<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 3, 2000 or
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( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-6708
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Nautica Enterprises, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
Delaware 95-2431048
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
40 West 57th Street, New York, N.Y. 10019
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, including Area Code (212) 541-5757
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of Common Stock outstanding as of July 11, 2000
was 31,213,671.
<PAGE> 2
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
June 3, 2000
(Unaudited)
INDEX
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<CAPTION>
Page No.
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Part I - Financial Information:
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
As at June 3, 2000 and March 4, 2000.................................2
Condensed Consolidated Statements of Earnings
For the Three Month Periods Ended
June 3, 2000 and May 29, 1999.......................................3
Condensed Consolidated Statements of Cash Flows
For the Three Month Periods Ended
June 3, 2000 and May 29, 1999.......................................4
Notes to Condensed Consolidated Financial Statements..............5 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..10
Part II - Other Information...................................................11
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<PAGE> 3
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
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<CAPTION>
ASSETS (unaudited)
June 3, March 4,
2000 2000
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,585 $ 27,143
Short-term investments 34,054 33,991
Accounts receivable - net 84,999 107,609
Inventories 87,126 73,879
Prepaid expenses and other current assets 7,738 5,453
Deferred tax benefit 8,381 8,381
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Total current assets 241,883 256,456
Property, plant and equipment, net of
accumulated depreciation and amortization 81,447 81,674
Other assets 15,380 13,808
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$ 338,710 $ 351,938
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 41,290 $ 29,048
Accrued expenses and other current liabilities 50,316 49,384
Income taxes payable 7,839 9,793
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Total current liabilities 99,445 88,225
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
42,711,000 shares at June 3, 2000 and 42,696,000 shares at
March 4, 2000 4,272 4,270
Additional paid-in capital 67,606 67,559
Retained earnings 325,140 322,045
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397,018 393,874
Less:
Common stock in treasury - at cost;
11,362,000 shares at June 3, 2000
and 8,964,000 at March 4, 2000 (157,753) (130,161)
--------- ---------
Total stockholders' equity 239,265 263,713
--------- ---------
$ 338,710 $ 351,938
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 4
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
(unaudited)
Three Months Three Months
Ended Ended
June 3, 2000 May 29, 1999
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<S> <C> <C>
Net Sales $ 134,743 $ 109,163
Cost of goods sold 71,011 57,860
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Gross profit 63,732 51,303
Selling, general and administrative expenses 61,021 46,102
Net royalty income (1,787) (1,416)
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Operating profit 4,498 6,617
Investment income, net 558 561
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Earnings before provision for income taxes 5,056 7,178
Provision for income taxes 1,962 2,814
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NET EARNINGS $ 3,094 $ 4,364
============ ============
Net earnings per share of common stock
Basic $ 0.09 $ 0.12
============ ============
Diluted $ 0.09 $ 0.12
============ ============
Weighted average number of common shares outstanding
Basic 32,627,000 35,405,000
============ ============
Diluted 34,040,000 37,181,000
============ ============
Cash dividends per common share none none
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
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<CAPTION>
(unaudited)
Three Months Three Months
Ended Ended
June 3, 2000 May 29, 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,094 $ 4,364
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Adjustments to reconcile net earnings to net cash provided by
operating activities:
Deferred income taxes -- (231)
Depreciation and amortization 5,561 4,378
Provision for bad debts 277 278
Changes in operating assets and liabilities
Accounts receivable 22,333 29,369
Inventories (13,247) (13,188)
Prepaid expenses and other current assets (2,285) (890)
Other assets (1,864) (2,266)
Accounts payable - trade 12,242 2,509
Accrued expenses and other current liabilities 932 (4,264)
Income taxes payable (1,954) 141
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Total adjustments 21,995 15,836
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Net cash provided by operating activities 25,089 20,200
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (5,041) (6,825)
Sale (purchase) of short-term investments (63) 2,480
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Net cash used in investing activities (5,104) (4,345)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt -- (100)
Purchase of treasury stock (27,592) (29,460)
Proceeds from issuance of common stock 49 145
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Net cash used in financing activities (27,543) (29,415)
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Decrease in cash and cash equivalents (7,558) (13,560)
Cash and cash equivalents at beginning of period 27,143 15,498
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Cash and cash equivalents at end of period $ 19,585 $ 1,938
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 4,076 $ 2,665
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 3,2000
(unaudited)
(amounts in thousands)
NOTE 1 - The accompanying financial statements have been prepared
without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such
rules and regulations. These statements include all
adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation of financial
position and results of operations. The financial statements
included herein should be read in conjunction with the
financial statements and notes thereto included in the latest
annual report on Form 10-K.
NOTE 2 - The results of operations for the three-month period ended
June 3, 2000 are not necessarily indicative of the results to
be expected for the full year.
NOTE 3 - The Company utilized the last-in, first-out "Lifo" method for
certain wholesale inventories as at June 3, 2000 and March 4,
2000 and for the three month periods ended June 3, 2000 and
May 29, 1999. The "Lifo" inventory for the three month periods
ended June 3, 2000 and May 29, 1999 are based upon end of year
estimates. Inventories at June 3, 2000 and March 4, 2000
consist primarily of finished goods.
NOTE 4 - The Company has 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, as
follows:
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<CAPTION>
Three Months Three Months
Ended Ended
June 3, 2000 May 29, 1999
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<S> <C> <C>
Net earnings $3,094 $4,364
Changes in unrealized gains and losses
on securities, net of tax - (105)
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Comprehensive Income $3,094 $4,259
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<PAGE> 7
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 3, 2000
(unaudited)
(amounts in thousands)
NOTE 5 - Short-term investments consist primarily of government and
agency bonds, tax exempt municipal bonds and corporate bonds.
These marketable securities are classified as trading and are
adjusted to market value at the end of each accounting period.
Unrealized market gains and losses, are included in earnings.
Realized gains and losses on sales of investments are
determined on a specific identification basis, and are
included in earnings. Gross realized gains totaled $1 and $19
and gross realized losses totaled $43 and $43 for the three
months ended June 3, 2000 and May 29, 1999.
The unrealized losses which were included in earnings were
$220 and $470 as of June 3, 2000 and March 4, 2000,
respectively.
NOTE 6 - 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. 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 2,375,450 and
2,479,700 during the three months ended June 3, 2000 and May
29, 1999, respectively.
NOTE 7 - The Company has 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 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 Retail segment sells men's
apparel and other Nautica-branded products primarily through
Retail store locations directly to consumers.
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<PAGE> 8
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 3, 2000
(unaudited)
(amounts in thousands)
Segment profit is based on earnings before income taxes. The
reportable segments are distinct business units and are
separately managed with different distribution channels.
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All Corporate/
Wholesale Retail Other eliminations Totals
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<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
JUNE 3, 2000
Net Sales $107,807 $26,936 $ -- $ -- $134,743
Segment operating profit (loss) 3,090 2,218 2,342 (2,594) 5,056
Segment Assets 211,508 41,147 7,469 78,586 338,710
Depreciation expense 4,384 379 146 359 5,268
FOR THE THREE MONTHS ENDED
MAY 29, 1999
Net Sales $85,755 $23,408 $ -- $ -- $109,163
Segment operating profit (loss) 5,199 1,703 1,416 (1,140) 7,178
Segment Assets 172,608 49,488 8,728 74,740 305,564
Depreciation expense 3,670 239 82 156 4,147
</TABLE>
In the Corporate/eliminations column the segment assets
primarily consist of the Company's cash and investment
portfolio and the segment operating loss consists of corporate
expenses offset by investment income earned.
-7-
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (unaudited)
RESULTS OF OPERATIONS
For the Three Months Ended June 3, 2000:
Net sales increased 23.4% to $134.7 million in the three months ended
June 3, 2000 from $109.2 million in the comparable prior year period. The
increase in sales is due primarily to increased unit volume rather than price
increases. The reported sales reflect a 25.7% increase in the Wholesale segment
to $107.8 million from $85.8 million and a 15.1% increase in the Retail segment
to $26.9 million from $23.4 million. The growth in the Wholesale segment was
driven by sales in new product lines and increases in the core sportswear sales.
The overall Retail segment sales increase is a result of sales from new stores
opened since the first quarter of last year, offset by lower comparable store
sales.
Gross profit for the period was 47.3% compared to 47.0% in the
comparable prior year period. The increase resulted primarily from better
overall margins in both the Wholesale and Retail segments.
Total selling, general and administrative expenses, ("SG&A") increased
by $14.9 million to $61.0 million in Fiscal 2001 from $46.1 million in Fiscal
2000. SG&A expenses as a percentage of net sales increased to 45.3% from 42.2%
in Fiscal 2001. The increase is principally due to expenses relating to support
the launch of new product lines and markdowns associated with an increase in
promotional activity at retail.
Net royalty income increased by $.4 million to $1.8 million from $1.4
million in the comparable prior year period. The increase is primarily due to
the strength in children's apparel, eyewear and women's swimwear.
Investment income of $.6 million was comparable to the prior year
period.
The provision for income taxes decreased to 38.8% from 39.2% of
earnings before income taxes in the comparable prior year period. The decrease
is due primarily to a reduction in the effective state income tax rates.
Net earnings decreased 29.1% to $3.1 million from $4.4 million in the
comparable prior year period as a result of the factors discussed above.
-8-
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended June 3, 2000, the Company generated cash
from operating activities of $25.1 million principally from net earnings, and
higher cash receipts from increased sales in the fourth quarter of the prior
year. The increase in inventory of $13.3 million, to support increased sales
levels, was financed principally by cash generated from net earnings, increases
in accounts payable-trade and a decrease in accounts receivable. Accounts
receivable and inventory were higher than the same period in the prior year by
16.7% and 4.5%, respectively. These increases were related to sales increases.
During the three months ended May 29, 1999, the Company generated cash from
operating activities of $20.2 million principally from net earnings and higher
cash receipts from increased sales in the fourth quarter of the prior year. The
increase in inventory of $13.2 million, was financed principally by cash
generated from net earnings and a decrease in accounts receivable. Accounts
receivable was 26.7% higher than the same period in the prior year due to timing
of shipments, with a greater percentage occurring in the last part of the
quarter. Inventory was 2.6% lower than the same period in the prior year due to
a shift by retailers in order delivery dates for the fall season particularly
outerwear.
During the three months ended June 3, 2000, the Company's principal
investing activities related primarily to the continued expansion of the Nautica
in-store shop program. The Company expects to continue to incur capital
expenditures to expand the in-store shop program, open additional Retail stores
and build a new distribution facility. At June 3, 2000, there were no other
material commitments for capital expenditures.
During the three months ended June 3, 2000, the Board of Directors
authorized the Company to purchase 4,000,000 shares of its common stock. During
such period, the Company purchased 2,398,000 shares of its outstanding common
stock at a cost of $27.6 million. Subsequent to June 3, 2000, the Company has
purchased an additional 135,000 shares at a cost of $1.2 million.
The Company has a total of $150.0 million in lines of credit with four
commercial banks available for short-term borrowings and letters of credit.
These lines are collateralized by imported inventory and accounts receivable. At
June 3, 2000 and March 4, 2000, letters of credit outstanding under the lines
were $86.4 million and $50.5 million, respectively, and there were no short-term
borrowings outstanding.
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 due to seasonal patterns. In the future, the timing of seasonal
shipments may vary by quarter. The Company anticipates that internally generated
funds from operations, existing cash balances, short-term investments and the
Company's existing credit lines will be sufficient to satisfy its cash
requirements.
INFLATION AND CURRENCY FLUCTUATIONS
The Company believes that inflation and the effect of fluctuations of
the dollar against foreign currencies have not had a material effect on the cost
of imports or the Company's results of operations.
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<PAGE> 11
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements in this Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of authorized
personnel constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on current expectations and are indicated by words such as
"believes," "anticipates," "estimates," and similar words or phrases and involve
known and unknown risks, uncertainties and other factors, which may cause the
actual results or performance of the Company to be materially different from any
future results or performance expressed or implied by such forward-looking
statements. Such risks, uncertainties and factors include, but are not limited
to, the following: the overall level of consumer spending on apparel; dependence
on sales to a limited number of large department store customers; risks related
to extending credit to customers; actions of existing or new competitors and
changes in economic or political conditions in the markets where the Company
sells or sources its products; risks associated with consolidations,
restructurings and other ownership changes in the retail industry; changes in
trends in the market segments in which the Company competes; risks associated
with uncertainty relating to the Company's ability to launch, support and
implement new product lines; and, other risks and uncertainties in the Company's
Securities and Exchange Commission filings, press releases or oral statements.
Readers are urged 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.
ITEM 3: 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 the
three months ended June 3, 2000, the Company earned investment income of $.6
million. If interest rates had been 1% lower than they were during the year,
investment income would have been $.2 million lower. The market risks associated
with the investment portfolio exposure has not changed materially since March 4,
2000.
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<PAGE> 12
PART II
OTHER INFORMATION
Items I through 9. - All items are inapplicable except:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No. Distribution
3(a) Registrant's By-laws as currently in effect are
incorporated herein by reference to Registrant's
Registration Statement on Form S-1 (Registration No.
33-21998).
3(b) Registrant's Restated Certificate of Incorporation is
incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended August
31, 1995, as amended by a Certificate of Amendment
incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter ended May 31, 1996.
10(iii)(a) Registrant's Executive Incentive Stock Option Plan is
incorporated by reference herein from the Registrant's
Registration Statements on Form S-8 (Registration Number
33-1488), as amended by the Company's Registration
Statement on Form S-8 (Registration Number 33-45823).
10(iii)(b) Registrant's 1989 Employee Incentive Stock Plan is
incorporated by reference herein from the Registrant's
Registration Statement on Form S-8 (Registration Number
33-36040).
10(iii)(c) Registrant's 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.
10(iii)(g) Employment Agreement, dated October 1, 1999, by and
between the Registrant and John Varvatos, and Split Dollar
Agreement, dated May 5, 2000, by and between the
Registrant and John Varvatos is incorporated herein by
reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended March 4, 2000.
27 Financial Data Schedule
(b) Reports on Form 8-K. None
-11-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NAUTICA ENTERPRISES, INC.
By: s/Harvey Sanders
--------------------------
Harvey Sanders
Chairman of the Board
and President
Date: July 11, 2000
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By: s/Wayne A. Marino
--------------------------
Wayne A. Marino
Senior VP of Administration
and Chief Financial Officer
Date: July 11, 2000
-------------
By: s/Lainie J. Goldstein
--------------------------
Lainie J. Goldstein
Corporate Vice President -
Financial Controller
Date: July 11, 2000
-------------
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