<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997 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
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 13, 1996, 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 $753,103,342.
DOCUMENTS INCORPORATED BY REFERENCE
Identification of Document Part into which Incorporated
-------------------------- ----------------------------
Proxy Statement for Annual Meeting
of Stockholders to be held June 30, 1997. Part III -- Items 10, 11, 12 and 13
<PAGE> 2
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 fabrics. State-O-Maine offers: Nautica
brand robes and loungewear; apparel designed and sourced for private label
programs; and, robes and loungewear under the Charles Goodnight label.
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 49 Nautica factory outlet stores and its flagship store in New York
City 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.
In fiscal 1997, the Company formed a limited liability
company, of which it is the majority member, to market and distribute Nautica
apparel throughout Europe.
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 oxford shirts, cotton pique
knit shirts, cotton twill pants, lightweight jackets and swimwear.
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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 replenish the stock of its
retail customers. Retail customers are able to re-order Anchor products through
electronic data interchange (EDI).
The Crew and Fashion groups are usually presented in twelve
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 deliveries consist of three to
five small groups within each merchandising season. The Fashion collections are
based on seasonal themes developed by Nautica's design and merchandising staffs.
These themes, which have included "Nantucket" and "Island Crossing " reinforce
the Nautica image. The Fashion group is distinguished by its distinctive use of
color, novelty prints and innovative fabrics and unique design elements. The
Anchor, Crew and Fashion groups are developed to be merchandised together as a
cohesive Nautica collection.
In fiscal 1997, Nautica introduced its "Nautica Competition" brand of
performance apparel. The Nautica Competition collection features innovative
products engineered for both athletes and fitness-oriented consumers. Nautica
has designed a separate in-store shop configuration for Nautica Competition
using high tech materials accented with aluminum and glass and athletic inspired
photographs.
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 robes and loungewear;
apparel designed and sourced for private label programs; and, robes and
loungewear under the Charles Goodnight label. The Nautica brand men's
furnishings 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 robes and loungewear bearing the Nautica
label. This line features quality fabrics, classic styling and design concepts
inspired by the Nautica collections.
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 and Sears, Roebuck and Co.
Products designed and sourced for private label programs include robes and
loungewear. The Company uses its design and sourcing expertise to offer quality
products at competitive prices.
In 1995, State-O-Maine introduced robes and loungewear under
the Charles Goodnight label. This license agreement enables State-O-Maine to
enhance the sale and distribution of its core robe and loungewear products.
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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 to Nautica's
specifications and generally include cherry and ash wood flooring and custom
designed ash fixtures. 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 fiscal 1997, the Company expanded the Nautica Shop Program
to include shops featuring the Nautica Competition brand of performance apparel.
The shops feature high tech materials accented with aluminum and glass and
athletic inspired photographs.
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 Atlantic Monthly, Conde Nast Traveler, Details, Esquire, GQ, George,
L'Uomo Vogue, Men's Health, Men's Journal, The New Yorker, The New York Times
Magazine, Outside, Sports Illustrated, Vanity Fair, Wired and W-The Men's
Portfolio; 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 sports sponsorships.
Nautica products are also sold through Company-owned factory
outlet stores located throughout the United States and its Company-owned retail
store located in New York City.
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, Marshall Field's, Hudson'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,
Dayton's-Hudson-Field's, and Federated Department Stores. In addition,
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State-O-Maine sells its products to national chain store operators such as J.C.
Penney Co., Inc. and Sears, Roebuck and Co. State-O-Maine's private label
program employs 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 force and sales representatives through its
showrooms in New York City and Dallas, Texas. In fiscal 1997, Dillard's, May
Company Department Stores and Federated Department Stores each accounted for
approximately 16%, 22% and 19%, respectively, 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
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experience of the licensee with the licensed product or the local market. The
Nautica name and related trademarks are licensed through the Company's wholly
owned subsidiary, Nautica Apparel, Inc. ("Nautica Licensing"). Net royalty
income to the Company was approximately $1,285,000, $2,248,000 and $3,803,000 in
fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
Nautica Licensing currently licenses products for wholesale
distribution in the following product categories: fragrances for men and women,
neckwear, tailored clothing, rainwear, women's, boys', girls' and infants'
apparel, footwear, luggage, watches, caps, men's hosiery, eyewear, belts and
small leather goods, umbrellas, a home collection and a Lincoln-Mercury Villager
minivan.
Internationally, Nautica apparel is licensed for sale in among
other countries, Australia, Brazil, Canada, the Caribbean, Chile, Colombia,
Greece, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand,
Panama, Peru, Philippines, Singapore, Taiwan, Thailand and Venezuela. In
addition to wholesale distribution of Nautica apparel, international licensees
operate a total of approximately 88 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 49 Nautica factory outlet stores
generally located in manufacturers' outlet centers throughout the United States.
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 Store
The Company operates a Nautica flagship store located in New
York City. With its signature Nautica cherry and ash wood flooring and ash
fixtures, this store is designed to convey the complete Nautica image. The store
carries a wide range of Nautica brand products, including Nautica furnishings,
watches and footwear. The store serves as a showcase for Nautica's retail
customers and builds 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 of State-O-Maine in
the United States for certain apparel items.
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, 1997, the Company had approximately 1,250
employees. Approximately 275 employees are located at the Company's Rockland,
Maine facilities; approximately 220 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 350,000 square foot facility, owned by the
Company, is used for receiving, shipping and warehousing the Nautica apparel and
private label lines. A 100,000 square foot facility, also owned by the Company,
is used primarily for receiving, shipping and warehousing the Nautica Retail
inventories. A leased facility of approximately 60,000 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
32,000 square feet. It also leases a design studio of approximately 44,000
square feet located at 11 West 19th Street, New York, New York. The Company or
its subsidiaries also lease sales offices in Dallas, Texas, one retail store and
49 Nautica factory outlet stores located throughout the United States. The
factory outlet stores range in size from approximately 2,400 to 6,100 square
feet, and average approximately 3,554 square feet. All of the Company's
facilities are deemed by it to be adequate for the purposes utilized.
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ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security-holders during
the fourth quarter of fiscal 1997.
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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.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL 1996
First Quarter Ended May 31, 1995 $11.17 $ 8.17
Second Quarter Ended August 31, 1995 17.00 9.92
Third Quarter Ended November 30, 1995 19.13 15.63
Fourth Quarter Ended February 29, 1996 22.75 16.25
FISCAL 1997
First Quarter Ended May 31, 1996 25.75 19.88
Second Quarter Ended August 31, 1996 30.00 21.00
Third Quarter Ended November 30, 1996 37.00 25.00
Fourth Quarter Ended February 28, 1997 35.75 22.25
FISCAL 1998
First Quarter (through May 13, 1997) 22.50 21.00
</TABLE>
As of May 13, 1997, there were approximately 416 holders of record 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 29, February 28, February 28, February 28,
Dollars in thousands, except per share data 1997 1996 1995 1994 1993
- ------------------------------------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Selected consolidated statements of earnings data
Net sales $ 386,560 $ 302,541 $ 247,630 $ 192,939 $150,962
========= ========= ========= ========= ========
Net earnings $ 44,040 $ 31,986 $ 23,971 $ 16,804 $ 10,488
========= ========= ========= ========= ========
Net earnings per share $ 1.02 $ .75 $ .57 $ .45 $ .30
========= ========= ========= ========= ========
Cash dividends per share NONE None None None None
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, February 29, February 28, February 28, February 28,
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Selected consolidated balance sheets data
Total assets $ 251,393 $ 209,340 $ 168,356 $ 137,040 $ 79,302
Long-term debt, excluding current portion 150 200 250 300 350
Working capital 156,239 133,912 114,488 95,674 45,389
Stockholders' equity 203,127 173,138 139,300 114,144 59,013
</TABLE>
All share data has been adjusted to reflect stock splits.
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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, 1997 compared to February 29, 1996:
Consolidated net sales increased 27.8% to $386.6 million in the
fiscal year ended February 28, 1997 compared to $302.5 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. The increase
in Nautica's wholesale sales is due primarily to increased unit volume rather
than price increases. Nautica retail sales increased as a result of opening
eleven additional Nautica factory outlet stores during the current year, the
full year effect of nine stores opened in the prior year and to an increase in
comparable store sales.
Consolidated gross profit during the fiscal year ended February
28, 1997 increased to 46.8% of net sales, as compared to 45.3% of net sales in
the prior fiscal year. The net increase resulted primarily from a shift to
higher margin Nautica wholesale products and to growth in retail operations.
Selling, general and administrative expenses as a percentage of
net sales increased to 29.9% during the fiscal year ended February 28, 1997 as
compared to 29.4% in the prior fiscal year. The net increase resulted primarily
from the transition into expanded warehouse and distribution facilities and
increased promotional and shop development costs.
Net royalty income increased by $1,555,000 to $3,803,000 in the
fiscal year ended February 28, 1997 as compared to $2,248,000 in the prior
fiscal year. This is the result of increased royalty revenue from new and
existing licensees.
Interest income increased by $474,000 to $2,995,000 in the fiscal
year ended February 28, 1997 as compared to the prior fiscal year. This increase
is primarily the result of higher cash balances.
The provision for income taxes of 39.5% in the fiscal year ended
February 28, 1997 was comparable to 39.6% in the prior fiscal year.
Net earnings increased 37.6% to $44.0 million in the fiscal year
ended February 28, 1997 from $32.0 million in the prior fiscal year as a result
of the factors discussed above.
Fiscal year ended February 29, 1996 compared to February 28, 1995:
Consolidated net sales increased 22.2% to $302.5 million in the
fiscal year ended February 29, 1996 compared to $247.6 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. The increase
in Nautica's wholesale sales is due primarily to increased unit volume rather
than price increases. Nautica retail sales increased as a result of opening nine
additional Nautica factory outlet stores during the current year, the full year
effect of eight stores opened in the prior year and to an increase in comparable
store sales.
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Consolidated gross profit during the fiscal year ended February
29, 1996 increased to 45.3% of net sales, as compared to 44.3% of net sales in
the prior fiscal year. The net increase resulted primarily from a shift to
higher margin Nautica wholesale products and to growth in retail operations.
Selling, general and administrative expenses as a percentage of
net sales decreased to 29.4% during the fiscal year ended February 29, 1996 as
compared to 30.0% in the prior fiscal year. The net decrease, as a percentage of
sales, resulted from economies of scale achieved with sales growth. Also,
included in selling, general and administrative expenses in 1995 are other
expenses of $881,000 (.4% of net sales) which primarily related to costs
associated with the Company's evaluation of its warehouse and distribution
facilities location.
Net royalty income increased by $963,000 to $2,248,000 in the
fiscal year ended February 29, 1996 as compared to $1,285,000 in the prior
fiscal year. This is the result of increased royalty revenue from new and
existing licensees.
Interest income increased by $553,000 to $2,521,000 in the fiscal
year ended February 29, 1996 as compared to the prior fiscal year. The increase
is primarily the result of higher cash balances and to an increase in the rate
of return on investments.
The provision for income taxes increased to 39.6% in the fiscal
year ended February 29, 1996 as compared to 37.9% in the prior fiscal year. The
prior year's rate was unusually low due to certain state tax relief provided to
the Company which reduced the corporate tax rate and the inclusion of a one time
refund of taxes previously paid.
Net earnings increased 33.4% to $32.0 million in the fiscal year
ended February 29, 1996 from $24.0 million in the prior fiscal year as a result
of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended February 28, 1997 and February 29, 1996,
the Company generated cash from operating activities of $39.5 million and $29.6
million, respectively. Such cash was principally from net earnings and increases
in accounts payable and accrued expenses offset by inventory increases in 1996
and 1995 of $7.1 and $5.4 million, respectively, and increases in accounts
receivable of $16.3 and $9.6 million, respectively. The increases in inventory
and accounts receivable in 1997 and 1996 are primarily attributable to the
increased sales volume.
During the year ended February 28, 1997, the Company's principal
investing activities related to the continued expansion of the in-store shop
program and the expansion of the Company's warehouse and distribution
facilities. The Company expects to continue to incur capital expenditures to
expand the in-store shop program. At February 28, 1997, there were no other
material commitments for capital expenditures. During the year ended February
29, 1996, the Company's principal investing activities related to the
expansion of the Company's warehouse and distribution facilities and the
continued expansion of the in-store shop program.
During the year ended February 28, 1997, the Board of Directors
approved a stock repurchase program, authorizing the Company to repurchase up to
1,500,000 shares of its common stock from time to time in open market brokerage
transactions. During the fiscal year, the Company repurchased 700,000 shares
at a cost of $16.8 million.
The Company has $100.0 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
11
<PAGE> 13
receivable. At February 28, 1997 letters of credit outstanding under the lines
were $43.9 million and there were no short-term borrowings outstanding.
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. 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.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." This statement will be effective in the fiscal
year 1998. The statement will require disclosure of basic earnings per share and
diluted earnings per share, instead of primary and fully diluted earnings per
share. The Company believes that basic earnings per share will be higher than
primary earnings per share because of the exclusion of dilutive stock options
and that diluted earnings per share will approximate primary earnings per share
because of their inclusion.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements included in this Annual Report, including the words
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the company in this report, as well
as the Company's periodic reports on Forms 10-K and 10-Q and other filings with
the Securities and Exchange Commission.
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
13
<PAGE> 15
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 30, 1997.
In addition, for the fiscal year ended February 28, 1997, Mr. George
Greenberg, a Director of the Company, filed one late report under Section 16(a)
of the Securities and Exchange Act of 1934.
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 30, 1997.
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 30, 1997.
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 30, 1997 and by reference to footnotes F, G, and I of the Consolidated
Financial Statements included in this report and referred to at Part IV,
Item 14.
14
<PAGE> 16
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-3
Consolidated Balance Sheets at February 28, 1997 and February 29, 1996 F-4
Consolidated Statements of Earnings for each of the three years in the
period ended February 28, 1997 F-6
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended February 28, 1997 F-7
Consolidated Statements of Cash Flows for each of the three years in the
period ended February 28, 1997 F-8
Notes to Consolidated Financial Statements F-10 - 22
(a) 2. Financial Statement Schedule
Included in Part IV of this report:
Schedule for each of the three years in the period ended February 28,
1997:
II - Valuation and Qualifying Accounts F-23
</TABLE>
3. Exhibits
3(a) Registrant's By-laws as currently in effect are
incorporated herein by reference to Registrant's
Registration Statement on Form S-1 (Registration No.
33-21998).
3(b) Registrant's Certificate of Incorporation is
incorporated by reference to the Registration Statement
on Form S-3 (Registration No. 33-71926), as amended by
Certificates of Amendment dated June 29, 1995 and July 2,
1996, incorporated by reference to the Registrant Annual
Report on Form 10-K for the year ended February 29, 1996,
and the Quarterly Report on Form 10-Q for the quarter ended
May 31, 1996, respectively.
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).
F-1
<PAGE> 17
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 is incorporated
by reference herein from the Registrant's Annual Report on
Form 10-K for the year ended 2/28/96.
10(iii)(d) Registrant's 1996 Stock Incentive 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-2
<PAGE> 18
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, 1997 and February 29,
1996, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the three years in the period ended February 28,
1997. 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, 1997 and February 29,
1996, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended February 28, 1997, 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, 1997. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
New York, New York
April 17, 1997
F-3
<PAGE> 19
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FEBRUARY 28, February 29,
ASSETS 1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 71,887 $ 61,047
Accounts receivable - net of allowances of $2,759
in 1997 and $1,528 in 1996 60,572 45,704
Inventories 61,305 54,236
Prepaid expenses and other current assets 4,306 5,291
Deferred tax benefit 5,775 3,636
-------- --------
Total current assets 203,845 169,914
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and amortization 42,719 30,712
OTHER ASSETS 4,829 8,714
-------- --------
$251,393 $209,340
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 20
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FEBRUARY 28, February 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 50 $ 50
Accounts payable - trade 20,562 15,441
Accrued expenses and other current liabilities 24,780 19,140
Income taxes payable 2,214 1,371
-------- --------
Total current liabilities 47,606 36,002
LONG-TERM DEBT - NET 150 200
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 510
STOCKHOLDERS' EQUITY
Preferred stock - par value $.01, authorized 2,000,000
shares, no shares issued
Common stock - par value $.10, authorized 100,000,000
shares; issued, 41,770,841 shares at 1997 and
41,354,806 shares at 1996 4,177 4,135
Additional paid-in capital 55,502 52,837
Retained earnings 160,756 116,716
-------- --------
220,435 173,688
Less
Common stock in treasury at cost; 2,270,070
shares at 1997 and 1,570,070 shares at 1996 17,308 550
-------- --------
203,127 173,138
-------- --------
$251,393 $209,340
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 21
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
FEBRUARY 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 386,560 $ 302,541 $ 247,630
Cost of goods sold 205,552 165,462 137,967
------------ ------------ ------------
Gross profit 181,008 137,079 109,663
Selling, general and administrative
expenses 115,476 88,914 74,317
Net royalty (income) (3,803) (2,248) (1,285)
------------ ------------ ------------
Operating profit 69,335 50,413 36,631
Other income
Interest income, net 2,995 2,521 1,968
------------ ------------ ------------
Earnings before provision for
income taxes and minority interest in
net loss of consolidated subsidiary 72,330 52,934 38,599
Provision for income taxes 28,600 20,948 14,628
------------ ------------ ------------
Earnings before minority interest
in net loss of consolidated subsidiary 43,730 31,986 23,971
Minority interest in net loss of
consolidated subsidiary 310
------------ ------------ ------------
NET EARNINGS $ 44,040 $ 31,986 $ 23,971
============ ============ ============
Earnings per share of common stock $ 1.02 $ .75 $ .57
============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 43,147,387 42,716,880 41,711,574
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 22
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended February 28, 1997, February 29, 1996 and February 28, 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Additional
Common stock paid-in Retained Treasury stock
Shares Amount capital earnings Shares Amount
---------- ------ -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1994 13,471,507 $1,347 $ 52,588 $ 60,759 523,357 $ 550
Net earnings 23,971
Common stock issued on exercise of stock options 139,233 14 510
Stock split 6,805,370 681 (681) 261,678
Income tax benefit from stock options 662
---------- ------ -------- -------- --------- -------
Balance at February 28, 1995 20,416,110 2,042 53,079 84,730 785,035 550
Net earnings 31,986
Common stock issued on exercise of stock options 261,293 26 887 785,035
Stock split 20,677,403 2,067 (2,068)
Income tax benefit from stock options 939
---------- ------ -------- -------- --------- -------
Balance at February 29, 1996 41,354,806 4,135 52,837 116,716 1,570,070 550
Net earnings 44,040
Common stock issued on exercise of stock options 416,035 42 1,004
Income tax benefit from stock options 1,661
Purchase of treasury stock 700,000 16,758
---------- ------ -------- -------- --------- -------
BALANCE AT FEBRUARY 28, 1997 41,770,841 $4,177 $ 55,502 $160,756 2,270,070 $17,308
========== ====== ======== ======== ========= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 23
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
FEBRUARY 28, February 29, February 28,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 44,040 $ 31,986 $ 23,971
Adjustments to reconcile net earnings to net cash
provided by operating activities
Minority interest in net loss of consolidated
subsidiary (310)
Deferred income taxes - net (2,138) (1,124) (594)
Depreciation and amortization 6,272 4,345 3,110
Provision for accounts receivable allowances
and sales returns and discounts 1,386 1,292 1,772
Loss on disposal and abandonment of fixed assets 881
Changes in operating assets and liabilities
Accounts receivable (16,254) (9,633) (2,494)
Inventories (7,069) (5,359) (18,589)
Prepaid expenses and other current assets 984 99 (818)
Other assets (723) (176) (342)
Accounts payable - trade 5,122 2,906 4,108
Accrued expenses and other current liabilities 5,639 3,509 4,486
Income taxes payable 2,504 1,720 (1,724)
-------- -------- --------
Net cash provided by operating activities 39,453 29,565 13,767
-------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (17,654) (15,907) (7,243)
Payments to register trademark (717) (127) (198)
Long-term investments 5,000 (2,500) (2,500)
-------- -------- --------
Net cash used in investing activities (13,371) (18,534) (9,941)
-------- -------- --------
</TABLE>
F-8
<PAGE> 24
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
FEBRUARY 28, February 29, February 28,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from minority shareholders of
consolidated subsidiary $ 520
Principal payments on long-term debt (50) $ (50) $ (50)
Proceeds from issuance of common stock, net 1,046 913 523
Purchase of treasury stock (16,758)
-------- -------- --------
Net cash (used in) provided by financing activities (15,242) 863 473
-------- -------- --------
INCREASE IN CASH AND CASH
EQUIVALENTS 10,840 11,894 4,299
Cash and cash equivalents at beginning of year 61,047 49,153 44,854
-------- -------- --------
Cash and cash equivalents at end of year $ 71,887 $ 61,047 $ 49,153
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 69 $ 46 $ 42
Income taxes 28,526 21,301 16,791
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 25
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nautica Enterprises, Inc. (the "Company") and Subsidiaries are primarily
engaged in the design, sourcing and sale of men's apparel. The principal
market for the Company's products is the United States. In preparing
financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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,
its wholly-owned subsidiaries and a 51% investment in a limited liability
company formed during the year ended February 28, 1997 to market the
Company's products in Europe. 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. Cash equivalents consist
principally of money market funds, demand notes and short-term tax-exempt
notes and bonds. The market value of the cash equivalents approximates
cost.
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.
F-10
<PAGE> 26
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE A (CONTINUED)
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 stated at cost less accumulated
depreciation and amortization. Buildings and improvements are depreciated
using the straight-line method over their estimated useful lives of 20 to
39 years. Machinery, equipment and fixtures are depreciated using the
straight-line method over their estimated useful lives of three to ten
years. Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful lives of the assets.
6. Other Assets
Included in other assets is an excess of cost over net assets acquired of
approximately $2,272,000 and $1,972,000 at February 28, 1997 and February
29, 1996, respectively. These assets are being amortized on a
straight-line basis over a forty-year period. Accumulated amortization at
February 28, 1997 and February 29, 1996 was $494,000 and $414,000,
respectively.
7. Income Taxes
The Company and its wholly-owned subsidiaries file a consolidated Federal
income tax return. 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 enacted tax law.
8. 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 F. Stock options are included in the
calculation, when they are dilutive.
F-11
<PAGE> 27
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE A (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This statement will be effective in the next
fiscal year and requires the disclosure of basic earnings per share and,
if applicable, diluted earnings per share, instead of primary and fully
diluted earnings per share. The Company believes that basic earnings per
share will be higher than primary earnings per share because of the
exclusion of dilutive stock options and that diluted earnings per share
will approximate primary earnings per share because of their inclusion.
9. Valuation of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of," during the year ended February
28, 1997. The statement requires that the Company recognize and measure
impairment losses of long-lived assets and certain identifiable
intangibles and value long-lived assets to be disposed of.
The Company reviews long-lived assets and certain identifiable intangibles
held and used for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has determined that no provision is necessary for
the impairment of long-lived assets at February 28, 1997.
10. Reclassifications
Certain amounts in prior years have been reclassified to conform with
classifications used in 1997.
NOTE B - INVENTORIES
Inventories valued using the LIFO method comprised 83% and 81% of
consolidated inventories before LIFO adjustment at February 28, 1997 and
February 29, 1996, 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 $2,419,000, $3,439,000 and $3,268,000 at February 28, 1997,
February 29, 1996 and February 28, 1995, respectively. Earnings before
provision for income taxes would have been lower by $1,020,000 at
F-12
<PAGE> 28
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE B (CONTINUED)
February 28, 1997, higher by $171,000 at February 29, 1996 and lower by
$833,000 at February 28, 1995. Net earnings would have been lower by $620,000
($.01 per share) at February 28, 1997, higher by $103,000 ($.003 per share)
at February 29, 1996 and lower by $517,000 ($.01 per share) at February 28,
1995. 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 $1,056,000 ($.03 per share).
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
Raw materials $ 273 $ 1,499
Finished goods 63,451 56,176
------- -------
63,724 57,675
Less amount to reduce carrying value
to LIFO basis 2,419 3,439
------- -------
$61,305 $54,236
======= =======
</TABLE>
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
Land $ 515 $ 312
Building and improvements 12,057 5,090
Machinery, equipment and fixtures 38,940 22,139
Leasehold improvements 5,716 5,421
Construction in progress 1,482 8,760
------- -------
58,710 41,722
Accumulated depreciation and amortization 15,991 11,010
------- -------
$42,719 $30,712
======= =======
</TABLE>
F-13
<PAGE> 29
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE D - SHORT-TERM BORROWINGS
As of February 28, 1997, the Company had $100,000,000 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, 1997, letters of credit outstanding under the lines were
approximately $43,900,000 and there were no short-term borrowings
outstanding. Interest is payable at the prime rate.
NOTE E - ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
Payroll and other employee compensation $ 6,807 $ 5,061
Royalties 994 746
Advertising and promotion 10,819 9,289
Accrued rent 1,084 955
Other 5,076 3,089
------- -------
$24,780 $19,140
======= =======
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY
On January 22, 1997, the Board of Directors adopted a stock repurchase plan
pursuant to which the officers of the Company have been authorized to
purchase up to 1,500,000 shares on the open market. At February 28, 1997,
repurchases of 700,000 shares were completed and are reflected as treasury
stock.
On April 29, 1996, the Board of Directors declared a two-for-one stock split
of the Company's common stock to be effected in the form of a stock dividend
payable on May 28, 1996 to stockholders of record on May 13, 1996. On April
18, 1995, the Board of Directors declared a three-for-two stock split of the
Company's common stock effected in the form of a stock dividend. Amounts
equal to par value of the shares of common stock to be issued were
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 splits.
F-14
<PAGE> 30
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE F (CONTINUED)
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.
NOTE G - 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 $5,604,000 in 1997, $4,654,000 in 1996 and $3,991,000 in
1995. At February 28, 1997 minimum rental commitments under noncancellable
leases are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1998 $ 4,177
1999 4,230
2000 4,166
2001 3,771
2002 3,222
Thereafter 18,466
-------
Total minimum payments required $38,032
=======
</TABLE>
2. Stock Purchase Agreement and Life Insurance Proceeds
The Company is a party to an agreement with the president and Chairman of
the Board of the Company and the president of Nautica Apparel, Inc. and
Nautica International, Inc. ("Nautica"), (the principal stockholders),
which provides, upon the death of either 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
F-15
<PAGE> 31
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE G (CONTINUED)
shares of the deceased stockholder is limited to the life insurance
proceeds 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.
3. Executive Compensation
In the event of a change in control of the Company as defined in the
agreement, certain 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 (i) the product of 2.90
multiplied by the "base amount" as determined within the meaning of
Section 280G of the Internal Revenue Code over (ii) the value on the date
of the Change of Control Event of non-cash benefits as defined in the
agreement. At February 28, 1997 the maximum amount payable, applicable to
four individuals, would be approximately $11,400,000.
4. 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.
5. Concentrations
In the normal course of business, the Company extends credit, on open
account, to its retail store customers, after a credit analysis based on
financial and other criteria. May Department Stores Company, Federated
Department Stores, Inc. and Dillard Department Stores, Inc. accounted for
approximately 22%, 19% and 16%, respectively, of sales in 1997, 18%, 14%
and 15%, respectively, of sales in 1996 and approximately 17%, 8% and 17%,
respectively, of sales in 1995. In recent years, a number of corporate
groups, which include certain of the Company's department store customers,
including Federated Department Stores, Inc., have been involved in highly
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, 1997.
F-16
<PAGE> 32
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE H - INCOME TAXES
Significant components of the Company's deferred taxes at February 28, 1997
and February 29, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets (liabilities)
Deferred compensation $ 626 $ 179
Allowance for doubtful accounts
and sales discounts 517 424
Capitalized inventory costs 1,285 1,141
Nondeductible accruals 3,667 1,850
Depreciation (320) 42
------- ------
$ 5,775 $3,636
======= ======
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Current
Federal $ 25,513 $ 17,603 $ 13,191
State and local 5,226 4,470 2,032
Deferred (2,139) (1,125) (595)
-------- -------- --------
$ 28,600 $ 20,948 $ 14,628
======== ======== ========
</TABLE>
F-17
<PAGE> 33
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE H (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>
1997 1996 1995
-------- ------- ------
PERCENT Percent Percent
OF INCOME of income of income
<S> <C> <C> <C>
Computed "expected" provision
for Federal income taxes 35.0% 35.0% 35.0%
State taxes - net of Federal
income tax benefit 4.7 5.5 4.1
Other (.2) (.9) (1.2)
---- ---- ----
Actual provision for income taxes 39.5% 39.6% 37.9%
==== ==== ====
</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.
NOTE I - TRANSACTIONS WITH RELATED PARTIES
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
Apparel, Inc. and Nautica International, Inc. (the "President") receives 50%
of the net royalties received by the Company with respect to the use of the
Nautica name and trademarks. The President earned royalties of approximately
$3,803,000, $2,248,000 and $1,285,000 in 1997, 1996 and 1995, respectively.
At February 28, 1997 and February 29, 1996, the amount due to the President
included in accrued expenses and other current liabilities was approximately
$994,000 and $743,000, respectively. The President 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.
F-18
<PAGE> 34
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE J - MULTIEMPLOYER PENSION PLAN
The Company contributed approximately $775,000 in 1997, $562,000 in 1996 and
$350,000 in 1995 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
"withdrawal liability." As of February 28, 1997, the Company's share of
unfunded vested benefits, if any, was not available from the plan's
administrators.
NOTE K - 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, 1997, February 29, 1996 and February 28, 1995 were approximately
$169,000 , $173,000, and $148,000, respectively.
NOTE L - STOCK OPTION PLANS AND OPTION AGREEMENT
On January 4, 1996, the Board of Directors adopted the Nautica Enterprises,
Inc. Stock Incentive Plan (the "1996 Plan"), which was approved by the
Company's stockholders at the 1996 Annual Meeting of Stockholders. The 1996
Plan authorizes the Compensation Committee to administer the plan and to
grant to eligible participants stock options of the Company and its
affiliates, stock appreciation rights, restricted stock, deferred stock,
bonus stock, cash bonuses and loans. The 1996 Plan provides for the
reservation and availability of 4,000,000 shares of common stock of the
Company, subject to adjustment for future stock splits, stock dividends,
reorganizations and similar events.
F-19
<PAGE> 35
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE L (CONTINUED)
In addition, stock options are outstanding under the Nautica Enterprises,
Inc. 1989 Employee Incentive Plan and the 1984 Executive Incentive Stock
Plan, for which options can no longer be granted.
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 2,262,086 shares,
subject to adjustments, of the Company's common stock at a purchase price of
$.87 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. At February 28, 1997, 681,964 options exercisable
at $.87 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 $1,661,000, $939,000 and $662,000
during the years ended February 28, 1997, February 29, 1996 and February 28,
1995, respectively, has been credited to additional paid-in capital.
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). It applies APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its plans and
does not recognize compensation expense for its stock-based compensation
plans other than for restricted stock. If the Company had elected to
recognize compensation expense based upon the fair value at the grant date
for awards under these plans consistent with the methodology prescribed by
SFAS No. 123, the Company's net earnings and earnings per share would be
reduced by approximately $3,500,000 and $.07 per share and $1,000,000 and
$.02 per share for the years ended February 28, 1997 and February 29, 1996,
respectively.
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expenses related
to grants made before fiscal 1996. The fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions for the years ended February
28, 1997 and February 29, 1996, respectively: expected volatility of 47.7
percent and 46.5 percent; risk-free interest rates of 5.8 percent and 7.1
percent; and, for both years, expected lives of seven years.
F-20
<PAGE> 36
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE L (CONTINUED)
The table below summarizes the activity in the plans, as adjusted for the
stock splits referred to in Note F:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
WEIGHTED Weighted Weighted
AVERAGE average average
EXERCISE exercise exercise
SHARES PRICE Shares price Shares price
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 3,146,654 $ 5.65 2,876,810 $ 3.58 2,806,034 $ 2.40
========= ========= =========
Granted 834,700 21.60 834,000 10.38 522,000 7.51
Exercised (416,035) 2.51 (522,756) 1.75 (417,700) 1.25
Cancelled (115,900) 11.55 (41,400) 6.42 (33,524) 2.13
--------- --------- ---------
Outstanding at end of
year 3,449,419 9.68 3,146,654 5.65 2,876,810 3.58
========= ========= =========
Exercisable at end of
year 1,341,334 4.54 1,054,684 3.21 982,314 2.20
========= ========= =========
Weighted average fair
value of options granted
during the year 12.27 6.13
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable stock options:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------------------- ---------------------------
Weighted Number
Number average Weighted exercisable Weighted
outstanding at remaining average at average
Range of February 28, contractual exercise February 28, exercise
exercise prices 1997 life price 1997 price
--------------- --------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
$ .78 - $ 4.45 1,402,819 5.5 years $ 3.31 1,006,834 $3.16
6.22 - 10.38 1,246,500 7.7 years 9.22 334,500 8.68
21.45 - 26.00 800,100 9.0 years 21.58 - -
--------- ---------
3,449,419 1,341,334
========= =========
</TABLE>
F-21
<PAGE> 37
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997, February 29, 1996 and February 28, 1995
NOTE M - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28
--------- --------- ----------- -----------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1997
NET SALES $ 76,137 $ 103,343 $ 116,570 $ 90,510
GROSS PROFIT 34,618 47,080 54,708 44,602
NET INCOME 5,431 11,315 15,964 11,330
EARNINGS PER SHARE $ .13 $ .26 $ .37 $ .26
WEIGHTED AVERAGE SHARES 42,996 43,018 43,253 42,825
</TABLE>
<TABLE>
<CAPTION>
MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28
--------- --------- ----------- -----------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Net sales $ 61,448 $ 80,554 $ 90,819 $ 69,720
Gross profit 26,714 35,438 41,227 33,700
Net income 3,792 7,911 11,906 8,377
Earnings per share $ .09 $ .19 $ .28 $ .20
Weighted average shares 41,700 42,398 42,656 42,732
</TABLE>
F-22
<PAGE> 38
Nautica Enterprises, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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 year expenses describe describe (a) period
----------- ------- -------- -------- ------------ ------
(All amounts in thousands except per share data)
YEAR ENDED FEBRUARY 28, 1997
RESERVES DEDUCTED FROM ASSETS TO
WHICH THEY APPLY
ALLOWANCE FOR BAD DEBTS $ 1,064 $ 254 $ -- $1,318
======== ====== ====== ======
ALLOWANCE FOR SALES RETURNS AND DISCOUNTS $ 464 $1,132 $ 155 $1,441
======== ====== ====== ======
Year ended February 29, 1996
Reserves deducted from assets to
which they apply
Allowance for bad debts $ 1,210 $ 346 $ 492 $1,064
======== ====== ====== ======
Allowance for sales returns and discounts $ -- $ 946 $ 482 $ 464
======== ====== ====== ======
Year ended February 28, 1995
Reserves deducted from assets to
which they apply
Allowance for bad debts $ 1,205 $1,538 $1,533 $1,210
======== ====== ====== ======
Allowance for sales discounts $ -- $ 234 $ 234 $ --
======== ====== ====== ======
</TABLE>
(a) Accounts written off as uncollectible.
F-23
<PAGE> 39
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 16, 1997)
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 16, 1997
--------------------------- Chief Executive Officer
Harvey Sanders (Principal Executive
Officer) and Director
/s/ Donald Pennington Chief Financial Officer May 16, 1997
--------------------------- (Principal Financial Officer)
Donald Pennington
/s/ Neal S. Nackman Vice President Finance May 16, 1997
--------------------------- (Principal Accounting Officer)
Neal S. Nackman
/s/ David Chu Director May 16, 1997
---------------------------
David Chu
/s/ Robert B. Bank Director May 16, 1997
---------------------------
Robert B. Bank
/s/ Ronald G. Weiner Director May 16, 1997
---------------------------
Ronald G. Weiner
/s/ Israel Rosenzweig Director May 16, 1997
---------------------------
Israel Rosenzweig
</TABLE>
<PAGE> 40
EXHIBIT INDEX
-------------
Exhibit
No. Distribution
------- ------------
3(a) Registrant's By-laws as currently in effect are
incorporated herein by reference to Registrant's
Registration Statement on Form S-1 (Registration No.
33-21998).
3(b) Registrant's Certificate of Incorporation is
incorporated by reference to the Registration Statement
on Form S-3 (Registration No. 33-71926), as amended by a
Certificate of Amendment dated June 29, 1995 and July 2, 1996,
incorporated by reference to the Registrant Annual Report on
Form 10-K for the year ended February 29, 1996, and the
Quarterly Report on Form 10-Q for the quarter ended May 31,
1996, respectively.
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 is incorporated
by reference herein from the Registrant's Annual Report on
Form 10-K for the year ended 2/28/96.
10(iii)(d) Registrant's 1996 Stock Incentive Plan.
21 Subsidiaries of Registrant.
23.1 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
<PAGE> 1
NAUTICA ENTERPRISES, INC.
1996 STOCK INCENTIVE PLAN
SECTION 1. PURPOSES
The purpose of the Nautica Enterprises, Inc. 1996 Stock Incentive
Plan (the "Plan") are (i) to enable Nautica Enterprises, Inc. (the "Company")
and its Related Companies (as defined below) to attract, retain and reward
employees and strengthen the existing mutuality of interests between such
employees and the Company's stockholders by offering such employees an equity
interest in the Company, (ii) to enable the Company to offer incentives to
employees of entities which are acquired or established by the Company from time
to time as incentives and inducements for employment, and (iii) to enable the
Company to pay part of the compensation of its Outside Directors (as defined in
Section 5.2) in options to purchase the Company's common stock, thereby
increasing such directors' proprietary interests in the Company. For purposes of
the Plan, a "Related Company" means any corporation, partnership, joint venture
or other entity in which the Company owns, directly or indirectly, at least a
20% beneficial ownership interest.
SECTION 2. TYPES OF AWARDS
2.1 Awards under the Plan may be in the form of (i) Stock Options;
(ii) Stock Appreciation Rights; (iii) Restricted Stock; (iv) Deferred Stock; (v)
Bonus Stock; (vi) Cash Bonuses; (vii) Loans; and/or (viii) Tax Offset Payments.
2.2 An eligible employee may be granted one or more types of awards,
which may be independent or granted in tandem. If two awards are granted in
tandem, the employee may exercise (or otherwise receive the benefit of) one
award only to the extent he or she relinquishes the tandem award.
2.3 Outside Directors may receive only Stock Options and Limited
Stock Appreciation Rights as provided in Section 15.
SECTION 3. ADMINISTRATION
3.1 The Plan shall be administered by the Compensation Committee of
the Company's Board of Directors (the "Board") or such other committee of
directors as the Board shall designate (the "Committee"), which shall consist of
not less than two directors each of whom is (a) a nonemployee director, as such
term is defined in Rule 16b-3 under the Securities Exchange Act of 1934 or any
successor rule, and (b) an outside director satisfying the requirements of
Section 162(m) of the Internal Revenue Code of 1986, as amended, or any
successor thereto (the "Code"). The members of the Committee shall serve at the
pleasure of the Board.
3.2 The Committee shall have the following authority with respect to
awards under the Plan: to grant awards to eligible employees and Outside
Directors under the Plan; to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall deem advisable; to
interpret the terms and provisions of the Plan and any award granted under the
Plan; and to otherwise supervise the administration of the Plan. In particular,
and without limiting its authority and powers, the Committee shall have the
authority:
(a) to determine whether and to what extent any award or
combination of awards will be granted hereunder, including whether any awards
will be granted in tandem with each other;
<PAGE> 2
(b) to select the employees to whom awards will be granted;
(c) to determine the number of shares of the common stock of
the Company (the "Stock") to be covered by each award granted hereunder subject
to the limitations contained herein;
(d) to determine the terms and conditions of any award granted
hereunder, including, but not limited to, any vesting or other restrictions
based on such performance objectives (the "Performance Objectives") and such
other factors as the Committee may establish, and to determine whether the
Performance Objectives and other terms and conditions of the award are
satisfied;
(e) to determine the treatment of awards upon an employee's
retirement, disability, death, termination for cause or other termination of
employment;
(f) to determine pursuant to a formula or otherwise the fair
market value of the Stock on a given date; provided, however, that if the
Committee fails to make such a determination, fair market value of the Stock on
a given date shall be the mean between the highest and lowest quoted selling
price, regular way, of the Stock on the NASDAQ National Market (or the principal
exchange upon which the Stock is listed) on such date, or if no such sale of
Stock occurs on such date, the weighted average of the high and low prices on
the nearest trading dates before and after such date;
(g) to determine that amounts equal to the amount of any
dividends declared with respect to the number of shares covered by an award (i)
will be paid to the employee currently or (ii) will be deferred and deemed to be
reinvested or (iii) will otherwise be credited to the employee, or that the
employee has no rights with respect to such dividends;
(h) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an award will be
deferred either automatically or at the election of an employee, including
providing for and determining the amount (if any) of deemed earnings on any
deferred amount during any deferral period;
(i) to provide that the shares of Stock received as a result
of an award shall be subject to a right of first refusal, pursuant to which the
employee shall be required to offer to the Company any shares that the employee
wishes to sell, subject to such terms and conditions as the Committee may
specify;
(j) to amend the terms of any award, prospectively or
retroactively; provided, however, that no amendment shall impair the rights of
the award holder without his or her written consent; and
(k) to substitute new awards with more favorable terms and
conditions for previously granted awards under the Plan, or for stock options or
awards granted under other plans or agreements; provided, however, in no case
shall the Committee reprice "underwater" options.
3.3 The Committee shall have the right to designate awards as
"Performance Awards." Awards so designated shall be granted and administered in
a manner designed to preserve the deductibility of the compensation resulting
from such awards in accordance with Section 162(m) of the Code. The grant or
vesting of a Performance Award shall be subject to the achievement of
Performance Objectives established by the Committee based on one or more of the
following criteria, in each case applied to the Company on a consolidated basis
and/or to a business unit, and which the Committee may use either as an absolute
measure or as a measure of comparative performance relative to a peer group of
companies: sales, operating profits, operating profits before interest expense
and taxes, net earnings, earnings per share, return on equity, return on assets,
return on invested capital, cash flow, debt to equity ratio, market share, stock
price, economic value added, and market value added.
2
<PAGE> 3
The Performance Objectives for a particular Performance Award
relative to a particular fiscal year of the Company shall be established by the
Committee in writing no later than 90 days after the beginning of such year. The
Committee's determination as to the achievement of Performance Objectives
relating to a Performance Award shall be made in writing. The Committee shall
have discretion to modify the Performance Objectives or vesting conditions of a
Performance Award only to the extent that the exercise of such discretion would
not cause the Performance Award to fail to quality as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
3.4 With respect to awards to Outside Directors, the Committee shall
have authority to interpret the Plan; to adopt, amend, and rescind
administrative regulations to further the purposes of the Plan; and to take any
other action necessary to the proper operation of the Plan. However, the
Committee shall have no discretion to vary the terms of awards as set forth in
Section 15, except as provided in Section 4.4.
3.5 All determinations made by the Committee pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Plan participants.
3.6 The Committee may from time to time delegate to one or more
officers of the Company any or all of its authorities granted hereunder except
with respect to awards granted to persons subject to Section 16 of the
Securities Exchange Act of 1934 or Performance Awards. The Committee shall
specify the maximum number of shares that the officer or officers to whom such
authority is delegated may award.
SECTION 4. STOCK SUBJECT TO PLAN
4.1 The total number of shares of Stock reserved and available for
distribution under the Plan shall be 4,000,000 (subject to adjustment as
provided below). Such shares may consist of authorized but unissued shares or
treasury shares. The exercise of a Stock Appreciation Right for cash or the
payment of any other award in cash shall not count against this share limit.
4.2 To the extent a Stock Option terminates without having been
exercised, or an award terminates without the employee having received payment
of the award, or shares awarded are forfeited, the shares subject to such award
shall again be available for distribution in connection with future awards under
the Plan. If the exercise price of an option is paid in Stock or if shares of
Stock are withheld from payment of an award to satisfy tax obligations with
respect to such award, such shares will also not count against the Plan limits
and shall again be available for distribution in connection with future awards
under the Plan.
4.3 No employee shall be granted Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock and/or Bonus Stock, or any combination
of the foregoing with respect to more than 600,000 shares of Stock in any fiscal
year of the Company (subject to adjustment as provided in Section 4.4). No
employee shall be granted Tax Offset Payments with respect to more than the
number of shares of Stock covered by awards held by such employee. No employee
shall be paid a Cash Bonus in any fiscal year in excess of (i) 5% of the
Company's operating profit for the Company's fiscal year, if the Cash Bonus
relates to a single fiscal year, or (ii) 2% of the Company's cumulative
operating profit for each fiscal year to which the Cash Bonus relates, if the
Cash Bonus relates to more than one fiscal year. An employee's Cash Bonus
permitted under the preceding sentence shall be in addition to the employee's
Stock awards and Tax Offset Payments permitted under this Section 4.3.
4.4 In the event of any merger, reorganization, consolidation, sale
of substantially all assets, recapitalization, Stock dividend, Stock split,
spin-off, split-up, split-off, distribution of assets or other change in
corporate structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Committee in its sole discretion, shall be
made in the aggregate number of shares reserved for issuance under the Plan, the
number of shares as to which awards may be granted to any individual in any
fiscal year, the number of shares subject to outstanding awards and the amounts
to be paid by award holders or the Company, as the case may
3
<PAGE> 4
be, with respect to outstanding awards; provided, however, that no such
adjustment shall increase the aggregate value of any outstanding award. In the
event any change described in this Section 4.4 occurs and an adjustment is made
in the outstanding Stock Options granted to participants other than Outside
Directors, a similar adjustment shall be made in the number and terms of Stock
Options (and related Limited Stock Appreciation Rights) previously granted and
to be granted to Outside Directors under Section 15, provided that any such
adjustment shall be equitable and shall not increase the aggregate benefits of
such Stock Options to Outside Directors.
SECTION 5. ELIGIBILITY
5.1 Employees of the Company or a Related Company, including
employees who are officers and/or directors of the Company, are eligible to be
granted awards under the Plan, other than under Section 15. Except as provided
in Section 5.2, Outside Directors are not eligible to be granted awards under
the Plan. The participants under the Plan shall be selected from time to time by
the Committee, in its sole discretion, from among those eligible.
5.2 Awards under Section 15 of the Plan shall be made solely to
Outside Directors, which term shall mean any director of the Company other than
one who is an employee of the Company or a Related Company.
SECTION 6. STOCK OPTIONS
6.1 The Stock Options awarded to employees under the Plan may be of
two types: (i) Incentive Stock Options within the meaning of Section 422 of the
Code or any successor provision thereto; and (ii) Non-Qualified Stock Options.
To the extent that any Stock Option does not qualify as an Incentive Stock
Option, it shall constitute a Non-Qualified Stock Option.
6.2 Subject to the following provisions, Stock Options awarded to
employees under the Plan shall be in such form and shall have such terms and
conditions as the Committee may determine.
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee, and may
be less than the fair market value of the Stock on the date of the award of the
Stock Option.
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee. The Committee may waive such exercise provisions or accelerate
the exercisability of the Stock Option at any time in whole or in part.
(d) Method of Exercise. Stock Options may be exercised in
whole or in part at any time during the option period by giving written notice
of exercise to the Company specifying the number of shares to be purchased,
accompanied by payment of the purchase price. Payment of the purchase price
shall be made in such manner as the Committee may provide in the award, which
may include cash (including cash equivalents), delivery of shares of Stock
already owned by the optionee or subject to awards hereunder, "cashless
exercise", any other manner permitted by law determined by the Committee, or any
combination of the foregoing. If the Committee determines that a Stock Option
may be exercised using shares of Restricted Stock, then unless the Committee
provides otherwise, the shares received upon the exercise of a Stock Option
which are paid for using Restricted Stock shall be restricted in accordance with
the original terms of the Restricted Stock award
4
<PAGE> 5
(e) No Stockholder Rights. An optionee shall have neither
rights to dividends or other rights of a stockholder with respect to shares
subject to a Stock Option until the optionee has given written notice of
exercise and has paid for such shares.
(f) Surrender Rights. The Committee may provide that options
may be surrendered for cash upon any terms and conditions set by the Committee.
(g) Transferability. Stock Options shall not be transferable
by the optionee other than by will or by the laws of descent and distribution,
and during the optionee's lifetime, all Stock Options shall be exercisable only
by the optionee or by his or her guardian or legal representative; provided,
however, the Committee may, in its discretion, authorize all or a portion of the
Stock Options to be granted to an optionee to be on terms which permit transfer
by such optionee to (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, provided that (x) there may be no
consideration for any such transfer, (y) the stock option agreement pursuant to
which such options are granted must be approved by the Committee, and must
expressly provide for transferability in a manner consistent with this Section,
and (z) subsequent transfers of transferred options shall be prohibited except
those by will or the laws of descent and distribution. Following any such
transfer, the Stock Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that the
term "optionee" shall be deemed to refer to the transferee.
(h) Termination of Employment. Following the termination of an
optionee's employment with the Company or a Related Company, the Stock Option
shall be exercisable to the extent determined by the Committee. The Committee
may provide different post-termination exercise provisions with respect to
termination of employment for different reasons. The Committee may provide that,
notwithstanding the option term fixed pursuant to Section 6.2(b), a Stock Option
which is outstanding on the date of an optionee's death shall remain outstanding
for an additional period after the date of such death.
6.3 Notwithstanding the provisions of Section 6.2, no Incentive
Stock Option shall (i) have an option price which is less than 100% of the fair
market value of the Stock on the date of the award of the Incentive Stock
Option, (ii) be exercisable more than ten years after the date such Incentive
Stock Option is awarded, or (iii) be awarded after March 31, 2006. No Incentive
Stock Option granted to an employee who owns more than 10% of the total combined
voting power of all classes of stock of the Company or any of its parent or
subsidiary corporations, as defined in Section 424 of the Code, shall (A) have
an option price which is less than 110% of the fair market value of the Stock on
the date of award of the Incentive Stock Option or (B) be exercisable more than
five years after the date such Incentive Stock Option is awarded.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 A Stock Appreciation Right awarded to an employee shall entitle
the holder thereof to receive payment of an amount, in cash, shares of Stock or
a combination thereof, as determined by the Committee, equal in value to the
excess of the fair market value of the number of shares of Stock as to which the
award is granted on the date of exercise over an amount specified by the
Committee. Any such award shall be in such form and shall have such terms and
conditions as the Committee may determine. The grant shall specify the number of
shares of Stock as to which the Stock Appreciation Right is granted.
7.2 The Committee may provide that a Stock Appreciation Right
awarded to an employee may be exercised only within the 60-day period following
occurrence of a Change of Control (as defined in Section 17.2) (such Stock
Appreciation Right being referred to herein as a Limited Stock Appreciation
Right). The Committee may also provide that in the event of a Change of Control
the amount to be paid upon an employee's exercise of a Stock Appreciation Right
shall be based on the Change of Control Price (as defined in Section 17.3).
5
<PAGE> 6
SECTION 8. RESTRICTED STOCK
Subject to the following provisions, all awards of Restricted Stock
to employees shall be in such form and shall have such terms and conditions as
the Committee may determine:
(a) The Restricted Stock award shall specify the number of
shares of Restricted Stock to be awarded, the price, if any, to be paid by the
recipient of the Restricted Stock and the date or dates on which, or the
conditions upon the satisfaction of which, the restricted Stock will vest. The
grant and/or the vesting of Restricted Stock may be conditioned upon the
completion of a specified period of service with the Company or a Related
Company, upon the attainment of specified Performance Objectives or upon such
other criteria as the Committee may determine.
(b) Stock certificates representing the Restricted Stock
awarded to an employee shall be registered in the employee's name, but the
Committee may direct that such certificates be held by the Company on behalf of
the employee. Except as may be permitted by the Committee, no share of
Restricted Stock may be sold, transferred, assigned, pledged or otherwise
encumbered by the employee until such share has vested in accordance with the
terms of the Restricted Stock award. At the time Restricted Stock vests, a
certificate for such vested shares shall be delivered to the employee (or his or
her designated beneficiary in the event of death), free of all restrictions.
(c) The Committee may provide that the employee shall have the
right to vote or receive dividends on Restricted Stock. Unless the Committee
provides otherwise, Stock received as a dividend on, or in connection with a
stock split of, Restricted Stock shall be subject to the same restrictions as
the Restricted Stock.
(d) Except as may be provided by the Committee, in the event
of an employee's termination of employment before all of his or her Restricted
Stock has vested, or in the event any conditions to the vesting of Restricted
Stock have not been satisfied prior to any deadline for the satisfaction of such
conditions set forth in the award, the shares of Restricted Stock which have not
vested shall be forfeited, and the Committee may provide that (i) any purchase
price paid by the employee shall be returned to the employee or (ii) a cash
payment equal to the Restricted Stock's fair market value on the date of
forfeiture, if lower, shall be paid to the employee.
(e) The Committee may waive, in whole or in part, any or all
of the conditions to receipt of, or restrictions with respect to, any or all of
the employee's Restricted Stock, other than Performance Awards whose vesting was
made subject to satisfaction of one or more Performance Objectives (except that
the Committee may waive conditions or restrictions with respect to Performance
Awards if such waiver would not cause the Performance Award to fail to qualify
as "performance-based compensation" within the meaning of Section 162(m) of the
Code).
SECTION 9. DEFERRED STOCK AWARDS
Subject to the following provisions, all awards of Deferred Stock to
employees shall be in such form and shall have such terms and conditions as the
Committee may determine:
(a) The Deferred Stock award shall specify the number of
shares of Deferred Stock to be awarded to any employee and the duration of the
period (the "Deferral Period") during which, and the conditions under which,
receipt of the Stock will be deferred. The Committee may condition the grant or
vesting of Deferred Stock, or receipt of Stock or cash at the end of the
Deferral Period, upon the attainment of specified Performance Objectives or such
other criteria as the Committee may determine.
6
<PAGE> 7
(b) Except as may be provided by the Committee, Deferred Stock
awards may not be sold, assigned, transferred, pledged or otherwise encumbered
during the Deferral Period.
(c) At the expiration of the Deferral Period, the employee (or
his or her designated beneficiary in the event of death) shall receive (i)
certificates for the number of shares of Stock equal to the number of shares
covered by the Deferred Stock award, (ii) cash equal to the fair market value of
such Stock, or (iii) a combination of shares and cash, as the Committee may
determine.
(d) Except as may be provided by the Committee, in the event
of an employee's termination of employment before the Deferred Stock has vested,
his or her Deferred Stock award shall be forfeited.
(e) The Committee may waive, in whole or in part, any or all
of the conditions to receipt of, or restrictions with respect to, Stock or cash
under a Deferred Stock award, other than with respect to Performance Awards
(except that the Committee may waive conditions or restrictions with respect to
Performance Awards if such waiver would not cause the Performance Award to fail
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code).
SECTION 10. BONUS STOCK AND CASH BONUSES
The Committee may award Bonus Stock and/or a Cash Bonus to any
eligible employee subject to such terms and conditions as the Committee shall
determine. The grant of Bonus Stock and /or a Cash Bonus may be conditioned upon
the attainment of specified Performance Objectives or upon such other criteria
as the Committee may determine. The Committee may waive such conditions in whole
or in part other than with respect to Performance Awards (except that the
Committee may waive conditions or restrictions with respect to Performance
Awards if such waiver would not cause the Performance Award to fail to qualify
as "performance-based compensation" within the meaning of Section 162(m) of the
Code). The Committee shall also have the right to eliminate or reduce the amount
of Cash Bonus otherwise payable under an award. Unless otherwise specified by
the Committee, no money shall be paid by the recipient for the Bonus Stock.
Alternatively, the Committee may offer eligible employees the opportunity to
purchase Bonus Stock at a discount from its fair market value. The Bonus Stock
award shall be satisfied by the delivery of the designated number of shares of
Stock which are not subject to restriction. Cash Bonus awards shall be paid in
cash.
SECTION 11. LOANS
The Committee may provide that the Company shall make, or arrange
for, a loan or loans to an employee with respect to the exercise of any Stock
Option awarded under the Plan, with respect to the payment of the purchase
price, if any, of any Restricted Stock awarded hereunder or with respect to any
taxes arising from an award hereunder; provided, however, that the Company shall
not loan to an employee more than the sum of (i) the excess of the purchase or
exercise price of an award over the par value of any shares of Stock awarded
plus (ii) the amount of any taxes arising from such award. The Committee shall
have full authority to decide whether a loan will be made hereunder and to
determine the amount, term and provisions of any such loan, including the
interest rate to be charged, whether the loan will be with or without recourse
against the borrower, any security for the loan, the terms on which the loan is
to be repaid and the conditions, if any, under which the loan may be forgiven.
SECTION 12. TAX OFFSET PAYMENTS
The Committee may provide for a Tax Offset Payment by the Company to
an employee with respect to one or more awards granted under the Plan. The Tax
Offset Payment shall be in an amount specified by the Committee, which shall not
exceed the amount necessary to pay the federal, state, local and other taxes
payable
7
<PAGE> 8
with respect to the applicable award and the receipt of the Tax Offset Payment,
assuming that the employee is taxed at the maximum tax rate applicable to such
income. The Tax Offset Payment shall be paid solely in cash.
SECTION 13. ELECTION TO DEFER AWARDS
The Committee may permit an employee to elect to defer receipt of an
award for a specified period or until a specified event, upon such terms as are
determined by the Committee.
SECTION 14. TAX WITHHOLDING
14.1 Each employee shall, no later than the date as of which the
value of an award first becomes includible in such person's gross income for
applicable tax purposes, pay to the Company, or make arrangements satisfactory
to the Committee regarding payment of, any federal, state, local or other taxes
of any kind required by law to be withheld with respect to the award. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company (and, where applicable, any Related Company),
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the employee.
14.2 To the extent permitted by the Committee, and subject to such
terms and conditions as the Committee may provide, an employee may elect to have
the withholding tax obligation, or any additional tax obligation with respect to
any awards hereunder, satisfied by (i) having the Company withhold shares of
Stock otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Stock. Alternatively, the
Committee may require that a portion of the shares of Stock otherwise
deliverable be applied to satisfy the withholding tax obligations with respect
to the award.
SECTION 15. STOCK OPTIONS, LIMITED STOCK APPRECIATION RIGHTS AND TAX OFFSET
PAYMENTS FOR OUTSIDE DIRECTORS
15.1 Each person who first becomes an Outside Director on or after
April 1, 1996, shall be granted, on the first trading day coincident with or
immediately following the date of his or her initial election as an Outside
Director, a Stock Option to purchase 2,000 shares of Stock. For purposes of this
Section, the term trading day shall mean a day on which the Stock is traded on a
National Securities Exchange, on the NASDAQ National Market, or in the
over-the-counter market.
15.2 Stock Options granted to Outside Directors shall be
Non-Qualified Stock Options; and shall have the following terms and conditions:
(a) Option Price. The option price per share of Stock
purchasable under the Stock Option shall be equal to the mean between the
highest and lowest quoted selling price, regular way, of the Stock on the NASDAQ
National Market (or the principal exchange upon which the Stock is listed) on
the date of grant, or if no such sale of Stock occurs on such date, the weighted
average of the high and low prices on the nearest trading dates before and after
such date.
(b) Option Term. Except as provided in Section 15.2(e), the
term of the Stock Option shall be ten years. To the extent it has become
exercisable pursuant to Section 15.2(c), the Stock Options shall remain
exercisable for the remainder of its term following the termination of the
optionee's status as an Outside Director.
(c) Exercisability. Each Stock Option shall become exercisable
with respect to 50% of the underlying shares on the first anniversary of the
date of grant, and the remaining 50% on the second anniversary of the date of
grant, provided that the optionee is a director of the Company on the respective
date.
8
<PAGE> 9
Notwithstanding the preceding sentence, in the event of a Change of Control (as
defined in Section 17), each Stock Option shall become fully exercisable and
vested.
(d) Method of Exercise. The Stock Options may be exercised in
whole or in part at any time during the option period by giving written notice
of exercise to the Company specifying the number of shares to be purchased,
accompanied by payment of the purchase price. Payment of the purchase price
shall be made in cash (including cash equivalents) or by delivery of shares of
Stock already owned by the optionee for at least six months, by "cashless
exercise" or by any combination of the foregoing. Shares delivered as payment of
the exercise price shall be valued at the mean between the highest and lowest
quoted selling price, regular way, of the Stock on the NASDAQ National Market
(or the principal exchange upon which the Stock is listed) on the day before the
date of exercise, or if no such sale of Stock occurs on such date, the weighted
average of the high and low prices on the nearest trading dates before and after
such date.
(e) Death of Director. If the optionee's service as a director
of the Company is terminated by reason of death, such optionee's Stock Options
shall become immediately exercisable, and may be exercised for the remaining
term of the Stock Option, or for one year after the optionee's death, if longer.
(f) Non-transferability. No Stock Option award shall be
transferable by the optionee other than by will or by the laws of descent and
distribution. During the optionee's lifetime, all Stock Options shall be
exercisable only by the optionee or by his or her guardian or legal
representative.
(g) No Stockholder Rights. An optionee shall have neither
rights to dividends nor other rights of a stockholder with respect to shares
subject to a Stock Option until the optionee has given written notice of
exercise and has paid for such shares.
15.3 Limited Stock Appreciation Rights in Tandem
with Options. Each Stock Option granted to an Outside Director under this
Section 15 shall be granted in tandem with a Limited Stock Appreciation Right
which may be exercised only within the 60-day period following a Change of
Control (as defined in Section 17.2). Upon exercise of the Limited Stock
Appreciation Right, the holder shall receive, for each share with respect to
which the Limited Stock Appreciation Right is exercised, an amount in cash equal
to the excess of the Change of Control Price (as defined in Section 17.3) over
the exercise price of the related Stock Option. The Limited Stock Appreciation
Right shall be paid within 30 days of the exercise of the Limited Stock
Appreciation Right.
SECTION 16. AMENDMENTS AND TERMINATION
The Board may discontinue the Plan at any time and may amend it from
time to time. No amendment or discontinuation of the Plan shall adversely affect
any award previously granted without the award holder's written consent.
Amendments may be made without stockholder approval except as required to
satisfy Rule 16b-3, Section 162(m) of the Code, or other regulatory
requirements.
SECTION 17. CHANGE OF CONTROL
17.1 In the event of a Change of Control, unless otherwise
determined by the Committee at the time of grant or by amendment (with the
holder's consent) of such grant:
(a) all outstanding Stock Options and all outstanding Stock
Appreciation Rights (including Limited Stock Appreciation Rights) awarded under
the Plan shall become fully exercisable and vested;
9
<PAGE> 10
(b) the restrictions and deferral limitations applicable to
any outstanding Restricted Stock and Deferred Stock awards under the Plan shall
lapse and such shares and awards shall be deemed fully vested; and
(c) to the extent the cash payment of any award is based on
the fair market value of Stock, such fair market value shall be the Change of
Control Price.
17.2 A "Change of Control" means the happening of any of the
following:
(a) When any "person," as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the
Exchange Act, but excluding the Company and any Subsidiary and any employee
benefit plan sponsored or maintained by the Company or any Subsidiary (including
any trustee of such plan acting as trustee), or any person, entity or group
specifically excluded by the Board, directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended
from time to time) of Securities of the Company representing 20 percent or more
of the combined voting power of the Company's then outstanding securities;
(b) When, during any period of 24 consecutive months during
the existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority thereof, provided, however, that a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of, or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors, either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this Section
17.2(b);
(c) the date of approval by the stockholders of the Company of
an agreement providing for the merger or consolidation of the Company with
another corporation where (i) the stockholders of the Company, immediately prior
to the merger or consolidation, would not beneficially own, immediately after
the merger or consolidation, shares entitling such stockholders to 50% or more
of all votes (without consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders of the corporation
issuing cash or securities in the merger or consolidation would be entitled in
the election of directors, or (ii) where the members of the Board, immediately
prior to the merger or consolidation, would not, immediately after the merger or
consolidation, constitute a majority of the board of directors of the
corporation issuing cash or securities in the merger; or
(d) the date of approval by the stockholders of the Company of
the liquidation of the Company or the sale or other disposition of all or
substantially all of the assets of the Company.
17.3 "Change of Control Price" means the highest price per share
paid in any transaction reported in the NASDAQ National Market or on any
national securities exchange where the Stock is traded, or paid or offered in
any transaction related to a Change of Control at any time during the 90-day
period ending with the Change of Control. Notwithstanding the foregoing
sentence, in the case of Stock Appreciation Rights granted in tandem with
Incentive Stock Options, the Change of Control Price shall be the highest price
paid on the date on which the Stock Appreciation Right is exercised.
SECTION 18. GENERAL PROVISIONS
18.1 Each award under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine that (i) the listing,
registration or qualification of the Stock subject or related thereto
10
<PAGE> 11
upon any securities exchange or under any state or federal law, or (ii) the
consent or approval of any government regulatory body or (iii) an agreement by
the recipient of an award with respect to the disposition of Stock is necessary
or desirable (in connection with any requirement or interpretation of any
federal or state securities law, rule or regulation) as a condition of, or in
connection with, the granting of such award or the issuance, purchase or
delivery of Stock thereunder, such award shall not be granted or exercised, in
whole or in part, unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
18.2 Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements. Neither the adoption of
the Plan nor any award hereunder shall confer upon any employee of the Company,
or of a Related Company, any right to continued employment, and no award under
Section 15 shall confer upon any Outside Director any right to continued service
as a director.
18.3 Determinations by the Committee under the Plan relating to the
form, amount, and terms and conditions of awards need not be uniform, and may be
made selectively among persons who receive or are eligible to receive awards
under the Plan, whether or not such persons are similarly situated.
18.4 No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or interpretation taken or made
with respect to the Plan, and all members of the Board or the Committee and all
officers or employees of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
SECTION 19. EFFECTIVE DATE OF PLAN
The Plan shall be effective on April 1, 1996, subject to approval by
the Company's stockholders at the 1996 Annual Meeting of Stockholders. Any
grants made under the Plan before shareholder approval of the Plan shall be made
subject to such shareholder approval. The Plan was adjusted effective May 28,
1996 to reflect the Company's two-for-one stock split effective as of such date,
and amended and restated on January 9, 1997.
11
<PAGE> 1
EXHIBIT 21
Parent Corporation Subsidiary and Place of Incorporation
- ------------------ -------------------------------------
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)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated April 17, 1997, accompanying the
consolidated financial statements and schedule included in the Annual Report of
Nautica Enterprises Inc. (formerly State-O-Maine, Inc.) on Form 10-K for the
year ended February 28, 1997. 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
April 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED 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-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 71,887,201
<SECURITIES> 0
<RECEIVABLES> 63,330,809
<ALLOWANCES> (2,759,000)
<INVENTORY> 61,304,697
<CURRENT-ASSETS> 203,845,166
<PP&E> 58,710,285
<DEPRECIATION> (15,991,032)
<TOTAL-ASSETS> 251,393,082
<CURRENT-LIABILITIES> 47,605,061
<BONDS> 0
0
0
<COMMON> 4,177,084
<OTHER-SE> 198,950,780
<TOTAL-LIABILITY-AND-EQUITY> 251,393,082
<SALES> 386,560,311
<TOTAL-REVENUES> 393,398,520
<CGS> 205,552,685
<TOTAL-COSTS> 205,552,685
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 72,330,546
<INCOME-TAX> 28,600,050
<INCOME-CONTINUING> 44,040,339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,040,339
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
