UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended August 31, 2002 or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to _____________
Commission File Number: 0-6708
------
Nautica Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-2431048
-------- ----------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
40 West 57th Street, New York, N.Y. 10019
----------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 541-5757
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock outstanding as of October 11, 2002 was
33,629,350.
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
AUGUST 31, 2002
(unaudited)
INDEX
Page No.
Part I - Financial Information:
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets
As at August 31, 2002 and March 2, 2002 2
Condensed Consolidated Statements of Earnings
For the Six and Three Month Periods Ended
August 31,2002 and September 1, 2001 3
Condensed Consolidated Statements of Cash Flows
For the Six Month Periods Ended
August 31, 2002 and September 1, 2001 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 18
Item 4. Controls and Procedures. 19
Part II - Other Information:
Item 4. Submission of Matters to a Vote of Security Holders. 20
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
ASSETS (unaudited)
August 31, 2002 March 2, 2002
--------------- -------------
Current assets:
Cash and cash equivalents $ 56,799 $ 45,814
Short-term investments 6,539 6,350
Accounts receivable - net 103,994 89,736
Inventories 110,032 66,443
Prepaid expenses and other current assets 6,553 5,599
Deferred tax benefit 18,967 18,912
Assets held for sale 2,842 2,842
--------- ---------
Total current assets 305,726 235,696
Property, plant and equipment, at cost -
less accumulated depreciation and amortization 111,419 111,327
Goodwill, at cost - less accumulated amortization 31,328 31,328
Intangibles, at cost - less accumulated amortization 35,222 35,489
Other assets 9,011 8,230
--------- ---------
$ 492,706 $ 422,070
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 754 $ 754
Accounts payable - trade 75,595 30,402
Accrued expenses and other current liabilities 54,756 44,037
Income taxes payable 13,693 9,289
--------- ---------
Total current liabilities 144,798 84,482
Long-term liabilities:
Long-term debt - net 13,944 14,321
Interest rate swap liability 1,498 687
--------- ---------
Total long-term liabilities 15,442 15,008
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 45,127,000 shares
at August 31, 2002 and 44,718,000 shares at
March 2, 2002 4,513 4,472
Additional paid-in capital 95,300 93,546
Retained earnings 393,213 385,407
Accumulated other comprehensive (loss) - net of
deferred tax benefit of $947 at August 31, 2002
and $1,132 at March 2, 2002 (1,577) (1,862)
--------- ---------
491,449 481,563
Less:
Common stock in treasury, at cost;
11,498,000 shares at August 31, 2002
and March 2, 2002 (158,983) (158,983)
--------- ---------
Total stockholders' equity 332,466 322,580
--------- ---------
$ 492,706 $ 422,070
========= =========
The accompanying notes are an integral part of these statements.
-2-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands, except share data)
(unaudited) (unaudited)
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
August 31, 2002 September 1, 2001 August 31, 2002 September 1, 2001
--------------- ----------------- --------------- -----------------
Net sales $ 308,133 $ 334,446 $ 182,238 $ 199,256
Cost of goods sold 172,426 193,679 102,266 116,250
------------ ------------ ------------ -----------
Gross profit 135,707 140,767 79,972 83,006
Selling, general and administrative expenses 124,015 125,635 64,652 70,358
Special charges 3,356 -- -- --
Net royalty income (4,456) (4,202) (2,084) (1,857)
------------ ------------ ------------ -----------
Operating profit 12,792 19,334 17,404 14,505
Interest expense 931 836 666 589
Investment (income) loss (628) (906) 50 (387)
------------ ------------ ------------ -----------
Earnings before provision for income taxes 12,489 19,404 16,688 14,303
Provision for income taxes 4,683 7,335 6,258 5,407
------------ ------------ ------------ -----------
NET EARNINGS $ 7,806 $ 12,069 $ 10,430 $ 8,896
============ ============ ============ ===========
Net earnings per share of common stock:
Basic $ 0.23 $ 0.37 $ 0.31 $ 0.27
============ ============ ============ ===========
Diluted $ 0.23 $ 0.35 $ 0.30 $ 0.26
============ ============ ============ ===========
Weighted average number of common shares outstanding:
Basic 33,526,000 32,709,000 33,620,000 33,158,000
============ ============ ============ ===========
Diluted 34,469,000 34,377,000 34,356,000 34,726,000
============ ============ ============ ===========
Cash dividends per common share none none none none
============ ============ ============ ===========
The accompanying notes are an integral part of these statements.
-3-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Six Months Six Months
Ended Ended
August 31, 2002 September 1, 2001
--------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 7,806 $ 12,069
-------- --------
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Deferred income taxes (240) --
Depreciation and amortization 12,589 14,039
Provision for bad debts 568 6,320
Mark to market swap adjustment 640 --
Changes in operating assets and liabilities, net of assets
and liabilities acquired
Short-term investments (189) (536)
Accounts receivable (14,826) (25,137)
Inventories (43,589) (36,622)
Prepaid expenses and other current assets (954) 612
Other assets (817) (2,718)
Accounts payable - trade 45,193 12,134
Accrued expenses and other current liabilities 11,360 (2,773)
Income taxes payable 4,404 3,423
-------- --------
Total adjustments 14,139 (31,258)
-------- --------
Net cash provided by (used in) operating activities 21,945 (19,189)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (12,378) (29,065)
Acquisitions, net of cash acquired -- (55,282)
-------- --------
Net cash used in investing activities (12,378) (84,347)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt -- 13,500
Proceeds from notes payable -- 52,500
Principal payments on long-term debt (377) --
Proceeds from issuance of common stock 1,795 2,039
-------- --------
Net cash provided by financing activities 1,418 68,039
-------- --------
Increase (decrease) in cash and cash equivalents 10,985 (35,497)
Cash and cash equivalents at beginning of period 45,814 36,674
-------- --------
Cash and cash equivalents at end of period $ 56,799 $ 1,177
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 555 $ 652
======== ========
Cash paid during the period for income taxes $ 224 $ 4,052
======== ========
The accompanying notes are an integral part of these statements.
-4-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2002
(unaudited)
(amounts in thousands, except share data)
NOTE 1 - The accompanying financial statements have been prepared
without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and
regulations. These statements include all adjustments, consisting only
of normal recurring accruals, considered necessary for a fair
presentation of financial position and results of operations. The
financial statements included herein should be read in conjunction with
the financial statements and notes thereto included in the latest
annual report on Form 10-K.
NOTE 2 - The results of operations for the six-month period ended
August 31, 2002 are not necessarily indicative of the results to be
expected for the full year.
NOTE 3 - Certain amounts in the prior year period have been
reclassified to conform with classifications used at August 31, 2002.
NOTE 4 - The Company utilized the last-in, first-out "LIFO" method for
certain wholesale inventories as at August 31, 2002 and March 2, 2002
and for the six and three-month periods ended August 31, 2002 and
September 1, 2001. The "LIFO" inventory for the six and three-month
periods ended August 31, 2002 and September 1, 2001 are based upon end
of year estimates. Inventories at August 31, 2002 and March 2, 2002
consist primarily of finished goods.
NOTE 5 - As of August 31, 2002 and March 2, 2002, the Company had
$175,000 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 August
31, 2002, letters of credit outstanding under the lines were $94,116.
At August 31, 2002 and March 2, 2002, there were no short-term
borrowings outstanding.
NOTE 6 - 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 943,000 and
1,668,000 during the six months ended August 31, 2002 and September 1,
2001, 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 2,329,000 and 2,215,900 during
the six months ended August 31, 2002 and September 1, 2001,
respectively and 2,397,000 and 2,238,400 during the three months ended
August 31, 2002 and September 1, 2001, respectively.
- 5 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
AUGUST 31, 2002
(unaudited)
(amounts in thousands, except share data)
NOTE 7 - The Company has adopted Statement of Financial Accounting
Standards ("SFAS") 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 reportable segments are distinct business units,
separately managed with different distribution channels.
All Corporate/
Wholesale Retail other eliminations Totals
--------- ------ ----- ------------ ------
FOR THE SIX MONTHS ENDED
AUGUST 31, 2002
Net sales $229,054 $79,079 $ -- $ -- $308,133
Segment operating profit (loss) 12,018 6,660 4,456 (10,342) 12,792
Segment assets 341,269 54,795 6,861 89,781 492,706
Depreciation expense 9,446 1,479 212 1,149 12,286
Capital expenditures 9,192 2,742 -- 444 12,378
FOR THE SIX MONTHS ENDED
SEPTEMBER 1, 2001
Net sales $254,191 $80,255 $ -- $ -- $334,446
Segment operating profit (loss) 12,476 7,629 4,201 (4,972) 19,334
Segment assets 384,058 69,649 8,500 33,380 495,587
Depreciation expense 10,115 1,214 215 1,022 12,566
Capital expenditures 20,261 6,886 -- 1,918 29,065
All Corporate/
Wholesale Retail other eliminations Totals
--------- ------ ----- ------------ ------
FOR THE THREE MONTHS ENDED
AUGUST 31, 2002
Net sales $133,717 $48,521 $ - $ - $182,238
Segment operating profit (loss) 12,380 6,435 2,084 (3,495) 17,404
Segment assets 341,269 54,795 6,861 89,781 492,706
Depreciation expense 4,302 748 106 576 5,732
Capital expenditures 5,276 2,488 - 309 8,073
FOR THE THREE MONTHS ENDED
SEPTEMBER 1, 2001
Net sales $149,174 $50,082 $ - $ - $199,256
Segment operating profit (loss) 10,220 5,236 1,857 (2,808) 14,505
Segment assets 384,058 69,649 8,500 33,380 495,587
Depreciation expense 5,409 884 108 509 6,910
Capital expenditures 9,166 1,693 - 727 11,586
- 6 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
AUGUST 31, 2002
(unaudited)
(amounts in thousands, except share data)
Net sales from external customers represent sales in the
United States, except for foreign sales of $4,790 and $4,717 for the
six months ended August 31, 2002 and September 1, 2001, respectively.
Long-lived assets in foreign countries were $3,364 and $3,718
for the periods ended August 31, 2002 and September 1, 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
deferred taxes at August 31, 2002 and corporate fixed assets and
deferred taxes at September 1, 2001. The segment operating profit
(loss) in the Corporate/eliminations column consists of corporate
overhead expenses and special charges for the six months ended August
31, 2002 and corporate overhead expenses for the six months ended
September 1, 2001.
NOTE 8 - The Company has a loan agreement with HSBC Bank USA ("HSBC")
in the amount of $15,075, the funds of which were used to finance a
portion of the construction and development of the Company's
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 $17,821 at August 31, 2002.
The term of the loan is seven years. Principal payments of
$188 and interest payments are due at the end of each calendar quarter.
Interest is 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. On
March 22, 2002, the Company replaced such agreement with a "knock-out"
swap agreement with Fleet National Bank ("Fleet"), which expires on
November 28, 2008. The swap settles quarterly and contains a knock-out
provision that is activated when the three-month LIBOR is at or above
7.00%. The swap agreement provides that the Company pay a fixed
interest rate of 6.32% on the notional amount in exchange for receiving
a variable rate based on LIBOR so long as the three-month LIBOR
interest rate does not rise above 7.00%. If the three-month LIBOR rate
rises above 7.00%, the swap knocks out and the Company will not receive
any payments under the agreement until such time as the three-month
LIBOR rate declines below 7.00%. The three-month LIBOR rate was 1.81%
at August 31, 2002. The net interest paid or received under this
agreement is included in interest expense.
- 7 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
AUGUST 31, 2002
(unaudited)
(amounts in thousands, except share data)
The Company has adopted SFAS No. 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.
Prior to March 22, 2002 the Company classified the swap as a
cash flow hedge, in accordance with SFAS No. 133. The fair value of the
swap resulted in the Company recording a long-term liability of $858.
The fair value is based upon the estimated amount that the Company
would have to pay to terminate the agreement. The "knock-out" swap
agreement no longer qualifies for hedge accounting and the Company
began recording the changes in the fair market value of the swap from
March 22, 2002 as interest expense. The charge to interest expense, net
of taxes, was $400 for the six months ended August 31, 2002.
The amount of long-term debt maturing in each of the next five
fiscal years is as follows:
Fiscal Year Ended
-----------------
2003 $ 377
2004 754
2005 754
2006 754
2007 754
Thereafter 11,305
--------
14,698
Less current maturities (754)
--------
Total $ 13,944
========
NOTE 9 - For the six and three months ended August 31, 2002,
comprehensive income (loss) was as follows:
(unaudited)
Six Months Three Months
Ended Ended
August 31, 2002 August 31, 2002
--------------- ---------------
Net earnings $ 7,806 $ 10,430
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments 394 219
Unrealized loss on interest rate swap (109) -
-------------- -------------
Comprehensive income $ 8,091 $ 10,649
-------------- -------------
- 8 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
AUGUST 31, 2002
(unaudited)
(amounts in thousands, except share data)
NOTE 10 - 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 11 - In July 2001, the Financial Accounting Standards Board issued
SFAS No. 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 current year, goodwill and intangible
assets with indefinite lives are no longer being amortized, but are
being tested for impairment using the guidance for measuring impairment
set forth in SFAS No. 142.
The components of other intangible assets are as follows:
(unaudited)
August 31, 2002 March 2, 2002
------------------------ -------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized Intangible Assets
Trademarks $ 2,344 $ 1,235 $ 2,327 $ 1,063
Other intangibles 956 370 956 258
------- ------- ------- -------
3,300 1,605 3,283 1,321
Unamortized trademarks 33,527 -- 33,527 --
------- ------- ------- -------
$36,827 $ 1,605 $36,810 $ 1,321
======= ======= ======= =======
Amortization expense for intangible assets subject to
amortization in each of the next five fiscal years is estimated to be
$281 in 2003, $527 in 2004, $527 in 2005, $333 in 2006 and $12 in 2007.
- 9 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
AUGUST 31, 2002
(unaudited)
(amounts in thousands, except share data)
The following presents a comparison of net earnings and
earnings per share for the six and three months ended August 31, 2002
to the respective adjusted amounts for the six and three months ended
September 1, 2001 that would have been reported had SFAS No. 142 been
in effect during the prior year:
(unaudited) (unaudited)
Six Months Ended Three Months Ended
August 31, September 1, August 31, September 1,
2002 2001 2002 2001
---- ---- ---- ----
Reported net earnings $ 7,806 $ 12,069 $ 10,430 $ 8,896
Goodwill amortization - 688 - 486
Intangible assets amortization - 583 - 437
-------------- ----------------- ---------------- ----------------
Adjusted net earnings $ 7,806 $ 13,340 $ 10,430 $ 9,819
============== ================= ================ ================
Net earnings per share - basic
Reported net earnings $ 0.23 $ 0.37 $ 0.31 $ 0.27
Goodwill amortization - 0.02 - 0.02
Intangible assets - 0.02 - 0.01
amortization
-------------- ----------------- ---------------- ----------------
Adjusted net earnings per share
- basic $ 0.23 $ 0.41 $ 0.31 $ 0.30
============== ================= ================ ================
Net earnings per share - diluted
Reported net earnings $ 0.23 $ 0.35 $ 0.30 $ 0.26
Goodwill amortization - 0.02 - 0.01
Intangible assets - 0.02 - 0.01
amortization
-------------- ----------------- ---------------- ----------------
Adjusted net earnings per share
- diluted $ 0.23 $ 0.39 $ 0.30 $ 0.28
============== ================= ================ ================
NOTE 12 - 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 is in the process of 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
was 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 August 31, 2002 were
as follows:
- 10 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
AUGUST 31, 2002
(unaudited)
(amounts in thousands, except share data)
SEVERANCE
ASSET WIND AND
WRITE DOWN TERMINATION
DOWN COSTS BENEFITS TOTAL
------- ------- ------- -------
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
Fiscal Year 2003 Provision -- -- 3,356 3,356
Fiscal Year 2003 Activity -- (213) (1,499) (1,712)
------- ------- ------- -------
Balance at August 31, 2002 $ -- $ 655 $ 2,922 $ 3,577
======= ======= ======= =======
NOTE 13 - Effective March 3, 2002, the Company adopted Financial
Accounting Standards Board's ("FASB") Emerging Issues Task Force 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. There was no significant impact on the financial
statements upon adoption.
Effective March 3, 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill
and intangible assets with indefinite lives are no longer amortized but
will be reviewed at least annually for impairment. Separable intangible
assets that are not deemed to have an indefinite life will continue to
be amortized over their useful lives. The Company completed the
required impairment tests of goodwill during the three months ended
August 31, 2002 and no adjustment to the carrying value of goodwill was
required.
Effective March 3, 2002 the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets." This
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long Lived Assets to be Disposed of," while retaining
many of the requirements of such statement. There was no significant
impact on the financial statements upon adoption.
The FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," on April 30, 2002. Statement No. 145 rescinds Statement
No.4, which required all gains and losses from extinguishments of debt
to be aggregated and, if material, classified as an extraordinary item,
net of related income tax effect. Upon adoption of Statement No. 145,
companies will be required to apply the criteria in APB Opinion No. 30,
"Reporting the Results of Operations - reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" in determining the
classification of gains and losses resulting from the extinguishments
of debt. Statement No. 145 is effective for fiscal years beginning
after May 15, 2002. The Company is currently evaluating the
requirements and impact of this statement on its consolidated results
of operations and financial position.
- 11 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
AUGUST 31, 2002
(unaudited)
(amounts in thousands, except share data)
In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." This standard
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by
the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No.
146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company is currently evaluating
the requirements and impact of this statement, however it does not
expect the adoption of this pronouncement will have a material effect
on the consolidated results of operations or financial position.
NOTE 14 - On October 9, 2002, the Company announced that based upon the
current performance and anticipated future outlook of its Rockefeller
Plaza store, and in accordance with SFAS No. 144, certain fixed assets
of the store will be impaired. As a result, the Company expects to
incur a special non-cash, pre-tax charge in connection with this
write-down of approximately $9,500 to $10,500 during the third quarter
of the current fiscal year.
- 12 -
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (unaudited)
RESULTS OF OPERATIONS
For the Six Months Ended August 31, 2002:
Net sales decreased 7.9% to $308.1 million in the six months ended
August 31, 2002 from $334.4 million in the comparable prior year period. The
reported sales reflect a 9.9% decrease in the Wholesale segment to $229.1
million from $254.2 million and a 1.5% decrease in the Retail segment to $79.1
million from $80.3 million. The decline in the Wholesale segment was due
primarily to a decrease in the Company's core sportswear business, offset in
part by strong performances of Nautica Men's and Women's Jeans, as well as
contributions from newer businesses including Earl Jean and Nautica Men's
Underwear. The decrease in Retail segment sales is primarily a result of same
store sales being down mid-single digits from the comparable prior year period
as a result of a difficult retail environment and the Company's decision not to
implement the clearance sales that took place in the prior year period. This
decrease was offset by sales from three new outlet stores and three full-priced
stores opened since the second quarter of last year.
Gross profit, as a percentage of sales, was 44.0%, compared to 42.1% in
the comparable prior year period. The increase is due primarily to the Company's
inventory management initiatives and improved sourcing of the Nautica
Children's, Nautica Furnishings and Nautica Men's and Women's Jeans businesses.
Selling, general and administrative expenses ("SG&A") decreased by $1.6
million to $124.0 million in fiscal 2003 from $125.6 million in fiscal 2002.
SG&A expenses, as a percentage of net sales, increased to 40.2% in fiscal 2003
from 37.6% in fiscal 2002. The increase as a percentage of net sales is due
primarily to investments in Earl Jean Women's and Men's businesses, the
development of the Nautica Women's Sportwear line and the expansion of the John
Varvatos business into the European market. In addition, the Company incurred a
full six months of expenses from the Earl Jean business in the current period as
opposed to only four months in the comparable prior year period. During the
prior year period, the Company incurred costs, principally bad debts, in the
Nautica Europe business unit of approximately $7.9 million. Excluding the costs
associated with Nautica Europe, SG&A increased $6.3 million compared to the
prior year period.
During the first quarter of fiscal 2003, the Company recorded a pre-tax
special charge of $3.4 million ($2.1 million on an after tax basis) or $0.06 on
a per share basis. This charge consisted of costs associated with the
elimination of approximately 300 union and non-union employees related to the
closing of the Rockland, Maine distribution facility. These costs are expected
to be paid during the current fiscal year and are anticipated to be funded with
cash from operations. The Company expects annual savings associated with this
action to be between $3.5 and $4.0 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 the current fiscal year.
Net royalty income increased by $0.3 million to $4.5 million from $4.2
million in the prior year period. The increase was due primarily to the sales
strength in home products during the current year period. This increase was
offset in part by the recognition of a settlement from the termination of the
men's footwear license during the comparable prior year period.
Investment income decreased by $0.3 million to $0.6 million from $0.9
million in the prior year period. The decrease is due to unrealized losses in
the Company's short-term investments during the current year period as opposed
to unrealized gains in the prior year period. This decrease was offset, in part,
by an increase in interest income earned on higher average cash balances during
the current year period, as a result of cash paid during the prior year period
for the acquisition of Earl Jean.
The provision for income taxes decreased to 37.5% from 37.8% of
earnings before income taxes in the comparable prior year period. The decrease
is due primarily to a reduction in the overall effective income tax rates.
- 13 -
Net earnings for the current year period was $7.8 million compared to
$12.1 million in the comparable prior year period as a result of the factors
discussed above. Excluding the special charge discussed above, net earnings for
the current year period would have been $9.9 million.
For the Three Months Ended August 31, 2002:
Net sales decreased 8.5% to $182.2 million in the three months ended
August 31, 2002 from $199.3 million in the comparable prior year period. The
reported sales reflect a 10.4% decrease in the Wholesale segment to $133.7
million from $149.2 million and a 3.1% decrease in the Retail segment to $48.5
million from $50.1 million. The decline in the Wholesale segment was due
primarily to a decrease in the Company's core sportswear business, offset by
increases in Nautica Men's Jeans and Nautica Furnishings. The decrease in Retail
segment sales is primarily a result of same store sales being down high-single
digits from the comparable prior year period as a result of a difficult retail
environment and the Company's decision not to implement the clearance sales that
took place in the prior year period. This decrease was offset by sales from
three new outlet stores and three full-priced stores opened since the second
quarter of last year.
Gross profit, as a percentage of sales, was 43.9%, compared to 41.7% in
the comparable prior year period. The increase is due primarily to the Company's
inventory management initiatives and improved sourcing of the Nautica
Children's, Nautica Furnishings and Nautica Men's and Women's Jeans businesses.
Also, the Retail segment's gross profit, as a percentage of sales, increased as
more product was sold at regular price, resulting in less markdowns than in the
prior year period.
SG&A decreased by $5.7 million to $64.7 million in fiscal 2003 from
$70.4 million in fiscal 2002. SG&A expenses, as a percentage of net sales,
remained essentially flat compared to the prior year period. Increases in SG&A
were due to investments in the Earl Jean Women's and Men's businesses, the
development of the Nautica Women's Sportwear line and the expansion of the John
Varvatos business into the European market. These increases were offset by costs
incurred during the prior year period, principally bad debts, in the Nautica
Europe business unit of approximately $7.9 million. Excluding the costs
associated with Nautica Europe, SG&A increased $2.2 million compared to the
prior year period.
Net royalty income increased by $0.2 million to $2.1 million from $1.9
million in the prior year period. The increase was due primarily to the sales
strength in home products during the current year period. This increase was
offset in part by the recognition of a settlement from the termination of the
men's footwear license during the comparable prior year period.
Investment income decreased by $0.4 million compared to the prior year
period. The decrease is due to unrealized losses in the Company's short-term
investments during the current year period as opposed to unrealized gains in the
prior year period. This decrease was offset, in part, by an increase in interest
income earned on higher average cash balances during the current year period, as
a result of cash paid during the prior year period for the acquisition of Earl
Jean.
The provision for income taxes decreased to 37.5% from 37.8% of
earnings before income taxes in the comparable prior year period. The decrease
is due primarily to a reduction in the overall effective income tax rates.
Net earnings for the current year period was $10.4 million compared to
$8.9 million in the comparable prior year period as a result of the factors
discussed above.
Subsequent Event:
On October 9, 2002, the Company announced that based upon the current
performance and anticipated future outlook of its Rockefeller Plaza store, and
in accordance with SFAS No. 144, certain fixed assets of the store will be
impaired. As a result, the Company expects to incur a special non-cash, pre-tax
charge in connection with this write-down of approximately $9.5 million to $10.5
million during the third quarter of the current fiscal year.
- 14 -
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended August 31, 2002, the Company generated cash
from operating activities of $21.9 million, principally from net earnings.
Accounts receivable was $24.1 million or 18.8% lower than the same period in the
prior year due mainly to the reduction in wholesale shipments in the current
year period. Inventory was $34.8 million or 24.0% lower than the same period in
the prior year due to the Company's ability to better manage the timing of
receipts with customer demand as well as a reduction in its offerings of
replenishment styles.
During the six months ended September 1, 2001, the Company used cash in
operating activities of $19.2 million. Increases in inventory and accounts
receivable of $36.6 and $25.1 million, respectively, resulted from increased
sales, and were financed principally by cash generated from net earnings and an
increase in accounts payable and short-term borrowings. Of the inventory
increase, approximately $18.0 million was used to support wholesale and retail
sales growth, especially in our new businesses. The balance of the increase is
comprised of a year over year increase in basic replenishment, and excess
inventory that the Company expects to sell by year-end. Accounts receivable was
17.9% higher than the same period in the prior year, which is consistent with
the wholesale sales growth.
During the six months ended August 31, 2002, the Company's principal
investing activities related primarily to the purchase of property, plant and
equipment for the Nautica in-store shop program. The Company expects to continue
to incur capital expenditures to expand the in-store shop program, and to open
additional retail stores.
The Company has a total of $175.0 million in lines of credit with four
commercial banks available for short-term borrowings and letters of credit.
These lines are collateralized by imported inventory and accounts receivable. At
August 31, 2002 and March 2, 2002, letters of credit outstanding under the lines
were $94.1 million and $33.8 million, respectively, and there were no short-term
borrowings outstanding.
The following is a summary of the Company's contractual obligations for
the periods indicated that existed as of August 31, 2002:
(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 $ 63.1 $ 142.1
Letters of credit 94.1 -- -- -- 94.1
Long-term debt 0.8 1.5 1.5 10.9 14.7
-------- -------- -------- -------- --------
$ 112.2 $ 33.9 $ 30.8 $ 74.0 $ 250.9
======== ======== ======== ======== ========
Historically, the Company has experienced its highest level of sales in
the second and third quarters and its lowest level in the first and fourth
quarters due to seasonal patterns. In the future, the timing of seasonal
shipments may vary by quarter. The Company anticipates that internally generated
funds from operations, existing cash balances, short-term investments and the
Company's existing credit lines will be sufficient to satisfy its cash
requirements.
- 15 -
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
Effective March 3, 2002, the Company adopted Financial Accounting
Standards Board's ("FASB") Emerging Issues Task Force 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. There was no significant
impact on the financial statements upon adoption.
Effective March 3, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no
longer amortized but will be reviewed at least annually for impairment.
Separable intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives. The Company completed the
required impairment tests of goodwill during the period ended August 31, 2002
and no adjustment to the carrying value of goodwill was required.
Effective March 3, 2002 the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long Lived Assets." This supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long Lived
Assets to be Disposed of," while retaining many of the requirements of such
statement. There was no significant impact on the financial statements upon
adoption.
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections," on April
30, 2002. Statement No. 145 rescinds Statement No.4, which required all gains
and losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. Upon
adoption of Statement No. 145, companies will be required to apply the criteria
in APB Opinion No. 30, "Reporting the Results of Operations - reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" in determining the
classification of gains and losses resulting from the extinguishments of debt.
Statement No. 145 is effective for fiscal years beginning after May 15, 2002.
The Company is currently evaluating the requirements and impact of this
statement on its consolidated results of operations and financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The Company is currently evaluating the requirements
and impact of this statement, however it does not expect the adoption of this
pronouncement will have a material effect on the consolidated results of
operations or financial position.
- 16 -
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 the remaining amortization period. The
Company recognizes an impairment loss if the carrying value of the asset exceeds
the expected future cash flows.
- 17 -
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements in this Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of authorized
personnel constitute "forward-looking statements" 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; the ability to secure and protect
trademarks and other intellectual property rights; and, the impact that any
labor disruption at the Company's ports of entry could have on timely product
deliveries. 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 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure about interest rate risk
The Company finances its capital needs through available capital,
future earnings, bank lines of credit and its long-term debt which totals $14.7
million, inclusive of its current portion. The Company's exposure to market risk
for changes in interest rates are 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 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. On March 22, 2002, the Company entered into a
"knock-out" swap agreement with Fleet National Bank ("Fleet"), which expires on
November 28, 2008. The swap settles quarterly and contains a knock-out provision
that is activated when the three-month LIBOR is at or above 7.00%. The swap
agreement provides that the Company pay a fixed interest rate of 6.32% on the
notional amount in exchange for receiving a variable rate based on LIBOR so long
as the three-month LIBOR interest rate does not rise above 7.00%. If the
three-month LIBOR rate rises above 7.00%, the swap knocks out and the Company
will receive no payments under the agreement until such time as the three-month
LIBOR rate declines below 7.00%. The three-month LIBOR rate was 1.81% at August
31, 2002. The net interest paid or received under this agreement is included in
interest expense.
- 18 -
ITEM 4: CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
The Company's chief executive officer and chief financial officer,
after evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in Sections 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934) as of a date (the "Evaluation Date") within 90 days before
the filing date of this quarterly report, have concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures were effective
and designed to ensure that material information relating to the Company and the
Company's consolidated subsidiaries would be made known to them by others within
those entities to allow timely decisions regarding required disclosures.
Changes in internal controls
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls subsequent to
the Evaluation Date.
- 19 -
PART II
OTHER INFORMATION
Items 1 through 9. - All items are inapplicable except:
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Nautica Enterprises, Inc. was
held on July 10, 2002.
The following matters were voted upon and approved at the meeting:
(a) The election of eight directors to the Board of Directors of
the Company for a one-year term expiring at the 2003 Annual
Meeting of Stockholders;
(b) A proposal to approve an amendment to the 1996 Stock Incentive
Plan to permit the Company to offer a one-time opportunity to
non-executive employees to exchange certain "underwater"
options; and
(c) A proposal to ratify the appointment of Grant Thornton LLP as
the independent certified public accountants for the Company
for the fiscal year ended March 1, 2003.
The directors named in the Proxy Statement constituting the
entire Board of Directors were elected to one-year terms
expiring in 2003, as follows:
FOR WITHHELD
--- --------
Harvey Sanders 26,386,369 4,717,751
David Chu 26,381,968 4,722,152
Robert B. Bank 26,555,921 4,548,199
Israel Rosenzweig 26,553,125 4,550,995
Charles H. Scherer 26,282,522 4,821,598
Steven H. Tishman 26,554,848 4,549,272
John Varvatos 25,289,473 5,814,647
Ronald G. Weiner 26,559,197 4,544,923
With respect to the approval of the amendment to the 1996
Stock Incentive Plan, 15,582,609 votes were cast in favor of
the proposal and 8,546,108 votes were cast against. In
addition, there were 2,284,875 abstentions and 4,690,528
broker non-votes.
With respect to the ratification of the appointment of Grant
Thornton LLP as the Company's independent certified public
accountants, 30,410,099 votes were cast in favor of the
proposal and 682,261 votes were cast against. In addition,
there were 11,760 abstentions and no broker non-votes.
The Notice of Annual Meeting of Stockholders and Proxy Statement for
Nautica Enterprises, Inc. dated June 7, 2002 was filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the
Act.
- 20 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No.
-----------
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.
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 Registrant's Registration
Statement on Form S-8 (Registration Number 333-55711), as
amended and restated in Appendix A to the Registrant's
Definitive Proxy Statement filed on June 7, 2002.
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.
- 21 -
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.
99(a) Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99(b) Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. None
- 22 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NAUTICA ENTERPRISES, INC.
By: s/ Harvey Sanders
--------------------------------------
Harvey Sanders
Chairman of the Board and President
Date: October 11, 2002
---------------------------
By: s/ Wayne A. Marino
--------------------------------------
Wayne A. Marino
Chief Financial Officer
Date: October 11, 2002
---------------------------
- 23 -
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Harvey Sanders, certify that:
1. I have reviewed the report being filed;
2. Based on my knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the report;
4. The other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) for the issuer and have:
i. Designed such disclosure controls and procedures to ensure
that material information relating to the issuer, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
ii. Evaluated the effectiveness of the issuer's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report ("Evaluation Date");
and
iii. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The other certifying officer and I have disclosed, based on our most
recent evaluation, to the issuer's auditors and the audit committee of issuer's
board of directors (or persons performing the equivalent function):
i. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the issuer's auditors
any material weaknesses in internal controls; and
ii. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the issuer's
internal controls; and
6. The other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: s/ Harvey Sanders
------------------------------------
Harvey Sanders
Chief Executive Officer
Date: October 11, 2002
----------------------------
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CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Wayne A. Marino, certify that:
1. I have reviewed the report being filed;
2. Based on my knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the report;
4. The other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) for the issuer and have:
i. Designed such disclosure controls and procedures to ensure
that material information relating to the issuer, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
ii. Evaluated the effectiveness of the issuer's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report ("Evaluation Date");
and
iii. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The issuer's other certifying officer and I have disclosed, based on
our most recent evaluation, to the issuer's auditors and the audit committee of
issuer's board of directors (or persons performing the equivalent function):
i. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the issuer's auditors
any material weaknesses in internal controls; and
ii. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the issuer's
internal controls; and
6. The other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: s/ Wayne A. Marino
--------------------------------------
Wayne A. Marino
Chief Financial Officer
Date: October 11, 2002
---------------------------
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