<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 31, 1997 or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-6708
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, N.Y. 10019
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (212) 541-5990
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of Common Stock outstanding as of October 14, 1997
was 39,008,771.
<PAGE> 2
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
AUGUST 31, 1997
(Unaudited)
INDEX
Page No.
Part I - Financial Information:
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
As of August 31, 1997 and February 29, 1997 .................. 2
Condensed Consolidated Statements of Earnings
For the Six and Three Month Periods Ended
August 31, 1997 and 1996 ..................................... 3
Condensed Consolidated Statements of Cash Flows
For the Six Month Periods Ended
August 31, 1997 and 1996 ..................................... 4
Notes to Condensed Consolidated Financial
Statements ................................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 6
Part II - Other information ............................................ 9
<PAGE> 3
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
ASSETS
August 31, February 29,
1997 1997
------------ ------------
Current assets:
<S> <C> <C>
Cash and short-term investments $ 37,974,973 $ 71,887,201
Accounts receivable - net 91,069,965 60,571,809
Inventories 87,579,727 61,304,697
Prepaid expenses and other current assets 6,063,317 4,306,521
Deferred tax benefit 5,774,938 5,774,938
------------ ------------
Total current assets 228,462,920 203,845,166
Property, plant and equipment, net of
accumulated depreciation and amortization 48,400,206 42,719,253
Other assets 5,022,634 4,828,663
------------ ------------
$281,885,760 $251,393,082
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 50,000 $ 50,000
Accounts payable - trade 35,232,550 20,562,099
Accrued expenses and other current liabilities 30,443,273 24,779,371
Income taxes payable 7,398,088 2,213,591
------------ ------------
Total current liabilities 73,123,911 47,605,061
Long-term debt -net 100,000 150,000
Minority interest 598,940 510,157
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
41,813,841 shares at August 31, 1997 and 41,770,841 shares at
February 28, 1997 4,181,384 4,177,084
Additional paid-in capital 55,726,613 55,502,729
Retained earnings 183,335,784 160,756,735
------------ ------------
243,243,781 220,436,548
Less:
Common stock in treasury - at cost;
3,070,070 shares at August 31, 1997
and 2,270,070 at February 28, 1997 35,180,872 17,308,684
------------ ------------
Total stockholders' equity 208,062,909 203,127,864
------------ ------------
$281,885,760 $251,393,082
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE> 4
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31, August 31,
---------------------------------- ----------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 228,067,042 $ 179,480,714 $ 132,259,995 $ 103,342,954
Cost of goods sold 122,368,139 97,783,152 70,880,082 56,263,198
------------- ------------- ------------- -------------
Gross profit 105,698,903 81,697,562 61,379,913 47,079,756
Selling, general and administrative expenses 72,447,637 56,583,019 38,675,835 29,540,472
Net royalty (income) (2,306,104) (1,582,401) (1,110,904) (810,081)
------------- ------------- ------------- -------------
Operating profit 35,557,370 26,696,944 23,814,982 18,349,365
Interest income, net 1,483,162 1,213,554 674,175 509,124
Minority interest in consolidated subsidiary 591,217 -- 358,280 --
------------- ------------- ------------- -------------
Earnings before provision for income taxes 37,631,749 27,910,498 24,847,437 18,858,489
Provision for income taxes 15,052,700 11,164,200 9,938,975 7,543,400
------------- ------------- ------------- -------------
NET EARNINGS $ 22,579,049 $ 16,746,298 $ 14,908,462 $ 11,315,089
============= ============= ============= =============
Earnings per share of common stock $ 0.54 $ 0.39 $ 0.36 $ 0.26
============= ============= ============= =============
Weighted average number of shares of common and
common equivalent shares outstanding 41,761,137 43,026,414 41,484,104 43,018,171
============= ============= ============= =============
Cash dividends per common share none none none none
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
August 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 22,579,049 $ 16,746,298
------------ ------------
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Minority interest in loss of consolidated subsidiary (591,217) --
Depreciation and amortization 4,656,523 3,124,545
Provision for accounts receivable allowances and sales
returns and discounts 623,368 227,115
Changes in operating assets and liabilities
Accounts receivable (31,121,524) (22,313,679)
Inventories (26,275,030) (12,828,665)
Prepaid expenses and other current assets (1,756,796) 863,542
Other assets (576,958) (1,062,068)
Accounts payable 14,670,451 9,910,338
Accrued expenses and other current liabilities 5,663,902 4,567,106
Income taxes payable 5,184,497 3,790,582
------------ ------------
Total adjustments (29,522,784) (13,721,184)
============ ============
Net cash (used in) provided by operating activities (6,943,735) 3,025,114
------------ ------------
Cash flows from investing activities:
Proceeds from minority shareholders of consolidated subsidiary 680,000 --
Purchase of property, plant and equipment (9,954,489) (9,559,688)
Purchase of short-term investments (34,749,980) --
------------ ------------
Net Cash used in investing activities (44,024,469) (9,559,688)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (50,000) (50,000)
Purchase of treasury stock (17,872,188) --
Proceeds from issuance of common stock 228,184 633,506
------------ ------------
Net cash (used in) provided by financing activities (17,694,004) 583,506
------------ ------------
Decrease in cash and cash equivalents (68,662,208) (5,951,068)
Cash and cash equivalents at beginning of period 71,887,201 61,047,522
------------ ------------
Cash and cash equivalents at end of period $ 3,224,993 $ 55,096,454
Short-term investments at end of period 34,749,980 --
------------ ------------
Cash and short-term investments at end of period $ 37,974,973 $ 55,096,454
============ ============
Supplemental Information:
Cash payments for the periods ended:
Interest expense $ 3,687 $ 4,489
============ ============
Income taxes $ 9,868,236 $ 7,374,513
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(Unaudited)
NOTE 1 - The accompanying financial statements have been prepared
without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such
rules and regulations. These statements include all
adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation of financial
position and results of operations. The financial statements
included herein should be read in conjunction with the
financial statements and notes thereto included in the latest
annual report on Form 10-K.
NOTE 2 - The results of operations for the six and three month periods
ended August 31, 1997 and 1996 are not necessarily indicative
of the results to be expected for the full year.
NOTE 3 - The Company utilized the last-in, first-out "Lifo" method for
inventories as of August 31, 1997 and February 28, 1997 and
for the six and three month periods ended August 31, 1997 and
1996. The "Lifo" inventory for the six and three month periods
ended August 31, 1997 and 1996 are based upon end of year
estimates. Inventories at August 31, 1997 and February 28,
1997 consist primarily of finished goods.
NOTE 4 - Short-term investments consist primarily of government and
agency bonds, tax exempt municipal bonds and corporate
bonds. The Company accounts for these investments
using Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS NO. 115"). This standard requires that
certain debt and equity securities be adjusted to market
value at the end of each accounting period. Unrealized
market gains or losses will be reported in a separate
component of stockholders' equity. Realized gains and losses
on sales of investments will be determined on a specific
identification basis. At August 31, 1997, all securities
covered under SFAS No. 115 were designated as available for
sale and are stated at market value which approximated
cost.
Cash and short-term investments at August 31, 1997, are
summarized as follows:
<TABLE>
<CAPTION>
Market/Cost
-----------
<S> <C>
Cash and cash equivalents $ 3,224,993
Short-term investments 34,749,980
-----------
Cash and short-term investments $37,974,973
===========
</TABLE>
- 5 -
<PAGE> 7
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AUGUST 31, 1997
(Unaudited)
RESULTS OF OPERATIONS
For the Six Months Ended August 31, 1997:
Consolidated net sales increased 27.1% to $228.1 million in the six
months ended August 31, 1997 as compared to $179.5 million in the comparable
prior year period. The increase is due primarily to increased sales of Nautica
products. Wholesale sales increased primarily due to the expansion of Nautica's
in-store shop program, including both new and expanded shops. The increase in
retail outlet sales is attributable to the opening of new outlet stores and to
an increase in comparable store sales. The increase in sales is primarily due to
increased unit volume rather than price increases.
Consolidated gross profit increased in the six months ended August 31,
1997 to 46.3% of net sales, as compared to 45.5% in the comparable prior year
period. The net increase resulted primarily from a shift to the higher margin
Nautica wholesale products and to an increase in retail outlet sales.
Selling, general and administrative expenses as a percentage of net
sales increased to 31.8% in the six months ended August 31, 1997 as compared to
31.5% in the comparable prior year period. The net increase is due primarily to
higher marketing costs in the period.
Net royalty income increased by $724,000 to $2,306,000 in the six
months ended August 31, 1997 as compared to $1,582,000 in the comparable prior
year period. The increase is a result of increased royalty revenue from new and
existing licenses.
Interest income increased by $270,000 to $1,483,000 in the six months
ended August 31, 1997 as compared to $1,213,000 in the comparable prior year
period. The increase is the result of higher average interest rates.
The provision for income taxes remained constant at 40.0% of earnings
before income taxes for the six month periods ended August 31, 1997 and 1996.
Net earnings increased 34.8% to $22.6 million in the six months ended
August 31, 1997 from $16.7 million in the comparable prior year period as a
result of the factors discussed above.
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<PAGE> 8
For the Three Months Ended August 31, 1997:
Consolidated net sales increased 28.0% to $132.3 million in the three
months ended August 31, 1997 as compared to $103.3 million in the comparable
prior year period. The increase is due primarily to increased sales of Nautica
products. Wholesale sales increased primarily due to the expansion of Nautica's
in-store shop program, including both new and expanded shops. The increase in
retail outlet sales is attributable to the opening of new outlet stores and to
an increase in comparable store sales. The increase in sales is primarily due to
increased unit volume rather than price increases.
Consolidated gross profit increased in the three months ended August
31, 1997 to 46.4% of net sales, as compared to 45.6% in the comparable prior
year period. The net increase resulted primarily from a shift to the higher
margin Nautica wholesale products and to an increase in retail outlet sales.
Selling, general and administrative expenses as a percentage of net
sales increased to 29.2% in the three months ended August 31, 1997 as compared
to 28.6% in the comparable prior year period. The net increase is due primarily
to higher marketing costs in the period.
Net royalty income increased by $301,000 to $1,111,000 in the three
months ended August 31, 1997 as compared to $810,000 in the comparable prior
year period. The increase is a result of increased royalty revenue from new and
existing licenses.
Interest income increased by $165,000 to $674,000 in the three months
ended August 31, 1997 as compared to $509,000 in the comparable prior year
period. The increase is the result of higher average interest rates on slightly
lower average cash balances.
The provision for income taxes remained constant at 40.0% of earnings
before income taxes for the three month periods ended August 31, 1997 and 1996.
Net earnings increased 31.8% to $14.9 million in the three months ended
August 31, 1997 from $11.3 million in the comparable prior year period as a
result of the factors discussed above.
- 7 -
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended August 31, 1997, the Company used cash
related to operating activities of approximately $6.9 million. The cash used was
principally attributable to increases in accounts receivable and inventory of
$31.1 and $26.3 million, respectively, resulting from increased sales levels.
The increases in accounts receivable and inventory were principally offset by
cash generated from net earnings, increases in accounts payable, accrued
expenses and income taxes payable. During the six months ended August 31, 1996,
the Company generated cash from operating activities of approximately $3.0
million. Increases in accounts receivable and inventory of $22.1 and $12.8
million, respectively, resulting from increased sales levels, were financed by
cash generated from net earnings, increases in accounts payable, accrued
expenses and income taxes payable.
During the six months ended August 31, 1997, the Company's principal
investing activities related to the continued expansion of the in-store shop
program. The Company expects to continue to incur capital expenditures to expand
the in-store shop program. At August 31, 1997 there were no other material
commitments for capital expenditures.
During the six months ended August 31, 1997, the Company repurchased
800,000 shares of its common stock. The shares purchased completed the Board
approved stock repurchase plan to repurchase 1,500,000 shares of the Company's
common stock. The remaining shares were purchased at an aggregate cost of $17.9
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 imported inventory and accounts receivable. At August 31,
1997 and February 28, 1997, respectively, letters of credit outstanding under
the lines were $58.9 million and $43.9 million and there were no short-term
borrowings outstanding.
Historically, the Company has experienced its lowest level of sales in
the first quarter and its highest level in the third 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.
INFLATION AND CURRENCY FLUCTUATIONS
The Company believes that inflation and the effect of fluctuations of
the dollar against foreign currencies have not had a material effect on the cost
of imports or the Company's results of operations.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements included in this 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.
- 8 -
<PAGE> 10
PART II
OTHER INFORMATION
Items I through 9. - All items are inapplicable except:
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of Stockholders of Nautica Enterprises, Inc. was
held on June 30, 1997.
(b) The directors named in the Proxy Statement constituting the entire
Board of Directors were elected to one-year terms expiring in 1998, as
follows:
FOR WITHHELD
--- --------
Harvey Sanders 34,518,798 123,092
David Chu 34,518,798 123,092
George Greenberg 34,518,876 123,014
Robert B. Bank 34,518,876 123,014
Israel Rosenzweig 34,518,876 123,014
Charles Scherer 34,518,362 123,528
Ronald G. Weiner 34,518,540 123,350
The Notice of Annual Meeting of Stockholders and Proxy Statement for Nautica
Enterprises, Inc. dated May 30, 1997 was filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Act and is incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
- -----------
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 Statement on
Form S-8 (Registration Number 33-1488), as amended by the Company's
Registration Statement on Form S-8 (Registration Number 33-45823).
- 9 -
<PAGE> 11
10(iii)(b) Registrant's 1989 Employee Incentive Stock Option 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 February 29, 1996.
10(iii)(d) Registrant's 1996 Stock Incentive Plan is incorporated by reference
herein from the Registrant's Annual report on Form 10-K for the year
ended February 28, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None
- 10 -
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NAUTICA ENTERPRISES, INC.
By: /s/ Harvey Sanders
------------------
Harvey Sanders
Chairman of the Board
and President
Date: October 14, 1997
By: /s/ Neal S. Nackman
-------------------
Neal S. Nackman
V.P. Finance and
Chief Accounting Officer
Date: October 14, 1997
- 11 -
<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> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 3,224,993
<SECURITIES> 34,749,980
<RECEIVABLES> 92,388,608
<ALLOWANCES> 1,318,643
<INVENTORY> 87,579,727
<CURRENT-ASSETS> 228,462,920
<PP&E> 68,664,774
<DEPRECIATION> 20,264,568
<TOTAL-ASSETS> 281,885,760
<CURRENT-LIABILITIES> 73,123,911
<BONDS> 0
0
0
<COMMON> 4,181,384
<OTHER-SE> 203,881,525
<TOTAL-LIABILITY-AND-EQUITY> 281,885,760
<SALES> 228,067,042
<TOTAL-REVENUES> 231,856,308
<CGS> 122,368,139
<TOTAL-COSTS> 122,368,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,631,749
<INCOME-TAX> 15,052,700
<INCOME-CONTINUING> 22,579,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,579,049
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
