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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
FOR THE FISCAL YEAR ENDED FEBRUARY 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-0708
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
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock
par value $.10 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On May 12, 1999, 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 $424,802,544. As of May 12, 1999, there
were issued and outstanding 34,572,721 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, 1999. Part III -- Items 10, 11, 12 and 13
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PART I
ITEM 1. BUSINESS.
Nautica Enterprises, Inc., a Delaware corporation (together
with its subsidiaries, the "Company"), through its subsidiaries, designs,
sources, markets and distributes apparel under the following brands: Nautica;
Nautica Competition; NST-Nautica Sport Tech; Nautica Jeans Company; E. Magrath;
and, Byron Nelson. These products feature innovative designs, classic styling,
quality fabrics and functionality.
The Company's in-store shop programs for the Nautica, Nautica
Competition, NST- Nautica Sport Tech and Nautica Jeans collections are an
integral part of the Company's marketing strategy for its wholesale business.
Through this program, the Company and a department store customer create a
specific area within the store dedicated to the exclusive merchandising and sale
of the Nautica, Nautica Competition or Nautica Jeans Company collections, as the
case may be. Each of these shops are outfitted with signature fixtures
consistent with the image of each of the brands and present the collections in
an integrated, visually attractive environment.
In addition to its wholesale business, the Company operates
outlet stores that 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 brands 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.
BRANDS AND PRODUCTS
Nautica
Through the Nautica brand the Company offers a collection of
men's sportswear, outerwear and activewear. The Nautica collection 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, like all of the Company's
brands, by an in-house design and merchandising staff. Products in the Nautica
collection include the following: sportswear -- sweaters, cardigans, woven
shirts, knit shirts, rugbys, pants and shorts; outerwear -- parkas, anoraks,
bomber jackets and inclement weather gear in various fabrications; activewear --
fleece and french terry tops, fleece and french terry pants and shorts, tee
shirts and swimwear; and caps. The Nautica collection is sold through the
Company's wholly-owned subsidiary, Nautica International, Inc.
Nautica maintains an inventory of basic, all year items in
order to allow the continuous replenishment of such stock to its retail
customers. Such items include denim shirts, cotton pique knit and tee shirts,
cotton twill and nylon pants, lightweight jackets, swimwear and french terry
tops and bottoms. Retail customers are able to reorder these products throughout
the year via electronic data interchange.
The Nautica collections are presented during Nautica's four
merchandising seasons, with approximately three deliveries in each season. The
first collection delivery of the Spring, Transitional, Fall and Holiday seasons
represents core and key items. These are Nautica's classic products that are
engineered to create a
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strong visual presentation based on volume and color impact. Typically, these
items are offered using six to ten different colors per style. The remaining
deliveries within each merchandising season are based on seasonal themes
developed by Nautica's design and merchandising staffs and are distinguished by
their distinctive use of color, novelty prints and innovative fabrics and unique
design elements. Each of the deliveries are developed to be merchandised
together as a cohesive Nautica collection.
Nautica Competition
The Nautica Competition brand, which was introduced by the
Company in 1996, features active-inspired apparel products with colorful
graphics and bold logos using performance and activewear fabrics. The Nautica
Competition name and trademarks are prominently displayed on the products and in
its marketing. While the collection is targeted to a somewhat younger age group
than the Nautica collection, the Company believes that such products also appeal
to the Nautica customer.
The Nautica Competition collection includes activewear,
outerwear and caps. Activewear includes fleece and french terry tops, french
terry pants and shorts, performance fleece, tee shirts and swimwear. Outerwear
includes parkas, anoraks, bomber jackets and inclement weather gear. The Nautica
Competition products that are offered on a year round basis through the
Company's automatic replenishment program include fleece and french terry tops
and bottoms. The collection is sold through the Company's wholly-owned
subsidiary, Nautica International, Inc.
The Nautica Competition collections are presented during four
merchandising seasons, with approximately two deliveries in each season. All
deliveries are based on seasonal athletic themes developed by the Company's
in-house design and merchandising staffs and are distinguished by the use of
bold graphics, color and innovative fabrics and styling details.
NST--Nautica Sport Tech
Through the NST--Nautica Sport Tech brand the Company offers a
collection of young men's activewear and outerwear. Launched in Spring 1999,
this line of authentic athleticwear is designed to appeal to the dedicated young
athlete by combining "street" style and performance features. While NST has a
"look and attitude" all its own, it is true to the Nautica heritage of
authenticity, integrity and value-added detailing.
The NST collections includes activewear, outerwear and caps.
Activewear includes fleece and french terry tops, fleece and french terry pants
and shorts, performance fleece fabrics and tee shirts. Outerwear includes
parkas, anoraks and bomber jackets. NST is targeted to a youthful age group. It
is sold through the Company's wholly-owned subsidiary, Nautica Sport Tech, Inc.
The NST collections are presented in four merchandising
seasons with approximately two deliveries. The deliveries are based on youth
culture sporting themes. The products are color driven with high tech details,
logo brand identification and use of technical and performance fabrics.
Nautica Jeans Company
Through the Nautica Jeans Company brand, which will be
introduced for Fall 1999, the Company offers a denim-based collection of men's
apparel, including woven shirts, knits, bottoms and outerwear. Knits include
sweaters, tee shirts and activewear; bottoms include denim jeans, casual pants,
denim shorts and casual shorts; and, outerwear includes lightweight,
transitional weight and down outerwear. The products of the Nautica Jeans
Company are targeted to the 16-35 year old age group and feature detailing based
upon authentic workwear. The Nautica Jeans Company expects to launch a
denim-based collection of ladies apparel in fiscal year 2000, which will include
most of the products offered in the men's collection, plus skirts and dresses.
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The Nautica Jeans Company's collections are presented in
eleven fashion deliveries with four key item deliveries. Each delivery includes
products that are merchandised together, using colorations, labels, patches and
intriguing fabrics. The Nautica Jeans Company products that are offered on a
year round basis through the Company's automatic replenishment program include
four basic jeans offered in four different fits and three to five different
washes/rinses, and tee shirts. The collection is sold through the Company's
wholly-owned subsidiary, Nautica Jeans Company.
Nautica Robes and Sleepwear
The Nautica robes and sleepwear collection for men includes
boxer shorts, jams, night shirts, henley's camp shirts, nightshirts and pull on
pants. In 1999, the Company introduced a Nautica robes and sleepwear collection
for ladies, capitalizing on the success of its men's robes and sleepwear line.
The collection includes pajamas, knit tops and pants, drawstring shorts,
chemise, gowns and night shirts. The men's sleepwear collection includes boxer
shorts, jams, night shirts, henley's, camp shirts, nightshirts and pull on
pants. The Nautica men's and ladies robes and sleepwear collections are sold
through the Company's wholly-owned subsidiary, Nautica Furnishings, Inc.
The Nautica robes and sleepwear collections are presented in
four merchandising seasons with monthly deliveries. The deliveries are
distinguished by fabrications, use of color, pattern and prints, and styling. In
addition, certain of the products are offered through the Company's automatic
replenishment program.
E. Magrath and Byron Nelson
Through the E. Magrath Apparel Company, a wholly-owned
subsidiary of the Company, the Company offers the E. Magrath and Byron Nelson
golf sportswear collections. Each collection includes knit shirts, woven shirts,
trousers, shorts, lightweight outerwear and windshirts, and are targeted to
consumers for on and off golf course wear. The Byron Nelson label, which is
licensed by the Company, is displayed on the products offered in the Byron
Nelson collections. These collections are presented in two lines each year and
are sold through better country clubs and resorts nationwide.
Other Activities
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
The Company concentrates its marketing efforts on national and
regional print and outdoor advertising. The advertising captures the images of
each of its brands in environments that reflect the lifestyle approach of each
collection. The Company's advertising campaigns are featured throughout the year
in national magazines, including Conde Nast Traveler, GQ, L'Uomo Vogue, Men's
Health, The New Yorker, The New York Times Magazine, Sports Illustrated and
Vanity Fair; and, in regional magazines. The Company also advertises its brands
utilizing outdoor media, including bus shelters, bus panels and billboards. In
addition, the Company participates with its retail customers in a cooperative
advertising program. The print advertising is supplemented by a series of
special events and sports sponsorships. With the introduction of NST and Nautica
Jeans Company, the Company's marketing efforts are expanding to include outdoor
advertising, media tie-ins, websites and grass roots advertising.
The Company's in-store shop programs for the Nautica, Nautica
Competition and Nautica Jeans Company collections are an integral part of the
Company's marketing strategy of its wholesale businesses. Through
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this program, the Company and a department store customer create a specific area
within the store dedicated to the exclusive merchandising and sale of the
Nautica , Nautica Competition or Nautica Jeans Company collections, as the case
may be. Each of these shops, strategically located in the collections
departments of leading department stores, are outfitted with signature fixtures
consistent with the image of each of the brands and present the collections in
an integrated, visually attractive environment.
The Company plans to continue to expand its in-store shop
program in department stores which currently sell the Nautica, Nautica
Competition and Nautica Jeans Company collections and to install such shops in
additional retail locations. The continued development of the Company's in-store
shop program is dependent on general apparel industry conditions, continued
participation by retail customers and continued demand by consumers for the
Company's collections.
In fiscal 1996, the Company expanded the Nautica in-store shop
program to include shops featuring the Nautica Competition brand of apparel.
These shops feature high tech materials accented with aluminum and glass and
athletic inspired photographs. In fiscal 2000, Nautica Jeans Company will open
its first in-store shops. The Nautica Jeans Company in-store shops will feature
wooden floors and metal, glass and copper design elements meant to evoke the
image of an old deserted knitting factory and to enable the consumer to see what
sets the products of the Nautica Jeans Company apart from its competitors -
great fit, engineering, fabric details and rinses/washes.
In order to maximize the effectiveness of the Company's
in-store shop program, the Company operates a merchandise coordinator program.
Each of the Company'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
the Company's 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 product features, sales
methods and shop management. They also provide sales information to the
Company's retail analysts who monitor retail performance and develop plans to
assist these retail customers with future purchases of Company products.
Management believes that the performance of the Company's in-store shops is
enhanced by the close interaction of its merchandise coordinators with its
retail customers.
Company 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 speciality stores. In addition, NST is marketed to
specialty athletic stores, and E. Magrath and Byron Nelson are marketed to golf
shops at better country clubs and resorts. In fiscal year 1999, Dillard
Department Stores, Federated Department Stores and May Department Stores Company
each accounted for approximately 18%, 19% and 22%, 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
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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 fabrics from certain vendors,
could have a material adverse effect on the Company's business and operating
results. The Company does not have any long-term commitments with fabric
suppliers.
The Company contracts to purchase its goods in United States
dollars and has not experienced material difficulties as a result of foreign
political, economic or social instability. However, the Company's business
remains subject to the usual risks associated with foreign suppliers.
LICENSING
The Company strategically extends the Nautica product line and
broadens the international distribution of the Nautica apparel collection
through license 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, footwear, watches, hosiery, eyewear, rainwear,
infants', girls' and boys' apparel, leather belts, wallets and accessories,
umbrellas, a home furnishings collection, gloves, scarves, mufflers and hankies,
and dress shirts.
Internationally, Nautica apparel currently is licensed for
sale in Argentina, Australia, Brazil, Canada, Chile, Colombia, Europe, Greece,
Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Panama,
Philippines, Singapore, Taiwan, Thailand, United Arab Emirates and Uruguay. 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. Through a separate
arrangement, Mr. Chu is entitled to receive up to 1.5% of the net sales of
certain new products.
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OUTLET RETAIL
The Company operates 78 outlet stores generally located in
outlet centers throughout the United States. The Company's outlet retail
operations are conducted through its wholly-owned subsidiary, Nautica Retail
USA, Inc. These outlet retail 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 retail 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 second and third quarters and its lowest level in the first and
fourth quarters. This pattern has resulted primarily from the timing of
shipments to retail customers for Spring, Summer, Fall and Holiday seasons. In
the future, the timing of seasonal shipments may vary by quarter.
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 100 countries throughout the world for
apparel and in other complementary product categories.
In addition to the Nautica Marks, the Company has registered
or is in the process of registering the following trademarks in the United
States and certain other countries for apparel and certain other products:
Nautica Competition, NST-Nautica Sport Tech, and Nautica Jeans Company.
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 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 27, 1999, the Company had approximately 2,266
employees. Approximately 250 of such employees are parties to a collective
bargaining agreement. The Company considers its relations with its employees to
be good.
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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 and a 100,000 square foot facility, both owned by the Company, are used
for receiving, shipping and warehousing the Company's products. Two leased
facilities of approximately 60,000 square feet each and one leased facility of
approximately 25,000 square feet are used for warehousing the Company's
products.
In fiscal year 2000, the Company entered into a lease for
150,000 square feet of warehouse space in Edison, New Jersey. This facility will
be used for receiving, shipping and warehousing Nautica outlet retail
merchandise. The facility previously used for the retail outlet business will be
used for other Company products.
The Company has administrative and sales offices at 40 West
57th Street, New York, New York, where it occupies under lease approximately
66,000 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 78 Nautica retail outlet stores located
throughout the United States. The retail 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
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 1999.
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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 the NASDAQ
National Market System.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
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 Ended May 30, 1998 $32.50 $24.19
Second Quarter Ended August 29, 1998 32.00 22.00
Third Quarter Ended November 28, 1998 22.94 15.10
Fourth Quarter Ended February 27, 1999 20.12 13.25
FISCAL 1999
First Quarter (through May 11, 1999) $15.75 $10.88
</TABLE>
As of May 11, 1999, there were approximately 480 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 amount thereof will be dependent upon the Company's
earnings, financial requirement, 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
--------------------------------------------------------------------
Amounts in thousands, except FEBRUARY 27, February 28, February 28, February 29, February 28,
per share data 1999 1998 1997 1996 1995
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected consolidated statements of earnings
data
Net sales $552,650 $484,832 $386,560 $302,541 $247,631
======== ======== ======== ======== ========
Net earnings $ 58,708 $ 56,418 $ 44,040 $ 31,986 $ 23,971
======== ======== ======== ======== ========
Net earnings per share of common stock
Basic $ 1.53 $ 1.44 $ 1.10 $ .81 $ .61
======== ======== ======== ======== ========
Diluted $ 1.45 $ 1.35 $ 1.02 $ .76 $ .58
======== ======== ======== ======== ========
Cash dividends per share of common stock
NONE None None None None
Selected consolidated balance sheets data
Total assets $332,334 $310,451 $251,393 $209,340 $168,355
Long-term debt, excluding
current portion 50 100 150 200 250
Working capital 179,566 187,355 156,239 133,912 114,489
Stockholders' equity 255,817 251,169 203,127 173,138 139,300
</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
The Company has adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which requires certain financial statement footnote disclosure as
to our business segments, which are Wholesale and Outlet Retail. Our Wholesale
segment consists of businesses that design, market, source and distribute
sportswear, activewear, outerwear, robes and sleepwear for men and robes and
sleepwear for ladies to retail store customers. Our Outlet Retail segment
consists of businesses that sell merchandise through outlet retail stores
directly to consumers.
Fiscal year ended February 27, 1999 compared to February 28, 1998:
Net sales increased 14.0% to $552.7 million in the fiscal year
ended February 27, 1999 from $484.8 million in the prior year. The increase in
sales was due primarily to increased unit volume rather than price increases.
Wholesale sales increased 11.3% to $428.3 million from $384.8 million as a
result of opening new in-store shops, the expansion of existing shops and sales
increases in existing shops. Outlet Retail sales increased 24.3% to $124.3
million from $100.0 million primarily as a result of opening additional outlet
retail stores.
Gross profit as a percentage of sales of 48.1% was comparable to
47.9% in the prior year.
Total selling, general and administrative expenses increased by
$29.3 million to $178.3 million from $149.0 million. Selling, general and
administrative expenses as a percentage of net sales increased to 32.3% from
30.7% in the prior year. The increase in the percentage of net sales is
principally a result of the start-up costs associated with the planned launch of
new product lines, higher general marketing and retail development costs.
Net royalty income decreased to $5.3 million from $5.7 million in
the prior year. The decrease was due to the termination of the women's
sportswear license, the transition of the fragrance license and to the general
retail weakness that affected a number of licensees.
Investment income increased to $4.0 million from $3.8 million in
the prior year. The increase is primarily the result of higher average cash
balances offset by lower rates of return on investments.
The provision for income taxes of 39.5% was comparable to 39.6% in
the prior year.
Net earnings increased 4.1% to $58.7 million from $56.4 million in
the prior year as a result of the factors discussed above.
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 year. This increase is
primarily a result of increased sales of Nautica products. The increase in sales
is due primarily to increased unit volume rather than price increases. Wholesale
sales increased 21.4% to $384.8 million from $316.9 million due to the expansion
of Nautica's in-store shop program, including both new and expanded shops as
well as increases in existing shops. Outlet Retail sales increased 43.5% to
$100.0 million from $69.7 million as a result of opening additional outlet
retail stores during the year, the full year effect of stores opened in 1997 and
an increase in comparable store sales.
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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.
Total selling, general and administrative expenses increased by
$33.5 million to $149.0 million from $115.5 million. Selling, general and
administrative expenses as a percentage of net sales increased to 30.7% from
29.9% in the prior year. The increase in the percentage of net sales is due
primarily to higher general marketing and retail development costs.
Net royalty income increased to $5.7 million from $3.8 million in
the prior year. The increased royalty revenue was generated from both new and
existing licensees.
Investment income increased to $3.8 million from $3.0 million 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.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended February 27, 1999 and February 28, 1998,
the Company generated cash from operating activities of $60.6 million and $54.1
million, respectively. Such cash was principally from net earnings and increases
in accounts payable - trade, accrued expenses and income taxes payable offset by
inventory increases in 1999 and 1998 of $3.5 and $4.2 million, respectively, and
increases in accounts receivable of $21.9 and $20.6 million, respectively.
Accounts receivable balances were higher by 26.3% and 34.0%, respectively, than
balances in the preceding year. Inventory balances were higher by 5.2% and 8.8%,
respectively, than balances in the preceding year. These increases were related
to sales increases.
During the year ended February 27, 1999, the Company's principal
investing activities related to the continued expansion of the Nautica in-store
shop program and amounts related to the expansion of showrooms. The Company
expects to continue to incur capital expenditures to expand the in-store shop
program, open additional outlet stores, and to support the start-up of new
product lines. At February 27, 1999, there were no other material commitments
for capital expenditures. 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.
During the year ended February 27, 1999, the Board of Directors of
the Company approved stock purchase programs, authorizing the Company to
repurchase up to 4,000,000 shares of its common stock and in March 1999,
authorized an additional 2,000,000 shares. During 1999, the Company repurchased
2,534,000 shares at a cost of $55.9 million. Subsequent to year end, the Company
purchased an additional 2,424,500 shares at a cost of $29.2 million. Under a
previously adopted plan, the Company repurchased 1,500,000 shares during 1998
and 1997.
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 27, 1999 letters of credit outstanding under the lines were $37.9
million and there were no short-term borrowings outstanding.
11
<PAGE> 13
Historically, the Company has experienced its highest level of
sales in the second and third quarters and its lowest level in the first and
fourth quarters. 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 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.
YEAR 2000
The Company is engaged in a process to ensure that its systems
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 has
developed a plan which identifies all systems requiring modification or
replacement, established a timeframe for ensuring it's year 2000 compliance and
appointed a responsible party in the organization for the particular system. The
Company expects to have all systems compliant by the middle of 1999, the
majority of which are already year 2000 compliant.
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's current estimate of costs to be incurred is less
than $500,000, which is mostly being incurred internally and does not reflect
significant incremental costs. 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, or
financial condition of the Company.
The Company is in the process of developing a contingency plan in
order to minimize the potential disruption of business operations that may
result if the Company, its vendors or customers fail to become year 2000
compliant. The contingency plan is expected to be completed by the middle of
1999.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Annual Report, contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended, that are not historical facts but
rather reflect the Company's current expectations concerning future results and
events. The words "believes," "anticipates," "expects" and similar expressions,
which identify forward-looking statements, are subject to certain risks and
uncertainties, includng those which are economic, competitive and
technological, that could cause actual results to differ materially from those
forecast or anticipated. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof. The
Company undertakes no obligation to republish revised forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company in
this report, as well as the Company's periodic reports on Forms 10-K and 10-Q
and other filings with the Securities and Exchange Commission.
12
<PAGE> 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURE ABOUT INTEREST RATE RISK
The Company has no long-term debt, and finances capital needs
through available capital, future earnings and bank lines of credit. The
Company's exposure to market risk for changes in interest rates is primarily in
its investment portfolio. The Company, pursuant to investing guidelines,
mitigates exposure by limiting maturity, placing investments with high credit
quality issuers and limiting the amount of credit exposure to any one issuer.
During fiscal year 1999, the Company earned investment income of $4.0 million.
If interest rates had been 1% lower than they were during the year, investment
income would have been $.8 million lower. The Company does not expect changes in
interest rates to have a material effect on income or cash flows in fiscal year
2000, although there can be no assurance that interest rates will not
significantly change.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements required by Part II, Item 8 are included in
Part IV, Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE
13
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required is incorporated by reference from the
Proxy Statement prepared with respect to the Annual Meeting of Stockholders to
be held on July 1, 1999.
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, 1999.
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, 1999.
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, 1999 and by reference to Footnotes F, G, and I of the
Consolidated Financial Statements included in this report and referred to at
Part IV, Item 14.
14
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following consolidated Financial Statements of Nautica Enterprises,
Inc. and Subsidiaries required by Part II, Item 8, are included in Part
IV of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets at February 27, 1999 and
February 28, 1998 F-2
Consolidated Statements of Earnings for each of the three
years in the in the period ended February 27, 1999 F-4
Consolidated Statement of Stockholders' Equity for each
of the three years in the period ended February 27, 1999 F-5
Consolidated Statements of Cash Flows for each of the
three years in the period ended February 27, 1999 F-6
Notes of 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 27, 1999:
II - Valuation and Qualifying Accounts F-22
</TABLE>
3. Exhibits
<TABLE>
<S> <C>
3(a) Registrant's By-laws as currently in effect are
incorporated herein by reference to Registrant's
Registration Statement on Form s-1 (Registration
No. 33-21998).
3(b) Registrant's Certificate of Incorporation is incorporated
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
</TABLE>
15
<PAGE> 17
<TABLE>
<S> <C>
S-8 (Registration Number 33-1488), as amended by the
Company's Registration Statement on Form S-8 (Registration
Number 33-45823).
10(iii)(b) Registrant's 1989 Employee Incentive Stock Plan is
incorporated by reference herein from the Registrant's
Registration Statement on Form S-8 (Registration Number
33-36040).
10(iii)(c) Registrant's 1996 Stock Incentive Plan is incorporated by
reference herein from Registrant's Registration Statement
on Form S-8 (Registration Number 333-55711).
10(iii)(d) 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)(e) Registrant's Deferred Compensation Plan is incorporated
herein by reference from the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998 .
10(iii)(f) 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 is incorporated herein by
reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1998.
21 Subsidiaries of Registrant
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
None.
16
<PAGE> 18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
NAUTICA ENTERPRISES, INC.
We have audited the accompanying consolidated balance sheets of Nautica
Enterprises, Inc. and Subsidiaries as of February 27, 1999 and February 28,
1998, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the three years in the period ended February 27,
1999. 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 27, 1999 and February 28,
1998, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended February 27, 1999, 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 27, 1999. 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 15, 1999
F-1
<PAGE> 19
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
FEBRUARY 27, February 28,
ASSETS 1999 1998
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 15,498 $ 34,616
Short-term investments 55,049 52,680
Accounts receivable - net of allowances of $5,640
in 1999 and $5,736 in 1998 102,471 81,135
Inventories 70,212 66,726
Prepaid expenses and other current assets 5,434 4,882
Deferred tax benefit 7,369 6,093
-------- --------
Total current assets 256,033 246,132
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and amortization 64,524 56,273
OTHER ASSETS 11,777 8,046
-------- --------
$332,334 $310,451
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 20
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
FEBRUARY 27, February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 50 $ 50
Accounts payable - trade 29,596 18,743
Accrued expenses and other current liabilities 40,298 34,158
Income taxes payable 6,523 5,826
--------- ---------
Total current liabilities 76,467 58,777
LONG-TERM DEBT - NET 50 100
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST -- 405
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, 42,604,000 shares in 1999 and
42,435,000 shares in 1998 4,260 4,244
Additional paid-in capital 66,813 64,730
Retained earnings 275,882 217,174
Accumulated other comprehensive (loss) income (35) 202
Common stock in treasury at cost; 5,596,000 shares
in 1999 and 3,062,000 shares in 1998 (91,103) (35,181)
--------- ---------
255,817 251,169
--------- ---------
$ 332,334 $ 310,451
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 21
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
FEBRUARY 27, February 28, February 28,
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Net sales $ 552,650 $ 484,832 $ 386,560
Cost of goods sold 287,021 252,698 205,552
------------ ------------ ------------
Gross profit 265,629 232,134 181,008
Selling, general and administrative expenses 178,293 149,044 115,476
Net royalty income (5,281) (5,738) (3,803)
------------ ------------ ------------
Operating profit 92,617 88,828 69,335
Other income
Investment income, net 4,016 3,781 2,995
Minority interest in loss of consolidated subsidiary 405 785 310
------------ ------------ ------------
Earnings before provision for income taxes 97,038 93,394 72,640
Provision for income taxes 38,330 36,976 28,600
------------ ------------ ------------
NET EARNINGS $ 58,708 $ 56,418 $ 44,040
============ ============ ============
Net earnings per share of common stock
Basic $ 1.53 $ 1.44 $ 1.10
============ ============ ============
Diluted $ 1.45 $ 1.35 $ 1.02
============ ============ ============
Weighted average number of common shares outstanding
Basic 38,430,000 39,081,000 39,960,000
============ ============ ============
Diluted 40,529,000 41,729,000 42,969,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 22
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other
-------------------- paid-in Retained comprehensive Treasury
Shares Amount capital earnings (loss) income stock Total
------ ------ ------- -------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 29, 1996 41,355,000 $4,135 $52,837 $116,716 $ -- $ (550) $173,138
Common stock issued on exercise of stock options 416,000 42 1,004 1,046
Income tax benefit from stock options 1,661 1,661
Purchase of treasury stock (16,758) (16,758)
Comprehensive income
Net earnings 44,040 44,040
---------- ------ ------- -------- ---- -------- --------
Balance at February 28, 1997 41,771,000 4,177 55,502 160,756 -- (17,308) 203,127
Common stock issued on exercise of stock options 664,000 66 2,686 2,752
Income tax benefit from stock options 6,348 6,348
Purchase of treasury stock (17,873) (17,873)
Other common stock issued 194 194
Comprehensive income
Net earnings 56,418 56,418
Net unrealized investment gain, net of
deferred taxes 202 202
--------
56,620
---------- ------ ------- -------- ---- -------- --------
Balance at February 28, 1998 (carried forward) 42,435,000 4,243 64,730 217,174 202 (35,181) 251,168
</TABLE>
F-5
<PAGE> 23
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
Years ended February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other
-------------------- paid-in Retained comprehensive Treasury
Shares Amount capital earnings (loss) income stock Total
------ ------ ------- -------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1998 (brought forward) 42,435,000 $4,243 $64,730 $217,174 $ 202 $(35,181) $251,168
Common stock issued on exercise of stock options 169,000 17 1,008 1,025
Income tax benefit from stock options 1,075 1,075
Purchase of treasury stock (55,922) (55,922)
Comprehensive income
Net earnings 58,708 58,708
Net unrealized investment loss, net of
deferred taxes (237) (237)
--------
58,471
---------- ------ ------- -------- ----- -------- --------
BALANCE AT FEBRUARY 27, 1999 42,604,000 $4,260 $66,813 $275,882 $ (35) $(91,103) $255,817
========== ====== ======= ======== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 24
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
FEBRUARY 27, February 28, February 28,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 58,708 $ 56,418 $ 44,040
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 (405) (785) (310)
Deferred income taxes (1,119) (453) (2,138)
Depreciation and amortization 12,552 8,979 6,272
Provision for bad debts 531 748 254
Changes in operating assets and liabilities
Accounts receivable (21,867) (20,600) (15,122)
Inventories (3,486) (4,224) (7,069)
Prepaid expenses and other current assets (552) (575) 984
Other assets (2,491) (1,120) (723)
Accounts payable - trade 10,854 (3,054) 5,122
Accrued expenses and other current liabilities 6,140 8,780 5,639
Income taxes payable 1,771 9,960 2,504
-------- -------- --------
Net cash provided by operating activities 60,636 54,074 39,453
-------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (20,224) (21,370) (17,654)
Acquisitions, net of cash acquired (1,650) (2,837)
Purchase of short-term investments (2,764) (52,343)
Payments to register trademark (169) (304) (717)
Long-term investments 5,000
-------- -------- --------
Net cash used in investing activities (24,807) (76,854) (13,371)
-------- -------- --------
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 1,025 2,752 1,046
Purchase of treasury stock (55,922) (17,873) (16,758)
-------- -------- --------
Net cash used in financing activities (54,947) (14,491) (15,242)
-------- -------- --------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (19,118) (37,271) 10,840
Cash and cash equivalents at beginning of year 34,616 71,887 61,047
-------- -------- --------
Cash and cash equivalents at end of year $ 15,498 $ 34,616 $ 71,887
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Income taxes $ 37,604 $ 27,470 $ 28,526
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 25
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 27, 1999, February 28, 1998 and February 28, 1997
(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, and its wholly- and majority-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation. During 1999, the Company acquired the remaining 49%
interest in Nautica Europe, which is consolidated at February 28, 1998
and February 27, 1999.
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. These
marketable securities are classified as available for sale and are
adjusted to market value at the end of each accounting period.
Unrealized market gains and losses, net of deferred tax, are reported
in stockholders' equity. Realized gains and losses taxes on sales of
investments are determined on a specific identification basis, and are
included in the consolidated statements of earnings.
F-8
<PAGE> 26
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(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. Allowances for estimated returns are
provided when sales are recorded.
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 48% and 71% of consolidated inventories
before LIFO adjustment at February 27, 1999 and February 28, 1998,
respectively. Had the Company utilized the FIFO method of accounting
for inventory, inventories would have been higher by $2,748 and $2,757
at February 27, 1999 and February 28, 1998, 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 $6,884 and $5,234 at February 27, 1999 and February
28, 1998, respectively. These assets are being amortized on a
straight-line basis over twenty- and forty-year periods. Accumulated
amortization at February 27, 1999 and February 28, 1998 was $863 and
$635, respectively.
F-9
<PAGE> 27
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(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
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. 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. Dilutive stock options included in the
calculation of diluted weighted average shares were 2,099,000,
2,648,000, and 3,009,000 in 1999, 1998 and 1997, respectively.
Options which were excluded from the calculation of diluted earnings
per share because the exercise prices of the options were greater than
the average market price of the common shares and, therefore, would be
antidilutive, were 1,627,000 and 11,000 in 1999 and 1998,
respectively. All options were included in the calculation of related
earnings per share in 1997.
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 27, 1999.
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 $20.5 million in
1999, $20.1 million in 1998 and $15.1 million in 1997.
F-10
<PAGE> 28
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE A (CONTINUED)
12. Comprehensive Income
In 1999, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting comprehensive income
and its components in a financial statement. Comprehensive income as
defined includes all changes in equity during a period from non-owner
sources. Accumulated other comprehensive income, as presented on the
accompanying consolidated balance sheets, consists of the changes in
unrealized gains and losses on securities.
13. Fiscal Year
Effective March 1, 1998, the Company changed its fiscal year end to a
52/53-week year. There was no impact on the results of operations.
Unless otherwise stated, references made to 1999, 1998 and 1997 relate
to the fiscal years ended February 27, 1999, February 28, 1998 and
February 28, 1997, respectively.
14. Reclassifications
Certain amounts in prior years have been reclassified to conform with
classifications used in 1999.
F-11
<PAGE> 29
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE B - SHORT-TERM INVESTMENTS
The following are summaries of available-for-sale marketable securities:
<TABLE>
<CAPTION>
Gross unrealized
----------------- Market
Cost Gains Losses value
------- ------- -------- -------
<S> <C> <C> <C> <C>
FEBRUARY 27, 1999
Government and agency bonds $16,735 $ (37) $16,698
Tax-exempt municipal bonds 21,059 $ 131 (53) 21,137
Corporate bonds 16,839 26 (125) 16,740
------- ------- -------- -------
Total debt securities 54,633 157 (215) 54,575
Other 474 474
------- ------- -------- -------
$55,107 $ 157 $ (215) $55,049
======= ======= ======== =======
February 28, 1998
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>
The amortized cost and estimated fair value of investments in debt securities at
February 27, 1999, by contractual maturity, were as follows:
<TABLE>
<CAPTION>
Market
Cost value
------- -------
<S> <C> <C>
Due within one year $16,492 $16,497
Due after one year through five years 21,213 21,201
Due after five years through ten years 9,202 9,199
Due after ten years 7,726 7,678
------- -------
Total investments in debt securities $54,633 $54,575
======= =======
</TABLE>
F-12
<PAGE> 30
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE B (CONTINUED)
For 1999 and 1998, gross realized gains on available-for-sale securities
totaled $501 and $232, respectively. In 1999 and 1998, gross realized
losses totaled $125 and $3, respectively. In 1997, there were no realized
gains or losses. The unrealized gains and losses on available-for-sale
securities which were included in accumulated other comprehensive (loss)
income were a loss of $58 (net of deferred tax of $23) and a gain of $337
(net of deferred tax of $135) in 1999 and 1998, respectively.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Land $ 515 $ 515
Building and improvements 11,753 12,085
Machinery, equipment and fixtures 69,370 53,795
Leasehold improvements 15,757 8,573
Construction in progress -- 3,896
------- -------
97,395 78,864
Accumulated depreciation and amortization 32,871 22,591
------- -------
$64,524 $56,273
======= =======
</TABLE>
NOTE D - SHORT-TERM BORROWINGS
As of February 27, 1999 and February 28, 1998, 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 27, 1999, letters of credit outstanding
under the lines were $37,900 and there were no short-term borrowings
outstanding.
F-13
<PAGE> 31
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(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>
1999 1998
------- -------
<S> <C> <C>
Payroll and other employee compensation $12,043 $ 8,964
Royalties 1,149 1,748
Advertising and promotion 16,681 15,866
Accrued rent 1,844 1,428
Other 8,581 6,152
------- -------
$40,298 $34,158
======= =======
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY
The Board of Directors adopted several stock purchase plans pursuant to
which the Company has been authorized to purchase up to 6,000,000 shares on
the open market. During 1999, the Company repurchased 2,534,000 shares at a
cost of $55,922 under these plans. Subsequent to year-end, the Company has
purchased an additional 2,374,500 shares at a cost of $28,674. Under a
previously adopted plan, the Company repurchased 800,000 and 700,000 shares
during 1998 and 1997, respectively.
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-14
<PAGE> 32
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED),
February 27, 1999, February 28, 1998 and February 28, 1997
(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 $9,785 in 1999, $7,440 in 1998 and $5,604 in 1997. At
February 27, 1999, minimum rental commitments under noncancellable
leases are as follows:
<TABLE>
<S> <C>
2000 $ 7,976
2001 7,627
2002 6,754
2003 6,386
2004 5,669
Thereafter 28,661
-------
Total minimum payments required $63,073
=======
</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-15
<PAGE> 33
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(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 have 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 27, 1999, the maximum amount
payable, applicable to three individuals, would be approximately
$10,375.
4. Other
The Company is subject to claims and suits in the ordinary course of
business. Management believes that the ultimate resolution of all such
proceedings will not have a material adverse effect on the Company.
5. Concentrations
In the normal course of business, the Company extends credit, on open
account, to its retail store customers, after a credit analysis based
on financial and other criteria. May Department Stores Company,
Federated Department Stores, Inc. and Dillard Department Stores, Inc.
accounted for approximately 22%, 19% and 18%, respectively, of sales
in 1999, 24%, 21% and 17%, respectively, of sales in 1998 and 22%, 19%
and 16%, respectively, of sales in 1997. 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 27, 1999.
F-16
<PAGE> 34
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE H - INCOME TAXES
Significant components of the Company's deferred taxes at February 27, 1999
and February 28, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets (liabilities)
Deferred compensation $ 1,574 $ 829
Allowance for doubtful accounts and sales
discounts 985 767
Capitalized inventory costs 1,231 1,003
Nondeductible accruals 5,485 5,369
Depreciation (1,929) (1,740)
Unrealized loss (gain) on investments 23 (135)
------- -------
$ 7,369 $ 6,093
======= =======
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Current
Federal $ 33,114 $ 31,093 $ 25,512
State and local 6,335 6,336 5,226
Deferred (1,119) (453) (2,138)
-------- -------- --------
$ 38,330 $ 36,976 $ 28,600
======== ======== ========
</TABLE>
F-17
<PAGE> 35
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE H (CONTINUED)
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
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 4.2 4.4 4.7
Other .3 .2 (.3)
---- ---- ----
Actual provision for income taxes 39.5% 39.6% 39.4%
==== ==== ====
</TABLE>
NOTE I - TRANSACTIONS WITH RELATED PARTIES
Nautica has the exclusive right to use, exploit and license others to so
use and exploit the Nautica name and trademarks. The 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 $5,281, $5,738
and $3,803, in 1999, 1998 and 1997, respectively. In addition, the
Executive Vice President is entitled to receive up to 1.5% of the net sales
of certain new products, which at February 27, 1999 amounted to $15. At
February 27, 1999 and February 28, 1998, the amount due to the Executive
Vice President included in accrued expenses and other current liabilities
was approximately $1,149 and $1,630, 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 of its interest in the name.
F-18
<PAGE> 36
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE J - MULTIEMPLOYER PENSION PLAN
The Company contributed approximately $100 in 1999, $165 in 1998 and $145
in 1997 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 27, 1999, the Company's share of
unfunded vested benefits, if any, was not available from the plan's
administrators.
NOTE K - PROFIT-SHARING RETIREMENT AND SAVINGS PLAN
The Company has a contributory retirement savings plan (Section 401(k) of
the Internal Revenue Code) for all full-time employees. Under the
provisions of the plan, eligible employees are permitted to contribute up
to 15% of their salary subject to specified limits. The plan provides for
discretionary employer matching contributions not to exceed the lesser of
100% of the employee's contribution or 6% of the employee's compensation.
The amount of Company contributions to the plan charged to expense was $240
in 1999, $178 in 1998 and $169 in 1997.
NOTE L - STOCK OPTION PLANS AND OPTION AGREEMENT
On January 4, 1996, the Board of Directors adopted the Nautica Enterprises,
Inc. Stock Incentive Plan (the "1996 Plan"), which was approved by the
Company's stockholders at the 1996 Annual Meeting of Stockholders. The 1996
Plan authorizes the Compensation Committee to administer the plan and to
grant to eligible participants stock options of the Company and its
affiliates, stock appreciation rights, restricted stock, deferred stock,
bonus stock, cash bonuses and loans. The 1996 Plan provides for the
reservation and availability of 4,000,000 shares of common stock of the
Company, subject to adjustment for future stock splits, stock dividends,
reorganizations and similar events.
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-19
<PAGE> 37
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE L (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 27, 1999,
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 $1,075, $6,348
and $1,661, during the years ended February 27, 1999, February 28, 1998 and
February 28, 1997, 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, which provide for granting of options with exercise
prices equal to the fair market value of common stock at the date of grant,
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>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings
As reported $58,708 $56,418 $44,040
Pro forma 51,483 51,558 40,540
Basic net earnings per share
As reported $ 1.53 $ 1.44 $ 1.10
Pro forma 1.34 1.32 1.01
Diluted net earnings per share
As reported $ 1.45 $ 1.35 $ 1.02
Pro forma 1.27 1.24 .94
</TABLE>
F-20
<PAGE> 38
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(Amounts in thousands, except share data)
NOTE L (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 27, 1999, February 28, 1998 and February 28, 1997, respectively:
expected volatility of 55 percent, 50 percent and 48 percent; risk-free
interest rates of 6.0 percent, 5.8 percent and 5.8 percent; and expected
lives of seven years.
The table below summarizes the activity in the plans.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
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 3,562,000 $13.97 3,450,000 $ 9.68 3,147,000 $ 5.65
Granted 945,000 25.04 820,000 24.46 835,000 21.60
Exercised (168,000) 6.70 (665,000) 4.14 (416,000) 2.51
Cancelled (23,000) 24.91 (43,000) 21.73 (116,000) 11.55
--------- --------- ---------
Outstanding at end of
year 4,316,000 16.45 3,562,000 13.97 3,450,000 9.68
========= ========= =========
Exercisable at end of
year 2,040,000 10.32 1,381,000 7.45 1,341,000 4.54
========= ========= =========
Weighted average fair
value of options granted
during the year 11.13 14.34 12.27
</TABLE>
F-21
<PAGE> 39
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE L (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable stock options at February 27, 1999:
<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 - $4.45 761,000 4.51 $ 3.43 761,000 $ 3.43
6.22 - 10.38 1,060,000 6.70 9.27 798,000 8.91
18.56 - 27.38 2,495,000 8.77 24.51 481,000 22.57
--------- ---------
4,316,000 2,040,000
========= =========
</TABLE>
NOTE M - SEGMENT REPORTING
In 1999, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which established reporting and disclosure standards for an
enterprise's operating segments. Operating segments are defined as
components of an enterprise for which separate financial information is
available and regularly reviewed by the Company's senior management.
The Company has the following two reportable segments: Wholesale and Outlet
Retail. The Wholesale segment designs, markets, sources and distributes
sportswear, activewear, outerwear, robes and sleepwear for men and robes
and sleepwear for ladies to retail store customers. The Outlet Retail
segment sells men's apparel and other Nautica-branded products primarily
through outlet retail store locations directly to consumers.
The accounting policies of the reportable segments are the same as those
described in the summary of accounting policies. Segment profit is based on
earnings before provision for income taxes. The reportable segments are
distinct business units and are separately managed with separate
distribution systems. The following information about the two segments is
as of February 27, 1999 and for each of the three years in the period then
ended:
F-22
<PAGE> 40
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE M (CONTINUED)
<TABLE>
<CAPTION>
Outlet All Corporate/
Wholesale Retail other eliminations Totals
--------- ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C>
FEBRUARY 27, 1999
Net sales from external customers $428,331 $124,319 $552,650
Segment operating profit 67,493 24,694 $ 5,281 $ (430) 97,038
Segment assets 188,557 43,937 10,295 89,545 332,334
Depreciation expense 10,525 919 276 254 11,974
February 28, 1998
Net sales from external customers $384,835 $ 99,997 $484,832
Segment operating profit 63,742 23,157 $ 5,738 $ 757 93,394
Segment assets 167,328 24,708 15,889 102,526 310,451
Depreciation expense 6,516 845 298 256 7,915
February 28, 1997
Net sales from external customers $316,880 $ 69,680 $386,560
Segment operating profit 55,652 17,224 $ 3,803 $ (4,039) 72,640
Segment assets 145,373 15,071 11,120 79,829 251,393
Depreciation expense 4,558 769 101 219 5,647
</TABLE>
In the Corporate/eliminations column the segment assets primarily consist
of the Company's cash and investment portfolio and the segment operating
(loss) profit consists of corporate expenses offset by investment income
earned.
F-23
<PAGE> 41
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 27, 1999, February 28, 1998 and February 28, 1997
(amounts in thousands, except share data)
NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
May 30 August 29 November 28 February 27
------ --------- ----------- -----------
<S> <C> <C> <C> <C>
1999
Net sales $ 110,980 $ 150,888 $ 157,047 $ 133,735
Gross profit 51,754 72,647 76,305 64,923
Net earnings 9,849 19,139 20,062 9,658
Net earnings per share of common
stock
Basic .25 .49 .53 .26
Diluted .23 .46 .51 .25
Weighted average number of
common shares outstanding
Basic 39,419,000 39,262,000 37,515,000 37,536,000
Diluted 41,981,000 41,607,000 39,362,000 39,202,000
</TABLE>
<TABLE>
<CAPTION>
May 31 August 31 November 30 February 28
------ --------- ----------- -----------
<S> <C> <C> <C> <C>
1998
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-24
<PAGE> 42
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
Balance at Charged to to other Balance at
beginning costs and accounts - Deductions - end of
Description of year expenses describe describe year
----------- ------- -------- -------- ------------ ----
<S> <C> <C> <C> <C> <C>
YEAR ENDED FEBRUARY 27, 1999
Reserves deducted from assets to which they apply
Allowance for bad debts $2,066 $ 531 $ -- $2,597
====== ====== ==== ======
Allowance for sales returns and discounts $3,670 $ -- $627 $3,043
====== ====== ==== ======
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 $2,229 $ -- $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 $ 977 $ -- $1,441
====== ====== ==== ======
</TABLE>
F-25
<PAGE> 43
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 27, 1999)
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 27, 1999
- ------------------------ Chief Executive Officer
Harvey Sanders (Principal Executive Officer)
and Director
/s/ W. Donald Pennington Chief Financial Officer May 27, 1999
- ------------------------ (Principal Financial Officer)
W. Donald Pennington
/s/ Neal S. Nackman Vice President Finance May 27, 1999
- ------------------------ (Principal Accounting Officer)
Neal S. Nackman
/s/ David Chu Executive Vice President May 27, 1999
- ------------------------ and Director
David Chu
/s/ Robert B. Bank Director May 27, 1999
- ------------------------
Robert B. Bank
/s/ Israel Rosenzweig Director May 27, 1999
- ------------------------
Israel Rosenzweig
/s/ Ronald G. Weiner Director May 27, 1999
- ------------------------
Ronald G. Weiner
</TABLE>
<PAGE> 1
EXHIBIT 21
<TABLE>
<S> <C>
Parent Corporation Subsidiary and Place of Incorporation
Nautica Enterprises, Inc. Nautica Apparel, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica International, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Retail USA, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Furnishings, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Sport Tech, Inc.
(Delaware)
Nautica Enterprises, Inc. Nautica Jeans Company
(Delaware)
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 15, 1999, 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 27, 1999. 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 Numbers 33-1488, 33-45823,
33-36040 333-55711 and 333-60895).
GRANT THORNTON LLP
New York, New York
May 25, 1999
<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-27-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-27-1999
<CASH> 15,498
<SECURITIES> 55,049
<RECEIVABLES> 108,111
<ALLOWANCES> 5,640
<INVENTORY> 70,212
<CURRENT-ASSETS> 256,033
<PP&E> 97,395
<DEPRECIATION> 32,871
<TOTAL-ASSETS> 332,334
<CURRENT-LIABILITIES> 76,467
<BONDS> 0
0
0
<COMMON> 4,260
<OTHER-SE> 251,557
<TOTAL-LIABILITY-AND-EQUITY> 332,334
<SALES> 552,650
<TOTAL-REVENUES> 561,947
<CGS> 287,021
<TOTAL-COSTS> 287,021
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 97,038
<INCOME-TAX> 38,330
<INCOME-CONTINUING> 58,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,708
<EPS-BASIC> 1.53
<EPS-DILUTED> 1.45
</TABLE>
