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 May 31, 2003 or
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( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number: 000-06708
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Nautica Enterprises, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-2431048
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
40 West 57th Street, New York, N.Y. 10019
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 541-5757
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(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
------ -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
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The number of shares of Common Stock outstanding as of July 14, 2003 was
33,611,600.
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
MAY 31, 2003
(unaudited)
INDEX
Page No.
--------
Part I - Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
As at May 31, 2003 (unaudited) and March 1, 2003 2
Condensed Consolidated Statements of Earnings
For the Three Month Periods Ended
May 31, 2003 and June 1, 2002 (unaudited) 3
Condensed Consolidated Statements of Cash Flows
For the Three Month Periods Ended
May 31, 2003 and June 1, 2002 (unaudited) 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. 18
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 19
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
May 31, 2003 March 1, 2003
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 97,588 $ 82,953
Accounts receivable - net 74,104 98,713
Inventories 95,667 87,630
Prepaid expenses and other current assets 6,563 3,428
Deferred tax benefit 22,050 22,229
Assets held for sale 1,542 2,842
--------- ---------
Total current assets 297,514 297,795
Property, plant and equipment, at cost -
less accumulated depreciation and amortization 92,321 96,427
Goodwill, at cost 30,054 30,054
Other intangibles, at cost - less accumulated amortization 34,913 34,972
Other assets 12,664 8,879
--------- ---------
Total Assets $ 467,466 $ 468,127
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 754 $ 754
Accounts payable - trade 43,403 34,690
Accrued expenses and other current liabilities 55,044 57,017
Income taxes payable 8,140 14,094
--------- ---------
Total current liabilities 107,341 106,555
Long-term liabilities:
Long-term debt - net 13,379 13,567
Interest rate swap liability 1,948 1,779
--------- ---------
Total long-term liabilities 15,327 15,346
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 45,139,000 shares
at May 31, 2003 and 45,136,000 shares at
March 1, 2003 4,514 4,514
Additional paid-in capital 96,238 96,216
Retained earnings 404,502 406,105
Accumulated other comprehensive (loss) - net of
deferred tax benefit of $593 at May 31, 2003
and $772 at March 1, 2003 (995) (1,287)
--------- ---------
504,259 505,548
Less:
Common stock in treasury, at cost;
11,549,000 shares at May 31, 2003
and 11,534,000 shares at March 1, 2003 (159,461) (159,322)
--------- ---------
Total stockholders' equity 344,798 346,226
--------- ---------
Total Liabilities and Stockholders' Equity $ 467,466 $ 468,127
========= =========
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)
Three Months Three Months
Ended Ended
May 31, 2003 June 1, 2002
------------ ------------
Net sales $ 139,220 $ 125,895
Cost of goods sold 80,783 70,161
------------ ------------
Gross profit 58,437 55,734
Selling, general and administrative expenses 60,463 59,363
Special charges 3,178 3,356
Net royalty income (2,830) (2,372)
------------ ------------
Operating loss (2,374) (4,613)
Interest expense 408 265
Investment income (230) (679)
------------ ------------
Loss before benefit for income taxes (2,552) (4,199)
Benefit for income taxes (949) (1,574)
------------ ------------
NET LOSS $ (1,603) $ (2,625)
============ ============
Net loss per share of common stock:
Basic $ (0.05) $ (0.08)
============ ============
Diluted $ (0.05) $ (0.08)
============ ============
Weighted average number of common shares outstanding:
Basic 33,592,000 33,432,000
============ ============
Diluted 33,592,000 33,432,000
============ ============
Cash dividends per common share 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)
Three Months Three Months
Ended Ended
May 31, 2003 June 1, 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,603) $ (2,625)
-------- --------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 6,152 6,651
Provision for bad debts 436 128
Loss on write-off of long-lived assets 3,575 --
Increase in interest rate swap liability 169 --
Gain on sale of assets held for sale (958)
Changes in operating assets and liabilities, net of assets
and liabilities acquired
Short-term investments -- (444)
Accounts receivable 24,173 25,155
Inventories (8,037) 2,795
Prepaid expenses and other current assets (3,135) (2,061)
Other assets (3,870) (1,891)
Accounts payable - trade 8,714 2,038
Accrued expenses and other current liabilities (1,503) 3,174
Income taxes payable (5,954) (1,836)
-------- --------
Total adjustments 19,762 33,709
-------- --------
Net cash provided by operating activities 18,159 31,084
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (4,519) (4,305)
Sale of assets held for sale 1,300 --
-------- --------
Net cash used in investing activities (3,219) (4,305)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (188) (188)
Proceeds from issuance of common stock 22 1,656
Purchase of treasury stock (139) --
-------- --------
Net cash (used in) provided by financing activities (305) 1,468
-------- --------
Increase in cash and cash equivalents 14,635 28,247
Cash and cash equivalents at beginning of period 82,953 45,814
-------- --------
Cash and cash equivalents at end of period $ 97,588 $ 74,061
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 229 $ 315
======== ========
Cash paid during the period for income taxes $ 4,953 $ 219
======== ========
The accompanying notes are an integral part of these statements.
- 4 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MAY 31, 2003 AND JUNE 1, 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 three-month period ended May
31, 2003 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 May 31, 2003.
NOTE 4 - The Company utilized the last-in, first-out "LIFO" method for
certain wholesale inventories as at May 31, 2003 and March 1, 2003
and for the three-month periods ended May 31, 2003 and June 1, 2002.
The "LIFO" inventory for the three-month periods ended May 31, 2003
and June 1, 2002 are based upon end of year estimates. Inventories
at May 31, 2003 and March 1, 2003 consist primarily of finished
goods.
NOTE 5 - As of May 31, 2003 and March 1, 2003, 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 May
31, 2003 and March 1, 2003, letters of credit outstanding under the
lines were $77,770 and $46,483, respectively, and there were no
short-term borrowings outstanding.
NOTE 6 - Basic net loss per share excludes dilution and is computed by
dividing the loss available to common stockholders by the
weighted-average common shares outstanding for the period. Diluted
net loss per share reflects the weighted-average common shares
outstanding plus the potential dilutive effect of options, which are
convertible into common shares. The diluted net loss per share was
the same as basic net loss per share for the three months ended May
31, 2003 and June 1, 2002, since the effect of any potentially
dilutive securities were excluded from the calculation because they
would be anti-dilutive.
Options that were excluded from the calculation of diluted net
loss per share totaled 3,547,300 and 2,612,300 for the three months
ended May 31, 2003 and June 1, 2002, respectively.
- 5 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED MAY 31, 2003 AND JUNE 1, 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 three reportable segments:
Wholesale, Retail and Licensing. 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 Licensing segment
licenses the Company's trademarks for the manufacture and sale of
various products for distribution throughout the world.
The reportable segments are distinct business units,
separately managed with different distribution channels.
Corporate/
Wholesale Retail Licensing eliminations Totals
--------- ------ --------- ------------ ------
FOR THE THREE MONTHS ENDED
MAY 31, 2003
Net sales $ 107,125 $ 32,095 $ -- $ -- $ 139,220
Segment operating profit (loss) (881) 359 2,830 (4,682) (2,374)
Segment assets 275,979 48,578 5,748 137,161 467,466
Depreciation expense 4,958 421 21 609 6,009
Capital expenditures 2,642 1,329 -- 548 4,519
FOR THE THREE MONTHS ENDED
JUNE 1, 2002
Net sales $ 95,337 $ 30,558 $ -- $ -- $ 125,895
Segment operating profit (loss) (363) 225 2,372 (6,847) (4,613)
Segment assets 254,301 49,717 8,673 111,545 424,236
Depreciation expense 5,144 731 106 573 6,554
Capital expenditures 3,916 254 -- 135 4,305
Net sales from external customers represent sales in the
United States of America, except for foreign sales of $2,924 and
$1,009 for the three months ended May 31, 2003 and June 1, 2002,
respectively. The Licensing segment does not report sales, as all of
its revenue is derived from royalties, which are reported separately
in the consolidated statements of earnings.
Foreign operations resulted in operating losses of $6,339 and
$3,287 for the three months ended May 31, 2003 and June 1, 2002,
respectively.
Long-lived assets in foreign countries were $944 and $3,168
for the periods ended May 31, 2003 and June 1, 2002, respectively.
In the Corporate/eliminations column, the segment assets
primarily consist of the Company's cash and cash equivalents at May
31, 2003 and June 1, 2002. The segment operating profit (loss) in
the Corporate/eliminations column consists of corporate overhead
expenses for the three months ended May 31, 2003 and corporate
overhead expenses and special charges associated with the closure of
the Rockland, Maine distribution facility (see Note 13) for the
three months ended June 1, 2002. The special charge associated with
the Nautica business in Europe (see Note 13) is reflected in the
operating profit (loss) of the Wholesale column for the three months
ended May 31, 2003.
- 6 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED MAY 31, 2003 AND JUNE 1, 2002
(unaudited)
(amounts in thousands, except share data)
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 net carrying
value of the underlying asset was $23,585 at May 31, 2003.
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 agreement provides that the
Company pays a fixed interest rate of 6.32% on the notional amount.
The swap settles quarterly and contains a "knock-out" provision that
is activated when the three-month LIBOR rate is at or 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 1.28% at May 31, 2003. The net
interest paid or received under this agreement is included in
interest expense.
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 was based upon the estimated amount that the
Company would have to pay to terminate the agreement. The
"knock-out" swap agreement does not qualify for hedge accounting
and, accordingly, 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 was $169 for the three
months ended May 31, 2003.
The amount of long-term debt maturing in each of the next five
fiscal years is as follows:
Fiscal Year Ended
-----------------
2004 $ 566
2005 754
2006 754
2007 754
2008 754
Thereafter 10,551
--------
14,133
Less current maturities (754)
--------
Total $ 13,379
========
- 7 -
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED MAY 31, 2003 AND JUNE 1, 2002
(unaudited)
(amounts in thousands, except share data)
NOTE 9 - The Company has adopted the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation", as amended by SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure." 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:
May 31, 2003 June 1, 2002
------------ ------------
Net loss
As reported $(1,603) $(2,625)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for awards granted,
modified, or settled, net of tax (741) (1,287)
------- -------
Pro forma $(2,344) $ (3,912)
======= ========
Basic net loss per share
As reported $(0.05) $(0.08)
Pro forma $(0.07) $(0.12)
Diluted net loss per share
As reported $(0.05) $(0.08)
Pro forma $(0.07) $(0.12)
NOTE 10 - For the three months ended May 31, 2003 and June 1, 2002,
comprehensive loss was as follows:
(unaudited)
Three Months Three Months
Ended Ended
May 31, 2003 June 1, 2002
------------ ------------
Net loss $ (1,603) $ (2,625)
Other comprehensive income (loss), net of
taxes:
Foreign currency translation adjustments 292 175
Unrealized loss on interest rate swap -- (109)
-------- ---------
Comprehensive loss $ (1,311) $ (2,559)
======== =========
-8-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED MAY 31, 2003 AND JUNE 1, 2002
(unaudited)
(amounts in thousands, except share data)
NOTE 11 - 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. On June 24, 2003 and July 6,
2003, the Company's Board of Directors authorized amendments to the
Stockholder Rights Plan (see Note 15).
NOTE 12 - 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 fiscal year 2003, 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)
May 31, 2003 March 1, 2003
-------------------------- -------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized Intangible Assets
Trademarks $ 2,453 $ 1,494 $ 2,376 $ 1,405
Other intangibles 956 529 956 482
------- ------- ------- -------
3,409 2,023 3,332 1,887
Unamortized trademarks 33,527 -- 33,527 --
------- ------- ------- -------
$36,936 $ 2,023 $36,859 $ 1,887
======= ======= ======= =======
Amortization expense for intangible assets subject to
amortization in each of the next five fiscal years is estimated to
be $438 in 2004, $527 in 2005, $333 in 2006, $57 in 2007 and $31 in
2008.
NOTE 13 - During the third quarter of the prior fiscal year, the Company
determined that based upon the current performance and anticipated
future outlook of its Rockefeller Plaza store, and in accordance
with SFAS No. 144, the fixed assets of the store were impaired. As a
result, the Company incurred a non-cash, pre-tax special charge in
connection with this write-down of $10,338.
During the fourth quarter of the prior fiscal year, the
Company recorded pre-tax special charges of $2,588 in connection
with its decision to transition its Nautica business in Europe to
licensing or other arrangements. The special charges consisted of
$1,313 in wind-down costs, the write-down of fixed assets and lease
termination costs. The balance of $1,275 represents the impairment
of goodwill in accordance with SFAS No. 142. During the current
period, additional pre-tax special charges of $3,178 were recorded.
These special charges consist of $2,617 for the write-down of fixed
assets, and the balance for wind-down, lease termination and
severance costs.
The components and related activity for the - above-mentioned
special charges relating to the Rockefeller Plaza store and Europe
through May 31, 2003 were as follows:
-9-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED MAY 31, 2003 AND JUNE 1, 2002
(unaudited)
(amounts in thousands, except share data)
Severance
and
Asset Wind-Down Termination
Write-Down Costs Benefits Totals
---------- ----- -------- ------
Fiscal Year 2003
Provision $ 12,239 $ 548 $ 139 $ 12,926
Fiscal Year 2003 Activity (12,239) (478) (69) (12,786)
-------- -------- -------- --------
Balance at March 1, 2003 -- 70 70 140
Fiscal Year 2004
Provision 2,617 494 67 3,178
Fiscal Year 2004 Activity (2,617) (494) (67) (3,178)
-------- -------- -------- --------
Balance at May 31, 2003 $ -- $ 70 $ 70 $ 140
======== ======== ======== ========
In accordance with SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," the Company is
expecting an additional pre-tax special charge between $3,500 and
$4,500 in the second quarter of the current fiscal year in
connection with the transition of the Nautica Europe business.
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 special charges related to the closing totaled
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. The
distribution facility consists of three separate buildings, of which
two were sold during the current period at a gain of approximately
$958. However, an impairment charge of approximately $1,000 was
recorded on the remaining property during the current period to
properly reflect the amount the Company expects to realize on the
sale of such property. These components and the related activity
through May 31, 2003 were as follows:
Severance
and
Asset Wind-Down Termination
Write-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
Fiscal Year 2003
Provision -- -- 3,356 3,356
Fiscal Year 2003 Activity -- (366) (3,406) (3,772)
------- ------- ------- -------
Balance at March 1, 2003 -- 502 1,015 1,517
Fiscal Year 2004
Provision 958 -- -- 958
Fiscal Year 2004 Activity (958) (191) (176) (1,325)
------- ------- ------- -------
Balance at May 31, 2003 $ -- $ 311 $ 839 $ 1,150
======= ======= ======= =======
-10-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED MAY 31, 2003 AND JUNE 1, 2002
(unaudited)
(amounts in thousands, except share data)
NOTE 14 - In November 2002, the FASB issued FASB Interpretation No. 45
("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 requires that a liability be recorded in the
guarantor's balance sheet upon issuance of a guarantee. In addition,
FIN 45 requires disclosures about the guarantees that an entity has
issued. The disclosure provisions of FIN 45 are effective for the
Company's first quarter of the year ending February 28, 2004. The
adoption of this pronouncement did not have a material impact on the
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure - an
amendment of SFAS No. 123." This standard provides alternative
methods for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in annual financial statements about
the method of accounting for stock-based employee compensation and
the pro forma effect on reported results of applying the fair value
based method for entities that use the intrinsic value method of
accounting. The pro forma effect disclosures are also required to be
prominently disclosed in interim period financial statements. This
statement is effective for financial statements for fiscal years
ending after December 15, 2002 and is effective for financial
reports containing condensed financial statements for interim
periods beginning after December 15, 2002, with earlier application
permitted. The Company does not plan a change to the fair value
based method of accounting for stock-based employee compensation and
has included the disclosure requirements of SFAS No. 148 in the
accompanying financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendments of
Statement No. 133 on Derivative Instruments and Hedging Activities",
which requires certain contracts to be treated as either derivatives
or hybrid instruments, on a consistent basis. SFAS No. 149 is
effective for contracts and hedging transactions executed or
modified after June 30, 2003. The Company is currently in the
process of evaluating the potential impact that this pronouncement
will have on its consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity", which requires certain financial
instruments that were previously presented on the consolidated
balance sheets as equity or temporary equity to be presented as
liabilities. Such instruments include mandatory redeemable preferred
and common stock, and certain options and warrants. SFAS No. 150 is
generally effective for financial instruments entered into or
modified after May 31, 2003 and for the first interim period
beginning after June 15, 2003. The Company is currently in the
process of evaluating the potential impact that this pronouncement
will have on its consolidated financial statements.
NOTE 15 - On June 24, 2003, the Company's Board of Directors authorized
Amendment No. 1 ("Amendment No. 1") to the Stockholder Rights Plan
(the "Plan"). Pursuant to Amendment No. 1, the Plan has been amended
to remove an express exception applicable to the Company's current
Chairman of the Board for purposes of a person or group acquiring
15% or more of the Company's common stock. In addition, the
redemption provisions in the Plan have been amended to provide that,
in the event of a "Qualifying Tender Offer", as defined in the Plan,
the Rights attributable to such Plan will be redeemed under certain
circumstances. On July 6, 2003, the Company's Board of Directors
authorized Amendment No. 2 ("Amendment No. 2") to the Plan. Pursuant
to Amendment No. 2, the Plan has been amended to exempt the Merger
(as defined in the paragraph below) and related transactions from
the Rights Agreement and to provide that the Rights will expire
immediately prior to the consummation of the Merger.
-11-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED MAY 31, 2003 AND JUNE 1, 2002
(unaudited)
(amounts in thousands, except share data)
On July 7, 2003, the Company announced that it had entered
into an Agreement and Plan of Merger dated as of July 7, 2003 (the
"Merger Agreement") with VF Corporation ("VF") and Voyager
Acquisition Corporation, VF's wholly owned subsidiary, providing
for, among other things, the merger (the "Merger") of Voyager
Acquisition Corporation with and into the Company. Pursuant to the
Merger Agreement, VF will pay the Company's stockholders $17.00 per
share in cash. VF will also pay approximately $14,600, net of taxes,
to cash out the Company's employee stock options. The Boards of
Directors of the Company and VF have approved the merger. The merger
is subject to the Company's stockholder approval, receipt of
government approvals and other customary conditions. The merger is
not conditioned on financing. In connection with the transaction, VF
has obtained commitments from the Company's Chairman and Vice
Chairman to vote all Company shares owned by them in favor of the
merger, representing a total of approximately 10% of the total
shares outstanding.
-12-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (unaudited)
RESULTS OF OPERATIONS
For the Three Months Ended May 31, 2003:
Net sales increased 10.6% to $139.2 million in the three months ended May
31, 2003 from $125.9 million in the comparable prior year period. Wholesale
segment sales increased 12.4% to $107.1 million from $95.3 million due primarily
to strong performances of Nautica Men's Jeans, Nautica Children's, Nautica
Women's Sleepwear and Nautica Men's Underwear. Retail segment sales increased
5.0% to $32.1 million from $30.6 million due primarily to sales in the
children's line which were up 63.6% from the prior year period as a result of
expanding the line to additional outlet stores. In addition, sales from four new
Earl Jean stores and two new John Varvatos stores contributed to the increase.
Gross profit, as a percentage of sales, was 42.0%, compared to 44.3% in the
comparable prior year period due primarily to an increase in markdowns and
allowances in the Company's wholesale businesses coupled with an increase in
markdowns in the Nautica outlet division due to price compression.
Selling, general and administrative expenses ("SG&A") increased by $1.1
million to $60.5 million in fiscal 2004 from $59.4 million in fiscal 2003. SG&A,
as a percentage of net sales, decreased to 43.4% in fiscal 2004 from 47.2% in
fiscal 2003. The decrease as a percentage of net sales is due primarily to
leverage gained as a result of higher net sales in the current period. In
addition, the prior year period included 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.
During the first quarter of fiscal 2004, the Company recorded a pre-tax
special charge of $3.2 million ($2.0 million on an after tax basis) or $0.06 on
a per share basis. This charge relates to the Company's decision in the prior
year to transition its Nautica business in Europe to licensing or other
arrangements. The charge consists of $2.6 million for the write-down of fixed
assets and $0.6 million in wind-down and lease termination costs.
During the first quarter of fiscal 2004, the Company sold two of the three
properties it was classifying as held for sale located in Rockland, Maine. The
sale resulted in a gain of $1.0 million, and represents a recovery of a portion
of the special charge recognized in the fourth quarter of fiscal 2002 for the
write-down of the distribution facility in Rockland, Maine. In addition, the
remaining property was written down by $1.0 million to properly reflect the
amount the Company expects to realize on the sale of such property. The
aforementioned gain and write-down are netted and reported in special charges in
the Company's consolidated financial statements.
Net royalty income increased by $0.4 million to $2.8 million from $2.4
million in the prior year period. The increase was due primarily to the sales
strength in home products, as well as new licenses for women's swimwear and
beachwear, and the new fragrance, Nautica Competition, during the current year
period.
Investment income decreased by $0.5 million to $0.2 million from $0.7
million in the prior year period. The decrease is due to $0.4 million of income
from short-term investments included in the prior year period. During the fourth
quarter of fiscal 2003, the Company sold its short-term investments due to poor
overall performance.
The provision for income taxes decreased to 37.2% from 37.5% 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 loss for the current year period was $1.6 million compared to $2.6
million in the comparable prior year period as a result of the factors discussed
above. Excluding the special charges discussed above, net earnings for the
current year period would have been $0.4 million.
-13-
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended May 31, 2003, the Company generated cash
from operating activities of $18.2 million, principally from a decrease in
accounts receivable of $24.2 million. Accounts receivable was 15.0% or $9.7
million higher than the prior year period due to a 10.6% or $13.3 million
increase in sales. Inventory was 50.3% or $32.0 million higher than the prior
year period due to a number of factors including: an increase in replenishment
inventory for certain businesses, as it can take six to nine months to produce
the product; the expansion of the Nautica Children's business into more of the
Company's outlet stores; and the receipt of fall product earlier than in the
prior year to support a more timely transition from the summer season.
During the three months ended June 1, 2002, the Company generated cash
from operating activities of $31.1 million, principally from a decrease in
accounts receivable of $25.2 million. Accounts receivable was 26.3% lower than
the same period in the prior year due mainly to the reduction in wholesale
shipments in the current year period. Inventory was $61.3 million or 49.1% 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 three months ended May 31, 2003 and June 1, 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
May 31, 2003 and March 1, 2003, letters of credit outstanding under the lines
were $77.8 million and $46.5 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 May 31, 2003:
(amounts in millions)
Contractual Less than 1 - 3 4 - 5 After
Obligations 1 Year Years Years 5 Years Total
----------- ------ ----- ----- ------- -----
Operating leases $ 18.7 $ 34.6 $ 29.8 $ 60.3 $143.4
Letters of credit 77.8 -- -- -- 77.8
Long-term debt 0.8 1.5 1.5 10.3 14.1
------ ------ ------ ------ ------
$ 97.3 $ 36.1 $ 31.3 $ 70.6 $235.3
====== ====== ====== ====== ======
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.
-14-
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability
be recorded in the guarantor's balance sheet upon issuance of a guarantee. In
addition, FIN 45 requires disclosures about the guarantees that an entity has
issued. The disclosure provisions of FIN 45 are effective for the Company's
first quarter of the year ending February 28, 2004. The adoption of this
pronouncement did not have a material impact on the consolidated financial
statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No.
123." This standard provides alternative methods for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in annual financial statements about the method of
accounting for stock-based employee compensation and the pro forma effect on
reported results of applying the fair value based method for entities that use
the intrinsic value method of accounting. The pro forma effect disclosures are
also required to be prominently disclosed in interim period financial
statements. This statement is effective for financial statements for fiscal
years ending after December 15, 2002 and is effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002, with earlier application permitted. The Company does not plan
a change to the fair value based method of accounting for stock-based employee
compensation and has included the disclosure requirements of SFAS No. 148 in the
accompanying financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement No.
133 on Derivative Instruments and Hedging Activities", which requires certain
contracts to be treated as either derivatives or hybrid instruments, on a
consistent basis. SFAS No. 149 is effective for contracts and hedging
transactions executed or modified after June 30, 2003. The Company is currently
in the process of evaluating the potential impact that this pronouncement will
have on its consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity",
which requires certain financial instruments that were previously presented on
the consolidated balance sheets as equity or temporary equity to be presented as
liabilities. Such instruments include mandatory redeemable preferred and common
stock, and certain options and warrants. SFAS No. 150 is generally effective for
financial instruments entered into or modified after May 31, 2003 and for the
first interim period beginning after June 15, 2003. The Company is currently in
the process of evaluating the potential impact that this pronouncement will have
on its consolidated financial statements.
-15-
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 of
America. 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.
-16-
RECENT EVENTS
On July 7, 2003, the Company, VF Corporation ("VF"), and Voyager
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
VF (the "Merger Subsidiary"), entered into an Agreement and Plan of Merger (the
"Merger Agreement," which agreement is incorporated herein by reference as
Exhibit 2(b)). The Merger Agreement provides, among other things, for the merger
of the Merger Subsidiary with and into the Company (the "Merger"), with the
Company remaining as the surviving corporation (the "Surviving Corporation").
The Merger contemplates that all of the issued and outstanding shares of the
Company (other than shares held as treasury stock or owned by VF or any
subsidiary of VF) will be converted into $17 per share, in cash. VF will also
pay approximately $14.6 million, net of taxes, to cash out the Company's
employee stock options. The Boards of Directors of the Company and VF have
approved the merger. The merger is subject to the Company's stockholder
approval, receipt of government approvals and other customary conditions. The
merger is not conditioned on financing. In connection with the transaction, VF
has obtained commitments from the Company's Chairman and Vice Chairman to vote
all Company shares owned by them in favor of the merger, representing a total of
approximately 10% of the total shares outstanding. The Merger will become
effective at such time as a certificate of merger is duly filed with the
Delaware Secretary of State (or at such later time as may be specified in the
certificate of merger) (the "Effective Time"). From and after the Effective
Time, the Surviving Corporation will possess all the rights, powers, privileges
and franchises and be subject to all of the obligations, liabilities,
restrictions and disabilities of the Company and the Merger Subsidiary, all as
provided under the General Corporation Law of the State of Delaware.
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 as
to the success of the Company's announced merger; the risk that new businesses
of the Company will not be integrated successfully; the risk that the Company
will experience operational difficulties with 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,
political or health conditions in the markets where the Company sells or sources
its products, including with respect to SARS; downturn or generally reduced
shopping activity caused by public safety concerns; risks associated with
consolidations, restructurings 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; 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; risks associated with
the relocation of Earl Jean, Inc.; the risk that the cost of transitioning the
Nautica Europe business to licensing or other key arrangements will be more than
anticipated or that the Company will not be able to negotiate acceptable terms;
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.
ACCESS TO COMPANY REPORTS ON THE INTERNET
Copies of the Company's filings with the Securities and Exchange
Commission (including annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K) are available free of charge in the
investor relations section of the Company's website at www.nautica.com. The
Company's filings are available on the same day they are electronically filed
with the SEC.
-17-
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 $14.1
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. 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 6.32% per annum. The swap
contains a knock-out provision that is activated when the three-month LIBOR rate
is at or 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%.
ITEM 4: CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this Quarterly Report on
Form 10-Q, the Company's management, including the Chief Executive Officer and
Chief Financial Officer, conducted an evaluation (the "Evaluation") of the
effectiveness of the design and operation of its disclosure controls and
procedures, as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934.
The Company's management, including its Chief Executive Officer and Chief
Financial Officer, does not expect that its disclosure controls and procedures
will prevent all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that
the control system's objectives will be met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. The inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Controls can also be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the controls. The design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, controls may
become inadequate because of changes in conditions or deterioration in the
degree of compliance with its policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
Based upon the Evaluation of disclosure controls and procedures, the Chief
Executive Officer and Chief Financial Officer of the Company have concluded
that, subject to the limitations noted above, the Company's disclosure controls
and procedures were effective 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.
There have been no significant changes in internal controls, or in other
factors that could significantly affect internal controls, subsequent to the
date the Chief Executive Officer and the Chief Financial Officer completed their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
-18-
PART II
OTHER INFORMATION
Items 1 through 9. - All items are inapplicable except:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No.
2(a) 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.
2(b) Agreement and Plan of Merger dated as of July 7, 2003 among Nautica
Enterprises, Inc., VF Corporation and Voyager Acquisition
Corporation is incorporated herein by reference to the Registrant's
Current Report on Form 8-K filed on July 8, 2003.
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.
4(i)(b) Amendment No. 1 to Rights Agreement, dated as of June 26, 2003,
between Nautica Enterprises, Inc. and Mellon Investor Services LLC,
as Rights Agent, is incorporated herein by reference to Exhibit 2 to
the Registrant's Current Report on Form 8-K filed on June 26, 2003.
4(i)(c) Amendment No. 2 to Rights Agreement, dated as of July 6, 2003,
between Nautica Enterprises, Inc. and Mellon Investor Services LLC,
as Rights Agent, is incorporated herein by reference to Exhibit 3 to
the Registrant's Current Report on Form 8-K filed on July 7, 2003.
10(iii)(a) Registrant's Executive Incentive Stock Option Plan is incorporated
herein by reference from the Registrant's Registration Statement on
Form S-8 (Registration No. 33-1488), as amended by the Company's
Registration Statement on Form S-8 (Registration No. 33-45823).
-19-
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 No. 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 No. 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.
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) Voting Agreement dated as of July 7, 2003 among VF Corporation,
Voyager Acquisition Corporation, Harvey Sanders, the Harvey Sanders
Grantor Retained Income Trust and David Chu is incorporated herein
by reference to the Registrant's Current Report on Form 8-K filed on
July 8, 2003.
99(b) Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.
99(c) Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K, dated May 1, 2003,
which furnished a press release dated May 1, 2003 announcing the
Company's earnings for the year and quarter ended March 1, 2003.
-20-
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: July 15, 2003
--------------
By: /s/ Wayne A. Marino
--------------------------------
Wayne A. Marino
Chief Financial Officer
(Principal Financial Officer)
Date: July 15, 2003
--------------
-21-
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Harvey Sanders, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nautica Enterprises,
Inc.;
2. Based on my knowledge, this quarterly 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 this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, 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;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) 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 registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) 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 registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers 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.
Date: July 15, 2003
-------------
By: /s/ Harvey Sanders
---------------------------------
Harvey Sanders
Chief Executive Officer
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CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Wayne A. Marino, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nautica Enterprises,
Inc.;
2. Based on my knowledge, this quarterly 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 this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, 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;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) 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 registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) 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 registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers 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.
Date: July 15, 2003
-------------
By: /s/ Wayne A. Marino
---------------------------------
Wayne A. Marino
Chief Financial Officer
(Principal Financial Officer)
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