<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
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 March 4, 2000
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
---------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock
par value $.10 per share
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On May 17, 2000, 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 $328,768,773. As of May 17, 2000, there
were issued and outstanding 31,761,171 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 6, 2000 Part III--Items 10, 11, 12 and 13
<PAGE> 2
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; John
Varvatos; E. Magrath; and, Byron Nelson. These products feature innovative
designs, classic and contemporary styling, quality fabrics and functionality.
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 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 for distribution of the Nautica
collection.
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, year-round items in
order to allow for 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 strong visual presentation based on volume and color
impact. Typically, these items are offered using six to ten different colors
per
<PAGE> 3
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 and bags. 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, caps and bags.
Activewear includes fleece and french terry tops, fleece and french terry pants
and shorts, performance fleece fabrics and tee shirts. NST is targeted to a
17-24 year old 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, each consisting of 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 was introduced
in Fall 1999, the Company offers a denim-based collection of men's apparel,
including jeans, 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 jean jackets,
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
various themes. The Nautica Jeans Company is launching a denim-based collection
of womens apparel in Fall 2000, which will include a full range of products,
including jeans, woven shirts, knits, bottoms and outerwear. Knits will include
sweaters, tee shirts and activewear; bottoms will include denim jeans, casual
pants, denim skirts, casual skirts, denim dresses, casual dresses, denim shorts
and casual shorts; and, outerwear will include jean jackets, lightweight,
transitional weight and down outerwear.
2
<PAGE> 4
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
robes, boxer shorts, jams, night shirts, henley camp shirts, nightshirts and
pull on pants. In 1999, the Company introduced a Nautica robes and sleepwear
collection for women, capitalizing on the success of its mens robes and
sleepwear line. The collection includes pajamas, knit tops and pants,
drawstring shorts, chemise, gowns, nightshirts and robes. The Nautica mens and
womens 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.
John Varvatos Company
The John Varvatos mens contemporary designer collection will
be launched during Fall 2000. The collection will be sold to high-end
department stores and specialty stores. The collection will consist of
sportswear, tailored clothing, furnishings and accessories. Sportswear will
include sweaters, knits, wovens, pants, outerwear and leather; tailored
clothing will include suits, jackets, dress pants and top coats; furnishings
will include dress shirts and neckwear; and accessories will include scarves,
hats, belts, shoes, and bags. The collection is sold through the Company's
wholly-owned subsidiary, John Varvatos Company.
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 in 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,
3
<PAGE> 5
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 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 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 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 specialty 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 2000, Dillard
Department Stores, Federated Department Stores and May Department Stores
Company each accounted for approximately 17%, 18% and 23%, respectively, of the
Company's total gross sales. No other customer of the Company accounted for 10%
or more of the Company's sales during that period.
PRODUCT DESIGN AND SOURCING
The Company manages the development of its apparel from
initial product concept through color and pattern design, fabric identification
and testing and garment manufacturing. Products are designed by its in-house
design staffs. The design teams work in conjunction with the sales and
production teams to determine the apparel styles for a particular season based
upon an evaluation of current style trends, prior year's sales and
consultations with retail customers. In conjunction with agents located in
foreign countries, Nautica arranges fabric sourcing and garment production to
ensure that final products satisfy detailed specifications and quality
standards.
The Company contracts for the manufacture of its products and
does not own or operate any manufacturing facilities. The Company's contract
manufacturers are located primarily in Asia. The Company's agent and sourcing
offices, 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
4
<PAGE> 6
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, womens
swimwear, rainwear, infants', girls' and boys' apparel, leather belts, wallets
and accessories, umbrellas, gloves, scarves, mufflers and hankies, dress
shirts, and home furnishings, including bedding, furniture, dinnerware and
wallpaper.
Internationally, Nautica apparel currently is licensed for
sale in Argentina, Australia, Canada, Chile, Colombia, Europe, Greece, Hong
Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Panama, Peru,
Philippines, Singapore, Taiwan, Thailand, United Arab Emerites, Uruguay and
Venezuela. In addition to wholesale distribution of Nautica apparel,
international licensees operate Nautica retail stores in certain of these
markets.
As a provision of the agreement by which the Company acquired
the Nautica brand in 1984, David Chu, Executive Vice President of the Company
and President of Nautica Licensing, is entitled to receive 50% of the net
royalty income from licensing the Nautica name and trademarks. The Company
receives the remaining 50% of such net royalty income. Through a separate
arrangement, Mr. Chu is entitled to receive a design fee of up to 1.5% of the
net sales of certain new products.
5
<PAGE> 7
OUTLET RETAIL
The Company operates 91 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. 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, Nautica Jeans Company, and John
Varvatos 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 March 4, 2000, the Company had approximately 2,800
employees. Approximately 300 of such employees are parties to a collective
bargaining agreement. The Company considers its relations with its employees to
be good.
6
<PAGE> 8
ITEM 2. PROPERTIES.
The Company operates four warehouse and distribution
facilities for its wholesale business in Rockland, Maine and one in Irving,
Texas. Two of such facilities, a 350,000 square foot facility and a 100,000
square foot facility, both of which are 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.
The Company operates a 150,000 square foot leased warehouse
facility in Edison, New Jersey. This facility is used for receiving, shipping
and warehousing Nautica outlet retail merchandise.
The Company has administrative and sales offices at 40 West
57th Street, New York, New York, where it occupies under lease approximately
110,000 square feet. It also leases a design studio of approximately 44,000
square feet located at 11 West 19th Street, New York, New York, and a design
studio of approximately 9,000 square feet located at 26 West 17th Street, New
York, New York. The Company or its affiliates also lease sales offices in
Dallas, Texas and London, England, one full price retail store located in New
York City and 91 Nautica outlet retail 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 2000.
7
<PAGE> 9
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 reported
on the NASDAQ National Market System.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
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 2000
First Quarter Ended May 29, 1999 $16.81 $10.88
Second Quarter Ended August 28, 1999 17.31 14.25
Third Quarter Ended November 27, 1999 16.69 12.63
Fourth Quarter Ended March 4, 2000 13.63 8.38
FISCAL 2001
First Quarter (through May 17, 2000) $12.56 $ 9.81
</TABLE>
As of May 17, 2000, there were approximately 418 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.
8
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended
----------
Amounts in thousands, except March 4, February 27, February 28, February 28, February 29,
per share data 2000 1999 1998 1997 1996
- ----------------------------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Selected consolidated statements of earnings
data
Net sales $621,286 $552,650 $484,832 $386,560 $302,541
======= ======= ======= ======= =======
Net earnings $ 46,163 $ 58,708 $ 56,418 $ 44,040 $ 31,986
======== ======== ======== ======== ========
Net earnings per share of common stock
Basic $1.33 $1.53 $1.44 $1.10 $.81
==== ==== ==== ==== ===
Diluted $1.26 $1.45 $1.35 $1.02 $.76
==== ==== ==== ==== ===
Cash dividends per share of common stock
None None None None None
Selected consolidated balance sheets data
Total assets $351,938 $332,334 $310,451 $251,393 $209,340
Longterm debt, excluding
Current portion -- 50 100 150 200
Working capital 168,231 179,566 187,355 156,239 133,912
Stockholders' equity 263,713 255,817 251,169 203,127 173,138
</TABLE>
All share data has been adjusted to reflect stock splits.
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company operates two primary business segments, Wholesale and
Outlet Retail. The Wholesale segment consists of businesses that design,
source, market and distribute to the retail trade sportswear, activewear,
outerwear, robes and sleepwear for men and robes and sleepwear for women. The
Outlet Retail segment sells merchandise through outlet retail stores directly
to consumers.
Fiscal year ended March 4, 2000 compared to February 27, 1999:
Net sales increased 12.4% to $621.3 million in the fiscal year
ended March 4, 2000 from $552.7 million in the prior year. The increase in
sales was due primarily to increased unit volume rather than price increases.
Wholesale sales increased 12.8% to $483.3 million from $428.3 million due to
the launch of the Nautica Sport Tech, Nautica Men's Jeans and Nautica Women's
Robes and Sleepwear product lines. Outlet Retail sales increased 10.8% to
$137.8 million from $124.3 million as a result of sales from new stores opened
during the year and full year sales of stores opened in the prior year
offsetting negative comparable store sales.
Gross profit as a percentage of sales at 48.0% was comparable to
48.1% in the prior year.
Total selling, general and administrative expenses increased by
$51.7 million to $230.0 million from $178.3 million. Selling, general and
administrative expenses as a percentage of net sales increased to 37.0% from
32.3% in the prior year. The increase in the percentage of net sales was due to
increased costs associated with the launch and support of new product lines,
and higher outlet retail, general selling and retail development expenses.
Net royalty income increased by $.4 million to $5.7 million from
$5.3 million in the prior year. The increase was primarily due to the strength
in boy's apparel and men's accessories.
Investment income decreased by $1.9 million to $2.1 million from
$4.0 million in the prior year. The decrease was the result of lower average
cash and investment balances, due to the Company's stock purchase program and
lower average rates of returns on investments.
The provision for income taxes decreased to 39.2% from 39.5% of
earnings before income taxes in the prior year. The decrease was due primarily
to a reduction in the effective state income tax rates.
Net earnings decreased 21.4% to $46.2 million from $58.7 million
in the prior year as a result of the factors discussed above.
10
<PAGE> 12
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 as a result of opening additional outlet retail
stores and sales increases in existing stores.
Gross profit as a percentage of sales at 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 was
principally a result of the start-up costs associated with the planned launch
of new product lines, and higher general marketing and retail development
costs.
Net royalty income decreased by $.4 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 general
retail weakness that affected a number of licensees.
Investment income increased by $.2 million to $4.0 million from
$3.8 million in the prior year. The increase was 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.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended March 4, 2000 and February 27, 1999, the
Company generated cash from operating activities of $62.7 million and $60.6
million, respectively. Such cash was principally from net earnings and
increases in accrued expenses and income taxes payable offset by inventory
increases in 2000 and 1999 of $3.7 and $3.5 million, respectively, and
increases in accounts receivable of $6.6 and $21.9 million, respectively.
Accounts receivable balances were higher by 5.0% and 26.3%, respectively, than
balances in the preceding year. Inventory balances were higher by 5.2% and
5.2%, respectively, than balances in the preceding year. These increases were
related to sales increases.
During the year ended March 4, 2000, cash used in investing
activities was $12.5 million. This amount primarily consists of investing
activities related to the continued expansion of the Nautica in-store shop
program and amounts related to the expansion of showrooms, offset by cash
provided by a $21.1 million transfer of certain marketable securities into cash
equivalents. The Company expects to continue to incur capital expenditures to
expand the in-store shop program, open additional outlet retail stores, and to
launch and support new product lines. At March 4, 2000, there were no other
material commitments for capital expenditures. However, the Company is planning
the construction of a new distribution facility which it anticipates will cost
approximately $40-$50 million. The Company is evaluating various financing
vehicles for the project. During the year ended February 27, 1999, the
Company's principal investing activities related to the continued expansion of
the in-store shop program and amounts related to the expansion of showrooms.
During the year, the Board of Directors authorized the Company to
repurchase up to 4,000,000 shares of its outstanding stock on the open market.
Under this authorization and a previous authorization, the Company purchased
11
<PAGE> 13
3,368,000 shares at a cost of $39.1 million during 2000. Subsequent to
year-end, the Company has purchased an additional 1,880,500 shares at a cost of
$21.5 million.
As of March 4, 2000, the Company has $150.0 million in lines of
credit with four commercial banks. As of February 27, 1999, the Company had
$100.0 million in lines of credit with two commercial banks. Such lines of
credit are available for short-term borrowings and letters of credit and are
collateralized by imported inventory and accounts receivable. At March 4, 2000
letters of credit outstanding under the lines were $50.5 million 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 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 experienced no disruptions as a result of the
commencement of the year 2000. The Company continues to monitor its existing
systems to ensure year 2000 compliance. The Company is not aware of any year
2000 non-compliance by its suppliers, customers, and financial institutions
that could materially affect business operations. However, the Company does not
control the systems of other companies and cannot assure that its suppliers,
customers and financial institutions are continuing to monitor their systems to
ensure year 2000 compliance. If the Company's suppliers, customers and
financial institutions do not monitor their systems and experience a post year
2000 non-compliance issue, the non-compliance could have an adverse effect on
future results of operations, or financial condition of the Company.
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, including 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
12
<PAGE> 14
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 2000, the Company earned investment income of $2.1 million.
If interest rates had been 1% lower than they were during the year, investment
income would have been $1.4. The Company does not expect changes in interest
rates to have a material effect on income or cash flows in fiscal year 2001,
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 6, 2000.
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 6, 2000.
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 6, 2000.
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 6, 2000 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 March 4, 2000 and February 27, 1999 F-2
Consolidated Statements of Earnings for each of the three years in the
period ended March 4, 2000 F-4
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended March 4, 2000 F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended March 4, 2000 F-7
Notes to Consolidated Financial Statements F-8 - 23
(a) 2. Financial Statement Schedule
Included in Part IV of this report:
Schedule for each of the three years in the period ended March 4, 2000:
II - Valuation and Qualifying Accounts F-24
3. Exhibits
3(a) Registrant's By-laws as currently in effect are incorporated herein
by reference to Registrant's Registration Statement on Form S-1
(Registration No. 33-21998).
3(b) Registrant's 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).
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
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.
21 Subsidiaries of Registrant
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
None
<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 March 4, 2000 and February 27, 1999,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the three years in the period ended March 4, 2000. 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 auditing standards generally
accepted in the United States. 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 March 4, 2000 and February 27, 1999,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended March 4, 2000, in
conformity with accounting principles generally accepted in the United States.
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 March 4, 2000. 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 19, 2000
F-1
<PAGE> 19
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
March 4, February 27,
ASSETS 2000 1999
-------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 27,143 $ 15,498
Short-term investments 33,991 55,049
Accounts receivable - net of allowances of
$9,046 in 2000 and $5,640 in 1999 107,609 102,471
Inventories 73,879 70,212
Prepaid expenses and other current assets 5,453 5,434
Deferred tax benefit 8,381 7,369
------- -------
Total current assets 256,456 256,033
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and amortization 81,674 64,524
OTHER ASSETS 13,808 11,777
------- -------
$351,938 $332,334
======= =======
</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>
March 4, February 27,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
--------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ 50
Accounts payable - trade 29,048 29,596
Accrued expenses and other current liabilities 49,384 40,298
Income taxes payable 9,793 6,523
--------- ---------
Total current liabilities 88,225 76,467
LONG-TERM DEBT - NET - 50
COMMITMENTS AND CONTINGENCIES
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, 42,696,000 shares in 2000 and
42,604,000 shares in 1999 4,270 4,260
Additional paid-in capital 67,559 66,813
Retained earnings 322,045 275,882
Accumulated other comprehensive income (loss) - (35)
Common stock in treasury at cost; 8,964,000 shares
in 2000 and 5,596,000 shares in 1999 (130,161) (91,103)
-------- --------
263,713 255,817
-------- -------
$ 351,938 $332,334
======== =======
</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
March 4, February 27, February 28,
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
Net sales $621,286 $552,650 $484,832
Cost of goods sold 323,195 287,021 252,698
-------- -------- -------
Gross profit 298,091 265,629 232,134
Selling, general and administrative expenses 229,975 178,293 149,044
Net royalty income (5,748) (5,281) (5,738)
--------- --------- --------
Operating profit 73,864 92,617 88,828
Other income
Investment income, net 2,067 4,016 3,781
Minority interest in loss of consolidated subsidiary - 405 785
--------- --------- ----------
Earnings before provision for income taxes 75,931 97,038 93,394
Provision for income taxes 29,768 38,330 36,976
-------- -------- --------
NET EARNINGS $ 46,163 $ 58,708 $ 56,418
======== ======== ========
Net earnings per share of common stock
Basic $1.33 $1.53 $1.44
===== ==== ====
Diluted $1.26 $1.45 $1.35
===== ==== ====
Weighted-average number of common shares outstanding
Basic 34,805,000 38,430,000 39,081,000
========== ========== ==========
Diluted 36,597,000 40,529,000 41,729,000
========== ========== ==========
</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 March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common stock Additional
--------------------------- paid-in Retained
Shares Amount capital earnings
----------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Balance at February 28, 1997 41,771,000 $4,177 $55,502 $160,756
Common stock issued on exercise of stock options 664,000 66 2,686
Income tax benefit from stock options 6,348
Purchase of treasury stock
Other common stock issued 194
Comprehensive income
Net earnings 56,418
Net unrealized investment gain, net of
deferred taxes
Balance at February 28, 1998 42,435,000 4,243 64,730 217,174
Common stock issued on exercise of stock options 169,000 17 1,008
Income tax benefit from stock options 1,075
Purchase of treasury stock
Comprehensive income
Net earnings 58,708
Net unrealized investment loss, net of
deferred taxes
---------- --------- ----------- -------------
Balance at February 27, 1999 (carried forward) 42,604,000 4,260 66,813 275,882
</TABLE>
<TABLE>
<CAPTION>
Accumulated
other
comprehensive Treasury
income (loss) stock Total
---------------- ---------- -------
<S> <C> <C> <C>
Balance at February 28, 1997 $ - $(17,308) $203,127
Common stock issued on exercise of stock options 2,752
Income tax benefit from stock options 6,348
Purchase of treasury stock (17,873) (17,873)
Other common stock issued 194
Comprehensive income
Net earnings 56,418
Net unrealized investment gain, net of
deferred taxes 202 202
----------
56,620
Balance at February 28, 1998 202 (35,181) 251,168
Common stock issued on exercise of stock options 1,025
Income tax benefit from stock options 1,075
Purchase of treasury stock (55,922) (55,922)
Comprehensive income
Net earnings 58,708
Net unrealized investment loss, net of
deferred taxes (237) (237)
----- ---------- ----------
58,471
Balance at February 27, 1999 (carried forward) (35) (91,103) 255,817
</TABLE>
F-5
<PAGE> 23
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
Years ended March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common stock Additional
--------------------------- paid-in Retained
Shares Amount capital earnings
----------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Balance at February 27, 1999 (brought forward) 42,604,000 $4,260 $66,813 $275,882
Common stock issued on exercise of stock options 92,000 10 558
Income tax benefit from stock options 188
Purchase of treasury stock
Comprehensive income
Net earnings 46,163
Net unrealized investment gain, net of
deferred taxes
---------- ----- ------ -------
BALANCE AT MARCH 4, 2000 42,696,000 $4,270 $67,559 $322,045
========== ===== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
other
comprehensive Treasury
income (loss) stock Total
---------------- ---------- -------
<S> <C> <C> <C>
Balance at February 27, 1999 (brought forward) $(35) $ (91,103) $255,817
Common stock issued on exercise of stock options 568
Income tax benefit from stock options 188
Purchase of treasury stock (39,058) (39,058)
Comprehensive income
Net earnings 46,163
Net unrealized investment gain, net of 35 35
deferred taxes
----- -------- -------
46,198
BALANCE AT MARCH 4, 2000 $ - $(130,161) $263,713
===== ======== =======
</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
March 4, February 27, February 28,
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 46,163 $ 58,708 $ 56,418
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)
Deferred income taxes (1,035) (1,119) (453)
Depreciation and amortization 17,072 12,552 8,979
Provision for bad debts 1,424 531 748
Changes in operating assets and liabilities
Accounts receivable (6,562) (21,867) (20,600)
Inventories (3,667) (3,486) (4,224)
Prepaid expenses and other current assets (20) (552) (575)
Other assets (2,686) (2,491) (1,120)
Accounts payable - trade (548) 10,854 (3,054)
Accrued expenses and other current liabilities 9,086 6,140 8,780
Income taxes payable 3,458 1,771 9,960
-------- -------- --------
Net cash provided by operating activities 62,685 60,636 54,074
-------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (33,289) (20,224) (21,370)
Acquisitions, net of cash acquired - (1,650) (2,837)
Sale (purchase) of short-term investments 21,116 (2,764) (52,343)
Payments to register trademark (277) (169) (304)
--------- --------- ---------
Net cash used in investing activities (12,450) (24,807) (76,854)
--------- --------- ---------
Cash flows from financing activities
Proceeds from minority shareholders of
consolidated subsidiary - - 680
Principal payments on long-term debt (100) (50) (50)
Proceeds from issuance of common stock 568 1,025 2,752
Purchase of treasury stock (39,058) (55,922) (17,873)
------- -------- -------
Net cash used in financing activities (38,590) (54,947) (14,491)
------- -------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 11,645 (19,118) (37,271)
Cash and cash equivalents at beginning of year 15,498 34,616 71,887
------- ------- -------
Cash and cash equivalents at end of year $ 27,143 $ 15,498 $ 34,616
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for
income taxes $ 27,389 $ 37,604 $ 27,470
</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
March 4, 2000, February 27, 1999 and February 28, 1998
(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, marketing, sourcing, distributing 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.
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 trading securities and are
adjusted to market value at the end of each accounting period.
Unrealized market gains and losses are included in earnings. In prior
years, such marketable securities were classified as
available-for-sale securities with unrealized market gains and losses
reported in stockholders' equity. Realized gains and losses on sales
of investments are determined on a specific identification basis, and
are included in earnings.
F-8
<PAGE> 26
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(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 and the remaining wholesale inventories.
Inventories valued using the LIFO method consisting primarily of
finished goods comprised 40% and 48% of consolidated inventories
before LIFO adjustment at March 4, 2000 and February 27, 1999,
respectively. Had the Company utilized the FIFO method of accounting
for all inventory, inventories would have been higher by $2,595 and
$2,748 at March 4, 2000 and February 27, 1999, 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 twenty to thirty nine 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 at March 4, 2000 and February 27, 1999. These
assets are being amortized on a straight-line basis over twenty- and
forty- year periods. Accumulated amortization at March 4, 2000 and
February 27, 1999 was $1,248 and $863, respectively.
F-9
<PAGE> 27
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(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 1,792,000,
2,099,000 and 2,648,000 in 2000, 1999, 1998, 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 4,092,000, 1,627,000 and 11,000 in 2000, 1999 and
1998, respectively.
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 March 4, 2000.
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 $26,500, $21,300
and $20,100 in 2000, 1999 and 1998, respectively.
F-10
<PAGE> 28
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
NOTE A (continued)
12. Comprehensive Income
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.
Accumulated other comprehensive income (loss), 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. Unless otherwise stated, references made to 2000,
1999 and 1998 relate to the fiscal years ended March 4, 2000, February
27, 1999 and February 28, 1998, respectively. The fiscal year ended
March 4, 2000 contains 53 weeks.
14. Reclassifications
Certain amounts in prior years have been reclassified to conform with
classifications used in 2000.
NOTE B - SHORT-TERM INVESTMENTS
The following summarizes marketable securities:
<TABLE>
<CAPTION>
Gross unrealized
----------------------------- Market
Cost Gains Losses value
------- --------- -------- --------
<S> <C> <C> <C> <C>
March 4, 2000 (Trading)
Government and agency bonds $ 8,963 $ $(153) $ 8,810
Tax-exempt municipal bonds 13,595 8 (101) 13,502
Corporate bonds 11,588 (224) 11,364
------ -------- ---- ------
Total debt securities 34,146 8 (478) 33,676
Other 315 315
------ -------- ---- ------
$34,461 $ 8 $(478) $33,991
====== ======== ==== ======
</TABLE>
F-11
<PAGE> 29
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
NOTE B (continued)
<TABLE>
<CAPTION>
Gross unrealized
----------------------------- Market
Cost Gains Losses value
------- --------- -------- --------
<S> <C> <C> <C> <C>
February 27, 1999 (Available-for-sale)
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
====== === ==== ======
</TABLE>
For 2000, 1999 and 1998, gross realized gains on securities totaled $16,
$501 and $232, respectively. In 2000, 1999 and 1998, gross realized losses
totaled $296, $125 and $3, respectively. The unrealized loss of $470 in
2000 is included in income due to the change to a trading portfolio. In
1999, the unrealized loss on available-for-sale securities of $58 (net of
deferred tax of $23) was included in accumulated other comprehensive
income (loss).
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ---------
<S> <C> <C>
Land $ 515 $ 515
Building and improvements 11,771 11,753
Machinery, equipment and fixtures 95,083 69,370
Leasehold improvements 21,907 15,757
Construction in progress 666 -
------- ------
129,942 97,395
Accumulated depreciation and amortization 48,268 32,871
------- ------
$ 81,674 $64,524
====== ======
</TABLE>
F-12
<PAGE> 30
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
NOTE D - SHORT-TERM BORROWINGS
As of March 4, 2000, the Company had $150,000 in lines of credit with four
commercial banks. As of February 27, 1999, the Company had $100,000 in
lines of credit with two commercial banks. Such lines of credit are
available for short-term borrowings and letters of credit, collateralized
by imported inventory and accounts receivable. At March 4, 2000, letters
of credit outstanding under the lines were $50,539 and there were no
short-term borrowings outstanding.
NOTE E - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Payroll and other employee compensation $14,405 $13,506
Royalties 2,096 1,149
Advertising and promotion 19,827 16,681
Accrued rent 2,862 1,844
Other 10,194 7,118
------ -------
$49,384 $40,298
====== ======
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY
During the year, the Board of Directors authorized the Company to
repurchase up to 4,000,000 shares of its outstanding stock on the open
market. Under this authorization and a previous authorization, the Company
purchased 3,368,000 shares of its outstanding stock at a cost of $39,058
during 2000. Subsequent to year-end, the Company has purchased an
additional 1,880,500 shares at a cost of $21,459. Under previous
authorizations, the Company purchased 2,534,000 shares at a cost of
$55,922 during 1999.
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 its sole discretion, determine.
F-13
<PAGE> 31
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(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 2010. Rent expense amounted to
approximately $11,889 in 2000, $9,785 in 1999 and $7,440 in 1998. At
March 4, 2000, minimum rental commitments under noncancellable leases
are as follows:
<TABLE>
<S> <C>
2001 $ 9,929
2002 9,224
2003 8,583
2004 7,793
2005 6,977
Thereafter 31,266
------
Total minimum payments required $73,772
======
</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-14
<PAGE> 32
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(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 members of 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 March 4, 2000, the maximum
amount payable, applicable to four individuals, would be approximately
$13,605.
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 23%, 18% and 17%, respectively, of sales
in 2000, 22%, 19% and 18%, respectively, of sales in 1999 and 24%, 21%
and 17%, respectively, of sales in 1998. 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
March 4, 2000.
F-15
<PAGE> 33
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
NOTE H - INCOME TAXES
Significant components of the Company's deferred taxes at March 4, 2000
and February 27, 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ---------
<S> <C> <C>
Deferred tax assets (liabilities)
Deferred compensation $ 2,290 $ 1,574
Allowance for doubtful accounts and sales
discounts 1,582 985
Capitalized inventory costs 1,207 1,231
Nondeductible accruals 6,249 5,485
Depreciation (2,947) (1,929)
Unrealized loss (gain) on investments - 23
------ ------
$ 8,381 $ 7,369
====== ======
The provision for income taxes is comprised of the following:
<CAPTION>
2000 1999 1998
--------- --------- ----------
<S> <C> <C> <C>
Current
Federal $26,187 $33,114 $31,093
State and local 4,616 6,335 6,336
Deferred (1,035) (1,119) (453)
------ ------ ------
$29,768 $38,330 $36,976
====== ====== ======
</TABLE>
F-16
<PAGE> 34
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(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>
2000 1999 1998
----------- ----------- ----------
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 4.0 4.2 4.4
Other .2 .3 .2
------ ------- ------
Actual provision for income taxes 39.2% 39.5% 39.6%
===== ==== ====
</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 $5,748, $5,281
and $5,738, in 2000, 1999 and 1998, respectively. In addition, the
Executive Vice President is entitled to receive a design fee of up to 1.5%
of the net sales of certain new products, which at March 4, 2000 and
February 27, 1999, amounted to $1,014 and $15, respectively. At March 4,
2000 and February 27, 1999, the amount due to the Executive Vice President
included in accrued expenses and other current liabilities was
approximately $2,228 and $1,149, 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-17
<PAGE> 35
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
NOTE J - MULTIEMPLOYER PENSION PLAN
The Company contributed approximately $56, $100 and $165 in 2000, 1999 and
1998, respectively, 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 March 4, 2000, 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
$309, $240 and $178 in 2000, 1999 and 1998, respectively.
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-18
<PAGE> 36
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(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 March 4, 2000, 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 $190, $1,075
and $6,348, during the years ended March 4, 2000, February 27, 1999 and
February 28, 1998, 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>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Net earnings
As reported $46,163 $58,708 $56,418
Pro forma 36,359 51,483 51,558
Basic net earnings per share
As reported $1.33 $1.53 $1.44
Pro forma 1.04 1.34 1.32
Diluted net earnings per share
As reported $1.26 $1.45 $1.35
Pro forma 1.00 1.27 1.24
</TABLE>
F-19
<PAGE> 37
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(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 account the effect of 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 March 4, 2000, February 27, 1999 and February 28, 1998,
respectively: expected volatility of 50 percent, 55 percent and 50
percent; risk-free interest rates of 6.0 percent, 6.0 percent and 5.8
percent; and expected lives of seven years.
The table below summarizes the activity in the plans:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------- ----------------------- --------------------------
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 4,316,000 $16.45 3,562,000 $13.97 3,450,000 $ 9.68
Granted 1,812,000 11.47 945,000 25.04 820,000 24.46
Exercised (92,000) 6.15 (168,000) 6.70 (665,000) 4.14
Cancelled (302,000) 23.25 (23,000) 24.91 (43,000) 21.73
---------- --------- -----------
Outstanding at end of
year 5,734,000 15.02 4,316,000 16.45 3,562,000 13.97
========= ========= =========
Exercisable at end of
year 2,684,000 13.51 2,040,000 10.32 1,381,000 7.45
========= ========= =========
Weighted-average fair
value of options granted
during the year 6.80 11.13 14.34
</TABLE>
F-20
<PAGE> 38
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
NOTE L (continued)
The following table summarizes information concerning currently
outstanding and exercisable stock options at March 4, 2000:
<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>
$ .78 - $ 4.45 714,000 2.48 $ 3.43 714,000 $ 3.43
6.22 - 16.69 2,721,000 7.52 10.67 883,000 9.29
18.56 - 27.38 2,299,000 7.13 24.50 1,087,000 23.70
--------- ---------
5,734,000 2,684,000
========= =========
</TABLE>
NOTE M - SEGMENT REPORTING
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes 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 women 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, separately managed with different distribution
channels. The following information about the two segments is as of March
4, 2000 and for each of the three years in the period then ended:
F-21
<PAGE> 39
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(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>
March 4, 2000
Net sales from external customers $483,325 $137,765 $ 196 $ - $621,286
Segment operating profit (loss) 58,522 19,644 3,437 (5,672) 75,931
Segment assets 223,398 37,580 9,281 81,679 351,938
Depreciation expense 13,804 1,340 397 597 16,138
February 27, 1999
Net sales from external customers $428,331 $124,319 $ - $ - $552,650
Segment operating profit (loss) 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
</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-22
<PAGE> 40
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 4, 2000, February 27, 1999 and February 28, 1998
(amounts in thousands, except share data)
NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MAY 29 AUGUST 28 NOVEMBER 27 MARCH 4
------------ --------- ----------- -----------
<S> <C> <C> <C> <C>
2000
Net sales $109,163 $166,017 $187,958 $158,148
Gross profit 51,303 78,604 91,074 77,110
Net earnings 4,364 14,024 17,707 10,068
Net earnings per share of common
stock
Basic $.12 $.41 $.51 $.29
Diluted .12 .38 .48 .28
Weighted-average number of
common shares outstanding
Basic 35,405,000 34,599,000 34,624,000 34,594,000
Diluted 37,181,000 36,745,000 36,579,000 35,876,000
<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>
F-23
<PAGE> 41
Nautica Enterprises, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C
-------- -------- --------
Additions
------------
(1) (2)
Charged to
Balance at Charged to other
beginning costs and accounts -
Description of year expenses describe
----------- ----------- ------------ -----------
<S> <C> <C> <C>
Year ended March 4, 2000
Reserves deducted from assets to which they apply
Allowance for bad debts $2,597 $1,424
===== =====
Allowance for sales returns and discounts $3,043 $1,982
===== =====
Year ended February 27, 1999
Reserves deducted from assets to which they apply
Allowance for bad debts $2,066 $ 531
===== ======
Allowance for sales returns and discounts $3,670
=====
Year ended February 28, 1998
Reserves deducted from assets to which they apply
Allowance for bad debts $1,318 $ 748
===== ======
Allowance for sales returns and discounts $1,441 $2,229
===== =====
</TABLE>
<TABLE>
<CAPTION>
Column A Column D Column E
-------- -------- --------
Balance at
Deductions - end of
Description describe (a) year
----------- ------------- -----------
<S> <C> <C>
YEAR ENDED MARCH 4, 2000
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY
ALLOWANCE FOR BAD DEBTS $4,021
=====
ALLOWANCE FOR SALES RETURNS AND DISCOUNTS $5,025
=====
Year ended February 27, 1999
Reserves deducted from assets to which they apply
Allowance for bad debts $2,597
=====
Allowance for sales returns and discounts $627 $3,043
=== =====
Year ended February 28, 1998
Reserves deducted from assets to which they apply
Allowance for bad debts $2,066
=====
Allowance for sales returns and discounts $3,670
=====
</TABLE>
(a) Accounts written off as uncollectible, net of recoveries and actual
returns processed.
F-24
<PAGE> 42
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 26, 2000)
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 26, 2000
- ---------------------------------- Chief Executive Officer
Harvey Sanders (Principal Executive Officer)
and Director
/s/ W. Donald Pennington Chief Financial Officer May 26, 2000
- ---------------------------------- (Principal Financial Officer)
W. Donald Pennington
/s/ Lainie Goldstien Corporate Vice President - May 26, 2000
- ---------------------------------- Financial Controller
Lainie Goldstein (Principal Accounting Officer)
/s/ David Chu Executive Vice President May 26, 2000
- ---------------------------------- and Director
David Chu
</TABLE>
F-25
<PAGE> 43
<TABLE>
<S> <C> <C>
/s/Robert B. Bank Director May 26, 2000
- ----------------------------------
Robert B. Bank
/s/George Greenberg Director May 26, 2000
- ----------------------------------
George Greenberg
/s/Ronald G. Weiner
- ---------------------------------- Director May 26, 2000
Ronald G. Weiner
/s/John Varvatos Director May 26, 2000
- ----------------------------------
John Varvatos
</TABLE>
F-26
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
October 1, 1999, by and between NAUTICA ENTERPRISES INC. (the "Company"), a
Delaware Corporation, and John Varvatos (the "Executive").
In consideration of the promises and mutual covenants herein
contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Executive and the
Executive agrees to serve the Company as the President and Chief Executive
Officer of the John Varvatos Company (the "Division") of the Company, and the
Executive agrees to perform in such capacity such duties as may from time to
time be assigned to him by the Company and the senior management of the Company.
The amount of funding and resources allocated to the Division will be in the
sole discretion of the Company.
2. Extent of Services. The Executive shall serve as President and
Chief Executive Officer of the Division and shall have such responsibilities,
duties and authority as are generally associated with the position of President
and Chief Executive Officer and as may from time to time be assigned to the
Executive by the Board of Directors of the Company and/or the CEO. The Executive
agrees to devote his entire business time, best efforts, skills and attention to
fulfilling the performance of his duties and responsibilities hereunder
faithfully and diligently.
3. Term. The term of the Executive's employment heretofore commenced
on September 21, 1998, and except in the case of earlier termination as
hereinafter specifically provided, shall continue until February 28, 2002 (the
"Term"). Following this initial term, this Agreement shall be extended
automatically in three year segments, unless either party gives written notice
of nonextension at least ninety (90) days prior to each Automatic Renewal
Period.
4. Compensation.
(a) Salary. For all services to be rendered by the Executive
hereunder, the Company agrees to pay to the Executive, and the Executive agrees
to accept, a current salary at a rate of $650,000 per the Company's fiscal year
ending February 29, 2000 (the "Salary"). The Salary shall be payable in equal
installments pursuant to the Company's payroll practice as may be in effect from
time to time or in any other manner the Executive and the Company agree.
Effective March 1, 2000, the Salary will be increased to $700,000 per the
Company's fiscal year. Thereafter, each year starting on March 1, the Salary
will be increased in an amount to be determined by the Company from time to time
in its sole discretion, but in no case less than five percent (5%), unless
mutually agreed upon to be less.
(b) Bonus. The Executive shall be entitled to receive an annual
bonus in accordance with the bonus policies of the Company in effect from time
to time for other
<PAGE> 2
2
employees of comparable seniority, as determined by the CEO of the Company in
his sole discretion from time to time.
5. Benefits.
(a) The Executive shall, as of the effective date of his
employment with the Company, also be eligible to participate in any and all
group insurance, hospital, major medical and disability benefits or other fringe
benefits of the Company, as established by the Company from time to time for
employees of comparable seniority in accordance with and subject to the
eligibility and other provisions of any such plans or programs. The terms and
conditions of such benefits may be changed from time to time in the Company's
sole discretion.
(b) The Executive shall be entitled to participate in any stock
option, compensation, retirement, pension, welfare or other incentive plans
generally available from time to time to employees of comparable seniority of
the Company, in accordance with and subject to the eligibility and other
provisions of such plans and arrangements.
(c) During the term of this Agreement, provided such insurance
is obtainable, the Company shall maintain in force, with Executive's designated
beneficiary, a life insurance policy providing a benefit at Executive's death of
at least Five million dollars ($5,000,000), such policy to be subject to a
split-dollar agreement between Executive and the Company providing for
reimbursement to the Company from the proceeds of such policy in the aggregate
amount of premiums paid by the Company in connection with such policy.
(d) The Company will pay or reimburse the Executive for all
reasonable and necessary travel, entertainment and other business expenses
incurred by him in connection with his duties on behalf of the Company in
accordance with the general expense policies of the Company in effect from time
to time for employees of comparable seniority of the Company, upon timely
presentation of satisfactory documentation.
(e) The Executive shall be entitled to a car allowance for the
lease, insurance, maintenance, housing and repair of an automobile in accordance
with the Company's automobile expense polices in effect from time to time for
employees of comparable seniority of the Company.
(f) The Executive shall be entitled to vacation in accordance
with the Company's vacation policies in effect from time to time for employees
of comparable seniority of the Company.
6. Place of Performance. The Executive will be based at an office
provided and paid for by the Company in New York, New York, and will travel to
such other locations throughout the world as are appropriate or required in
connection with the performance of his duties.
7. Use And Registration Of Names.
<PAGE> 3
3
(a) Consents. It is the desire of the Executive and the intent
of Nautica to use for any purpose whatsoever the names JOHN VARVATOS, VARVATOS
and JOHN VARVATOS COMPANY and any derivations thereof of such names now or
hereafter developed or created (the "Designer Names"), in plain block letters,
stylized letters and/or logo formats, including without limitation the John
Varvatos signature, as trademarks and service marks of Nautica (the "Marks") to
the extent that such names are available and may be used without infringing upon
the rights of any third persons. The Executive specifically consents to (i) the
use by Nautica of the Designer Names, during and following the period of his
employment by Nautica hereunder (the "Employment Period"), as trademarks and
service marks of Nautica, and (ii) the registration of the Marks, during and
following the Employment Period, as trademarks and/or service marks of Nautica
in any and all countries and jurisdictions of the world.
(b) Assignment and Acknowledgment. The Executive hereby assigns
to Nautica all rights, title and interests and his common law rights in the
Marks, including the good will attached thereto. The Executive acknowledges that
hereafter Nautica is and will be the sole owner of all right, title and interest
in and to the Marks throughout the world.
(c) Additional Documents. The Executive hereby confirms his
consent to the registration of the Marks by Nautica in all countries and
jurisdictions of the world by signing the Consent form attached hereto as
Exhibit A. The Executive agrees that from time to time during and after the
Employment Period, at the request of Nautica or its successor, assignee or
related company, he shall, without the payment of any additional consideration,
execute such additional documents as are required or useful in obtaining
registrations of any of the Marks in any country or jurisdiction, including
without limitation any form of consent required by the relevant governmental
authority of any country or jurisdiction which does not accept the form of
Consent attached as Exhibit A. In the furtherance of the Company's rights in and
to the Marks, the Executive grants to Company an irrevocable power of attorney
to execute any and all documents as may be necessary or appropriate to
effectuate such and confirm Company ownership and registration right in and to
the Marks.
(d) Additional Restrictions. The Executive agrees never to
challenge the validity of Nautica's ownership of the Marks or of any
registration or application for registration thereof. The Executive agrees that
he shall not at any time during or after the Employment Period use as a
trademark or service mark any name or mark which is confusingly similar to any
of the Marks, except as specifically permitted by Nautica.
(e) Representations And Warranties Of Executive. The Executive
represents and warrants to Nautica that (i) he has not granted any rights in the
Designer Names to any third party, (ii) to his knowledge, the use by Nautica of
the Designer Names as trademarks and service marks of Nautica will not conflict
with or infringe upon the rights of any third party, and (iii) he is not a party
to any agreement or arrangement that would prevent him from entering into this
agreement.
9. Termination of Employment. (a) By the Company. During the
employment relationship, the Company may terminate the Executive's employment
for Cause (as defined in
<PAGE> 4
4
Section 11), upon written notice to the Executive. If the Company terminates the
Executive's employment during the Term for Cause, the Executive shall have no
further rights hereunder after the date of early termination, all obligations of
the Company to provide compensation and benefits (including, without limitation,
the obligation to pay the Salary) shall cease, effective as of the date of early
termination, except that any unpaid Salary accrued as of such date shall be paid
to the Executive within a reasonable time of such early termination. The
Company's rights under this Agreement or otherwise, if any, against the
Executive shall survive any such termination of this Agreement.
(b) Death or Permanent Disability. In the event of the
Executive's death or "permanent disability" (as hereinafter defined) during the
Term, this Agreement shall terminate immediately, and the Company shall pay the
Executive, or the Executive's executor or other legal representative, as the
case may be, the Salary which would otherwise be due the Executive through the
date on which such termination becomes effective. For purposes of this
Agreement, "permanent disability" shall mean that the Executive is unable to
perform the essential functions of his position, with or without reasonable
accommodation, by reason of a physical or mental impairment that is reasonably
expected to be permanent.
(c) By the Executive. The Executive may terminate this
Agreement upon a Change of Control Event. For purposes hereof, Change of Control
Event shall mean:
(i) When any "person" as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as
used in Sections 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act, but excluding the Company or any subsidiary
and any employee benefit plan sponsored or maintained by the Company or any
subsidiary (including any trustee of such plan acting as trustee) or any person,
entity or group specifically excluded by the Board, directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; or
(ii) When, during any period of 24 consecutive months,
the individuals who, at the beginning of such period, constitute the Board of
Directors (the "Incumbent Directors") cease for any reason other than death to
constitute at least a majority thereof, provided, however, that a director who
was not a director at the beginning of such 24-month requirement shall be deemed
to have satisfied such 24-month requirement (and be an Incumbent Director) if
such director was elected by, or on the recommendation of or with the approval
of, at least two-thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at the beginning of such
24 month period) or through the operation of this proviso; or
(iii) The date of approval by the stockholders of the
Company of an agreement providing for a merger or consolidation of the Company
with another corporation where (i) the stockholders of the Company, immediately
prior to the merger or consolidation, would not beneficially own, immediately
after the merger or consolidation, shares entitling such stockholders to 50% or
more of all votes (without consideration of the rights of any class of
<PAGE> 5
5
stock to elect directors by a separate class vote) to which all stockholders of
the corporation issuing cash or securities in the merger or consolidation would
be entitled in the election of directors, or (ii) where the members of the
Board, immediately prior to the merger or consolidation, would not, immediately
after the merger or consolidation, constitute a majority of the Board of
Directors of the corporation issuing cash or securities in the merger.
10. Severance. (a) If the Executive's employment is terminated by
the Company for any reason other than as set forth in subsections 9(a) or (b),
the Company shall pay to the Executive, on the date of such termination, an
amount equal to the lesser of (i) 12 months base salary then in effect, if more
than 12 months of the Term remain; or (ii) the annual base salary remaining for
the Term if less than 12 months of the Term remain.
(b) If the Executive's employment is terminated by the
Executive for the reasons set forth in subsection 9(c) above, the Company shall
pay to the Executive, on the date of such termination,
(i) a lump-sum payment equal to the excess of (A) the
product of 2.90 multiplied by the "base amount" as determined for the Executive
within the meaning of Section 2806 of the Code over (B) the value on the date of
the Change of Control Event of the non-cash benefits provided under subsections
10(ii)(iv) (v) and (vi) hereof;
(ii) life, disability, accident and group health
insurance benefits substantially similar to those which the Executive was
receiving immediately prior to the Change of Control Event for a three-year
period after termination of the Executive's employment;
(iii) immediate vesting in all theretofore non-vested
benefits accrued under all bonus plans, long-term incentive compensation plans,
stock option plans, restricted stock or . similar plans or any other deferred
compensation plans or other fringe benefits or perquisites of the Company which
the Company maintains or has adopted and in which the Executive participated, or
otherwise was entitled to benefits under;
(iv) the use of professional outplacement services by
qualified consultants retained by the Executive at the expense of the Company;
(v) the automobile allowance which had theretofore been
made available to the Executive for a period of three years after the
termination of employment; and
(vi) all amounts in respect of club association or
similar fees and dues covering the Executive which had theretofore been made
available to the Executive for a three-year period after the termination of
employment.
11. "Cause". "Cause" shall mean, in respect of the termination of
the Executive's employment by the Company, (i) any act or omission which
constitutes a material breach by the Executive of this Agreement; (ii) failure
of the Executive to report to work on a regular basis during normal working
hours; (iii) a conviction or plea of guilty or nolo contendere to a felony (or
indictable offense) or a misdemeanor (or summary conviction offense) involving
moral
<PAGE> 6
6
turpitude; (iv) the Executive's grossly negligent or willful violation of
corporate policy or reasonable and appropriate directions from senior management
of the Company; (v) material breach of the Executive's fiduciary duties; (vi)
any statement or act by the Executive which violates the Company's personnel
policies then in effect or which reasonably might expose the Company to any
claim or legal action; or (vii) the performance of any act or failure to perform
any act (other than in good faith) to the detriment of the business of the
Company.
12. Cessation of Employment Of Harvey Sanders. In the event that
during the Executive's term of employment with the Company, Harvey Sanders is no
longer employed by the Company for any reason, by the latter of six months after
such cessation of employment or five years after the Division sells its first
product, the Company will be obligated to choose one of the following options to
offer to the Executive: (i) Spin-off to the Company's shareholders the Division
with the Executive as Chief Executive Officer of such entity; (ii) Sell the
Division to the Executive at fair market value, to be determined pursuant to an
appraisal performed by qualified independent appraisers selected by the Company;
(iii) pay the Executive annually an amount equal to 10% of the Division's net
income (after taxes) for so long as he remains Chief Executive Officer of the
Division. In the event the Company elects the option set forth in subsection
12(iii) hereinabove, the annual payments set forth therein will continue to the
Executive if he ceases to be Chief Executive Officer for the Division only in
the event that his employment is involuntarily terminated by the Company other
than for cause (as defined in Section 11). At anytime, the Company can elect to
cease making the annual payments provided in subsection 12(iii) hereinabove by
making a lump sum payment to the Executive in an amount equal to two (2) times
the Division's average annual net income (after taxes) for the prior three (3)
years. In no event, however, will this sum exceed $50 million.
13. Confidentiality. The Executive acknowledges that, in the course
of his employment, he has had and will have access to and has become and will
become aware of and informed of confidential and /or proprietary information
that is a competitive asset of the Company, its subsidiaries and affiliates,
including, without limitation the terms of agreements or arrangements between
the Company and any third parties, marketing strategies, marketing methods,
development ideas and strategies, personnel training and development programs,
financial results, strategic plans and demographic analyses, trade secrets,
business plans, product designs, statistical data, and any non-public
information concerning the Company, its employees, suppliers, resellers, or
customers (collectively, "Confidential Information"). The Executive will keep
all Confidential Information in strict confidence while employed by the Company
and thereafter and will not directly or indirectly make known, divulge, reveal,
furnish, make available or use any Confidential Information (except in good
faith in the course of his regular authorized duties on behalf of the Company
and for the benefit of the Company). The Executive's obligations of
confidentiality hereunder will survive the termination of this Agreement, until
and unless any such Confidential Information becomes, through no fault of the
Executive, generally known to the public or the Executive is required by law to
make disclosure (after giving the Company notice and an opportunity to contest
such requirement). The Executive's obligations under this Section are in
addition to, and not in limitation or preemption of, all other obligations of
confidentiality which the Executive may have to the Company under general legal
or equitable principles.
<PAGE> 7
7
14. Employee Conceptions and Developments. The Company shall own all
Intellectual Property Rights in and to, and, for the duration of such
Intellectual Property Rights have the exclusive rights of commercial
exploitation with respect to, all Conceptions and Developments made individually
or jointly by Executive during the Term or any extension thereof (the "Period").
Any application made within six months after the Period to register or protect
any Intellectual Property as to which Executive was an inventor, author or
assignor shall be presumed to have been originally made during the Period and
subject to the Company's ownership pursuant to the foregoing sentence. For
purposes hereof, the term "Conceptions and Developments" means all creative,
expressive, branding or technological conceptions, discoveries and developments
of any nature, including without limitation conceptions for products and
processes, inventions, designs, writings, graphics, animations and other works
or authorship, specifications, drawings, methods, formulas and branding
proposals, and any implementations, improvements, derivative works or
modifications thereof, and the term "Intellectual Property Rights" means all
U.S. and foreign patents, copyrights, trademarks, trade secret, publicity and
similar rights.(including without limitation any and all common law rights), and
all rights of priority under international conventions to make application with
respect thereto. All Conceptions and Developments arising during the Period by
virtue of either of the first two sentences of this Section 14 are referred to
as the "Covered Conceptions and Developments". Executive shall be obligated to
assign to the Company all inventions included in the Covered Conceptions and
Developments. All works of authorship included in the Covered Conceptions and
Developments shall be deemed "works made for hire" to the maximum extent they
may qualify as such under 17 U.S.C. Section 101, and otherwise the copyright
therein shall be deemed to have been fully assigned by Executive to the Company
at the time such works were made. All Covered Conceptions and Developments,
whether or not patentable, shall be promptly disclosed to the Company in
writing, and shall be held in confidence by Executive and treated as
"Confidential Information" subject to Section 13 hereof, until such time as the
Company, in its sole determination, shall elect to make the subject matter
thereof publicly known. All subject matter of the type that would fall within
the definition of Conceptions and Developments, if any, that Executive
conceived, invented, authored or developed prior to the Term ("Pre-existing
Developments") shall be set forth in an annex attached hereto and initialed on
behalf of both parties hereto at the time of execution hereof, and if there is
no such annex attached hereto it shall be understood that there are no
Pre-existing Developments. Executive agrees that, at the expense of the Company,
he will, without additional compensation, take any such further action,
including the rendering of all lawful testimony and assistance, and the
execution and delivery to such instruments as the Company may require from time
to time, to perfect, effectuate, register, record or enforce the Company's
rights or interests in any of the Covered Conceptions and Developments. The
Executive hereby irrevocably appoints the Company to be the Executive's
attorney-in-fact to act in Executive's name, place and stead to do and execute
any such act or instrument for the purpose of this Section. The Company shall be
under no liability to account to the Executive for any revenue or profit derived
or resulting from the use, exploitation or licensing of any of the Covered
Conceptions or Developments subject to this Section 14.
15. Employee Handbook. The provisions of the Company's Employee
Handbook are hereby incorporated into this Contract by reference. By signing
this Agreement, the Executive acknowledges that the Employee Handbook was
attached to this Agreement; that the Executive
<PAGE> 8
8
has read and understands all of the provisions of the Employee Handbook; that
the Executive will comply with such provisions; and that all such provisions are
part of this Agreement.
16. Consent to Jurisdiction. Both the Company and the Executive
hereby irrevocably submit to the jurisdiction of any New York State or Federal
court sitting in the City of New York in any action or proceeding to enforce
this Agreement and waive the defense of inconvenient forum to the maintenance of
any such action or proceeding.
17. Withholding taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state or other taxes as the Company is
required to withhold pursuant to any law or government regulation or ruling.
18. Representation. Each party represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person or entity.
19. Validity. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
20. Miscellaneous.
(a) The Executive agrees that he will maintain as confidential
the terms of this contract unless otherwise required by law or court order to
disclose same, or to his legal or professional advisors.
(b) The waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
(c) Any and all notices referred to herein shall be in writing
and shall be deemed given three days after mailing in the United States, by
certified or registered mail, postage prepaid, return receipt requested, or on
the date of delivery, if delivered by hand to the Executive at the address set
forth below his signature to this Agreement and to the Company at 40 West 57th
Street, New York, New York 10019.
(d) This Agreement shall be binding upon and shall inure to
the benefit of the Company and its successors and assigns, and the Executive and
his legal representatives, heirs, legatees and distributees, but shall not be
assignable or delegable by the Executive.
(e) Except as otherwise provided in this Agreement or the
employee benefit plans of the Company, this Agreement supersedes any and all
prior written or oral agreements between the Company and the Executive or
between the Executive and any predecessor of the Company and constitutes the
entire agreement between the parties hereto with respect to such
<PAGE> 9
9
subject matter. No modification or amendment to this Agreement shall be
effective unless in writing and signed by both parties hereto. No omission,
delay or failure on the part of any party in exercising any rights hereunder,
and no partial or single exercise hereof, will constitute a waiver of such
rights or of any other rights hereunder.
(f) This Agreement may be executed by the parties hereto in
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
(g) This Agreement is executed and delivered in the State of
New York and shall be governed by, and construed in accordance with, the laws of
said state, without giving effect to its laws or rules governing conflict laws.
(h) Notwithstanding any other provision of this Agreement, the
parties' respective rights and obligations under Sections 7, 13, and 14 will
survive any termination or expiration of this Agreement or the termination of
the Executive's employment for any reason whatsoever.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year appearing on page one of this Agreement.
NAUTICA ENTERPRISES, INC.
/s/ John Varvatos /s/ Harvey Sanders
- ----------------------------- ------------------------------------
John Varvatos Harvey Sanders
President & Chief Executive Officer
40 West 57th Street
New York, NY 10019
<PAGE> 10
10
EXHIBIT A
I, John Varvatos, a citizen of the United State of America, hereby
consents to the use and registration of my name JOHN VARVATOS, and of the names
VARVATOS and JOHN VARVATOS COMPANY and any derivations thereof of such names
now or hereafter developed or created as trademarks or service marks in any
country or jurisdiction of the world by Nautica Enterprises, Inc. or its
successor, assign, or related company.
/s/ John Varvatos
- -----------------------------------
John Varvatos
Subscribed and sworn to before me
this 24th day of January, 2000.
/s/
- -----------------------------------
Notary Public
<PAGE> 11
SPLIT-DOLLAR AGREEMENT
This Agreement made this 5th day of May, 2000, by and between
Nautica Enterprises, Inc., a corporation having its principal office at 40 West
57th Street, New York, New York (the "Employer"), and John Varvatos (the
"Employee"):
WITNESSETH:
WHEREAS, the Employee is a valuable and experienced employee of the
Employer; and
WHEREAS, the parties desire to establish a split-dollar life
insurance plan; and
WHEREAS, the Employee has applied for, and is the owner of the
insurance policy or policies listed in Schedule A attached hereto, hereinafter
referred to as the "Policy"; and
WHEREAS, the Employer and the Employee agree to make the Policy
subject to this Agreement; and
WHEREAS, the Employee has assigned the Policy to the Employer as
collateral for amounts to be advanced by the Employer under this Agreement by an
instrument of assignment filed with the Insurer (hereinafter referred to as the
Assignment);
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. The parties hereto agree that the Policy shall be subject to the
terms and conditions of this Agreement and of the Assignment filed with the
insurer relating to the Policy. The Employee shall be the sole and absolute
owner of the Policy and may exercise all ownership rights granted to the owner
thereof by the terms of the Policy, except as may be otherwise provided herein
and in the Assignment.
2. Any dividend declared on the Policy shall first be applied to
purchase one year term insurance and the balance if any shall be applied to
purchase paid-up additional insurance on the life of the Employee. The parties
hereto agree that the dividend election provisions of the Policy shall conform
to the provisions hereof.
3. The premium for the Policy will be paid by the Employer during
the Employee's employment by the Employer and will be allocated between the
Employee and the Employer. With regard to
<PAGE> 12
the Policy, the Employee shall contribute, while the Employee is alive, an
amount equal to the lesser of (a) the amount of the entire economic benefit
(including any economic benefit attributable to the use of the policy dividends)
attributable to the Employee, computed as provided herein, or (b) the amount of
the premiums due on the policy. The economic benefit that would be attributable
to the Employee, shall be computed in accordance with the I.R.S. Rev. Rul.
64-328, 1964-2 C.B. 11; Rev. Rul. 66-110, 1966-1 C.B. 12; Rev Rul. 55-747,
1955-2 C.B. 228; and Rev. Rul. 67-154, 1967-1 C.B. 11, as modified by subsequent
rulings or applicable statutes. The Employer shall contribute annually out of
its own funds a sufficient sum to pay the requisite net annual premiums i.e. the
full premium less the amount the Employee has agreed to contribute. The
Employee's share of the premium (term insurance allocation) shall be paid by the
Employer, as agent for the Employee and shall be charged to the Employee as cash
compensation (and for all purposes, including the Assignment, shall be deemed
cash compensation and not Employer paid premium).
4. The Assignment shall not be terminated, altered or amended by the
Employee without the express written consent of the Employer. The parties hereto
agree to take reasonable action to cause such Assignment to conform to the
provisions of this Agreement.
5. a. The Employer shall not borrow against the Policy without
the express written consent of the Employee.
b. Upon the Employee's attainment of age sixty-five (65), the
Employee shall have the right to alter the dividend option and the right to take
any action with regard to the cash value of the policy in excess of the
collaterally assigned interest of the Employer.
6. a. Upon the death of the Employee, the Employer shall
promptly take all action necessary to obtain its share of the death benefit
provided under the Policy.
b. The Employer shall have the unqualified right to receive a
portion of such death benefit equal to the total amount of its share of the
premiums paid by it hereunder (hereinafter referred to as the Net Premiums),
without interest. The balance of the death benefit provided under the Policy, if
any, shall be paid directly by the Insurer to the Employee or to such other
beneficiary or beneficiaries and in the manner designated by the Employee. No
amount shall be paid from such death benefit to the Employee or to a beneficiary
or beneficiaries designated by the Employee until the Employer or Insurer
acknowledges in writing that the full amount due to the Employer hereunder has
been paid. The parties hereto agree that the beneficiary designation provision
of the Policy shall conform to the provisions hereof.
2
<PAGE> 13
7. The Employer shall not merge or consolidate into or with another
organization, firm or person unless and until such succeeding or continuing
organization, firm or person agrees to assume and discharge the obligations of
the Employer under this Agreement. Upon the occurrence of such event, the term
Employer as used in this Agreement shall be deemed to refer to such successor or
survivor organization. The obligations continuing hereunder shall require future
payment of premiums only if (a) Employee's employment continues with such
organization, firm or person or (b) an Agreement or arrangement beyond this
Agreement so required.
8. a. This Agreement shall terminate upon the occurrence of the
earliest of the following events: (i) the death of the Employee and the payment
of proceeds pursuant to Section 6 of this Agreement, (ii) the Policy anniversary
next following the Employee's attainment of age sixty-five (65), or (iii) the
Employee is terminated by the Employer for Cause. For purposes of this
Agreement, Cause means in respect of the termination of the Employee's
employment by the Employer, (i) any act or omission which constitutes a material
breach by the Employee of the Employment Agreement between Employee and Employer
dated October 1, 1999; (ii) failure of the Employee to report to work on a
regular basis during normal working hours; (iii) a conviction or plea of guilty
or nolo contendere to a felony (or indictable offense) or a misdemeanor (or
summary conviction offense) involving moral turpitude; (iv) the Employee's
grossly negligent or willful violation of corporate policy or reasonable and
appropriate directions from senior management of the Employer; (v) material
breach of the Employee's fiduciary duties; (vi) any statement or act by the
Employee which violates the Employer's personal policies then in effect or which
reasonably might expose the Employer to any claim or legal action; or (vii) the
performance of any act or failure to perform any act (other than in good faith)
to the detriment of the business of the Employer.
b. Upon such termination under Section 8.a.(ii) or 8.a.(iii)
of this Agreement, the Policy shall be partially surrendered in an amount
necessary to repay the Employer the total amount of its share of the premiums
paid by it hereunder (Net Premiums), without interest. In the event the cash
surrender value of the Policy is insufficient to fully repay the Employer, the
entire cash surrender value shall be used to repay the Employer without recourse
to the Employee for the balance of the premium payments. Upon repayment of the
premiums of the Employer, the Employer shall release its interest in the Policy,
and the Employee will thereafter own the Policy free from this Agreement and the
Assignment. The Employee agrees to execute any and all documents necessary to
effect repayment of the premiums to the Employer as provided herein.
3
<PAGE> 14
9. If the Employee ceases to be employed by the Employer for any
reason other than Cause, the Agreement shall remain in full force and effect.
10. The parties hereto agree that this Agreement shall take
precedence over any provisions of the Assignment. The Employer agrees not to
exercise any right possessed by it under the Assignment except in conformity
with this Agreement.
11. This Agreement may not be amended, altered or modified except
by a written instrument signed by the parties hereto and may not be otherwise
terminated except as provided herein.
12. a. The split-dollar arrangement contemplated herein is an
exempt welfare plan under regulation promulgated under Title I of the Employee
Retirement Income Security Act of 1974 (ERISA).
b. For purposes of ERISA, the Employer will be the named
Fiduciary and plan administrator of the split-dollar arrangement contemplated
herein, and this Agreement is hereby designated as the written plan instrument.
c. The Employee or any beneficiary of his may file a request
for benefits with the plan administrator. If a claim request is wholly or
partially denied, the plan administrator will furnish to the claimant a notice
of its decision within ninety (90) days in writing, and in a manner to be
understood by the claimant, which notice will contain the following information:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent plan provisions
upon which the denial is based;
(iii) a description of any additional material or
information necessary for the claimant to perfect the claim and an explanation
as to why such material or information is necessary.
(iv) an explanation of the plan's claim-review procedure
describing the steps to be taken by a claimant who wishes to submit his claim
for review.
d. a claimant or his authorized representative may, with
respect to any denied claim,
(i) request a review upon written application filed
within sixty (60) days after receipt by the claimant of written notice of the
denial of his claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
4
<PAGE> 15
Any request or submission will be in writing and will be directed to the plan
administrator. The plan administrator will have the sole responsibility for the
review of any denied claim and will take all appropriate steps in light of its
finding. The plan administrator will render a decision upon review of a denied
claim within sixty (60) days after receipt of a request for review. If special
circumstances warrant additional time, the decision will be rendered as soon as
possible, but not later than one hundred twenty (120) days after receipt of
request for review. Written notice of any such extension will be furnished to
the claimant prior to the commencement of the extension. The decision will be
written in a manner to be understood by the claimant, as well as the specific
references of the pertinent provisions of the plan on which the decision is
based. If the decision on review is not furnished to the claimant within the
time limits described above, the claim will be deemed denied on review.
13. This Agreement shall be binding upon and inure to the benefit
of the Employer and the Employee and their respective successors and assignees.
14. Except as may be preempted by ERISA, this Agreement, and the
rights of the parties hereunder, shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Employer has caused this Agreement to be
executed by its officer thereunto duly authorized and the Employee has hereunto
set his hand, all as of the day and year first above written.
NAUTICA ENTERPRISES, INC.
By: /s/ Harvey Sanders
------------------------
Title:President
/s/ John Varvatos
- -----------------------------
John Varvatos
5
<PAGE> 16
<TABLE>
<CAPTION>
SCHEDULE A
----------
Insurance Carrier Policy No. Face Amount
- -----------------------------------------------------------------------------
<S> <C> <C>
New York Life Insurance 63 639 353 $5,000,000
and Annuity Corporation
</TABLE>
<PAGE> 1
EXHIBIT 21
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)
Nautica Enterprises, Inc. John Varvatos Company
(Delaware)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 19, 2000, 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 March 4, 2000. 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 19, 2000
<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> MAR-04-2000
<PERIOD-START> FEB-28-1999
<PERIOD-END> MAR-04-2000
<CASH> 27,143
<SECURITIES> 33,991
<RECEIVABLES> 116,655
<ALLOWANCES> 9,046
<INVENTORY> 73,879
<CURRENT-ASSETS> 256,456
<PP&E> 129,942
<DEPRECIATION> 48,268
<TOTAL-ASSETS> 351,938
<CURRENT-LIABILITIES> 88,225
<BONDS> 0
0
0
<COMMON> 4,270
<OTHER-SE> 259,443
<TOTAL-LIABILITY-AND-EQUITY> 351,938
<SALES> 621,286
<TOTAL-REVENUES> 629,101
<CGS> 323,195
<TOTAL-COSTS> 323,195
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 75,931
<INCOME-TAX> 29,768
<INCOME-CONTINUING> 46,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,163
<EPS-BASIC> 1.33
<EPS-DILUTED> 1.26
</TABLE>
