have
increased in recent years the amount of goods manufactured specifically for them
and sold under their own labels. Some of the Company's competitors are
significantly larger and more diversified than the Company and have
substantially greater resources available for marketing their products. The
Company believes that its ability to compete effectively depends upon the
continuing appeal of Nautica apparel and the Company's other products to its
retail customers and consumers as well as the Company's ability to continue to
offer high quality apparel at appropriate price points.
EMPLOYEES
At February 28, 1995, the Company had approximately 760
employees. Approximately 160 employees are located at the Company's Rockland,
Maine facilities; approximately 120 of such employees are members of the
Amalgamated Clothing and Textile Workers Union, AFL-CIO, CLC. The Company
considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company operates three warehouse and distribution
facilities in Rockland, Maine. A 165,000 square foot facility, owned by the
Company, is used for receiving, shipping and warehousing the Nautica apparel and
private label lines. The Company expects to complete an expansion of the
facility in 1995, which will add approximately 165,000 square feet of usable
area on three levels. A 100,000 square foot facility, also owned by the Company,
is used primarily for receiving, shipping and warehousing the Nautica
furnishings, Bayou Sport and Nautica Retail inventories. A leased facility of
approximately 33,000 square feet is used for warehousing a range of the
Company's products. All merchandise is shipped directly from the Company's
manufacturers to its facilities in Rockland, Maine where it is processed and
shipped to customers.
The Company has administrative and sales offices at 40 West
57th Street, New York, New York, where it occupies under lease approximately
42,000 square feet. It also leases a design studio of approximately 22,000
square feet located at 11 West 19th Street, New York, New York. The Company or
its subsidiaries also lease retail stores in New York, New York and Newport
Beach, California, sales offices in Dallas, Texas and New Orleans, Louisiana,
and Nautica factory outlet stores in Kittery, Maine; Chattanooga,
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Tennessee; Niagara Falls, New York; Reading, Pennsylvania; Martinsburg, West
Virginia; Lake George, New York; Foley, Alabama; Freeport, Maine; Tannersville,
Pennsylvania; Central Valley, New York; Sevierville, Tennessee; Destin, Florida;
Osage Beach, Missouri; St. George, Utah; Lancaster, Pennsylvania; Barstow,
California; St. Augustine, Florida; Oshkosh, Wisconsin; Lincoln City, Oregon;
Dillon, Colorado; Manchester, Vermont; Castle Rock, Colorado; Rehoboth Beach,
Delaware; Branson, Missouri; Tuscola, Illinois; Solvang, California; Napa,
California; Vero Beach, Florida; and, Fremont, Indiana. All of the Company's
facilities are deemed by it to be adequate for the purposes utilized.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is publicly quoted on the National Market
System of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the trading symbol "NAUT."
The following table sets forth for the periods indicated the high and
low reported sales prices per share for the Common Stock as quoted by the NASDAQ
National Market System. All prices have been adjusted to reflect a three-for-two
stock split effected in the form of a stock dividend to holders of record of
Common Stock on November 1, 1993. They have also been adjusted to reflect a
three-for-two stock split to be effected in the form of a stock dividend to
holders of record of Common Stock on May 5, 1995, subject to stockholder
approval of an amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of common stock.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C> <C>
Fiscal 1994 First Quarter ended May 31, 1993 10.67 6.78
Second Quarter ended August 31, 1993 11.33 8.78
Third Quarter ended November 30, 1993 16.58 9.67
Fourth Quarter ended February 28, 1994 19.00 14.17
Fiscal 1995 First Quarter ended May 31, 1994 18.50 14.50
Second Quarter ended August 31, 1994 18.50 13.00
Third Quarter ended November 30, 1994 21.67 17.50
Fourth Quarter ended February 28, 1995 21.50 18.00
Fiscal 1996 First Quarter (through May 19, 1995) 22.33 16.33
</TABLE>
As of May 19, 1995, there were approximately 4,200 stockholders of the
Company's Common Stock.
The policy of the Company is to retain earnings to provide funds for
the operation and expansion of its business and, accordingly, the Company has
paid no cash dividends on its Common Stock. Any payment of future cash dividends
and the amounts thereof will be dependent upon the Company's earnings, financial
requirements, and other factors deemed relevant by the Company's Board of
Directors.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended
---------------------------------------------------------------------
February 28, February 28, February 28, February 29, February 28,
1995 1994 1993 1992 1991
------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Selected consolidated statements of earnings data
Net sales $247,630,892 $192,939,093 $150,962,006 $121,153,102 $95,364,083
============ ============ ============ ============ ===========
Income from continuing operations $ 23,971,307 $ 16,803,991 $ 10,488,204 $ 7,488,669 $ 3,478,970
Income (loss) from discontinued operations -- -- -- -- (1,325,650)
------------ ------------ ------------ ------------ -----------
Net earnings $ 23,971,307 $ 16,803,991 $ 10,488,204 $ 7,488,669 $ 2,153,320
============ ============ ============ ============ ===========
Net earnings (loss) per common share
Primary
Continuing operations $ 1.15 $ .90 $ .60 $ .44 $ .21
Discontinued operations -- -- -- -- (.08)
------------ ------------ ------------ ------------ -----------
Net earnings per share of common stock outstanding $ 1.15 $ .90 $ .60 $ .44 $ .13
============ ============ ============ ============ ===========
Fully diluted
Continuing operations $ 1.15 $ .90 $ .60 $ .43 $ .21
Discontinued operations -- -- -- -- (.08)
------------ ------------ ------------ ------------ -----------
Net earnings per share of common stock outstanding $ 1.15 $ .90 $ .60 $ .43 $ .13
============ ============ ============ ============ ===========
Cash dividends per common share None None None None None
</TABLE>
<TABLE>
<CAPTION>
February 28, February 28, February 28, February 29, February 28,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Selected consolidated balance sheets data
Total assets $168,355,506 $137,040,445 $ 79,301,967 $ 60,357,985 $54,096,842
Long-term debt, excluding current portion 250,000 300,000 350,000 417,338 484,671
Working capital 114,488,525 95,673,926 45,389,377 35,229,937 27,372,788
Stockholders' equity 139,300,351 114,143,790 59,013,183 48,297,673 40,571,420
</TABLE>
All share data has been adjusted to reflect a three-for-two stock split to be
effected in the form of a stock dividend, payable to stockholders of record on
May 5, 1995, subject to stockholder approval of an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal year ended February 28, 1995 compared to February 28, 1994:
Consolidated net sales increased 28.4% to $247.6 million in the
fiscal year ended February 28, 1995 compared to $192.9 million in the prior
fiscal year. This increase is primarily a result of increased sales of Nautica
products through its wholesale and retail operations. Nautica's wholesale sales
increased due to the expansion of Nautica's in-store shop program, sales to new
retail customers and to additional locations of existing customers, and the
continued growth of a basic stock replenishment program for the Anchor group of
Nautica products. The increase in Nautica's wholesale sales is due to increased
unit volume rather than price increases. Nautica retail sales increased as a
result of opening eight additional Nautica factory outlet stores during the
current year, the full year effect of four stores opened in the prior year and
to an increase in comparable store sales of 18.9%.
Consolidated gross profit during the fiscal year ended February
28, 1995 increased to 44.3% of net sales, as compared to 43.5% of net sales in
the prior fiscal year. The net increase resulted primarily from a shift in sales
mix to higher margin products.
Designing, selling, shipping and general and administrative
expenses as a percentage of net sales increased to 29.7% during the fiscal year
ended February 28, 1995 as compared to 29.5% in the prior fiscal year. The net
increase resulted from additional expenses incurred due to the expiration of a
license agreement in the Company's State-O-Maine, Inc. subsidiary in the current
year.
Operating profit increased 34.2% to $36.2 million (14.6% of net
sales) in the fiscal year ended February 28, 1995 as compared to $27.0 million
(14.0% of net sales) in the prior fiscal year as a result of the factors
discussed above.
Net royalty income increased by $343,000 to $1,285,000 in the
fiscal year ended February 28, 1995 as compared to $942,000 in the prior fiscal
year. This net increase resulted from increased royalty revenue associated with
increased sales by licensees partially offset by increased expenses associated
with a bankruptcy filing by one licensee.
Other income consists of interest income of $1,997,000. Other
expense of $881,000 relates primarily to costs associated with the Company's
evaluation of its warehouse and distribution facilities resulting in the
decision to remain in the state of Maine.
The effective tax rate decreased to 37.9% for the fiscal year
ended February 28, 1995 as compared to 41.2% in the prior fiscal year. The
decrease is primarily due to certain state tax relief provided to the Company
and to tax exempt interest income.
Net earnings increased 42.7% to $24.0 million in the fiscal year
ended February 28, 1995 from $16.8 million in the prior fiscal year as a result
of the factors discussed above.
10
<PAGE> 12
Fiscal year ended February 28, 1994 compared to February 28, 1993:
Consolidated net sales increased 27.8% to $192.9 million in the
fiscal year ended February 28, 1994 compared to $151.0 million in the prior
fiscal year. This increase is primarily a result of increased sales of Nautica
products through its wholesale and retail operations. Nautica's wholesale sales
increased due to the expansion of Nautica's in-store shop program, sales to new
retail customers and to additional locations of existing customers, and the
continued growth of a basic stock replenishment program for the Anchor group of
Nautica products. The increase in Nautica's wholesale sales is due to increased
unit volume rather than price increases. Nautica retail sales increased as a
result of opening four additional Nautica factory outlet stores in the current
year, to the full year effect of six stores opened in the prior fiscal year and
to an increase in comparable store sales of 11%.
Consolidated gross profit during the fiscal year ended February
28, 1994 increased to 43.5% of net sales, as compared to 42.0% of net sales in
the prior fiscal year. The net increase resulted primarily from a shift in sales
mix to higher margin products and a decrease in sales of close-out merchandise
primarily due to the opening of additional Nautica factory outlet stores.
Designing, selling, shipping and general and administrative
expenses as a percentage of net sales decreased to 29.5% during the fiscal year
ended February 28, 1994 as compared to 30.3% in the prior fiscal year. The net
decrease resulted from decreases in production, design, shipping, and general
and administrative expenses as a percentage of net sales, partially offset by
increases in selling and marketing expenses as a percentage of net sales.
Production, design, shipping and general and administrative expenses decreased
as a percentage of net sales due to economies of scale achieved with sales
growth. The increase in selling and marketing expenses as a percentage of net
sales was primarily due to the growth in sales of Nautica products, the
expansion of Nautica's in-store shop program and the opening of additional
Nautica factory outlet stores.
Interest expense remained relatively constant at approximately
$267,000 in the fiscal year ended February 28, 1994 as compared to the prior
fiscal year.
Operating profit increased 52.5% to $27.0 million (14.0% of net
sales) in the fiscal year ended February 28, 1994 as compared to $17.7 million
(11.7% of net sales) in the prior fiscal year as a result of the factors
discussed above.
Net royalty income increased by $94,000 to $942,000 in the fiscal
year ended February 28, 1994 as compared to $848,000 in the prior fiscal year.
This net increase resulted from increased royalty revenue associated with new
license agreements entered into during the fiscal year, offset by increased
expenses, primarily associated with the Company's trademark registration program
for the Nautica marks, trademark amortization and salaries.
Other income consists of interest income of $268,000 earned
primarily on cash generated from the Company's public offering of common stock
completed in December 1993. Other expense of $164,000 relates to the write-off
of fixed assets associated with the relocation of the Nautica design studio.
Pre-tax income in the current fiscal year benefited from an
$826,000 ($0.04 per share as adjusted) gain from non-taxable life insurance
proceeds due to the death of the Company's Chairman of the Board on August 18,
1993.
The effective tax rate decreased to 41.2% for the fiscal year
ended February 28, 1994 as compared to 42.8% in the prior fiscal year, due to
non-taxable life insurance proceeds partially offset by an increase in income
tax rates.
11
<PAGE> 13
Net earnings increased 60.2% to $16.8 million in the fiscal year
ended February 28, 1994 from $10.5 million in the prior fiscal year as a result
of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended February 28, 1995 the Company generated cash
from operating activities of $13.1 million. Such cash was principally from net
earnings and increases in accounts payable and accrued expenses offset by
inventory increases of $18.6 million. The increase in inventory is primarily the
result of stocking more basic inventory to fill EDI orders resulting from
increased demand for the Anchor group of Nautica products and to fill orders for
shipments to be made in the future. During the year ended February 28, 1994 the
Company generated cash from operating activities of $17.5 million. Such cash was
principally from net earnings.
During the year ended February 28, 1995 the Company's principal
investing activities related to the continued expansion of Nautica's in-store
shop program. The Company expects to continue to incur capital expenditures to
promote the expansion of the Nautica in-store shop program. In addition, the
Company is expanding its warehouse and distribution facilities in Rockland,
Maine at an expected cost of approximately $15.0 million. The Company will
utilize its existing cash and lines of credit during construction and will
finance the project at its completion.
The Company has $60.0 million in lines of credit with two
commercial banks available for short-term borrowings and letters of credit.
These lines are collateralized by wholesale inventory and accounts receivable.
At February 28, 1995 letters of credit outstanding under the lines were $28.3
million and there were no short-term borrowings outstanding.
The Company anticipates that internally generated funds from
operations, existing cash balances and the Company's existing credit lines will
be sufficient to satisfy its cash requirements.
CURRENCY FLUCTUATIONS AND INFLATION
The Company purchases its products from manufacturers located
primarily in the Far East. These purchases are denominated in United States
dollars. The Company believes that, to date, the effect of fluctuations of the
dollar against foreign currencies has not had a material effect on the cost of
imports or the Company's results of operations. However, there can be no
assurance that purchase prices for the Company's products will not be affected
by future fluctuations in the exchange rate between the United States dollar and
the local currencies of these manufacturers. Due to the number of currencies
involved, the Company cannot quantify the potential effect of such future
fluctuations on future income. The Company does not engage in hedging activities
with respect to such exchange rate risk.
The Company believes that inflation has not had a material effect on
the cost of imports or the Company's results of operations.
12
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements required by Part II, Item 8 are included in Part
IV, Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be held
on June 29, 1995.
In addition, for the fiscal year ended February 28, 1995, Charles H.
Scherer, a Director of the Company, filed one late report under Section 16(a)
of the Securities and Exchange Act of 1934, reflecting one transaction.
ITEM 11. EXECUTIVE COMPENSATION
The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be held
on June 29, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be held
on June 29, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be held
on June 29, 1995 and by reference to Footnotes H, I and L of the Financial
Statement included in this report and referred to at Part IV, Item 14.
13
<PAGE> 15
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of Nautica Enterprises,
Inc. and Subsidiaries required by Part II, Item 8, are included in
Part IV of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at February 28, 1995 and February 28, 1994 F-3
Consolidated Statements of Earnings for each of the three years in the
period ended February 28, 1995 F-5
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended February 28, 1995 F-6
Consolidated Statements of Cash Flows for each of the three years in the
period ended February 28, 1995 F-9
Notes to Consolidated Financial Statements F-11
(a) 2. Financial Statement Schedules
Included in Part IV of this report:
Schedules for each of the three years in the period ended February 28,
1995:
II - Valuation and Qualifying Accounts F-27
</TABLE>
(a) 3. Exhibits
3(a) Registrant's By-Laws as currently in effect is incorporated
by reference herein to the Registrant's Registration
Statement on Form S-1 (Registration Number 33-21998).
3(b) Registrant's Certificate of Incorporation is incorporated by
reference herein to the Registrant's Registration Statement
on Form S-3 (Registration Number 33-71926).
10(iii)(a) Registrant's Executive Incentive Stock Option Plan is
incorporated by reference herein from the Registrant's
Registration Statements on Form S-8 (Registration Number
33-1488), as amended by the Company's Registration Statement
on Form S-8 (Registration Number 33-45823).
10(iii)(b) Registrant's 1989 Employee Incentive Stock Plan is
incorporated by reference herein from the Registrant's
Registration Statement on Form S-8 (Registration Number
33-36040).
10(iii)(c) Registrant's 1994 Incentive Compensation Plan
21 Subsidiaries of Registrant
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
F-1
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
NAUTICA ENTERPRISES, INC.
We have audited the accompanying consolidated balance sheets of Nautica
Enterprises, Inc. and Subsidiaries as of February 28, 1995 and 1994, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended February 28, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nautica
Enterprises, Inc. and Subsidiaries as of February 28, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended February 28, 1995, in conformity
with generally accepted accounting principles.
We have also audited the schedule listed in the accompanying index at Item
14(a)2. for each of the three years in the period ended February 28, 1995. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
New York, New York
April 20, 1995
F-2
<PAGE> 17
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
February 28,
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 49,153,556 $ 44,854,155
Accounts receivable - net of allowances of $1,211,000 in
1995 and $1,205,000 in 1994 37,362,801 36,641,401
Inventories 48,876,065 30,286,620
Prepaid expenses and other current assets 5,389,979 4,571,936
Deferred tax benefit 2,511,279 1,916,469
------------ ------------
Total current assets 143,293,680 118,270,581
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and amortization 18,759,795 15,154,708
OTHER ASSETS
Excess of cost over net assets acquired, net of
accumulated amortization 1,607,534 1,657,254
Other 4,694,497 1,957,902
------------ ------------
6,302,031 3,615,156
------------ ------------
$168,355,506 $137,040,445
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 18
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
February 28,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 50,000 $ 50,000
Accounts payable - trade 12,534,381 8,445,766
Accrued expenses and other current liabilities 15,631,659 11,125,832
Income taxes payable 589,115 2,975,057
------------ ------------
Total current liabilities 28,805,155 22,596,655
LONG-TERM DEBT - NET 250,000 300,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.01, authorized 2,000,000
shares, no shares issued
Common stock - par value $.10, authorized, 50,000,000
shares; issued, 20,416,110 shares at 1995 and
13,471,507 shares at 1994 2,041,611 1,347,151
Additional paid-in capital 53,079,214 52,588,420
Retained earnings 84,730,086 60,758,779
------------ ------------
139,850,911 114,694,350
Less
Common stock in treasury at cost; 785,035 shares
at 1995 and 523,357 shares at 1994 550,560 550,560
------------ ------------
139,300,351 114,143,790
------------ ------------
$168,355,506 $137,040,445
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 19
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended February 28,
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 247,630,892 $ 192,939,093 $ 150,962,006
------------- ------------- -------------
Costs and expenses
Cost of goods sold 137,967,107 108,977,721 87,548,086
Designing, selling, shipping, general and
administrative expenses 73,436,250 56,964,498 45,705,606
------------- ------------- -------------
211,403,357 165,942,219 133,253,692
------------- ------------- -------------
Operating profit 36,227,535 26,996,874 17,708,314
------------- ------------- -------------
Other income (expense)
Net royalty income 1,285,325 941,964 848,369
Other income, net 1,115,935 104,245 55,637
Interest expense (29,174) (267,444) (279,922)
Life insurance proceeds, net 825,556
------------- ------------- -------------
2,372,086 1,604,321 624,084
------------- ------------- -------------
Earnings before provision for income taxes 38,599,621 28,601,195 18,332,398
Provision for income taxes 14,628,314 11,797,204 7,844,194
------------- ------------- -------------
NET EARNINGS $ 23,971,307 $ 16,803,991 $ 10,488,204
============= ============= =============
Earnings per share of common stock $1.15 $.90 $.60
===== ==== ====
Weighted average number of common and common
equivalent shares outstanding 20,855,787 18,629,346 17,460,384
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 20
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended February 28, 1995, 1994 and 1993
<TABLE>
<CAPTION>
DEFERRED
COMPENSA-
COMMON STOCK ADDITIONAL TREASURY STOCK TION
------------------------- PAID-IN RETAINED ----------------------- ON STOCK
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT OPTIONS
---------- ------------ ------------ ------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 29,
1992 7,395,884 $ 739,589 $ 14,710,753 $ 33,466,584 350,155 $ 552,532 $ 66,721
Net earnings 10,488,204
Common stock issued on
exercise of stock options 44,602 4,460 154,153 (1,250) (1,972)
Amortization of deferred
compensation on stock
options (66,721)
--------- ----------- ------------ ------------ ------- ------------ ------------
Balance at February 28,
1993 (carried forward) 7,440,486 744,049 14,864,906 43,954,788 348,905 550,560 --
</TABLE>
F-6
<PAGE> 21
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
Years ended February 28, 1995, 1994 and 1993
<TABLE>
<CAPTION>
DEFERRED
COMPENSA-
COMMON STOCK ADDITIONAL TREASURY STOCK TION
------------------------- PAID-IN RETAINED ---------------------- ON STOCK
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT OPTIONS
---------- ------------ ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28,
1993 (brought forward) 7,440,486 $ 744,049 $ 14,864,906 $ 43,954,788 348,905 $ 550,560 $--
Net earnings 16,803,991
Common stock issued on
exercise of stock options 484,339 48,434 1,740,177
Income tax benefit from
stock options 3,955,967
Stock split 3,954,097 395,410 (395,410) 174,452
Common stock issued in
public offering, net 1,592,585 159,258 32,422,780
---------- ------------ ------------ ------------ ------- ------------ ------------
Balance at February 28,
1994 (carried forward) 13,471,507 1,347,151 52,588,420 60,758,779 523,357 550,560 --
</TABLE>
F-7
<PAGE> 22
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
Years ended February 28, 1995, 1994 and 1993
<TABLE>
<CAPTION>
DEFERRED
COMPENSA-
COMMON STOCK ADDITIONAL TREASURY STOCK TION
-------------------------- PAID-IN RETAINED ---------------------- ON STOCK
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT OPTIONS
---------- ------------- ------------ ------------ ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28,
1994 (brought forward) 13,471,507 $ 1,347,151 $ 52,588,420 $ 60,758,779 523,357 $ 550,560 $ --
Net earnings 23,971,307
Common stock issued on
exercise of stock options 139,233 13,923 509,688
Stock split 6,805,370 680,537 (680,537) 261,678
Income tax benefit from
stock options 661,643
---------- ------------ ------------ ------------ ------- ------------ ------------
BALANCE AT FEBRUARY 28,
1995 20,416,110 $ 2,041,611 $ 53,079,214 $ 84,730,086 785,035 $ 550,560 $ --
========== ============ ============ ============ ======= ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-8
<PAGE> 23
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended February 28,
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 23,971,307 $ 16,803,991 $ 10,488,204
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Deferred income taxes - net (594,810) (302,419) (162,590)
Depreciation and amortization 3,110,160 2,995,244 1,768,962
Provision for accounts receivable allowances
and discounts 1,772,796 792,801 554,231
Loss on disposal and abandonment of fixed assets 881,443 163,784 16,562
Other
Change in operating assets and liabilities
Accounts receivable (2,494,196) (7,424,542) (6,840,091)
Inventories (18,589,445) (1,542,519) (12,101,920)
Prepaid expenses and other current assets (818,043) (462,558) (638,350)
Other assets (342,765) (256,702) (21,713)
Accounts payable 4,108,604 199,791 3,375,529
Accrued expenses and other current liabilities 4,485,838 4,396,340 559,940
Income taxes payable (2,385,942) 2,169,155 270,259
------------ ------------ ------------
Net cash provided by (used in) operating activities 13,104,947 17,532,366 (2,730,977)
------------ ------------ ------------
Cash flows from investing activities
Purchase of property, plant and equipment (7,242,911) (7,445,689) (1,850,007)
Payments to register trademark (197,889) (252,695) (319,253)
Long-term investments (2,500,000)
------------ ------------ ------------
Net cash used in investing activities (9,940,800) (7,698,384) (2,169,260)
------------ ------------ ------------
</TABLE>
F-9
<PAGE> 24
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended February 28,
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities
Net increase (decrease) in notes payable - bank $ $ (4,090,000) $ 4,090,082
Principal payments on long-term debt (50,000) (67,415) (67,338)
Proceeds from issuance of common stock, net 523,611 34,370,649 144,023
Income tax benefit from stock options 661,643 3,955,967 --
------------ ------------ ------------
Net cash provided by financing activities
1,135,254 34,169,201 4,166,767
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,299,401 44,003,183 (733,470)
Cash and cash equivalents at beginning of year 44,854,155 850,972 1,584,442
------------ ------------ ------------
Cash and cash equivalents at end of year $ 49,153,556 $ 44,854,155 $ 850,972
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 42,166 $ 282,391 $ 297,505
Income taxes 16,791,336 5,969,914 7,879,446
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE> 25
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1995, 1994 and 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nautica Enterprises, Inc. (the "Company") and Subsidiaries are principally
engaged in the design, manufacture and sale of men's apparel.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
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.
2. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with original maturities of
three months or less to be cash equivalents. The carrying amount
approximates fair value because of the short maturity of those
instruments.
3. Revenue Recognition
Revenue within wholesale operations is recognized at the time
merchandise is shipped to customers. Retail store revenues are
recognized at the time of sale.
4. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for wholesale
inventories and by the first-in, first-out ("FIFO") method for retail
inventories.
5. Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation for
financial statement purposes is provided principally by the
straight-line method over the estimated useful lives of the assets.
Improvements to leased premises are amortized over the shorter of the
useful lives of the improvements or the life of the related lease.
F-11
<PAGE> 26
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE A (CONTINUED)
6. Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired is being amortized on a
straight-line basis over a forty-year period. Accumulated amortization
at February 28, 1995 and February 28, 1994 was $364,430 and $314,710,
respectively.
7. Other Assets
Included in other assets are long-term investments of $2,500,000. The
investments are carried at cost which approximates market value at
February 28, 1995.
8. Deferred Design Charges
The Company defers certain design charges that relate to goods to be
sold in future selling seasons. Such charges are charged to expense in
the season the goods relate to.
9. Income Taxes
The Company and its wholly-owned subsidiaries file a consolidated
Federal income tax return. Deferred income taxes payable arise as a
result of differences between financial statement and income tax
reporting.
10. Earnings Per Share
Earnings per share are based on the weighted average number of shares
of common stock outstanding during the year giving retroactive effect
to the stock splits as described in Note H. Stock options are included
in the calculation, when they are dilutive.
11. Reclassifications
Certain amounts in prior years have been reclassified to conform with
classifications used in 1995.
F-12
<PAGE> 27
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE B - INVENTORIES
Inventories valued using the LIFO method comprised 85% and 75% of
consolidated inventories before LIFO adjustment at February 28, 1995 and
February 28, 1994, respectively. The FIFO earnings are presented in order to
provide a basis for comparison to the operating results of those companies
within the industry which do not use the LIFO method. Had the Company
utilized the FIFO method of accounting for inventory, inventories would have
been higher by $3,268,309, $4,101,208 and $3,592,057 at February 28, 1995,
1994 and 1993, respectively. Earnings before provision for income taxes would
have been lower by $832,899 at February 28, 1995, higher by $509,151 at
February 28, 1994 and higher by $418,855 at February 28, 1993. Net earnings
would have been lower by $517,230 ($.02 per share) at February 28, 1995,
higher by $299,381 ($.02 per share) at February 28, 1994 and higher by
$239,585 ($.01 per share) at February 28, 1993. During the year ended
February 28, 1995, reductions in certain LIFO pools had the effect of
increasing earnings before income taxes by approximately $1,700,000 and net
earnings by $1,056,000 ($.05 per share).
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 760,940 $ 405,866
Finished goods 51,383,434 33,981,962
----------- -----------
52,144,374 34,387,828
Less amount to reduce carrying
value to LIFO basis 3,268,309 4,101,208
----------- -----------
$48,876,065 $30,286,620
=========== ===========
</TABLE>
NOTE C - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Prepaid expenses $1,877,351 $1,829,826
Miscellaneous receivables 1,038,022 605,384
Deferred design charges 2,210,142 2,105,377
Other 264,464 31,349
---------- ----------
$5,389,979 $4,571,936
========== ==========
</TABLE>
F-13
<PAGE> 28
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 302,512 $ 118,303
Building and improvements 5,038,556 5,042,042
Machinery, equipment and fixtures 15,294,599 10,085,620
Leasehold improvements 5,194,152 4,950,930
Construction in progress 533,131 320,641
----------- -----------
26,362,950 20,517,536
Accumulated depreciation and amortization 7,603,155 5,362,828
----------- -----------
$18,759,795 $15,154,708
=========== ===========
</TABLE>
Depreciation expense for the years ended February 28, 1995, 1994 and 1993 was
$2,756,381, $2,407,071 and $1,659,815, respectively.
NOTE E - SHORT-TERM BORROWINGS
As of February 28, 1995, the Company had $60,000,000 in lines of credit, with
two commercial banks, available for short-term borrowings and letters of
credit collateralized by wholesale inventory and accounts receivable. At
February 28, 1995, letters of credit outstanding under the lines were
$28,299,180 and there were no short-term borrowings outstanding. Interest is
payable at the prime rate.
Data as to the Company's short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Balance outstanding at year-end $ -- $ -- $ 4,090,000
Maximum balance outstanding
at any month-end 1,225,000 12,331,000 12,133,000
Average balance outstanding for the year 378,883 3,669,000 4,052,000
Weighted average interest rate at
year-end 9.0% 6.0% 6.0%
Weighted average interest rate during
the year 7.70% 7.18% 6.91%
</TABLE>
F-14
<PAGE> 29
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE F - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Payroll and other employee compensation $ 3,774,201 $ 2,962,714
Royalties 702,428 453,429
Advertising and promotion 7,815,054 6,058,850
Commissions 247,316 217,266
Other 3,092,660 1,433,573
----------- -----------
$15,631,659 $11,125,832
=========== ===========
</TABLE>
NOTE G - LONG-TERM DEBT
The following is a summary of the long-term debt:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Industrial revenue bond (a) $300,000 $350,000
Less current maturities 50,000 50,000
-------- --------
$250,000 $300,000
======== ========
</TABLE>
(a) Industrial revenue bond payable in annual installments of $50,000
through 2001, collateralized by land, building, and machinery
(plant). The bond bears interest at a defined percentage of the prime
rate (7.27% at February 28, 1995).
The aggregate maturities of the Company's long-term debt are as follows:
<TABLE>
<S> <C>
1996 $ 50,000
1997 50,000
1998 50,000
1999 50,000
2000 50,000
Thereafter 50,000
--------
$300,000
========
</TABLE>
F-15
<PAGE> 30
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE H - STOCKHOLDERS' EQUITY
On April 18, 1995, the Board of Directors declared a three-for-two stock
split of the Company's common stock to be effected in the form of a stock
dividend payable on July 6, 1995 to stockholders of record on May 5, 1995.
The stock split is subject to stockholder approval of the Certificate of
Incorporation amendment authorizing an increase in the number of shares of
common stock from 20,000,000 shares to 50,000,000 shares. An amount equal to
par value of the shares of common stock to be issued was transferred from
additional paid-in capital to the common stock account. All prior year stock
options and per share disclosures have been restated to reflect the stock
split.
On December 23, 1993, the Company and certain selling stockholders sold an
aggregate of 3,084,300 shares of common stock of the Company (including a
portion of the underwriters' overallotment option). The Company did not
receive any of the proceeds of the 695,422 shares sold by the selling
stockholders. The net proceeds of the offering to the Company were
approximately $32,600,000 after deducting underwriting commissions and direct
offering costs. The offering costs were borne entirely by the Company.
On October 21, 1993, the Board of Directors declared a three-for-two split of
the Company's common stock effected in the form of a stock dividend.
The Certificate of Incorporation, as amended, authorizes the Board of
Directors to issue Preferred Stock, from time to time, in one or more series,
with such voting powers, designations, preferences, and relative,
participating, optional, conversion or other special rights, and such
qualifications, limitations and restrictions, as the Board of Directors may,
in their sole discretion, determine.
F-16
<PAGE> 31
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE I - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases real property and equipment, under operating leases
expiring at various dates through 2009. Rent expense amounted to
approximately $3,991,000 in 1995, $3,110,000 in 1994 and $2,528,000 in
1993. At February 28, 1995, minimum rental commitments under
noncancellable leases are as follows:
<TABLE>
<S> <C>
1996 $ 2,981,000
1997 3,009,000
1998 2,788,000
1999 2,500,000
2000 2,466,000
Thereafter 13,810,000
------------
Total minimum payments required $ 27,554,000
============
</TABLE>
2. Royalties
The Company was a party to a licensing agreement, which expired during the
1995 fiscal year, which granted the Company an exclusive right to utilize
certain designs and trade names in the manufacture of specific items of
robes and activewear. Royalty expense, which is calculated on the basis of
related sales, amounted to approximately $1,101,000 in 1995, $1,179,000 in
1994 and $1,397,000 in 1993.
3. Stock Purchase Agreement and Life Insurance Proceeds
The Company is a party to an agreement with the president and current
Chairman of the Board of the Company and the president of Nautica, and
was a party to a similar agreement with the former chairman of the board
(now deceased) of the Company (the principal stockholders), which
provides, upon the death of any of the aforementioned stockholders, and
at the request of their respective estates, that the Company will
purchase a part of the common shares of the deceased stockholder. The
Company has obtained policies of life insurance on the lives of the
stockholders for the purpose of utilizing the proceeds from such
insurance for the purchase of the shares of the Company's common stock.
The agreement provides for the Company to purchase the deceased
stockholder's shares of common stock at a defined market value on the
date of death. The Company's obligation to purchase the common shares of
the deceased stockholder is limited to the life insurance proceeds
F-17
<PAGE> 32
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE I (CONTINUED)
received by the Company on the death of such stockholder. The agreement
also provides, as soon after the death of the stockholder as is practicable
and upon the request of the estate of the deceased stockholder, for the
filing of a registration statement with the Securities and Exchange
Commission for an offering of the shares of common stock, if any, not
purchased by the Company.
Due to the death of the former chairman of the board of the Company in
August 1993, the Company realized nontaxable income from life insurance
proceeds in the amount of $825,556 ($.04 per share). The repurchase
obligation relating to shares owned by the former chairman of the board of
the Company expired on December 18, 1993.
4. Executive Compensation
In the event of a change in control of the Company as defined in the
agreement, senior management has the right to receive a lump-sum payment
upon termination of employment other than for cause or permanent disability
or resignation for good reason within three years. Such payments are to be
equal to the excess of (A) the product of 2.90 multiplied by the "base
amount" as determined within the meaning of Section 280G of the Internal
Revenue Code over (B) the value on the date of the Change of Control Event
of non-cash benefits as defined in the agreement. At February 28, 1995, the
maximum amount payable, applicable to three individuals, would be
approximately $8,777,000.
5. Other
The Company is subject to claims and suits in the ordinary course of
business. Management believes that the ultimate resolution of all such
proceedings will not have a material adverse effect on the Company.
In the normal course of business, the Company extends credit, on open
account, to its retail store customers, after a credit analysis based on a
number of financial and other criteria. Dillard Department Stores, Inc. and
May Department Stores Company accounted for approximately 17% and 17%,
respectively, of gross wholesale sales in 1995, approximately 19% and 17%,
respectively, of gross wholesale sales in 1994, and approximately 18% and
18%, respectively, of gross wholesale sales in 1993. In recent years, a
number of corporate groups, which include certain of the Company's
department store customers, excluding the above, have been involved in
highly
F-18
<PAGE> 33
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE I (CONTINUED)
leveraged financial transactions and certain of these customers have filed
for protection under Chapter 11 of the Federal Bankruptcy Code. The Company
does not believe that this concentration of sales and credit risks
represents a material risk of loss with respect to its financial position
as of February 28, 1995.
NOTE J - OTHER INCOME - NET
Other income - net is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -------
<S> <C> <C> <C>
Interest income $1,997,378 $ 267,529 $62,679
Write-off of warehouse evaluation costs (761,443)
Loss on disposal and abandonment of
equipment and leasehold improvements (120,000) (163,784)
Other 500 (7,042)
---------- --------- -------
$1,115,935 $ 104,245 $55,637
========== ========= =======
</TABLE>
NOTE K - INCOME TAXES
Effective as of March 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." The adoption of SFAS No. 109 did not have a material
effect on the consolidated financial statements. Therefore, the effect of
adopting SFAS No. 109 is included in income tax expense rather than as the
cumulative effect of an accounting change.
Under the provisions of SFAS No. 109, deferred income taxes reflect the net
effect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amount used for income
tax purposes. Deferred tax assets and liabilities are measured using
F-19
<PAGE> 34
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE K (CONTINUED)
enacted tax law. Significant components of the Company's deferred taxes at
February 28, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets
Deferred compensation $ 209,267 $ 189,267
Allowance for doubtful accounts
and sales discounts 468,576 504,576
Capitalized inventory costs 1,097,912 671,102
Nondeductible accruals 534,820 372,820
Depreciation 200,704 178,704
---------- ----------
$2,511,279 $1,916,469
========== ==========
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current
Federal $ 13,191,300 $ 8,987,079 $ 5,590,604
State and local 2,031,824 3,112,544 2,416,180
Deferred (594,810) (302,419) (162,590)
------------ ------------ ------------
$ 14,628,314 $ 11,797,204 $ 7,844,194
============ ============ ============
</TABLE>
F-20
<PAGE> 35
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE K (CONTINUED)
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
PERCENT PERCENT PERCENT
OF INCOME OF INCOME OF INCOME
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" provision
for Federal income taxes 35.0% 35.0% 34.0%
State taxes - net of Federal
income tax benefit 4.1 7.1 8.6
Other (1.2) (.9) 0.2
---- ---- ----
Actual provision for income taxes 37.9% 41.2% 42.8%
==== ==== ====
</TABLE>
State income taxes in 1995 decreased due to certain tax relief provided to
the Company and the inclusion of a one-time refund of taxes previously paid
of $1,429,000.
Deferred income taxes in fiscal 1993 reflect the impact of differences
between financial statement and income tax reporting. The components of the
deferred tax (benefit) are as follows:
<TABLE>
<CAPTION>
1993
---------
<S> <C>
Allowance for bad debts
and sales discounts $ (4,000)
Depreciation 1,000
Inventory capitalization (116,000)
Deferred compensation (26,000)
Deferred rent and rent rebate 11,000
Vacation (28,000)
Other (590)
---------
$(162,590)
=========
</TABLE>
F-21
<PAGE> 36
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE L - TRANSACTIONS WITH RELATED PARTIES
The former Chairman of the Board, who was a principal stockholder of the
Company, received a management fee for services rendered to the Company of
$50,000 in 1994 and $180,000 in 1993.
Nautica has the exclusive right to use, exploit and license others to so use
and exploit the Nautica name and trademarks. The President of Nautica
receives 50% of the net royalties received by the Company with respect to the
use of the Nautica name and trademarks. The President of Nautica received
royalties of approximately $1,285,000, $942,000 and $848,000 in 1995, 1994
and 1993, respectively. At February 28, 1995 and 1994, the amount due to the
President of Nautica included in accrued expenses and other current
liabilities was approximately $627,000 and $398,000, respectively. The
President of Nautica has the right of first refusal to purchase the Company's
right and interests in the name "Nautica" in the event the Company abandons,
sells or disposes its interest in the name.
NOTE M - MULTIEMPLOYER PENSION PLAN
The Company contributed approximately $350,000 in 1995, $230,000 in 1994 and
$172,000 in 1993 to a multiemployer pension and insurance plan for employees
covered under a collective bargaining agreement. The plan is not administered
by the Company and contributions are determined in accordance with provisions
of negotiated labor contracts. The Multiemployer Pension Plan Amendments Act
of 1980 (the "Act") significantly increased the pension responsibilities of
participating employers. Under the provisions of the Act, if the plan
terminates or the Company withdraws, the Company could be subject to a
substantial "withdrawal liability." As of February 28, 1995, the Company's
share of unfunded vested benefits, if any, was not available from the plan's
administrators.
F-22
<PAGE> 37
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE N - PROFIT-SHARING RETIREMENT AND SAVINGS PLAN
The Company has a contributory retirement savings plan (Section 401(k) of the
Internal Revenue Code) for all full-time employees. Under the provisions of
the plan, eligible employees are permitted to contribute up to 15% of their
salary subject to specified limits. The plan provides for discretionary
employer matching contributions not to exceed the lesser of 100% of the
employee's contribution or 6% of the employee's compensation. The amount of
Company contributions to the plan charged to expense during the years ended
February 28, 1995, 1994 and 1993 were approximately $148,000, $109,000 and
$64,000, respectively.
NOTE O - STOCK OPTION PLAN AND OPTION AGREEMENT
On June 28, 1984, the Company adopted an Executive Incentive Stock Option
Plan (the "Plan"). The Plan provides that the Board of Directors may grant
options to officers and key employees of the Company and its subsidiaries to
purchase up to 1,603,125 shares of the Company's common stock. The Plan
expires in 2001, and options shall not be granted after that date. Under the
Plan, each optionee must remain in the continuous employment of the Company
for at least one year from the date of grant before he can exercise any part
of the options. The exercise price covered by each option is 100% of the fair
market value of the common stock at the time of granting the option. In the
event, at the time the option is granted, the employee shall own (either in
his own name or by attribution) shares constituting in excess of 10 percent
of the outstanding shares of the Company, then the exercise price shall be
110% of the fair market value at the time of granting the option. The options
are exercisable on a cumulative basis at the annual rate of 20% of the total
number of shares covered by the option for a period not exceeding ten years.
On June 29, 1989, the Company adopted the Nautica Enterprises, Inc. 1989
Employee Incentive Stock Plan (the "1989 Plan"; the 1989 Plan and the Plan
are referred to as the "Plans"). The 1989 Plan authorizes the Compensation
Committee (consisting of at least two disinterested directors) to grant to
eligible participants stock options, restricted stock and/or stock bonus
awards and expires in 1999. The 1989 Plan provides for the reservation and
availability of 4,218,750 shares of common stock of the Company, subject to
adjustment for future stock splits, stock dividends, reorganizations and
similar events. The 1989 Plan's eligibility criteria encompass executives and
other key employees of the Company and its subsidiaries.
F-23
<PAGE> 38
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE O (CONTINUED)
No accounting recognition is given to stock options issued under the Plans
until they are exercised, at which time the proceeds are credited to the
capital accounts.
The table below summarizes the activity in the Plans, as adjusted for the
stock splits referred to in Note H:
<TABLE>
<CAPTION>
OPTION Option Option
1995 PRICE 1994 price 1993 price
--------- -------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,403,017 $ .30 - 12.45 1,379,907 $ .30 - 6.78 1,067,921 $ .30 - 4.19
Granted 261,000 14.33 - 19.83 310,500 7.00 - 12.45 475,313 5.67 - 6.78
Cancelled (16,762) 2.97 - 7.00 (62,972) 1.55 - 5.67
Exercised (208,850) .30 - 7.00 (287,390) .30 - 2.97 (100,355) .30 - 2.97
--------- --------- ---------
Outstanding at end
of year 1,438,405 1.55 - 19.83 1,403,017 1.55 - 12.45 1,379,907 1.55 - 6.78
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Became exercisable during the year 305,214 243,396 257,699
Exercisable at end of year 491,157 394,793 438,786
</TABLE>
On July 1, 1987, the Company entered into an Option Agreement (the
"Agreement") with the president of Nautica. The Agreement granted the
president the option to purchase up to an aggregate of 1,131,043 shares of
the Company's common stock at a purchase price of $1.74 per share. The
Agreement expires July 1, 1997; provided, however, in the event that the
President of Nautica is employed by the Company on July 1, 1997, the options
shall expire 60 days after the earlier of (i) July 1, 2007, or (ii) 10
months following the date that the President of Nautica ceases to be
employed by the Company. Compensation expense (the difference between the
quoted value of the common stock and the exercise price) under the Agreement
is determined on the date the total options to be granted and the exercise
price are known. The total compensation expense under the agreement
aggregated approximately $1,500,000, of which approximately $67,000 has been
recognized as compensation expense for the period ended February 28, 1993.
The total compensation expense was amortized over the five-year term of the
employment agreement of the president of Nautica.
F-24
<PAGE> 39
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE O (CONTINUED)
The Company filed a Registration Statement which became effective on August
10, 1993 relating to the proposed sale by the president of Nautica of
approximately 675,000 shares of the Company's common stock during the
three-month period following the effective date of the Registration
Statement. The shares registered are part of the 1,131,043 shares of
restricted stock which the president of Nautica could acquire through the
exercise of the stock options granted under the Agreement. During the year
ended February 28, 1994, the president of Nautica exercised 790,062 options
at an aggregate purchase price of $1,372,997. At February 28, 1995, 340,981
options exercisable at $1.74 per share remain outstanding.
For financial reporting purposes, the tax benefit resulting from
compensation expense allowable for income tax purposes in excess of the
expense recorded in the financial statements, amounting to $665,000 and
$3,956,000 during the years ended February 28, 1995 and 1994, respectively,
has been credited to additional paid-in capital.
NOTE P - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
May 31 August 31 November 30 February 28
------- --------- ----------- -----------
------(in thousands, except per share data)------
<S> <C> <C> <C> <C>
1995
NET SALES $44,554 $63,286 $86,978 $52,814
GROSS PROFIT 19,278 27,499 37,434 25,453
NET INCOME 2,306 5,826 9,501 6,337
EARNINGS PER SHARE - FULLY DILUTED $ .11 $ .28 $ .46 $ .30
WEIGHTED AVERAGE SHARES 20,708 20,778 20,838 20,865
1994
Net sales $30,740 $51,865 $67,560 $42,774
Gross profit 12,689 22,054 28,437 20,781
Net income 1,147 4,052 6,622 4,982
Earnings per share - fully diluted $ .06 $ .23 $ .36 $ .25
Weighted average shares 17,792 17,949 18,245 19,916
</TABLE>
F-25
<PAGE> 40
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, 1994 and 1993
NOTE P (CONTINUED)
During the fourth quarter of the fiscal year ended February 28, 1995 and
1994, the Company recorded inventory-related adjustments which increased
earnings before income taxes by approximately $1,700,000 and $1,300,000,
respectively.
F-26
<PAGE> 41
Nautica Enterprises, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------------------------------
(1) (2)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts - Deductions - end of
Description of period expenses describe describe (a) period
- ----------- ------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED FEBRUARY 28, 1995
RESERVES DEDUCTED FROM ASSETS TO
WHICH THEY APPLY
ALLOWANCE FOR BAD DEBTS $1,205,000 $1,538,618 $1,533,107 $1,210,511
========== ========== ========== ==========
ALLOWANCE FOR SALES DISCOUNTS $ -- $ 234,178 $ 234,178 $ --
========== ========== ========== ==========
Year ended February 28, 1994
Reserves deducted from assets to
which they apply
Allowance for bad debts $1,050,000 $ 525,495 $ 370,495 $1,205,000
========== ========== ========== ==========
Allowance for sales discounts $ -- $ 267,306 $ 267,306 $ --
========== ========== ========== ==========
Year ended February 28, 1993
Reserves deducted from assets to
which they apply
Allowance for bad debts $1,100,726 $ 279,533 $ 330,259 $1,050,000
========== ========== ========== ==========
Allowance for sales discounts $ 2,100 $ 274,698 $ 276,798 $ --
========== ========== ========== ==========
</TABLE>
(a) Accounts written off as uncollectible.
F-27
<PAGE> 42
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.
NAUTICA ENTERPRISES, INC.
(Registrant)
By: /s/ Harvey Sanders
------------------
Harvey Sanders
Chairman (May 26, 1995)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Harvey Sanders Chairman, President, May 26, 1995
--------------------- Chief Executive Officer
Harvey Sanders (Principal Executive
Officer) and Director
/s/ Sharon Burd Controller (Principal May 26, 1995
---------------------- Financial Officer and
Sharon Burd Principal Accounting
Officer)
/s/ David Chu Director May 26, 1995
---------------------
David Chu
/s/ George Greenberg Director May 26, 1995
---------------------
George Greenberg
/s/ Israel Rosenzweig Director May 26, 1995
---------------------
Israel Rosenzweig
</TABLE>
<PAGE> 43
EXHIBIT INDEX
-------------
Exhibit
No. Description
------- -----------
3(a) Registrant's By-Laws as currently in effect is
incorporated by reference herein to the Registrant's
Registration Statement on Form S-1 (Registration
Number 33-21998).
3(b) Registrant's Certificate of Incorporation is
incorporated by reference herein to the Registrant's
Registration Statement on Form S-3 (Registration
Number 33-71926).
10(iii)(a) Registrant's Executive Incentive Stock Option Plan is
incorporated by reference herein from the Registrant's
Registration Statements on Form S-8 (Registration Number
33-1488), as amended by the Company's Registration
Statement on Form S-8 (Registration Number 33-45823).
10(iii)(b) Registrant's 1989 Employee Incentive Stock Plan is
incorporated by reference herein from the Registrant's
Registration Statement on Form S-8 (Registration Number
33-36040).
10(iii)(c) Registrant's 1994 Incentive Compensation Plan
21 Subsidiaries of Registrant
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10(iii)(c)
NAUTICA ENTERPRISES, INC.
INCENTIVE COMPENSATION PLAN
Section 1. Purpose
The purpose of this Plan is to recognize and reward key employees of
the Company for the attainment of established performance goals reflecting both
annual and long-term results which further the success of the Company.
Section 2. Definitions
For Plan purposes, the following terms shall have the following
respective meanings:
(a) "Award" means a payment or payment opportunity granted to a
Participant pursuant to Section 5 of the Plan.
(b) "Board" means the Board of Directors of Nautica Enterprises, Inc.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(d) "Committee" means a committee designated by the Board and comprised
of two or more non-employee members of the Board, each of whom is an "outside
director" within the meaning of Section 162(m) of the Code.
(e) "Company" means Nautica Enterprises, Inc.
(f) "Earnings Before Income Taxes" means such amount as is reported in
the Company's annual report to stockholders, or comparable amount for a
Subsidiary, for the applicable period.
(g) "Net Earnings" means such amount as is reported in the Company's
annual report to stockholders, but before extraordinary items and the cumulative
effect of accounting changes, for the applicable period, or comparable amount
for a Subsidiary.
(h) "Operating Profit" means such amount of income from operations as
is reported in the Company's annual report to stockholders, for the applicable
period.
(i) "Participant" means an employee of the Company or a Subsidiary
designated by the Committee to receive an Award.
(j) "Performance Period" means either, as designated by the Committee,
a single fiscal year of the Company (or, for the first year of the Plan, a
nine-month period), or three successive fiscal years of the Company.
(k) "Plan" means the Incentive Compensation Plan as set forth herein
and as may be amended from time to time pursuant to Section 14.
(l) "Return on Equity" means the quotient resulting from dividing Net
Earnings, by average stockholders' equity, as reported in the Company's annual
report to stockholders, for the applicable period.
(m) "Subsidiary" means any subsidiary or division of the Company or any
other entity in which the Company has a significant equity interest, as
determined by the Committee.
<PAGE> 2
Section 3. Administration
(a) The Committee shall have full power and authority to construe,
interpret and administer the Plan and to make rules and regulations subject to
the provisions of the Plan. All decisions, actions, determinations and
interpretations of the Committee shall be made in its sole discretion and shall
be final, conclusive and binding on all parties.
(b) No member of the Committee shall be personally liable by reason of
any contract or other instrument executed in good faith by him, or on his
behalf, in his capacity as a member of the Committee or for any mistake of
judgment made in good faith. To the extent permitted by law, the Company shall
indemnify and hold harmless each member of the Committee and each other officer,
employee or director of the Company to whom any duty or power relating to the
administration of the Plan has been delegated, against any cost or expense
(including counsel and related fees) or liability (including any sum paid in
settlement of a claim with approval of the Committee) arising out of any act or
omission in connection with the Plan unless arising out of such person's own
fraud, gross negligence, willful misconduct or bad faith.
Section 4. Eligibility for Participation
(a) The Committee shall select Participants from among officers and
other key employees of the Company or a Subsidiary. No member of the Committee
or other non-employee member of the Board shall participate in the Plan.
Section 5. Determination and Payments of Award
(a) For each Performance Period, the Committee shall, in its
discretion, establish target award levels and respective performance measure(s)
which are to be attained for the applicable Award(s). The performance measures
used shall be Earnings Before Income Taxes, Net Earnings and Return on Equity,
either solely or in combination, as established in the discretion of the
Committee. The Committee shall have the right to reduce or eliminate Awards
otherwise payable under the Plan.
(b) Following the conclusion of the applicable Performance Period, the
Committee shall certify the extent to which the performance measures have been
achieved and authorize the payment of Awards to Participants to the extent
earned. However, an Award payment to any one Participant for a fiscal year
Performance Period shall not exceed five percent (5%) of Operating Profit for
such year and an Award payment to any one Participant for a three-year
Performance Period shall not exceed two percent (2%) of cumulative Operating
Profit for such period.
(c) The Committee may authorize the payment of an Award to a person (or
his or her beneficiary or estate) who has terminated employment with the Company
prior to the end of a Performance Period based on the terms of the Award.
(d) Awards may be paid in cash, shares of Common Stock or a combination
and payments may be deferred pursuant to Section 7, all as determined by the
Committee.
Section 6. Withholding Tax
The Company shall deduct from any payments under the Plan a sufficient
amount to cover withholding of any federal, state or local taxes required by
law.
2.
<PAGE> 3
Section 7. Payment Deferrals
The Committee may require or permit Participants to elect to defer the
payment of Awards under such rules and procedures as it may establish under the
Plan, including providing for the payment or crediting of interest on the
deferred amounts or the payment or crediting of dividend equivalents if deferred
amounts are denominated in Common Stock equivalents.
Section 8. Transferability and Exercisability
Awards and rights to deferred payments granted under the Plan shall not
be transferable or assignable other than by will or the laws of descent and
distribution.
Section 9. Other Benefit and Compensation Programs
Unless otherwise specifically determined by the Committee, settlements
of Awards received by Participants under the Plan shall not be deemed a part of
a Participant's regular, recurring compensation for purposes of calculating
payments or benefits from any Company benefit plan, severance program or
severance pay law of any country, or benefits that may be provided pursuant to a
contractual obligation of the Company. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
Section 10. Unfunded Plan
Unless otherwise determined by the Committee, the Plan, and any
deferred amounts under Section 7 hereof, shall be unfunded and shall not create
(or be construed to create) a trust or a separate fund or funds. The Plan shall
not establish any fiduciary relationship between the Company and any participant
or other person. To the extent any person holds any rights by virtue of a grant
awarded under the Plan, such rights (unless otherwise determined by the
Committee) shall be no greater than the rights of an unsecured general creditor
of the Company.
Section 11. Future Rights
No person shall have any claim or rights to be granted an award under
the Plan, and no participant shall have any rights under the Plan to be retained
in the employ of the Company. Likewise, participation in the Plan will not in
any way affect the Company's right to terminate the employment of the
participant at any time with or without cause. Participation in the Plan with
respect to any Performance Period shall not affect the Committee's right to
include or exclude any person for participation with respect to any other
Performance Period.
Section 12. Governing Law
The validity, construction and effect of the Plan and any actions taken
or relating to the Plan shall be determined in accordance with the laws of the
State of New York and applicable federal law.
Section 13. Successors and Assigns
The Plan shall be binding on all successors and assigns of a
Participant, including, without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the participant's creditors.
3.
<PAGE> 4
Section 14. Amendment or Termination
The Board may from time to time amend or terminate the Plan, provided
that no amendment shall increase the maximum amount payable to a Participant for
a Performance Period as specified in Section 5; and further provided that no
amendment will cause an Award to become subject to the tax deduction limitation
contained in section 162(m) of the Code.
Section 15. Effective Date
The Plan shall become effective upon its approval by the stockholders
of the Company at the 1994 Annual Meeting of Stockholders. Such approval shall
constitute the effectiveness of Awards granted by the Committee prior to such
approval for purposes of qualifying such Awards for the performance-based
exemption provided under section 162(m) of the Code.
4.
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
Parent Corporation Subsidiary and Place of Incorporation
- ------------------ -------------------------------------
<S> <C>
Nautica Enterprises, Inc. State-O-Maine, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica International, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Apparel, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Retail USA, Inc.
(Delaware)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated April 20, 1995, accompanying the consolidated
financial statements and schedules included in the Annual Report of Nautica
Enterprises Inc. (formerly State-O-Maine, Inc.) on Form 10-K for the year ended
February 28, 1995. We hereby consent to the incorporation by reference of said
report in the Registration Statements of Nautica Enterprises Inc. (formerly
State-O-Maine, Inc.) on Form S-8 (Registration Nos. 33-1488; 33-45823 and
33-36040).
GRANT THORNTON LLP
New York, New York
May 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-START> MAR-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 49,153,556
<SECURITIES> 0
<RECEIVABLES> 38,573,312
<ALLOWANCES> (1,210,511)
<INVENTORY> 48,876,065
<CURRENT-ASSETS> 143,293,680
<PP&E> 26,362,950
<DEPRECIATION> (7,603,155)
<TOTAL-ASSETS> 168,355,506
<CURRENT-LIABILITIES> 28,805,155
<BONDS> 250,000
<COMMON> 2,041,611
0
0
<OTHER-SE> 137,258,740
<TOTAL-LIABILITY-AND-EQUITY> 168,355,506
<SALES> 247,630,892
<TOTAL-REVENUES> 252,310,111
<CGS> 137,967,107
<TOTAL-COSTS> 73,294,148
<OTHER-EXPENSES> 881,443
<LOSS-PROVISION> 1,538,618
<INTEREST-EXPENSE> 29,174
<INCOME-PRETAX> 38,599,621
<INCOME-TAX> 14,628,314
<INCOME-CONTINUING> 23,971,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,971,307
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
