<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 November 30, 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 January 13, 1998
was 39,287,971.
<PAGE> 2
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOVEMBER 30, 1997
(Unaudited)
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information:
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
As of November 30, 1997 and February 29,
1997................................................................... 2
Condensed Consolidated Statements of Earnings
For the Nine and Three Month Periods Ended
November 30, 1997 and
1996................................................................... 3
Condensed Consolidated Statements of Cash Flows
For the Nine Month Periods Ended
November 30, 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
</TABLE>
<PAGE> 3
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
ASSETS
November 30, February 29,
1997 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 64,057,526 $ 71,887,201
Accounts receivable - net 96,228,733 60,571,809
Inventories 68,159,266 61,304,697
Prepaid expenses and other current assets 7,347,665 4,306,521
Deferred tax benefit 5,774,938 5,774,938
------------ ------------
Total current assets 241,568,128 203,845,166
Property, plant and equipment, net of
accumulated depreciation and amortization 53,920,361 42,719,253
Other assets 7,819,579 4,828,663
------------ ------------
$303,308,068 $251,393,082
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 50,000 $ 50,000
Accounts payable - trade 22,876,508 20,562,099
Accrued expenses and other current liabilities 36,636,719 24,779,371
Income taxes payable 12,875,512 2,213,591
------------ ------------
Total current liabilities 72,438,739 47,605,061
Long-term debt -net 100,000 150,000
Minority interest 384,030 510,157
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
42,358,041 shares at November 30, 1997 and 41,770,841 shares at
February 28, 1997 4,235,804 4,177,084
Additional paid-in capital 58,057,159 55,502,729
Retained earnings 203,273,208 160,756,735
------------ ------------
265,566,171 220,436,548
Less:
Common stock in treasury - at cost;
3,070,070 shares at November 30, 1997
and 2,270,070 at February 28, 1997 35,180,872 17,308,684
------------ ------------
Total stockholders' equity 230,385,299 203,127,864
------------ ------------
$303,308,068 $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>
Nine Months Ended Three Months Ended
November 30, November 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 373,780,791 $ 296,050,473 $ 145,713,749 $ 116,569,759
Cost of goods sold 198,003,835 159,645,282 75,635,696 61,862,130
------------- ------------- ------------- -------------
Gross profit 175,776,956 136,405,191 70,078,053 54,707,629
Selling, general and administrative expenses 112,132,417 86,661,608 39,684,782 30,078,589
Net royalty (income) (4,107,575) (2,809,418) (1,801,471) (1,227,017)
------------- ------------- ------------- -------------
Operating profit 67,752,114 52,553,001 32,194,742 25,856,057
Interest income 2,377,548 1,964,226 894,387 750,672
Minority interest in loss of
consolidated subsidiary 806,127 -- 214,910 --
------------- ------------- ------------- -------------
Earnings before provision for income taxes 70,935,789 54,517,227 33,304,039 26,606,729
Provision for income taxes 28,344,316 21,806,891 13,291,616 10,642,691
------------- ------------- ------------- -------------
NET EARNINGS $ 42,591,473 $ 32,710,336 $ 20,012,423 $ 15,964,038
============= ============= ============= =============
Earnings per share of common stock $ 1.02 $ 0.76 $ 0.48 $ 0.37
============= ============= ============= =============
Weighted average number of shares of common and
common equivalent shares outstanding 41,925,684 43,253,975 41,785,920 43,252,574
============= ============= ============= =============
Cash dividends per common share none none none none
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 5
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 42,591,473 $ 32,710,336
------------ ------------
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Minority interest in loss of consolidated subsidiary (806,127) --
Depreciation and amortization 7,024,079 4,894,974
Provision for accounts receivable allowances and sales
returns and discounts 759,397 354,496
Changes in operating assets and liabilities
Accounts receivable (35,704,785) (28,918,758)
Inventories (5,657,460) (3,156,074)
Prepaid expenses and other current assets (3,041,144) 1,384,300
Other assets (684,081) (1,340,588)
Accounts payable 1,119,239 5,099,975
Accrued expenses and other current liabilities 11,163,453 7,635,776
Income taxes payable 10,661,921 4,827,347
------------ ------------
Total adjustments (15,165,508) (9,218,552)
------------ ------------
Net cash provided by operating activities 27,425,965 23,491,784
------------ ------------
Cash flows from investing activities:
Proceeds from minority shareholders of consolidated subsidiary 680,000 --
Acquisition, net of cash acquired (2,948,178) --
Purchase of property, plant and equipment (17,678,424) (12,424,270)
Purchase of short-term investments (58,462,684) 4,800,000
------------ ------------
Net Cash used in investing activities (78,409,286) (7,624,270)
------------ ------------
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 2,613,150 999,891
------------ ------------
Net cash (used in) provided by financing activities (15,309,038) 949,891
------------ ------------
(Decrease) increase in cash and cash equivalents (66,292,359) 16,817,405
Cash and cash equivalents at beginning of period 71,887,201 61,047,522
------------ ------------
Cash and cash equivalents at end of period $ 5,594,842 $ 77,864,927
Short-term investments at end of period 58,462,684 --
------------ ------------
Cash and short-term investments at end of period $ 64,057,526 $ 77,864,927
------------ ------------
Supplemental Information:
Cash payments for the periods ended:
Interest expense $ 11,978 $ 15,409
------------ ------------
Income taxes $ 17,699,653 $ 16,975,046
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE> 6
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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 nine and three-month periods
ended November 30, 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 November 30, 1997 and February 28, 1997 and for the
nine and three month periods ended November 30, 1997 and 1996. The
"Lifo" inventory for the nine and three-month periods ended November
30, 1997 and 1996 are based upon end of year estimates. Inventories at
November 30, 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 November 30, 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 November 30, 1997, are summarized as
follows:
<TABLE>
<CAPTION>
Market/Cost
-----------
<S> <C>
Cash and cash equivalents $ 5,594,842
Short-term investments 58,462,684
-----------
Cash and short-term investments $64,057,526
===========
</TABLE>
-5-
<PAGE> 7
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NOVEMBER 30, 1997
(Unaudited)
RESULTS OF OPERATIONS
For the Nine Months Ended November 30, 1997:
Consolidated net sales increased 26% to $373.8 million in the nine
months ended November 30, 1997 as compared to $296.1 million in the comparable
prior year period. The increase is due primarily to increased sales of Nautica
products. Wholesale sales increased due to the expansion of Nautica's in-store
shop program, including both new and expanded shops as well as increases in
existing 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 nine months ended November
30, 1997 to 47.0% of net sales, as compared to 46.1% 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 30.0% in the nine months ended November 30, 1997 as compared
to 29.3% in the comparable prior year period. The net increase is due primarily
to higher marketing and retail development costs in the period.
Net royalty income increased by $1,299,000 to $4,108,000 in the nine
months ended November 30, 1997 as compared to $2,809,000 in the comparable prior
year period. The increase is a result of increased royalty revenue from new and
existing licenses.
Interest income increased by $414,000 to $2,378,000 in the nine months
ended November 31, 1997 as compared to $1,964,000 in the comparable prior year
period. The increase is the result of higher average rates of return on
investments.
The provision for income taxes remained constant at 40.0% of earnings
before income taxes for the nine-month periods ended November 30, 1997 and 1996.
Net earnings increased 30% to $42.6 million in the nine months ended
November 30, 1997 from $32.7 million in the comparable prior year period as a
result of the factors discussed above.
-6-
<PAGE> 8
For the Three Months Ended November 30, 1997:
Consolidated net sales increased 25% to $145.7 million in the three
months ended November 30, 1997 as compared to $116.6 million in the comparable
prior year period. The increase is due primarily to increased sales of Nautica
products. Wholesale sales increased due to the expansion of Nautica's in-store
shop program, including both new and expanded shops as well as increases in
existing 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 November
30, 1997 to 48.1% of net sales, as compared to 46.9% 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 27.2% in the three months ended November 30, 1997 as compared
to 25.8% in the comparable prior year period. The net increase is due primarily
to higher marketing and retail development costs in the period.
Net royalty income increased by $574,000 to $1,801,000 in the three
months ended November 30, 1997 as compared to $1,227,000 in the comparable prior
year period. The increase is a result of increased royalty revenue from new and
existing licenses.
Interest income increased by $143,000 to $894,000 in the three months
ended November 30, 1997 as compared to $751,000 in the comparable prior year
period. The increase is the result of higher average rates of return on
investments 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 November 30, 1997 and
1996.
Net earnings increased 25% to $20.0 million in the three months ended
November 30, 1997 from $16.0 million in the comparable prior year period as a
result of the factors discussed above.
- 7 -
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended November 30, 1997, the Company generated
cash related to operating activities of approximately $27.4 million. Increases
in accounts receivable and inventory of $35.7 and $5.7 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 nine months ended November 30, 1996, the Company generated
cash from operating activities of approximately $23.5 million. Increases in
accounts receivable and inventory of $28.9 and $3.2 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 nine months ended November 30, 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 November 30, 1997 there were no other material
commitments for capital expenditures.
During the nine months ended November 30, 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. In January 1998, the Board of Directors authorized the Company to
repurchase up to an additional 1,000,000 shares.
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 November 30,
1997, letters of credit outstanding under the lines were $39.2 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
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
herein 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's 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 Registrant's Registration
Statement on Form S-8 (Registration Number 33-45823).
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
</TABLE>
- 9 -
<PAGE> 11
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: January 13, 1998
By: /s/ Neal S. Nackman
--------------------------------
Neal S. Nackman
V.P. Finance and
Chief Accounting Officer
Date: January 13, 1998
- 10 -
<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> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 5,594,842
<SECURITIES> 58,462,684
<RECEIVABLES> 98,306,683
<ALLOWANCES> 2,077,950
<INVENTORY> 68,159,266
<CURRENT-ASSETS> 241,568,128
<PP&E> 76,388,709
<DEPRECIATION> 22,468,348
<TOTAL-ASSETS> 303,308,068
<CURRENT-LIABILITIES> 72,438,739
<BONDS> 0
0
0
<COMMON> 4,235,804
<OTHER-SE> 226,149,495
<TOTAL-LIABILITY-AND-EQUITY> 303,308,068
<SALES> 373,780,791
<TOTAL-REVENUES> 380,265,914
<CGS> 198,003,835
<TOTAL-COSTS> 198,003,835
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70,935,789
<INCOME-TAX> 28,344,316
<INCOME-CONTINUING> 42,591,473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,591,473
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
