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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, 1998 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. [X]
On May 22, 1998, 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 $1,024,050,409. As of May 22, 1998,
there were issued and outstanding 39,453,421 shares of the Company's Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Identification of Document Part into which Incorporated
Proxy Statement for Annual Meeting
of Stockholders to be held July 1, 1998. Part III -- Items 10, 11, 12 and 13
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PART I
ITEM 1. BUSINESS
Nautica Enterprises, Inc., a Delaware corporation (the
"Company") designs, sources and markets men's apparel. Men's casual sportswear,
outerwear, activewear, sleepwear and robes are sold under the Nautica brand.
Golf sportswear is sold under the E. Magrath and Byron Nelson brands. These
products feature innovative designs, classic styling, quality fabrics and
functionality.
Nautica's in-store shop program is a significant component of
the Company's wholesale business. 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 collections. 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 outlet stores which provide an additional sales channel for Nautica
products and allows for the organized distribution of excess and out-of-season
merchandise.
The Company strategically extends the Nautica product lines
and broadens the international distribution of the Nautica apparel collection
through license arrangements. The Nautica name is currently licensed for a range
of products consistent with Nautica's design concepts and image. The Nautica
name is also licensed globally to agents or companies for distribution of the
Nautica collection in international regions.
The Company is a majority partner in a limited liability
company to market and distribute Nautica apparel throughout Europe.
PRODUCTS
Nautica
Nautica offers a collection of men's sportswear, outerwear,
activewear, sleepwear and robes. The collection, sold under the Nautica brand,
features innovative designs, classic styling, and quality fabrics. The Nautica
name and trademarks are prominently displayed on Nautica products to promote
brand awareness and maintain consumer loyalty. While 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 designed by Nautica's in-house staff
and is offered in three principal groups: Anchor, Crew and Fashion. Each of the
groups include sportswear, outerwear and activewear. Sportswear includes
sweaters, cardigans, woven shirts, knit shirts, rugbys, pants and shorts.
Outerwear includes parkas, anoraks, bomber jackets and inclement weather gear.
Activewear includes fleece and french terry tops, french terry pants and shorts,
tee shirts and swimwear. The Nautica collection is sold through the Company's
wholly-owned subsidiary, Nautica International, Inc.
The Anchor group consists of basic all season items, including
oxford shirts, cotton pique knit shirts, cotton twill pants, lightweight jackets
and swimwear which are available to retail customers throughout the
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year. The Company maintains an inventory of Anchor products in order to
continuously replenish the stock of its retail customers. Retail customers are
able to reorder 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 offering 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
and 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.
Nautica robes and sleepwear target the same consumer base as
the Nautica sportswear collection, but are typically sold and displayed in the
men's furnishings department of leading department and specialty stores. This
line features quality fabrics, classic styling and design concepts inspired by
the Nautica collections.
The "Nautica Competition" performance apparel collection
features innovative products engineered for both athletes and fitness-oriented
consumers.
The Company also licenses the Nautica name and related
trademarks for a range of products consistent with Nautica's design concepts
and image. See "Licensing."
MARKETING
Nautica's in-store shop program anchors the marketing strategy
of the wholesale business. 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 and are designed to reflect
the Nautica image and lifestyle.
Nautica plans to continue to 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 operates a merchandise coordinator program. 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
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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 GQ, George, L'Uomo Vogue, Men's Health, Men's Journal, The New
Yorker, The New York Times Magazine and Sports Illustrated; 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.
Products are marketed by a regional sales force and sales
representatives through its showrooms in New York City and Dallas, Texas to
leading department and specialty stores. In fiscal year 1998, Dillard
Department Stores, Federated Department Stores and May Department Stores
Company each accounted for approximately 17%, 21% and 24%, 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 its in-house
design staffs. 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 arranges 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 contract
manufacturers are located primarily in Asia. The Company's agent and sourcing
office, based in Hong Kong and Taiwan, respectively, 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 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
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.
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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 arrangements. These license arrangements allow the Company to
enter new businesses and countries with minimal capital commitments and to
benefit from the experience of the licensee with the licensed product or the
local market. The Nautica name and related trademarks are licensed through the
Company's wholly-owned subsidiary, Nautica Apparel, Inc. ("Nautica Licensing").
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 furnishings collection, a denim
collection and a Lincoln-Mercury Villager minivan.
Internationally, Nautica apparel is licensed for sale in,
among other areas and 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 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, is entitled to receive 50% of the net
royalty income from licensing the Nautica name and trademarks. The Company
receives the remaining 50% of such net royalty income. In addition, Mr. Chu is
entitled to receive up to 1.5% of the net sales of certain new products.
RETAIL
The Company operates 58 outlet stores generally located in
outlet centers throughout the United States. The Company's retail operations
are conducted through its wholly-owned subsidiary, Nautica Retail USA, Inc.
These outlet stores have enabled the Company to increase sales in certain
geographic markets where Nautica products were not previously available and
reach 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 outlet stores are geographically positioned to minimize
potential conflict with the Company's retail customers.
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") are
registered trademarks of Nautica Licensing in the United States for apparel and
certain other products, including all licensed products. Application 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.
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, 1998, the Company had approximately 1,700
employees. Approximately 240 of such employees are parties to a collective
bargaining agreement. The Company considers its relations with its employees to
be good.
ITEM 2. PROPERTIES
The Company operates four warehouse and distribution
facilities in Rockland, Maine and one in Irving, Texas. A 350,000 square foot
facility, owned by the Company, is used for receiving, shipping and warehousing
Nautica apparel. A 100,000 square foot facility, also owned by the Company, is
used primarily for receiving, shipping and warehousing Nautica Retail
merchandise. Two leased facilities of approximately 60,000 square feet each and
one leased facility of approximately 25,000 square feet are used for
warehousing a range of the Company's products.
The Company has administrative and sales offices at 40 West
57th Street, New York, New York, where it occupies under lease approximately
48,000 square feet. It also leases a design studio of approximately 44,000
square feet located at 11 East 19th Street, New York, New York. The Company or
its affiliates also leases sales offices in Dallas, Texas and London,
England, one full price retail store and 58 Nautica outlet stores located
throughout the United States. The outlet stores range in size from
approximately 2,400 to 9,300 square feet, and average approximately 3,800
square feet. All of the Company's facilities are deemed by it to be adequate
for the purposes utilized.
ITEM 3. LEGAL PROCEEDINGS
None
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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 1998.
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PART II
ITEM 5. MARKET FOR 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 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 Ended May 31, 1997 28.13 18.63
Second Quarter Ended August 31, 1997 28.50 19.50
Third Quarter Ended November 30, 1997 30.00 23.75
Fourth Quarter Ended February 28, 1998 30.38 20.00
FISCAL 1999
First Quarter (through May 22, 1998) 32.50 24.19
</TABLE>
As of May 15, 1998, there were approximately 403 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
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FEBRUARY 28, February 28, February 29, February 28, February 28,
Amounts in thousands, except per share data 1998 1997 1996 1995 1994
- ------------------------------------------------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Selected consolidated statements of earnings data
Net sales $484,832 $386,560 $302,541 $247,630 $192,939
======== ======== ======== ======== ========
Net earnings $ 56,418 $ 44,040 $ 31,986 $ 23,971 $ 16,804
======== ======== ======== ======== ========
Net earnings per share of common stock
Basic $ 1.44 $ 1.10 $ .81 $ .61 $ .50
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Diluted $ 1.35 $ 1.02 $ .76 $ .58 $ .46
======== ======== ======== ======== ========
Cash dividends per share of common stock NONE None None None None
Selected consolidated balance sheets data
Total assets $310,451 $251,393 $209,340 $168,355 $137,040
Long-term debt, excluding current portion 100 150 200 250 300
Working capital 187,355 156,239 133,912 114,488 95,674
Stockholders' equity 251,169 203,127 173,138 139,300 114,144
</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, 1998 compared to February 28, 1997:
Net sales increased 25.4% to $484.8 million in the fiscal year ended
February 28, 1998 from $386.6 million in the prior fiscal year. This increase is
primarily a result of 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. Nautica
retail sales increased as a result of opening additional outlet stores during
the current year, the full year effect of stores opened in the prior year and an
increase in comparable store sales. The increase in sales is due primarily to
increased unit volume rather than price increases
Gross profit for the year was 47.9% compared to 46.8% of net sales in
the prior year. The increase resulted primarily from a shift to higher margin
wholesale products and to an increase in retail outlet store sales.
Selling, general and administrative expenses as a percentage of net
sales increased to 30.7% from 29.9% in the prior year. The increase is due
primarily to higher general marketing and retail development costs.
Net royalty income increased $1,935,000 to $5,738,000 from $3,803,000
in the prior year. The increased royalty revenue was generated from both new and
existing licensees.
Investment income increased $786,000 to $3,781,000 from $2,995,000 in
the prior year. The increase is primarily the result of higher rates of return
on investments.
The provision for income taxes of 39.6% was comparable to 39.4% in the
prior year.
Net earnings increased 28.1% to $56.4 million from $44.0 million in the
prior year as a result of the factors discussed above.
Fiscal year ended February 28, 1997 compared to February 29, 1996:
Net sales increased 27.8% to $386.6 million from $302.5 million in the
prior year. This increase is the result of increased sales of Nautica products.
Wholesale sales increased due to the expansion of Nautica's in-store shop
program, sales to new retail customers and from sales to additional locations of
existing customers. Retail sales increased as a result of opening additional
outlet stores during the current year, the full year effect of stores opened in
the prior year and an increase in comparable store sales. The increase in sales
is due primarily to increased unit volume rather than price increases.
Gross profit during the year was 46.8% compared to 45.3% of net sales
in the prior year. The increase resulted primarily from a shift to higher margin
wholesale products and to growth in retail outlet operations.
Selling, general and administrative expenses as a percentage of net
sales increased to 29.9% from 29.4% in the prior year. The increase resulted
primarily from the transition into expanded warehouse and distribution
facilities and higher general marketing and retail development costs.
Net royalty income increased $1,555,000 to $3,803,000 from $2,248,000
in the prior year. The increase is a result of increased royalty revenue from
new and existing licensees.
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Investment income increased $474,000 to $2,995,000 from $2,251,000 in
the prior year. The increase is primarily the result of higher cash and cash
equivalent balances.
The provision for income taxes of 39.4% was comparable to 39.6% in the
prior year.
Net earnings increased 37.7% to $44.0 million from $32.0 million in the
prior year as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended February 28, 1998 and February 28, 1997, the
Company generated cash from operating activities of $55.3 million and $39.5
million, respectively. Such cash was principally from net earnings and increases
in accrued expenses and income taxes payable offset by inventory increases in
1998 and 1997 of $4.2 and $7.1 million, respectively, and increases in accounts
receivable of $23.0 and $16.3 million, respectively. The increases in inventory
and accounts receivable in 1998 and 1997 are primarily attributable to the
increased sales volume.
During the year ended February 28, 1998, the Company's principal
investing activities related to the continued expansion of the in-store shop
program and the purchase of short-term investments. The Company expects to
continue to incur capital expenditures to expand the in-store shop program. At
February 28, 1998, there were no other material commitments for capital
expenditures. During the year ended February 28, 1997, 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, 1998, the Board of Directors
approved a stock repurchase program, authorizing the Company to repurchase up to
1,000,000 shares of its common stock from time to time in open market brokerage
transactions. During such year, no repurchases were made under this plan. 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. Repurchases of 800,000 shares at a cost of $17.9 million
and 700,000 shares at a cost of $16.8 million were made during the years ended
February 28, 1998 and 1997, respectively.
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 February 28,
1998 letters of credit outstanding under the lines were $42.3 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 contracts production with manufacturers located primarily
in Asia. These contracts 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 production or the
Company's results of
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operations. There can be no assurance that costs 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 PRONOUNCEMENTS
During 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information". Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows, and will
be limited to the form and content of its disclosures. These statements are
effective for fiscal years beginning after December 15, 1997.
YEAR 2000
The Company recognizes the need to ensure that its systems, applications and
hardware will recognize and process transactions for the year 2000 and beyond.
The Company expects to implement successfully the systems and programming
changes necessary to address year 2000 issues with respect to its internal
systems and does not believe that the cost of such actions will have a material
adverse effect on its results of operations or financial condition. The Company
also has initiated discussions with its significant suppliers, customers and
financial institutions to ensure that those parties have appropriate plans to
remediate year 2000 issues when their systems interface with the Company's
systems or may otherwise impact operations. Although the Company is not aware of
any material operational issues or costs associated with preparing its internal
systems for the year 2000, there can be no assurance that there will not be a
delay in, or increased costs associated with, the implementation of the
necessary systems and changes to address the year 2000 issues. The Company and
it's significant suppliers, customers, and financial institutions' inability to
implement such systems and changes could have an adverse effect on future
results of operations.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements included in this Annual Report, including the words
"believes," "anticipates," "expects," "will" 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements required by Part II, Item 8 are included in Part
IV, Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be held
on July 1, 1998.
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 July 1, 1998.
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 July 1, 1998.
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 July 1, 1998 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.
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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:
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<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets at February 28, 1998 and 1997 F-2
Consolidated Statements of Earnings for each of the three years in the
period ended February 28, 1998 F-4
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended February 28, 1998 F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended February 28, 1998 F-6
Notes to Consolidated Financial Statements F-7 - 21
(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, 1998:
II - Valuation and Qualifying Accounts F-22
</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 a Certificate of
Amendment dated June 29, 1995.
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).
13
<PAGE> 15
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 herein from the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1997.
10(iii)(d) Registrant's Deferred Compensation Plan.
10(iii)(e) Option Agreement and Royalty Agreement, each dated July 1,
1987, by and among the Registrant and David Chu are
incorporated herein by reference from the Registrant's
Registration Statement on Form S-1 (Registration No.
33-21998), and Letter Agreement dated May 1, 1998 between
Mr. Chu and the Registrant.
21 Subsidiaries of Registrant
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
14
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
NAUTICA ENTERPRISES, INC.
We have audited the accompanying consolidated balance sheets of Nautica
Enterprises, Inc. and Subsidiaries as of February 28, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended February 28, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended February 28, 1998, 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, 1998. 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, 1998
F-1
<PAGE> 17
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
FEBRUARY 28, February 28,
ASSETS 1998 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 34,616 $ 71,887
Short-term investments 52,680 --
Accounts receivable - net of allowances of $5,736
in 1998 and $2,759 in 1997 81,135 60,572
Inventories 66,726 61,305
Prepaid expenses and other current assets 4,882 4,306
Deferred tax benefit 6,093 5,775
-------- --------
Total current assets 246,132 203,845
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and amortization 56,273 42,719
OTHER ASSETS 8,046 4,829
-------- --------
$310,451 $251,393
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 18
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
FEBRUARY 28, February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 50 $ 50
Accounts payable - trade 18,743 20,562
Accrued expenses and other current liabilities 34,158 24,780
Income taxes payable 5,826 2,214
-------- --------
Total current liabilities 58,777 47,606
LONG-TERM DEBT - NET 100 150
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 405 510
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, 42,443,000 shares in 1998 and
41,771,000 shares in 1997 4,244 4,177
Additional paid-in capital 64,932 55,502
Retained earnings 217,174 160,756
-------- --------
286,350 220,435
Less
Common stock in treasury at cost; 3,070,000 shares
in 1998 and 2,270,000 shares in 1997 35,181 17,308
-------- --------
251,169 203,127
-------- --------
$310,451 $251,393
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 19
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
FEBRUARY 28, February 28, February 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 484,832 $ 386,560 $ 302,541
Cost of goods sold 252,698 205,552 165,462
------------ ------------ ------------
Gross profit 232,134 181,008 137,079
Selling, general and administrative expenses 149,044 115,476 88,914
Net royalty income (5,738) (3,803) (2,248)
------------ ------------ ------------
Operating profit 88,828 69,335 50,413
Other income
Investment income, net 3,781 2,995 2,521
Minority interest in loss of consolidated subsidiary 785 310
------------ ------------ ------------
Earnings before provision for income taxes 93,394 72,640 52,934
Provision for income taxes 36,976 28,600 20,948
------------ ------------ ------------
NET EARNINGS $ 56,418 $ 44,040 $ 31,986
============ ============ ============
Net earnings per share of common stock
Basic $ 1.44 $ 1.10 $ .81
============ ============ ============
Diluted $ 1.35 $ 1.02 $ .76
============ ============ ============
Weighted average number of common shares outstanding
Basic 39,081,000 39,960,000 39,566,000
============ ============ ============
Diluted 41,729,000 42,969,000 42,282,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 20
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common stock Additional Treasury stock
--------------------- paid-in Retained ---------------------
Shares Amount capital earnings Shares Amount
---------- ------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1995 20,416,000 $ 2,042 $ 53,079 $ 84,730 785,000 $ 550
Net earnings 31,986
Common stock issued on exercise of stock options 261,000 26 887 785,000
Stock split 20,678,000 2,067 (2,068)
Income tax benefit from stock options 939
---------- ------- -------- -------- --------- -------
Balance at February 29, 1996 41,355,000 4,135 52,837 116,716 1,570,000 550
Net earnings 44,040
Common stock issued on exercise of stock options 416,000 42 1,004
Income tax benefit from stock options 1,661
Purchase of treasury stock 700,000 16,758
---------- ------- -------- -------- --------- -------
Balance at February 28, 1997 41,771,000 4,177 55,502 160,756 2,270,000 17,308
Net earnings 56,418
Common stock issued on exercise of stock options 664,000 66 2,686
Income tax benefit from stock options 6,348
Purchase of treasury stock 800,000 17,873
Net unrealized investment gains (net of deferred
taxes) 202
Other common stock issued 8,000 1 194
---------- ------- -------- -------- --------- -------
BALANCE AT FEBRUARY 28, 1998 42,443,000 $ 4,244 $ 64,932 $217,174 3,070,000 $35,181
========== ======= ======== ======== ========= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 21
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
FEBRUARY 28, February 28, February 29,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 56,418 $ 44,040 $ 31,986
Adjustments to reconcile net earnings to net cash
provided by operating activities, net of assets
and liabilities acquired
Minority interest in net loss of consolidated
subsidiary (785) (310)
Deferred income taxes - net (453) (2,138) (1,124)
Depreciation and amortization 10,461 6,272 4,345
Provision for accounts receivable allowances
and sales returns and discounts 3,183 1,386 1,292
Changes in operating assets and liabilities
Accounts receivable (23,035) (16,254) (9,633)
Inventories (4,224) (7,069) (5,359)
Prepaid expenses and other current assets (575) 984 99
Other assets (1,120) (723) (176)
Accounts payable - trade (3,054) 5,122 2,906
Accrued expenses and other current liabilities 8,780 5,639 3,509
Income taxes payable 9,960 2,504 1,720
-------- -------- --------
Net cash provided by operating activities 55,556 39,453 29,565
-------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (22,852) (17,654) (15,907)
Acquisition, net of cash acquired (2,837)
Purchase of short-term investments (52,343)
Payments to register trademark (304) (717) (127)
Long-term investments 5,000 (2,500)
-------- -------- --------
Net cash used in investing activities (78,336) (13,371) (18,534)
-------- -------- --------
Cash flows from financing activities
Proceeds from minority shareholders of
consolidated subsidiary 680 520
Principal payments on long-term debt (50) (50) (50)
Proceeds from issuance of common stock, net 2,752 1,046 913
Purchase of treasury stock (17,873) (16,758)
-------- -------- --------
Net cash (used in) provided by financing activities (14,491) (15,242) 863
-------- -------- --------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (37,271) 10,840 11,894
Cash and cash equivalents at beginning of year 71,887 61,047 49,153
-------- -------- --------
Cash and cash equivalents at end of year $ 34,616 $ 71,887 $ 61,047
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 34 $ 69 $ 46
Income taxes 27,470 28,526 21,301
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 22
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nautica Enterprises, Inc. (the "Company") and Subsidiaries are primarily
engaged in the design, manufacture 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. Short-term Investments
Short-term investments consist primarily of government and agency
bonds, tax-exempt municipal bonds and corporate bonds. The Company
accounts for the marketable securities using Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities." This standard requires that
certain debt and equity securities be adjusted to market value at the
end of each accounting period. Unrealized market gains and losses are
reported in stockholders' equity. Realized gains and losses on sales of
investments are determined on a specific identification basis, and are
included in the consolidated statements of earnings.
F-7
<PAGE> 23
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE A (CONTINUED)
4. 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.
5. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for certain
wholesale inventories and by the first-in, first-out ("FIFO") method
for retail inventories.
Inventories valued using the LIFO method consisting primarily of
finished goods comprised 71% and 85% of consolidated inventories before
LIFO adjustment at February 28, 1998 and 1997, respectively. Had the
Company utilized the FIFO method of accounting for inventory,
inventories would have been higher by $2,757 and $2,419 at February 28,
1998 and 1997, respectively.
6. 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.
7. Other Assets
Included in other assets is an excess of cost over net assets acquired
of approximately $5,234 and $2,272 at February 28, 1998 and 1997,
respectively. These assets are being amortized on a straight-line basis
over twenty- and forty-year periods. Accumulated amortization at
February 28, 1998 and 1997 was $635 and $494, respectively.
F-8
<PAGE> 24
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE A (CONTINUED)
8. 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.
9. Earnings Per Share
As of February 28, 1998, the Company has adopted the provisions of
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share." Basic net earnings per share excludes dilution
and is computed by dividing income available to common shareholders by
the weighted-average common shares outstanding for the period (giving
retroactive effect to the stock splits as described in Note F). Diluted
net earnings per share reflects the weighted-average common shares
outstanding plus the potential dilutive effect of options which are
convertible into common shares. SFAS No. 128 requires restatement of
all prior period earnings per share data presented. The Company's
financial statements reflect this adoption. Dilutive stock options
included in the calculation of diluted weighted average shares were
2,648,000, 3,009,000 and 2,716,000 in 1998, 1997 and 1996,
respectively. The effect of stock options which were excluded from the
calculation of diluted weighted average shares was not material to the
financial statements.
10. Valuation of Long-Lived Assets
The Company continually 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, 1998.
11. Advertising
All costs associated with advertising products are expensed when the
advertising takes place. Costs associated with cooperative advertising
programs, under which the Company generally shares the cost of a
customer's advertising expenditures, are expensed when the related
revenues are recognized. Advertising expenses were $20.2 million in
1998, $15.1 million in 1997 and $12.1 million in 1996.
F-9
<PAGE> 25
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE A (CONTINUED)
12. Reclassifications
Certain amounts in prior years have been reclassified to conform with
classifications used in 1998.
NOTE B - SHORT-TERM INVESTMENTS
Short-term investments consist of securities available for sale at
February 28, 1998 and are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
investment investment Market
Cost gains losses value
------- ---- ---- -------
<S> <C> <C> <C> <C>
Government and agency bonds $ 4,399 $ 34 $ (5) $ 4,428
Tax-exempt municipal bonds 26,955 194 (2) 27,147
Corporate bonds 18,267 123 (7) 18,383
------- ---- ---- -------
Total debt securities 49,621 351 (14) 49,958
Other 2,722 2,722
------- ---- ---- -------
$52,343 $351 $(14) $52,680
======= ==== ==== =======
</TABLE>
Net unrealized investment gains of $337 (less deferred tax of $135)
were credited to stockholders' equity.
The amortized cost and estimated fair value of investments in debt
securities at February 28, 1998, by contractual maturity, were as
follows:
<TABLE>
<CAPTION>
Cost Market Value
---- ------------
<S> <C> <C>
Due within one year $ 6,748 $ 6,752
Due after one year through five years 27,181 27,387
Due after five years through ten years 12,058 12,172
Due after ten years 3,634 3,647
------- -------
Total investments in debt securities $49,621 $49,958
======= =======
</TABLE>
F-10
<PAGE> 26
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE B (CONTINUED)
Included in investment income are sales of investments, which resulted in
gross realized gains of $232 and gross realized losses of $3 in 1998.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land $ 515 $ 515
Building and improvements 12,085 12,057
Machinery, equipment and fixtures 53,795 38,940
Leasehold improvements 8,573 5,716
Construction in progress 3,896 1,482
------- -------
78,864 58,710
Accumulated depreciation and amortization 22,591 15,991
------- -------
$56,273 $42,719
======= =======
</TABLE>
NOTE D - SHORT-TERM BORROWINGS
As of February 28, 1998 and 1997, the Company had $100,000 in lines of
credit, with two commercial banks, available for short-term borrowings and
letters of credit collateralized by imported inventory and accounts
receivable. At February 28, 1998, letters of credit outstanding under the
lines were $42,318 and there were no short-term borrowings outstanding.
F-11
<PAGE> 27
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE E - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Payroll and other employee compensation $ 8,964 $ 7,807
Royalties 1,748 994
Advertising and promotion 15,866 10,819
Accrued rent 1,428 1,084
Other 6,152 4,076
------- -------
$34,158 $24,780
======= =======
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY
On January 8, 1998, the Board of Directors adopted a stock purchase plan
pursuant to which the officers of the Company have been authorized to
purchase up to 1,000,000 shares on the open market. At February 28, 1998,
no repurchases were made under this plan. Under a previously adopted plan,
the Company repurchased 1,500,000 shares during 1998 and 1997.
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.
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 split.
The Certificate of Incorporation, as amended, authorizes the Board of
Directors to issue Preferred Stock, from time to time, in one or more
series, with such voting powers, designations, preferences, and relative,
participating, optional, conversion or other special rights, and such
qualifications, limitations and restrictions, as the Board of Directors
may, in their sole discretion, determine.
F-12
<PAGE> 28
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
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 $7,440 in 1998, $5,604 in 1997 and $4,654 in 1996. At
February 28, 1998, minimum rental commitments under noncancellable
leases are as follows:
<TABLE>
<S> <C>
1999 $ 6,322
2000 6,319
2001 6,125
2002 5,414
2003 5,077
Thereafter 28,254
-------
Total minimum payments required $57,511
=======
</TABLE>
2. Stock Purchase Agreement and Life Insurance Proceeds
The Company is a party to an agreement with the President and the
Executive Vice President of the Company, 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 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.
F-13
<PAGE> 29
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE G (CONTINUED)
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, 1998, the maximum amount payable,
applicable to three individuals, would be approximately $11,500.
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 24%, 21% and 17%, respectively, of sales in
1998, 22%, 19% and 16%, respectively, of sales in 1997, and 18%, 14%
and 15%, respectively, of sales in 1996. 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,
1998.
F-14
<PAGE> 30
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE H - NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." Adoption of these statements will not impact the
Company's consolidated financial position, results of operations or cash
flows, and will be limited to the form and content of its disclosures.
These statements are effective for fiscal years beginning after December
15, 1997.
NOTE I - INCOME TAXES
Significant components of the Company's deferred taxes at February 28, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets (liabilities)
Deferred compensation $ 829 $ 626
Allowance for doubtful accounts and sales
discounts 767 517
Capitalized inventory costs 1,003 1,285
Nondeductible accruals 5,369 3,667
Depreciation (1,740) (320)
Unrealized gain on investments (135)
------- -------
$ 6,093 $ 5,775
======= =======
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current
Federal $ 31,093 $ 25,513 $ 17,603
State and local 6,336 5,226 4,470
Deferred (453) (2,139) (1,125)
-------- -------- --------
$ 36,976 $ 28,600 $ 20,948
======== ======== ========
</TABLE>
F-15
<PAGE> 31
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE I (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>
1998 1997 1996
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 4.4 4.7 5.5
Other .2 (.3) (.9)
------ ------ ------
Actual provision for income taxes 39.6% 39.4% 39.6%
====== ====== ======
</TABLE>
NOTE J - 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 Executive Vice
President of the Company receives 50% of the net royalties received by the
Company with respect to the use of the Nautica name and trademarks. The
Executive Vice President earned royalties of approximately $5,738, $3,803,
and $2,248 in 1998, 1997 and 1996, respectively. In addition, the Executive
Vice President is entitled to receive up to 1.5% of the net sales of
certain new products. At February 28, 1998 and 1997, the amount due to the
Executive Vice President included in accrued expenses and other current
liabilities was approximately $1,630 and $994, respectively. The Executive
Vice 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-16
<PAGE> 32
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE K - MULTIEMPLOYER PENSION PLAN
The Company contributed approximately $165 in 1998, $145 in 1997 and $85 in
1996 to a multiemployer pension 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, 1998, the Company's share of
unfunded vested benefits, if any, was not available from the plan's
administrators.
NOTE L - 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 was $178
in 1998, $169, in 1997 and $173 in 1996.
NOTE M - 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.
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.
F-17
<PAGE> 33
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE M (CONTINUED)
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 2,262,000 shares,
subject to adjustments, of the Company's common stock at a purchase price
of $.87 per share. 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, 1998,
682,000 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 $6,348, $1,661,
and $939 during the years ended February 28, 1998, February 28, 1997 and
February 29, 1996, 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 net earnings per
share would be reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Year ended
----------------------------------------------
FEBRUARY 28, February 28, February 29,
1998 1997 1996
---------- ---------- ------------
<S> <C> <C> <C>
Net earnings
As reported $ 56,418 $ 44,040 $ 31,986
Pro forma 51,558 40,540 30,986
Basic net earnings per share
As reported $ 1.44 $ 1.10 $ .81
Pro forma 1.32 1.01 .78
Diluted net earnings per share
As reported $ 1.35 $ 1.02 $ .76
Pro forma 1.24 .94 .73
</TABLE>
F-18
<PAGE> 34
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(Amounts in thousands, except share data)
NOTE M (CONTINUED)
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, 1998, February 28, 1997 and February 29, 1996, respectively:
expected volatility of 50 percent, 47.7 percent and 46.5 percent; risk-free
interest rates of 5.8 percent, 5.8 percent and 7.1 percent; and expected
lives of seven years.
The table below summarizes the activity in the plans, as adjusted for the
stock splits referred to in Note F:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ------------------------ ---------------------------
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 3,450,000 $ 9.68 3,147,000 $ 5.65 2,877,000 $ 3.58
Granted 820,000 24.46 835,000 21.60 834,000 10.38
Exercised (665,000) 4.14 (416,000) 2.51 (523,000) 1.75
Cancelled (43,000) 21.73 (116,000) 11.55 (41,000) 6.42
--------- --------- ---------
Outstanding at end of
year 3,562,000 13.97 3,450,000 9.68 3,147,000 5.65
========= ========= =========
Exercisable at end of
year 1,381,000 7.45 1,341,000 4.54 1,055,000 3.21
========= ========= =========
Weighted average fair
value of options
granted
during the year 14.34 12.27 6.13
</TABLE>
F-19
<PAGE> 35
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE M (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable stock options at February 28, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------- ------------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life price exercisable price
--------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ .45 - $ 4.45 847,000 4.53 $ 3.41 735,000 $ 3.31
6.22 - 10.38 1,135,000 6.70 9.27 485,000 8.98
20.88 - 26.00 1,580,000 7.47 23.02 161,000 21.67
--------- ----------
3,562,000 1,381,000
========= =========
</TABLE>
NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28
----------- ----------- ----------- -----------
1998
<S> <C> <C> <C> <C>
NET SALES $ 95,807 $ 132,260 $ 145,714 $ 111,051
GROSS PROFIT 44,319 61,380 70,078 56,357
NET EARNINGS 7,671 14,908 20,012 13,827
NET EARNINGS PER SHARE OF COMMON
STOCK
BASIC .20 .39 .51 .35
DILUTED .18 .36 .48 .33
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
BASIC 39,255,000 38,721,000 39,045,000 39,302,000
DILUTED 41,969,000 41,484,000 41,767,000 41,695,000
</TABLE>
F-20
<PAGE> 36
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998, February 28, 1997 and February 29, 1996
(amounts in thousands, except share data)
NOTE N (CONTINUED)
<TABLE>
<CAPTION>
May 31 August 31 November 30 February 28
----------- ----------- ----------- -----------
<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 earnings 5,431 11,315 15,964 11,330
Net earnings per share of common
stock
Basic .14 .28 .40 .28
Diluted .13 .26 .37 .26
Weighted average number of
common shares outstanding
Basic 39,838,000 39,965,000 40,095,000 39,943,000
Diluted 42,819,000 43,001,000 43,229,000 42,825,000
</TABLE>
F-21
<PAGE> 37
Nautica Enterprises, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
--------------
(1) (2)
Charged to
BALANCE AT Charged to other Balance at
BEGINNING costs and accounts - Deductions - end of
Description OF YEAR expenses describe describe (a) period
----------- ------- -------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
YEAR ENDED FEBRUARY 28, 1998
RESERVES DEDUCTED FROM ASSETS TO
WHICH THEY APPLY
ALLOWANCE FOR BAD DEBTS $1,318 $ 748 $ -- $2,066
====== ======= ======= ======
ALLOWANCE FOR SALES RETURNS AND DISCOUNTS $1,441 $2,435 $ 206 $3,670
====== ======= ======= ======
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
====== ======= ======= ======
</TABLE>
(a) Accounts written off as uncollectible.
F-22
<PAGE> 38
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 28, 1998)
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 28, 1998
- ----------------------------------- Chief Executive Officer
Harvey Sanders (Principal Executive
Officer) and Director
/s/ Donald Pennington Chief Financial Officer May 28, 1998
- ----------------------------------- (Principal Financial Officer)
Donald Pennington
/s/ Neal Nackman Vice President Finance May 28, 1998
- ------------------------------------ (Principal Accounting Officer)
Neal Nackman
/s/ David Chu Executive Vice President May 28, 1998
- ----------------------------------- and Director
David Chu
/s/ Robert B. Bank Director May 28, 1998
- -----------------------------------
Robert B. Bank
/s/ Ronald G. Weiner Director May 28, 1998
- -----------------------------------
Ronald G. Weiner
/s/ Israel Rosenzweig Director May 28, 1998
- -----------------------------------
Israel Rosenzweig
</TABLE>
<PAGE> 1
NAUTICA ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN
Effective as of March 1, 1997
<PAGE> 2
Table of Contents
Page
----
ARTICLE I--PURPOSE AND EFFECTIVE DATE.........................................1
ARTICLE II--DEFINITIONS.......................................................1
2.1 Account.....................................................1
2.2 Administrative Committee....................................1
2.3 Beneficiary.................................................1
2.4 Board.......................................................1
2.5 Code........................................................2
2.6 Company.....................................................2
2.7 Compensation................................................2
2.8 Deferral Commitment.........................................2
2.9 Deferral Period.............................................2
2.10 Determination Date..........................................2
2.11 Earnings Index..............................................2
2.12 Elective Deferred Compensation..............................2
2.13 Employer....................................................3
2.14 Financial Hardship..........................................3
2.15 Participant.................................................3
2.16 Participation Agreement.....................................3
2.17 Plan........................................................3
2.18 Rate of Return..............................................3
2.19 Retirement..................................................4
ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS...........................4
3.1 Eligibility and Participation...............................4
3.2 Deferrals...................................................4
3.3 Commitment Limited by Termination...........................4
3.4 Modification of Deferral Commitment.........................5
ARTICLE IV--DEFERRED COMPENSATION ACCOUNTS....................................5
4.1 Accounts....................................................5
4.2 Elective Deferred Compensation..............................5
4.3 Allocation of Elective Deferred Compensation................5
4.4 Employer Discretionary Contributions........................6
4.5 Determination of Accounts...................................6
4.6 Vesting of Accounts.........................................6
4.7 Statement of Accounts.......................................6
i
<PAGE> 3
ARTICLE V---PLAN BENEFITS.....................................................7
5.1 Distributions Prior to Termination of Employment............7
5.2 Distributions Following Termination of Employment...........7
5.3 Benefit Commencement........................................9
5.4 Accelerated Distribution....................................9
5.5 Withholding for Taxes.......................................9
5.6 Payment to Guardian or Others...............................9
ARTICLE VI--BENEFICIARY DESIGNATION...........................................9
6.1 Beneficiary Designation.....................................9
6.2 Changing Beneficiary.......................................10
6.3 Absence of Beneficiary Designation.........................10
6.4 Effect of Payment..........................................10
ARTICLE VII--ADMINISTRATION..................................................10
7.1 Committee; Duties..........................................10
7.2 Agents.....................................................11
7.3 Binding Effect of Decisions................................11
7.4 Indemnity of Committee.....................................11
ARTICLE VIII--CLAIMS PROCEDURE...............................................11
8.1 Claim......................................................11
8.2 Denial of Claim............................................11
8.3 Review of Claim............................................12
8.4 Final Decision.............................................12
ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN................................12
9.1 Amendment..................................................12
9.2 Employer's Right to Terminate..............................12
ARTICLE X--MISCELLANEOUS.....................................................13
10.1 Unfunded Plan..............................................13
10.2 Unsecured General Creditor.................................13
10.3 Trust Fund.................................................13
10.4 Nonassignability...........................................14
10.5 Not a Contract of Employment...............................14
10.6 Protective Provisions......................................14
10.7 Gender, Singular or Plural.................................14
10.8 Governing Law..............................................14
10.9 Validity...................................................14
10.10 Notice.....................................................15
10.11 Successors.................................................15
ii
<PAGE> 4
NAUTICA ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN
ARTICLE I--PURPOSE AND EFFECTIVE DATE
The purpose of this Deferred Compensation Plan is to provide current
tax planning opportunities as well as supplemental funds upon the retirement or
death of certain employees of the Employer. It is intended that the Plan will
aid in attracting and retaining employees of exceptional ability by providing
them with these benefits. The Plan shall be effective as of March 1, 1997.
ARTICLE II--DEFINITIONS
For the purposes of this Plan, the following terms shall have the
meanings indicated, unless the context clearly indicates otherwise:
2.1 ACCOUNT
"Account" means the device used by the Employer to measure and
determine the amounts to be paid to a Participant under the Plan. Separate
subaccounts may be maintained to properly reflect each Participant's balance and
earnings thereon. A Participant's Account shall not constitute or be treated as
a trust fund of any kind.
2.2 ADMINISTRATIVE COMMITTEE
"Administrative Committee" means the committee appointed by the Board
to administer the Plan pursuant to Article VII.
2.3 BENEFICIARY
"Beneficiary" means the person, persons or entity entitled under
Article VI to receive any Plan benefits payable after a Participant's death.
2.4 BOARD
"Board" means the Board of Directors of the Company or a Committee
thereof appointed by the Board.
<PAGE> 5
2.5 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.6 COMPANY
"Company" means Nautica Enterprises, Inc., a Delaware corporation, or
any successor to the business thereof.
2.7 COMPENSATION
"Compensation" means the salary and bonuses payable by the Employer to
a Participant during the Deferral Period and considered to be "wages" for
purposes of federal income tax withholding, before reduction for amounts
deferred under this Plan, salary reduction contributions to a retirement plan
pursuant to Code Section 401(k), or any other arrangements pursuant to which a
Participant defers current Compensation. Compensation shall not include expense
reimbursements, any form of noncash Compensation or benefits, group life
insurance premiums, or any other payments or benefits other than normal
Compensation provided by an Employer.
2.8 DEFERRAL COMMITMENT
"Deferral Commitment" means an election to defer Compensation made by a
Participant pursuant to Article III for which a separate Participation Agreement
has been submitted by the Participant.
2.9 DEFERRAL PERIOD
"Deferral Period" means a calendar year.
2.10 DETERMINATION DATE
"Determination Date" means the last day of each calendar month.
2.11 EARNINGS INDEX
"Earnings Index" means a portfolio or fund selected by the
Administrative Committee to be used as an index in calculating Rate of Return.
2.12 ELECTIVE DEFERRED COMPENSATION
"Elective Deferred Compensation" means the amount of Compensation
(salary and bonus) that a Participant elects to defer pursuant to a Deferral
Commitment.
2
<PAGE> 6
2.13 EMPLOYER
"Employer" means the Company or any successor to the business thereof,
and any affiliated or subsidiary corporations designated by the Administrative
Committee, which agree to participate herein.
2.14 FINANCIAL HARDSHIP
"Financial Hardship" means a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent of the Participant, or other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond the control
of the Participant. The circumstances that will constitute an unforeseeable
emergency will depend upon the facts of each case, but in any case, payment may
not be made to the extent that such hardship is or may be relieved:
(a) Through reimbursement or compensation by insurance or
otherwise,
(b) By liquidation of the Participant's assets, to the extent
the liquidation of such assets would not itself cause severe financial
hardship, or
(c) By cessation of deferrals under the Plan.
2.15 PARTICIPANT
"Participant" means any eligible individual who has elected to defer
Compensation under this Plan.
2.16 PARTICIPATION AGREEMENT
"Participation Agreement" means the agreement submitted by a
Participant to the Administrative Committee prior to the beginning of the
Deferral Period, with respect to a Deferral Commitment for such Deferral Period.
2.17 PLAN
"Plan" means this Deferred Compensation Plan, as amended from time to
time.
2.18 RATE OF RETURN
"Rate of Return" means the amount credited monthly to a Participant's
Account under Article IV. Such rate shall be determined by the Administrative
Committee based upon the net performance of the Earnings Indices selected by the
Participant.
3
<PAGE> 7
2.19 RETIREMENT
"Retirement" means a Participant's voluntary termination of employment
with an Employer on or after the Participant's attainment of age fifty-five
(55).
ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 ELIGIBILITY AND PARTICIPATION
(a) ELIGIBILITY. Eligibility to participate in the Plan shall
be limited to those key employees of Employer who are designated, from
time to time, by the Board.
(b) PARTICIPATION. An eligible employee may elect to
participate in the Plan with respect to any Deferral Period by
submitting a Participation Agreement to the Administrative Committee in
the form required by such Committee by December 31 of the calendar year
immediately preceding the Deferral Period.
(c) PART-YEAR PARTICIPATION. If the Board first designates an
employee as eligible to participate during a Deferral Period, the
Participant must submit a valid Participation Agreement to the
Administrative Committee no later than thirty (30) days following
notification to him of his right to participate. Such Participation
Agreement shall be effective only with regard to Compensation earned or
payable following the date of the Administrative Committee's receipt of
it.
3.2 DEFERRALS
(a) AMOUNT OF DEFERRAL. A Participant may elect to make a
Deferral Commitment of up to 50% of his salary for any Deferral Period
(expressed in the Participation Agreement as a flat percentage or
dollar amount) and up to 100% of any bonus payable to the Participant
during the Deferral Period (expressed in the Participation Agreement as
a flat percentage or dollar amount). Notwithstanding the foregoing, the
minimum salary deferral amount shall be two thousand dollars ($2,000)
per year.
(b) CHANGES IN MINIMUM OR MAXIMUM. The Administrative
Committee may change the minimum or maximum deferral amounts from time
to time by giving written notice to all Participants. No such change
may affect a Deferral Commitment made prior to the Administrative
Committee's action.
3.3 COMMITMENT LIMITED BY TERMINATION
If a Participant's employment with an Employer terminates prior to the
end of a Deferral Period, the Deferral Period and the Deferral Commitment shall
end as of the date of termination.
4
<PAGE> 8
3.4 MODIFICATION OF DEFERRAL COMMITMENT
A Deferral Commitment shall be irrevocable, except that the
Administrative Committee may permit a Participant to reduce the amount to be
deferred, or waive the remainder of a Deferral Commitment upon a finding by the
Committee that the Participant has suffered a Financial Hardship. In making such
determination, the Committee may request any information it deems relevant from
the Participant.
ARTICLE IV--DEFERRED COMPENSATION ACCOUNTS
4.1 ACCOUNTS
For record keeping purposes only, an Account shall be maintained for
each Participant. Separate subaccounts shall be maintained to the extent
necessary to properly reflect the Participant's election of Earnings Indices and
total vested and nonvested Account balances. The Account shall be a bookkeeping
device utilized for the sole purpose of determining the benefits payable under
the Plan and shall not constitute a separate fund of assets.
4.2 ELECTIVE DEFERRED COMPENSATION
A Participant's Elective Deferred Compensation shall be credited to the
Participant's Account at the same time the corresponding nondeferred portion of
the Compensation becomes or would have become payable. Any withholding of taxes
or other amounts with respect to Compensation deferred hereunder which is
required by state, federal or local law shall be withheld from the Participant's
nondeferred Compensation to the maximum extent possible with any excess reducing
the amount to be credited to the Participant's Account.
4.3 ALLOCATION OF ELECTIVE DEFERRED COMPENSATION
(a) At the time a Participant completes a Deferral Commitment
for a Deferral Period, the Participant shall also select the Index or
Indices in which the Participant wishes to have his Elective Deferred
Compensation for such Deferral Period deemed invested. The Participant
may select any combination of Investment Indices as long as at least
five percent (5%), in whole percentages, is credited to each Investment
Index selected.
(b) A Participant may change the percentage allocated to any
Investment Index as of the first day of each calendar quarter, provided
that he has submitted notice of the change at least twenty (20) days
prior to the first day of such quarter. The change may apply to
prospective deferrals only or may include current Account balances.
5
<PAGE> 9
4.4 EMPLOYER DISCRETIONARY CONTRIBUTIONS
While the Employer has no present intention to make any contributions
to a Participant's Account, it reserves the right to do so at any time and from
time to time in such amounts as the Employer may determine in its sole
discretion. Any such contributions shall be credited to the applicable
Participant's Account at such time and in such amounts as the Administrative
Committee in its sole discretion shall determine.
4.5 DETERMINATION OF ACCOUNTS
Each Participant's Account as of each Determination Date shall consist
of the balance of his Account as of the immediately preceding Determination
Date, together with any Elective Deferred Compensation and any discretionary
contributions made since such Determination Date, and any amounts deemed earned
by such Account since such date, less the amount of any distributions made since
such Determination Date.
4.6 VESTING OF ACCOUNTS
Each Participant shall be vested in the amounts credited to his Account
and earnings thereon as follows:
(a) AMOUNTS DEFERRED. A Participant shall be one hundred
percent (100%) vested at all times in his Elective Deferred
Compensation and any earnings thereon.
(b) DISCRETIONARY CONTRIBUTIONS. Any discretionary
contributions made by the Company and any earnings thereon shall vest
at a rate determined by the Administrative Committee which need not be
uniform but which shall be communicated to any Participant for whom a
discretionary contribution is made.
4.7 STATEMENT OF ACCOUNTS
The Administrative Committee shall provide each Participant with a
written statement setting forth the balances in the Participant's Account and
the activity in such Account since the date of the last such statement on an
annual basis and at such other times, if any, as may be determined by the
Committee in its sole discretion.
6
<PAGE> 10
ARTICLE V---PLAN BENEFITS
5.1 DISTRIBUTIONS PRIOR TO TERMINATION OF EMPLOYMENT
A Participant's Account may be distributed to him prior to his
termination of employment as follows:
(a) EARLY WITHDRAWALS. A Participant may elect in a
Participation Agreement to withdraw all or any portion of the amount
deferred (and earnings thereon) pursuant to that Participation
Agreement in a single lump sum as of a date specified in the election.
Such date shall not be sooner than five (5) years after the date the
Deferral Period commences. A Participant may elect to change the
payment amount and/or the payment date in the Participation Agreement
provided, however, that (i) if the Participant's most recent election
was not filed at least two (2) full calendar years prior to the payment
date, payment shall be made in the amount and on the date of the prior
election and (ii) the new payment date shall not be sooner than five
(5) years after the date the Deferral Period commences. For example, in
his 1997 election, a Participant elects to receive his entire account
balance on July 1, 2005. Before December 31, 2000, this Participant
then elects to change his election to receive one-half (1/2) of his
account balance on January 1, 2002 and the other half on July 1, 2005.
Payment will be made pursuant to the new election.
(b) HARDSHIP WITHDRAWALS. Upon a finding that a Participant
has suffered a Financial Hardship, the Administrative Committee may, in
its sole discretion, make distributions from the Participant's Account.
The amount of such a withdrawal shall be limited to the amount the
Administrative Committee determines to be reasonably necessary to meet
the Participant's needs resulting from the Financial Hardship. If any
payment is made due to Financial Hardship, any existing Deferral
Commitment shall be null and void and the Participant shall not be
permitted to make any Deferral Commitment for twelve (12) months. Any
Hardship Withdrawal distribution shall be payable in a single lump sum
within thirty (30) days after the Administrative Committee approves
such payment.
5.2 DISTRIBUTIONS FOLLOWING TERMINATION OF EMPLOYMENT
(a) RETIREMENT BENEFIT.
(i) BENEFIT AMOUNT. If a Participant terminates employment
with the Employer due to Retirement, the Participant shall be entitled
to the then vested balance in his Account.
(ii) FORM OF BENEFIT. Subject to Section 5.2(a)(iii), benefits
under this Section 5.2(a) shall be paid in the form selected by the
Participant from any made available by the Administrative Committee.
Such forms shall include a single lump-sum payment or equal monthly
installments of the Account amortized over a period of up to one
7
<PAGE> 11
hundred and eighty (180) months. If installment payments are elected,
to determine the amount of each monthly payment, the Account shall be
assumed to earn interest at a rate of seven percent (7%) per year for
the installment period unless the Participant selects, and the
Administrative Committee approves, an alternative Rate of Return. The
amount of payment shall be adjusted as of each January 1st, to reflect
the actual Rate of Return during the preceding year so that the
installment payments may vary on a year-to-year basis but will be
exhausted at the end of the installment term.
(iii) SMALL ACCOUNTS. Notwithstanding Section 5.2(a)(ii), if a
Participant's Account is less than ten thousand dollars ($10,000) on
the date of a Participant's Retirement, the amount in his Account shall
be paid in a single lump sum as soon as practicable after his
Retirement date, valued as of the immediately preceding Determination
Date.
(iv) CHANGE IN FORM OF PAYMENT. Notwithstanding the above, a
Participant may elect to file a change of payment designation with the
Administrative Committee, which designation shall supersede any prior
designation in the Participation Agreement for any one (1) or more
Deferral Periods, provided however, that, if the Participant's most
recent change of payment designation was not filed at least two (2)
full calendar years prior to the year in which he retires, the prior
election shall be used to determine the form of payment (e.g., if a
Participant were to retire in 1999, the last day on which he could have
filed an effective change of payment designation would have been
December 31, 1997).
(b) DEATH BENEFIT.
(i) PRERETIREMENT. If a Participant should die while still
employed by the Employer, the Employer shall pay to the Participant's
Beneficiary a lump-sum benefit equal to the vested balance in the
Participant's Account as of the Determination Date immediately
preceding his death.
(ii) POSTRETIREMENT. If a Participant should die following his
Retirement, the Employer shall continue to make any remaining benefit
payments to the Participant's Beneficiary in the form previously
elected by the Participant pursuant to Section 5.2(a)(ii) hereof.
(c) TERMINATION BENEFIT.
If a Participant should terminate employment with the Employer
for any reason other than Retirement or death, the Employer shall make
a single lump-sum payment to the Participant in an amount equal to the
vested balance in the Participant's Account as of the Determination
Date preceding his termination.
8
<PAGE> 12
5.3 BENEFIT COMMENCEMENT
Benefits to be paid hereunder shall commence as soon as practical after
a Participant's termination but in no case more than sixty (60) days thereafter.
5.4 ACCELERATED DISTRIBUTION
Notwithstanding any other provision of the Plan, a Participant shall be
entitled at any time to receive, upon written request to the Administrative
Committee, a lump-sum payment equal to ninety percent (90%) of the vested
balance in his Account as of the Determination Date immediately preceding the
date on which the Administrative Committee receives the written request, payable
in a lump sum within thirty (30) days following the receipt of such Admin-
istrative Committee's notice. The remaining balance in his Account shall be
forfeited by the Participant and the Participant shall not be eligible to
participate in the Plan for a period of one (1) year from the date of
distribution.
5.5 WITHHOLDING FOR TAXES
To the extent required by the law in effect at the time any payments
are made, the Employer shall withhold from payments made hereunder any taxes
required to be withheld by the federal or any state or local government,
including any amounts which the Employer determines are reasonably necessary to
pay any generation-skipping transfer tax which is or may become due. A
beneficiary, however, may elect not to have withholding of federal income tax
pursuant to Section 3405 of the Internal Revenue Code, or any successor
provision thereto.
5.6 PAYMENT TO GUARDIAN OR OTHERS
The Administrative Committee may direct any payment otherwise due to a
Participant or Beneficiary to the duly appointed guardian, conservator, or other
similar legal representative of a Participant or Beneficiary. In the absence of
such a legal representative, the Administrative Committee may, in it sole and
absolute discretion, make payment to a person having the care and custody of a
minor, incompetent or person incapable of handling the disposition of property
upon proof satisfactory to the Administrative Committee of incompetency,
minority, or incapacity. Such distribution shall completely discharge the
Administrative Committee from all liability with respect to such benefit.
ARTICLE VI--BENEFICIARY DESIGNATION
6.1 BENEFICIARY DESIGNATION
Each Participant shall have the right, at any time, to designate a
Beneficiary (both primary as well as contingent) to whom benefits under this
Plan shall be paid if a Participant dies prior to complete distribution to the
Participant of the benefits due under the Plan. Each Beneficiary
9
<PAGE> 13
designation shall be in a written form prescribed by the Administrative
Committee, and will be effective only when filed with the Administrative
Committee during the Participant's lifetime.
6.2 CHANGING BENEFICIARY
Any Beneficiary designation may be changed by a Participant without the
consent of the previously named Beneficiary by the filing of a new Beneficiary
designation with the Administrative Committee. The filing of a new Beneficiary
designation shall cancel all Beneficiary designations previously filed. If a
Participant's Compensation constitutes community property under the laws of any
state, any Beneficiary Designation shall be valid or effective only as permitted
under applicable law.
6.3 ABSENCE OF BENEFICIARY DESIGNATION
In the absence of an effective Beneficiary Designation, or if all
designated Beneficiaries should predecease the Participant or die prior to the
complete distribution of the Participant's benefits, the Participant shall be
deemed to have designated the person or persons in the first of the following
classes in which there is a survivor, share and share alike:
(a) The Participant's surviving spouse;
(b) The Participant's children, except that if any of the
children predecease the Participant but leave issue surviving, then
such issue shall take by right of representation the share their parent
would have taken if living;
(c) The Participant's estate.
6.4 EFFECT OF PAYMENT
Payment to a Beneficiary shall completely discharge the Employer's
obligations under this Plan.
ARTICLE VII--ADMINISTRATION
7.1 COMMITTEE; DUTIES
This Plan shall be administered by the Administrative Committee. The
Administrative Committee shall have the discretion and authority to interpret
and enforce all appropriate rules and regulations for the administration of the
Plan and decide or resolve any and all questions, including interpretation of
the provisions of the Plan, as may arise in such administration. A majority vote
of the Administrative Committee members shall control any decision. Members of
the Administrative Committee may be Participants under this Plan.
10
<PAGE> 14
7.2 AGENTS
The Administrative Committee may, from time to time, employ agents and
delegate to them such administrative duties as it sees fit, and may from time to
time consult with counsel who may be counsel to the Company.
7.3 BINDING EFFECT OF DECISIONS
The decision or action of the Administrative Committee with respect to
any question arising out of or in connection with the administration,
interpretation and application of the Plan and the rules and regulations
promulgated hereunder shall be final, conclusive and binding upon all persons
having any interest in the Plan.
7.4 INDEMNITY OF COMMITTEE
The Company shall indemnify and hold harmless the members of the
Administrative Committee against any and all claims, loss, damage, expense or
liability arising from any action or failure to act with respect to this Plan on
account of such person's service on the Administrative Committee, except in the
case of gross negligence or willful misconduct.
ARTICLE VIII--CLAIMS PROCEDURE
8.1 CLAIM
Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Administrative Committee which shall respond in
writing within thirty (30) days, unless the Committee should need an additional
thirty (30) days, in which event it shall notify such person of such extension
within the initial 30-day period.
8.2 DENIAL OF CLAIM
If the claim or request is denied, the written notice of denial shall
state:
(a) The reason for the denial, with specific reference to the
Plan provisions on which the denial is based.
(b) A description of any additional material or information
required and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
11
<PAGE> 15
8.3 REVIEW OF CLAIM
Any person whose claim or request is denied or who has not received a
response within the initial review period may request review by notice given in
writing to the Administrative Committee. The claim or request shall be reviewed
by the Administrative Committee who may, but shall not be required to, grant the
claimant a hearing. On review, the claimant may have representation, examine
pertinent documents, and submit issues and comments in writing.
8.4 FINAL DECISION
The decision on review shall normally be made within sixty (60) days.
If an extension of time is required for a hearing or other special
circumstances, the claimant shall be notified and the time limit shall be one
hundred twenty (120) days. The decision shall be in writing and shall state the
reason and the relevant plan provisions. All decisions on review shall be final
and bind all parties concerned.
ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN
9.1 AMENDMENT
The Board may amend the Plan at any time by written instrument, notice
of which shall be given to all Participants and to any Beneficiaries to whom a
benefit is due, subject to the following:
(a) PRESERVATION OF ACCOUNT BALANCE. No amendment shall reduce
the amount accrued in any Account to the date such notice of the
amendment is given.
(b) CHANGES IN EARNINGS RATE. No amendment shall reduce the
Rate of Return to be credited after the date of the amendment to the
amount already accrued in any Account and any Deferred Compensation
credited to the Account under Deferral Commitments already in effect on
that date.
9.2 EMPLOYER'S RIGHT TO TERMINATE
The Board may at any time partially or completely terminate the Plan
if, in its judgment, the tax, accounting or other effects of the continuance of
the Plan, or potential payments thereunder would not be in the best interests of
the Employer.
(a) PARTIAL TERMINATION. The Board may partially terminate the
Plan by instructing the Administrative Committee not to accept any
additional Deferral Commitments. If such a partial termination occurs,
the Plan shall continue to operate in accordance with its terms as of
the date of such partial termination, and be effective with regard to
Deferral Commitments entered into prior to such date.
12
<PAGE> 16
(b) COMPLETE TERMINATION. The Board may completely terminate
the Plan through a resolution instructing the Administrative Committee
not to accept any additional Deferral Commitments, and by terminating
all ongoing Deferral Commitments. If such a complete termination
occurs, the Plan shall cease to operate and the Employer shall pay out
each Account. Payment shall be made in substantially equal annual
installments over the following period, based on the Account balance as
of the Determination Date preceding the effective date of the Board's
action:
<TABLE>
<CAPTION>
ACCOUNT BALANCE PAYOUT PERIOD
- -----------------------------------------------------------------
<S> <C>
Less than $100,000 Lump Sum
$100,000 but less than $500,000 3 Years
More than $500,000 5 Years
=================================================================
</TABLE>
PAYMENTS SHALL COMMENCE WITHIN SIXTY (60) DAYS AFTER THE BOARD
TERMINATES THE PLAN AND EARNINGS SHALL CONTINUE TO BE CREDITED ON THE UNPAID
ACCOUNT BALANCE.
ARTICLE X--MISCELLANEOUS
10.1 UNFUNDED PLAN
This plan is an unfunded plan maintained primarily to provide deferred
compensation benefits for a select group of "management or highly-compensated
employees" within the meaning of Sections 201, 301 and 401 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is
exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA.
10.2 UNSECURED GENERAL CREDITOR
Participants and Beneficiaries shall be unsecured general creditors,
with no secured or preferential right to any assets of the Employer or any other
party for payment of benefits under this Plan. Any life insurance policies,
annuity contracts or other property purchased by the Employer in connection with
this Plan shall remain its general, unpledged and unrestricted assets.
Employer's obligation under the Plan shall be an unfunded and unsecured promise
to pay money in the future.
10.3 TRUST FUND
At its discretion, the Employer may establish one (1) or more trusts,
with such trustees as the Employer may approve, for the purpose of providing for
the payment of benefits owed under the Plan. Although such a trust shall be
irrevocable, its assets shall be held for payment of all the Company's general
creditors in the event of insolvency or bankruptcy. To the extent any benefits
provided under the Plan are paid from any such trust, Employer shall have no
further obligation to pay them. If not paid from the trust, such benefits shall
remain the obligation of Employer.
13
<PAGE> 17
10.4 NONASSIGNABILITY
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be unassignable and nontransferable.
No part of the amounts payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
10.5 NOT A CONTRACT OF EMPLOYMENT
This Plan shall not constitute a contract of employment between the
Employer and the Participant. Nothing in this Plan shall give a Participant the
right to be retained in the service of the Employer or to interfere with the
right of the Employer to discipline or discharge a Participant at any time.
10.6 PROTECTIVE PROVISIONS
A Participant will cooperate with the Employer by furnishing any and
all information requested by Employer in order to facilitate the payment of
benefits hereunder, and by taking such physical examinations as Employer may
deem necessary and taking such other action as may be requested by Employer.
10.7 GENDER, SINGULAR OR PLURAL
All pronouns and any variations thereof shall be deemed to refer to the
masculine or feminine, as the identity of the person or persons may require. As
the context may require, the singular may be read as the plural and the plural
as the singular.
10.8 GOVERNING LAW
The provisions of this Plan shall be construed and interpreted
according to the laws of the State of New York, except as preempted by federal
law.
10.9 VALIDITY
In case any provision of this Plan shall be held illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
14
<PAGE> 18
10.10 NOTICE
Any notice required or permitted under the Plan shall be sufficient if
in writing and hand delivered or sent by registered or certified mail. Such
notice shall be deemed as given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification. Mailed notice to the Administrative Committee
shall be directed to the Company's address. Mailed notice to a Participant or
Beneficiary shall be directed to the individual's last known address in
Employer's records.
10.11 SUCCESSORS
The provisions of this Plan shall bind and inure to the benefit of the
Employer and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all of
the business and assets of the Employer, and successors of any such corporation
or other business entity.
NAUTICA ENTERPRISES, INC.
By:/s/
_____________________________
Its
Dated:__________________________
15
<PAGE> 1
EXHIBIT 10(iii)(e)
[NAUTICA ENTERPRISES, INC. LETTERHEAD]
May 1, 1998
Mr. David Chu
Nautica International, Inc.
11 West 19th Street
11th Floor
New York, New York 10011
Dear David:
This letter sets forth our agreement concerning the sale of certain new apparel
products bearing the "Nautica" trademark in the United States by Nautica
Enterprises, Inc., or one or more of its wholly-owned subsidiaries
(collectively, "Nautica") directly to third parties (the "Third Parties").
Except as provided below, Nautica will pay you a continuing regular payment in
the amount of 1.5% of the "Included Net Sales" of any "Included Products" which
are part of an "Included Line" after such Included Line becomes profitable to
Nautica, for any fiscal year of Nautica, for so long as such Included Products
and/or Included Lines are sold by Nautica to Third Parties (the "Payment").
Included Net Sales will mean gross sales (after deducting returns) of Included
Products by Nautica sold directly at wholesale (or as provided below at retail)
to Third Parties after the date hereof. The "Included Products" will only
include apparel products bearing the "Nautica" trademark and included only in
the lines listed below (the "Included Lines"): [confidential-filed with SEC].
The Payment for Included Net Sales by Nautica of any Included Product sold to a
Third Party at a discount of more than 20% shall be .75% of the Included Net
Sales.
In the event that an Included Line is profitable to Nautica for any fiscal year
and becomes unprofitable to Nautica for any subsequent fiscal year(s), the
Payment made to you for any and all such future unprofitable years shall be
reduced to .75% of the Included Net Sales.
No Payment shall be made with respect to retail sales by Nautica. However, if in
any fiscal year an Included Line is profitable to Nautica at retail but not
profitable to Nautica at wholesale, then for such year (i) you will be entitled
to a payment of .75% of the Included Net Sales at retail of the included
Products which are part of such Included Line and (ii) you will not be entitled
to any Payment of the Included Net Sales at wholesale.
In the event that an Included Line is not profitable for any three consecutive
fiscal years after its introduction by Nautica, such Included Line shall no
longer be an Included Line for purposes of this letter.
Nautica agrees to account for each of the Included Lines in such manner that a
detailed accounting of each Included Product and Included Line shall be provided
to you quarterly.
It is our intention that this letter shall maintain the status quo concerning
our respective rights to any intellectual property, including rights to any
Nautica names or trademarks. Accordingly, (i) nothing in this letter will modify
any such respective rights and (ii) neither you nor Nautica will submit, or
refer to, this letter, or any of its terms, in any legal proceeding relating to
such respective rights.
This letter shall be binding upon Nautica and any successors to all or
substantially all of the assets and business of Nautica.
<PAGE> 2
This agreement constitutes the entire agreement between the parties with respect
to the matters referred to herein.
Very truly yours,
NAUTICA ENTERPRISES, INC.
By: /s/ Harvey Sanders
------------------
Agreed:
/s/ David Chu
- -------------
<PAGE> 1
EXHIBIT 21
Parent Corporation Subsidiary and Place of Incorporation
Nautica Enterprises, Inc. Nautica International, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Apparel, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Retail USA, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Furnishings, Inc.
(Delaware)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated April 17, 1998, 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, 1998. We hereby consent to the incorporation by
reference of said report in the Registration Statements of Nautica Enterprises
Inc. (formerly State-O-Maine, Inc.) on Form S-8 (Registration Nos. 33-1488;
33-45823 and 33-36040).
GRANT THORNTON LLP
New York, New York
May 27, 1998
<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-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 34,616,094
<SECURITIES> 52,679,555
<RECEIVABLES> 86,870,986
<ALLOWANCES> (5,736,000)
<INVENTORY> 66,726,258
<CURRENT-ASSETS> 246,131,165
<PP&E> 78,864,135
<DEPRECIATION> (22,590,493)
<TOTAL-ASSETS> 310,451,324
<CURRENT-LIABILITIES> 58,776,568
<BONDS> 0
0
0
<COMMON> 4,244,284
<OTHER-SE> 246,925,146
<TOTAL-LIABILITY-AND-EQUITY> 310,451,324
<SALES> 484,832,174
<TOTAL-REVENUES> 494,350,675
<CGS> 252,697,634
<TOTAL-COSTS> 252,697,634
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 93,394,024
<INCOME-TAX> 36,976,040
<INCOME-CONTINUING> 56,417,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,417,984
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.35
</TABLE>
