-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PYesLDgQ3onU50giubjU+kTp7MWCaYCKw5SY54ZtSohWiDu6pNOrLkcPYzlg5K5r HNya5HEBpbHQZab+sl014Q== 0000950123-99-005222.txt : 19990624 0000950123-99-005222.hdr.sgml : 19990624 ACCESSION NUMBER: 0000950123-99-005222 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990227 FILED AS OF DATE: 19990527 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAUTICA ENTERPRISES INC CENTRAL INDEX KEY: 0000093736 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 952431048 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-06708 FILM NUMBER: 99636076 BUSINESS ADDRESS: STREET 1: 40 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125415990 MAIL ADDRESS: STREET 1: 40 W 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: STATE O MAINE INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC COAST KNITTING MILLS INC DATE OF NAME CHANGE: 19751124 10-K 1 NAUTICA ENTERPRISES 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 FEBRUARY 27, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-0708 NAUTICA ENTERPRISES, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-2431048 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 40 WEST 57TH STREET, NEW YORK, NEW YORK 10019 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 541-5757 ------------------------------ Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- Common Stock par value $.10 per share Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] On May 12, 1999, the aggregate market value of the voting stock held by non-affiliates of the registrant, using the average bid and asked prices of the registrant's stock on such date, was $424,802,544. As of May 12, 1999, there were issued and outstanding 34,572,721 shares of the Company's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Identification of Document Part into which Incorporated -------------------------- ---------------------------- Proxy Statement for Annual Meeting of Stockholders to be held July 1, 1999. Part III -- Items 10, 11, 12 and 13 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; E. Magrath; and, Byron Nelson. These products feature innovative designs, classic styling, quality fabrics and functionality. The Company's in-store shop programs for the Nautica, Nautica Competition, NST- Nautica Sport Tech and Nautica Jeans collections are an integral part of the Company's marketing strategy for its wholesale business. Through this program, the Company and a department store customer create a specific area within the store dedicated to the exclusive merchandising and sale of the Nautica, Nautica Competition or Nautica Jeans Company collections, as the case may be. Each of these shops are outfitted with signature fixtures consistent with the image of each of the brands and present the collections in an integrated, visually attractive environment. In addition to its wholesale business, the Company operates outlet stores that provide an additional sales channel for Nautica products and allows for the organized distribution of excess and out-of-season merchandise. The Company strategically extends the Nautica brands and broadens the international distribution of the Nautica apparel collection through license arrangements. The Nautica name is currently licensed for a range of products consistent with Nautica's design concepts and image. The Nautica name is also licensed globally to agents or companies for distribution of the Nautica collection in international regions. BRANDS AND PRODUCTS Nautica Through the Nautica brand the Company offers a collection of men's sportswear, outerwear and activewear. The Nautica collection features innovative designs, classic styling and quality fabrics. The Nautica name and trademarks are prominently displayed on Nautica products to promote brand awareness and maintain consumer loyalty. While Nautica products are targeted to the 25-54 year old age group, the Company believes that its products appeal to both younger and older consumers who identify with the Nautica lifestyle and image. The Nautica collection is designed, like all of the Company's brands, by an in-house design and merchandising staff. Products in the Nautica collection include the following: sportswear -- sweaters, cardigans, woven shirts, knit shirts, rugbys, pants and shorts; outerwear -- parkas, anoraks, bomber jackets and inclement weather gear in various fabrications; activewear -- fleece and french terry tops, fleece and french terry pants and shorts, tee shirts and swimwear; and caps. The Nautica collection is sold through the Company's wholly-owned subsidiary, Nautica International, Inc. Nautica maintains an inventory of basic, all year items in order to allow the continuous replenishment of such stock to its retail customers. Such items include denim shirts, cotton pique knit and tee shirts, cotton twill and nylon pants, lightweight jackets, swimwear and french terry tops and bottoms. Retail customers are able to reorder these products throughout the year via electronic data interchange. The Nautica collections are presented during Nautica's four merchandising seasons, with approximately three deliveries in each season. The first collection delivery of the Spring, Transitional, Fall and Holiday seasons represents core and key items. These are Nautica's classic products that are engineered to create a 3 strong visual presentation based on volume and color impact. Typically, these items are offered using six to ten different colors per style. The remaining deliveries within each merchandising season are based on seasonal themes developed by Nautica's design and merchandising staffs and are distinguished by their distinctive use of color, novelty prints and innovative fabrics and unique design elements. Each of the deliveries are developed to be merchandised together as a cohesive Nautica collection. Nautica Competition The Nautica Competition brand, which was introduced by the Company in 1996, features active-inspired apparel products with colorful graphics and bold logos using performance and activewear fabrics. The Nautica Competition name and trademarks are prominently displayed on the products and in its marketing. While the collection is targeted to a somewhat younger age group than the Nautica collection, the Company believes that such products also appeal to the Nautica customer. The Nautica Competition collection includes activewear, outerwear and caps. Activewear includes fleece and french terry tops, french terry pants and shorts, performance fleece, tee shirts and swimwear. Outerwear includes parkas, anoraks, bomber jackets and inclement weather gear. The Nautica Competition products that are offered on a year round basis through the Company's automatic replenishment program include fleece and french terry tops and bottoms. The collection is sold through the Company's wholly-owned subsidiary, Nautica International, Inc. The Nautica Competition collections are presented during four merchandising seasons, with approximately two deliveries in each season. All deliveries are based on seasonal athletic themes developed by the Company's in-house design and merchandising staffs and are distinguished by the use of bold graphics, color and innovative fabrics and styling details. NST--Nautica Sport Tech Through the NST--Nautica Sport Tech brand the Company offers a collection of young men's activewear and outerwear. Launched in Spring 1999, this line of authentic athleticwear is designed to appeal to the dedicated young athlete by combining "street" style and performance features. While NST has a "look and attitude" all its own, it is true to the Nautica heritage of authenticity, integrity and value-added detailing. The NST collections includes activewear, outerwear and caps. Activewear includes fleece and french terry tops, fleece and french terry pants and shorts, performance fleece fabrics and tee shirts. Outerwear includes parkas, anoraks and bomber jackets. NST is targeted to a youthful age group. It is sold through the Company's wholly-owned subsidiary, Nautica Sport Tech, Inc. The NST collections are presented in four merchandising seasons with approximately two deliveries. The deliveries are based on youth culture sporting themes. The products are color driven with high tech details, logo brand identification and use of technical and performance fabrics. Nautica Jeans Company Through the Nautica Jeans Company brand, which will be introduced for Fall 1999, the Company offers a denim-based collection of men's apparel, including woven shirts, knits, bottoms and outerwear. Knits include sweaters, tee shirts and activewear; bottoms include denim jeans, casual pants, denim shorts and casual shorts; and, outerwear includes lightweight, transitional weight and down outerwear. The products of the Nautica Jeans Company are targeted to the 16-35 year old age group and feature detailing based upon authentic workwear. The Nautica Jeans Company expects to launch a denim-based collection of ladies apparel in fiscal year 2000, which will include most of the products offered in the men's collection, plus skirts and dresses. 2 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 boxer shorts, jams, night shirts, henley's camp shirts, nightshirts and pull on pants. In 1999, the Company introduced a Nautica robes and sleepwear collection for ladies, capitalizing on the success of its men's robes and sleepwear line. The collection includes pajamas, knit tops and pants, drawstring shorts, chemise, gowns and night shirts. The men's sleepwear collection includes boxer shorts, jams, night shirts, henley's, camp shirts, nightshirts and pull on pants. The Nautica men's and ladies robes and sleepwear collections are sold through the Company's wholly-owned subsidiary, Nautica Furnishings, Inc. The Nautica robes and sleepwear collections are presented in four merchandising seasons with monthly deliveries. The deliveries are distinguished by fabrications, use of color, pattern and prints, and styling. In addition, certain of the products are offered through the Company's automatic replenishment program. E. Magrath and Byron Nelson Through the E. Magrath Apparel Company, a wholly-owned subsidiary of the Company, the Company offers the E. Magrath and Byron Nelson golf sportswear collections. Each collection includes knit shirts, woven shirts, trousers, shorts, lightweight outerwear and windshirts, and are targeted to consumers for on and off golf course wear. The Byron Nelson label, which is licensed by the Company, is displayed on the products offered in the Byron Nelson collections. These collections are presented in two lines each year and are sold through better country clubs and resorts nationwide. Other Activities The Company also licenses the Nautica name and related trademarks for a range of products consistent with Nautica's design concepts and image. See "Licensing." MARKETING The Company concentrates its marketing efforts on national and regional print and outdoor advertising. The advertising captures the images of each of its brands in environments that reflect the lifestyle approach of each collection. The Company's advertising campaigns are featured throughout the year in national magazines, including Conde Nast Traveler, GQ, L'Uomo Vogue, Men's Health, The New Yorker, The New York Times Magazine, Sports Illustrated and Vanity Fair; and, in regional magazines. The Company also advertises its brands utilizing outdoor media, including bus shelters, bus panels and billboards. In addition, the Company participates with its retail customers in a cooperative advertising program. The print advertising is supplemented by a series of special events and sports sponsorships. With the introduction of NST and Nautica Jeans Company, the Company's marketing efforts are expanding to include outdoor advertising, media tie-ins, websites and grass roots advertising. The Company's in-store shop programs for the Nautica, Nautica Competition and Nautica Jeans Company collections are an integral part of the Company's marketing strategy of its wholesale businesses. Through 3 5 this program, the Company and a department store customer create a specific area within the store dedicated to the exclusive merchandising and sale of the Nautica , Nautica Competition or Nautica Jeans Company collections, as the case may be. Each of these shops, strategically located in the collections departments of leading department stores, are outfitted with signature fixtures consistent with the image of each of the brands and present the collections in an integrated, visually attractive environment. The Company plans to continue to expand its in-store shop program in department stores which currently sell the Nautica, Nautica Competition and Nautica Jeans Company collections and to install such shops in additional retail locations. The continued development of the Company's in-store shop program is dependent on general apparel industry conditions, continued participation by retail customers and continued demand by consumers for the Company's collections. In fiscal 1996, the Company expanded the Nautica in-store shop program to include shops featuring the Nautica Competition brand of apparel. These shops feature high tech materials accented with aluminum and glass and athletic inspired photographs. In fiscal 2000, Nautica Jeans Company will open its first in-store shops. The Nautica Jeans Company in-store shops will feature wooden floors and metal, glass and copper design elements meant to evoke the image of an old deserted knitting factory and to enable the consumer to see what sets the products of the Nautica Jeans Company apart from its competitors - great fit, engineering, fabric details and rinses/washes. In order to maximize the effectiveness of the Company's in-store shop program, the Company operates a merchandise coordinator program. Each of the Company's merchandise coordinators services a group of retail customers within a common geographic region. They communicate with and visit each of their customers on a regular basis to ensure proper visual display of the Company's merchandise, analyze inventory requirements, and provide selling and merchandising support to the sales staff. Merchandise coordinators also train certain department store employees with regard to product features, sales methods and shop management. They also provide sales information to the Company's retail analysts who monitor retail performance and develop plans to assist these retail customers with future purchases of Company products. Management believes that the performance of the Company's in-store shops is enhanced by the close interaction of its merchandise coordinators with its retail customers. Company products are marketed by a regional sales force and sales representatives through its showrooms in New York City and Dallas, Texas to leading department and speciality stores. In addition, NST is marketed to specialty athletic stores, and E. Magrath and Byron Nelson are marketed to golf shops at better country clubs and resorts. In fiscal year 1999, Dillard Department Stores, Federated Department Stores and May Department Stores Company each accounted for approximately 18%, 19% and 22%, respectively, of the Company's total gross sales. No other customer of the Company accounted for 10% or more of the Company's sales during that period. PRODUCT DESIGN AND SOURCING The Company manages the development of its apparel from initial product concept through color and pattern design, fabric identification and testing and garment manufacturing. Products are designed by its in-house design staffs. The design teams work in conjunction with the sales and production teams to determine the apparel styles for a particular season based upon an evaluation of current style trends, prior year's sales and consultations with retail customers. In conjunction with agents located in foreign countries, Nautica arranges fabric sourcing and garment production to ensure that final products satisfy detailed specifications and quality standards. The Company contracts for the manufacture of its products and does not own or operate any manufacturing facilities. The Company's contract manufacturers are located primarily in Asia. The Company's 4 6 agent and sourcing office, based in Hong Kong and Taiwan, respectively, monitor production to ensure compliance with design specifications, quality standards and timely delivery of finished garments. They are assisted by Company employees based in New York who regularly visit with the manufacturers to monitor production. To date, the Company has not experienced difficulty in obtaining manufacturing services. Management believes that many alternate manufacturing sources exist. However, the inability of current sources to satisfy the Company's manufacturing requirements, the loss of certain manufacturers, the loss of an agent of the Company or a delay in locating manufacturing capacity following termination of a manufacturing relationship, could have a material adverse effect on the Company's business and operating results. While the Company has long standing relationships with many of its manufacturers and believes its relations to be good, it does not have long-term commitments with manufacturers. The Company sources for many of its manufacturers a broad range of natural and synthetic fabrics primarily from foreign textile mills and converters. The Company separately negotiates with fabric suppliers for the sale of required fabric which is then purchased by its manufacturers in accordance with the Company's specifications. To date, the Company has not experienced difficulty in sourcing fabrics for its manufacturers. Management believes that many alternate sources of supplies exist. However, the inability of current sources to satisfy the Company's fabric requirements, the loss of certain fabric vendors, or a delay in manufacturers obtaining fabrics from certain vendors, could have a material adverse effect on the Company's business and operating results. The Company does not have any long-term commitments with fabric suppliers. The Company contracts to purchase its goods in United States dollars and has not experienced material difficulties as a result of foreign political, economic or social instability. However, the Company's business remains subject to the usual risks associated with foreign suppliers. LICENSING The Company strategically extends the Nautica product line and broadens the international distribution of the Nautica apparel collection through license arrangements. These license arrangements allow the Company to enter new businesses and countries with minimal capital commitments and to benefit from the experience of the licensee with the licensed product or the local market. The Nautica name and related trademarks are licensed through the Company's wholly-owned subsidiary, Nautica Apparel, Inc. ("Nautica Licensing"). Nautica Licensing currently licenses products for wholesale distribution in the following product categories: fragrances for men and women, neckwear, tailored clothing, footwear, watches, hosiery, eyewear, rainwear, infants', girls' and boys' apparel, leather belts, wallets and accessories, umbrellas, a home furnishings collection, gloves, scarves, mufflers and hankies, and dress shirts. Internationally, Nautica apparel currently is licensed for sale in Argentina, Australia, Brazil, Canada, Chile, Colombia, Europe, Greece, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Panama, Philippines, Singapore, Taiwan, Thailand, United Arab Emirates and Uruguay. In addition to wholesale distribution of Nautica apparel, international licensees operate Nautica retail stores in certain of these markets. As a provision of the agreement by which the Company acquired the Nautica brand in 1984, David Chu, Executive Vice President of the Company and President of Nautica Licensing, is entitled to receive 50% of the net royalty income from licensing the Nautica name and trademarks. The Company receives the remaining 50% of such net royalty income. Through a separate arrangement, Mr. Chu is entitled to receive up to 1.5% of the net sales of certain new products. 5 7 OUTLET RETAIL The Company operates 78 outlet stores generally located in outlet centers throughout the United States. The Company's outlet retail operations are conducted through its wholly-owned subsidiary, Nautica Retail USA, Inc. These outlet retail stores have enabled the Company to increase sales in certain geographic markets where Nautica products were not previously available and reach consumers who favor value-oriented retailers. They also provide opportunities for Nautica to sell excess and out-of-season merchandise, thereby reducing the need to sell such merchandise to discounters at excessively low prices. Nautica retail outlet stores are geographically positioned to minimize potential conflict with the Company's retail customers. SEASONALITY Historically, the Company has experienced its highest level of sales in the second and third quarters and its lowest level in the first and fourth quarters. This pattern has resulted primarily from the timing of shipments to retail customers for Spring, Summer, Fall and Holiday seasons. In the future, the timing of seasonal shipments may vary by quarter. TRADEMARKS Nautica and its related trademarks (the "Nautica Marks") are registered trademarks of Nautica Licensing in the United States for apparel and certain other products, including all licensed products. Application to register the Nautica Marks in other product categories have been filed by the Company in the United States. In addition, the Company has registered or is in the process of registering the Nautica Marks in over 100 countries throughout the world for apparel and in other complementary product categories. In addition to the Nautica Marks, the Company has registered or is in the process of registering the following trademarks in the United States and certain other countries for apparel and certain other products: Nautica Competition, NST-Nautica Sport Tech, and Nautica Jeans Company. The Company regards its trademarks and other proprietary rights as valuable assets. COMPETITION The apparel industry is highly competitive. The Company encounters substantial competition from brands such as Polo/Ralph Lauren, Tommy Hilfiger and Claiborne, as well as from certain non-designer lines. In addition, department stores, including some of the Company's major retail customers, have increased in recent years the amount of goods manufactured and sold under their own labels. Some of the Company's competitors are significantly larger and more diversified than the Company and have substantially greater resources available for marketing their products. The Company believes that its ability to compete effectively depends upon the continuing appeal of Nautica apparel and the Company's other products to its retail customers and consumers as well as the Company's ability to continue to offer high quality apparel at appropriate price points. EMPLOYEES At February 27, 1999, the Company had approximately 2,266 employees. Approximately 250 of such employees are parties to a collective bargaining agreement. The Company considers its relations with its employees to be good. 6 8 ITEM 2. PROPERTIES. The Company operates four warehouse and distribution facilities in Rockland, Maine and one in Irving, Texas. A 350,000 square foot facility and a 100,000 square foot facility, both owned by the Company, are used for receiving, shipping and warehousing the Company's products. Two leased facilities of approximately 60,000 square feet each and one leased facility of approximately 25,000 square feet are used for warehousing the Company's products. In fiscal year 2000, the Company entered into a lease for 150,000 square feet of warehouse space in Edison, New Jersey. This facility will be used for receiving, shipping and warehousing Nautica outlet retail merchandise. The facility previously used for the retail outlet business will be used for other Company products. The Company has administrative and sales offices at 40 West 57th Street, New York, New York, where it occupies under lease approximately 66,000 square feet. It also leases a design studio of approximately 44,000 square feet located at 11 East 19th Street, New York, New York. The Company or its affiliates also leases sales offices in Dallas, Texas and London, England, one full price retail store and 78 Nautica retail outlet stores located throughout the United States. The retail outlet stores range in size from approximately 2,400 to 9,300 square feet, and average approximately 3,800 square feet. All of the Company's facilities are deemed by it to be adequate for the purposes utilized. ITEM 3. LEGAL PROCEEDINGS. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security-holders during the fourth quarter of fiscal 1999. 7 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 the NASDAQ National Market System.
HIGH LOW FISCAL 1998 First Quarter Ended May 31, 1997 $28.13 $18.63 Second Quarter Ended August 31, 1997 28.50 19.50 Third Quarter Ended November 30, 1997 30.00 23.75 Fourth Quarter Ended February 28, 1998 30.38 20.00 FISCAL 1999 First Quarter Ended May 30, 1998 $32.50 $24.19 Second Quarter Ended August 29, 1998 32.00 22.00 Third Quarter Ended November 28, 1998 22.94 15.10 Fourth Quarter Ended February 27, 1999 20.12 13.25 FISCAL 1999 First Quarter (through May 11, 1999) $15.75 $10.88
As of May 11, 1999, there were approximately 480 holders of record of the Company's common stock. The policy of the Company is to retain earnings to provide funds for the operation and expansion of its business and, accordingly, the Company has paid no cash dividends on its Common Stock. Any payment of future cash dividends and the amount thereof will be dependent upon the Company's earnings, financial requirement, and other factors deemed relevant by the Company's Board of Directors. 8 10 ITEM 6. SELECTED FINANCIAL DATA
Year ended -------------------------------------------------------------------- Amounts in thousands, except FEBRUARY 27, February 28, February 28, February 29, February 28, per share data 1999 1998 1997 1996 1995 -------------- ---- ---- ---- ---- ---- Selected consolidated statements of earnings data Net sales $552,650 $484,832 $386,560 $302,541 $247,631 ======== ======== ======== ======== ======== Net earnings $ 58,708 $ 56,418 $ 44,040 $ 31,986 $ 23,971 ======== ======== ======== ======== ======== Net earnings per share of common stock Basic $ 1.53 $ 1.44 $ 1.10 $ .81 $ .61 ======== ======== ======== ======== ======== Diluted $ 1.45 $ 1.35 $ 1.02 $ .76 $ .58 ======== ======== ======== ======== ======== Cash dividends per share of common stock NONE None None None None Selected consolidated balance sheets data Total assets $332,334 $310,451 $251,393 $209,340 $168,355 Long-term debt, excluding current portion 50 100 150 200 250 Working capital 179,566 187,355 156,239 133,912 114,489 Stockholders' equity 255,817 251,169 203,127 173,138 139,300
All share data has been adjusted to reflect stock splits. 9 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires certain financial statement footnote disclosure as to our business segments, which are Wholesale and Outlet Retail. Our Wholesale segment consists of businesses that design, market, source and distribute sportswear, activewear, outerwear, robes and sleepwear for men and robes and sleepwear for ladies to retail store customers. Our Outlet Retail segment consists of businesses that sell merchandise through outlet retail stores directly to consumers. Fiscal year ended February 27, 1999 compared to February 28, 1998: Net sales increased 14.0% to $552.7 million in the fiscal year ended February 27, 1999 from $484.8 million in the prior year. The increase in sales was due primarily to increased unit volume rather than price increases. Wholesale sales increased 11.3% to $428.3 million from $384.8 million as a result of opening new in-store shops, the expansion of existing shops and sales increases in existing shops. Outlet Retail sales increased 24.3% to $124.3 million from $100.0 million primarily as a result of opening additional outlet retail stores. Gross profit as a percentage of sales of 48.1% was comparable to 47.9% in the prior year. Total selling, general and administrative expenses increased by $29.3 million to $178.3 million from $149.0 million. Selling, general and administrative expenses as a percentage of net sales increased to 32.3% from 30.7% in the prior year. The increase in the percentage of net sales is principally a result of the start-up costs associated with the planned launch of new product lines, higher general marketing and retail development costs. Net royalty income decreased to $5.3 million from $5.7 million in the prior year. The decrease was due to the termination of the women's sportswear license, the transition of the fragrance license and to the general retail weakness that affected a number of licensees. Investment income increased to $4.0 million from $3.8 million in the prior year. The increase is primarily the result of higher average cash balances offset by lower rates of return on investments. The provision for income taxes of 39.5% was comparable to 39.6% in the prior year. Net earnings increased 4.1% to $58.7 million from $56.4 million in the prior year as a result of the factors discussed above. Fiscal year ended February 28, 1998 compared to February 28, 1997: Net sales increased 25.4% to $484.8 million in the fiscal year ended February 28, 1998 from $386.6 million in the prior year. This increase is primarily a result of increased sales of Nautica products. The increase in sales is due primarily to increased unit volume rather than price increases. Wholesale sales increased 21.4% to $384.8 million from $316.9 million due to the expansion of Nautica's in-store shop program, including both new and expanded shops as well as increases in existing shops. Outlet Retail sales increased 43.5% to $100.0 million from $69.7 million as a result of opening additional outlet retail stores during the year, the full year effect of stores opened in 1997 and an increase in comparable store sales. 10 12 Gross profit for the year was 47.9% compared to 46.8% of net sales in the prior year. The increase resulted primarily from a shift to higher margin wholesale products and to an increase in retail outlet store sales. Total selling, general and administrative expenses increased by $33.5 million to $149.0 million from $115.5 million. Selling, general and administrative expenses as a percentage of net sales increased to 30.7% from 29.9% in the prior year. The increase in the percentage of net sales is due primarily to higher general marketing and retail development costs. Net royalty income increased to $5.7 million from $3.8 million in the prior year. The increased royalty revenue was generated from both new and existing licensees. Investment income increased to $3.8 million from $3.0 million in the prior year. The increase is primarily the result of higher rates of return on investments. The provision for income taxes of 39.6% was comparable to 39.4% in the prior year. Net earnings increased 28.1% to $56.4 million from $44.0 million in the prior year as a result of the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES During the years ended February 27, 1999 and February 28, 1998, the Company generated cash from operating activities of $60.6 million and $54.1 million, respectively. Such cash was principally from net earnings and increases in accounts payable - trade, accrued expenses and income taxes payable offset by inventory increases in 1999 and 1998 of $3.5 and $4.2 million, respectively, and increases in accounts receivable of $21.9 and $20.6 million, respectively. Accounts receivable balances were higher by 26.3% and 34.0%, respectively, than balances in the preceding year. Inventory balances were higher by 5.2% and 8.8%, respectively, than balances in the preceding year. These increases were related to sales increases. During the year ended February 27, 1999, the Company's principal investing activities related to the continued expansion of the Nautica in-store shop program and amounts related to the expansion of showrooms. The Company expects to continue to incur capital expenditures to expand the in-store shop program, open additional outlet stores, and to support the start-up of new product lines. At February 27, 1999, there were no other material commitments for capital expenditures. During the year ended February 28, 1998, the Company's principal investing activities related to the continued expansion of the in-store shop program and the purchase of short-term investments. During the year ended February 27, 1999, the Board of Directors of the Company approved stock purchase programs, authorizing the Company to repurchase up to 4,000,000 shares of its common stock and in March 1999, authorized an additional 2,000,000 shares. During 1999, the Company repurchased 2,534,000 shares at a cost of $55.9 million. Subsequent to year end, the Company purchased an additional 2,424,500 shares at a cost of $29.2 million. Under a previously adopted plan, the Company repurchased 1,500,000 shares during 1998 and 1997. The Company has $100.0 million in lines of credit with two commercial banks available for short-term borrowings and letters of credit. These lines are collateralized by imported inventory and accounts receivable. At February 27, 1999 letters of credit outstanding under the lines were $37.9 million and there were no short-term borrowings outstanding. 11 13 Historically, the Company has experienced its highest level of sales in the second and third quarters and its lowest level in the first and fourth quarters. This pattern has resulted primarily from the timing of shipments to retail customers for Spring and Fall seasons. In the future, the timing of seasonal shipments may vary by quarter. The Company anticipates that internally generated funds from operations, existing cash balances and the Company's existing credit lines will be sufficient to satisfy its cash requirements. CURRENCY FLUCTUATIONS AND INFLATION The Company contracts production with manufacturers located primarily in Asia. These contracts are denominated in United States dollars. The Company believes that, to date, the effect of fluctuations of the dollar against foreign currencies has not had a material effect on the cost of production or the Company's results of operations. There can be no assurance that costs for the Company's products will not be affected by future fluctuations in the exchange rate between the United States dollar and the local currencies of these manufacturers. Due to the number of currencies involved, the Company cannot quantify the potential effect of such future fluctuations on future income. The Company does not engage in hedging activities with respect to such exchange rate risk. The Company believes that inflation has not had a material effect on the cost of imports or the Company's results of operations. YEAR 2000 The Company is engaged in a process to ensure that its systems will recognize and process transactions for the year 2000 and beyond. The Company expects to implement successfully the systems and programming changes necessary to address year 2000 issues with respect to its internal systems and does not believe that the cost of such actions will have a material adverse effect on its results of operations or financial condition. The Company has developed a plan which identifies all systems requiring modification or replacement, established a timeframe for ensuring it's year 2000 compliance and appointed a responsible party in the organization for the particular system. The Company expects to have all systems compliant by the middle of 1999, the majority of which are already year 2000 compliant. The Company also has initiated discussions with its significant suppliers, customers and financial institutions to ensure that those parties have appropriate plans to remediate year 2000 issues when their systems interface with the Company's systems or may otherwise impact operations. Although the Company is not aware of any material operational issues or costs associated with preparing its internal systems for the year 2000, there can be no assurance that there will not be a delay in, or increased costs associated with, the implementation of the necessary systems and changes to address the year 2000 issues. The Company's current estimate of costs to be incurred is less than $500,000, which is mostly being incurred internally and does not reflect significant incremental costs. The Company and it's significant suppliers, customers, and financial institutions' inability to implement such systems and changes could have an adverse effect on future results of operations, or financial condition of the Company. The Company is in the process of developing a contingency plan in order to minimize the potential disruption of business operations that may result if the Company, its vendors or customers fail to become year 2000 compliant. The contingency plan is expected to be completed by the middle of 1999. FORWARD-LOOKING AND CAUTIONARY STATEMENTS This Annual Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts but rather reflect the Company's current expectations concerning future results and events. The words "believes," "anticipates," "expects" and similar expressions, which identify forward-looking statements, are subject to certain risks and uncertainties, includng those which are economic, competitive and technological, that could cause actual results to differ materially from those forecast or anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company in this report, as well as the Company's periodic reports on Forms 10-K and 10-Q and other filings with the Securities and Exchange Commission. 12 14 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DISCLOSURE ABOUT INTEREST RATE RISK The Company has no long-term debt, and finances capital needs through available capital, future earnings and bank lines of credit. The Company's exposure to market risk for changes in interest rates is primarily in its investment portfolio. The Company, pursuant to investing guidelines, mitigates exposure by limiting maturity, placing investments with high credit quality issuers and limiting the amount of credit exposure to any one issuer. During fiscal year 1999, the Company earned investment income of $4.0 million. If interest rates had been 1% lower than they were during the year, investment income would have been $.8 million lower. The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal year 2000, although there can be no assurance that interest rates will not significantly change. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial Statements required by Part II, Item 8 are included in Part IV, Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. NONE 13 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required is incorporated by reference from the Proxy Statement prepared with respect to the Annual Meeting of Stockholders to be held on July 1, 1999. ITEM 11. EXECUTIVE COMPENSATION. The information required is incorporated by reference from the Proxy Statement prepared with respect to the Annual Meeting of Stockholders to be held on July 1, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required is incorporated by reference from the Proxy Statement prepared with respect to the Annual Meeting of Stockholders to be held on July 1, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required is incorporated by reference from the Proxy Statement prepared with respect to the Annual Meeting of Stockholders to be held on July 1, 1999 and by reference to Footnotes F, G, and I of the Consolidated Financial Statements included in this report and referred to at Part IV, Item 14. 14 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:
Page ---- Report of Independent Certified Public Accountants F-1 Consolidated Balance Sheets at February 27, 1999 and February 28, 1998 F-2 Consolidated Statements of Earnings for each of the three years in the in the period ended February 27, 1999 F-4 Consolidated Statement of Stockholders' Equity for each of the three years in the period ended February 27, 1999 F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended February 27, 1999 F-6 Notes of Consolidated Financial Statements F-7 - 21 (a) 2. Financial Statement Schedule Included in Part IV of this report: Schedule for each of the three years in the period ended February 27, 1999: II - Valuation and Qualifying Accounts F-22
3. Exhibits 3(a) Registrant's By-laws as currently in effect are incorporated herein by reference to Registrant's Registration Statement on Form s-1 (Registration No. 33-21998). 3(b) Registrant's Certificate of Incorporation is incorporated by reference to the Registration Statement on Form S-3 (Registration No. 33-71926), as amended by a Certificate of Amendment dated June 29, 1995. 10(iii)(a) Registrant's Executive Incentive Stock Option Plan is incorporated by reference herein from the Registrant's Registration Statements on Form
15 17 S-8 (Registration Number 33-1488), as amended by the Company's Registration Statement on Form S-8 (Registration Number 33-45823). 10(iii)(b) Registrant's 1989 Employee Incentive Stock Plan is incorporated by reference herein from the Registrant's Registration Statement on Form S-8 (Registration Number 33-36040). 10(iii)(c) Registrant's 1996 Stock Incentive Plan is incorporated by reference herein from Registrant's Registration Statement on Form S-8 (Registration Number 333-55711). 10(iii)(d) Registrant's 1994 Incentive Compensation Plan is incorporated herein from the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1997. 10(iii)(e) Registrant's Deferred Compensation Plan is incorporated herein by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1998 . 10(iii)(f) Option Agreement and Royalty Agreement, each dated July 1, 1987, by and among the Registrant and David Chu are incorporated herein by reference from the Registrant's Registration Statement on Form S-1 (Registration No. 33-21998), and letter agreement dated May 1, 1998 between Mr. Chu and the Registrant is incorporated herein by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1998. 21 Subsidiaries of Registrant 23.1 Consent of Independent Certified Public Accountants 27 Financial Data Schedule
(b) Reports on Form 8-K. None. 16 18 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders NAUTICA ENTERPRISES, INC. We have audited the accompanying consolidated balance sheets of Nautica Enterprises, Inc. and Subsidiaries as of February 27, 1999 and February 28, 1998, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended February 27, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nautica Enterprises, Inc. and Subsidiaries as of February 27, 1999 and February 28, 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended February 27, 1999, in conformity with generally accepted accounting principles. We have also audited the schedule listed in the accompanying index at Item 14(a)2. for each of the three years in the period ended February 27, 1999. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP New York, New York April 15, 1999 F-1 19 Nautica Enterprises, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share data)
FEBRUARY 27, February 28, ASSETS 1999 1998 ----------- ------------ CURRENT ASSETS Cash and cash equivalents $ 15,498 $ 34,616 Short-term investments 55,049 52,680 Accounts receivable - net of allowances of $5,640 in 1999 and $5,736 in 1998 102,471 81,135 Inventories 70,212 66,726 Prepaid expenses and other current assets 5,434 4,882 Deferred tax benefit 7,369 6,093 -------- -------- Total current assets 256,033 246,132 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation and amortization 64,524 56,273 OTHER ASSETS 11,777 8,046 -------- -------- $332,334 $310,451 ======== ========
The accompanying notes are an integral part of these statements. F-2 20 Nautica Enterprises, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (CONTINUED) (amounts in thousands, except share data)
FEBRUARY 27, February 28, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 ------------ ------------ CURRENT LIABILITIES Current maturities of long-term debt $ 50 $ 50 Accounts payable - trade 29,596 18,743 Accrued expenses and other current liabilities 40,298 34,158 Income taxes payable 6,523 5,826 --------- --------- Total current liabilities 76,467 58,777 LONG-TERM DEBT - NET 50 100 COMMITMENTS AND CONTINGENCIES MINORITY INTEREST -- 405 STOCKHOLDERS' EQUITY Preferred stock - par value $.01; authorized, 2,000,000 shares; no shares issued -- -- Common stock - par value $.10; authorized, 100,000,000 shares; issued, 42,604,000 shares in 1999 and 42,435,000 shares in 1998 4,260 4,244 Additional paid-in capital 66,813 64,730 Retained earnings 275,882 217,174 Accumulated other comprehensive (loss) income (35) 202 Common stock in treasury at cost; 5,596,000 shares in 1999 and 3,062,000 shares in 1998 (91,103) (35,181) --------- --------- 255,817 251,169 --------- --------- $ 332,334 $ 310,451 ========= =========
The accompanying notes are an integral part of these statements. F-3 21 Nautica Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (amounts in thousands, except share data)
YEAR ENDED Year ended Year ended FEBRUARY 27, February 28, February 28, 1999 1998 1997 ------------ ------------ ------------- Net sales $ 552,650 $ 484,832 $ 386,560 Cost of goods sold 287,021 252,698 205,552 ------------ ------------ ------------ Gross profit 265,629 232,134 181,008 Selling, general and administrative expenses 178,293 149,044 115,476 Net royalty income (5,281) (5,738) (3,803) ------------ ------------ ------------ Operating profit 92,617 88,828 69,335 Other income Investment income, net 4,016 3,781 2,995 Minority interest in loss of consolidated subsidiary 405 785 310 ------------ ------------ ------------ Earnings before provision for income taxes 97,038 93,394 72,640 Provision for income taxes 38,330 36,976 28,600 ------------ ------------ ------------ NET EARNINGS $ 58,708 $ 56,418 $ 44,040 ============ ============ ============ Net earnings per share of common stock Basic $ 1.53 $ 1.44 $ 1.10 ============ ============ ============ Diluted $ 1.45 $ 1.35 $ 1.02 ============ ============ ============ Weighted average number of common shares outstanding Basic 38,430,000 39,081,000 39,960,000 ============ ============ ============ Diluted 40,529,000 41,729,000 42,969,000 ============ ============ ============
The accompanying notes are an integral part of these statements. F-4 22 Nautica Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data)
Accumulated Common stock Additional other -------------------- paid-in Retained comprehensive Treasury Shares Amount capital earnings (loss) income stock Total ------ ------ ------- -------- ------------- ----- ----- Balance at February 29, 1996 41,355,000 $4,135 $52,837 $116,716 $ -- $ (550) $173,138 Common stock issued on exercise of stock options 416,000 42 1,004 1,046 Income tax benefit from stock options 1,661 1,661 Purchase of treasury stock (16,758) (16,758) Comprehensive income Net earnings 44,040 44,040 ---------- ------ ------- -------- ---- -------- -------- Balance at February 28, 1997 41,771,000 4,177 55,502 160,756 -- (17,308) 203,127 Common stock issued on exercise of stock options 664,000 66 2,686 2,752 Income tax benefit from stock options 6,348 6,348 Purchase of treasury stock (17,873) (17,873) Other common stock issued 194 194 Comprehensive income Net earnings 56,418 56,418 Net unrealized investment gain, net of deferred taxes 202 202 -------- 56,620 ---------- ------ ------- -------- ---- -------- -------- Balance at February 28, 1998 (carried forward) 42,435,000 4,243 64,730 217,174 202 (35,181) 251,168
F-5 23 Nautica Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED) Years ended February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data)
Accumulated Common stock Additional other -------------------- paid-in Retained comprehensive Treasury Shares Amount capital earnings (loss) income stock Total ------ ------ ------- -------- ------------- ----- ----- Balance at February 28, 1998 (brought forward) 42,435,000 $4,243 $64,730 $217,174 $ 202 $(35,181) $251,168 Common stock issued on exercise of stock options 169,000 17 1,008 1,025 Income tax benefit from stock options 1,075 1,075 Purchase of treasury stock (55,922) (55,922) Comprehensive income Net earnings 58,708 58,708 Net unrealized investment loss, net of deferred taxes (237) (237) -------- 58,471 ---------- ------ ------- -------- ----- -------- -------- BALANCE AT FEBRUARY 27, 1999 42,604,000 $4,260 $66,813 $275,882 $ (35) $(91,103) $255,817 ========== ====== ======= ======== ===== ======== ========
The accompanying notes are an integral part of this statement. F-6 24 Nautica Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)
YEAR ENDED Year ended Year ended FEBRUARY 27, February 28, February 28, 1999 1998 1997 ------------ ------------ ------------ Cash flows from operating activities Net earnings $ 58,708 $ 56,418 $ 44,040 Adjustments to reconcile net earnings to net cash provided by operating activities, net of assets and liabilities acquired Minority interest in net loss of consolidated subsidiary (405) (785) (310) Deferred income taxes (1,119) (453) (2,138) Depreciation and amortization 12,552 8,979 6,272 Provision for bad debts 531 748 254 Changes in operating assets and liabilities Accounts receivable (21,867) (20,600) (15,122) Inventories (3,486) (4,224) (7,069) Prepaid expenses and other current assets (552) (575) 984 Other assets (2,491) (1,120) (723) Accounts payable - trade 10,854 (3,054) 5,122 Accrued expenses and other current liabilities 6,140 8,780 5,639 Income taxes payable 1,771 9,960 2,504 -------- -------- -------- Net cash provided by operating activities 60,636 54,074 39,453 -------- -------- -------- Cash flows from investing activities Purchase of property, plant and equipment (20,224) (21,370) (17,654) Acquisitions, net of cash acquired (1,650) (2,837) Purchase of short-term investments (2,764) (52,343) Payments to register trademark (169) (304) (717) Long-term investments 5,000 -------- -------- -------- Net cash used in investing activities (24,807) (76,854) (13,371) -------- -------- -------- Cash flows from financing activities Proceeds from minority shareholders of consolidated subsidiary -- 680 520 Principal payments on long-term debt (50) (50) (50) Proceeds from issuance of common stock 1,025 2,752 1,046 Purchase of treasury stock (55,922) (17,873) (16,758) -------- -------- -------- Net cash used in financing activities (54,947) (14,491) (15,242) -------- -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (19,118) (37,271) 10,840 Cash and cash equivalents at beginning of year 34,616 71,887 61,047 -------- -------- -------- Cash and cash equivalents at end of year $ 15,498 $ 34,616 $ 71,887 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for Income taxes $ 37,604 $ 27,470 $ 28,526
The accompanying notes are an integral part of these statements. F-7 25 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE A - SUMMARY OF ACCOUNTING POLICIES Nautica Enterprises, Inc. (the "Company") and Subsidiaries are primarily engaged in the design, manufacture and sale of men's apparel. The principal market for the Company's products is the United States. In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: 1. Principles of Consolidation The consolidated financial statements include the accounts of the Company, and its wholly- and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. During 1999, the Company acquired the remaining 49% interest in Nautica Europe, which is consolidated at February 28, 1998 and February 27, 1999. 2. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Cash equivalents consist principally of money market funds, demand notes and short-term tax-exempt notes and bonds. The market value of the cash equivalents approximates cost. 3. Short-term Investments Short-term investments consist primarily of government and agency bonds, tax-exempt municipal bonds and corporate bonds. These marketable securities are classified as available for sale and are adjusted to market value at the end of each accounting period. Unrealized market gains and losses, net of deferred tax, are reported in stockholders' equity. Realized gains and losses taxes on sales of investments are determined on a specific identification basis, and are included in the consolidated statements of earnings. F-8 26 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE A (CONTINUED) 4. Revenue Recognition Revenue within wholesale operations is recognized at the time merchandise is shipped to customers. Retail store revenues are recognized at the time of sale. Allowances for estimated returns are provided when sales are recorded. 5. Inventories Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out ("LIFO") method for certain wholesale inventories and by the first-in, first-out ("FIFO") method for retail inventories. Inventories valued using the LIFO method consisting primarily of finished goods comprised 48% and 71% of consolidated inventories before LIFO adjustment at February 27, 1999 and February 28, 1998, respectively. Had the Company utilized the FIFO method of accounting for inventory, inventories would have been higher by $2,748 and $2,757 at February 27, 1999 and February 28, 1998, respectively. 6. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Buildings and improvements are depreciated using the straight-line method over their estimated useful lives of 20 to 39 years. Machinery, equipment and fixtures are depreciated using the straight-line method over their estimated useful lives of three to ten years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. 7. Other Assets Included in other assets is an excess of cost over net assets acquired of approximately $6,884 and $5,234 at February 27, 1999 and February 28, 1998, respectively. These assets are being amortized on a straight-line basis over twenty- and forty-year periods. Accumulated amortization at February 27, 1999 and February 28, 1998 was $863 and $635, respectively. F-9 27 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE A (CONTINUED) 8. Income Taxes The Company and its wholly-owned subsidiaries file a consolidated Federal income tax return. Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax law. 9. Earnings Per Share Basic net earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding for the period. Diluted net earnings per share reflects the weighted-average common shares outstanding plus the potential dilutive effect of options which are convertible into common shares. Dilutive stock options included in the calculation of diluted weighted average shares were 2,099,000, 2,648,000, and 3,009,000 in 1999, 1998 and 1997, respectively. Options which were excluded from the calculation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares and, therefore, would be antidilutive, were 1,627,000 and 11,000 in 1999 and 1998, respectively. All options were included in the calculation of related earnings per share in 1997. 10. Valuation of Long-Lived Assets The Company continually reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has determined that no provision is necessary for the impairment of long-lived assets at February 27, 1999. 11. Advertising All costs associated with advertising products are expensed when the advertising takes place. Costs associated with cooperative advertising programs, under which the Company generally shares the cost of a customer's advertising expenditures, are expensed when the related revenues are recognized. Advertising expenses were $20.5 million in 1999, $20.1 million in 1998 and $15.1 million in 1997. F-10 28 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE A (CONTINUED) 12. Comprehensive Income In 1999, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in a financial statement. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented on the accompanying consolidated balance sheets, consists of the changes in unrealized gains and losses on securities. 13. Fiscal Year Effective March 1, 1998, the Company changed its fiscal year end to a 52/53-week year. There was no impact on the results of operations. Unless otherwise stated, references made to 1999, 1998 and 1997 relate to the fiscal years ended February 27, 1999, February 28, 1998 and February 28, 1997, respectively. 14. Reclassifications Certain amounts in prior years have been reclassified to conform with classifications used in 1999. F-11 29 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE B - SHORT-TERM INVESTMENTS The following are summaries of available-for-sale marketable securities:
Gross unrealized ----------------- Market Cost Gains Losses value ------- ------- -------- ------- FEBRUARY 27, 1999 Government and agency bonds $16,735 $ (37) $16,698 Tax-exempt municipal bonds 21,059 $ 131 (53) 21,137 Corporate bonds 16,839 26 (125) 16,740 ------- ------- -------- ------- Total debt securities 54,633 157 (215) 54,575 Other 474 474 ------- ------- -------- ------- $55,107 $ 157 $ (215) $55,049 ======= ======= ======== ======= February 28, 1998 Government and agency bonds $ 4,399 $ 34 $ (5) $ 4,428 Tax-exempt municipal bonds 26,955 194 (2) 27,147 Corporate bonds 18,267 123 (7) 18,383 ------- ------- -------- ------- Total debt securities 49,621 351 (14) 49,958 Other 2,722 2,722 ------- ------- -------- ------- $52,343 $ 351 $ (14) $52,680 ======= ======= ======== =======
The amortized cost and estimated fair value of investments in debt securities at February 27, 1999, by contractual maturity, were as follows:
Market Cost value ------- ------- Due within one year $16,492 $16,497 Due after one year through five years 21,213 21,201 Due after five years through ten years 9,202 9,199 Due after ten years 7,726 7,678 ------- ------- Total investments in debt securities $54,633 $54,575 ======= =======
F-12 30 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE B (CONTINUED) For 1999 and 1998, gross realized gains on available-for-sale securities totaled $501 and $232, respectively. In 1999 and 1998, gross realized losses totaled $125 and $3, respectively. In 1997, there were no realized gains or losses. The unrealized gains and losses on available-for-sale securities which were included in accumulated other comprehensive (loss) income were a loss of $58 (net of deferred tax of $23) and a gain of $337 (net of deferred tax of $135) in 1999 and 1998, respectively. NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows:
1999 1998 ------- ------- Land $ 515 $ 515 Building and improvements 11,753 12,085 Machinery, equipment and fixtures 69,370 53,795 Leasehold improvements 15,757 8,573 Construction in progress -- 3,896 ------- ------- 97,395 78,864 Accumulated depreciation and amortization 32,871 22,591 ------- ------- $64,524 $56,273 ======= =======
NOTE D - SHORT-TERM BORROWINGS As of February 27, 1999 and February 28, 1998, the Company had $100,000 in lines of credit, with two commercial banks, available for short-term borrowings and letters of credit collateralized by imported inventory and accounts receivable. At February 27, 1999, letters of credit outstanding under the lines were $37,900 and there were no short-term borrowings outstanding. F-13 31 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE E - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following:
1999 1998 ------- ------- Payroll and other employee compensation $12,043 $ 8,964 Royalties 1,149 1,748 Advertising and promotion 16,681 15,866 Accrued rent 1,844 1,428 Other 8,581 6,152 ------- ------- $40,298 $34,158 ======= =======
NOTE F - STOCKHOLDERS' EQUITY The Board of Directors adopted several stock purchase plans pursuant to which the Company has been authorized to purchase up to 6,000,000 shares on the open market. During 1999, the Company repurchased 2,534,000 shares at a cost of $55,922 under these plans. Subsequent to year-end, the Company has purchased an additional 2,374,500 shares at a cost of $28,674. Under a previously adopted plan, the Company repurchased 800,000 and 700,000 shares during 1998 and 1997, respectively. The Certificate of Incorporation, as amended, authorizes the Board of Directors to issue Preferred Stock, from time to time, in one or more series, with such voting powers, designations, preferences, and relative, participating, optional, conversion or other special rights, and such qualifications, limitations and restrictions, as the Board of Directors may, in their sole discretion, determine. F-14 32 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED), February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE G - COMMITMENTS AND CONTINGENCIES 1. Leases The Company leases real property and equipment, under operating leases expiring at various dates through 2009. Rent expense amounted to approximately $9,785 in 1999, $7,440 in 1998 and $5,604 in 1997. At February 27, 1999, minimum rental commitments under noncancellable leases are as follows: 2000 $ 7,976 2001 7,627 2002 6,754 2003 6,386 2004 5,669 Thereafter 28,661 ------- Total minimum payments required $63,073 =======
2. Stock Purchase Agreement and Life Insurance Proceeds The Company is a party to an agreement with the President and the Executive Vice President of the Company, which provides, upon the death of either of the aforementioned stockholders, and at the request of their respective estates, that the Company will purchase a part of the common shares of the deceased stockholder. The Company has obtained policies of life insurance on the lives of the stockholders for the purpose of utilizing the proceeds from such insurance for the purchase of the shares of the Company's common stock. The agreement provides for the Company to purchase the deceased stockholder's shares of common stock at a defined market value on the date of death. The Company's obligation to purchase the common shares of the deceased stockholder is limited to the life insurance proceeds received by the Company on the death of such stockholder. The agreement also provides, as soon after the death of the stockholder as is practicable and upon the request of the estate of the deceased stockholder, for the filing of a registration statement with the Securities and Exchange Commission for an offering of the shares of common stock, if any, not purchased by the Company. F-15 33 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE G (CONTINUED) 3. Executive Compensation In the event of a change in control of the Company as defined in the agreement, certain senior management have the right to receive a lump-sum payment upon termination of employment other than for cause or permanent disability or resignation for good reason within three years. Such payments are to be equal to the excess of (i) the product of 2.90 multiplied by the "base amount" as determined within the meaning of Section 280G of the Internal Revenue Code over (ii) the value on the date of the Change of Control Event of non-cash benefits as defined in the agreement. At February 27, 1999, the maximum amount payable, applicable to three individuals, would be approximately $10,375. 4. Other The Company is subject to claims and suits in the ordinary course of business. Management believes that the ultimate resolution of all such proceedings will not have a material adverse effect on the Company. 5. Concentrations In the normal course of business, the Company extends credit, on open account, to its retail store customers, after a credit analysis based on financial and other criteria. May Department Stores Company, Federated Department Stores, Inc. and Dillard Department Stores, Inc. accounted for approximately 22%, 19% and 18%, respectively, of sales in 1999, 24%, 21% and 17%, respectively, of sales in 1998 and 22%, 19% and 16%, respectively, of sales in 1997. The Company does not believe that this concentration of sales and credit risks represents a material risk of loss with respect to its financial position as of February 27, 1999. F-16 34 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE H - INCOME TAXES Significant components of the Company's deferred taxes at February 27, 1999 and February 28, 1998 are as follows:
1999 1998 ------- ------- Deferred tax assets (liabilities) Deferred compensation $ 1,574 $ 829 Allowance for doubtful accounts and sales discounts 985 767 Capitalized inventory costs 1,231 1,003 Nondeductible accruals 5,485 5,369 Depreciation (1,929) (1,740) Unrealized loss (gain) on investments 23 (135) ------- ------- $ 7,369 $ 6,093 ======= =======
The provision for income taxes is comprised of the following:
1999 1998 1997 --------- -------- -------- Current Federal $ 33,114 $ 31,093 $ 25,512 State and local 6,335 6,336 5,226 Deferred (1,119) (453) (2,138) -------- -------- -------- $ 38,330 $ 36,976 $ 28,600 ======== ======== ========
F-17 35 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE H (CONTINUED) The following is a reconciliation of the normal expected statutory Federal income tax rate to the effective rate reported in the financial statements:
1999 1998 1997 --------- --------- --------- PERCENT Percent Percent OF INCOME of income of income --------- --------- --------- Computed "expected" provision for Federal income taxes 35.0% 35.0% 35.0% State taxes - net of Federal income tax benefit 4.2 4.4 4.7 Other .3 .2 (.3) ---- ---- ---- Actual provision for income taxes 39.5% 39.6% 39.4% ==== ==== ====
NOTE I - TRANSACTIONS WITH RELATED PARTIES Nautica has the exclusive right to use, exploit and license others to so use and exploit the Nautica name and trademarks. The Executive Vice President of the Company receives 50% of the net royalties received by the Company with respect to the use of the Nautica name and trademarks. The Executive Vice President earned royalties of approximately $5,281, $5,738 and $3,803, in 1999, 1998 and 1997, respectively. In addition, the Executive Vice President is entitled to receive up to 1.5% of the net sales of certain new products, which at February 27, 1999 amounted to $15. At February 27, 1999 and February 28, 1998, the amount due to the Executive Vice President included in accrued expenses and other current liabilities was approximately $1,149 and $1,630, respectively. The Executive Vice President has the right of first refusal to purchase the Company's right and interests in the name "Nautica" in the event the Company abandons, sells or disposes of its interest in the name. F-18 36 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE J - MULTIEMPLOYER PENSION PLAN The Company contributed approximately $100 in 1999, $165 in 1998 and $145 in 1997 to a multiemployer pension plan for employees covered under a collective bargaining agreement. The plan is not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. The Multiemployer Pension Plan Amendments Act of 1980 (the "Act") significantly increased the pension responsibilities of participating employers. Under the provisions of the Act, if the plan terminates or the Company withdraws, the Company could be subject to a "withdrawal liability." As of February 27, 1999, the Company's share of unfunded vested benefits, if any, was not available from the plan's administrators. NOTE K - PROFIT-SHARING RETIREMENT AND SAVINGS PLAN The Company has a contributory retirement savings plan (Section 401(k) of the Internal Revenue Code) for all full-time employees. Under the provisions of the plan, eligible employees are permitted to contribute up to 15% of their salary subject to specified limits. The plan provides for discretionary employer matching contributions not to exceed the lesser of 100% of the employee's contribution or 6% of the employee's compensation. The amount of Company contributions to the plan charged to expense was $240 in 1999, $178 in 1998 and $169 in 1997. NOTE L - STOCK OPTION PLANS AND OPTION AGREEMENT On January 4, 1996, the Board of Directors adopted the Nautica Enterprises, Inc. Stock Incentive Plan (the "1996 Plan"), which was approved by the Company's stockholders at the 1996 Annual Meeting of Stockholders. The 1996 Plan authorizes the Compensation Committee to administer the plan and to grant to eligible participants stock options of the Company and its affiliates, stock appreciation rights, restricted stock, deferred stock, bonus stock, cash bonuses and loans. The 1996 Plan provides for the reservation and availability of 4,000,000 shares of common stock of the Company, subject to adjustment for future stock splits, stock dividends, reorganizations and similar events. In addition, stock options are outstanding under the Nautica Enterprises, Inc. 1989 Employee Incentive Plan and the 1984 Executive Incentive Stock Plan, for which options can no longer be granted. F-19 37 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE L (CONTINUED) On July 1, 1987, the Company entered into an Option Agreement (the "Agreement") with the President of Nautica. The Agreement granted the President the option to purchase up to an aggregate of 2,262,000 shares, subject to adjustments, of the Company's common stock at a purchase price of $.87 per share. The options shall expire 60 days after the earlier of (i) July 1, 2007, or (ii) 10 months following the date that the President of Nautica ceases to be employed by the Company. At February 27, 1999, 682,000 options exercisable at $.87 per share remain outstanding. For financial reporting purposes, the tax benefit resulting from compensation expense allowable for income tax purposes in excess of the expense recorded in the financial statements, amounting to $1,075, $6,348 and $1,661, during the years ended February 27, 1999, February 28, 1998 and February 28, 1997, respectively, has been credited to additional paid-in capital. The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). It applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans, which provide for granting of options with exercise prices equal to the fair market value of common stock at the date of grant, other than for restricted stock. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed by SFAS No. 123, the Company's net earnings and net earnings per share would be reduced to the pro forma amounts as follows:
1999 1998 1997 ------- ------- ------- Net earnings As reported $58,708 $56,418 $44,040 Pro forma 51,483 51,558 40,540 Basic net earnings per share As reported $ 1.53 $ 1.44 $ 1.10 Pro forma 1.34 1.32 1.01 Diluted net earnings per share As reported $ 1.45 $ 1.35 $ 1.02 Pro forma 1.27 1.24 .94
F-20 38 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (Amounts in thousands, except share data) NOTE L (CONTINUED) These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation expenses related to grants made before fiscal 1996. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the years ended February 27, 1999, February 28, 1998 and February 28, 1997, respectively: expected volatility of 55 percent, 50 percent and 48 percent; risk-free interest rates of 6.0 percent, 5.8 percent and 5.8 percent; and expected lives of seven years. The table below summarizes the activity in the plans.
1999 1998 1997 ---------------------- ---------------------- ---------------------- Weighted Weighted Weighted average average average exercise exercise exercise SHARES price Shares price Shares price Outstanding at beginning of year 3,562,000 $13.97 3,450,000 $ 9.68 3,147,000 $ 5.65 Granted 945,000 25.04 820,000 24.46 835,000 21.60 Exercised (168,000) 6.70 (665,000) 4.14 (416,000) 2.51 Cancelled (23,000) 24.91 (43,000) 21.73 (116,000) 11.55 --------- --------- --------- Outstanding at end of year 4,316,000 16.45 3,562,000 13.97 3,450,000 9.68 ========= ========= ========= Exercisable at end of year 2,040,000 10.32 1,381,000 7.45 1,341,000 4.54 ========= ========= ========= Weighted average fair value of options granted during the year 11.13 14.34 12.27
F-21 39 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE L (CONTINUED) The following table summarizes information concerning currently outstanding and exercisable stock options at February 27, 1999:
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 $ .45 - $4.45 761,000 4.51 $ 3.43 761,000 $ 3.43 6.22 - 10.38 1,060,000 6.70 9.27 798,000 8.91 18.56 - 27.38 2,495,000 8.77 24.51 481,000 22.57 --------- --------- 4,316,000 2,040,000 ========= =========
NOTE M - SEGMENT REPORTING In 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," which established reporting and disclosure standards for an enterprise's operating segments. Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by the Company's senior management. The Company has the following two reportable segments: Wholesale and Outlet Retail. The Wholesale segment designs, markets, sources and distributes sportswear, activewear, outerwear, robes and sleepwear for men and robes and sleepwear for ladies to retail store customers. The Outlet Retail segment sells men's apparel and other Nautica-branded products primarily through outlet retail store locations directly to consumers. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies. Segment profit is based on earnings before provision for income taxes. The reportable segments are distinct business units and are separately managed with separate distribution systems. The following information about the two segments is as of February 27, 1999 and for each of the three years in the period then ended: F-22 40 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE M (CONTINUED)
Outlet All Corporate/ Wholesale Retail other eliminations Totals --------- ------ ----- ------------ ------ FEBRUARY 27, 1999 Net sales from external customers $428,331 $124,319 $552,650 Segment operating profit 67,493 24,694 $ 5,281 $ (430) 97,038 Segment assets 188,557 43,937 10,295 89,545 332,334 Depreciation expense 10,525 919 276 254 11,974 February 28, 1998 Net sales from external customers $384,835 $ 99,997 $484,832 Segment operating profit 63,742 23,157 $ 5,738 $ 757 93,394 Segment assets 167,328 24,708 15,889 102,526 310,451 Depreciation expense 6,516 845 298 256 7,915 February 28, 1997 Net sales from external customers $316,880 $ 69,680 $386,560 Segment operating profit 55,652 17,224 $ 3,803 $ (4,039) 72,640 Segment assets 145,373 15,071 11,120 79,829 251,393 Depreciation expense 4,558 769 101 219 5,647
In the Corporate/eliminations column the segment assets primarily consist of the Company's cash and investment portfolio and the segment operating (loss) profit consists of corporate expenses offset by investment income earned. F-23 41 Nautica Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) February 27, 1999, February 28, 1998 and February 28, 1997 (amounts in thousands, except share data) NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
May 30 August 29 November 28 February 27 ------ --------- ----------- ----------- 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
May 31 August 31 November 30 February 28 ------ --------- ----------- ----------- 1998 Net sales $ 95,807 $ 132,260 $ 145,714 $ 111,051 Gross profit 44,319 61,380 70,078 56,357 Net earnings 7,671 14,908 20,012 13,827 Net earnings per share of common stock Basic .20 .39 .51 .35 Diluted .18 .36 .48 .33 Weighted average number of common shares outstanding Basic 39,255,000 38,721,000 39,045,000 39,302,000 Diluted 41,969,000 41,484,000 41,767,000 41,695,000
F-24 42 Nautica Enterprises, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions ---------- (1) (2) Charged Balance at Charged to to other Balance at beginning costs and accounts - Deductions - end of Description of year expenses describe describe year ----------- ------- -------- -------- ------------ ---- YEAR ENDED FEBRUARY 27, 1999 Reserves deducted from assets to which they apply Allowance for bad debts $2,066 $ 531 $ -- $2,597 ====== ====== ==== ====== Allowance for sales returns and discounts $3,670 $ -- $627 $3,043 ====== ====== ==== ====== Year ended February 28, 1998 Reserves deducted from assets to which they apply Allowance for bad debts $1,318 $ 748 $ -- $2,066 ====== ====== ==== ====== Allowance for sales returns and discounts $1,441 $2,229 $ -- $3,670 ====== ====== ==== ====== Year ended February 28, 1997 Reserves deducted from assets to which they apply Allowance for bad debts $1,064 $ 254 $ -- $1,318 ====== ====== ==== ====== Allowance for sales returns and discounts $ 464 $ 977 $ -- $1,441 ====== ====== ==== ======
F-25 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NAUTICA ENTERPRISES, INC. (Registrant) By:/s/ Harvey Sanders ------------------ Harvey Sanders Chairman (May 27, 1999) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ Harvey Sanders Chairman, President May 27, 1999 - ------------------------ Chief Executive Officer Harvey Sanders (Principal Executive Officer) and Director /s/ W. Donald Pennington Chief Financial Officer May 27, 1999 - ------------------------ (Principal Financial Officer) W. Donald Pennington /s/ Neal S. Nackman Vice President Finance May 27, 1999 - ------------------------ (Principal Accounting Officer) Neal S. Nackman /s/ David Chu Executive Vice President May 27, 1999 - ------------------------ and Director David Chu /s/ Robert B. Bank Director May 27, 1999 - ------------------------ Robert B. Bank /s/ Israel Rosenzweig Director May 27, 1999 - ------------------------ Israel Rosenzweig /s/ Ronald G. Weiner Director May 27, 1999 - ------------------------ Ronald G. Weiner
EX-21 2 LIST OF SUBSIDIARIES 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)
EX-23.1 3 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated April 15, 1999, accompanying the consolidated financial statements and schedule included in the Annual Report of Nautica Enterprises, Inc. (formerly State-O-Maine, Inc.) on Form 10-K for the year ended February 27, 1999. We hereby consent to the incorporation by reference of said report in the Registration Statements of Nautica Enterprises, Inc. (formerly State-O-Maine, Inc.) on Form S-8 (Registration Numbers 33-1488, 33-45823, 33-36040 333-55711 and 333-60895). GRANT THORNTON LLP New York, New York May 25, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 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. YEAR FEB-27-1999 MAR-01-1998 FEB-27-1999 15,498 55,049 108,111 5,640 70,212 256,033 97,395 32,871 332,334 76,467 0 0 0 4,260 251,557 332,334 552,650 561,947 287,021 287,021 0 0 0 97,038 38,330 58,708 0 0 0 58,708 1.53 1.45
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