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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 1O-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number
0-6708
NAUTICA ENTERPRISES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-2431048
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
40 WEST 57TH STREET, NEW YORK, NEW YORK 10019
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 541-5757
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock
par value $.10 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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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 20, 1996, 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 $793,311,688.
DOCUMENTS INCORPORATED BY REFERENCE
Identification of Document Part into which Incorporated
Proxy Statement for Annual Meeting
of Stockholders to be held July 1, 1996. Part III -- Items 10, 11, 12 and 13
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PART I
ITEM 1. BUSINESS
Nautica Enterprises, Inc., a Delaware corporation (the
"Company") designs, sources and markets men's apparel through two wholly owned
subsidiaries, Nautica International, Inc. ("Nautica") and State-O-Maine, Inc.
("State-O-Maine"). Nautica offers a lifestyle collection of men's sportswear,
outerwear and activewear with a distinctive active outdoor image. The
collection, sold under the Nautica brand, features innovative designs, classic
styling, bold primary colors and quality fabrics. State-O-Maine offers: Nautica
brand robes and loungewear; sportswear and swimwear under the Bayou Sport label;
apparel designed and sourced for private label programs; and, robes and
loungewear under the Charles Goodnight label.
Nautica's in-store shop program is a primary component of the
Company's growth strategy. Through this program, Nautica and a department store
customer create a specific area within the store dedicated to the exclusive
merchandising and sale of the Nautica collection. Each of these shops (referred
to herein as a "Nautica Shop") is outfitted with signature Nautica fixtures and
presents the Nautica collection in a visually attractive environment consistent
with the Nautica image.
In addition to Nautica's wholesale business, the Company
operates 38 Nautica factory outlet stores and two flagship stores in New York
City and Newport Beach, California through its wholly owned subsidiary Nautica
Retail USA, Inc. ("Nautica Retail"). The factory outlet stores provide an
additional sales channel for Nautica products and allow for organized
distribution of excess and out-of-season merchandise.
The Company, through its wholly owned subsidiary Nautica
Apparel, Inc., strategically extends the Nautica product lines and broadens the
international distribution of the Nautica apparel collection through license
agreements. The Nautica name is currently licensed for a range of products
consistent with Nautica's design concepts and image.
PRODUCTS
Nautica
Nautica offers a lifestyle collection of men's sportswear,
outerwear and activewear with a distinctive active outdoor image. The
collection, sold under the Nautica brand, features innovative designs, classic
styling, bold primary colors and quality fabrics. The Nautica name and
trademarks are prominently displayed on Nautica products to promote brand
awareness and maintain consumer loyalty. Although 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 offered in three principal groups:
Anchor, Crew and Fashion. Products in each of these groups are designed by
Nautica's in-house staff and include sportswear, outerwear and activewear.
Sportswear includes sweaters, cardigans, woven shirts, knit shirts, rugbys,
pants and shorts. Outerwear includes parkas, anoraks, bomber jackets and foul
weather gear. Activewear includes fleece and french terry tops, french terry
pants and shorts, tee shirts and swimwear.
The Anchor group serves as the foundation for the Nautica
collection and consists of basic items, including cotton twill shirts, cotton
pique knit shirts, cotton twill pants, lightweight jackets and swimwear. These
seasonless products feature Nautica's signature color schemes and styles and are
available to retail customers throughout the year. The Company maintains
inventory of Anchor products in order to continuously
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replenish the stock of its retail customers. Since 1992, retail
customers have been able to re-order Anchor products through electronic data
interchange (EDI).
The Crew and Fashion groups are usually presented in ten
deliveries during Nautica's four merchandising seasons. Crew is typically the
first collection delivery of the Spring, Transitional, Fall and Holiday seasons.
The Crew collections reinterpret Anchor basics by introducing seasonal colors
and offer additional items and styles. Fashion deliveries consist of
three to five small groups within each merchandising season. The Fashion
collections are based on seasonal themes developed by Nautica's design and
merchandising staffs. These themes, which have included "Great Lakes Adventure"
and "Windward Sailing" reinforce the Nautica image. The Fashion group is
distinguished by its distinctive use of color, novelty prints and fabrics and
unique design elements. The Anchor, Crew and Fashion groups are developed to be
merchandised together as a cohesive Nautica collection.
In 1996, Nautica introduced its "Nautica Competition" brand of
performance apparel. The Nautica Competition collection features innovative
products engineered for both serious athletes and fitness-oriented consumers.
Nautica has designed a separate in-store shop configuration for Nautica
Competition using high tech materials accented with aluminum and glass and
athletic inspired photographs.
The Company also licenses the Nautica name and trademarks for
a range of products consistent with Nautica's design concepts and image,
including men's cologne and skin care products, watches, eyewear and footwear.
See "Licensing."
State-O-Maine
State-O-Maine offers: Nautica brand robes and loungewear;
sportswear and swimwear under the Bayou Sport label; apparel designed and
sourced for private label programs; and, robes and loungewear under the Charles
Goodnight label. The Nautica brand men's furnishings targets the same consumer
base as the Nautica collection, but is typically sold and displayed in the men's
furnishings department of leading department and specialty stores. For its other
lines, State-O-Maine employs more competitive pricing and broader distribution
strategies than those of Nautica.
In 1989, State-O-Maine commenced the development, sale and
distribution of distinctive men's robes and loungewear bearing the Nautica
label. This line features quality fabrics, classic styling and design concepts
inspired by the Nautica collections.
In 1992, State-O-Maine introduced a spirited line of men's
apparel under the Bayou Sport label. The Bayou Sport line of woven and knit
shirts and swimwear features vibrant prints and bold colors and patterns, and is
offered at competitive price points.
State-O-Maine continues to actively develop its private label
business for department store customers such as Belk and Dillard's and for
national chain store operators such as J.C. Penney, Target and Sears, Roebuck
and Co. Products designed and sourced for private label programs include
sportswear, swimwear, robes and loungewear. The Company uses its design and
sourcing expertise to offer quality products at competitive prices.
In 1995, State-O-Maine introduced robes and loungewear under
the Charles Goodnight label. This license agreement enables State-O-Maine to
enhance the sale and distribution of its core robe and loungewear products.
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MARKETING
Nautica's in-store shop program is a primary component of the
Company's growth strategy. Through this program, Nautica and a department store
customer create a specific area within the store dedicated to the exclusive
merchandising and sale of the Nautica collection. These Nautica Shops,
strategically located in the men's collections departments of leading department
stores, provide a distinctive selling environment tailored to Nautica's
specifications and generally include cherry and ash wood flooring, custom
designed ash fixtures, brass hardware and nautical props. As a result of their
configuration, Nautica Shops stock a greater volume of Nautica inventory per
square foot than would typically be carried in a standard department store
setting. They also allow for enhanced customer service and monitoring of sales
performance. Accordingly, management believes that the Nautica Shops achieve
sales productivity significantly exceeding that of sales of Nautica products in
a standard department store setting.
Nautica plans to continue to install and expand Nautica Shops
in department stores which currently sell the Nautica collection and to install
Nautica Shops in additional retail locations. The continued development of the
Nautica Shop program is dependent on general apparel industry conditions,
continued participation by retail customers and continued demand by consumers
for the Nautica collection.
In 1996, the Company expanded the Nautica Shop program to
include shops featuring the Nautica Competition brand of performance apparel.
The shops feature high tech materials accented with aluminum and glass and
athletic inspired photographs.
In order to maximize the effectiveness of the Nautica Shop
program, Nautica established a merchandise coordinator program in 1990. Each of
Nautica's merchandise coordinators services a group of retail customers within a
common geographic region. They communicate with and visit each of their
customers on a regular basis to ensure proper visual display of Nautica
merchandise, analyze inventory requirements, and provide selling and
merchandising support to the sales staff. Merchandise coordinators also train
certain department store employees with regard to Nautica's product features,
sales methods and shop management. They also provide sales information to the
Company's retail analysts who monitor retail customer performance and develop
plans to assist these retail customers with future purchases of Nautica
products. Management believes that the performance of Nautica Shops is enhanced
by the close interaction of its merchandise coordinators with its retail
customers.
Nautica concentrates its marketing efforts on national and
regional print advertising. The advertising captures the Nautica image in
environments that reflect the Nautica lifestyle collection. The Nautica
advertising campaign is featured throughout the year in national magazines
including Atlantic Monthly, Conde Nast Traveler, Details, Esquire, GQ, George,
L'Uomo Vogue, Men's Health, Men's Journal, The New Yorker, The New York Times
Magazine, Outside, Sports Illustrated, Vanity Fair, Wired and W-The Men's
Portfolio; and in regional magazines. In addition, Nautica participates with its
retail customers in a cooperative advertising program. The print advertising is
supplemented by a series of special events and sponsorships. Nautica was the
official clothing sponsor for the U.S. Sailing Team. The Company is the official
apparel sponsor of the Northville (L.I.) Classic and the Transamerica Senior
Golf Championship, two events on the Senior PGA tour.
Nautica products are also sold through 38 Company-owned
factory outlet stores located throughout the United States and two Company-owned
retail stores located in New York City and Newport Beach, California. See
"Retail."
Nautica sells its products primarily to leading department and
specialty stores. Its principal customers include Dillard's, May Company
Department Stores (including Kaufmann's, Foley's, Filene's, Lord & Taylor and
Famous Barr), Dayton's-Hudson-Field's, Federated Department Stores (including
Macy's,
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Bloomingdale's, Lazarus/Rich's) and Nordstrom. Nautica maintains showrooms in
New York City and Dallas, Texas.
State-O-Maine sells its products primarily to department
stores including Dillard's and May Company Department Stores,
Dayton's-Hudson-Field's, and Federated Department Stores. In addition,
State-O-Maine sells its products to national chain store operators such as J.C.
Penney Co., Inc. and Sears, Roebuck and Co. State-O-Maine's Bayou Sport line and
its private label program employ more competitive pricing and broader
distribution strategies than the Nautica brand. State-O-Maine products are
generally sold in individual product categories through mainfloor classification
departments. Its products are marketed by its regional sales managers and sales
representatives through its showrooms in New York City and Dallas, Texas. In
fiscal 1996, Dillard's, May Company Department Stores and Federated Department
Stores each accounted for approximately 15%, 18% and 14%, 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 the in-house
staffs of Nautica and State-O-Maine. 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 and State-O-Maine arrange 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
manufacturers are located primarily in Hong Kong, the People's Republic of
China, the Philippines, Malaysia, Singapore, Saipan, Thailand, India and Turkey.
The Company's agents, based in Hong Kong, Taiwan, Turkey and India 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 significant 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
significant difficulty in sourcing fabrics for its manufacturers. Management
believes that many alternate sources of supplies exist. However, the inability
of current sources to satisfy the Company's fabric requirements, the loss of
certain fabric vendors, or a delay in manufacturers obtaining fabric from
certain vendors, could have a material adverse effect on the Company's business
and operating results. The Company does not have any long-term commitments with
fabric suppliers.
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.
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LICENSING
The Company strategically extends the Nautica product line and
broadens the international distribution of the Nautica apparel collection
through license agreements. These license agreements 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").
Net royalty income to the Company was approximately $942,000, $1,285,000 and
$2,248,000 in fiscal 1994, fiscal 1995 and fiscal 1996, respectively.
Nautica Licensing currently licenses products for wholesale
distribution in the following product categories: men's cologne and skin care
products, neckwear, tailored clothing, rainwear, boys' apparel, women's
sportswear, footwear, luggage, watches, caps, men's hosiery, eyewear, belts and
small leather goods, umbrellas and a Lincoln-Mercury Villager minivan.
Internationally, Nautica apparel is licensed for sale in
Australia, Brazil, Canada, the Caribbean, Chile, Colombia, Greece, Hong Kong,
Japan, Korea, Mexico, New Zealand, Panama, Peru, Taiwan, Thailand and Venezuela.
In addition to wholesale distribution of Nautica apparel, international
licensees operate a total of approximately 58 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 and Nautica, is entitled to receive 50% of
the net royalty income from licensing the Nautica name and trademarks. The
Company is entitled to receive the remaining 50% of such net royalty income.
RETAIL
Factory Outlet Stores
The Company operates 38 Nautica factory outlet stores
generally located in manufacturers' outlet centers throughout the United States.
The Company's retail operations are conducted through its wholly owned
subsidiary, Nautica Retail USA, Inc. ("Nautica Retail"). These factory outlet
stores have enabled the Company to increase sales in certain geographic markets
where Nautica products were not previously available and to 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 factory outlet
stores are geographically positioned to minimize potential conflict with the
Company's retail customers.
Flagship Stores
The Company operates two Nautica flagship stores, one in New
York City and one in Newport Beach, California. With their signature Nautica
cherry and ash wood flooring, ash fixtures, brass hardware and nautical props,
these stores are designed to convey the complete Nautica image. The stores carry
a wide range of Nautica brand products, including Nautica furnishings, watches
and footwear. These stores serve as a showcase for Nautica's retail customers
and build brand recognition among consumers.
SEASONALITY
Historically, the Company has experienced its highest level of
sales in the third quarter and its lowest level in the first quarter. This
pattern has resulted primarily from the timing of shipments to retail customers
for Spring and Fall seasons. In the future, the timing of seasonal shipments may
vary by quarter.
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TRADEMARKS
Nautica and its related trademarks (the "Nautica Marks"),
including the Nautica Spinnaker, are registered trademarks of Nautica Apparel,
Inc. in the United States for apparel and other products, including cologne,
eyewear, watches, small leather goods, umbrellas, luggage and jewelry.
Applications to register the Nautica Marks in other product categories have been
filed by the Company in the United States. In addition, the Company has
registered or is in the process of registering the Nautica Marks in over 70
countries throughout the world for apparel and in other complementary product
categories.
State-O-Maine and Bayou Sport are registered trademarks of
State-O-Maine in the United States for certain apparel items.
The Company regards its trademarks and other proprietary
rights as valuable assets.
COMPETITION
The apparel industry is highly competitive. The Company
encounters substantial competition from brands such as Polo/Ralph Lauren, Tommy
Hilfiger and Claiborne, as well as from certain non-designer lines. In addition,
department stores, including some of the Company's major retail customers, have
increased in recent years the amount of goods manufactured specifically for them
and sold under their own labels. Some of the Company's competitors are
significantly larger and more diversified than the Company and have
substantially greater resources available for marketing their products. The
Company believes that its ability to compete effectively depends upon the
continuing appeal of Nautica apparel and the Company's other products to its
retail customers and consumers as well as the Company's ability to continue to
offer high quality apparel at appropriate price points.
EMPLOYEES
At February 29, 1996, the Company had approximately 1,000
employees. Approximately 230 employees are located at the Company's Rockland,
Maine facilities; approximately 180 of such employees are members of the
Amalgamated Clothing and Textile Workers Union, AFL-CIO, CLC. The Company
considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company operates three warehouse and distribution
facilities in Rockland, Maine. A 165,000 square foot facility, owned by the
Company, is used for receiving, shipping and warehousing the Nautica apparel and
private label lines. The Company expects to complete an expansion of the
facility in 1996, which will add approximately 165,000 square feet of usable
area. A 100,000 square foot facility, also owned by the Company, is used
primarily for receiving, shipping and warehousing the Nautica furnishings,
Bayou Sport and Nautica Retail inventories. A leased facility of approximately
33,000 square feet is used for warehousing a range of the Company's products.
All merchandise is shipped directly from the Company's manufacturers to its
facilities in Rockland, Maine where it is processed and shipped to customers.
The Company has administrative and sales offices at 40 West
57th Street, New York, New York, where it occupies under lease approximately
32,000 square feet. It also leases a design studio of approximately 22,000
square feet located at 11 West 19th Street, New York, New York. The Company or
its
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subsidiaries also lease sales offices in Dallas, Texas, two retails stores
and 38 Nautica factory outlet stores located throughout the United States. The
factory outlet stores each average approximately 3,200 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 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is publicly quoted on the National Market
System of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the trading symbol "NAUT."
The following table sets forth for the periods indicated the high and
low reported sales prices per share for the common stock as quoted by the NASDAQ
National Market System. All prices have been adjusted to reflect a two-for-one
stock split to be effected in the form of a stock dividend payable on May 28,
1996.
High Low
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Fiscal 1995 First Quarter ended May 31, 1994 $ 9.25 $ 7.25
Second Quarter ended August 31, 1994 9.25 6.50
Third Quarter ended November 30, 1994 10.84 8.75
Fourth Quarter ended February 28, 1995 10.75 9.00
Fiscal 1996 First Quarter ended May 31, 1995 11.17 8.17
Second Quarter ended August 31, 1995 17.00 9.92
Third Quarter ended November 30, 1995 19.13 15.63
Fourth Quarter ended February 29, 1996 22.75 16.25
Fiscal 1997 First Quarter (through May 20, 1996) 24.38 22.25
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As of May 20, 1996, there were approximately 365 holders of record
of the Company's common stock.
The policy of the Company is to retain earnings to provide funds for
the operation and expansion of its business and, accordingly, the Company has
paid no cash dividends on its Common Stock. Any payment of future cash dividends
and the amounts thereof will be dependent upon the Company's earnings, financial
requirements, and other factors deemed relevant by the Company's Board of
Directors.
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Item 6. Selected Financial Data
Year ended
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February 29, February 28, February 28, February 28, February 29,
1996 1995 1994 1993 1992
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Selected consolidated statements of earnings data
Net sales $302,541,175 $247,630,892 $192,939,093 $150,962,006 $121,153,102
============ ============ ============ ============ ============
Net earnings $ 31,986,310 $ 23,971,307 $ 16,803,991 $ 10,488,204 $ 7,488,669
============ ============ ============ ============ ============
Net earnings per share of common stock
Primary $ .75 $ .57 $ .45 $ .30 $ .22
=== === === === ===
Fully diluted $ .75 $ .57 $ .45 $ .30 $ .22
=== === === === ===
Cash dividends per share of common stock None None None None None
February 29, February 28, February 28, February 28, February 29,
1996 1995 1994 1993 1992
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Selected consolidated balance sheets data
Total assets $209,339,849 $168,355,506 $137,040,445 $ 79,301,967 $ 60,357,985
Long-term debt, excluding current portion 200,000 250,000 300,000 350,000 417,338
Working capital 133,912,229 114,488,525 95,673,926 45,389,377 35,229,937
Stockholders' equity 173,138,288 139,300,351 114,143,790 59,013,183 48,297,673
All share data has been adjusted to reflect stock splits.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal year ended February 29, 1996 compared to February 28, 1995:
Consolidated net sales increased 22.2% to $302.5 million in the
fiscal year ended February 29, 1996 compared to $247.6 million in the prior
fiscal year. This increase is primarily a result of increased sales of Nautica
products through its wholesale and retail operations. Nautica's wholesale sales
increased due to the expansion of Nautica's in-store shop program, sales to new
retail customers and to additional locations of existing customers. The increase
in Nautica's wholesale sales is due primarily to increased unit volume rather
than price increases. Nautica retail sales increased as a result of opening nine
additional Nautica factory outlet stores during the current year, the full year
effect of eight stores opened in the prior year and to an increase in comparable
store sales.
Consolidated gross profit during the fiscal year ended February
29, 1996 increased to 45.3% of net sales, as compared to 44.3% of net sales in
the prior fiscal year. The net increase resulted primarily from a shift to the
higher margin Nautica wholesale products and to an increase in retail
operations.
Selling, general and administrative expenses as a percentage of
net sales decreased to 29.4% during the fiscal year ended February 29, 1996 as
compared to 30.0% in the prior fiscal year. The net decrease, as a percentage of
sales, resulted from economies of scale achieved with sales growth. Furthermore,
selling, general and administrative expenses in 1995 include other expenses of
$881,000 (.4% of net sales) which primarily related to costs associated with the
Company's evaluation of its warehouse and distribution facilities location.
Net royalty income increased by $963,000 to $2,248,000 in the
fiscal year ended February 29, 1996 as compared to $1,285,000 in the prior
fiscal year. The increase is a result of increased royalty revenue from new and
existing licensees.
The interest income increase of approximately $553,000 is due to
higher average cash balances during the year and to an increase in the rate of
return on investments
The provision for income taxes increased to 39.6% as compared to
37.9% in the prior year. The prior year's rate was unusually low due to certain
state tax relief provided to the Company which reduced the corporate tax rate
and the inclusion of a one time refund of taxes previously paid.
Net earnings increased 33.4% to $32.0 million in the fiscal year
ended February 29, 1996 from $24.0 million in the prior fiscal year as a result
of the factors discussed above.
Fiscal year ended February 28, 1995 compared to February 28, 1994:
Consolidated net sales increased 28.4% to $247.6 million in the
fiscal year ended February 28, 1995 compared to $192.9 million in the prior
fiscal year. This increase is primarily a result of increased sales of Nautica
products through its wholesale and retail operations. Nautica's wholesale sales
increased due to the expansion of Nautica's in-store shop program, sales to new
retail customers and to additional locations of existing customers. The increase
in Nautica's wholesale sales is primarily due to increased unit volume rather
than price increases. Nautica retail sales increased as a result of opening
eight additional Nautica factory outlet stores during the current year, the full
year effect of four stores opened in the prior year and to an increase in
comparable store sales.
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Consolidated gross profit during the fiscal year ended February
28, 1995 increased to 44.3% of net sales, as compared to 43.5% of net sales in
the prior fiscal year. The net increase resulted primarily from a shift in sales
mix to higher margin products.
Selling, general and administrative expenses as a percentage of
net sales increased to 30.0% during the fiscal year ended February 28, 1995 as
compared to 29.6% in the prior fiscal year. The net increase resulted from
additional expenses incurred due to the expiration of a license agreement in the
Company's State-O-Maine, Inc. subsidiary in the current year and other expenses
of $881,000 which relates primarily to costs associated with the Company's
evaluation of its warehouse and distribution facilities resulting in the
decision to remain in Maine.
Net royalty income increased by $343,000 to $1,285,000 in the
fiscal year ended February 28, 1995 as compared to $942,000 in the prior fiscal
year. This net increase resulted from increased royalty revenue associated with
increased sales by licensees partially offset by increased expenses associated
with a bankruptcy filing by one licensee.
Investments of the cash balances from operations and the Company's
public offering resulted in net interest income of $1,968,000 during the fiscal
year ended February 28, 1995.
The effective tax rate decreased to 37.9% for the fiscal year
ended February 28, 1995 as compared to 41.2% in the prior fiscal year. The
decrease is primarily due to certain state tax relief provided to the Company of
approximately $1,429,000 and to tax exempt interest income.
Net earnings increased 42.7% to $24.0 million in the fiscal year
ended February 28, 1995 from $16.8 million in the prior fiscal year as a result
of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended February 29, 1996 and February 28, 1995 the
Company generated cash from operating activities of $29.6 million and $13.8
million, respectively. Such cash was principally from net earnings and increases
in accounts payable and accrued expenses offset by inventory increases in 1996
and 1995 of $5.4 and $18.6 million, respectively, and increases in accounts
receivable of $9.2 and $2.5 million, respectively. The increases in inventory
and accounts receivable in 1996 are primarily attributable to the increased
sales volume. The increase in inventory in 1995 is primarily the result of
stocking more basic inventory to fill EDI orders resulting from increased demand
for the Anchor group of Nautica products and to fill orders for shipments to be
made in the future.
During the year ended February 29, 1996 the Company's principal
investing activities related to the expansion of the Company's warehouse and
distribution facilities and the continued expansion of in-store shops. The
expected cost of the expansion is approximately $14.0 million. The Company will
utilize its existing cash during construction and is considering financing
alternatives for the project following its completion. During the year ended
February 28, 1995 the Company's principal investing activities related to the
continued expansion of Nautica's in-store shop program. The Company expects to
continue to incur capital expenditures to promote the expansion of the Nautica
in-store shop program.
The Company has $80.0 million in lines of credit with two
commercial banks available for short-term borrowings and letters of credit.
These lines are collateralized by wholesale inventory and accounts receivable.
At February 29, 1996 letters of credit outstanding under the lines were $32.5
million and there were no short-term borrowings outstanding.
11
13
Historically, the Company has experienced its highest level of
sales in the third quarter and its lowest level in the first quarter. This
pattern has resulted primarily from the timing of shipments to retail customers
for Spring and Fall seasons. In the future, the timing of seasonal shipments may
vary by quarter. The Company anticipates that internally generated funds from
operations, existing cash balances and the Company's existing credit lines will
be sufficient to satisfy its cash requirements.
CURRENTY FLUCTUATIONS AND INFLATION
The Company purchases its products from manufacturers located
primarily in the Far East. These purchases 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
imports or the Company's results of operations. However, there can be no
assurance that purchase prices for the Company's products will not be affected
by future fluctuations in the exchange rate between the United States dollar and
the local currencies of these manufacturers. Due to the number of currencies
involved, the Company cannot quantify the potential effect of such future
fluctuations on future income. The Company does not engage in hedging activities
with respect to such exchange rate risk.
The Company believes that inflation has not had a material effect on
the cost of imports or the Company's results of operations.
NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." This statement will be
effective in the fiscal year 1997 and the Company believes the effect of the
adoption of the new standard will have no impact on the Company's consolidated
results of operations or financial position. The Company intends to continue to
measure the compensation costs under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and present footnote disclosure of
net income and earnings per share in accordance with SFAS No. 123.
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
12
14
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, 1996.
In addition, for the fiscal year ended February 29, 1996, each of the
following filed one late report under Section 16(a) of the Securities and
Exchange Act of 1934, reflecting one transaction: Messrs. Robert B. Bank, George
Greenberg, Israel Rosenzweig and Charles Scherer, Directors of the Company; Mr.
Harvey Sanders, President and a Director of the Company; Mr. David Chu,
Executive Vice President and a Director of the Company; and, Mr. John Wetzler,
President of Nautica Retail USA, Inc., a wholly owned subsidiary of the Company.
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, 1996.
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, 1996.
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, 1996 and by reference to Footnotes G, H and K of the Financial
Statement included in this report and referred to at Part IV, Item 14.
13
15
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-3
Consolidated Balance Sheets at February 29, 1996 and February 28, 1995 F-4
Consolidated Statements of Earnings for each of the three years in the
period ended February 29, 1996 F-6
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended February 29, 1996 F-7
Consolidated Statements of Cash Flows for each of the three years in the
period ended February 29, 1996 F-8
Notes to Consolidated Financial Statements F-10
(a) 2. Financial Statement Schedules
Included in Part IV of this report:
Schedules for each of the three years in the period ended February 29,
1996:
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 Certificate of Incorporation is incorporated by
reference to the Registration Statement on Form S-3
(Registration No. 33-71926), as amended by a Certificate of
Amendment dated June 29, 1995.
10(iii)(a) Registrant's Executive Incentive Stock Option Plan is
incorporated by reference herein from the Registrant's
Registration Statements on Form S-8 (Registration Number
33-1488), as amended by the Company's Registration Statement
on Form S-8 (Registration Number 33-45823).
F-1
16
10(iii)(b) Registrant's 1989 Employee Incentive Stock Plan is
incorporated by reference herein from the Registrant's
Registration Statement on Form S-8 (Registration Number
33-36040).
10(iii)(c) Registrant's 1994 Incentive Compensation Plan is
incorporated by reference herein from the Registrant's
Annual Report on Form 10-K for year ended February 28, 1995.
21 Subsidiaries of Registrant.
23.1 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None
F-2
17
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 29, 1996 and February 28,
1995, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the three years in the period ended February 29,
1996. 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 29, 1996 and February 28,
1995, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended February 29, 1996, 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 29, 1996. 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, 1996 (except for
Note G, as to which the
date is April 29, 1996)
F-3
18
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, February 28,
ASSETS 1996 1995
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 61,047,522 $ 49,153,556
Accounts receivable - net of allowances of $1,064,000
in 1996 and $1,211,000 in 1995 45,704,169 37,362,801
Inventories 54,235,489 48,876,065
Prepaid expenses and other current assets 5,290,473 5,389,979
Deferred tax benefit 3,636,137 2,511,279
------------ ------------
Total current assets 169,913,790 143,293,680
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and amortization 30,712,102 18,759,795
OTHER ASSETS
Excess of cost over net assets acquired, net of
accumulated amortization 1,557,814 1,607,534
Other 7,156,143 4,694,497
------------ ------------
8,713,957 6,302,031
------------ ------------
$209,339,849 $168,355,506
============ ============
The accompanying notes are an integral part of these statements.
F-4
19
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
FEBRUARY 29, February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 50,000 $ 50,000
Accounts payable - trade 15,440,362 12,534,381
Accrued expenses and other current liabilities 19,140,265 15,631,659
Income taxes payable 1,370,934 589,115
------------ ------------
Total current liabilities 36,001,561 28,805,155
LONG-TERM DEBT - NET 200,000 250,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.01, authorized 2,000,000
shares, no shares issued
Common stock - par value $.10, authorized 50,000,000
shares; issued, 41,354,806 shares at 1996 and
20,416,110 shares at 1995 4,135,480 2,041,611
Additional paid-in capital 52,836,972 53,079,214
Retained earnings 116,716,396 84,730,086
------------ ------------
173,688,848 139,850,911
Less
Common stock in treasury at cost;1,570,070 shares
at 1996 and 785,035 shares at 1995 550,560 550,560
------------ ------------
173,138,288 139,300,351
------------ ------------
$209,339,849 $168,355,506
============ ============
The accompanying notes are an integral part of these statements.
F-5
20
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED Year ended February 28,
FEBRUARY 29, -----------------------------
1996 1995 1994
------------ ------------ ------------
Net sales $302,541,175 $247,630,892 $192,939,093
Cost of goods sold 165,462,039 137,967,107 108,977,721
------------ ------------ ------------
Gross profit 137,079,136 109,663,785 83,961,372
Selling, general and administrative expenses 88,913,958 74,317,693 57,127,782
Net royalty (income) (2,247,961) (1,285,325) (941,964)
------------ ------------ ------------
Operating profit 50,413,139 36,631,417 27,775,554
------------ ------------ ------------
Other income
Interest income, net 2,521,135 1,968,204 85
Life insurance proceeds 825,556
------------ ------------ ------------
2,521,135 1,968,204 825,641
------------ ------------ ------------
Earnings before provision for income taxes 52,934,274 38,599,621 28,601,195
Provision for income taxes 20,947,964 14,628,314 11,797,204
------------ ------------ ------------
NET EARNINGS $ 31,986,310 $ 23,971,307 $ 16,803,991
============ ============ ============
Earnings per share of common stock $ .75 $ .57 $ .45
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding 42,716,880 41,711,574 37,258,692
============ ============ ============
The accompanying notes are an integral part of these statements.
F-6
21
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended February 29, 1996, February 28, 1995 and 1994
COMMON STOCK ADDITIONAL TREASURY STOCK
----------------------- PAID-IN RETAINED --------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
---------- ---------- ----------- ------------ --------- --------
Balance at February 28, 1993 7,440,486 $ 744,049 $14,864,906 $ 43,954,788 348,905 $550,560
Net earnings 16,803,991
Common stock issued on exercise of stock options 484,339 48,434 1,740,177
Income tax benefit from stock options 3,955,967
Stock split 3,954,097 395,410 (395,410) 174,452
Common stock issued in public offering, net 1,592,585 159,258 32,422,780
---------- ---------- ----------- ------------ --------- --------
Balance at February 28, 1994 13,471,507 1,347,151 52,588,420 60,758,779 523,357 550,560
Net earnings 23,971,307
Common stock issued on exercise of stock options 139,233 13,923 509,688
Stock split 6,805,370 680,537 (680,537) 261,678
Income tax benefit from stock options 661,643
---------- ---------- ----------- ------------ --------- --------
Balance at February 28, 1995 20,416,110 2,041,611 53,079,214 84,730,086 785,035 550,560
Net earnings 31,986,310
Common stock issued on exercise of stock options 261,293 26,129 887,098
Stock split 20,677,403 2,067,740 (2,067,740) 785,035
Income tax benefit from stock options 938,400
---------- ---------- ----------- ------------ --------- --------
BALANCE AT FEBRUARY 29, 1996 41,354,806 $4,135,480 $52,836,972 $116,716,396 1,570,070 $550,560
========== ========== =========== ============ ========= ========
The accompanying notes are an integral part of this statement.
F-7
22
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED Year ended February 28,
FEBRUARY 29, -----------------------------
1996 1995 1994
------------- ------------- ------------
Cash flows from operating activities
Net earnings $ 31,986,310 $ 23,971,307 $ 16,803,991
Adjustments to reconcile net earnings to net cash
provided by operating activities
Deferred income taxes - net (1,124,858) (594,810) (302,419)
Depreciation and amortization 4,345,843 3,110,160 2,995,244
Provision for accounts receivable allowances
and discounts 828,899 1,772,796 792,801
Loss on disposal and abandonment of fixed assets 881,443 163,784
Changes in operating assets and liabilities
Accounts receivable (9,170,267) (2,494,196) (7,424,542)
Inventories (5,359,424) (18,589,445) (1,542,519)
Prepaid expenses and other current assets 99,506 (818,043) (462,558)
Other assets (176,002) (342,765) (256,702)
Accounts payable - trade 2,905,981 4,108,604 199,791
Accrued expenses and other current liabilities 3,508,606 4,485,838 4,396,340
Income taxes payable 1,720,219 (1,724,299) 6,125,122
------------- ------------- ------------
Net cash provided by operating activities 29,564,813 13,766,590 21,488,333
------------- ------------- ------------
Cash flows from investing activities
Purchase of property, plant and equipment (15,906,571) (7,242,911) (7,445,689)
Payments to register trademark (127,503) (197,889) (252,695)
Long-term investments (2,500,000) (2,500,000)
------------- ------------- ------------
Net cash used in investing activities (18,534,074) (9,940,800) (7,698,384)
------------- ------------- ------------
F-8
23
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED Year ended February 28,
FEBRUARY 29, -------------------------
1996 1995 1994
----------- ----------- ----------
Cash flows from financing activities
Net decrease in notes payable - bank $(4,090,000)
Principal payments on long-term debt $ (50,000) $ (50,000) (67,415)
Proceeds from issuance of common stock, net 913,227 523,611 34,370,649
----------- ----------- -----------
Net cash provided by financing activities 863,227 473,611 30,213,234
----------- ----------- -----------
INCREASE IN CASH AND CASH
EQUIVALENTS 11,893,966 4,299,401 44,003,183
Cash and cash equivalents at beginning of year 49,153,556 44,854,155 850,972
----------- ----------- -----------
Cash and cash equivalents at end of year $61,047,522 $49,153,556 $44,854,155
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 46,436 $ 42,166 $ 282,391
Income taxes 21,301,164 16,791,336 5,969,914
The accompanying notes are an integral part of these statements.
F-9
24
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 29, 1996, February 28, 1995 and 1994
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-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. 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.
F-10
25
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE A (CONTINUED)
4. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for wholesale
inventories and by the first-in, first-out ("FIFO") method for retail
inventories.
5. 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.
6. Other Assets
The excess of cost over net assets acquired is being amortized on a
straight-line basis over a forty-year period. Accumulated amortization
at February 29, 1996 and February 28, 1995 was $414,150 and $364,430,
respectively.
Included in other assets are long-term investments of $5,000,000 and
$2,500,000 at February 29, 1996 and February 28, 1995, respectively.
The investments are carried at cost which approximates market value.
7. 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.
F-11
26
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE A (CONTINUED)
8. Earnings Per Share
Earnings per share are based on the weighted average number of shares
of common stock outstanding during the year giving retroactive effect
to the stock splits as described in Note G. Stock options are included
in the calculation, when they are dilutive.
9. Reclassifications
Certain amounts in prior years have been reclassified to conform with
classifications used in 1996.
NOTE B - INVENTORIES
Inventories valued using the LIFO method comprised 81% and 85% of
consolidated inventories before LIFO adjustment at February 29, 1996 and
February 28, 1995, respectively. The FIFO earnings are presented in order
to provide a basis for comparison to the operating results of those
companies within the industry which do not use the LIFO method. Had the
Company utilized the FIFO method of accounting for inventory, inventories
would have been higher by $3,439,625, $3,268,309 and $4,101,208 at February
29, 1996, February 28, 1995 and February 28, 1994, respectively. Earnings
before provision for income taxes would have been higher by $171,316 at
February 29, 1996, lower by $832,899 at February 28, 1995 and higher by
$509,151 at February 28, 1994. Net earnings would have been higher by
$103,474 ($.003 per share) at February 29, 1996, lower by $517,230 ($.01
per share) at February 28, 1995 and higher by $299,381 ($.01 per share) at
February 28, 1994. During the year ended February 28, 1995, reductions in
certain LIFO pools had the effect of increasing earnings before income
taxes by approximately $1,700,000 and net earnings by $1,056,000 ($.03 per
share).
F-12
27
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE B (CONTINUED)
Inventories consist of the following:
1996 1995
----------- -----------
Raw materials $ 1,499,239 $ 760,940
Finished goods 56,175,875 51,383,434
----------- -----------
57,675,114 52,144,374
Less amount to reduce carrying value
to LIFO basis 3,439,625 3,268,309
----------- -----------
$54,235,489 $48,876,065
=========== ===========
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
1996 1995
----------- -----------
Land $ 312,512 $ 302,512
Building and improvements 5,090,108 5,038,556
Machinery, equipment and fixtures 22,139,014 15,294,599
Leasehold improvements 5,421,427 5,194,152
Construction in progress 8,759,794 533,131
----------- -----------
41,722,855 26,362,950
Accumulated depreciation and amortization 11,010,753 7,603,155
----------- -----------
$30,712,102 $18,759,795
=========== ===========
F-13
28
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE D - SHORT-TERM BORROWINGS
As of February 29, 1996, the Company had $80,000,000 in lines of credit,
with two commercial banks, available for short-term borrowings and letters
of credit collateralized by wholesale inventory and accounts receivable. At
February 29, 1996, letters of credit outstanding under the lines were
$32,455,742 and there were no short-term borrowings outstanding. Interest is
payable at the prime rate.
NOTE E - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
1996 1995
----------- -----------
Payroll and other employee compensation $ 5,060,940 $ 3,774,201
Royalties 746,064 702,428
Advertising and promotion 9,288,502 7,815,054
Accrued rent 955,300 788,494
Other 3,089,459 2,551,482
----------- -----------
$19,140,265 $15,631,659
=========== ===========
NOTE F - LONG-TERM DEBT
The following is a summary of the long-term debt:
1996 1995
-------- --------
Industrial revenue bond $250,000 $300,000
Less current maturities 50,000 50,000
-------- --------
$200,000 $250,000
======== ========
The industrial revenue bond is payable in annual installments of $50,000
through 2001, collateralized by land, building, and machinery (plant). The
bond bears interest at a defined percentage of the prime rate (7.27% at
February 29, 1996).
F-14
29
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE G - STOCKHOLDERS' EQUITY
On April 29, 1996, the Board of Directors declared a two-for-one stock split
of the Company's common stock to be effected in the form of a stock dividend
payable on May 28, 1996 to stockholders of record on May 13, 1996. On April
18, 1995 and October 21, 1993, the Board of Directors declared a
three-for-two stock split of the Company's common stock effected in the form
of a stock dividend. Amounts equal to par value of the shares of common
stock to be issued were transferred from additional paid-in capital to the
common stock account. All prior year stock options and per share disclosures
have been restated to reflect the stock split.
On December 23, 1993, the Company and certain selling stockholders sold an
aggregate of 6,168,600 shares of common stock of the Company (including a
portion of the underwriters' overallotment option). The Company did not
receive any of the proceeds of the 1,390,844 shares sold by the selling
stockholders. The net proceeds of the offering to the Company were
approximately $32,600,000 after deducting underwriting commissions and
direct offering costs. The offering costs were borne entirely by the
Company.
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.
NOTE H - 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 $4,654,000 in 1996, $3,991,000 in 1995 and $3,110,000 in
1994. At February 29, 1996, minimum rental commitments under
noncancellable leases are as follows:
1997 $ 3,465,000
1998 3,284,000
1999 2,870,000
2000 2,786,000
2001 2,523,000
Thereafter 12,572,000
-----------
Total minimum payments required $27,500,000
===========
F-15
30
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE H (CONTINUED)
2. Stock Purchase Agreement and Life Insurance Proceeds
The Company is a party to an agreement with the president and current
Chairman of the Board of the Company and the president of Nautica
Apparel, Inc. and Nautica International, Inc. ("Nautica"), and was a
party to a similar agreement with the former chairman of the board (now
deceased) of the Company (the principal stockholders), which provides,
upon the death of any 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.
Due to the death of the former chairman of the board of the Company in
August 1993, the Company realized nontaxable income from life insurance
proceeds in the amount of $825,556 ($.02 per share). The repurchase
obligation relating to shares owned by the former chairman of the board
of the Company expired.
3. Executive Compensation
In the event of a change in control of the Company as defined in the
agreement, certain senior management has the right to receive a
lump-sum payment upon termination of employment other than for cause or
permanent disability or resignation for good reason within three years.
Such payments are to be equal to the excess of (i) the product of 2.90
multiplied by the "base amount" as determined within the meaning of
Section 280G of the Internal Revenue Code over (ii) the value on the
date of the Change of Control Event of non-cash benefits as defined in
the agreement. At February 29, 1996, the maximum amount payable,
applicable to four individuals, would be approximately $10,400,000.
F-16
31
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE H (CONTINUED)
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, Dillard
Department Stores, Inc., and Federated Department Stores, Inc.
accounted for approximately 18%, 15% and 14%, respectively, of sales in
1996, 17%, 17% and 8%, respectively, of sales in 1995 and approximately
14%, 13% and 6%, respectively, of sales in 1994. In recent years, a
number of corporate groups, which include certain of the Company's
department store customers, including Federated Department Stores,
Inc., have been involved in highly leveraged financial transactions and
certain of these customers have filed for protection under Chapter 11
of the Federal Bankruptcy Code. 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 29, 1996.
NOTE I - INTEREST INCOME, NET
Interest income, net is comprised of the following:
1996 1995 1994
---------- ---------- ---------
Interest income $2,557,973 $1,997,378 $ 267,529
Interest expense (36,838) (29,174) (267,444)
---------- ---------- ---------
$2,521,135 $1,968,204 $ 85
========== ========== =========
F-17
32
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE J - INCOME TAXES
Significant components of the Company's deferred taxes at February 29, 1996
and February 28, 1995 are as follows:
1996 1995
---------- ----------
Deferred tax assets
Deferred compensation $ 179,284 $ 178,023
Allowance for doubtful accounts
and sales discounts 423,814 423,185
Capitalized inventory costs 1,140,855 1,080,646
Nondeductible accruals 1,849,947 768,599
Depreciation 42,237 60,826
---------- ----------
$3,636,137 $2,511,279
========== ==========
The provision for income taxes is comprised of the following:
1996 1995 1994
------------ ------------ ------------
Current
Federal $ 17,603,176 $ 13,191,300 $ 8,987,079
State and local 4,469,646 2,031,824 3,112,544
Deferred (1,124,858) (594,810) (302,419)
------------ ------------ ------------
$ 20,947,964 $ 14,628,314 $ 11,797,204
============ ============ ============
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial statements:
1996 1995 1994
--------- --------- ---------
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 5.5 4.1 7.1
Other (.9) (1.2) (.9)
---- ---- ----
Actual provision for income taxes 39.6% 37.9% 41.2%
==== ==== ====
F-18
33
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE J (CONTINUED)
State income taxes in 1995 decreased due to certain tax relief provided to
the Company and the inclusion of a one-time refund of taxes previously paid
of $1,429,000.
NOTE K - 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 President of Nautica
Apparel, Inc. and Nautica International, Inc. (the "President") receives
50% of the net royalties received by the Company with respect to the use of
the Nautica name and trademarks. The President earned royalties of
approximately $2,248,000, $1,285,000 and $942,000 in 1996, 1995 and 1994,
respectively. At February 29, 1996 and February 28, 1995, the amount due to
the President included in accrued expenses and other current liabilities
was approximately $743,000 and $627,000, respectively. The President has
the right of first refusal to purchase the Company's right and interests in
the name "Nautica" in the event the Company abandons, sells or disposes its
interest in the name.
NOTE L - MULTIEMPLOYER PENSION PLAN
The Company contributed approximately $562,000 in 1996, $350,000 in 1995
and $230,000 in 1994 to a multiemployer pension and insurance 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 29, 1996, the Company's
share of unfunded vested benefits, if any, was not available from the
plan's administrators.
F-19
34
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE M - 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 during
the years ended February 29, 1996, February 28, 1995 and February 28, 1994
were approximately $173,000, $148,000, and $109,000, respectively.
NOTE N - STOCK OPTION PLANS AND OPTION AGREEMENT
On June 28, 1984, the Company adopted an Executive Incentive Stock Option
Plan (the "1984 Plan"). The 1984 Plan provides that the Board of Directors
may grant options to officers and key employees of the Company and its
subsidiaries to purchase up to 3,206,250 shares of the Company's common
stock. The 1984 Plan expires in 2001, and options shall not be granted
after that date. Under the 1984 Plan, each optionee must remain in the
continuous employment of the Company for at least one year from the date of
grant before he can exercise any part of the options. The exercise price
covered by each option is 100% of the fair market value of the common stock
at the time of granting the option. In the event, at the time the option is
granted, the employee shall own (either in his own name or by attribution)
shares constituting in excess of 10 percent of the outstanding shares of
the Company, then the exercise price shall be 110% of the fair market value
at the time of granting the option. The options are exercisable on a
cumulative basis at the annual rate of 20% of the total number of shares
covered by the option for a period not exceeding ten years.
On June 29, 1989, the Company adopted the Nautica Enterprises, Inc. 1989
Employee Incentive Stock Plan (the "1989 Plan"). The 1989 Plan authorizes
the Compensation Committee (consisting of at least two disinterested
directors) to grant to eligible participants stock options, restricted
stock and/or stock bonus awards and expires in 1999. The option price per
share of a stock option shall be not less than the fair market value of the
stock on the date of the grant. The 1989 Plan provides for the reservation
and availability of 8,437,500 shares of common stock of the Company,
subject to adjustment for future stock splits, stock dividends,
reorganizations and similar events. The 1989 Plan's eligibility criteria
encompass executives and other key employees of the Company and its
subsidiaries.
F-20
35
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE N (CONTINUED)
On January 4, 1996, the Board of Directors adopted the Nautica Enterprises,
Inc. Stock Incentive Plan (the "1996 Plan"), subject to approval 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 of the Company and its affiliates, stock
options, stock appreciation rights, restricted stock, deferred stock,
bonus stock, cash bonuses, loans and tax offset payments. It also provides
for annual "formula" option grants to nonemployee directors. The 1996 Plan
provides for the reservation and availability of 6,000,000 shares of common
stock of the Company subject to adjustment for future stock splits, stock
dividends, reorganizations and similar events.
The table below summarizes the activity in the plans, as adjusted for the
stock splits referred to in Note G:
OPTION Option Option
1996 PRICE 1995 price 1994 price
---- ----- ---- ----- ---- -----
Outstanding at
beginning of year 2,876,810 $ .78 - 9.92 2,806,034 $ .15 - 6.23 2,759,814 $ .15 - 3.39
Granted 834,000 10.38 522,000 7.17 - 9.92 621,000 3.50 - 6.23
Cancelled (41,400) 2.84 - 10.38 (33,524) 1.49 - 3.50
Exercised (522,756) .78 - 7.46 (417,700) .15 - 3.50 (574,780) .15 - 1.49
--------- ------- -------
Outstanding at end
of year 3,146,654 .78 - 10.38 2,876,810 .78 - 9.92 2,806,034 .15 - 6.23
========= ======= =======
Became exercisable
during the year 595,126 610,428 486,792
Exercisable at
end of year 1,054,684 982,314 789,586
F-21
36
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and 1994
NOTE N (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 2,262,086 shares of
the Company's common stock at a purchase price of $.87 per share. The
Agreement expires July 1, 1997; provided, however, in the event that the
President of Nautica is employed by the Company on July 1, 1997, 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. During the year ended February 28, 1994, the
president of Nautica exercised 1,580,124 options. At February 29, 1996,
681,962 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 $938,000,
$662,000 and $3,956,000 during the years ended February 29, 1996, and
February 28, 1995 and 1994, respectively, has been credited to additional
paid-in capital.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This statement will be
effective in the next fiscal year and the Company believes the effect of
the adoption of the new standard will have no impact on the Company's
consolidated results of operations or financial position. The Company
intends to continue to measure compensation costs under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and present footnote disclosure of net income and earnings per
share in accordance with SFAS No. 123.
NOTE O - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
May 31 August 31 November 30 February 29
------ --------- ----------- -----------
----------------(in thousands, except per share data)----------------
1996
Net sales $61,448 $80,554 $90,819 $69,720
Gross profit 26,713 35,438 41,227 33,700
Net income 3,793 7,911 11,906 8,377
Earnings per share $ .09 $ .19 $ .28 $ .20
Weighted average shares 41,700 42,398 42,656 42,732
F-22
37
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996, February 28, 1995 and February 28, 1994
NOTE O (CONTINUED)
May 31 August 31 November 30 February 28
------ --------- ----------- -----------
----------------(in thousands, except per share data)----------------
1995
Net sales $44,554 $63,286 $86,978 $52,814
Gross profit 19,278 27,499 37,434 25,453
Net income 2,306 5,826 9,501 6,337
Earnings per share $ .06 $ .14 $ .23 $ .15
Weighted average shares 41,416 41,556 41,676 41,730
During the fourth quarter of the fiscal year ended February 28, 1995, the
Company recorded inventory-related adjustments which increased earnings
before income taxes by approximately $1,700,000.
F-23
38
Nautica Enterprises, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
------------------------------
(1) (2)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts - Deductions - end of
Description of year expenses describe describe (a) period
----------- ------- -------- -------- ------------ ------
YEAR ENDED FEBRUARY 29, 1996
RESERVES DEDUCTED FROM ASSETS TO
WHICH THEY APPLY
ALLOWANCE FOR BAD DEBTS $1,210,511 $ 345,343 $ 491,797 $1,064,057
========== ========== ========== ==========
ALLOWANCE FOR SALES DISCOUNTS $ -- $ 483,556 $ 483,556 $ --
========== ========== ========== ==========
Year ended February 28, 1995
Reserves deducted from assets to
which they apply
Allowance for bad debts $1,205,000 $1,538,618 $1,533,107 $1,210,511
========== ========== ========== ==========
Allowance for sales discounts $ -- $ 234,178 $ 234,178 $ --
========== ========== ========== ==========
Year ended February 28, 1994
Reserves deducted from assets to
which they apply
Allowance for bad debts $1,050,000 $ 525,495 $ 370,495 $1,205,000
========== ========== ========== ==========
Allowance for sales discounts $ -- $ 267,306 $ 267,306 $ --
========== ========== ========== ==========
(a) Accounts written off as uncollectible.
F-24
39
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 24, 1996)
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 24, 1996
----------------------------------- Chief Executive Officer
Harvey Sanders (Principal Executive
Officer) and Director
/s/ Donald Pennington Chief Administrative Officer May 24, 1996
----------------------------------- (Principal Financial Officer)
Donald Pennington
Neal Nackman
/s/ Neal S. Nackman Vice President Finance May 24, 1996
------------------------------------ (Principal Accounting Officer)
Neal S. Nackman
/s/ David Chu Director May 24, 1996
-----------------------------------
David Chu
/s/ Ronald G. Weiner Director May 24, 1996
-----------------------------------
Ronald G. Weiner
/s/ Israel Rosenzweig Director May 24, 1996
-----------------------------------
Israel Rosenzweig
40
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
3(a) Registrant's By-laws as currently in effect are incorporated
herein by reference to Registrant's Registration Statement on
Form S-1 (Registration No. 33-21998).
3(b) Registrant's Certificate of Incorporation is incorporated by
reference to the Registration Statement on Form S-3
(Registration No. 33-71926), as amended by a Certificate of
Amendment dated June 29, 1995.
10(iii)(a) Registrant's Executive Incentive Stock Option Plan is
incorporated by reference herein from the Registrant's
Registration Statements on Form S-8 (Registration Number
33-1488), as amended by the Company's Registration Statement
on Form S-8 (Registration Number 33-45823).
10(iii)(b) Registrant's 1989 Employee Incentive Stock Plan is
incorporated by reference herein from the Registrant's
Registration Statement on Form S-8 (Registration Number
33-36040).
10(iii)(c) Registrant's 1994 Incentive Compensation Plan is incorporated
by reference herein from the Registrant's Annual Report on
Form 10-K for year ended February 28, 1995.
21 Subsidiaries of Registrant.
23.1 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.