UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 2, 2002
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:
COMMON STOCK PREFERRED STOCK PURCHASE RIGHTS
PAR VALUE $.10 PER SHARE (Title of Class)
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
On May 28, 2002, 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 $407,795,543. As of May 28, 2002,
there were issued and outstanding 33,616,990 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 10, 2002. Part III -- Items 10, 11, 12 and 13
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; Nautica Jeans Company; Earl Jean; John Varvatos; E.
Magrath; and Byron Nelson. These products feature innovative designs,
classic and contemporary styling, quality fabrics and functionality.
Through its wholesale business, the Company sells Nautica branded
apparel primarily to leading department and specialty stores in over 2,300
retail locations throughout the United States. Earl Jean and John Varvatos
products are sold primarily to high-end department stores, up-scale specialty
retailers and fashion forward boutiques in over 1,100 and 60 retail locations,
respectively, primarily throughout the United States and certain European
markets.
The Company's in-store shop programs for the Nautica, Nautica
Competition and Nautica Jeans Company collections are an integral part of the
Company's marketing strategy for its wholesale business. Through this program,
the Company and a department store customer create a specific area within the
store dedicated to the exclusive merchandising and sale of the Nautica,
Nautica Competition or Nautica Jeans Company collections, as the case may be.
Each of these shops are outfitted with signature fixtures consistent with the
image of each of the brands and present the collections in an integrated,
visually attractive environment. At the end of the fiscal year 2002, the
number of Nautica in-store shops was approximately 1,500. Since its
introduction in 1999, the number of Nautica Jeans shops has grown to
approximately 1,100. The continued development of these shop programs is
dependent on general apparel industry conditions, continued participation of
retail customers and continued demand by consumers for the Nautica
collections.
In addition to its wholesale business, the Company operates 96
Nautica and 12 Nautica Jeans outlet stores. The stores provide a sales channel
for Nautica products for value oriented consumers 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 and trademarks are currently
licensed for a range of products consistent with Nautica's design concepts and
image. They are also licensed globally to agents or companies for distribution
of the Nautica collection.
BRANDS AND PRODUCTS
Nautica
Through the Nautica brand the Company offers a collection of
men's sportswear, outerwear and activewear. The Nautica collection features
innovative designs, classic styling and quality fabrics. The Nautica name and
trademarks are displayed on Nautica products to promote brand awareness and
maintain consumer loyalty. While Nautica products are targeted to the 25-55
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 generally priced at a range of price points within
the better men's collection category.
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 and business casual -- sweaters,
woven shirts and pants; outerwear -- parkas, anoraks, bomber jackets and
inclement weather gear in various fabrications; activewear -- fleece tops and
bottoms, tee shirts and swimwear; and, caps. The Nautica collections are sold
through the Company's wholly-owned subsidiary, Nautica International, Inc.
Nautica maintains an inventory of basic, year-round items in
order to allow for the continuous replenishment of such stock to its retail
customers. Such items include pants, cotton knit polo shirts, cotton sweaters,
tee shirts, lightweight jackets and swimwear. 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/selling seasons, with approximately three deliveries in each
season. Core and key items are delivered throughout each delivery season along
with fashion merchandise based on seasonal themes developed by Nautica's
design and merchandising teams. These themed groups are distinguished by their
distinctive use of color, novelty prints, innovative fabrics and unique design
elements. The four merchandising/selling seasons consist of Spring, Summer,
Fall and Holiday.
Nautica Competition
The Nautica Competition brand features active-inspired apparel
products using performance and activewear fabrics. The Company believes that
while these products are aimed at a younger age group (18-40) and it is the
"bridge" between Nautica Jeans Company and Nautica, they also appeal to the
Nautica core customer.
The Nautica Competition collection includes activewear inspired
knit tops, knit bottoms, sweaters, tee shirts and outwear, including parkas,
anoraks, bomber jackets and inclement weather gear. The collection is sold
through the Company's wholly-owned subsidiary, Nautica International, Inc.
The Nautica Competition collections are presented during four
merchandising/selling 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 graphics, color and innovative fabrics and styling details.
Nautica Jeans Company
Through the Nautica Jeans Company brand, the Company offers a
denim-based collection of men's and women's apparel. The products of the
Nautica Jeans Company are targeted to the 16-25 year old age group and feature
various themes.
The Nautica Mens Jeans collection includes jeans, woven shirts,
knits, bottoms and outerwear. Knits include sweaters, tee shirts and
activewear; bottoms include denim jeans, casual pants, denim shorts and casual
shorts; and, outerwear includes jean jackets and lightweight, transitional
weight and down outerwear. The Nautica Mens Jeans collection is offered
through approximately 1,900 doors.
The Nautica Womens Jeans collection includes a full range of
products including jeans, woven shirts, knits, bottoms and outerwear. Knits
include sweaters, tee shirts and activewear; bottoms include denim jeans,
casual pants, denim skirts, casual skirts, denim dresses, casual dresses,
denim shorts and casual shorts; and, outerwear includes jean jackets and
lightweight, transitional weight and down outerwear. The Nautica Womens Jeans
collection is offered through approximately 645 doors.
The Nautica Jeans Company collections are presented in twelve
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 the following: for Nautica Mens Jeans, five basic jeans offered in
five different fits and three to five different washes/rinses, tee shirts,
twill cargo pants and, seasonally, three denim shorts and a twill cargo short;
and, for Nautica Womens Jeans, four basic jeans offered in four different fit
and three different washes/rinses, tee shirts, twill pants and, seasonally,
two denim shorts in three washes/rinses. The collections are sold through the
Company's wholly-owned subsidiary, Nautica Jeans Company.
Nautica Children's Company
Through Nautica Children's Company, a wholly owned subsidiary
of the Company which commenced operations in April 2001 at the time Nautica
Licensing terminated its license agreement with a licensee, the Company offers
an active inspired, denim-based collection of boys apparel for infant, toddler
and the 4-20 year old age group. The collection includes jeans, woven shirts,
knits, bottoms and outerwear. Knits include sweaters, tee shirts and
activewear; bottoms include denim jeans, casual pants, denim shorts and casual
shorts; and, outerwear includes jean jackets, lightweight, transitional weight
and down outerwear.
2
The Children's collection is presented in twelve fashion
deliveries with four key item deliveries. Each delivery includes products that
are merchandised together, using coloration, labels, patches and intriguing
fabrics. The Nautica Children's Company products that are offered on a
year-round basis through the Company's automatic replenishment program include
three different fits, three different washes/rinses, tee shirts, twill cargo
pants and, seasonally, two denim shorts in three washes/rinses.
Nautica Furnishings
The Nautica robes and sleepwear collection for men includes
robes, boxer shorts, jams, henley camp shirts, nightshirts and pull-on pants.
The Nautica robes and sleepwear collection for women includes pajamas, knit tops
and pants, drawstring shorts, chemise, gowns, nightshirts and robes. Nautica
underwear includes woven boxer shorts, knit boxers, knit briefs, tee shirts and
athletic shorts. The Nautica men's and women's robes and sleepwear collections
and underwear are sold through the Company's wholly-owned subsidiary, Nautica
Furnishings, Inc.
The Nautica robes and sleepwear collections are presented in
four merchandising seasons for men and five merchandising seasons for women,
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.
Nautica underwear is presented in two merchandising seasons.
Earl Jean
The Earl Jean business was acquired by the Company in April
2001. Earl Jean, Inc, a wholly owned subsidiary of the Company, designs,
sources, markets and distributes upscale contemporary denim products, related
apparel and accessories for women. The brand's core customers are urban
professionals and affluent teens ages 18-35, with price points at the high-end
of the retail market.
The Earl Jean collection includes women's jeans in a variety of
washes and fabrications, woven shirts, skirts, tee shirts, leather outerwear,
handbags, footwear and belts. Earl Jean primarily distributes products through
leading upscale specialty and department stores across the United States,
Europe and Japan.
John Varvatos Company
In 2000, the Company launched the John Varvatos men's
contemporary designer collection. The collection is sold to better department
stores and specialty stores, domestically and internationally. The collection
consists of sportswear, tailored clothing, furnishings, accessories and footwear
at men's designer price points. Sportswear includes sweaters, knits, wovens,
pants, outerwear and leather; tailored clothing includes suits, jackets, dress
pants and top coats; furnishings includes dress shirts and neckwear; and,
accessories include scarves, hats, belts, shoes and bags. The John Varvatos
collection is sold through the Company's wholly-owned subsidiary, John Varvatos
Company. In addition, the John Varvatos Company licenses its trademarks for
hosiery and, in a joint venture, a limited edition sneaker collection is
produced and distributed.
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. The Byron Nelson products target an older and more
affluent consumer. These collections are presented in two lines each year and
are sold in better country clubs and resorts nationwide.
3
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 through Nautica Apparel, Inc., a wholly-owned subsidiary of the
Company ("Nautica Licensing"). See "Licensing."
MARKETING
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 Nautica 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, 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 and update its in-store
shops in department stores which currently sell the Nautica, Nautica Competition
and Nautica Jeans Company collections and to install such shops in additional
retail locations. The continued development of the Company's in-store shop
program is dependent on general apparel industry conditions, continued
participation by retail customers and continued demand by consumers for the
Company's collections.
In order to maximize the effectiveness of the Company's in-store
shop program, the Company operates a merchandise coordinator program. Each of
the Company's merchandise coordinators services a group of retail customers
within a common geographic region. They communicate with and visit each of their
customers on a regular basis to ensure proper visual display of the Company's
merchandise, analyze inventory requirements, and provide selling and
merchandising support to the sales staff. Merchandise coordinators also train
certain department store employees with regard to product features, sales
methods and shop management. In addition, 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, Dallas, Texas, Los
Angeles, California and in certain European countries (England, France, Germany,
Italy and Spain) to leading department and specialty stores. In fiscal year
2002, May Department Stores Company, Federated Department Stores, Inc. and
Dillard Department Stores, Inc. accounted for approximately 26%, 20% and 16%,
respectively, of the Company's total sales. No other customer of the Company
accounted for 10% or more of the Company's sales during that period.
The Company implements, on an annual basis, marketing
strategies that support and extend brand awareness, build sales and develop
the Company's customer base, both geographically and demographically. Targeted
marketing initiatives are developed and executed for each of the Company's
business units. These marketing initiatives comprise an integrated matrix of
communication vehicles that include national and regional print advertising,
outdoor and radio advertising, consumer promotions, corporate sponsorships,
retail events, in-store merchandising and visual presentations, seasonal
fashion shows, brand websites and on-going public relations and consumer
outreach programs. Brand communication continues at the in-store level with
advertising and brand imagery prominently featured in signature brand
fixtures.
The Nautica brands' advertising campaigns, featured in national
and regional consumer magazines, newspapers and trade publications, deliver
appropriate brand messages to the desired audiences. Publications featuring
Company advertising campaigns reflect the diversification of the Company's
businesses with titles that include, among others, GQ, Sports Illustrated,
Cosmopolitan, Vanity Fair, DNR, WWD, House & Garden, The New York Times
Magazine, Maxim, Vibe and Martha Stewart Living. Outdoor advertising media,
utilized on a regional basis, includes bus panels, billboards, commuter rail
cards and telephone kiosks.
4
Strategically planned retail events, consumer promotions and
sponsorships, such as the official apparel sponsorship by Nautica of Team
Dennis Conner's Stars & Stripes entry into the 2002 America's Cup Challenge
bring attention to the Nautica brand on a global basis while supporting local
retail sales and reinforcing the brand's authentic and active image.
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 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. During fiscal 2002, a
significant portion of the Company's products were produced in Asia and other
foreign countries, with the remaining portion produced in the United States.
In the United States, suppliers operate under the close supervision of
Nautica's production department. The Company's agent and sourcing office,
based in Hong Kong and Taiwan, respectively, monitor foreign 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.
5
LICENSING
The Company strategically extends the Nautica product line and
broadens the international distribution of the Nautica brand 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, tailored clothing,
dress shirts, neckwear, watches, hosiery, eyewear, women's swimwear, rainwear,
leather belts, wallets and accessories, top coats, gloves, scarves, and
umbrellas, and the Nautica Home Collection featuring bedding, bath linens and
accessories, tableware and furniture,
Internationally, Nautica apparel currently is licensed for sale
in Argentina, Australia, Bahamas, Bermuda, Bolivia, Bulgaria, Canada, Chile,
China, Colombia, Costa Rica, Cyprus, Dominican Republic, Ecuador, Greece,
Guatemala, Honduras, Hong Kong, Hungary, Indonesia, Japan, Korea, Malaysia,
Mexico, New Zealand, Nicaragua, Panama, Paraguay, Peru, Philippines, Puerto
Rico, Romania, Singapore, South Africa, Taiwan, Thailand, Turkey, and
Venezuela. In addition to wholesale distribution of Nautica apparel,
international licensees operate Nautica retail stores in certain of these
markets.
As a provision of the agreement by which the Company acquired
the Nautica brand in 1984, David Chu, Vice Chairman of the Company, 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.
DIRECT RETAILING
Outlet Stores
The Company operates 96 Nautica and 12 Nautica Jeans outlet
stores generally located in outlet centers throughout the United States. Such
operations are conducted through its wholly-owned subsidiary, Nautica Retail
USA, Inc. These outlet 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 outlet stores are geographically positioned
to minimize potential conflict with the Company's retail customers.
Full-Price Stores
The Company, through wholly-owned subsidiaries, operates four
full-price retail stores, as follows: one Nautica store, one John Varvatos
store and two Earl Jean stores. The Nautica store, which opened in April 2001,
is located in New York's Rockefeller Plaza, and is an attractive showcase for
the Nautica brand. The John Varvatos store, which opened in October 2000, and
one of the Earl Jean stores, which opened in May 2001, are both located in New
York's Soho neighborhood. The other Earl Jean store, which opened in April
2000, is located in Larchmont, California. They all display the breadth of
their respective collections.
6
SEASONALITY
Historically, the Company has experienced its highest level of
sales in the second and third quarters and its lowest level in the first and
fourth quarters. In the future, the timing of seasonal shipments may vary by
quarter.
TRADEMARKS
Nautica and its related trademarks (the "Nautica Marks") are
registered trademarks of Nautica Licensing in the United States for apparel
and certain other products, including all licensed products. Applications to
register the Nautica Marks in other product categories have been filed by the
Company in the United States. In addition, Nautica Licensing has registered or
is in the process of registering the Nautica Marks in over 100 countries
throughout the world for apparel and other complementary product categories.
In addition to the Nautica Marks, the Company and its
subsidiaries have registered or are in the process of registering the
following trademarks, among others, in the United States and certain other
countries for apparel and certain other products: Nautica Competition, Nautica
Jeans Company, John Varvatos Company and Earl Jean.
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, Claiborne, Lucky Jeans, Polo Jeans, DKNY Jeans, Kenneth Cole,
Diesel and Seven, as well as from certain non-designer lines. In addition,
department stores, including some of the Company's major retail customers,
have increased in recent years the amount of goods manufactured and sold under
their own labels. Some of the Company's competitors are significantly larger
and more diversified than the Company and have substantially greater resources
available for marketing their products. The Company believes that its ability
to compete effectively depends upon the continuing appeal of Nautica apparel
and the Company's other products to its retail customers and consumers as well
as the Company's ability to continue to offer high quality apparel at
appropriate price points.
EMPLOYEES
At March 2, 2002, the Company had approximately 3,300
employees. Approximately 375 of such employees are parties to a collective
bargaining agreement. The Company considers its relations with its employees
to be good.
7
ITEM 2. PROPERTIES.
During 2002, the Company completed construction of an
approximately 500,000 square foot warehouse and distribution facility in
Martinsville, Virginia. This facility, which will be used for receiving,
shipping and warehousing substantially all of the Company's products, will be
handling all of such products by Spring 2003. Until such time, the Company is
continuing to operate one Company-owned wholesale warehouse and distribution
facility in Rockland, Maine of approximately 350,000 square feet. In addition,
in Dallas, Texas, one leased facility of approximately 40,000 square feet is
used for receiving, shipping and warehousing the Company's products.
The Company has administrative, sales, design and production
offices at 40 West 57th Street, New York, New York, where it occupies under
lease approximately 110,000 square feet, at 22 West 19th Street, New York, New
York, where it occupies under lease approximately 16,000 square feet, and at
1755 North Main Street, Los Angeles, California, where it occupies under lease
approximately 15,000 square feet. It also leases a design studio and offices of
approximately 44,000 square feet at 11 West 19th Street, New York, New York, and
a design studio of approximately 9,000 square feet at 26 West 17th Street, New
York, New York. The Company or its affiliates also lease sales offices in
Dallas, Texas and certain European countries, including England, France,
Germany, Italy and Spain, and 108 Nautica outlet stores located throughout the
United States. The outlet stores range in size from approximately 2,400 to 9,300
square feet, and average approximately 3,800 square feet. In addition the
Company opened a John Varvatos full-price retail store in October 2000 in New
York's Soho neighborhood and two Earl Jean stores, one in New York's Soho
neighborhood that opened in May 2001 and one in Larchmont, California that
opened in April 2000. Such full-price retail stores range in size from
approximately 1,100 square feet to approximately 5,000 square feet. A Nautica
full-price retail store of approximately 12,000 square feet opened in April 2001
in New York's Rockefeller Plaza.
All of the Company's facilities, including the Martinsville,
Virginia distribution facility, 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 2002.
8
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 2001
First Quarter Ended June 3, 2000 $12.56 $9.81
Second Quarter Ended September 2, 2000 13.00 8.63
Third Quarter Ended December 2, 2000 14.75 11.25
Fourth Quarter Ended March 3, 2001 19.56 12.63
FISCAL 2002
First Quarter Ended June 2, 2001 $21.20 $14.47
Second Quarter Ended September 1, 2001 21.65 12.83
Third Quarter Ended December 1, 2001 14.76 10.46
Fourth Quarter Ended March 2, 2002 14.49 12.57
FISCAL 2003
First Quarter (through May 20, 2002) $16.22 $12.99
As of May 20, 2002, there were approximately 325 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.
9
ITEM 6. SELECTED FINANCIAL DATA.
Year ended
=========================================================================
MARCH 2, March 3, March 4, February 27, February 28,
Amounts in thousands, except per share data 2002 2001 2000 1999 1998
------------------------------------------- ---------- ---------- ---------- ----------- ------------
Selected consolidated statements of earnings data
Net sales $692,092 $627,731 $564,888 $509,128 $451,617
Net earnings $ 17,259 $ 46,103 $ 46,163 $ 58,708 $ 56,418
Net earnings per share of common stock
Basic $0.52 $1.45 $1.33 $1.53 $ 1.44
Diluted $0.50 $1.39 $1.26 $1.45 $ 1.35
Cash dividends per share of common stock None None None None None
Selected consolidated balance sheet data
Total assets $422,070 $378,306 $333,113 $319,304 $298,199
Long-term debt, excluding current portion 14,321 - - 50 100
Working capital 151,214 170,804 168,231 179,566 187,355
Stockholders' equity 322,580 285,264 263,713 255,817 251,169
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company operates in two primary business segments,
Wholesale and Retail. The Wholesale segment consists of businesses that
design, market, source and distribute the following to retail store customers:
sportswear, activewear, outerwear, a jeans collection, a tailored clothing
collection, robes and sleepwear for men; a jeans collection, robes and
sleepwear for women; and a children's collection. The Retail segment sells
men's, women's and children's apparel and other Nautica-branded products
primarily through its retail store locations directly to consumers.
On April 2, 2001, the Company's licensing unit terminated its
license agreement with Hampton Industries, Inc. to market Nautica
childrenswear, and established a new business unit to assume operations for
this product line.
On April 30, 2001, the Company, through a wholly-owned
subsidiary, acquired substantially all of the assets and assumed certain
liabilities of Earl Jean, Inc. ("Earl Jean"), a privately held corporation.
Earl Jean is a leading designer, manufacturer, retailer and marketer of luxury
women's jeanswear and related apparel.
Fiscal year ended March 2, 2002 compared to March 3, 2001:
Net sales increased 10.3% to $692.1 million in the fiscal year
ended March 2, 2002 from $627.7 million in the prior year. Wholesale sales
increased 8.7% to $516.5 million from $475.2 million due primarily to the
strong performance of Nautica Men's and Women's Jeans and the contribution of
new businesses including Earl Jean and Nautica Childrenswear. These increases
were offset by higher markdown allowances and returns in the Nautica and
Nautica Competition brands. Retail sales increased 15.1% to $175.6 million
from $152.5 million as a result of sales from new stores opened during the
year and full year sales of stores opened in the prior year. Also, the Retail
segment was successful in selling through its excess inventory, resulting in
lower inventory levels. Same store sales for the year were up 3.0% from the
prior year, despite a difficult retail environment.
Gross profit, as a percentage of sales, was 41.1% compared to
41.5% in the prior year. The decrease is due primarily to higher markdown
allowances and returns in the Wholesale segment, an aggressive push to sell
through excess inventory in the Retail segment, and additional inventory
reserves taken in the Nautica Europe business unit. This decrease was offset,
in part, by the continued effort from the Company's operating teams to better
source products, and the impact of higher margins on certain new product
lines, particularly Earl Jean.
Selling, general and administrative expenses increased by $53.2
million to $250.1 million from $196.9 million in the prior year. Selling,
general and administrative expenses as a percentage of net sales increased to
36.1% from 31.4% in the prior year. The increase in the percentage of net
sales is due primarily to the following: costs and charges, principally bad
debts and marketing, associated with the Nautica Europe business unit; costs
associated with operating additional distribution facilities while the Company
transitions its distribution operations to its new facility in Martinsville,
Virginia; costs associated with updating store displays to reflect the
Company's new icon (the J-class(TM) sailboat); the integration of newer
businesses; and several new brand extensions.
In the fourth quarter of fiscal year 2002, the Company recorded
pre-tax special charges of $14.4 million ($9.0 million on an after tax basis)
or $0.26 per diluted share. These charges consist of costs related to the
closing of the Rockland, Maine distribution facility of approximately $8.7
million, costs of approximately $4.6 million relating to a payment made to the
Company's Vice Chairman, net of accrued obligations and certain other costs
associated with the cancellation of a 1998 Letter Agreement, and charges
relating to certain employee terminations of approximately $1.1 million.
The Company will be moving its distribution facility from
Rockland, Maine to a new distribution and customer service center in
Martinsville, Virginia. This transition is expected to be completed no later
than January 31, 2003. The charges relating to the distribution facility,
which were recognized in the fourth quarter of fiscal 2002, included
approximately $7.9 million for the write-down of the facility to its estimated
net realizable value and approximately $0.8 million for costs associated with
the closure and sale of the facility which are expected to be paid in fiscal
2003. Additional severance related costs associated with the elimination of
approximately 300 union and non-
11
union employees in Rockland, Maine totaling approximately $3.4 million on a
pre-tax basis will be recognized in the first quarter of fiscal 2003 and are
expected to be paid during fiscal 2003. The Company anticipates that these
outlays will be funded with cash from operations. The Company expects annual
savings associated with these actions to be between $4.0 and $5.0 million.
These savings will be reflected in distribution costs and reported in selling,
general and administrative expenses in the Company's consolidated financial
statements. The Company expects to begin realizing these cost savings in the
fourth quarter of fiscal 2003.
The costs associated with the cancellation of a 1998 Letter
Agreement were paid in the fourth quarter of fiscal 2002. The Company expects
annual savings to be between $1.0 and $2.0 million. These savings will be
reflected in selling, general and administrative expenses in the Company's
consolidated financial statements and began being realized in the fourth
quarter of fiscal 2002.
The costs associated with charges relating to certain employee
terminations recorded in the fourth quarter of fiscal 2002 are expected to be
paid during fiscal 2003 and are anticipated to be funded with cash from
operations.
Net royalty income decreased by $0.9 million to $7.9 million
from $8.8 million in the prior year. The decrease is due primarily to the
following: the termination of its childrenswear license agreement, the
operations of which the Company assumed in the current year; payments received
in the prior year as a result of royalty audits; and the termination of its
footwear license agreement. This decrease was offset, in part, by sales
strength in existing licensed products, particularly home products and small
leather goods and accessories.
Investment income decreased by $1.6 million to $1.5 million
from $3.1 million in the prior year. The decrease was due to lower average
cash balances during the year as a result of the cash paid for the acquisition
of Earl Jean and additional working capital needs, particularly to support the
Company's new businesses. Interest expense increased $1.3 million to $1.5
million from $0.2 million in the prior year as a result of interest incurred
on the Company's short and long-term borrowings.
The provision for income taxes decreased to 37.8% from 38.8% of
earnings before income taxes in the prior year. The decrease is due primarily
to a reduction in the overall effective income tax rates.
Net earnings decreased $28.8 million to $17.3 million from
$46.1 million in the prior year as a result of the factors discussed above.
Excluding special charges, net earnings for the current year would have been
$26.2 million.
Fiscal year ended March 3, 2001 compared to March 4, 2000:
Net sales increased 11.1% to $627.7 million in the fiscal year
ended March 3, 2001 from $564.9 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 $475.2 million from $426.9 million due to
the launch of the Nautica Women's Jeans and John Varvatos product lines, and
increases in core sportswear, men's jeans, men's and women's sleepwear and
European sales, offset by a decrease in Nautica Sport Tech ("NST") sales. The
Company has discontinued distribution of NST products in the athletic
specialty chain channels. The Company still believes that the NST brand
carries high consumer recognition, and therefore, plans to re-evaluate its
future position in other channels of distribution. Excluding NST brand
products for both the current and prior year, Wholesale segment sales would
have increased 13.8%. Retail sales increased 10.7% to $152.5 million from
$137.8 million as a result of sales from new stores opened during the year and
full year sales of stores opened in the prior year offsetting negative
comparable store sales.
Gross profit, as a percentage of sales, was 41.5% compared to
42.7% in the prior year. The decrease is due to the impact of lower margins on
certain new product lines, and markdowns associated with an increase in
promotional activity at retail.
Selling, general and administrative expenses increased by $24.0
million to $196.9 million from $172.9 million in the prior year. Selling,
general and administrative expenses as a percentage of net sales increased to
31.4% from 30.6% in the prior year. The increase in the percentage of net
sales is due to increased costs associated with the launch and support of new
product lines.
12
Net royalty income increased by $3.1 million to $8.8 million
from $5.7 million in the prior year. The increase is due primarily to
increased sales of children's apparel, women's swimwear, small leather goods
and accessories, and the launch of a new men's fragrance, Latitude/Longitude.
In addition, part of the increase was a result of royalty payments received
from audits performed on prior year licensee reported sales.
Investment income increased by $0.8 million to $2.9 million
from $2.1 million in the prior year. The increase is due to higher rates of
returns on investments, offset by lower average cash balances.
The provision for income taxes decreased to 38.8% from 39.2% of
earnings before income taxes in the prior year. The decrease is due primarily
to a reduction in the effective state income tax rates.
Net earnings decreased 0.1% to $46.1 million from $46.2 million
in the prior year as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended March 2, 2002, the Company generated cash
from operating activities of $91.1 million, principally from net earnings and
decreases in accounts receivable and inventory of $14.3 and $41.8 million,
respectively, offset by a decrease in accounts payable of $15.4 million.
Accounts receivable was 14.8% lower than the prior year due to a reduction in
wholesale shipments in the fourth quarter. Inventory was 32.2% lower than the
prior year due to the Company's aggressive sell-through of inventory through
its Retail outlets, ability to better manage the timing of receipts with
customer demand, and reduction in its offerings of replenishment styles.
Accounts payable was 30.7% lower than the prior year due to the reduction in
inventory. During the year ended March 3, 2001, the Company generated cash
from operating activities of $78.0 million, principally from net earnings and
a $28.4 million transfer of certain marketable securities into cash
equivalents. Increases in accounts receivable and inventory of $17.9 and $24.1
million, respectively, were financed principally by cash generated from net
earnings, and increases in accounts payable and accrued expenses. Accounts
receivable was 18.6% higher than the prior year due to increased sales and the
timing of shipments, with a higher percentage occurring in the last part of
the quarter. Inventory was 32.7% higher than the prior year due to increased
sales and the timing of merchandise received.
During the year ended March 2, 2002, cash used in investing
activities was $99.6 million. This amount related primarily to the
acquisitions of Earl Jean and the Nautica childrenswear business, the purchase
of property, plant and equipment for the Nautica in-store shop program, the
completion of the new distribution facility in Martinsville, Virginia and the
completion of a new full-price retail store in New York's Rockefeller Plaza.
The Company expects to continue to incur capital expenditures to expand and
update the in-store shop program, and to open additional retail stores. During
the year ended March 3, 2001, cash used in investing activities was $41.9
million. This amount consisted primarily of the purchase of property, plant
and equipment for the Nautica in-store shop program, opening new retail outlet
stores, and the construction of a new distribution facility and a new
full-price retail store in New York's Rockefeller Plaza.
During the year ended March 2, 2002, cash provided by financing
activities was $17.6 million. This amount consisted of approximately $15.1
million in long-term borrowings that is being used to finance a portion of the
construction and development of the new distribution facility. During fiscal
year 2001, the Board of Directors authorized the Company to repurchase up to
4,000,000 shares of its outstanding stock on the open market. Under this
authorization and a previous authorization, the Company purchased 2,533,000
shares at a cost of $28.8 million during 2001.
As of March 2, 2002 and March 3, 2001, the Company had $175.0
and $150.0 million, respectively, in lines of credit with four commercial
banks. Such lines of credit are available for short-term borrowings and
letters of credit, collateralized by imported inventory and accounts
receivable. At March 2, 2002, letters of credit outstanding under the lines
were $33.8 million and there were no short-term borrowings outstanding.
13
The following is a summary of the Company's contractual
obligations for the periods indicated that existed as of March 2, 2002, and is
based on information appearing in the Notes to Consolidated Financial
Statements:
(amounts in millions)
Contractual Less than 1 - 3 4 - 5 After
Obligations 1 Year Years Years 5 Years Total
-----------------------------------------------------------------
Operating leases $ 17.3 $ 32.4 $ 29.3 $ 71.8 $ 150.8
Letters of credit 33.8 - - - 33.8
Long-term debt 0.8 1.5 1.5 11.3 15.1
--------------------------------------------
$ 51.9 $ 33.9 $ 30.8 $ 83.1 $ 199.7
============================================
Historically, the Company has experienced its highest level of
sales in the second and third quarters and its lowest level in the first and
fourth quarters due to seasonal patterns. In the future, the timing of
seasonal shipments may vary by quarter. The Company anticipates that
internally generated funds from operations, existing cash balances and the
Company's existing credit lines will be sufficient to satisfy its cash
requirements.
CURRENCY FLUCTUATIONS AND INFLATION
The Company contracts production with manufacturers located
primarily in Asia. These contracts are denominated in United States dollars.
The Company believes that, to date, the effect of fluctuations of the dollar
against foreign currencies has not had a material effect on the cost of
production or the Company's results of operations. There can be no assurance
that costs for the Company's products will not be affected by future
fluctuations in the exchange rate between the United States dollar and the
local currencies of these manufacturers. Due to the number of currencies
involved, the Company cannot quantify the potential effect of such future
fluctuations on future income. The Company does not engage in hedging
activities with respect to such exchange rate risk.
The Company believes that inflation and the effect of
fluctuations of the dollar against foreign currencies have not had a material
effect on the cost of imports or the Company's results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2001, the Financial Accounting Standards Board's
Emerging Issues Task Force released Issue No. 01-9, "Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products)." The scope of Issue 01-9 includes vendor consideration to
any purchasers of the vendor's products at any point along the distribution
chain, regardless of whether the purchaser receiving the consideration is a
direct customer of the vendor. This pronouncement is effective for the
Company's first quarter of the year ending March 1, 2003. The Company is still
in the process of evaluating the impact of adopting this pronouncement on its
consolidated financial statements, however, it does not believe that the
adoption of this pronouncement will have a material impact on the consolidated
financial statements.
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations." This statement requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001, and
establishes criteria to separately recognize intangible assets apart from
goodwill. The Company does not believe that the adoption of this pronouncement
will have a material impact on its consolidated financial statements.
In July 2001, the Financial Accounting Standards Board issued
SFAS 142, "Goodwill and Other Intangible Assets." This statement requires that
goodwill, as well as intangible assets with indefinite lives, acquired after
June 30, 2001, will not be amortized. Effective in the first quarter of the
year ending March 1, 2003, goodwill and intangible assets with indefinite
lives will no longer be amortized and will be tested for impairment using the
guidance for measuring impairment set forth in this statement. The
amortization expense of goodwill and intangible assets with indefinite lives
for
14
the year ended 2002, 2001 and 2000 totaled $3.6, $0.7 and $0.6 million,
respectively. As prescribed under SFAS 142, the Company is in the process of
having its goodwill and intangible assets with indefinite lives tested for
impairment. The Company does not anticipate any material impairment losses
resulting from the adoption of SFAS 142.
In October 2001, the Financial Accounting Standards Board
issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement addresses financial accounting and reporting for the
impairment of long-lived assets and assets to be disposed of. This statement
supersedes FASB 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," however, it retains the fundamental
provisions of FASB 121 for (a) recognition and measurement of the impairment
of long-lived assets to be held and used and (b) measurement of long-lived
assets to be disposed of by sale. SFAS 144 is effective for the Company's
first quarter of the year ending March 1, 2003. The Company is still in the
process of evaluating the impact of adopting this pronouncement on its
consolidated financial statements, however, it does not believe that the
adoption of this pronouncement will have a material impact on the consolidated
financial statements.
USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in
accordance with accounting principles that are generally accepted in the
United States. The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
revenues and expenses during the period. Management continually evaluates its
estimates and assumptions including those related to allowances for doubtful
accounts, sales returns and allowances, inventory valuation, accrual for
markdowns and the valuation of long-lived assets. Management bases its
estimates and assumptions on historical experience and other factors that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. Changes in the
economic conditions in the retail industry could have an impact on these
estimates and the Company's actual results. Management believes that the
following may involve a higher degree of judgment or complexity:
Allowances for Doubtful Accounts. 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. The
Company maintains allowances for doubtful accounts for estimated losses that
result from the inability of its retail store customers to make their required
payments. Management bases its allowances through analysis of the aging of
accounts receivable at the date of the financial statements, assessments of
historical collection trends, and an evaluation of the impact of current
economic conditions.
Sales Returns and Allowances. Costs associated with potential
returns of merchandise and charge backs are recorded as a reduction to net
sales, and are included in the allowance for doubtful accounts. These costs
are based upon known returns and allowances, historic trends and the
evaluation of the impact of current economic conditions.
Inventory Valuation. Inventories are stated at the lower of cost
or market. Cost is determined by the last-in, first-out method for certain
wholesale inventories and by the first-in, first-out method for retail and the
remaining wholesale inventories. The Company marks down inventory for estimated
unmarketable inventory equal to the difference between the cost and the
estimated net realizable value of the inventory. Management continually assesses
the valuation of inventories by reviewing the costing of inventory, the
significance of slow-moving inventory, and the impact of current economic
conditions.
Accrual for Markdowns. Costs associated with customer
markdowns are recorded as a reduction to net sales, and are included in the
allowance for doubtful accounts. These costs result from seasonal negotiations
with the Company's retail store customers, as well as historic trends and the
evaluation of the impact of current economic conditions.
Valuation of Long-lived Assets. The Company 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. In evaluating the fair
value and future benefits of such assets, the Company performs an analysis of
the anticipated undiscounted future net cash flows of the individual assets
over
15
the remaining amortization period. The Company recognizes an impairment loss
if the carrying value of the asset exceeds the expected future cash flows.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Annual Report contains "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. These
statements are based on the Company's current expectations of future events
and are subject to a number of risks and uncertainties that may cause the
Company's actual results to differ materially from those described in the
forward-looking statements. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. These
factors and uncertainties include, among others: the risk that new businesses
of the Company will not be integrated successfully; the risk that the Company
will experience difficulties with respect to the transitioning and ramp-up of
its new distribution facility; the overall level of consumer spending on
apparel; dependence on sales to a limited number of large department store
customers; risks related to extending credit to customers; actions of existing
or new competitors and changes in economic or political conditions in the
markets where the Company sells or sources its products; risks associated with
consolidations, restructuring and other ownership changes in the retail
industry; changes in trends in the market segments in which the Company
competes; risks associated with uncertainty relating to the Company's ability
to launch, support and implement new product lines in the United States and
Europe; effects of competition; changes in the costs of raw materials, labor
and advertising; and, the ability to secure and protect trademarks and other
intellectual property rights. These and other risks and uncertainties are
disclosed from time to time in the Company's filings with the Securities and
Exchange Commission, including the Company's periodic reports on Forms 10-K
and 10-Q, the Company's press releases and in oral statements made by or with
the approval of authorized personnel. The Company assumes no obligation to
update any forward-looking statements as a result of new information or future
events or developments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company finances its capital needs through available
capital, future earnings, bank lines of credit and its long-term debt which
totals $15.1 million, inclusive of its current portion. The Company's exposure
to market risk for changes in interest rates is primarily in its investment
portfolio and its short and long-term borrowings. The Company, pursuant to
investing guidelines, mitigates exposure on its investments by limiting
maturity, placing investments with high credit quality issuers and limiting
the amount of credit exposure to any one issuer. All of the Company's
indebtedness, including borrowings under its $175.0 million lines of credit
and long-term debt, bear interest at variable rates. Accordingly, changes in
interest rates would impact the Company's results of operations in future
periods. The Company entered into a swap agreement, effective November 30,
2001, to hedge against interest rate fluctuations on its long-term debt. The
swap agreement effectively converts the long-term debt from a variable
interest rate to a fixed interest rate of 6.95% per annum. Subsequent to
year-end, the swap agreement was assigned to another financial institution,
which resulted in a reduced fixed interest rate of 6.32% per annum.
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.
16
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 10, 2002.
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 10, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
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 10, 2002.
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 10, 2002 and by reference to Footnotes G, I and S of the
Consolidated Financial Statements included in this report and referred to at
Part IV, Item 14.
17
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 March 2, 2002 and
March 3, 2001 F-2 - F-3
Consolidated Statements of Earnings for each of the three
years in the period ended March 2, 2002 F-4
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended March 2, 2002 F-5 - F-6
Consolidated Statements of Cash Flows for each of the three
years in the period ended March 2, 2002 F-7
Notes to Consolidated Financial Statements F-8 - F-28
2. Financial Statement Schedule
Included in Part IV of this report:
Schedule for each of the three years in the period ended
March 2, 2002:
II - Valuation and Qualifying Accounts F-29
3. Exhibits
2.1 Asset Purchase Agreement, dated as of April 23, 2001, by
and among the Registrant, EJI Acquisition Subsidiary,
Inc., Earl Jean, Inc., Benjamin Freiwald and Suzanne
Costas Freiwald is incorporated herein by reference to
Registrant's Current Report on Form 8-K dated April 30,
2001.
3(a) Registrant's By-laws as currently in effect are
incorporated herein by reference to Registrant's
Registration Statement on Form S-1 (Registration No.
33-21998).
3(b) Registrant's Restated Certificate of Incorporation is
incorporated herein by reference from the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1995, as amended by a Certificate of Amendment
incorporated herein by reference from the Registrant's
Quarterly Report on Form 10-Q for the quarter ended May
31, 1996.
18
3(c) Certificate of Designations of Series A Junior
Participating Preferred Stock of Nautica Enterprises,
Inc., in the form as filed with the Secretary of State of
the State of Delaware, included as Exhibit A to the Rights
Agreement, dated as of November 2, 2001, between Nautica
Enterprises, Inc. and Mellon Investor Services LLC, as
Rights Agent, is incorporated herein by reference from the
Registrant's Current Report on Form 8-K filed on November
8, 2001.
4(i)(a) Rights Agreement, dated as of November 2, 2001, between
Nautica Enterprises, Inc. and Mellon Investor Services
LLC, as Rights Agent, which includes the Certificate of
Designations of Series A Junior Participating Preferred
Stock as Exhibit A, form of Right Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred Stock as
Exhibit C, is incorporated herein by reference from the
Registrant's Current Report on Form 8-K filed on November
8, 2001.
10(iii)(a) Registrant's Executive Incentive Stock Option Plan is
incorporated herein by reference 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 herein by reference 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
herein by reference from the Registrant's Registration
Statement on Form S-8 (Registration Number 333-55711).
10(iii)(d) Registrant's 1994 Incentive Compensation Plan is
incorporated herein by reference 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. Sale and
Cancellation Letter Agreement, dated January 7, 2002,
between the Registrant and Mr. Chu is incorporated herein
by reference from the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended December 1, 2001.
10(iii)(g) Employment Agreement, dated October 1, 1999, by and
between the Registrant and John Varvatos, and Split Dollar
Agreement, dated May 5, 2000, by and between the
Registrant and John Varvatos are incorporated herein by
reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended March 4, 2000.
19
21 Subsidiaries of Registrant
23.1 Consent of Independent Certified Public Accountants
(b) Reports on Form 8-K.
None.
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
NAUTICA ENTERPRISES, INC.
We have audited the accompanying consolidated balance sheets of Nautica
Enterprises, Inc. and Subsidiaries as of March 2, 2002 and March 3, 2001, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the three years in the period ended March 2, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nautica
Enterprises, Inc. and Subsidiaries as of March 2, 2002 and March 3, 2001, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended March 2, 2002, in conformity
with accounting principles generally accepted in the United States of America.
We have also audited the schedule listed in the accompanying index at Item 14(a)
2 for each of the three years in the period ended March 2, 2002. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
GRANT THORNTON LLP
New York, New York
April 19, 2002
F-1
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
MARCH 2, March 3,
ASSETS 2002 2001
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 45,814 $ 36,674
Short-term investments 6,350 5,546
Accounts receivable - net of allowances of
$18,313 in 2002 and $10,005 in 2001 89,736 105,269
Inventories 66,443 98,021
Prepaid expenses and other current assets 5,599 7,477
Deferred tax benefit 18,912 10,859
Assets held for sale 2,842 --
-------- --------
Total current assets 235,696 263,846
PROPERTY, PLANT AND EQUIPMENT, at cost -
less accumulated depreciation and amortization 111,327 101,361
GOODWILL, at cost - less accumulated amortization 31,328 5,243
INTANGIBLES, at cost - less accumulated amortization 35,489 1,512
OTHER ASSETS 8,230 6,344
-------- --------
$422,070 $378,306
======== ========
The accompanying notes are an integral part of these statements.
F-2
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(amounts in thousands, except share data)
MARCH 2, March 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
--------- ---------
CURRENT LIABILITIES
Current maturities of long-term debt $ 754 $ --
Accounts payable - trade 30,402 43,881
Accrued expenses and other current liabilities 44,037 37,613
Income taxes payable 9,289 11,548
--------- ---------
Total current liabilities 84,482 93,042
LONG-TERM LIABILITIES
Long-term debt - net 14,321 --
Interest rate swap liability 687 --
--------- ---------
Total long-term liabilities 15,008 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.01; authorized, 2,000,000
shares; no shares issued -- --
Common stock - par value $.10; authorized, 100,000,000
shares; issued, 44,718,000 shares in 2002 and
43,329,000 shares in 2001 4,472 4,333
Additional paid-in capital 93,546 71,766
Retained earnings 385,407 368,148
Accumulated other comprehensive (loss) - net of
deferred tax benefit of $1,132 in 2002 (1,862) --
Common stock in treasury at cost; 11,498,000 shares
in 2002 and 2001 (158,983) (158,983)
--------- ---------
322,580 285,264
--------- ---------
$ 422,070 $ 378,306
========= =========
The accompanying notes are an integral part of these statements.
F-3
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands, except share data)
YEAR ENDED Year ended Year ended
MARCH 2, March 3, March 4,
2002 2001 2000
------------ ------------ ------------
Net sales $ 692,092 $ 627,731 $ 564,888
Cost of goods sold 407,677 367,171 323,887
------------ ------------ ------------
Gross profit 284,415 260,560 241,001
Selling, general and administrative expenses 250,078 196,927 172,885
Special charges 14,442 -- --
Net royalty income (7,860) (8,779) (5,748)
------------ ------------ ------------
Operating profit 27,755 72,412 73,864
Investment income 1,471 3,075 2,204
Interest expense (1,474) (156) (137)
------------ ------------ ------------
Earnings before provision for income taxes 27,752 75,331 75,931
Provision for income taxes 10,493 29,228 29,768
------------ ------------ ------------
NET EARNINGS $ 17,259 $ 46,103 $ 46,163
============ ============ ============
Net earnings per share of common stock:
Basic $ 0.52 $ 1.45 $ 1.33
============ ============ ============
Diluted $ 0.50 $ 1.39 $ 1.26
============ ============ ============
Weighted-average number of common shares outstanding:
Basic 32,946,000 31,862,000 34,805,000
============ ============ ============
Diluted 34,319,000 33,241,000 36,597,000
============ ============ ============
The accompanying notes are an integral part of these statements.
F-4
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
Accumulated
Common stock Additional other
------------------ paid-in Retained comprehensive Treasury
Shares Amount capital earnings income (loss) stock Total
---------- ------ ---------- -------- ------------- ---------- ----------
Balance at February 27, 1999 42,604,000 $4,260 $66,813 $275,882 $ (35) $ (91,103) $ 255,817
Common stock issued on exercise of stock options 92,000 10 558 568
Income tax benefit from stock options 188 188
Purchase of treasury stock (39,058) (39,058)
Comprehensive income
Net earnings 46,163 46,163
Net unrealized investment gain, net of
deferred taxes 35 35
---------- ------ ------- -------- ------ --------- ---------
46,198
Balance at March 4, 2000 42,696,000 4,270 67,559 322,045 - (130,161) 263,713
Common stock issued on exercise of stock options 633,000 63 2,183 2,246
Income tax benefit from stock options 2,024 2,024
Purchase of treasury stock (28,822) (28,822)
Net earnings 46,103 46,103
---------- ------ ------- -------- ------ --------- ---------
Balance at March 3, 2001(carried forward) 43,329,000 4,333 71,766 368,148 - (158,983) 285,264
The accompanying notes are an integral part of these statements.
F-5
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Years ended March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
Accumulated
Common stock Additional other
-------------------- paid-in Retained comprehensive Treasury
Shares Amount capital earnings income (loss) stock Total
---------- -------- ---------- --------- ------------- ---------- ----------
Balance at March 3, 2001 (brought forward) 43,329,000 $ 4,333 $ 71,766 $ 368,148 $ -- $(158,983) $ 285,264
Common stock issued in connection with the
acquisition of Earl Jean, Inc. 1,122,000 112 18,354 18,466
Common stock issued on exercise of stock options 267,000 27 2,531 2,558
Income tax benefit from stock options 895 895
Comprehensive income
Net earnings 17,259 17,259
Other comprehensive (loss), net of taxes:
Foreign currency translation adjustments (1,435) (1,435)
Unrealized loss on interest rate swap (427) (427)
---------- -------- --------- --------- --------- --------- ---------
15,397
BALANCE AT MARCH 2, 2002 44,718,000 $ 4,472 $ 93,546 $ 385,407 $ (1,862) $(158,983) $ 322,580
========== ======== ========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements.
F-6
Nautica Enterprises, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
YEAR ENDED Year ended Year ended
MARCH 2, March 3, March 4,
2002 2001 2000
---------- ---------- ----------
Cash flows from operating activities
Net earnings $ 17,259 $ 46,103 $ 46,163
Adjustments to reconcile net earnings to net cash
provided by operating activities
Deferred income taxes (6,921) (2,478) (1,035)
Depreciation and amortization 29,045 22,968 17,072
Provision for bad debts 5,161 1,451 1,424
Loss on impairment of long-lived assets 7,870 -- --
Changes in operating assets and liabilities, net
of assets and liabilities acquired
Short-term investments (804) 28,445 21,116
Accounts receivable 14,342 (17,935) (768)
Inventories 41,766 (24,142) (3,667)
Prepaid expenses and other current assets 1,902 (2,024) (20)
Other assets (1,824) (36) (2,686)
Accounts payable - trade (15,394) 14,833 (548)
Accrued expenses and other current liabilities 109 7,054 3,292
Income taxes payable (1,363) 3,779 3,458
-------- -------- --------
Net cash provided by operating activities 91,148 78,018 83,801
-------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (44,268) (41,712) (33,289)
Acquisitions, net of cash acquired (55,282) -- --
Payments to register trademark (91) (199) (277)
-------- -------- --------
Net cash used in investing activities (99,641) (41,911) (33,566)
-------- -------- --------
Cash flows from financing activities
Proceeds from long-term debt 15,075 -- --
Principal payments on long-term debt -- -- (100)
Proceeds from issuance of common stock 2,558 2,246 568
Purchase of treasury stock -- (28,822) (39,058)
-------- -------- --------
Net cash provided by (used in) financing activities 17,633 (26,576) (38,590)
-------- -------- --------
INCREASE IN CASH AND
CASH EQUIVALENTS 9,140 9,531 11,645
Cash and cash equivalents at beginning of year 36,674 27,143 15,498
-------- -------- --------
Cash and cash equivalents at end of year $ 45,814 $ 36,674 $ 27,143
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,844 $ -- $ --
Cash paid during the year for income taxes $ 18,724 $ 27,829 $ 27,389
The accompanying notes are an integral part of these statements.
F-7
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nautica Enterprises, Inc. (the "Company") and Subsidiaries are primarily
engaged in the design, marketing, sourcing, distributing and sale of
men's, women's and children's apparel. The principal market for the
Company's products is the United States.
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. Use of Estimates
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America,
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.
3. Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivable and
accounts payable approximates their carrying value due to their
short-term maturities. The fair value of long-term debt approximates
the carrying value and is estimated based on the current interest
rates offered to the Company for debt of similar maturity.
4. 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 municipal bonds and short-term
notes. The market value of the cash equivalents approximates cost.
F-8
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE A (CONTINUED)
5. Short-Term Investments
Short-term investments are classified as trading securities and are
adjusted to market value at the end of each accounting period.
Unrealized market gains and losses are included in earnings.
Realized gains and losses on sales of investments are determined on
a specific identification basis, and are included in earnings.
6. 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 and
discounts are provided when sales are recorded.
7. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for certain
wholesale inventories and by the first-in, first-out ("FIFO") method
for retail and the remaining wholesale inventories.
Inventories valued using the LIFO method, consisting primarily of
finished goods, comprised 34% and 43% of consolidated inventories
before LIFO adjustment at March 2, 2002 and March 3, 2001,
respectively. Had the Company utilized the FIFO method of accounting
for all inventory, inventories would have been higher by $2,285 and
$2,679 at March 2, 2002 and March 3, 2001, respectively.
8. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Buildings and improvements are
depreciated using the straight-line method over their estimated
useful lives of twenty to thirty-nine years. Machinery, equipment
and fixtures are depreciated using the straight-line method over
their estimated useful lives of three to ten years. Leasehold
improvements are amortized over the shorter of the lease term or the
estimated useful lives of the assets.
9. Goodwill
Goodwill represents the excess of cost over the fair value of net
assets acquired. Goodwill recorded in connection with acquisitions
has been amortized using the straight-line method over a ten- to
forty-year period through March 2, 2002. SFAS No. 142, "Goodwill and
Other Intangible Assets,"
F-9
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE A (CONTINUED)
changes the accounting for goodwill from an amortization method to
an impairment-only approach and, accordingly, amortization of
goodwill will cease beginning on March 3, 2002.
10. Intangibles
Intangibles represent trademarks that are being amortized using the
straight-line method over the estimated useful lives of the assets.
SFAS No. 142 changes the accounting for intangible assets without
determinable lives from an amortization method to an impairment-only
approach, and accordingly, amortization of trademarks without
determinable lives will cease beginning on March 3, 2002.
11. 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.
12. Earnings Per Share
Basic net earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the
weighted-average common shares outstanding for the period. Diluted
net earnings per share reflects the weighted-average common shares
outstanding plus the potential dilutive effect of options, which are
convertible into common shares. Dilutive stock options included in
the calculation of diluted weighted-average shares were 1,373,000,
1,379,000 and 1,792,000 in 2002, 2001 and 2000, 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 2,161,000, 2,281,000 and 4,092,000 in
2002, 2001 and 2000, respectively.
13. 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. In evaluating
the fair value and future benefits of such assets, the Company
performs an analysis of the anticipated undiscounted future net cash
flows of the individual assets over the remaining amortization
period and recognizes an impairment loss if the carrying value
exceeds the expected future cash flows. The impairment loss is
measured based
F-10
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE A (CONTINUED)
upon the difference between the fair value of the asset and its
recorded carrying value. See Note S for long-lived asset write-down
recorded in connection with the closing of the distribution facility
in Rockland, Maine.
14. Shipping and Handling Fees and Costs
Shipping and handling fees billed to customers are recorded as
revenue. The costs associated with shipping goods to customers are
recorded as a cost of sales.
15. 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 $31,300,
$29,200 and $26,500 in 2002, 2001 and 2000, respectively.
16. Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated into U.S. dollars in accordance with SFAS 52, "Foreign
Currency Translation." Where the functional currency of a foreign
subsidiary is its local currency, balance sheet accounts are
translated at the current exchange rate and income statement items
are translated at the average exchange rate for the period. Gains
and losses resulting from translation are accumulated in a separate
component of stockholders' equity. Where the local currency of a
foreign subsidiary is not its functional currency, financial
statements are translated at either current or historical exchange
rates, as appropriate. These adjustments, along with gains and
losses on currency transactions, are reflected in the consolidated
statements of earnings.
17. Fiscal Year
References made to 2002, 2001 and 2000 relate to the fiscal years
ended March 2, 2002, March 3, 2001 and March 4, 2000, respectively.
Results for 2002 and 2001 include 52 weeks and results for 2000
include 53 weeks.
18. Reclassifications
Certain amounts in prior years have been reclassified to conform
with classifications used in 2002.
F-11
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE B - SHORT-TERM INVESTMENTS
The following summarizes short-term investments:
Gross unrealized
---------------- Market
Cost Gains Losses value
------ ------ ------ ------
MARCH 2, 2002
REAL ESTATE INVESTMENT TRUSTS $5,518 $879 $(47) $6,350
====== ==== ==== ======
March 3, 2001
Real estate investment trusts $5,202 $345 $ (1) $5,546
====== ==== ==== ======
For 2002, 2001 and 2000, gross realized gains on securities totaled $316,
$268 and $16, respectively. In 2002, 2001 and 2000, gross realized losses
totaled $0, $289 and $296, respectively.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
2002 2001
-------- --------
Land $ 1,025 $ 515
Buildings and improvements 10,340 11,771
Machinery, equipment and fixtures 135,657 111,174
Leasehold improvements 42,297 27,936
Construction in progress 3,077 17,499
-------- --------
192,396 168,895
Accumulated depreciation and amortization 81,069 67,534
-------- --------
$111,327 $101,361
======== ========
NOTE D - SHORT-TERM BORROWINGS
As of March 2, 2002 and March 3, 2001, the Company had $175,000 and
$150,000, respectively, in lines of credit with four commercial banks.
Such lines of credit are available for short-term borrowings and letters
of credit, collateralized by imported inventory and accounts receivable.
At March 2, 2002, letters of credit outstanding under the lines were
$33,805. At March 2, 2002 and March 3, 2001, there were no short-term
borrowings outstanding.
F-12
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE E - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
2002 2001
------- -------
Payroll and other employee compensation $16,052 $14,649
Royalties 1,615 3,773
Advertising and promotion 3,438 2,136
Accrued rent 2,921 2,228
Other 20,011 14,827
------- -------
$44,037 $37,613
======= =======
NOTE F - STOCKHOLDERS' EQUITY
During fiscal 2001, the Board of Directors authorized the Company to
repurchase up to 4,000,000 shares of its outstanding stock on the open
market. Under this authorization and a previous authorization, the Company
purchased 2,533,000 shares of its outstanding stock at a cost of $28,822
during 2001.
The Certificate of Incorporation, as amended, authorizes the Board of
Directors to issue Preferred Stock, from time to time, in one or more
series, with such voting powers, designations, preferences, and relative,
participating, optional, conversion or other special rights, and such
qualifications, limitations and restrictions, as the Board of Directors
may, in its sole discretion, determine.
On November 2, 2001, the Board of Directors adopted a resolution providing
for the issuance of one series of the Company's Preferred Stock to be
designated Series A Junior Participating Preferred Stock in accordance
with the adoption of a Stockholder Rights Plan (see Note R). The number of
shares of this series authorized to be issued is 400,000. Such number may
be increased or decreased by resolution of the Board of Directors.
NOTE G - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases real property and equipment, under operating
leases expiring at various dates through 2021. Certain of the leases
provide for renewal options and the payment of real estate taxes and
other occupancy costs. Rent expense amounted to approximately
$21,199 in 2002, $15,122 in 2001 and $11,889 in 2000.
F-13
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE G (CONTINUED)
At March 2, 2002, minimum rental commitments under noncancellable
leases are as follows:
2003 $ 17,295
2004 16,730
2005 15,678
2006 15,061
2007 14,276
Thereafter 71,753
----------
Total minimum payments required $ 150,793
==========
2. Stock Purchase Agreement and Life Insurance Proceeds
The Company is a party to an agreement with the Chairman and the
Vice Chairman 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.
3. Executive Compensation
In the event of a change in control of the Company as defined in the
agreement, certain members of senior management have the right to
receive a lump-sum payment upon termination of employment other than
for cause or permanent disability or resignation for good reason
within three years. Such payments are to be equal to the excess of
(i) the product of 2.90 multiplied by the "base amount" as
determined within the meaning of Section 280G of the Internal
Revenue Code over (ii) the value on the date of the Change of
Control Event of noncash benefits as defined in the agreement. At
March 2, 2002, the maximum amount payable, applicable to three
individuals, would be approximately $8,548.
F-14
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE G (CONTINUED)
4. 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 26%, 20% and 16%,
respectively, of sales in 2002, 25%, 19% and 16%, respectively, of
sales in 2001 and 23%, 18% and 17%, respectively, of sales in 2000.
The Company does not believe that this concentration of sales and
credit risks represents a material risk of loss with respect to its
financial position as of March 2, 2002.
5. 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.
NOTE H - INCOME TAXES
Significant components of the Company's deferred taxes at March 2, 2002
and March 3, 2001 are as follows:
2002 2001
-------- --------
Deferred tax assets (liabilities)
Deferred compensation $ 2,690 $ 2,269
Allowance for doubtful accounts and sales discounts 3,362 2,299
Capitalized inventory costs 1,047 1,789
Nondeductible accruals 9,001 7,561
Depreciation (1,287) (3,059)
Impairment of long-lived assets 2,967 --
Foreign currency translation 872 --
Interest rate swap 260 --
-------- --------
$ 18,912 $ 10,859
======== ========
F-15
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE H (CONTINUED)
The provision for income taxes is comprised of the following:
2002 2001 2000
-------- -------- --------
Current
Federal $ 14,904 $ 27,506 $ 26,187
State and local 2,510 4,200 4,616
Deferred (6,921) (2,478) (1,035)
-------- -------- --------
$ 10,493 $ 29,228 $ 29,768
======== ======== ========
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial
statements:
2002 2001 2000
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 3.6 4.0
Other (1.4) .2 .2
---- ---- ----
Actual provision for income taxes 37.8% 38.8% 39.2%
==== ==== ====
NOTE I - TRANSACTIONS WITH RELATED PARTIES
The Company has the exclusive right to use, exploit and license others to
so use and exploit the Nautica name and trademarks. The Vice Chairman of
the Company receives 50% of the net royalty income received by the Company
with respect to the use of the Nautica name and trademarks. The Vice
Chairman earned royalties of approximately $7,860, $8,779 and $5,748 in
2002, 2001 and 2000, respectively. The Vice Chairman was entitled to
receive a design fee of up to 1.5% of the net sales of certain new
products. On January 9, 2002, this agreement was cancelled by the Company
for a payment to the Vice Chairman of $5,600 (see Note S). The design fee
accrued by the Company for 2002, in the amount of $1,159, was also
cancelled. For 2001 and 2000, the Vice Chairman received design fees of
$1,203 and $1,014, respectively. At March 2, 2002 and March 3, 2001, the
amount due to the Vice Chairman included in accrued expenses and other
current liabilities was approximately $1,615 and $3,773, respectively. The
Vice Chairman 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-16
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE I (CONTINUED)
The law firm of Hughes, Hubbard & Reed LLP provides professional services
to the Company. A Director of the Company is the managing partner of such
firm, and another partner is the brother-in-law of the Company's Chairman.
For the years ended 2002, 2001 and 2000, the Company paid $1,352, $1,596
and $1,227, respectively, to Hughes, Hubbard & Reed LLP.
The firm of Chu/Pettersen Interior Design, Inc. provides interior design
and related services to the Company. The Vice President of such firm is
the brother of the Company's Vice Chairman. For the years ended 2002, 2001
and 2000, the Company paid $105, $238 and $201, respectively, to
Chu/Pettersen Interior Design, Inc.
NOTE J - MULTIEMPLOYER PENSION PLAN
The Company contributed approximately $94, $83 and $56 in 2002, 2001 and
2000, respectively, to a multiemployer pension plan for employees covered
under a collective bargaining agreement. The plan is not administered by
the Company and contributions are determined in accordance with provisions
of negotiated labor contracts. The Multiemployer Pension Plan Amendments
Act of 1980 (the "Act") significantly increased the pension
responsibilities of participating employers. Under the provisions of the
Act, if the plan terminates or the Company withdraws, the Company could be
subject to a "withdrawal liability." As of March 2, 2002, 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
$256, $318 and $309 in 2002, 2001 and 2000, respectively.
F-17
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
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.
In general, options for the Company's common stock become exercisable over
a five-year period from the grant date and expire ten years after the date
of grant. Options for "Outside Directors" become exercisable over a
two-year period from the grant date and expire ten years after the date of
grant.
On July 1, 1987, the Company entered into an Option Agreement (the
"Agreement") with its Vice Chairman. The Agreement granted the Vice
Chairman the option to purchase, as adjusted for stock splits and subject
to future adjustments, up to an aggregate of 2,262,000 shares 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 Vice Chairman of the Company ceases to
be employed by the Company. During the year ended March 3, 2001, the Vice
Chairman exercised 400,000 options. At March 2, 2002, 282,000 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 $895, $2,024
and $188 during the years ended March 2, 2002, March 3, 2001 and March 4,
2000, respectively, has been credited to additional paid-in capital.
F-18
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE L (CONTINUED)
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." 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:
2002 2001 2000
---------- ---------- ----------
Net earnings
As reported $ 17,259 $ 46,103 $ 46,163
Pro forma 9,050 37,502 36,359
Basic net earnings per share
As reported $ 0.52 $ 1.45 $ 1.33
Pro forma 0.27 1.18 1.04
Diluted net earnings per share
As reported $ 0.50 $ 1.39 $ 1.26
Pro forma 0.27 1.15 1.00
These pro forma amounts may not be representative of future disclosures
because they do not take into account the effect of pro forma compensation
expenses related to grants made before fiscal 1996. The fair value of
these options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for
the years ended March 2, 2002, March 3, 2001 and March 4, 2000,
respectively: expected volatility of 50%, 44% and 50%; risk-free interest
rates of 5.0%, 5.3% and 6.0%; and expected lives of seven years.
F-19
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE L (CONTINUED)
The table below summarizes the activity in the plans:
2002 2001 2000
--------------------------- --------------------------- -----------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE average average
EXERCISE exercise exercise
SHARES PRICE Shares price Shares price
--------- --------- --------- ---------- ---------- ----------
Outstanding at
beginning of year 5,626,000 $15.28 5,734,000 $15.02 4,316,000 $16.45
Granted 180,000 15.48 390,000 14.99 1,812,000 11.47
Exercised (267,000) 9.64 (233,000) 8.15 (92,000) 6.15
Cancelled (247,000) 18.19 (265,000) 15.48 (302,000) 23.25
---------- --------- ---------
Outstanding at end of
year 5,292,000 15.44 5,626,000 15.28 5,734,000 15.02
========= ========= =========
Exercisable at end of
Year 3,554,000 15.22 3,109,000 14.31 2,684,000 13.51
========= ========= =========
Weighted-average fair
value of options granted
during the year 8.91 8.07 6.80
The following table summarizes information concerning currently
outstanding and exercisable stock options in the plans at March 2, 2002:
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
---------------- ----------- ----------- --------- ----------- ---------
$ 3.28- $ 4.45 591,000 1.66 $ 3.74 591,000 $ 3.74
6.22 - 16.81 2,560,000 6.60 11.31 1,320,000 10.10
17.93 - 26.00 2,141,000 5.59 23.60 1,643,000 23.48
--------- ----------
5,292,000 3,554,000
========= ==========
F-20
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE M - SEGMENT REPORTING
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes reporting and disclosure standards for an
enterprise's operating segments. Operating segments are defined as
components of an enterprise for which separate financial information is
available and regularly reviewed by the Company's senior management.
The Company has the following two reportable segments: Wholesale and
Retail. The Wholesale segment designs, markets, sources and distributes
the following to retail store customers: sportswear, activewear,
outerwear, a jeans collection, a tailored clothing collection, robes and
sleepwear for men; a jeans collection, robes and sleepwear for women; and
a children's collection. The Retail segment sells men's, women's and
children's apparel and other Nautica-branded products primarily through
its retail store locations directly to consumers.
The accounting policies of the reportable segments are the same as those
described in the summary of accounting policies. Segment profit is based
on earnings before provision for income taxes. The reportable segments are
distinct business units, separately managed with different distribution
channels. The following information about the two segments is as of March
2, 2002 and for each of the three years in the period then ended:
All Corporate/
Wholesale Retail other eliminations Totals
--------- -------- ------- ------------ --------
MARCH 2, 2002
NET SALES FROM EXTERNAL CUSTOMERS $516,486 $175,606 $ -- $ -- $692,092
SEGMENT OPERATING PROFIT (LOSS) 32,262 12,758 7,859 (25,124) 27,755
SEGMENT ASSETS 287,294 44,606 8,625 81,545 422,070
DEPRECIATION EXPENSE 20,048 2,817 1,621 879 25,365
CAPITAL EXPENDITURES 30,357 10,363 -- 3,548 44,268
March 3, 2001
Net sales from external customers $475,185 $152,546 $ -- $ -- $627,731
Segment operating profit (loss) 50,477 20,391 9,314 (7,770) 72,412
Segment assets 251,446 49,740 11,185 65,935 378,306
Depreciation expense 18,371 1,857 517 1,280 22,025
Capital expenditures 27,006 9,287 787 4,632 41,712
March 4, 2000
Net sales from external customers $426,927 $137,765 $ 196 $ -- $564,888
Segment operating profit (loss) 58,522 19,644 3,437 (7,739) 73,864
Segment assets 204,573 37,580 9,281 81,679 333,113
Depreciation expense 13,804 1,340 397 597 16,138
Capital expenditures 28,128 3,122 148 1,891 33,289
F-21
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE M (CONTINUED)
Net sales from external customers represent sales in the United States,
except for foreign sales of $10,437, $14,362 and $7,392 in 2002, 2001 and
2000, respectively.
Long-lived assets in foreign countries were $3,328 and $1,785 for the
years ended 2002 and 2001, respectively.
The All other column represents activity of the Company's licensing unit.
In the Corporate/eliminations column, the segment assets primarily consist
of the Company's cash and investment portfolio and the segment operating
profit (loss) consists of corporate overhead expenses and special charges
(see Note S).
NOTE N - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
JUNE 2 SEPTEMBER 1 DECEMBER 1 MARCH 2
----------- ----------- ----------- ------------
2002
NET SALES $ 135,190 $ 199,256 $ 201,040 $ 156,606
GROSS PROFIT 57,761 83,006 81,175 62,473
NET EARNINGS (LOSS) 3,173 8,896 13,585 (8,395)
NET EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
BASIC $ 0.10 $ 0.27 $ 0.41 $ (0.25)
DILUTED 0.09 0.26 0.40 (0.25)
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
BASIC 32,259,000 33,158,000 33,173,000 33,195,000
DILUTED 34,025,000 34,726,000 34,157,000 33,195,000
June 3 September 2 December 2 March 3
----------- ----------- ----------- ------------
2001
Net sales $ 121,274 $ 169,625 $ 178,628 $ 158,204
Gross profit 50,136 69,952 74,231 66,241
Net earnings 3,094 13,412 16,515 13,082
Net earnings per share of
common stock
Basic $ 0.09 $ 0.43 $ 0.52 $ 0.41
Diluted 0.09 0.41 0.50 0.39
Weighted-average number of
common shares outstanding
Basic 32,627,000 31,415,000 31,655,000 31,676,000
Diluted 34,040,000 32,538,000 32,948,000 33,403,000
F-22
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE O - ACQUISITIONS
1. Hampton Industries, Inc.
On April 2, 2001, the Company's licensing unit terminated its
license agreement with Hampton Industries, Inc. ("Hampton") to
market Nautica childrenswear, and established a new business unit to
assume certain of its operations. The Company made a payment to
Hampton of approximately $6,681 for the purchase of inventory and
certain other assets related to the Nautica childrenswear business,
and agreed to forgive specific royalties and other expenses
associated with the license agreement contingent upon Hampton
satisfactorily performing certain distribution and logistics
functions for the Company, for a period of time. On September 26,
2001, the Company filed a lawsuit against Hampton, claiming that
Hampton had breached its April 2, 2001 agreement. The amount the
Company is seeking to recover is between $8,000 and $9,000. The
lawsuit is in the preliminary stages and it is too early to predict
the outcome of the litigation.
2. Earl Jean, Inc.
On April 30, 2001, the Company, through a wholly-owned subsidiary,
acquired substantially all of the assets and assumed certain
liabilities of Earl Jean, Inc. ("Earl Jean"), a privately held
corporation. Earl Jean is a leading designer, manufacturer,
wholesaler, retailer and marketer of luxury women's jeanswear and
related apparel. The purchase price was $45,000 in cash, 1,122,271
newly issued shares of the Company's restricted common stock (valued
at $18,466) and an additional cash payment of $1,809 for excess
working capital. Furthermore, additional consideration of up to
$21,000 in cash may be earned if certain performance standards are
met during fiscal 2003-2012. The source of the cash consideration
was a combination of general corporate funds and short-term
borrowings from the Company's existing line of credit made in the
ordinary course of business with certain banks. The acquisition was
accounted for under the purchase method of accounting for business
combinations and the results of operations of Earl Jean have been
recorded from the date of acquisition. The purchase price plus
acquisition expenses were allocated to Earl Jean's assets and
liabilities based on their estimated fair value. The excess of the
purchase price over the estimated fair value of the net assets
acquired of $60,011 was recorded as follows:
Life
Amount (in years)
-------- ----------
Trademarks $ 34,985 20.0
Employment agreements 508 4.4
Non-compete agreements 78 1.5
Customer accounts 369 5.0
Goodwill 24,071 20.0
--------
$ 60,011
========
F-23
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE O (CONTINUED)
Trademarks and goodwill were amortized on a straight-line basis over
twenty years during fiscal 2002. In accordance with SFAS 142, beginning in
the first quarter of fiscal 2003, these assets will no longer be
amortized, instead they will be tested for impairment (see Note T).
The following unaudited pro forma condensed results of operations reflect
the acquisition of Earl Jean as if it had occurred on March 4, 2001 and
March 5, 2000, respectively. The revenues and results of operations
included in the following pro forma unaudited condensed statements of
operations is not necessarily considered indicative of the results of
operations for the periods specified had the transaction actually been
completed at the beginning of the period.
MARCH 2, March 3,
2002 2001
----------- -----------
Pro forma net sales $ 698,228 $ 659,085
Pro forma net earnings 18,258 47,397
Pro forma net earnings per share of common stock:
Basic $ 0.55 $ 1.44
Diluted $ 0.53 $ 1.38
NOTE P - NON-CASH INVESTING AND FINANCING ACTIVITIES
A supplemental schedule of non-cash investing and financing activities to
the Company's Consolidated Statements of Cash Flows is presented below.
The Company acquired substantially all of the assets of Earl Jean for
$48,601 in cash, including acquisition expenses, and $18,466 in common
stock. In conjunction with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired $ 69,415
Cash paid (48,601)
Common stock issued (18,466)
--------
Liabilities assumed $ 2,348
========
F-24
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE Q - LONG-TERM DEBT
On July 31, 2001, the Company entered into a loan agreement with HSBC Bank
USA ("HSBC"). The loan, in the maximum amount of $15,075, is being used to
finance a portion of the construction and development of the new
distribution facility in Martinsville, Virginia. The loan is secured by a
deed of trust on the distribution facility. The carrying value of the
underlying asset was $18,263 at March 2, 2002.
A portion of the loan equal to $13,500 was advanced on July 31, 2001. This
advance called for interest only payments at the end of each month,
commencing August 31, 2001, and was based on the one-month LIBOR rate plus
1.00%.
On November 30, 2001, the remaining portion of the loan, $1,575, was
advanced and the term of the loan was fixed at seven years. Principal
payments of $188 and interest payments are due at the end of each calendar
quarter, commencing March 28, 2002. Interest will be computed based on the
three-month LIBOR rate plus 1.00%. The loan agreement provides for various
financial and restrictive covenants including, among others, tangible net
worth, minimum fixed charges and minimum funded debt. The loan will mature
on November 28, 2008, at which time the entire outstanding loan balance of
$9,987 will be due and payable.
The Company entered into a swap agreement with HSBC, effective November
30, 2001, to hedge against interest rate fluctuations. This agreement
effectively converts the loan from a variable interest rate to a fixed
interest rate of 6.95% per annum. If the three-month LIBOR rate plus 1.00%
is more than 6.95%, then HSBC will pay the difference to the Company. If
the three-month LIBOR rate plus 1.00% is less than 6.95%, then the Company
will pay the difference to HSBC. The net interest paid or received under
this agreement is included in interest expense. The Company has adopted
Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, which requires
companies to record all derivative instruments as assets or liabilities on
the balance sheet, measured at fair value. The recognition of gains or
losses resulting from changes in the values of those derivative
instruments is based on the use of each derivative instrument and whether
it qualifies for hedge accounting. The key criterion for hedge accounting
is that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. In accordance with the
guidelines of SFAS 133, the Company classified the swap as a cash flow
hedge. The fair value of the swap resulted in the Company recording a
long-term liability of $687 and a loss in other comprehensive income, net
of taxes, of $427. The fair value is based upon the estimated amount that
the Company would have to pay to terminate the agreement, as determined by
HSBC.
On March 22, 2002, HSBC assigned the swap agreement to Fleet National
Bank. This assignment, retroactive to November 30, 2001, resulted in a
reduced fixed interest rate of 6.32% per annum.
F-25
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE Q (CONTINUED)
The amount of long-term debt maturing in each of the next five fiscal
years is as follows:
Fiscal Year Ended
-----------------------
2003 $ 754
2004 754
2005 754
2006 754
2007 754
Thereafter 11,305
--------
15,075
Less current maturities (754)
--------
Total $ 14,321
========
NOTE R - STOCKHOLDER RIGHTS PLAN
On November 2, 2001, the Company's Board of Directors adopted a
Stockholder Rights Plan that entitled stockholders of record on November
12, 2001 to receive a dividend distribution of one Right for each share of
common stock held. The Rights, which expire on November 12, 2011, entitle
stockholders to purchase from the Company a unit consisting of 1/100 of a
share of Series A Junior Participating Preferred Stock at a price of $60
per unit, subject to adjustment. The Rights will become exercisable only
if a person or group, other than the current Chairman of the Board,
acquires 15% or more of the Company's common stock.
NOTE S - SPECIAL CHARGES
On January 9, 2002, the Company entered into a Sale and Cancellation
Agreement with the Vice Chairman of the Company, to purchase and cancel
all rights of the Vice Chairman under a Letter Agreement dated May 1, 1998
("1998 Agreement") for $5,600. The 1998 Agreement entitled the Vice
Chairman to receive a payment, subject to certain limitations, of 1.5% on
the net sales of certain merchandise sold by various subsidiaries of the
Company. Under the Sale and Cancellation Agreement, all current and future
obligations arising from the 1998 Agreement have been cancelled, including
$1,159 that the Company had been accruing for the current year. As a
result of the cancellation of the 1998 Agreement, the Company incurred a
pre-tax special charge of approximately $4,639 in the fourth quarter of
fiscal 2002.
F-26
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE S (CONTINUED)
During the fourth quarter of fiscal 2002, the Company recorded special
charges in connection with its decision to close its distribution facility
in Rockland, Maine and certain other employee terminations. The Company
will be moving the businesses that currently use this facility to its new
distribution and customer service center in Martinsville, Virginia. This
transition is expected to be completed no later than January 31, 2003. The
special charges related to the closing will total approximately $13,159,
of which $9,803 was recognized in the fourth quarter of fiscal 2002 and
$3,356 will be recognized in the first quarter of fiscal 2003. The special
charges are comprised of the write-down of the facility from its net
carrying value of $10,712 to its estimated net realizable value of $2,842,
costs associated with the closure and sale of the facility and severance
related costs associated with the elimination of approximately 300 union
and non-union employees and certain other employee terminations. These
components and the related activity through March 2, 2002 were as follows:
ASSET WIND SEVERANCE AND
WRITE DOWN TERMINATION
DOWN COSTS BENEFITS TOTALS
-------- ------ ------------- ---------
Fiscal Year 2002 Provision $ 7,870 $868 $1,065 $ 9,803
Fiscal Year 2002 Activity (7,870) -- -- (7,870)
------- ---- ------ -------
Balance at March 2, 2002 $ -- $868 $1,065 $ 1,933
======= ==== ====== =======
NOTE T - NEW ACCOUNTING PRONOUNCEMENTS
In November 2001, the Financial Accounting Standards Board's Emerging
Issues Task Force released Issue No. 01-9, "Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendor's
Products)." The scope of Issue 01-9 includes vendor consideration to any
purchasers of the vendor's products at any point along the distribution
chain, regardless of whether the purchaser receiving the consideration is
a direct customer of the vendor. This pronouncement is effective for the
Company's first quarter of the year ending March 1, 2003. The Company is
still in the process of evaluating the impact of adopting this
pronouncement on its consolidated financial statements, however, it does
not believe that the adoption of this pronouncement will have a material
impact on the consolidated financial statements.
F-27
Nautica Enterprises, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 2, 2002, March 3, 2001 and March 4, 2000
(amounts in thousands, except share data)
NOTE T (CONTINUED)
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 141, "Business Combinations." This
statement requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, and establishes
criteria to separately recognize intangible assets apart from goodwill.
The Company does not believe that the adoption of this pronouncement will
have a material impact on its consolidated financial statements.
In July 2001, the Financial Accounting Standards Board issued SFAS 142,
"Goodwill and Other Intangible Assets." This statement requires that
goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective in the first quarter
of the year ending March 1, 2003, goodwill and intangible assets with
indefinite lives will no longer be amortized and will be tested for
impairment using the guidance for measuring impairment set forth in this
statement. The amortization expense of goodwill and intangible assets with
indefinite lives for the years ended 2002, 2001 and 2000 totaled $3,614,
$658 and $627, respectively. As prescribed under SFAS 142, the Company is
in the process of having its goodwill and intangible assets with
indefinite lives tested for impairment. The Company does not anticipate
any material impairment losses resulting from the adoption of SFAS 142.
In October 2001, the Financial Accounting Standards Board issued SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." This
statement addresses financial accounting and reporting for the impairment
of long-lived assets and assets to be disposed of. This statement
supersedes FASB 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," however, it retains the
fundamental provisions of FASB 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale. SFAS 144 is
effective for the Company's first quarter of the year ending March 1,
2003. The Company is still in the process of evaluating the impact of
adopting this pronouncement on its consolidated financial statements,
however, it does not believe that the adoption of this pronouncement will
have a material impact on the consolidated financial statements.
F-28
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 to
Balance at Charged to other Balance at
beginning costs and accounts - Deductions - end of
Description of year expenses describe describe (a) year
----------- ---------- ---------- ---------- ------------ ----------
YEAR ENDED MARCH 2, 2002
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY
ALLOWANCE FOR BAD DEBTS $5,472 $5,161 $2,469 $ 8,164
ALLOWANCE FOR SALES RETURNS AND DISCOUNTS $4,533 $5,616 $10,149
Year ended March 3, 2001
Reserves deducted from assets to which they apply
Allowance for bad debts $4,021 $1,451 $ 5,472
Allowance for sales returns and discounts $5,025 $ 492 $ 4,533
Year ended March 4, 2000
Reserves deducted from assets to which they apply
Allowance for bad debts $2,597 $1,424 $ 4,021
Allowance for sales returns and discounts $3,043 $1,982 $ 5,025
(a) Accounts written off as uncollectible, net of recoveries and actual
returns processed.
F-29
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 30, 2002)
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 30, 2002
--------------------------- Chief Executive Officer
Harvey Sanders (Principal Executive Officer)
and Director
/s/ David Chu Vice Chairman May 30, 2002
--------------------------- and Director
David Chu
/s/ Wayne Marino Chief Financial Officer May 30, 2002
--------------------------- (Principal Financial Officer)
Wayne Marino
/s/ Mark DiMuro Corporate Controller (Principal May 30, 2002
--------------------------- Accounting Officer)
Mark DiMuro
/s/ Robert B. Bank Director May 30, 2002
---------------------------
Robert B. Bank
/s/ Israel Rosenzweig Director May 30, 2002
---------------------------
Israel Rosenzweig
/s/ Charles H. Scherer Director May 30, 2002
---------------------------
Charles H. Scherer
/s/ Steven H. Tishman Director May 30, 2002
---------------------------
Steven H. Tishman
/s/ John Varvatos Director May 30, 2002
---------------------------
John Varvatos
/s/ Ronald G. Weiner Director May 30, 2002
---------------------------
Ronald G. Weiner