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 November 30, 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 / /
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
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 January 10, 2003 was
33,604,350.
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOVEMBER 30, 2002
(unaudited)
INDEX
Page No.
--------
Part I - Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets As at November 30, 2002
(unaudited) and March 2, 2002 2
Condensed Consolidated Statements of Earnings
For the Nine and Three Month Periods Ended
November 30, 2002 and December 1, 2001 (unaudited) 3
Condensed Consolidated Statements of Cash Flows
For the Nine Month Periods Ended
November 30, 2002 and December 1, 2001 (unaudited) 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 18
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 21
Certifications 22
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
ASSETS (unaudited)
November 30, 2002 March 2, 2002
----------------- -------------
Current assets:
Cash and cash equivalents $ 54,673 $ 45,814
Short-term investments 6,194 6,350
Accounts receivable - net 110,067 89,736
Inventories 91,862 66,443
Prepaid expenses and other current assets 7,407 5,599
Deferred tax benefit 18,702 18,912
Assets held for sale 2,842 2,842
--------- ---------
Total current assets 291,747 235,696
Property, plant and equipment, at cost -
less accumulated depreciation and amortization 100,007 111,327
Goodwill, at cost 31,328 31,328
Intangibles, at cost - less accumulated amortization 35,130 35,489
Other assets 8,794 8,230
--------- ---------
Total Assets $ 467,006 $ 422,070
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 754 $ 754
Accounts payable - trade 39,513 30,402
Accrued expenses and other current liabilities 61,305 44,037
Income taxes payable 10,738 9,289
--------- ---------
Total current liabilities 112,310 84,482
Long-term liabilities:
Long-term debt - net 13,756 14,321
Interest rate swap liability 1,386 687
--------- ---------
Total long-term liabilities 15,142 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 November 30, 2002 and 44,718,000 shares at
March 2, 2002 4,513 4,472
Additional paid-in capital 95,300 93,546
Retained earnings 400,484 385,407
Accumulated other comprehensive (loss) - net of
deferred tax benefit of $921 at November 30, 2002
and $1,132 at March 2, 2002 (1,535) (1,862)
--------- ---------
498,762 481,563
Less:
Common stock in treasury, at cost;
11,523,000 shares at November 30, 2002
and 11,498,000 shares at March 2, 2002 (159,208) (158,983)
--------- ---------
Total stockholders' equity 339,554 322,580
--------- ---------
Total Liabilities and Stockholders' Equity $ 467,006 $ 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)
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
November 30, 2002 December 1, 2001 November 30, 2002 December 1, 2001
----------------- ----------------- ----------------- ----------------
Net sales $ 515,222 $ 535,486 $ 207,089 $ 201,040
Cost of goods sold 293,385 313,544 120,959 119,865
------------ ------------ ------------ ------------
Gross profit 221,837 221,942 86,130 81,175
Selling, general and administrative expenses 190,103 186,396 66,088 60,761
Special charges 13,694 -- 10,338 --
Net royalty income (6,990) (6,244) (2,534) (2,042)
------------ ------------ ------------ ------------
Operating profit 25,030 41,790 12,238 22,456
Interest expense 1,322 1,510 391 674
Investment (income) loss (416) (964) 212 (58)
------------ ------------ ------------ ------------
Earnings before provision for income taxes 24,124 41,244 11,635 21,840
Provision for income taxes 9,047 15,590 4,364 8,255
------------ ------------ ------------ ------------
NET EARNINGS $ 15,077 $ 25,654 $ 7,271 $ 13,585
============ ============ ============ ============
Net earnings per share of common stock:
Basic $ 0.45 $ 0.78 $ 0.22 $ 0.41
============ ============ ============ ============
Diluted $ 0.44 $ 0.75 $ 0.21 $ 0.40
============ ============ ============ ============
Weighted average number of
common shares outstanding:
Basic 33,555,000 32,864,000 33,613,000 33,173,000
============ ============ ============ ============
Diluted 34,359,000 34,304,000 34,136,000 34,157,000
============ ============ ============ ============
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)
Nine Months Nine Months
Ended Ended
November 30, 2002 December 1, 2001
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 15,077 $ 25,654
-------- --------
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 19,741 21,258
Provision for bad debts 1,357 5,184
Mark to market swap adjustment 528 --
Loss on impairment of long-lived assets 10,338 --
Changes in operating assets and liabilities, net of assets
and liabilities acquired
Short-term investments 156 (528)
Accounts receivable (21,688) (14,674)
Inventories (25,419) 17,025
Prepaid expenses and other current assets (1,808) 1,471
Other assets (627) (1,633)
Accounts payable - trade 9,111 (16,703)
Accrued expenses and other current liabilities 17,975 (868)
Income taxes payable 1,449 3,677
-------- --------
Total adjustments 11,113 14,209
-------- --------
Net cash provided by operating activities 26,190 39,863
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (18,336) (39,967)
Acquisitions, net of cash acquired -- (55,282)
-------- --------
Net cash used in investing activities (18,336) (95,249)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt -- 15,075
Proceeds from notes payable -- 30,000
Principal payments on long-term debt (565) --
Proceeds from issuance of common stock 1,795 2,043
Purchase of treasury stock (225) --
-------- --------
Net cash provided by financing activities 1,005 47,118
-------- --------
Increase (decrease) in cash and cash equivalents 8,859 (8,268)
Cash and cash equivalents at beginning of period 45,814 36,674
-------- --------
Cash and cash equivalents at end of period $ 54,673 $ 28,406
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 798 $ 1,431
======== ========
Cash paid during the period for income taxes $ 7,530 $ 12,042
======== ========
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 NOVEMBER 30, 2002 AND DECEMBER 1, 2001
(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 nine-month period ended
November 30, 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 November 30,
2002.
NOTE 4 - The Company utilized the last-in, first-out "LIFO" method
for certain wholesale inventories as at November 30, 2002 and
March 2, 2002 and for the nine and three-month periods ended
November 30, 2002 and December 1, 2001. The "LIFO" inventory for
the nine and three-month periods ended November 30, 2002 and
December 1, 2001 are based upon end of year estimates.
Inventories at November 30, 2002 and March 2, 2002 consist
primarily of finished goods.
NOTE 5 - As of November 30, 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 November 30, 2002 and March 2, 2002,
letters of credit outstanding under the lines were $66,332 and
$33,805, respectively, and 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 803,400 and 1,440,400 during the nine months ended
and 523,700 and 984,200 during the three months ended November
30, 2002 and December 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 2,043,900 and
2,179,600 during the nine months ended and 3,314,400 and
2,635,100 during the three months ended November 30, 2002 and
December 1, 2001, respectively.
-5-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED NOVEMBER 30, 2002 AND DECEMBER 1, 2001
(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 NINE MONTHS ENDED
NOVEMBER 30, 2002
Net sales $387,743 $127,479 $ -- $ -- $515,222
Segment operating profit 29,257 1,916 6,987 (13,130) 25,030
(loss)
Segment assets 317,580 53,892 6,253 89,281 467,006
Depreciation expense 15,093 2,283 88 1,854 19,318
Capital expenditures 14,144 3,372 -- 820 18,336
FOR THE NINE MONTHS ENDED
DECEMBER 1, 2001
Net sales $406,977 $128,509 $ -- $ -- $535,486
Segment operating profit 30,453 12,384 6,243 (7,290) 41,790
(loss)
Segment assets 320,865 69,784 9,084 62,997 462,730
Depreciation expense 15,015 1,919 321 1,537 18,792
Capital expenditures 27,797 9,961 -- 2,209 39,967
All Corporate/
Wholesale Retail other eliminations Totals
--------- ------ ----- ------------ ------
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2002
Net sales $158,689 $ 48,400 $ -- $ -- $207,089
Segment operating profit 17,239 (4,744) 2,531 (2,788) 12,238
(loss)
Segment assets 317,580 53,892 6,253 89,281 467,006
Depreciation expense 5,647 804 (124) 705 7,032
Capital expenditures 4,952 630 -- 376 5,958
FOR THE THREE MONTHS ENDED
DECEMBER 1, 2001
Net sales $152,786 $ 48,254 $ -- $ -- $201,040
Segment operating profit 17,977 4,755 2,042 (2,318) 22,456
(loss)
Segment assets 320,865 69,784 9,084 62,997 462,730
Depreciation expense 4,900 705 106 515 6,226
Capital expenditures 7,536 3,075 -- 291 10,902
-6-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED NOVEMBER 30, 2002 AND DECEMBER 1, 2001
(unaudited)
(amounts in thousands, except share data)
Net sales from external customers represent sales in the
United States, except for foreign sales of $6,338 and $6,384 for
the nine months ended November 30, 2002 and December 1, 2001,
respectively.
Long-lived assets in foreign countries were $3,375 and
$4,105 for the periods ended November 30, 2002 and December 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,
deferred taxes and corporate fixed assets at November 30, 2002
and December 1, 2001. The segment operating profit (loss) in the
Corporate/eliminations column consists of corporate overhead
expenses and special charges associated with the closure of the
Rockland, Maine distribution facility (see Note 12) for the nine
months ended November 30, 2002 and corporate overhead expenses
for the nine months ended December 1, 2001. The special charge
associated with the write-down of the fixed assets of the
Company's Rockefeller Plaza store (see Note 13) is reflected in
the operating profit (loss) of the Retail column.
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 $17,600 at
November 1, 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
agreement provides that the Company pay 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 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 1.42% at November 30, 2002. 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
-7-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED NOVEMBER 30, 2002 AND DECEMBER 1, 2001
(unaudited)
(amounts in thousands, except share data)
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 $528
for the nine months ended November 30, 2002.
The amount of long-term debt maturing in each of the next
five fiscal years is as follows:
Fiscal Year Ended
-----------------
2003 $ 189
2004 754
2005 754
2006 754
2007 754
Thereafter 11,305
-----------
14,510
Less current
maturities (754)
-----------
Total $ 13,756
===========
NOTE 9 - For the nine and three months ended November 30, 2002,
comprehensive income (loss) was as follows:
(unaudited)
Nine Months Three Months
Ended Ended
November 30, 2002 November 30, 2002
----------------- -----------------
Net earnings $ 15,077 $ 7,271
Other comprehensive income (loss), net of
taxes:
Foreign currency translation adjustments 435 41
Unrealized loss on interest rate swap (109) --
-------- --------
Comprehensive income $ 15,403 $ 7,312
======== ========
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.
-8-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED NOVEMBER 30, 2002 AND DECEMBER 1, 2001
(unaudited)
(amounts in thousands, except share data)
The components of other intangible assets are as follows:
(unaudited)
November 30, 2002 March 2, 2002
------------------------ -----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- ------------
Amortized Intangible Assets
Trademarks $ 2,360 $ 1,291 $ 2,327 $ 1,063
Other intangibles 956 422 956 258
------- ------- ------- -------
3,316 1,713 3,283 1,321
Unamortized trademarks 33,527 -- 33,527 --
------- ------- ------- -------
$36,843 $ 1,713 $36,810 $ 1,321
======= ======= ======= =======
Amortization expense for intangible assets subject to
amortization in each of the next five fiscal years is estimated
to be $140 in 2003, $527 in 2004, $527 in 2005, $333 in 2006 and
$12 in 2007.
The following presents a comparison of net earnings and
earnings per share for the nine and three months ended November
30, 2002 to the respective adjusted amounts for the nine and
three months ended December 1, 2001 that would have been reported
had SFAS No. 142 been in effect during the prior year:
(unaudited) (unaudited)
Nine Months Three Months
Ended Ended
November 30, December 1, November 30, December 1,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Reported net earnings $ 15,077 $ 25,654 $ 7,271 $ 13,585
Goodwill amortization -- 712 -- 283
Intangible assets amortization -- 634 -- 272
---------- ---------- ---------- ----------
Adjusted net earnings $ 15,077 $ 27,000 $ 7,271 $ 14,140
========== ========== ========== ==========
Net earnings per share -
basic
Reported net earnings $ 0.45 $ 0.78 $ 0.22 $ 0.41
Goodwill amortization -- 0.02 -- 0.01
Intangible assets amortization -- 0.02 -- 0.01
---------- ---------- ---------- ----------
Adjusted net earnings per
share - basic $ 0.45 $ 0.82 $ 0.22 $ 0.43
========== ========== ========== ==========
Net earnings per share -
diluted
Reported net earnings $ 0.44 $ 0.75 $ 0.21 $ 0.40
Goodwill amortization -- 0.02 -- 0.01
Intangible assets amortization -- 0.02 -- 0.01
---------- ---------- ---------- ----------
Adjusted net earnings per
share - diluted $ 0.44 $ 0.79 $ 0.21 $ 0.42
========== ========== ========== ==========
-9-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED NOVEMBER 30, 2002 AND DECEMBER 1, 2001
(unaudited)
(amounts in thousands, except share data)
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 November 30, 2002 were as follows:
SEVERANCE
ASSET WIND AND
WRITE DOWN TERMINATION
DOWN COSTS BENEFITS TOTALS
---- ----- -------- ------
Fiscal Year 2002 Provision $ 7,870 $ 868 $ 1,065 $ 9,803
Fiscal Year 2002 Activity (7,870) -- -- (7,870)
------- ------- ------- -------
Balance at March 2, 2002 -- 868 1,065 1,933
Fiscal Year 2003 Provision -- -- 3,356 3,356
Fiscal Year 2003 Activity -- (313) (2,434) (2,747)
------- ------- ------- -------
Balance at November 30, 2002 $ -- $ 555 $ 1,987 $ 2,542
======= ======= ======= =======
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 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.
During the third quarter of the current 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 special non-cash,
pre-tax charge in connection with this write-down of $10,338.
-10-
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE PERIODS ENDED NOVEMBER 30, 2002 AND DECEMBER 1, 2001
(unaudited)
(amounts in thousands, except share data)
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.
-11-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (unaudited)
RESULTS OF OPERATIONS
For the Nine Months Ended November 30, 2002:
Net sales decreased 3.8% to $515.2 million in the nine months ended
November 30, 2002 from $535.5 million in the comparable prior year period. The
reported sales reflect a 4.7% decrease in the Wholesale segment to $387.7
million from $407.0 million and a 0.8% decrease in the Retail segment to $127.5
million from $128.5 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, Men's and Ladies
Furnishings, as well as contributions from newer businesses including Earl Jean
and Nautica Men's Underwear. The slight decrease in Retail segment sales was a
result of same store sales being down mid-single digits from the comparable
prior year period due to 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 two new full-priced stores opened
since the third quarter of last year.
Gross profit, as a percentage of sales, was 43.1%, compared to 41.4% in
the comparable prior year period. The increase is due primarily to the Company's
inventory management initiatives and improved sourcing in the Nautica
Children's, Nautica Men's Jeans and Nautica Furnishings businesses. These
increases were offset in part by a decrease in the Company's core sportswear
business as a result of increased promotional activity in department stores.
Selling, general and administrative expenses ("SG&A") increased by $3.7
million to $190.1 million in fiscal 2003 from $186.4 million in fiscal 2002.
SG&A, as a percentage of net sales, increased to 36.9% in fiscal 2003 from 34.8%
in fiscal 2002. The increase as a percentage of net sales is due primarily 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 and through new John Varvatos retail stores.
In addition, the Company incurred a full nine months of expenses from the Earl
Jean business in the current period compared to only seven months in the 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
$11.6 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.
During the third quarter of fiscal 2003, the Company recorded a pre-tax
special charge of $10.3 million ($6.5 million on an after tax basis) or $0.19
per diluted share. Based on the current performance and anticipated outlook of
the Company's Rockefeller Plaza store, the fixed assets were deemed to be
impaired in accordance with SFAS No. 144.
Net royalty income increased by $0.8 million to $7.0 million from $6.2
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 $0.6 million to $0.4 million from $1.0
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.
-12-
Net earnings for the current year period was $15.1 million compared to
$25.7 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 $23.6 million.
For the Three Months Ended November 30, 2002:
Net sales increased 3.0% to $207.1 million in the three months ended
November 30, 2002 from $201.0 million in the comparable prior year period. The
reported sales reflect a 3.9% increase in the Wholesale segment to $158.7
million from $152.8 million and a 0.3% increase in the Retail segment to $48.4
million from $48.3 million. The increase in the Wholesale segment was due
primarily to increases in Nautica Men's and Women's Jeans, Men's and Ladies
Furnishings as well as contributions from newer businesses including Earl Jean
and Nautica Men's Underwear, offset in part, by a decrease in the Company's core
sportswear business. The slight increase in Retail segment sales is primarily a
result of sales from two new full-priced stores offset by a mid-single digit
decline in same store sales compared to the third quarter of the prior fiscal
year.
Gross profit, as a percentage of sales, was 41.6%, compared to 40.4% in
the comparable prior year period. The increase is due primarily to the Company's
inventory management initiatives and improved sourcing in the Nautica
Children's, Nautica Men's Jeans and Nautica Furnishings businesses. These
increases were offset in part by a decrease in the Company's core sportswear
business as a result of increased promotional activity in department stores.
SG&A increased by $5.3 million to $66.1 million in fiscal 2003 from
$60.8 million in fiscal 2002. SG&A, as a percentage of net sales, increased to
31.9% in fiscal 2003 from 30.2% in fiscal 2002. Increases in SG&A were due
primarily 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 and through new John Varvatos retail
stores.
During the third quarter of fiscal 2003, the Company recorded a pre-tax
special charge of $10.3 million ($6.5 million on an after tax basis) or $0.19
per diluted share. Based on the current performance and anticipated outlook of
the Company's Rockefeller Plaza store, the fixed assets were deemed to be
impaired in accordance with SFAS No. 144.
Net royalty income increased by $0.5 million to $2.5 million from $2.0
million in the prior year period. The increase was due primarily to the sales
strength in home products during the current year period.
Investment income decreased by $0.3 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 $7.3 million compared to
$13.6 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 $13.7 million.
-13-
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended November 30, 2002, the Company generated
cash from operating activities of $26.2 million, principally from net earnings.
Accounts receivable and inventory for such nine-month period increased $21.7
million and $25.4 million, respectively, and were financed principally by cash
generated from net earnings and increases in accounts payable and accrued
expenses. Accounts receivable was $8.7 million or 7.3% lower on November 30,
2002 compared to December 1, 2001 due to a decrease in sales for the period, as
well as credits posted earlier in the current year period than in the prior year
period. Inventory was essentially flat on November 30, 2002 compared to December
1, 2001. The Company continues to better manage the timing of receipts with
customer demand and has reduced its offerings of replenishment styles.
During the nine months ended December 1, 2001, the Company generated
cash from operating activities of $39.9 million, principally from net earnings.
Accounts receivable for such nine-month period increased $14.7 million and were
financed principally by cash generated from net earnings and an increase in
short-term borrowings. Accounts receivable were 29.4% higher on December 1, 2001
compared to December 2, 2000 due mainly to the increase in wholesale sales and
the timing of shipments, with a higher percentage occurring in the last part of
the quarter. Inventory for the nine-month period decreased $17.0 million due
mainly to sales of excess inventory through the retail outlets and the Company's
efforts to better manage the timing of receipts with demand and to reduce its
replenishment excess. Inventory was $5.0 million or 5.2% lower on December 1,
2001 compared to December 2, 2000 due to these same reasons.
During the nine months ended November 30, 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
November 30, 2002 and March 2, 2002, letters of credit outstanding under the
lines were $66.3 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 November 30, 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 $ 58.8 $137.8
Letters of credit 66.3 -- -- -- 66.3
Long-term debt 0.8 1.5 1.5 10.7 14.5
------ ------ ------ ------ ------
$ 84.4 $ 33.9 $ 30.8 $ 69.5 $218.6
====== ====== ====== ====== ======
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.
-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.
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 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. During the third quarter of the current 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
special non-cash, pre-tax charge in connection with this write-down of $10,338.
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.
-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-
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 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 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 $14.5
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 agreement provides that the Company pay 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 is
at or 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 1.42% at November 30, 2002. The net interest paid or received
under this agreement is included in interest expense.
-17-
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 Rules 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.
-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.
-----------
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.
-19-
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
-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: January 10, 2003
------------------
By: s/ Wayne A. Marino
------------------------------------
Wayne A. Marino
Chief Financial Officer
(Principal Financial Officer)
Date: January 10, 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 function):
(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 issuer'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.
By: s/ Harvey Sanders
------------------------------
Harvey Sanders
Chief Executive Officer
Date: January 10, 2003
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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 function):
(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 issuer'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.
By: s/ Wayne A. Marino
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Wayne A. Marino
Chief Financial Officer
(Principal Financial Officer)
Date: January 10, 2003
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